3. Dr Michael Hsiao H.H., Executive Director, CAPAS, welcomed the participants and acknowledged the initiative of ISEAS Director Ambassador K. Kesavapany in 2007 in setting the train of process that led to the seminar in Taipei.

4. Mr Rodolfo C. Severino, Head of the ASC, emphasized that, as there was limited contact between ASEAN and Taiwan, it was good to take a closer look at the relationship. In doing so, two elements of trade and investment relations must be brought forward: (a) the economic relationship between ASEAN and Taiwan; and (b) investor's opinions of the integration process with a view to improving the investment environment.

5. Dr David Hong, President, Taiwan Institute of Economic Research (TIER), stated that it was a great time for Taiwanese investors to observe ASEAN integration. Taiwan started looking at Southeast Asia in the 1970s, when the country ran into trouble with labour shortages, wage hikes, land price increases, environmental protests, and the appreciation of the New Taiwan dollar. After ten years in Southeast Asia, the investors started to move into China, which gave them a larger comparative advantage. After twenty years in China, the Taiwanese businesses started to feel pressure — wage hikes and increased competition. Hence, with the current global economic crisis, it was the right time for Taiwanese investors to look into other options for the future. Moreover, Taiwan was too dependent on China, and there was an urgent need to diversify its investments. It was in this light that Taiwan needed to look at Southeast Asia again as an important destination for future investments.

1. The symposium on the “Economic Integration and the Investment Climates in ASEAN Countries: Perspectives from Taiwan Investors” was jointly organized by the Center for Asia-Pacific Area Studies (CAPAS), Academia Sinica, Taiwan, the ASEAN Studies Centre (ASC), Institute of Southeast Asian Studies (ISEAS), Singapore, and the Taiwan Institute of Economic Research (TIER), Taiwan, on 17 November 2008 in Taipei. The programme is presented in Annex I. The objective of the expert discussion was to help Taiwanese investors understand the ASEAN economic integration process and get their perspectives on the investment climate in ASEAN.

2. The symposium involved both Taiwan and ASEAN representatives, who exchanged their views on ASEAN-Taiwan socioeconomic relations, ASEAN economic integration and ASEAN's bilateral Free Trade Agreements (FTAs). Later, a roundtable discussion with Taiwanese scholars, business leaders, consultants and other opinion makers dealt with the benefits and challenges faced by Taishang in investing in ASEAN. They also voiced their views on the ASEAN economic integration and provided some policy inputs where Taiwan and ASEAN can work together.

17. The first speaker of Session 2, Mr Rodolfo C. Severino, Head of the ASEAN Studies Centre (ASC) at the Institute of Southeast Asian Studies (ISEAS), Singapore, stressed that, for obvious reasons, “Taiwan and ASEAN as a whole cannot enter into government-to-government commitments such as those in FTAs.” He, however, gave an account of the ASEAN Economic Community (AEC) and discussed how Taiwanese and other foreign companies would profit from investing in or otherwise dealing with that community.

18. In December 1997, ASEAN leaders issued ASEAN Vision 2020, partly in response to the Asian financial crisis. In 1992, the region had entered into an agreement to reduce tariffs on intra-ASEAN trade to minimal levels, and to remove non-tariff barriers to that of trade. Thereafter, ASEAN leaders adopted several action plans and committed themselves to intensifying ASEAN economic cooperation and regional economic integration.

19. At their summit meeting in October 2003, the ASEAN leaders issued the second Bali Declaration of ASEAN Concord, in which they envisioned “ASEAN as a single market and production base, turning the diversity that characterises the region into opportunities for business complementation (and) making … ASEAN a more dynamic and stronger segment of the global supply chain”. In November 2007, in a “blueprint” for the ASEAN Economic Community, the leaders defined the nature of that community — “a single market and production base” and a region that was competitive, equitably developed, and “fully integrated into the global economy”. They moved the deadline for its achievement forward from 2020 to 2015.

20. Thus, most building blocks for regional economic integration were already in place. The tariff-cutting exercise was almost done. While the implementation of the other integration measures was progressing slowly, all these arrangements signalled to the international community the importance that the ASEAN governments placed on regional economic integration and directed the attention of the business communities to the opportunities that trade and investments between their countries offered to them.

On 10 March 2009, President Gloria Macapagal-Arroyo signed a new law adjusting the Philippines' archipelagic baselines. Baselines are lines on a map, identified by coordinates, from which is measured the twelve-mile territorial sea, where, according to the United Nations Convention on the Law of the Sea (UNCLOS), a coastal state or an archipelagic state like the Philippines has sovereignty. The UNCLOS provides for a “contiguous zone”, with a maximum breadth of twenty-four miles from the baselines, where the coastal or archipelagic state enforces “its customs, fiscal, immigration or sanitary laws and regulations”. States also have an exclusive economic zone, measured up to 200 miles from the baselines, where they have “sovereign rights” to explore, exploit, conserve and manage the natural resources in the waters and on and beneath the seabed.

