07 August 2016

Why ASEAN matters

ASEAN matters, for both its ten member countries and the global system. But today this important group stands at a crossroads, writes John West.

As Asia’s giants of China and India dominate discussions of the Asian Century, we can sometimes overlook the ten countries of Southeast Asia, which are members of the ASEAN group (Association of Southeast Asian Nations). This is wrong.

ASEAN economies are important

The ASEAN group of ten countries is very important. Here are a few statistics.

ASEAN’s population of 622 million is almost double America’s 320 million and even more than the EU’s 506 million. As a group, they are an economic powerhouse, being the world’s seventh biggest economy, and could be the fourth biggest by the year 2050. And while ASEAN has not grown as quickly as China or India, the group is one of the world’s fastest-growing markets with an annual average growth rate of 5.1% from 2000-2013.

Indonesia, with a population of 250 million, accounts for almost 40% of ASEAN’s GDP. Indonesia is also the only ASEAN country to be a member of the G20, "the premier forum for international economic co-operation".

At $10,700, ASEAN’s GDP per capita in PPP terms is below China’s $14,200, but it is also well ahead of India’s $6,100. ASEAN is the world’s fourth largest exporting region, coming after only the EU, NAFTA and China/Hong Kong. In 2013, the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand) attracted more FDI than China ($128 billion versus $117 billion).

ASEAN’s most important trading partners are China, Japan and the EU. Wealthier ASEAN countries tend to have a diverse set of trading partners, whereas ASEAN’s least developed countries, Cambodia, Laos, Myanmar and Vietnam (CLMV) have become the most reliant on Chinese trade. China’s rise has thus exerted a powerful pull over ASEAN economies and politics. ASEAN is the EU’s third largest trading partner outside of Europe, coming after the US and China.

In recent years, the EU has led the world for flows of foreign direct investment (FDI) into ASEAN, ahead of even Japan which has been ASEAN’s second most important external investment partner. The leading EU investors in ASEAN are the Netherlands, UK, Belgium and Luxembourg. Since 2012, there has been a new wave of Japanese investment in ASEAN, in response to rising wages and geopolitical tensions with China, and the prospects of the ASEAN Economic Community.

While China is not yet a major investor in ASEAN overall, it is the most important source of FDI in Cambodia, Laos, and Myanmar, and the second most important in Vietnam (Singapore is also an important destination for Chinese outward FDI). Chinese companies have been relocating production facilities to ASEAN, as Chinese wages have been increasing and the economy has been slowing.

China has also been investing heavily in infrastructure in ASEAN countries bordering China, namely Laos, Myanmar and Vietnam. The financing of this may not fully show up in FDI statistics. In fact, Chinese FDI in ASEAN may be understated by official statistics, as some passes through Hong Kong and Singapore, and some may simply not be informed to the Chinese government.

ASEAN’s importance is not just in its size. ASEAN countries have great geostrategic significance, as a very large share of global trade passes through its waters.

How did ASEAN begin?

In 1967, the governments of Indonesia, Malaysia, the Philippines, Singapore and Thailand decided to join forces through the creation of ASEAN. The need for security cooperation was the main motivation for the creation of ASEAN. This was of course the time of the Cold War, when these five nations and many Western countries were concerned about the threat of communism from especially from China and Vietnam, the “yellow peril”. During the 1960s, Mao Zedong supported communist insurgency movements in Southeast Asia. There had even been conflicts between ASEAN countries.

Later on, in 1984, Brunei, would also join. In addition to security issues, ASEAN has always undertaken economic, social and cultural cooperation.

With the end of the Cold War and the emerging globalization of the world economy, ASEAN was transformed into an important organization for economic cooperation, as well as political and social/cultural cooperation. Thus, ASEAN’s membership expanded to include Vietnam (1995), Laos and Myanmar (1997), and Cambodia (1999).

Diversity and the “ASEAN way”

A key aspect of the success of ASEAN has been bringing together an immensely diverse group of countries.

The group includes the very wealthy Brunei and Singapore, successful middle income countries like Malaysia and Thailand, emerging economies like Indonesia and the Philippines, and relative newcomers like Vietnam, Laos, Myanmar and Cambodia.

The group also includes: the vibrant democracies of Indonesia and the Philippines; the flawed democracies of Malaysia and Singapore; the military-dominated countries of Myanmar and Thailand; and the authoritarian regimes of Brunei, Cambodia, Laos and Vietnam. It also includes countries of dominant Buddhist, Christian, and Muslim faith, along with Confucian societies.

