A look at the role of a small island state in a regional trade bloc.
By Joel Nathaniel John Godfrey
Candidate number: 3071 - 033
Since this essay will be studying the effects of a trading bloc on its members and vice-versa, this extended essay will be following the global interactions HL extension of Geography. More specifically this essay will concentrate on the trade (financial flows), international organizations and forums (political outcomes) and trading blocs (political outcomes) part of the syllabus.
For nearly as long as Singapore has been an independent state, Singapore has likewise been one of the first members of ASEAN. Yet ASEAN’s contributions to Singapore and Singapore’s contributions to ASEAN are not well known.
This essay is based upon two hypotheses, both of which require studying Singapore’s contribution within ASEAN and ASEAN’s contributions to Singapore’s progress and then evaluating which contribution is greater. The first hypothesis states that Singapore gains most from having free trade within ASEAN. This was done by comparing trends between trade with ASEAN and Singapore and trade with Singapore and the rest of the world, before and after the creation of AFTA. This hypothesis seemed to be correct. It was clear to see during times where the world economy was doing well, AFTA created an even more rapid rate of increase in exports from Singapore.
The second hypothesis states Singapore has contributed to political change in other ASEAN countries, but Singapore has not changed politically because of its membership in ASEAN. This was tested by researching ASEAN’s involvement in Singapore’s main political problems and Singapore’s involvement in political problems of other ASEAN nations. It was concluded that ASEAN has had no visible involvement in Singapore’s politics and Singapore has had both a positive and negative impute in solving political problems in ASEAN.
Introduction…………………………………………………………………….. page 3
Method of evaluation……………………………………………………………page 9
Presentation and analysis of Economic Data………………………………….page 13
Presentation and analysis of Political Literature and data…………………..page 25
Conclusion and Evaluation…………………………………………………….page 27
This extended essay aims to find out what impacts ASEAN membership has upon Singapore and what impacts Singapore’s ASEAN membership has on the rest of ASEAN.
This essay will only be looking at the political and economic impacts of ASEAN on Singapore and of Singapore on other ASEAN members, not the environmental or social-cultural impacts. The social-cultural impacts are being ignored because the profits and losses of social change are very difficult to measure and, furthermore, views and opinions on social change tend to contain a large degree of bias.
Also the most important parts of ASEAN have been AFTA (ASEAN free trade area), the Zone of Peace, Freedom and Neutrality (ZOPFAN) Declaration and the ASEAN summits where most of the issues discussed are not social-cultural issues.
Environmental impacts are being ignored in this essay, because any environmental effects of ASEAN should only be caused indirectly by the political or economic changes; therefore there is more room for error if an indirect impact of ASEAN is being looked at instead of a direct impact.
This essay will be studying trade (financial flows), international organizations and forums (political outcomes) and trading blocs (political outcomes). All of which are part of the IB geography syllabus.
The Association of Southeast Asian Nations or ASEAN consists of all of South East Asia excluding Timor-Leste and Papua New Guinea. ASEAN is an international organization which aims to accelerate the economic growth, social progress and cultural development in the region without interference in the internal affairs of one another.1
At the moment,this is done by:
Creating a free trade area (some of the newer member nations within ASEAN are still allowed to have tariffs within ASEAN for an extended time period) between ASEAN members, Australia and New Zealand (ASEAN-Australia-New Zealand Free Trade Area (AANZFTA)).2
Holding summits in which members of parliament of each nation meet together and discuss issues faced in the region.
Letting citizens of one member nation visit another without a visa.
The Zone of Peace, Freedom and Neutrality (ZOPFAN) Declaration.
Many other minor declarations.
Also one should be aware that there are plans to increase the powers of ASEAN and by 2015 ASEAN will become the ASEAN Community3; however this essay will not look too much into this future ASEAN Community. Firstly, it would be too theoretical and uncertain to predict its affects in the future. Secondly, and more importantly, the blueprint for the ASEAN community is too in-depth and broad this essay could not explain it in 4000 words.
Singapore is one of the world's most prosperous countries with strong international trading links (its port is one of the world’s busiest in terms of tonnage handled) and its per capita GDP (Gross Domestic Product) is equal/higher to that of the leading nations of Western Europe.4
In addition to this, there are certain things that make Singapore stand out from the rest of ASEAN:
Firstly, Singapore is the only nation in which the majority of residents are ethnically Chinese (74.1%5 to be exact). This is an important thing to note because in several places in South-East Asia Chinese residents have faced much discrimination and dislike – particularly in Malaysia and Indonesia.
