Located between the Pacific Ocean and the Indian Ocean and embracing over 600 million people, the Association of South East Asian Nations is a highly dynamic market with excellent growth potential.

While Korea’s trade with conventional partners, such as the United States, European Union and Japan has slowed, ASEAN has been South Korea’s second-largest export destination since 2011, according to the Ministry of Trade, Industry and Energy. In terms of export increase rate, it outpaced the United States in 2008.

Korea is ASEAN’s fifth-largest trade partner, and put in $3.5 billion in foreign direct investment last year, 105 percent up from $1.7 billion in 2012.

Singapore was Korea’s largest ASEAN trade partner with $32.7 billion in total trade volume last year. Indonesia and Malaysia had the highest amount of exports to Korea, with $13.2 billion and $11.1 billion respectively.

The biggest growth was in Vietnam, where Korea’s export volume soared by 119 percent in 2010-2013, to $21 billion from $9.7 billion.

Despite the general economic sluggishness which has affected the world over the past years, the Southeast Asian cluster has achieved a steady growth ― 4.7 percent in 2011, 5.6 percent in 2012 and 5.5 percent in 2013.

This year’s special summit reflects the growing significance of ASEAN, as it was held only five years after the last official summit in 2009 ― a relatively short term compared to Japan. The neighboring country held its special summit with ASEAN last year, 10 years after the 2003 summit.

In the upcoming summit, both sides will seek to simplify the visa issuance process for ASEAN nationals, to establish a business consultative group, and to expand target trade volume to $200 billion by 2020.

Considering such fast-increasing interactions and further growth potentials, however, the level of inter-government economic cooperation between Korea and ASEAN is not as intense as it should be, according to trade experts.


Effects of bilateral FTA limited

The Southeast Asian community formed back in 1967 as a regional cluster of Thailand, Philippines, Malaysia, Indonesia, and Singapore. Brunei joined in 1984, after which Vietnam, Laos, Myanmar, and Cambodia signed up in the 1990s.

Boosted by its plentiful labor force and natural resources, ASEAN quickly grew to become the world’s seven-largest economic bloc.

Official relations between Korea and ASEAN go back to 1989 but it was later in 1997 that the two counterparts held their first summit.

Both agreed that a free trade deal was needed to reinforce their ties but the negotiations took several years, mostly due to ASEAN’s multinational nature.

The process came in three phases, starting off with a product agreement in 2006 and a service agreement in 2007, leading up to the complete version of the Korea-ASEAN Free Trade Agreement in 2009.

But experts often point out that the effects of the bilateral deal were limited, citing the relatively low concessional rate and the range of tariff-cut products.

The Korea-ASEAN FTA was concluded at a general concession rate of 90 percent, and it excluded automobiles, which is one of Korea’s key export items.

“When a free trade agreement offers a low level of openness, the government should continuously seek to expand the leverage of the deal so that companies may actually benefit from it,” said Jeong In-gyo, professor of economics at Inha University.


Launch of AEC will affect Korea-ASEAN ties

Another factor to be considered in the Korea-ASEAN economic relationship is the ASEAN Economic Community, an economic project which ASEAN is pledging to launch next year.

Should the AEC kick off as planned, it will create a new common market, incorporating ASEAN’s 630 million population and $3 trillion of gross domestic product.

“We have completed 80 percent of the necessary measures (to kick off the AEC),” Thein Sein, president of Myanmar and chairman of ASEAN this year, said last month.

But market observers suggest that the plan is unlikely to run on schedule nor achieve all of its aims.

“This aspiration (for economic integration) is not yet a working reality on the ground,” MGI wrote in its report titled “South-East Asia At The Crossroads: Three Paths To Prosperity.”

But the institute acknowledged that tangible progress has been made so far, one of which is the near elimination of tariffs among member states.

“The launch of the ASEAN economic unity will further boost ASEAN’s leverage in the East Asian region, and given that, we need to take our bilateral ties to a more strategic level,” said Foreign Minister Yoon Byung-se.

By Bae Hyun-jung (tellme@heraldcorp.com)