Commentary: Is ASEAN's economic integration still a work in progress?

Commentary: Is ASEAN's economic integration still a work in progress?

That ASEAN has not deepened intra-regional trade ties means that opportunities have been lost, argues NUS Business School's Andrew Delios.

A sign welcomes delegates to the ASEAN summit at the Philippine International Convention Centre in April 2017. (Photo: AFP)

SINGAPORE: ASEAN is a success in many ways. Since the regional bloc was founded 50 years ago, the number of member nations has doubled. The region has also long been peaceful and prosperous, thanks to the absence of inter-regional conflicts and impressive economic growth.

Since 1993, total trade by ASEAN countries grew more than six times to US$$2.5 trillion from US$400 billion.

Poverty has declined in the ten-member ASEAN countries. Fewer of the region’s 600 million people live in poverty or have low incomes. Gradually, but assuredly, each country is seeing its people transition from poor to low-income and to middle-income levels.

Countries such as Singapore are among the world’s wealthiest. Others such as Vietnam are the fastest-growing, while Indonesia, Thailand, the Philippines and Malaysia are firmly planted as robust middle-income economies.

ASEAN leaders established the ASEAN Vision 2020 to create a prosperous and peaceful region. An important part of this vision was to heighten economic growth, deepen intra-regional trade ties and allow the free movement of people, goods, services and investment capital in a common market, within ASEAN.

But ASEAN has not achieved such a vision to date.

REGIONAL ECONOMIC INTEGRATION AND INTRA-ASEAN TRADE TIES REMAIN WEAK

Today, intra-ASEAN trade ties remain weak. With the exception of Laos, ASEAN countries' trade with economies outside of ASEAN still outpaces intra-ASEAN trade by a factor of three. By comparison, intra-NAFTA (North American Free Trade Agreement) trade surpassed extra-NAFTA trade levels in just five years after NAFTA’s implementation.

Even the region’s most open economy, Singapore, derives just a quarter of its trade with other ASEAN states. Vietnam has rapidly become immersed in international markets. But only 13 per cent of ASEAN’s trade is intra-ASEAN trade. One of the stated policy goals of the ASEAN is to improve intra-ASEAN trade ties, but this has not happened.

Shipments to all of Singapore's top 10 markets rose in March. Exports to China, its biggest export destination, surged 45.5 per cent from a year earlier, while shipments to Taiwan rose 32.5 per cent and shipments to Hong Kong grew 17.4 per cent, IE Singapore said. (Photo: AFP)

Trade within ASEAN has not been as attractive to each ASEAN country compared to external trade. In a way, this means that economic connections between ASEAN countries have not deepened. Such connections provide stimuli to improve the international competitiveness of their companies.

Low levels of trade mean that ASEAN countries rely more strongly for developing growth on economic giants such as the US and China, than on ASEAN countries. There is much room for market forces to lead to greater intra-ASEAN trade ties, provided ASEAN policy makers do their job and reduce tariff and non-tariff barriers.

The conventional wisdom that ASEAN countries are in different stages of development and require protection within ASEAN is wrong. Low-income and high-income countries can and do benefit from trade with each other. Firms and countries always compete with each other. But competition is not a bad thing. Competition is the breeding ground for economic growth. 

That ASEAN has not deepened intra-regional trade ties means that opportunities have been lost.

MEANWHILE CHINA’S GROWTH POSES AN ECONOMIC CHALLENGE

China burst onto the world’s economic stage in the 1990s. Very quickly, China became the business world’s new darling where international trade blossomed and foreign direct investment grew at staggering rates. China established vast production networks that rightfully could have been built in ASEAN, had the world’s investment community seen the ASEAN as a single economic entity.

The IMF's economic growth forecast for China in 2017 is 6.6 per cent compared to a 6.5 per cent estimate in January. (Photo: AFP/Nicolas Asfouri)

While China’s economic growth has led to wage growth, creating higher costs of domestic production, new opportunities have arisen to re-capture those industries that migrated wholesale to China. Regional production networks can and will shift out of eastern China. But will they shift to China’s interior, to India or to ASEAN countries?

An open, competitive and integrated ASEAN stands a great chance of attracting new industries.

But for this happen, steps must be taken to achieve the ASEAN Economic Community (AEC) - the long-awaited initiative to integrate the region’s diverse economies into a single market. A single market balances opportunities and power. ASEAN as a single market is a much more formidable economic entity whose policies matter more internally and more in external negotiations with other large economic units such as China and the European Union.

