Huge challenges ahead for Asean

Updated: Saturday January 4, 2014 MYT 7:37:41 AM

Huge challenges ahead for Asean

BY KAVI CHONGKITTAVORN IN BANGKOK

Asia News Network looks at how Asean is preparing for economic integration in 2015. What are the progress so far and what remains to be done?

WHEN Asean leaders gathered in Singapore in 1992, they knew the time had come to get their act together to accelerate the grouping’s economic integration in order to compete globally.They agreed to the establishment of the Asean Free Trade Area among the six members. Between 1995 and 1999, Asean added four new members, bringing it to Asean 10.

There were many changes afoot. The relationship between the former Indochina and Asean countries was no longer adversarial while in Europe, a new regional environment emerged with the collapse of the Berlin Wall.

While progress and economic development of member countries differ, making this free trade scheme unattractive initially, leaders decided that forming a single production base was needed. The time frame for the free trade zone within Asean was set for 2020 but this was later revised to 2010.

In 2007, Asean adopted the blueprint of the Asean Economic Community (AEC), Asean Political and Security Community (APSC) and Asean Socio-Cultural Community (ASCC). These three pillars are the key components of the Asean Community (AC).

Implementation of blueprint

At the Asean Summit in Brunei Darussalam in October 2013, its leaders expressed satisfaction over the health of the grouping’s overall economy. Against the weak global economy, Asean economic growth last year was 5.6% with total direct foreign investments of US$108.2bil coupled with a total volume of trade worth US$2.47 trillion.

In order to sustain this level of economic growth, continued economic integration is needed.

By September 2013, Asean has implemented 279 measures related to AEC for a score card of 79.9%. While there has been progress in areas like customs and harmonising of standards, member countries need to reduce barriers further in order to facilitate trade and investment.

Members have focused on the economic pillar of the grouping but the implementation of political and security pillar has been uneven. The political/security and socio-cultural pillars will help to speed up economic integration.

Out of 667 actions under the Asean Community roadmap, about half of them (or 345) fall under the Asean Socio-Cultural Community and include areas related to social justice and rights.

Out of 143 action plans as of July 2013, at least 32 that have not been implemented by Asean members belong to the security cooperation that involves conflict management and prevention. Security schemes such as peace-keeping and a speedier crisis response – considered sensitive issues as they involve sovereignty and go against the principle of non-interference – remain untouched.

Balancing act

In 2011, negotiation on the Regional Comprehensive Economic Cooperation (RCEP) began, spurred by regional economic developments and relationship shifts among major economic powers.

Asean realises the economic maintenance must be linked to economic communities both near and far. It views the Trans-Pacific Partnership (TPP) – the US-led trading block – as a powerful external factor that could dilute the leading role of Asean.

The group then proposed the RCEP to mitigate possible implications from the fast-moving TPP. So far, the RCEP negotiation has gone through two rounds in Bandar Seri Begawan and Brisbane. Representatives from 16 East Asian countries have agreed to the 2015 deadline for the framework’s conclusion. This time frame is pivotal as it would provide further impetus to deepen economic integration.

The main RCEP objective is to achieve a comprehensive, high-quality and mutually beneficial economic partnership among members. It considers provisions on special and differential treatment to least-developed members like Laos, Cambodia, Myanmar and Vietnam, which TPP does not have. In more ways than one, the RCEP negotiation is mindful of the TPP and its objectives.

Given the current tension among the three East Asian economic giants — China, Japan and South Korea — over their territorial disputes, future RCEP negotiation is in jeopardy. In the past, economic matters were given priority and were immune to political interference. That is no longer true today.

China and Japan’s claims over Diaoyu, or Senkaku Island, have already caused concern within the region. This would affect economic integration in broader East Asia. Asean has maintained excellent relations with both countries without choosing either side. However, individual members are pressured to display bias toward one or the other over issues such as maritime security cooperation and air defence zone.

Myanmar and the Asean chair

According to Myanmar’s Than Than Lin, under Myanmar’s chairmanship, Asean will give priority to technical cooperation and capacity building, which will help new Asean members integrate with South-East and East Asian economies. It is also hoped that in the long run, RCEP would be a high-level FTA in terms of trade and investment liberalisation. In short, RCEP should be attractive and efficient enough to compete with TPP.