Secondly, Singapore is a city state, therefore making it by far the smallest (712.4km2) and most densely populated of ASEAN nations (7,126 people per km2)6.
As stated previously the GDP per capita of Singapore is exceptionally high whether you use real GDP or GDP ppp (purchasing power parity). The only other nation within ASEAN that has a comparable GDP per capita is Brunei, but Brunei’s population is too small (small even in comparison to Singapore) to have a GDP comparable to the main powers within ASEAN like Indonesia, whereas Singapore's population and GDP per capita are high enough to have a GDP larger than the Philippines or Vietnam.
To investigate what Singapore may have gained from being in ASEAN
How ASEAN may have benefited from Singapore’s membership
Map of ASEAN:8
Hypothesis & justifications:
1) Singapore gains most from having free trade within ASEAN
Singapore is renowned for being a centre of trade and has one of the highest balance of trade (% of GDP) in the world. Singapore is believed to be the busiest port in the world. This is mainly, because of Singapore’s trade friendly laws (negligible tariff rates, very little legalisation etc.), strategic location and high-tech shipping equipment. Consequently having free trade within South-East Asia will only increase trade in Singapore, leading to an increase of employment and flow of money. Whereas the rest of ASEAN may have big trading ports (with the exception of Myanmar, Cambodia and Laos), but none of them can be compared to Singapore’s trading industry. Also Singapore is far less protectionist than the rest of ASEAN (especially in comparison to Indonesia), therefore the other nations have far higher tariff rates (which can be used as a source of government income and deter foreign imports to their nation) than Singapore. Since they have higher tariff rates they will be asked to give up more.
Also unlike the rest of ASEAN, Singapore does not have a rural area nor many raw materials; therefore its primary sector is negligible. Without food and raw materials an economy simply cannot function; therefore Singapore cannot rely on its domestic market alone and needs to trade using products from other sectors of the economy (secondary goods, tertiary services and/or quaternary services), so they can buy goods from the primary sector. Whereas the rest of ASEAN have a large primary sector, therefore trade is not as necessary for them as it is for Singapore.
2) Singapore has contributed to political change in other ASEAN countries, but Singapore has not changed politically because of its membership in ASEAN
Before one looks at the justification of this hypothesis it is important to clarify what an improvement in politics is, as such a term can be seen as very subjective. Although to some extent the answer to this question is subjective, most people would agree that there are better ways of running a country than others. For instance it is generally agreed that a democracy is better than a dictatorship, mainly because dictators have a tendency to become complacent or corrupt, and the citizens of the country have less freedom than they would probably have within a democracy.
If a nation increases its ownership of land or raw materials, this can also be considered a political improvement, since the nation’s government is directly responsible for that land.
Keeping a nation peaceful and safe can also be seen as an improvement politically, as the government once again is directly responsible for the nation’s security.
The rest of ASEAN generally have more territorial disputes than Singapore. For example disputes over the Spratly islands, Karang Unarang, Prachinburi area etc. That being said, Singapore has had serious disputes with Malaysia over deliveries of fresh water to Singapore, Singapore's extensive land reclamation works, bridge construction, and maritime boundaries in the Johor and Singapore Straits.10 Singapore also has faced issues with the threat of terrorism and has had a problem with piracy along the Malacca Strait, which also affects Indonesia and Malaysia to. These problems are not as significant as most of the other ASEAN nation’s political problems.
The Treaty of Amity and Cooperation in Southeast Asia has a policy of non-interference in the internal affairs of one another11, therefore ASEAN should not have a great effect on any of the ASEAN nations’ democracy. Despite this, ASEAN has commented on Myanmar’s political situation (which is a military junta attempting to become a democracy) mainly due to attention from the mass media.
Method of Evaluation:
Effects on Economy:
The AFTA (ASEAN Free Trade Area) was established on 28 January 199212in which no ASEAN nation was allowed to impose a tariff greater than 20% between another ASEAN nation and by the year 2008 the tariffs between two ASEAN nations must be below 5% (with the exception of new members like Cambodia and Myanmar).