Significantly, the new Philippine law, in its title, indicates its purpose as mainly to amend the existing baselines act and “to define the archipelagic baselines of the Philippines”. It does not extend the baselines to the Spratlys or to Scarborough Shoal, both of which China and Vietnam claim in their entirety, while the Philippines claims a part of what are called the Spratlys and all of Scarborough Shoal.

Unfortunately, some observers and commentators think that the new law extends the baselines to encompass both the claimed area of the Spratlys and Scarborough Shoal. It does not. The contrary impression may have arisen from the fact that the first bill that would adjust the baselines, which Representative Antonio Cuenco filed in the House of Representatives in November 2007, would extend those baselines to parts of the Spratlys and Scarborough Shoal. The basepoints that the Cuenco-proposed baselines would connect would include twelve in the Spratlys area and six in Scarborough Shoal.

However, the Department of Foreign Affairs opposed this provision in the Cuenco bill.Instead, it backed, and President Arroyo endorsed, a Senate version that would limit the baselines to the main Philippine archipelago and declare a “regime of islands” for the land features in the areas of the Spratlys and Scarborough Shoal that Manila claims.

Introduction

Taiwanese transnational capital emerged in the mid-1980s, and its importance is now widely recognized by Taiwanese scholars in various disciplines. There has been an increasing interest to investigate the nature of this newly emerging transnational capital, which is considered to be different from the Western or Japanese ones. Studies of Taiwanese businesses (Taishang) in Southeast Asia have concentrated on the domains of overseas investment patterns (Chen 1994, 1998; Lin 2001), industrial relations (Kung 2002; Wang 2002), and ethnic relations and overseas Chinese networks (Hsiao and Kung 1998; Tseng 1999). Some scholars have noted that, to Taishang, Southeast Asia is not only a geographical area, but also a cultural entity, and thus their investment behaviour as a whole is embedded in the social contexts of the region. As latecomers to transnational capital in Southeast Asia, the Taishang demonstrates some distinguishing features.

This paper argues that the Taishang phenomenon in Southeast Asia should be understood first in terms of its capital formation and special characteristics, and second in terms of the influences of the political economy of the host countries. The paper tackles the issue of how the Taishang have globalized their capital and business strategies to maintain their competitiveness in the world economy. It also explains how the Taishang have reorganized their industrial production networks and how they manage labour relations in Southeast Asia.

Pax Sinica and Regional Maritime Order in the Spratlys

Michael Richardson's article on the geopolitics of energy in the South China makes interesting reading. His major thesis is that China now has the military means to enforce claims in the hydrocarbon-rich South China Sea. This could spell trouble for the region because Beijing could pose a security threat to the region and other ASEAN dialogue partners.

His assertion is premised on China's military build-up in the South China Sea. The development of the naval base at Sanya in Hainan (reportedly able to house forty submarines), the large military expenditure and the willingness of the People's Liberation Army (PLA) to openly challenge unauthorized U.S. military presence in its Exclusive Economic Zone (EEZ) have been cited by many as reasons to fear China.

As a long-time critic of China's military policy in the South China Sea, I am no longer convinced by the usual stereotype of viewing China as a threat to regional maritime security.

Over the years China's interest in Southeast Asia has changed. It is no longer interested in subverting the region. On the contrary, China counts on Southeast Asian states as regional allies, an important market for its manufactured products and a source of capital and primary commodities like rubber and palm oil. While many in Southeast Asia may still be suspicious of China's political motives, the younger generation has little memory of China's hostile past and most would embrace China as a friendly economic powerhouse.

The failure to recognize changes in China's geopolitical outlook, its economic prowess and its desire to be involved in the mainstream of international politics and participate in bigger issues in international relations like its role in the current economic downturn has blinded many. Many are stuck with the old-China mentality. It is time to embrace a new China that is fast becoming an economic superpower whose financial resources can make a difference in the current economic downturn.

This paper seeks to give an update on the ASEAN Economic Community and to discern how Taiwanese and other foreign companies can profit from investing in or otherwise dealing with that community.

ASEAN Vision 2020 of 1997 foreshadowed the aspiration for an ASEAN Economic Community without calling it that. That document declared, “We will create a stable, prosperous and highly competitive ASEAN Economic Region in which there is a free flow of goods, services and investments, a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities.” It then committed the ASEAN members to undertake a list of measures for realizing that vision.

