INTRODUCTION

Burma Is in Economic Crisis

For long-time observers of the country a statement such as the above would hardly come as a surprise. Indeed, it would be regarded as little more than commonplace, and just one of the given “facts” about Burma to be absorbed as background on the way to focusing upon other things.

But Burma's economy in 2009 and 2010 is not just the serial underperformer and outlier in a region that, despite its ups and downs, is otherwise a poster-child of purpose-driven economic development. Burma's economy in 2009 and 2010 is also not one that, notwithstanding decades of extraordinary mismanagement at the hands of its military leaders, is any longer able to rely upon its abundant natural resources and alluvial dowry to protect its people from widespread food insecurity. Burma's economy in 2009 is in extremis.

There are many causes of Burma's economic crisis, most of which have a common root in the incompetence and wilful indifference of the country's policymakers. Natural disasters and global crises exacerbate Burma's economic problems, yet they are but injuries to a body rotting from the inside. Failure to acknowledge this central fact would be to misdiagnose Burma's problems and, in a sympathetic search for remedy, risk exacerbating a situation already at the verge of the intractable.

Arguably looming above all of Burma's economic problems, however, is a chronic lack of financial capital. This deficiency is apparent at all levels and sectors of Burma's economy, but is at its most critical in agriculture and in rural areas generally — the source from which most of Burma's population attempt to derive their livelihoods. Burma's agriculture sector is now almost devoid of new and affordable credit, while the cash economy is collapsing under the weight of the chronic indebtedness of the cultivator, and the absence of wage employment. This situation is most apparent in those areas of Burma that were devastated by Cyclone Nargis in 2008, but it is likewise perceptible just about everywhere else in the country.

INTRODUCTION

There is no significant rural–urban migration in Myanmar. This is mainly because full-scale industrialization was not implemented during the twenty-five years of the socialist regime or even after the twenty years of economic transition. The country's economic structure has barely changed over the past forty-five years and the capacity of the urban sector (industry as well as service) to absorb labour remains inadequate.

Nevertheless, limited rural–urban migration does not signify that rural Myanmar is static, with no population movement. We consider the following two population flows as being prominent since the start of economic transition in the late 1980s.

One is overseas emigration, which is rapidly increasing. The number of Myanmar migrants working on fishing boats, in factories, and at construction sites in Thailand has increased dramatically since around the mid-1990s (Bradford and Vicary 2005). Many Myanmar labourers are also working at ports and in factories in Malaysia. Even though the majority are fully aware of the severe working conditions in the destination countries, there is no end to the people who wish to migrate and are willing to pay exorbitant fees to migration brokers.

The other population flow is intra-rural migration. Previous research on domestic migration from an economic standpoint is limited, with the exception of a study by Takahashi (1997). Takahashi conducted a field survey in 1993–95 and found that 20 per cent of the village population had been replaced. His study found, first, that the major class of people migrating were non-farmers, especially agricultural labourers who did not own any farmland or other assets. As pointed out in many studies, there is a large pool of agricultural labourers in rural Myanmar (Takahashi 2000; Fujita 2009; Okamoto 2008a), and they constitute the floating population. Second, it found that there was not much change in their occupation after their move. For example, agricultural seasonal labourers tended to also engage in seasonal labour in their new place of employment. Furthermore, the destination area was mostly confined to within the same township in which they lived. In other words, the migrants’ reason for moving was not necessarily to gain a larger income under a completely different economic environment. In this sense, their move could not contribute much to increasing the total household income. What is more important here is stability of livelihood or the minimization of fluctuations in household income throughout the year.

This penultimate section of the report surveys the evidence from studies of the economic effects of ANZCERTA.

Approaches to Assessing FTA Effects

Most studies of the economic effects of ANZCERTA have focused on its impact on trade, typically the impact on merchandise trade, usually with a view to deriving estimates, or more commonly inferences, as to its impact on the overall economic welfare of the partners. As with all analyses of FTAs and other forms of preferential trade agreement, the analysis of the economic effects of ANZCERTA has typically focused on the relative strength of trade creation and trade diversion effects, as the first step towards reaching conclusions regarding overall welfare effects.

The removal of tariffs (and other trade barriers) on trade between the FTA members allows each member's goods to be sold in its partner's market at a lower price than previously. Some products that were uncompetitive in the partner market when they were subject to the partner country's tariff will become competitive when that tariff is removed under the FTA, giving rise to increased intra-FTA trade in the form of imports by the partner country of these products that are newly competitive in its market.