Yet there seems to be little sign of action in the most recent round of talks. Instead, talks centred on indefinite and ambiguous promises of integration and cooperation. Press releases seem to focus significantly on security issues, especially topical ones such as the risks of North Korean aggression, collective responses to expansionist behaviours in the South China Sea, and re-assertions of national policy independence. That regional security issues dominate the agenda is expected.

But it is unfortunate because it leaves unanswered questions on how ASEAN’s economic integration is coming along. ASEAN’s leaders have called for economic integration many times, but concrete action to show progress has not followed. Progress will boost investors’ confidence and attract more businesses to the region. But this has not happened.

So what can ASEAN do? Some people say it might be more encouraging if talks yielded one of two outcomes.

OUTCOME 1: FOCUS ON OTHER AREAS OF COOPERATION

ASEAN leaders’ rhetoric about the creation of the AEC is impressive. The reality is less so.

ASEAN leaders often claim success for the bloc because member states are growing well but the region is not living up to its true potential.

The policies and policy makers in ASEAN are satisficing. They have not been acting to maximise opportunities for growth in terms of furthering economic trade and linkages with each other.

The reality for most ASEAN countries is that economic growth comes from bilateral FTAs, extra-ASEAN investment and domestic policy initiatives. This may be a result of the lack of economic integration, but it might also be the reason why economic integration within ASEAN has appeared lacklustre. External trading partners know the reality that ASEAN is not a common market, making it easier for countries such as the US to pull out of the Trans-Pacific Partnership (TPP), and far less likely for any discussions on a Regional Comprehensive Economic Partnership (RCEP) to be realised.

After several years of subdued economic output, government figures showed growth of the Indonesian economy of 5.02 per cent, compared to 4.88 per cent a year earlier - the smallest expansion since 2009. (Photo: AFP)

Instead, policy makers should acknowledge that the AEC is primarily a forum for stabilising relations between member states. They should concede that the AEC unites member states on a political front when faced with challenges from large regional rivals such as China or India. They should reassert that the AEC encourages peace and mutual understanding across countries with pronounced societal and cultural differences.

If ASEAN doesn't drop this pretence that there has been progress towards an AEC, then policy makers must really start work on making the AEC a reality. This begins with outcome 2.

OUTCOME 2: ESTABLISH CLEAR GOALS AND SIGNPOSTS TO GUIDE ECONOMIC INTEGRATION

Nobody expects the AEC to emerge overnight. But nobody expects the AEC to emerge if ASEAN meetings conclude primarily with vision statements and general guidelines for development.

Instead, if the AEC is to lead to regional economic integration and be the precursor to the RCEP that it must be, then policy makers must guide and measure integration with tangible metrics. Individual politicians can dance around rhetoric. But once clear goals and signposts are established, countries and indeed ASEAN as a group will have to act as they said they will act.

ASEAN leaders at the opening ceremony of the 30th ASEAN Summit in Manila.

ASEAN leaders need to establish clear metrics to measure the overall health of ASEAN’s economic integration and external trade and investments. Definitive steps must be taken to facilitate trade and eliminate tariff and non-tariff barriers to trade. Cross-border investment must be liberalised. National champions must be exposed to more competition. Small- and medium-sized enterprises must venture beyond their own borders. Infrastructure must be improved to better intra-ASEAN logistics.

These are high-brow expectations but if ASEAN aims high and is willing to work towards such goals, progress on economic integration can be forthcoming.

When subsequent rounds of talks occur, leaders can evaluate whether the formation of the AEC is on track. Instead of releasing statements on very broad economic aggregates, leaders can refer to these specific measurable items to defend statements of ASEAN successes.

The twice annual ASEAN leaders’ summits are expensive. Massive amounts of manpower need to be mobilised for coordination and security. Legions of aides need to plan the summit and travel to it. The precious and irreplaceable time of leaders is consumed by these summits.

Given these costs and given the hopes embedded in the summits, the people of ASEAN can reasonably expect more from the talks. If ASEAN is serious in pursuing regional integration, then it’s time to get down to the nuts and bolts to make it happen.

Professor Andrew Delios is head of the Department of Strategy & Policy at National University of Singapore (NUS) Business School. 

Source: CNA/sl

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