ASEAN Vision 2020 was issued by ASEAN's leaders in December 1997, at the height of the Asian financial crisis then, and can, therefore, be said to have been an ASEAN response to that crisis. A little more than four years before, in January 1992, ASEAN had entered into an agreement to reduce tariffs on intra-ASEAN trade to minimal levels in agreed, scheduled and nationally legislated tranches. This was called the agreement on the Common Effective Preferential Tariff for the ASEAN Free Trade Area (CEPTAFTA). Faced with the surge of globalization, the trend towards economic regionalism in other parts of the world, and the rise of the continent-sized economy of China, ASEAN leaders had decided to integrate the regional economy.

The next year, the ASEAN leaders adopted the Hanoi Plan of Action, in which they committed themselves in detail to the steps necessary to intensify ASEAN economic cooperation and regional economic integration. Even after ASEAN subsequently advanced the deadline for dropping tariffs on intra-ASEAN trade to minimal levels twice, the ASEAN members have largely fulfilled their tariff-cutting commitments under AFTA. However, they also knew that it took more than the abolition of tariffs on intra-regional trade to integrate the regional economy.

44. Dr Chao-Jen Huang explained that FDI brought advantages in terms of trade and division of labour. This strengthened competitiveness, especially with the formation of a single market. He said that regionalism had negative effects on other regions and countries. If one looked closely at Taiwan, China and South Korea, one would find similarities in their economic structures. If Taiwan joined the economic integration of East Asia, there might be a little setback to China and South Korea, but Taiwan would suffer a major setback if it did not join the FTA. However, ASEAN would be much better off with economic integration with Taiwan.

45. Dr Hong-Zen Wang stressed the importance of the Taiwanese business network. The government had conducted many surveys on the sources of Taiwanese investments. The sources were the local society, the local Taiwanese business people and Taiwanese companies in other countries. For example, any investment in Penang (Malaysia) might acquire around 60 per cent of its materials from another Taiwanese company. Hence, when one said that Taiwanese investment increased trade, this trade was often between Taiwanese companies or within the Taiwanese business network.

46. Mr Rodolfo Severino stressed that ASEAN was trying to promote a single market, so that the supply chain would be enlarged. The Japanese recognized this and they were pushing ASEAN to integrate the regional market. He pointed out that there was actually no contradiction between APEC and bilateral FTAs. The proposed Free Trade Agreement for the Asia Pacific was not going fast enough, and so it was very natural for countries in APEC to go into something that was more possible.

47. Mr Severino prophesized that FTAs were more than economic in nature. Essentially, FTAs conferred political status. They sent out signals to the international community about the relationship between the two parties to the FTA. They also sent signals to the business community that it was good to invest in and trade with the partner countries.

Introduction

With regionalism gaining strength, Free Trade Agreements (FTAs) have emerged to be a reality all over the world. It is seen as an action by governments to liberalize or facilitate trade and investment on a bilateral basis through detailed negotiations. In Asia, the Association of Southeast Asian Nations (ASEAN) is fast emerging as an integration hub for FTAs by forging economic ties with China, Japan, Korea, India, Australia and New Zealand. What are the perceived benefits and challenges of these FTAs and how can they be building blocks for regional integration?

This paper attempts to answer these questions, starting with the need for FTAs, followed by a summary of the different types of ASEAN FTAs. It then summarizes some salient characteristics of ASEAN FTAs, followed by a discussion on perceived benefits and concerns. Subsequently, it elaborates on the implications of ASEAN FTAs on the process of economic integration in the region. Finally, it concludes by giving some policy recommendations.

Need for an ASEAN FTA

ASEAN was getting frustrated with the slow pace of the World Trade Organization (WTO) or Doha negotiations. It was also losing interest with the lacklustre momentum in the Asia Pacific Economic Cooperation (APEC). At the same time, as the FTA networks were growing in the United States and the European Union, ASEAN countries feared that the success of the Euro Area and the North American Free Trade Agreement (NAFTA) might dominate the global trading system. Hence, to increase their bargaining power in the global trading arena and to compensate the lack of multilateral trade liberalization, ASEAN thought of uniting together.

Secondly, the 1997–98 financial crisis taught an important lesson that ASEAN needs to strengthen economic cooperation with the neighbouring countries. The region must develop a “self-help” mechanism for better economic and financial management.

The South China Sea is generally considered as one of the flashpoints for conflict in East Asia. With its vast expanse, the South China Sea's many small land features and indeterminate maritime regimes are the subject of conflicting claims among China and Taiwan and four member-countries of the Association of Southeast Asian Nations. These multiple claims vary in nature and extent, making the situation most complex and extremely difficult, if not impossible, to adjudicate.