The increased intra-FTA trade can be divided into three parts. One part simply involves the replacement of imports from previous foreign suppliers (who would remain the most competitive suppliers of imports if the tariff continued to be applied to products from all sources). This is trade diversion. A second part involves the replacement of less efficient domestic production in the partner by the more competitive imports from the other FTA member, while the third part reflects the increased overall purchasing by consumers in response to the lower prices. Trade creation is the combination of these latter two parts: it is the amount of increased intra-FTA trade that does not simply consist of trade diversion.

Trade creation (sometimes described, more precisely, as net trade creation) yields a welfare gain to the importing member, the size of which depends both on the amount of trade created, and on the extent of the price fall in the domestic market of the importing member, brought about by the entry of duty-free imports from the partner.

Given the degree of economic integration achieved between Australia and New Zealand, it is perhaps natural that the possibility of a monetary union between Australia and New Zealand should have been considered. Interest in this issue has been confined almost entirely to New Zealand. Little interest has been evident in Australia, perhaps because of the assumption that monetary union would necessarily involve the adoption by New Zealand of the Australian currency, and that the associated adjustment issues would be primarily a matter for consideration by New Zealand rather than Australia.

In New Zealand a substantial report on the issue was produced in 2000 (Grimes et al. 2000), and there have been a number of further publications dealing with the issue both by Grimes and by economists at New Zealand's Reserve Bank (see, for example, Grimes 2005, Bjorksten 2001, and Hunt 2005). This literature is reviewed by Lloyd and Song (2006). Essentially two possibilities have been under consideration: dollarization, whereby the New Zealand Government unilaterally adopts the Australian dollar as its currency, and a formal monetary government, whereby the two governments would jointly adopt a single currency with a single central bank and monetary policy. In the latter case it is typically assumed that the single currency would in practice be the Australian dollar and that the Australian central bank would assume the role of central bank for both countries.

In summarizing research on the issue, Lloyd and Song (2006) note that analysis has generally concluded that neither the benefits nor the costs of monetary union are likely to be large for New Zealand, although Grimes et al. (2000) did mount a case for the adoption by New Zealand of the Australian dollar as its currency (with the US dollar as a possible alternative). One Australian study of the issue, by Crosby and Otto (2002), concluded that monetary union is not in Australia's interest. Politicians have generally been cautious in discussing the issue, perhaps mindful of nationalistic sentiment in both countries.

Economic integration between Australia and New Zealand, with ANZCERTA as its central instrument, is today widely regarded as a success story. Tariffs and quantitative restrictions on bilateral trade in goods have been completely removed, trade in services between the two countries has been liberalized to a very large extent, and the citizens of both countries have long enjoyed the right to visit and work in each other's country without restriction. The absence of formal provisions for the liberalization of bilateral investment flows is usually qualified by nothing that the basically open foreign investment policies of both countries facilitate a relatively free flow of investment between them, to the extent that Australia is the largest source of foreign direct investment into New Zealand, and New Zealand is the sixth largest source of foreign direct investment into Australia.

A single government procurement market has been established across the two countries. There has been very substantial progress in the harmonization or mutual recognition of standards and occupational qualifications. Customs procedures have been streamlined between the two countries. There is a substantial degree of cooperation on biosecurity matters. Anti-dumping actions on trade between the two countries have been abolished. There has been some degree of harmonization of competition law, and further harmonization of business law is being actively pursued.

Since 2004 both countries have been committed to the progressive establishment of a Single Economic Market (SEM).

The process of integration, stretching for just over forty years, with ANZCERTA having been in force for twenty-six of those years, has, however, been far from smooth and automatic. There were many hesitations and difficulties during the early years of the process, and it is only in the last twenty years that momentum towards economic integration could be said to have been continuously sustained. Even over this latter period there has been a degree of selectivity in the issues that the two governments have chosen to address as part of the economic integration agenda, and there have been variations over time in the pace at which the overall integration agenda, and individual issues within that agenda, have been pursued.

Consistent with the desire to make a fresh start, ANZCERTA was a “negative list” agreement, in contrast to the “positive list” approach of its predecessor agreement. In its initial form, however, ANZCERTA was a cautious, even timid agreement. This was a reflection of the very strong opposition faced by both governments to the lowering of manufacturing protection, especially in New Zealand. The “negative list” consisted of a large number of manufactured products subject to “modified arrangements”. In some cases the modification was designed to accommodate industry plans in one or both countries, either by lengthening the timetable for phasing out trade restrictions on the products concerned or by deferring the commencement of the phasing out of trade restrictions until an industry plan could be finalized. In other cases exceptions were made to allow the continuation of existing support schemes and trade restrictions. Special arrangements for some sensitive agricultural products (dairy products, wheat, sugar and tobacco) in effect constituted forms of “managed trade”.

