Asia ministers to try to deepen trade as West falters

HANOI Mon Aug 8, 2011 9:08am IST

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HANOI (Reuters) - Asian trade officials will try to tighten the ties that bind their economies when they meet in Indonesia this week in the face of falling demand and quickly fading confidence in developed world economies, exacerbated by the U.S. downgrade.

Officials from the 10 members of the Association of South East Asian Nations (ASEAN) are expected to try to advance plans to form an ASEAN Economic Community by 2015, and for further integration beyond that date, at the meeting on the tropical island of Sulawesi.

So far in its goal of integration, ASEAN has eliminated 95 percent of tariffs and non-tariff barriers, and is working on deepening transport links and on a common visa.

With the U.S. recovery in increasing doubt and Europe neck-deep in a debt crisis that could worsen, the stakes are clear for Asian policymakers, economists say.

"Intra-regional trade that's improving clearly provides a buffer for the region itself against headwinds which may develop in other parts of the world, primarily the developed countries," said Prakriti Sofat, economist at Barclays Capital in Singapore.

GRAPHIC on Asia's U.S. export exposure, click link.reuters.com/xem82s

GRAPHIC on Asia's financial exposure, click r.reuters.com/sex82s

GRAPHIC China-ASEAN trade, click link.reuters.com/wem82s

The ASEAN states will also hold discussions in the Sulawesi city of Manado with regional dialogue partners including Australia, China, India, Japan, New Zealand and South Korea. The United States and Russia will attend for the first time, too.

They will all be keen to boost business in the region.

"Probably, there will be a lot of concerns about uncertainty in the global economic outlook. If anything, I think there will be increasingly more efforts to promote domestic demand at a regional level," said Donna Kwok of HSBC in Hong Kong.

HARDER ISSUES

China helped Asia lead the global post-2008 recovery, although some wonder how much more weight Beijing will be willing to pull as it grapples with inflation at a three-year high.

Chinese demand has softened, but remains key. And for Beijing, the health of the rest of the region is important, said Zhang Ling, a researcher at the Chinese Academy of Social Sciences, a top government think tank.

"Chinese exports to ASEAN nations rebounded very strongly after the global financial crisis, much faster than to traditional markets," she said.

"China will lean towards big developing economies, including the ASEAN nations and BRIC countries, to forge trade and economic relations in the next step, as economies in these markets are growing much faster than its traditional partners."

ASEAN has a combined GDP of $1.5 trillion and is home to nearly 600 million people, rich raw materials, natural resources and cheap labour. But it is widely diverse.

Its members comprise Singapore, Indonesia, Malaysia and the oil-rich kingdom of Brunei among the wealthier nations, Thailand and the Philippines in the middle and Cambodia, Laos, Myanmar and Vietnam making up the rest.

A recent Asian Development Bank report said ASEAN so far only partly has free trade in goods, services and capital, but no labour mobility, no convergence of laws on competition, and no common monetary or fiscal policy.

"The focus now is on harder issues and how to move things forward to meet the 2015 goal for AEC," the Manila Bulletin (mb.com.ph) quoted Philippine Trade and Industry Secretary Gregory Domingo as saying last week.

(Additional reporting by Langi Chiang in Beijing; Editing by Ron Popeski)

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