Yet, this maritime body is vital not only to the claimant states, not only to the littoral lands, but globally as well. Through the South China Sea pass ships carrying more than half of the world's trade. The presence in and passage through it of American and other naval vessels enable the United States and other powers to project their military weight in that part of the world. According to the Energy Information Administration of the United States Government, a 1993–94 estimate by the U.S. Geological Survey placed the total of discovered oil reserves and undiscovered oil resources in the offshore basin of the South China Sea at 28 billion barrels, while a Chinese estimate had it as high as 213 billion barrels. Another Chinese estimate calculated the natural gas reserves in the South China Sea region at two quadrillion cubic feet. These estimates are of considerable importance in an era of high energy prices.

It was in the light of the importance, volatility and complexity of the situation in the South China Sea that the ASEAN Studies Centre of the Institute of Southeast Asian Studies (ISEAS) chose that situation as the subject of its first online forum. The forum is led off by an article by Michael Richardson, former Asia editor of the International Herald Tribune and now Visiting Senior Research Fellow at ISEAS. Valuably illustrated by maps, the Richardson article focuses on the South China Sea's potential as a source of energy, the rise of China's military power, and related issues.

A couple of moves in the past few weeks by claimants to parts of the South China Sea have brought that contentious maritime area to the front pages once again. The South China Sea has been generally considered a potential “flashpoint” for armed conflict for some time. Although the potential for such conflict is perceived to have diminished in recent years — partly because of commitments the parties have made to the peaceful settlement of disputes and non-use of force — it still exists. Conflicting claims to the area have not been resolved or reconciled.

To be sure, countries in Southeast Asia and, of late, China have pursued their conflicting territorial claims peacefully, as they are committed to do so under the Treaty of Amity and Cooperation in Southeast Asia (TAC), the United Nations Charter and the UN Convention on the Law of the Sea. These commitments were also embodied in the 1992 ASEAN Declaration on the South China Sea and the 2002 Declaration on the Conduct of Parties in the South China Sea (DOC).

What makes the South China Sea question so vexing — and thus dangerous — is the fact that it is subject to multiple, not just bilateral, claims. Brunei, Malaysia, the Philippines and Vietnam — not to mention mainland China and Taiwan — have all made overlapping claims. The involvement of a big, strong and rapidly rising power — China — and what others perceive to be Beijing's extravagant, if ambiguous, claims are additional complications.

The importance of the South China Sea to international navigation is also a factor.

In 1974, practically on the eve of Vietnam's reunification, Chinese armed forces dislodged the South Vietnamese from the Paracels. In 1988, a brief naval battle between China and Vietnam in the Spratlys area sank a number of Vietnamese vessels and killed around seventy Vietnamese. The Philippines has, on a number of occasions, arrested mainland Chinese and Taiwanese fishing in the disputed area and confiscated their vessels.

34. The last session was in the form of a roundtable discussion involving Taiwan business leaders and scholars. There were four panellists — Dr Yau-Jr Liu, Associate Research Fellow, Taiwan Institute of Economic Research; Mr Pao Chuan Lin, Vice President and Head of International Administration Department at Chinatrust Commercial Bank; Dr Jang Pao Kang, Associate Professor at National Chengchi University; and Dr Jiang-Jong Guo, Associate Professor, Graduate Institute of China Studies, Tamkang University.

35. With family businesses in Singapore and Vietnam, Dr Yau-Jr Liu, shared some of the results of his research and his opinions about doing business in ASEAN countries. Traditionally, Taiwanese firms invested in ASEAN countries for four reasons. One was to make use of abundant resources. Thus, Taiwanese firms invested in Malaysia and Indonesia and more recently moved to Vietnam and Cambodia. These were in labour- and resource-intensive industries. Another reason was market expansion, especially for staple industry manufacturers. These were located in populous countries like Indonesia, the Philippines, Thailand and Vietnam. Thirdly, in the last ten years, Taiwanese investors sought involvement in the international production chains in ASEAN. The fourth reason was to spread risks, especially in the case of investors in China. Recently, there had been policy changes in China, and several of them were not very friendly for the Taiwanese manufacturing sector. Hence, many firms moved to the northern part of Vietnam or elsewhere in ASEAN. Even with the current global economic crisis, the four motivations remain intact as ASEAN countries are less exposed to the crisis compared to some other economies.

36. Nevertheless, cost savings and market expansion remained the crucial driving forces for Taiwanese investors to move into Southeast Asia. However, moving would pose some risks to these businesses. Firms that moved rapidly to ASEAN countries could overlook problems like labour shortages or strikes by labour unions (Vietnam, Indonesia and Thailand). Hence, business people must think of spreading their risks among ASEAN countries. In Thailand, even though the cost of labour was a bit higher, the problem of strikes was less. Taiwanese businessmen should look at the risk to a firm's value rather than simply at cost savings.