For products not subject to the “modified arrangements”, tariffs were to be phased out over a five-year period ending in 1988, while quantitative restrictions (that is, restrictions imposed by New Zealand's import licensing system) were to be phased out over a twelve-year period, with special ldquo;Australia only” import licenses to be made available in annually increasing levels in order to permit progressive increases in the level of imports from Australia. Export incentives applying to bilateral trade were to be phased out by 1987. No attempt was made to create a customs union. There were significant differences in the tariff structures of the two countries at this time. For example, New Zealand typically allowed duty-free and quota-free entry of intermediate goods used as inputs in its manufacturing industries, ostensibly with the aim of promoting efficient manufacture in those industries, and apparently in blissful ignorance of the very high resulting rates of effective protection, with their obvious implications of very inefficient resource use. Australia, on the other hand, was concerned about promoting the domestic production of intermediate as well as finished goods, applied protective tariffs to imports of some intermediate as well as finished goods.

These decisive steps emerged as the outcome of the first major scheduled review of ANZCERTA in 1988, and were driven in large measure by the political direction provided by the two prime ministers of the day.

Trade in Goods

Agreement was reached to accelerate dramatically the liberalization of goods trade, so that remaining tariffs and quantitative restrictions on all goods traded between the two countries, including those hitherto subject to “modified arrangements”, were eliminated by 1990. A partial solution was agreed to New Zealand's concern over Australian “bounties”, whereby “bounties” would not be paid to Australian manufacturers on exports to New Zealand, although New Zealand exporters to Australia continued to suffer from the effect of the “bounties” in offsetting their preferential access to the Australian market.

A number of new measures or initiatives designed to facilitate further free trade in goods were also agreed at this time. A Memorandum of Understanding on Technical Barriers to Trade, a Protocol on Harmonization of Quarantine Administrative Procedures, and a Joint Understanding on Harmonization of Customs Policies and Procedures launched work programmes that would progressively deepen cooperation and harmonization in each of these areas.

Elimination of Anti-Dumping — First Steps on Competition and Business Law

A ground breaking development was the agreement to eliminate anti-dumping actions on trade between the two countries. Issues relating to fairness in trade would be addressed instead by the extension of competition law provisions in each country prohibiting abuses of market power to cover abuses that affect trans-Tasman trade in goods. In order to give effect to this agreement changes were made to the relevant legislation in each country, including provision for the courts in each country to hear evidence relating to contraventions of these prohibitions in the other jurisdiction. Also in 1988 the two governments concluded a Memorandum of Understanding on Harmonization of Business Law, committing themselves to work towards identifying and pursuing potential areas for harmonization in this field.

This concluding section of the report briefly highlights some of the distinctive features of the process of economic integration between Australia and New Zealand, before going on to consider possible lessons for ASEAN.

In economic integration initiatives there is generally some combination of historical, geographical, political, institutional, and social factors that predisposes the participating countries towards integrating with each other and/or that facilitate the process of integration once it has begun. In the case of Australia and New Zealand these factors have included:

1. • Shared historical experiences and long-standing culturalties;

2. • A sense of common geographical and political positioning within the wider surrounding region;

3. • Similarities in legal systems and regulatory approaches;

4. • Pre-existing labour mobility between the two countries; and

5. • Existence of federal/state institutional arrangements in Australia that could be extended relatively easily to New Zealand (covering, for example, government purchasing and mutual recognition).

Despite the factors favouring integration, progress has not been automatic. Significant initial difficulties had to be overcome before a “breakthrough” was achieved that firmly established the commitment to integration on both sides. The early “breakthrough” has been followed by alternating “progressive” and “flat” periods in the integration process.

The following are tentatively put forward as possible lessons for ASEAN from the ANZCERTA experience.

1. Strong political support at the leadership level has been vitally important in sustaining the momentum of the integration process. This has been especially true in propelling the process across important thresholds, such as the “breakthrough” represented by the 1988 Review, and subsequent periods of transition from “flat” to “progressive” periods in the process.

2. The pursuit in both countries of wide-ranging economic reform agendas, including strong commitments to unilateral trade liberalization, facilitated political acceptance of individual integration initiatives, which could often be presented as natural extensions of the domestic reform process.

3. The periodic setting by leaders of objectives for the integration process has been important. Objectives were specified in broad terms rather than as detailed “blueprints” and were accompanied by the establishment of processes of consultation, dialogue, review, and joint study that helped to sustain the momentum of the process in the succeeding years.

The period since the early 1990s has seen the further formalization and deepening of economic integration between the two countries across the broad range of issues covered in the integration framework that had been established at the end of the preceding decade. Much of this progress involved programmes and processes developed to give effect to the commitments to further cooperation arising from understandings reached in the 1988 review and its immediate aftermath. In other cases the governments responded to newly emerging problems or to pressure from the business communities in one or both countries.