To find out who benefits from AFTA, the contrast between imports and exports (better known as the balance of trade) after the creation of AFTA (1992) needs to be studied. If the value of exports is greater than imports then the nations should gain from increase in trade, as more money is coming into the economy than going out. In fact, people’s standard of living should increase, whereas if the value of imports is greater than exports then the nation would make a loss from increasing trade as money is being leaked out of the economy, and therefore either people's real wages will decrease or people will lose their jobs - either way the standard of living goes down.
Needless to say, there are other factors that could affect the balance of trade between two nations apart from changes in tariff rates, one being a general increase/decrease of import or exports:
Assuming Citrus Paribas, the only things that will affect the change in exports to the rest of ASEAN from Singapore is the change in Singapore’s total exports to the world and the change in tariff rates caused by AFTA. Since this essay is looking at the effects of AFTA on trade, it is necessary to integrate the change of Singapore’s total world exports to the change in exports to the rest of ASEAN. According to conditional probability (form of mathematics) the effects of the tariff will be seen by the difference in percentage change of exports from Singapore to ASEAN over time and percentage change of exports from Singapore to the world over time, multiplied by the value of the original export to ASEAN, Visa-versa for imports. The reason for this is that if there was no AFTA or other outward factors, percentage change of the world trade with Singapore should be equal to percentage change of ASEAN trade with Singapore.
To illustrate this process; in 1999 recorded exports from Singapore to ASEAN were valued at $S49,484 million. Whereas exports to the world were valued at $S194,290 million. The next year exports to ASEAN were valued at $S64,386 million and exports to the world were valued at $S237,826 million.
If E is the increase of export from Singapore to ASEAN due to AFTA;
E = (∆% of exports to ASEAN - ∆% of exports to the world) x original value of export to ASEAN
E = ( x $S49,484,000,000
= (30.11% - 22.41%) x $S49,484,000,000
All the values of percentage change of exports to ASEAN v exports to world after 1992 (creation of AFTA) will be added up to find the effect of AFTA. The same will be done for imports.
In reality Citrus Paribas would not apply, so other trade agreements of Singapore that could affect the world trade with Singapore will be investigated. Other causes of changes to ASEAN trade with Singapore and changes to Singapore’s trade outside of ASEAN will have to be ignored.
To find facts and statistics on trade between nations it is best to use official Singapore statistics, both of which are seen as reliable and credited sources.
Effects on Politics
To evaluate how Singapore’s ASEAN membership affects Singapore’s politics, we will look for any evidence of ASEAN taking any form of action to help Singapore in any of its major publicized politic issues. These would include:
- Helping Singapore by increasing its freedom of speech
- Help in the land and water disputes with Malaysia (in which Singapore threatened to use force)
- Finalize maritime boundaries in the Johor and Singapore Straits
- Support Singapore in continuing its land reclamation plans (which Indonesia and Malaysia have tried to stop)
It would be redundant to investigate any contributions ASEAN has made to decreasing terrorism or piracy within the region, because this would probably benefit other countries within ASEAN equally as much as it does Singapore. ASEAN’s attempts to contain the spread of communism will also not be evaluated, for the same reason.
To evaluate how Singapore being a member of ASEAN improves politics in other nations of ASEAN, this essay will look at any attempts ASEAN has made to help in the main disputes that other ASEAN members have. This would include:
- Brunei’s claim to Limbang corridor
- Cambodia and Thailand disputed sections of boundary and the ownership of the ruins of Preah Vihear temple
- Cambodia and Vietnams dispute over off-shore islands
- Delimiting Indonesia’s and Timor-Leste’s land (which was once part of Indonesia)
If ASEAN did have any involvement in these issues we will next look at specifically Singapore’s stance.
Many of these issues are disputes of ownership between ASEAN nations that could have or have led to conflicts; therefore we are not specifically evaluating ASEAN’s ability to decide who gets what (either way an ASEAN nation benefits from ownership), but its ability to stop conflicts with in the region.
The ASEAN website is the best source for researching ASEAN involvement (if any) on these issues, as ASEAN is a fairly reliable and credited source, although there are still other sources that can be used.
Presentation and analysis of Economic Data:
List of Free trade agreements Singapore has made after AFTA14:
Singapore – Australia (2003)
Singapore – EFTA (2003)
Singapore – US (2004)
Singapore – Jordan (2004)
Korea – Singapore (2006)
Singapore – India (2007)
Singapore – Panama (2007)
GCC (Gulf Cooperation Council) – Singapore (2008)
Singapore – Peru (2009)
Singapore – China (2009)
Tables of trade in Singapore15:
In these trade statistics, Imports are valued at CIF (Cost Insurance and Freight), that is, the value of goods at the frontier of the exporting country plus the cost of insurance and freight and any other charges when sold for export to Singapore. In short the money that is taken from the Singapore economy.