ASEAN’s immense diversity is one key reason why the group’s cooperation has been based on harmony, informality, compromise and consensus, and non-interference -- the “ASEAN Way”. But this also means that ASEAN policies are based on the lowest common denominator. The celebrated "ASEAN way" also hands member states a convenient pretext for noncompliance of ASEAN agreements.

Economic integration commitments lack sufficient mechanisms to ensure compliance. Some have argued that less than 50% of ASEAN agreements are actually implemented, while ASEAN holds more than six hundred meetings a year. In other words, ASEAN more a “talk shop” than a serious international organization.

Modest ambitions, but concrete progress

ASEAN has often been criticized by many observers, especially when compared with the more ambitious European Union, for its apparent lack of ambition. But over the years, ASEAN has delivered concrete results. The ASEAN Free Trade Area (AFTA) was signed in 1992, and now includes all ten ASEAN members.

In 2015, the ASEAN Community came into force, under three pillars. This is billed as a community of opportunities under three community pillars: Political-Security Community; Economic Community; and Socio-Cultural Community. The ASEAN Economic Community is founded on four basic initiatives: creating a single market and production base; increasing competitiveness; promoting equitable economic development; and further integrating ASEAN with the global economy.

Over the years, there has been talk of creating an “ASEAN Currency Unit”. But there is very little likelihood of this idea being realized, especially in light of the Euro’s travails.

While this ASEAN Community is relatively low on ambitions, weak on implementation, and high on sweet words, it should not be underestimated. The generally positive and friendly relations between ASEAN member countries represent great progress relative to the tense times of the 1960s. And concrete efforts are being made to deepen the Free Trade Area, and lift restrictions on the migration of skilled labor.

ASEAN leads Asia’s regional cooperation efforts

ASEAN’s efforts at regional cooperation may seem relatively modest. But ASEAN is the most significant and successful regional cooperation in Asia.

North East Asia has nothing like ASEAN. China does have individual free trade agreements with Korea, Taiwan and Hong Kong. But these are all individual, bilateral agreements, and it does not have a free trade agreement with Japan. Moreover, due to politics and history, there is virtually no likelihood of a joint free trade agreement between the economies of this most advanced region of the Asian economy.

And when it comes to South Asia, there is also no likelihood of free trade agreements and positive economic cooperation involving India and Pakistan, two countries which have nuclear weapons pointed at each other.

ASEAN, the fulcrum of Asian cooperation

With strained relations between many countries in East and South Asia, ASEAN has become very influential and is indeed the “fulcrum” of Asian regional cooperation. ASEAN now has FTAs with six other countries, namely China, Japan, Korea, Australia, New Zealand, and India, as part of the flurry of FTAs negotiated in Asia in response to the failure of WTO trade talks to make concrete progress. In addition, some of these six countries also have FTAs with individual ASEAN countries which are more ambitious in their trade liberalization. In short, trade liberalization efforts in Asia have been centered on ASEAN. Most of these FTAs are, however, shallow, as is ASEAN’s own AFTA.

These FTAs with ASEAN are in the process of being combined (and hopefully deepened) into a "Regional Comprehensive Economic Partnership" (RCEP), whose negotiations were launched in 2012. The RCEP is an ASEAN-centred proposal for a regional free trade area, which would initially include the ten ASEAN member states and those countries which have existing FTAs with ASEAN – Australia, China, India, Japan, Korea and New Zealand. The 16 RCEP participating countries account for almost half of the world’s population, almost 30 per cent of global GDP and over a quarter of world exports.

ASEAN also takes a leading role in security dialogue in Asia through the ASEAN Regional Forum (ARF), which was established in 1994. It comprises 27 members: the 10 ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma, Philippines, Singapore, Thailand and Vietnam), the 10 ASEAN dialogue partners (Australia, Canada, China, the EU, India, Japan, New Zealand, ROK, Russia and the United States), one ASEAN observer (Papua New Guinea) as well as the North Korea, Mongolia, Pakistan, Timor-Leste, Bangladesh and Sri Lanka.

The ARF is a key forum for security dialogue in Asia, complementing the various bilateral alliances and dialogues. It provides a setting in which members can discuss current regional security issues and develop cooperative measures to enhance peace and security in the region. The ARF is characterised by consensus decision making and minimal institutionalisation.

ASEAN is also in a leadership position of the East Asia Summit (EAS) which is a regional leaders' forum for strategic dialogue and cooperation on key challenges facing the East Asian region. The inaugural EAS meeting was held in Kuala Lumpur on 14 December 2005.

