Logo of Phnom Penh Post newspaper Phnom Penh Post - Can ASEAN achieve integration by 2025?



Can ASEAN achieve integration by 2025?

Content image - Phnom Penh Post
The special ASEAN Summit on Covid-19 via video conference in Hanoi in April. Covid-19 and other pandemics will continue to test ASEAN’s financial resilience. But sole reliance on external arrangements such as the Chiang Mai Initiative Multilateralisation will greatly undermine ASEAN’s own financial cooperation. AFP

Can ASEAN achieve integration by 2025?

COVID-19 has put the biggest test yet on ASEAN. With weakened fiscal positions and a stark development gap, ASEAN integration remains uncertain. With five more years left to its scheduled deadline, can ASEAN achieve its desired community?

The pandemic has hit ASEAN countries considerably hard, threatening the region with economic recession. Millions have become unemployed, driving household incomes sharply downward, and gravely impacting consumer spending.

ASEAN member states are now exploring drastic measures to keep the economy afloat, but figures in 2018 show that several member states have sizable debt (more than 30 per cent) as a proportion of their gross domestic product (GDP), making them particularly vulnerable to external shocks.

ASEAN deficits ballooned since the global financial crisis in 2008, during which ultra-low interest rates and quantitative easing (QE) in the US, EU and Japan triggered hot money flows into ASEAN. This rush of capital fuelled an economic boom in ASEAN, driving property prices and exchange rates sharply upward. Cheap credit also means unprecedented government borrowing, which culminated in today’s fiscal deficits.

Today, ASEAN currencies are depreciating rapidly, and capital outflow is a serious concern. With limited money in the public coffers, a damning pandemic and a collapsing private sector, some economists are even suggesting that ASEAN countries should adopt QE too.

Will this race to the hinterlands of debt ever stop? What impact will the incessant printing of money in countries around the world do to the global financial system?

As evident in the US and EU, QE has led to excessively low bond yields, spectacular falls in bank shares and severe income inequality in these countries, the latter of which has led to the rise of populism in Europe and America that we see today.

Income inequality and the development gap within ASEAN are also worrying trends. Since its founding in 1967, ASEAN’s efforts to create an economic community have progressed very well on many fronts; tariff barriers coming close to zero through the ASEAN Trade in Goods Agreement, the 10th and final package of services liberalisation under the ASEAN Framework Agreement on Services is finally being concluded, and many more.

Far from target

But ASEAN is still far from its target. Its non-tariff barriers (NTBs) still hinder intra-regional trade, having spiked from around 2,000 in 2015 to about 9,000 last year, and in the absence of a customs union, it is difficult for international investors to treat the region as a single market.

The NTBs stem from the need to protect domestic markets against the full heat of free trade. As Gita Wirjawan, a former Indonesian trade minister, argued in 2015, in opening up a country’s borders to trade, we need to ascertain whether such opening is detrimental or beneficial to our economy. For example, in 2015, Indonesia’s labour productivity per capita was $20,000 on a purchasing power parity basis, compared to Malaysia’s $50,000 and Singapore’s $115,000. From these numbers alone, we can see the repercussions for Indonesia once the trade gates open fully. This explains why Indonesia is hesitant on full integration despite being one of the founding fathers of ASEAN and a major proponent of the ASEAN Economic Community.

And these are legitimate concerns. Ever since Mexico signed on to the North American Free Trade Agreement (NAFTA) with the US and Canada in 1994, it has wiped out family farmers and led to a net loss of 1.9 million jobs in the agricultural sector as a result of competition with the highly subsidised US agricultural industry. The story of corn in Mexico, a traditional staple of Mexican cuisine, is illustrative. As a result of NAFTA, Mexico’s multi-coloured corns have been replaced by cheaper genetically modified yellow corns from the US flooding the market. Mexico’s story remains a lesson on unbridled free trade agreements.

The latest Doha Round of the World Trade Organisation collapsed because of agricultural subsidies from the US and the EU. If the champions of free trade cannot relinquish their subsidies, how can they expect other countries to do the same?

Setting priorities straight

Can ASEAN shed protectionism and prevail as a community in 2025? It has a very strong chance; the following are four key recommendations:

The first is the “sunset law”. Economic nationalism and infant industry protection are similar but vastly different in intent and purpose. As ASEAN countries have signed up for economic integration, their protectionism policies are time sensitive. Therefore a “sunset law” is the best policy to enforce a period or milestone framework on their protected industries.

The second recommendation regards investment and financial integration: They should be the main priority, because if the economic destinies of ASEAN member states are indeed intertwined, it will give ASEAN integration a more concerted push. Goods, services and persons will follow suit. Hence the ASEAN Trading Link must be revived to foster cross-border investments. It is futile to expect integration of an economic community between countries with different economic destinies.

Third, revitalise the ASEAN Swap Arrangement (ASA). Covid-19 and other pandemics will continue to test ASEAN’s financial resilience. But sole reliance on external arrangements such as the Chiang Mai Initiative Multilateralisation will greatly undermine ASEAN’s own financial cooperation. ASEAN should revitalise its swap arrangements considering its combined international reserves position of more than $900 billion. At least $50 billion can be used to set up an emergency fund for Covid-19. The measure of QE should always be seen as a last resort when all else fails.

Fourth, development over integration: Rather than focus solely on textbook economic integration, ASEAN should focus on facilitating the development road maps for each member state. Thus, the ASEAN Secretariat can assist member states to shift attention inward into improving their policies and structures.

Particularly under this devastating pandemic, each nation seeks a solid footing before reaching outward for integration.

Fazil Irwan Som is executive director of the International Strategy Institute.

THE JAKARTA POST/Asia News Network

MOST VIEWED

  • Historic Battambang town bans billboards

    The Battambang town administration informed all house and business owners in Svay Por commune to remove all billboards by August 1 as it is preparing to submit the town to UNESCO for inclusion on its historical cultural heritage list. Its July 25 notice said all signage was

  • All foreigners' accommodations to be inspected: Sar Kheng

    The Ministry of Interior is undertaking a serious effort to inspect all the accommodations of foreigners in Cambodia – except diplomats – in order to find and identify human traffickers. Minister Sar Kheng said this would include inspections on the homes of foreigners employed by businesses, private

  • Ice cream, noodles flagged over carcinogen

    The General Department of Customs and Excise of Cambodia (GDCE) has identified three types of instant noodles and ice cream trademarks originating from Thailand, Vietnam and France that are suspected to contain ethylene oxide, which poses a cancer risk to consumers. The general department has

  • Exclusive interview with Josep Borrell Fontelles, High Representative of the EU

    CAMBODIA is hosting the 55th ASEAN Foreign Ministers’ Meeting (AMM) and Related Meetings this week with top officials from the US, China, and Russia and other countries in the region slated to attend and to meet with face-to-face with their counterparts on the sidelines. In

  • Rise in Thai air routes to Siem Reap fuels travel hopes

    Local tourism industry players are eager for regional airline Bangkok Airways Pcl’s resumption of direct flight services between the Thai capital and Siem Reap town on August 1 – home of Cambodia’s awe-inspiring Angkor Archaeological Park – which is expected to boost the growth rate of

  • ASEAN Foreign Ministers’ meet commences, Taiwan issue possibly on table

    The 55th ASEAN Foreign Ministers’ Meeting (AMM) and related meetings hosted by Cambodia kicks off in Phnom Penh on August 3, with progress, challenges, and the way forward for the ASEAN Community-building on the table. Issues on Taiwan, sparked by the visit of US House Speaker