Exports are valued at FOB (Free On Board), that is, the value of goods to the purchaser abroad up to the point where the goods are deposited on board the outgoing vessel, aircraft or vehicle. In short the money that is put into Singapore’s economy.
As expected trade with Singapore and the rest of ASEAN had a very similar gradient to Trade between Singapore and the rest of the world:
From the last table we can see that the estimated increase of exports from Singapore to ASEAN due to AFTA (calculated by the process shown on pages 10-11) is $S22,610,000,000. Whereas the value for imports from ASEAN due to AFTA is estimated at $S5,670,000,000. If this process is correct, then my hypothesis is proven correct as Singapore seems to have increase its trade balance because of AFTA, although this process can only give an estimate of the effects of AFTA.
To evaluate the effects of AFTA even further, we can also look at the changes within trade in a graph to see any trends:
US – Singapore FTA
EFTA – Singapore FTA FftaFFTAFTAAFTFTAFTAFTA
Exports to Cambodia, Vietnam and Laos are recognised as ASEAN
AFTA is signed
Judging by this information, before the Signing of AFTA the difference between percentage increase and decrease of exports to ASEAN was fairly similar to exports to the world. After the creation of AFTA, for two years there was a significant increase in exports to ASEAN which grew a lot faster in percentage than exports to the rest of the world. Also when the rate at which exports to the world decreased, the rate at which Singapore exports to ASEAN decreased was even more rapid - so much so that the percentage change of ASEAN exports against world exports can become minus. This pattern repeats itself two times again. Imports to Singapore don’t seem to follow a pattern as clearly as the Export graph:
The most likely reason for AFTA having had this effect, is when AFTA was created it not only helped make Singapore’s exports cheaper and more appealing to consumers in other ASEAN nations but, it also made all of the other ASEAN nation’s exports cheaper and more appealing to each other. Singapore’s exports are mainly machinery and equipment (including electronics and telecommunications), pharmaceuticals and other chemicals plus refined petroleum products4. With the exception of pharmaceuticals, these are all high order goods and therefore not necessities. Whereas what most of the other ASEAN nations trade in are low-order goods; therefore when a country in ASEAN’s economy is booming and trade is high, demand is high for both high–order and low–order goods, but when the economy is at a bust, consumers will buy more low-order goods regardless of the price of high-order goods. In Singapore’s case demand for its exports in ASEAN decrease more than it would for its other trade partners of Singapore like Europe or US who are more likely to buy high-order goods even within an economic bust.
Since Singapore’s tariff rate was already near to zero before the creation of AFTA, therefore judging by the graph there is not a clear difference to how the ASEAN imports v world imports line moves before and after the creation of AFTA.
Presentation and analysis of Political Literature and data:
ASEAN’s political impacts on Singapore:
There has been no evidence of ASEAN acting or commenting on Singapore’s freedom of speech (because of the non-interference policy), the land and water disputes between Singapore and Malaysia, Singapore’s reclamation plans, therefore it seems that ASEAN has no direct political benefits to Singapore. One might point out that Singapore and Malaysia belonging to the ZOPFAN Declaration may have been a reason why they did not get into a serious conflict, but Singapore and Malaysia are also part of the FPDA which in its self should be able to stop conflict.
ASEAN and Singapore’s impacts on the rest of ASEAN’s political issues:
ASEAN has also shown no evidence of getting involved in many other ASEAN nations’ political issues, namely Brunei’s claim on Limbang corridor, Cambodia and Vietnam’s dispute over off-shore islands, Laos’ journey to democracy and delimiting the Vietnam-China border boundaries.
However, there is evidence of ASEAN getting involved in Cambodia and Thailand’s territorial conflicts, as ASEAN released this statement: “Dr. Surin Pitsuwan also called both (countries) to allow ASEAN to help them bring some form of a temporary truce and cool down the emotions and temper so that a higher interest of both peoples and that of ASEAN can be protected and enhanced….. Surin's wishes would be materialized soon as Indonesia, the current Chair of ASEAN, steps up its diplomatic efforts to help the two sides arrive at a temporary solution so as to allow bilateral mechanisms between them to accomplish their objectives of border demarcation and general peace in the areas.”16Despite ASEAN’s help, it was specifically Indonesia who tried to get involved in the situation - not Singapore.
