Introduction

ASEAN integration offers significant gains to all members. It allows them to capture the gains from interactions with other countries both within ASEAN and with the rest of the world so as to facilitate faster economic growth and improve living standards. The gains include those from freer trade in goods and services, from more open capital flows and from transfers in technology.

Increasing economic integration with other ASEAN countries and with the world brings these benefits, but it also involves more competition and change. For example:

1. • Market shares are continually evolving, and new suppliers continue to emerge in the home market and in third-country markets. China and its impact on world markets is the most recent startling example, but the same processes are at work within ASEAN as well.

2. • Not only does competitiveness in traditional products change, but also new products emerge. The finer division of production processes, the greater complexity in global supply chains and the growth of trade in components in the region are examples.

3. • There are new ways of organizing business and new forms of international business. The rise in significance of trade in services in its own right and as a complement to other forms of international business is an example.

4. • Foreign direct investment (FDI) has always been a critical part of the business-led integration of economies in East Asia. Businesses losing competitiveness in higher income countries have relocated offshore. Now new investors are emerging, and new partnership possibilities are developing. Examples are related to the growing flows of FDI from India and from China.

These changes are all sources of benefit, but the willingness of a community to open their economy demands a level of confidence about the ability to adjust to them. The importance of this confidence and its impact on the process of integration are key issues in capturing the gains from integration. We comment on the connections between community confidence, policy reform and economic integration below.