Subregionalism: Impact on Regionalism and Multilateralism

How is the subregionalism of the GMS program affecting regionalism and multilateralism? Are these intensive efforts at promoting subregionalism taking place at the expense of openness? We have already noted the rapid increase in intra-GMS trade and FDI flows, but is this running the risk of making the subregion more inward looking? The short answer is “no.”

As noted in Section 2.1, the GMS program is a classic case of market as opposed to institutional integration. There is no legal agreement prescribing preferential tariff concessions, so there is no potential for trade diversion as a result of the integration arrangement. Although there is no avenue for the textbook definition of trade diversion, is the GMS program giving its members an unfair advantage over nonmembers by making the movement of goods, services, and factors of production less costly inside the subregion compared with outside? In other words, is not an implicit subsidy to insiders just as bad as an explicit tax on outsiders? The short answer in this case is again “no.”

Although the hardware and software initiatives of the GMS program are mainly directed at promoting trade and investment, nothing in their design or application confines their impacts to the subregion. These public and quasi-public goods, once provided in or for the subregion, will also improve economic relations with the ASEAN region as a whole. In other words, subregionalism is driving regionalism because the way in which these subregional public goods are provided also enables them to operate as regional public goods.⁷

Emerging transport networks and economic corridors in the subregion are transforming its economic geography (ADB 2004). As connectivity between GMS countries improves, their linkage with the region as a whole is also enhanced. For example, when the economic corridors are completed, it should be technically feasible for goods to be transported by land from Singapore through Malaysia to anywhere in the subregion. Apart from physical connectivity, various legal and other software issues currently stand in the way of such a movement of goods. To address them and other related issues, trade and investment facilitation measures that are nondiscriminatory and WTO-consistent are being pursued subregionally. They complement measures AFTA is pursuing. Thus, directly or indirectly, countries outside the subregion will also have access to these initiatives and measures, so they will contribute on a general level to increased trade and investment. Thus not only can subregionalism be consistent with regionalism, but the former can also be a catalyst in driving progress with the latter.

On the other hand, what is the effect of subregionalism on multilateralism? Although the vast majority of positive spillover effects currently appear to be confined to the region, there are already signs that they are beginning to spread to outside countries. Over time, we should observe that subregional initiatives not only promote regionalism but also indirectly contribute to multilateralism as trade and investment increase globally. In other words, these subregional public goods can operate not only as regional public goods; they also have the potential to be global public goods. Consider the land-locked case of Lao PDR for instance. Without the economic corridors that provide road access to ports in neighboring countries, its exports to the rest of the world would be severely constrained by high transport costs. The same would be true for its imports from the rest of the world. In this way, connectivity through infrastructure development is reducing “natural protection” in a nondiscriminatory manner.

The GMS program itself provides a different kind of example of this phenomenon. It has helped its members become more effective members of ASEAN. This, in turn, will help them become more effective and visible members of the global community. These interrelations operate not only in terms of outcomes, however, but also in the process of moving toward these outcomes. For example, measures to facilitate subregional trade and investment complement many of the liberalization measures pursued as part of AFTA membership. This, in turn, helps some AFTA members prepare for WTO accession.

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