12 years after its landmark summit in Cebu, the Association of Southeast Asian Nations (ASEAN) still has a ways to go in meeting the goals of its Economic Community Blueprint—which was originally slated to come into full force by 2015. The ambitious proposal, whose scope is rivaled only by the European Union’s (EU) own single market, would see the abolition of barriers in the trade of goods and services and the movement of labor within the regional bloc.
Originally planned for 2020, the implementation of the plan was moved forward during the annual leaders’ summit in 2007. The decision to expedite the integration process was made after the member-states formally organized the ASEAN as a legal entity at the same meeting.
By 2015, a report issued by the association claimed it had fully met the criteria for two objectives: attaining equitable economic development, and integrating the region into the world economy. However, it acknowledged shortcomings in meeting two other objectives, namely creating a single market and production base, and promoting a competitive economic environment—undertakings considered more difficult to complete than the first two.
Of the four main goals, the consolidation of every member-state’s economy into one barrier-free market was considered the linchpin of this monumental project, which was formed around the idea of treating the ASEAN as if it were a singular economy. It would have supposedly been the most evident accomplishment to the approximately 630 million people in the region, all of whom would be able to work in any ASEAN country, generally, without the need of a work permit or visa.
If the walls did fall between the 10 countries, the alignment of national economic policies would be vital to maintaining a business-friendly environment. For example, businesses would be more inclined to operate region-wide if they knew their copyright in Singapore was just as protected in, say, Yangon or Jakarta. Intellectual property rights are still just one category of regulations that would need to be standardized across the region to encourage competitiveness in the market.
Inherent difficulties
The ASEAN is an organization whose ties are founded upon the geographic locations of its members. In its own founding document, it lays only one substantive condition for membership: being located within the Southeast Asian region. Unlike the EU—whose applicant-countries are required, among other things, to provide for a democratic system of government, meet monetary benchmarks, and mirror certain EU regulations even before formally joining—the ASEAN retains no significant conditions to be met before accession.
Thus, the rich diversity of the organization may actually lend to the cumbersome nature of any reform implemented within it. Major reforms are made even more implausible considering that ASEAN operates on a strict principle of unanimity. Whether it be gargantuan Indonesia or the island-nation of Singapore, each country holds a de facto veto over any matter considered.
All 10 members must work to produce policies that each one finds acceptable without watering them down to a point where they are rendered ineffective and useless.
Economic integration and protectionist policies
The ASEAN Economic Community (AEC) is one of the three key pillars that define the ASEAN community and it represents the region’s end goal of economic integration. That is, it seeks to render the region to be a single investment destination—thereby inducing equitable economic development—that is highly competitive and fully integrated into the global economy. In achieving this, the ASEAN region will ultimately be characterized by a higher fluidity of capital and skills, brought about by the dynamic movement of goods, services, and investments—hallmarks of an empowering economic and investment climate.
Indeed, as early as 1992, the AEC had already begun reducing trade barriers—such as with the creation of the ASEAN Free Trade Agreement—in turn enhancing market access, improving trade rules, and creating more opportunities for ASEAN businesses. According to Singapore’s Minister for Trade and Industry Chan Chun Sing, however, the next challenge for the AEC in actualizing this seamless business environment lies in preparing the ASEAN community for today’s era that is being defined and driven by two factors: digital transformation and uncertainties brought about by escalating trade tensions.
On the subject of digital transformation, ASEAN economic ministers have already taken a concrete step forward. On November 12, 2018, the group signed into agreement the ASEAN Agreement on Electronic Commerce—ASEAN’s very first agreement on e-commerce, finalized after nine rounds of negotiations that began in June 2018. The agreement seeks to facilitate cross-border e-commerce by helping businesses access and move data across borders of ASEAN member states more easily—along with the promoting and upholding of relevant regulatory measures concerning data protection—thereby lowering barriers to entry.
Focusing on e-commerce is without a doubt paramount to the region’s economic ascension. After all, it is within Southeast Asia that we are seeing a rise of homegrown unicorns (i.e., local, privately-held startups valued at over US$ 1 billion), such as the Singapore-based Lazada and Indonesia’s Tokopedia. Both these brands now have a sizable presence in the region’s thriving e-commerce market, driven primarily by a young, digitally-savvy population. The AEC Blueprint 2025 understands the huge potential offered by the digital economy, for while it currently accounts for only 7% of ASEAN gross domestic product, it is capable of uplifting the region’s economy by US$ 1 trillion by 2025 when fully tapped into being the main pillar of enhanced connectivity and sectoral cooperation.
Escalating trade tensions have, without a doubt, stemmed from President Donald Trump’s foreign policy of putting ‘America First.’ Consequently, the US is continuing to pull out from a variety of trading blocs and partnerships, with the ASEAN region being no exception said Yan Xuetong, chief of Tsinghua University’s Institute of International Relations. Moreover, Yan has deemed China to be lacking the capacity to take the US’s place in the global geopolitical stage, therefore leaving ASEAN members with a golden opportunity to take the helm and now drive forward the region’s management and cohesive integration in the midst of this geopolitical power vacuum.
Unfortunately, sentiment amongst European Union (EU) businesses operating in the ASEAN region is clear: ASEAN economic integration is in a delayed state, due mainly to individual members being reluctant to open and liberalize their markets. According to Chris Humphrey, Executive Director of the EU-ASEAN Business Council, “regional economic integration in ASEAN is happening at a crazily slow pace […] and so we’re not seeing a big improvement in the trade representation in the region…” More specifically, it is the lack of initiative in improving customs procedures and removing non-tariff trade barriers that are driving this negative sentiment.
Indeed, according to 2018’s EU-ASEAN Business Sentiment Survey which polled 330 of said executives, only 42 percent of them feel that ASEAN economic integration has made a positive impact on their business—down from 2017’s 47 percent. Moreover, only 12 percent of such executives believe that ASEAN has achieved its aim of being a single market and production base. Such sentiments should not be taken lightly. After all, the EU is currently the second biggest trade partner of ASEAN with bilateral trade reaching US$ 261 billion in 2017, up 11.9 percent from the previous year. The EU’s direct investments in the region, which was worth US$ 25.4 billion in 2017, is also the largest source of foreign investment, accounting for 18.6 percent of the total foreign direct investment in the region.
Nevertheless, the survey also showed that 85 percent believe that further ASEAN economic integration will be important to their businesses—up from last year’s 71 percent. At the 22nd ASEAN-EU Ministerial Meeting held in Brussels last January 21, 2019, Federica Mogherini, High Representative of the EU for Foreign Affairs and Security Policy, continued to emphasize the two blocs’ special relations and longstanding cooperation as partners in integration. It is therefore imperative that existing ASEAN Regional and Domestic Policy Frameworks be addressed, lest the region is deemed as imperiously turning itself away.