At the moment, it is too premature to predict the nature of RCEP’s final framework.

Asean economists believed that RCEP will eventually replace the current Asean free trade agreements. It would serve as a role model for regional economic integration among countries at different level of development. Implementation of RCEP will also contribute to global free trade.

Myanmar took up the Asean chair 17 years after joining the grouping in 1997.

“Moving forward in unity towards a peaceful and prosperous community” is Myanmar’s theme. Its focus would be on capacity-building in all relevant areas, in particular efforts to integrate with AEC and other business practices.

Naypyidaw has also paid special attention to the development of small- and medium-sized enterprises (SMEs) inside the country. A new SME legislation is pending in the National Assembly and the Ministry of Industry has recently established a SME Development Centre.

According to Dr Ei Shwe Sin Tun of the Ministry of Industry’s SME Department, SMEs registered in the country represented 92% of enterprises, contributing 80% of its gross domestic product.

Officials working on the economic agenda are also discussing further reforms in the areas of competition and industrial policies. Several capacity-building seminars on intellectual property rights and consumer production have been held in Naypyidaw the past several months.

Asean post-2015 vision

As the deadline of the Asean Community approaches, leaders must display their leadership to ensure that the blueprint detailing action plans in the three pillars – economic, political and security, social and cultural – are fully implemented.

Without political will, measures related to sensitive economic areas such as services and investment will remain “sensitive” and “untouchable”.

Further actions in political and security, social and cultural fields would require similar decisiveness, especially areas related to civil and political rights and democratisation. Furthermore, there is an urgent need to adopt a comprehensive campaign to inform private and public sectors on the outcome of economic integration. All stakeholders must understand changes that affect their environment.

When Malaysia chairs Asean in 2015, the leaders must also take up new agendas that go beyond 2015. Asean must adopt new strategies that bridge development gaps among member countries, promote economic integration world-wide as well as the ability to form common positions on key global issues. Strengthening of the Asean Secretariat, promoting compliance of all agreements, facilitating faster decision making-process while maintaining consensus among members and forging larger mandate for the role of the Asean Secretary General and its good office are needed and necessary.

Engagement with the United States, China, India, Japan and Russia will remain top priority. With increased economic interdependence with these countries, Asean centrality is also at risk. In times of crisis, Asean would find itself in limbo to stay united with common positions and policies. In the past, Asean was able to balance its relations overall with major dialogue partners without difficulties.

However, growing tension among key dialogue partners like China, the United States and Japan has already impacted on broader cooperation within various Asean-led frameworks, especially schemes related to economic integration in East Asia. Asean needs to map out a comprehensive strategy to deal with the increased volatile external environment.

In confronting crises, Asean has responded collectively well during the 1997 financial crisis, the 2003 pandemic, the 2004 Indian Ocean tsunami and the 2008 cycloneNargis. However, the inadequacies of Asean decision-makers and organisations to respond to disaster and humanitarian crises were revealed in the super-typhoonHaiyan disaster in November 2013.

The Asean Coordination Centre for Humanitarian Aid was set up two years ago to respond to these new threats. Its role is still limited. So far, existing Asean institutions can only monitor and coordinate work among members. In response to the Philippine disaster, Asean secretary-general Le Luong Minh managed to activate his mandate without any further delay as coordinator of humanitarian aid.

It is imperative that Asean agrees on the so-called principle of automaticity to facilitate the role of the Asean secretary-general and his good office. This principle could be broadened to cover the whole gamut of crisis confronting Asean.

Leaders and concerned authorities would then be able to respond quickly and effectively to emerging threats that require high-level decisions for sustainable actions and policy options. At this juncture, Asean senior officials are responsible for the leaders’ agenda.

Finally, given the changing power dynamics in the region and a multipolar world, Asean cannot rest on its laurels. There are many crossroads ahead. Asean will carry diplomatic weight only when it can maintain its centrality and act collectively and proactively both in time of progress and crisis.

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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