‘Sabah clash has no impact on trade pacts’

The Asian Development Bank says economic ties in the region have remained resilient despite tensions

MANILA BASED. The Asian Development Bank (ADB), established in 1966, is the only multilateral based in Manila. Photo by Roopak Ramachandran Nair.

MANILA, Philippines – The Asian Development Bank (ADB) said tensions such as the deadly Sabah standoff have little or even, no impact, on regional economic agreements such as the Asean Economic Community (AEC) and the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA).

In a briefing with reporters on Tuesday, March 5, ADB Office of Regional Economic Integration (OREI) Principal Economist Lei Lei Song said ties in the region have shown resilience despite tensions.

For instance, he said China, Japan and Korea are in territorial disputes, but they still agreed to engage in free trade zone negotiations.

“Trade suffered initially but the trade between China and Japan has basically rebounded to the level before the dispute. The economic relationships are there and they are quite resilient to a lot of political issues,” Song said as the ADB launched its Asian Economic Integration Monitor (AEIM). 

ADB OREI Lead Economist Jayant Menon said clashes in Sabah would not hamper the progress of the BIMP-EAGA, a means to facilitate the trade of Halal products in Southeast Asia.

BIMP-EAGA was forged in 1994 in Davao City, Philippines. It aims to facilitate the free movement of people, goods, and services; maximize the use of infrastructure and natural resources; and take advantage of economic cooperation among the 4 countries.

Menon said there are challenges that BIMP-EAGA needs to resolve and the “Sabah issue” is not a significant one.

“I think the BIMP-EAGA is facing its own challenge at the moment of moving the integration forward. I think you know very well that it has been in train for a very long time and finally we’re seeing activity moving along these projects. But this subregional cooperation agreement by design targets the less developed parts of these countries, (so) the challenges are enormous. Frankly, I think the Sabah issue probably wouldn’t make a dent on the radar,” Menon said. 

On Tuesday, March 5, Malaysia launched its second assault on Sabah villages where close to 200 Filipino gunmen have been holed up for 3 weeks now. As of Monday, March 4, 26 people were reported dead in the standoff.

Too many FTAs

In the second AEIM, ADB Chief Economist Changyong Rhee said free trade agreements (FTAs) are underutilized by countries in the region. He said the utilization rate of FTAs in the region averaged only 30%.

Menon said this is unfortunate considering that there are a lot of FTAs in Asia. He said the region must “clean this mess.” He said as of January 2013, around 109 FTAs were ratified and another 150 were being concluded. 

He said one of the ways by which these FTAs or the Asian “noodle bowl” will be fixed is through consolidation and/or multilateralization. Consolidating FTAs would result in a European Union-type of regional cooperation while multilateralization will offer the same privileges to countries outside the region.

Menon said that if countries do not heed this advice, this “noodle bowl” will “collapse on its own weight.”

“It’s very hard to put a time frame on this because it depends on how individual countries react but I think it will collapse on its own weight as these FTAs continue to proliferate. You reach a point that it becomes so costly to navigate in world trade then something will have to give,” Menon said. 

The ADB report stated that more multilateralized agreements would increase global trade, and income gains, in the absence of a global trade deal. – Rappler.com

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