The level of priority given by the two governments to trans-Tasman economic integration tended to vary over time. Lloyd (1995) notes that some variation in the prioritization of issues was related to domestic politics in each country. He also notes that pressure for further deepening of integration tended to emanate more from the New Zealand side, whereas the Australian Government was more inclined to be content with the level of integration already achieved. He relates this to the obvious fact that the relationship is of much greater relative importance to New Zealand than to Australia, so that New Zealand would generally tend to see greater gains from further integration. Against this background the maintenance of momentum owed much to the intensive programme of regular meetings established between various groups of officials and ministers to give effect to the understandings reached between the two governments, as well as the formal reviews of ANZCERTA which took place, for example, in 1992 and 1995.

Trade in Goods: Rules of Origin

Difficulties with the ANZCERTA rules of origin, especially on the New Zealand side, were a frequent subject for discussion. As a result the rules were modified in ways designed to provide some additional flexibility, but the 50 per cent RVC requirement remained the basis of the rules. Inability to reach agreement on a substantial lowering of the RVC requirement was said to be a contributing factor to the closure of the New Zealand motor vehicle assembly industry in 1998 (Scollay et al. 1998).

The ASEAN Studies Centre at the Institute of Southeast Asian Studies (ISEAS) has been casting an analytical eye on regional, intergovernmental associations elsewhere in the world. It has published a study on the Common Market of the South (MERCOSUR) made up of Argentina, Brazil, Paraguay, and Uruguay. The North American Free Trade Agreement, as well as the Association of Southeast Asian Nations, was a central focus of the ASEAN-Canada Forum that the Centre, with the support of the International Development Research Centre (IDRC), organized at ISEAS in November 2008. A summary of the proceedings of the forum and the papers presented at it have been published in hard copy and posted online on www.iseas.edu.sg/aseanstudiescentre. The Centre has commissioned a study on the Gulf Cooperation Council, and intends to commission one on the European Union.

These studies have several purposes. One is to satisfy our and other's curiosity about what is going on in other regions by way of regional association and cooperation. What are they doing that ASEAN can, but does not? What is ASEAN doing that they can, but do not? What can ASEAN learn from them, if anything? What can they learn from ASEAN, if anything? What are they really all about? What is their nature? What are their stated ambitions and their real purposes? What are their achievements thus far? Their failures? What in their histories and the characters of their peoples explain these? What are the political and social impulses that account for their successes — and shortfalls?

There is a more immediate, more pragmatic purpose to these studies. It is to be of use, in terms of background knowledge, to viii Foreword policymakers and negotiators, should they wish to make use of them. In any case, the studies are made available to them, even sent to them.

In the case of this particular study, we at the Centre thought that the economic integration between Australia and New Zealand, the Closer Economic Relations (CER), was exceptionally worth a close examination by ASEAN and its members.

For many years ANZCERTA was the only preferential trade agreement in which either country was involved, excluding the non-reciprocal South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) with the independent Pacific island states, and Australia's Papua New Guinea-Australia Trade and Commercial Relations Agreement (PATCRA) with Papua New Guinea. From 2000 onward however, first New Zealand, and then Australia, became active participants in the rapid spread of preferential trade agreements in the Asia-Pacific region. Pursuit of economic integration with other partners in the Asia-Pacific region was being accorded an increased priority by both countries. These developments raised questions over the degree of priority that both countries would in future place on their bilateral relationship, especially as they chose to pursue their new preferential arrangements individually rather than jointly.

Rather than allow the bilateral economic relationship to wither, however, the two countries decided instead to try to rejuvenate it. An important step in this direction was the creation by the two governments of the Trans-Tasman Leadership Forum, comprised of business leaders and other experts and leading figures from both countries. The forum meets annually and is charged with identifying and prioritizing avenues for deepening the economic relationship. At the governmental level the decision to rejuvenate the relationship was encapsulated in the commitment by the two countries in 2004 to pursue the achievement of a Single Economic Market (SEM). This commitment has been followed by significant developments in a number of areas.

Rules of Origin

In 2006 the two countries agreed on a major change in the ANZCERTA rules of origin, involving a switch to Change in Tariff Classification (CTC) as the principal basis for determining origin, with exporters retaining the option of using the old RVC- based rules for a further five years. For some products, mainly in the textile and apparel area, a “dual” requirement was imposed whereby the RVC rule and a CTC rule had to be satisfied simultaneously, while for a very small number of products in one apparel sub-heading, the RVC rule was retained as the sole rule of origin. These provisions were intended to allay concerns of industries in both countries that had expresses serious reservations over the change to CTC rules. The change was implemented in 2007.