The
Nation today reported on a controversial power plant being built to power a
potash mine in Thailand. What’s
interesting about the dispute is that it involves an ASEAN project that dates
back to the earliest days of ASEAN economic cooperation, just as the ASEAN
Economic Community (AEC) is about to be launched formally later this month.
The AEC is just the latest
iteration of economic cooperation in Southeast Asia, a process that dates back
to the 1967
Bangkok Declaration. However, the scope and vision of economic integration
has changed over the years. Originally economic cooperation was driven more by
the ASEAN governments, rather than the private sector. As such, the priorities
of ASEAN governments focused more on collaboration on economic matters to
promote social and political stability, rather than economic competitiveness. This is reflected in the 1976 Bali
Concord I declaration, which called for ASEAN members to provide mutual
support in food and energy.
This vision was implemented
in the ASEAN
Industrial Project (AIP) scheme of 1980.
Under the AIP, each ASEAN member would sponsor an industrial project.
The host government and its private sector would take 60% shareholding, with
the other member governments taking up the remaining 40%. The output of each project would receive
trade preferences for exports to other ASEAN countries under the
ASEAN Preferential Trading Arrangements agreement (APTA), and would have
exclusivity within ASEAN.
Given these priorities, it
was no surprise that the AIP projects focused on agriculture, e.g., food
security: Indonesia (urea), Malaysia (urea) and the Philippines (phosphates).
Thailand started in soda ash, then changed its project to potash, which is used
in the production of fertilizer. Singapore proposed a diesel engine project,
which was somewhat related to agriculture since the engines could be used to power
agricultural equipment.
Unfortunately, the APTA and
AIP schemes were not successful. APTA failed because it only provided for
relative reductions in import duties, rather than absolute reductions (a 50%
reduction of a 100% import duty leaves a significant duty in place) and because
it only covered a limited number of products (the most infamous being snow
removal equipment, useless in a tropical region).
The AIP scheme was
relatively more successful, with Indonesia and Malaysia successfully
constructing their urea projects. The Philippine project became caught up in
the post-Marcos era political and economic transition, with phosphates being
replaced by fertilizer, then pulp and paper, then copper fabrication, then
eventually becoming defunct. The Singapore project was hampered by the
reluctance of other ASEAN members to grant exclusivity to the diesel engines
(Malaysia, in particular). Singapore
then shifted its project to a Hepatitis-B vaccine production plant, which can
in retrospect be seen as inconsistent with the objective of the AIP scheme.
More importantly, Singapore deliberately limited its investments in the other
ASEAN members’ AIP projects to 1% shareholding to express its discontent with
the program. With other ASEAN members
following suit on the basis of reciprocity, the AIP projects began to have
funding shortfalls.
Which brings us to the Thai
potash project, now called ASEAN Potash Mining Public Company Limited. After much planning and effort, the company
now plans to start mining potash next year, 36 years after the AIP projects
were first envisioned. The local community,
however, objects to the construction of a coal power plant to power the mine,
suggesting solar or natural gas. The mine’s management says that only its own
coal-fired plant can make the mine economically viable. The local community has resorted to protesting
at the embassies of Brunei (which joined the AIP scheme when it became an ASEAN
member in 1984), Indonesia, Malaysia, the Philippines and Singapore, because they
still have equity in the potash project.
Without making any
assessments on the Thai company’s dispute with the local community, the AIPs in
Thailand and elsewhere demonstrate the pitfalls when economic cooperation and
integration is driven by government priorities, not market concerns. A normal business would not take 36 years to
come into fruition. Moreover, direct government ownership can bring unwanted
criticism, as the Thai dispute illustrates.
Fortunately, ASEAN economic integration has long since moved away from statist efforts and is based more on market-driven efforts by the private sector. The continuing struggle of the Thai AIP to bring itself into being is another blast from the past demonstrating that ASEAN governments should support, but not lead, economic integration in Southeast Asia through the AEC.
Fortunately, ASEAN economic integration has long since moved away from statist efforts and is based more on market-driven efforts by the private sector. The continuing struggle of the Thai AIP to bring itself into being is another blast from the past demonstrating that ASEAN governments should support, but not lead, economic integration in Southeast Asia through the AEC.
