Hopes Dim for Southeast Asia Single Market by 2015

Hopes Dim for Southeast Asia Single Market by 2015

By MARTIN VAUGHAN

Bandar Seri Begawan, BRUNEI—Southeast Asia’s bid to create a single market by 2015 has bogged down, slowed by domestic political pressures in the bloc’s largest economies and alternative trade initiatives competing for policy makers’ energy and attention.

As leaders of the 10-member Association of Southeast Asian Nations gather here Wednesday, analysts say they are well behind on their goal to eliminate barriers to the free movement of goods, services and workers, with the target date just 18 months away.The Brunei meeting also will seek to calm tensions over territorial disputes with China in the South China Sea. Brunei, which currently holds Asean’s rotating chairmanship, hopes to strike a deal this year on a code of conduct to govern activities in the disputed areas.

According to a draft statement circulated by officials in advance of the summit and viewed by The Wall Street Journal, leaders of Southeast Asian nations will vow to resolve disputes with China “without threat or use of force.”

The draft, which could change based on further discussions between officials and leaders Wednesday and Thursday, cited “positive momentum” from an April 2 meeting in Beijing between Southeast Asian and Chinese officials. Leaders will ask ministers to “continue to work actively with China on the way forward for the early conclusion of a Code of Conduct in the South China Sea on the basis of consensus.”

When it comes to meeting the 2015 economic goals, tariffs aren’t the obstacle to progress. Asean’s richer economies—Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand—have virtually eliminated tariffs on goods they trade with one another, aside from a handful of sensitive products like rice, sugar and alcohol.

The less-developed economies of Cambodia, Laos, Myanmar and Vietnam were given until 2018 to phase out import duties.

Non-tariff measures are proving more of a challenge, however. Indonesia has introduced a raft of trade restrictions in the past year as the government confronts a widening trade gap that has weakened the rupiah, burdening consumers and importing industries with higher costs.

Indonesia last year imposed a 20% export tax on precious metals and mining commodities to lower costs for homegrown industries, and introduced restrictions on a host of fruit and vegetable products to protect local farmers. Officials said this month they would scrap some fruit and vegetable quotas after the measures were challenged in the World Trade Organization.

Malaysia is lagging on Asean commitments to strengthen antimonopoly laws allowing greater competition in protected sectors, including telecommunications and automotives, said Sanchita Basu Das, a fellow at the Institute of Southeast Asian Studies.

Non-tariff measures and barriers to competition are “not something that you can cure in the next couple of years,” Ms. Das said.

Even Singapore, a strong early proponent of Southeast Asian economic integration, is curbing the flow of foreign workers, who have traditionally been a strong presence in the service-oriented economy. Some see that as a violation of the spirit, if not the letter, of Asean’s goal to allow the “free flow of skilled labor.”

“They’re moving in the other direction. I cannot imagine for the life of me that you could go to the Singapore government and say, ‘Hey, you promised to throw open the market for skilled workers from Myanmar and Laos.’ It’s too sensitive,” said Deborah Elms, head of the Temasek Foundation Centre for Trade and Negotiations in Singapore.

A May 2012 report from Asean’s secretariat found that less than half the steps that were meant to be in place by 2011 to reduce trade barriers had been fully implemented.

That is partly because of political pressures. Malaysian Prime Minister Najib Razakwill miss the Brunei summit to campaign for May 5 elections that are expected to be the closest in the country’s history. Indonesia is due for national elections next year, while the Philippines will go to the polls around 2016.

In Singapore, the ruling People’s Action Party is seeking to shore up its power base after losing the last two by-elections to opposition candidates, who attacked the PAP over rising living costs and the influx of foreign workers.

“Compared to 20 years ago, when Asean was driven by a few key leaders—those were policymakers who didn’t have to worry so much about domestic politics. Now it’s a very different situation: Policymakers are predominantly focused on domestic politics and winning the next election,” said Ralf Emmers, associate professor at Singapore’s S. Rajaratnam School of International Studies.

Member states also are beginning to emphasize stronger trade links outside the bloc. Four Asean members—Brunei, Malaysia, Singapore and Vietnam—this month welcomed Japan to negotiations of the Trans-Pacific Partnership free trade area. All 10 Asean members will be at the table next month when negotiations on an Asia-wide trade pact known as the Regional Comprehensive Economic Partnership get under way, with a goal to conclude by 2015.

Even if hopes are dimming that Asean can meet its more ambitious goals, the bloc could make useful progress by the 2015 deadline, said Ms. Das of ISEAS. She said the group should focus on achievable projects—such as a “single window” for processing cargo manifests and other paperwork—that could speed the movement of goods around the region.

“We should be realistic that a fully open market isn’t possible by 2015,” she said, “but at least we could have some building blocks in place.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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