Membership of the EAS comprises the ten ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma, the Philippines, Singapore, Thailand, Vietnam), Australia, China, India, Japan, New Zealand, the Republic of Korea, the United States and Russia. The 18 EAS member countries represent collectively 55 per cent of the world’s population and account for around 55 per cent of global GDP in PPP terms.

Following the 1997 Asian financial crisis, which many Asian leaders believe was exacerbated by the heavy hand of the IMF, major efforts have been deployed by East Asian countries to create the basis for an "Asian IMF", which again has been centered around ASEAN. This includes the Chiang Mai Initiative Multilateralization (CMIM), which is a multilateral currency swap arrangement among the ten ASEAN members, China (including Hong Kong), Japan, and Korea. The CMIM is supported by a research outfit, known as the "ASEAN+3 Macroeconomic Research Office", or AMRO.

ASEAN also provided the key foundation for the Asia-Europe Meeting (ASEM) process, which was created in 1996, and meets at the summit level every two years. The 11th Summit (ASEM11) was held on 15-16 July 2016 in Ulaanbaatar, Mongolia.

ASEAN was granted observer status in the United Nations in 2006. In turn, ASEAN awarded the UN the status of “dialogue partner”.

ASEAN at the Olympic Games

ASEAN has been active at the Olympic Games.

ASEAN countries won 13 gold medals at the 2012 Summer Olympic Games, with Thailand winning 7 and Indonesia winning 6.

Already in the 2016 Olympic Games, Vietnam has won its first ever Olympic Gold medal in the air pistol contest. And Indonesia has already won a silver medal for weightlifting.

ASEAN at a crossroads

ASEAN can point to many important achievements through its almost 50 year history. However, today it stands at a crossroads, and needs to make greater efforts to realize its full potential.

ASEAN’s middle income countries need substantial market liberalization to foster economic integration and revitalize their economic development. In this context, while the AFTA is an impressive achievement, it efforts at liberalizing trade, investment and migration are modest.

While tariffs on goods are now close to zero in many sectors in the original five ASEAN members, nontariff barriers, poor dispute resolution mechanisms, exceptions and carve-outs for dozens of protected industries remain stumbling blocks to freer trade. And progress on liberalization of services and investment has been much slower. Improving ASEAN’s physical infrastructure is critical to the goal of establishing a single market and production base. Cross-border roads, power lines, railways and maritime development are necessary to help propel the community forward.

Despite AFTA, intra-ASEAN trade remains relatively low at only 25% of total trade, and has not grown over the past 15 years. In other words, in contrast to the EU and NAFTA, most of ASEAN’s trade occurs outside the region. And despite the occasional hype about the RCEP, according to most observers it is unlikely to result.

ASEAN could become an effective instrument to solve regional problems and challenges, like natural disasters, pandemics, terrorism, anti-piracy, drug trafficking, human trafficking, and Indonesian forest fires. But regrettably ASEAN has not shown itself very able to act as a regional problem solver. All too often, ASEAN looks to the US and Japan, or attempts to deal with problems bilaterally.

A strong and united ASEAN could protect the region’s interests, most notably in the context of China’s actions to take over the South China Sea. But strong and united is not what ASEAN is.

The affected countries of the Philippines and Vietnam are receiving too little support from the other ASEAN members. Discussions of a possible code of conduct for the South China Sea have made no progress and are resisted by China. China is playing divide and rule with ASEAN, as it buys support from Cambodia and Laos, which then act as Chinese agents in high level meetings.

Overall, ASEAN needs strong and united leadership. And this could only come from Indonesia, the group’s biggest economy, and Singapore, the most sophisticated ASEAN member.

But ironically, many of its own members do not want a strong ASEAN. Most member countries do not wish to hand over some power and authority to a multilateral organization. And they would be reluctant to move away from consensus to majority-based decision-making.

This is especially the case in Thailand and Myanmar, where the military plays a big role in national politics, and in Vietnam, Cambodia and Laos where repressive regimes are in power. More generally, there seems to be very little trust between ASEAN member countries, despite the superficial comradery, golf tournaments and karaoke sessions.

What future for ASEAN?

ASEAN seems destined to muddle its way into the future. This means that several ASEAN countries will continue to rely on the US for strategic support, while the organization as a whole will likely fritter away, as China seeks to dominate Southeast Asia.
Tags: asean, rcep, asean free trade area, afta