KUALA LUMPUR: Southeast Asia wants to form a loose economic union, but the region will have to conquer a mountain of national interests and mutual suspicion before it gets there.

Malaysia urged fellow members of the 10-member Association of South East Asian Nations (Asean) on Tuesday to speed up the timetable for economic union by five years to 2015.

But the push to economic harmony has to overcome existing discord.

Asean firms are accused of being too timid to cross borders, but the reality is they have often got a cold welcome or found their way barred by red tape and trade barriers.

Asean has been a free trade area since 1993, but Thailand refuses to drop import tariffs for Malaysian car-makers, accusing its neighbour of protecting them with non-tariff barriers.

“We still have many differences,” Tony Fernandes, founder and head of low-cost airline AirAsia, said in a recent interview. “I still see a lot of nationalism in places.”

AirAsia, which wants to be a pan-Asean carrier and expand air travel in the region, has been refused landing rights in Singapore, despite ASEAN talk of “open skies” aviation.

Across the region, business sense takes a back seat to nationalism, even when relatively small assets are at stake.

Singapore-listed Parkway Holdings faced a political backlash after it bought 31 per cent of Malaysian healthcare firm Pantai Holdings last year. Pantai remains majority Malaysian-owned but once Parkway bought in, the government ordered a review of Pantai’s major contracts with the state.

“This is hardly the right kind of signal to transmit for a country wanting to woo foreign portfolio investment,” Singapore’s Business Times wrote on Monday.

Malaysia and Singapore have a long history of distrust and, despite 39 years of regional diplomacy under the Asean umbrella, other Southeast Asian nations are also wary of each other.

In preparing for a single market, Asean listed sensitive areas where states did not want neighbours to invest freely.

“It’s not a list, it’s a book,” Malaysian Trade Minister Rafidah Aziz told reporters this week, showing a huge list that ran to dozens of pages.

Cross-border deals are growing in Asean, with neighbours investing in Indonesian banks and the Philippines’ power sector, but it is far from open season for mergers and acquisitions.

Singapore state investment arm Temasek, with roughly $64 billion in assets at end-March 2005, has to tread very carefully. Neighbours covet its capital but not the Singaporean influence.

Temasek bought into Malaysia’s smallest lender, Alliance Bank, in 2005 after spending seven months to craft a complex deal that met tough foreign-investment rules. It later sold part of another Malaysian bank amid talk of local central bank pressure.

Thailand launched a probe this week into Temasek’s $3.8 billion purchase of Shin Corp, Thailand’s biggest telecoms company, from the family of the Thai premier. The inquiry will decide if the deal broke foreign-investment rules.

“The various parts of Asean have their own sensitivities,” said Stuart Forbes, head of Malaysian International Chamber of Commerce and Industry. “That is not going to go away overnight.”

Asean spans the development and political spectrums, from a modern services-based economy in Singapore to a rural backwater like Laos, and from a big, emerging democracy in Indonesia to one of the last absolute monarchies in tiny Brunei.

Given the disparities, a single market along the lines of the European Union is considered by economists to be unachievable by 2020. Within Asean, an EU-type system, where labour can flow relatively freely across borders, could be frightening.

Even with existing tight immigration laws, the flight of poor Indonesians seeking work and new lives in more prosperous parts of the region constitutes one of the world’s largest migrations of people. Indonesia is the world’s fourth most populous nation.

Still, Asean feels compelled to lower barriers to trade, capital and labour despite discomfort about national interests. Asia’s hottest investment destination in the 1990s, it now ranks third after China and India and does not want to slip further.—Reuters