ASEAN has also encouraged Myanmar’s path to democracy; “We underlined the need for the involvement of all strata of Myanmar society in the on-going National Convention. We encouraged all concerned parties in Myanmar to continue their efforts to effect a smooth transition to democracy.”17Singapore has shown involvement in helping improve Myanmar’s economy18, but has not shown much evidence in helping politically, therefore suggesting that Singapore sees ASEAN as a means to boost economic activity not political reform.
ASEAN has likewise made attempts to improve relations between Indonesia and Timor-Leste (also known as East Timor) as is shown in many ASEAN statements: “The Foreign Ministers commended Indonesia for all its efforts in resolving the East Timor issue, and noted the key role of the United Nations Transitional Administration in East Timor (UNTAET) in ensuring the territory’s smooth transition to fall independence. They reaffirmed ASEAN’s support for and encouraged the international community to remain engaged in, the process of reconciliation, rehabilitation and reconstruction that is essential for a peaceful and stable East Timor.”19Despite this effort to increase sustainability between Indonesia and Timor Leste, there is evidence that Singapore has worsened the problems, because Singapore rejected East Timor's candidature (to join ASEAN) but Mr Ramos-Horta (president of East- Timor) believes other member countries of ASEAN did not agree with Singapore's decision20. By doing this Singapore has opened up the possibility of Indonesia and East Timor having a conflict. Since Timor Leste’s membership was probably rejected because of Timor Leste’s poor economy, this backs up the theory that Singapore sees ASEAN sole as an organization made for economic purposes not political.
Perhaps the only positive action Singapore has made in improving politics within ASEAN is regarding the claims on the South-China Sea. In a statement, Singapore's foreign ministry said: "We... think it is in China's own interests to clarify its claims in the SCS (South China Sea) with more precision, as the current ambiguity as to their extent has caused serious concerns in the international maritime community.”21 Although this may not seem very important, Singapore is a big trade partner with China and Hong Kong, and due to its large Chinese population are recognised as a friend of China, therefore they have and may be able to continue to help arbitrate the South China Sea dispute in a peaceful manner. Also Singapore has experience as a mediator with the China-Taiwan relationship; hence it may play an even more important role in the South China Sea conflict.
Conclusion and Evaluation of Essay:
Hypothesis 1: Singapore gains most from having free trade within South-East Asia
From both looking at the table and the graph, it is quite apparent that Singapore gains a higher trade balance from the creation of AFTA, therefore my hypothesis is shown to be correct. There is also evidence to indicate that the percentage change of Singapore’s total exports to the world and the creation of AFTA are two major factors that have caused a change in Singapore’s exports to the rest of ASEAN (therefore suggesting that the process used to measure the increase of exports to ASEAN due to AFTA to be correct): On the graph of Singapore exports, exports to ASEAN and the world follow a very similar pattern apart from the world line being steeper. Regarding the percentage change of the exports from Singapore graph, the percentage change of ASEAN exports v world exports clearly became more exaggerated after the creation of AFTA. On the other hand the percentage change of imports from ASEAN were fairly proportional to the percentage change of imports from the world, but was not clearly affected by AFTA.
Despite the evidence to suggest the above research process worked, it is certain there are many other factors that affect the change of exports and imports between Singapore and ASEAN. These were not taken into consideration; therefore this conclusion could be incorrect.
Hypothesis 2: Singapore has contributed to political change in other ASEAN countries, but Singapore has not changed politically because of its membership in ASEAN.
ASEAN has shown no evidence of working on improving Singapore politically, probably because of the non-interference policy and perhaps Singapore does not want ASEAN to get involved in its politics. Whereas Singapore has made some negative contributions to ASEAN’s politics and some positive ones. These sources have also given the impression that Singapore sees ASEAN as a tool to improve the economy not politics.
The method used to test this hypothesis worked well, although there is a possibility the sources sited were incorrect or that there was research that was missed out.
The official website of ASEAN
last accessed 12 July 2012
CIA world factbook
< https://www.cia.gov/library/publications/the-world-factbook> last accessed 12 July 2012 Department of Statistics Singapore