ASEAN meeting -- Benefit from free trade in SE Asia

August 30, 2006

The Association of Southeast Asian Nations (ASEAN) Economic Ministers met last week in Kuala Lumpur, Malaysia.  Four important trade areas were discussed:

• A service trade agreement will be negotiated by the end of the year, including twelve of Chinas’s services sectors, including finance, telecommunications and tourism.
• Negotiations were resumed for a free trade agreement (FTA) with India on goods, including agriculture, textiles and palm oil.
• Members agreed to review a 16-member FTA including ASEAN, Japan, China, India, South Korea, Australia and New Zealand. This agreement would cover 3.1 billion people, half the world’s population, and have a GDP of $10 trillion.
• A Trade and Investment Framework Agreement was signed between the U.S. and ASEAN that will guide FTA negotiations due to commence in 2010.

What It Means:
ASEAN was created in 1967 to develop a common market, like the European Union, for its ten member countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The region has a population of 560 million and a GDP of $700 billion. As contrast, the 25 countries in the EU-25 have 460 million people with a GDP of $12.4 trillion. The growth potential of an ASEAN free trade zone is huge.

The Ministers' meeting exempliflied the trend towards regional trade agreements and away from multi-lateral agreements like the recently abandoned World Trade Organization Doha round. The fact that major economies, like the U.S., Japan, China and India, are courting trade with these emerging markets illustrates the shifting balance of global power.

Liberalization of trade with ASEAN countries will improve the standard of living for their people, thereby increasing their domestic consumption and reducing their reliance on exports. Over the long-term, this will reduce the volatility of these markets and the mutual funds that index them.

Action Steps:
Continue to search for mutual funds that include good companies based in the ASEAN countries. As always, rely on your financial planner’s suggestions.

Source: ASEAN web site, U.S. Trade Office web site