CARI Briefing: ASEAN integration outlook with YB Dr. Ong Kian Ming

Published on 2 May 2019

Malaysia committed to expediting the economic integration of ASEAN

The second CARI Briefing of 2019 featured an exclusive dialogue with the Deputy Minister, Ministry of International Trade and Industry Malaysia (MITI) YB Dr. Ong Kian Ming, where he presented the progress made thus far with regards to the ASEAN economic integration, and the steps being taken by the Ministry of International Trade and Industry (MITI) to expedite this process entering 2019.

During the dialogue titled “Exclusive Dialogue with YB Dr. Ong Kian Ming, Deputy Minister, Ministry of International Trade and Industry of Malaysia: ASEAN Integration Outlook 2019”, Dr. Ong stated that while ASEAN remains strong economically, many gaps need to be filled in order to achieve full integration. Growth in intra-ASEAN trade has moderated while the number of Non-Tariff Measures (NTMs) has steadily increased.

In 2018, Singapore as the chair of ASEAN, worked towards addressing the gaps in integration through trade liberalisation measures, among others that included the realisation of the ASEAN Wide Self-Certification (AWSC), conclusion of the ASEAN Trade in Services Agreement (ATISA) and enhancement of the ASEAN Comprehensive Investment Agreement (ACIA). The republic also embarked on new initiatives such as the ASEAN Smart Cities Network (ASCN).

In 2019, Thailand assumes the chairmanship of ASEAN and Dr. Ong shared the kingdom’s focus for ASEAN.

ASEAN 2019 Priority Deliverables

Thailand will be focusing on the following priorities:

1. Preparing ASEAN for the Fourth Industrial Revolution (4IR) through the convening of symposium and dialogue among member states, drawing up the Roadmap and Action Plan on ASEAN Industry Transformation to Industry 4.0 2020-2024, and focusing on skilled labour and professional services development in response to 4IR.
2. ASEAN-Wide Self Certification (AWSC), which allows certified exporters to self-certify the origin of their exports to enjoy preferential tariffs under ASEAN Trade in Goods Agreement (ATIGA).
3. ASEAN Single Window (ASW), which will expedite cargo clearance and promote ASEAN economic integration by enabling the electronic exchange of trade-related documents among ASEAN Member States.
4. The Conclusion of Regional Comprehensive Economic Partnership (RCEP) will be a key deliverable for ASEAN in 2019. While ASEAN already has free trade agreements (FTAs) with all the major participants of RCEP on a bilateral basis, the RCEP allows a more comprehensive FTA framework on a multilateral basis. It is hoped that the RCEP will be concluded by 2019 and will then project ASEAN as a key player in terms of FTAs.

In terms of challenges to ASEAN economic integration, barriers to trade and the lack of cohesiveness among member states are among the issues that requires attention.

• Intra-ASEAN trade in goods and services: As a percentage of total trade, intra-ASEAN trade in goods and services decreased from 25.1% in 2010 to 22.9% in 2017 while external trade simultaneously increased. Dr. Ong said that this did not necessarily mean the decrease in total trade, but that ASEAN has become increasingly reliant on external trading partners. He drew comparison with intra-EU trade, which measures around 40%-50%.
• Non-tariff measures (NTMs) and non-tariff barriers (NTBs): NTMs and NTBs have remained an issue with regards to intra-ASEAN trade. There has been a steady increase of NTMs from less than 2,000 in 2010 to roughly 6,000 in 2015. Examples of NTMs include the differences in standards for regional exporters between different countries. The NTMs themselves are not the issue but when they become “discriminatory,” they become NTBs. Dr. Ong brought up the possibility of a binding trade agreement such as the RCEP in which its ratification could raise the standard of liberalisation to include the removal of NTBs.
• ASEAN remains a distant concept amongst the people: For the majority of ASEAN citizens, ASEAN as an institution remains a distant concept, according to Dr. Ong. This is due to the fact that for most of the time, the achievements made by ASEAN are not in the limelight. The upside to this is that ASEAN can function with less politicking, but the downside is that most ASEAN citizens are not aware of the regional bloc’s functions. The bureaucratic and technical nature of the ASEAN can make it seem unapproachable for many in the region.
• Skilled labour mobility: Although six mutual recognition agreements (MRAs) and two framework agreements exist for the movement of skilled labour in ASEAN, Dr. Ong noted that the liberalisation of labour is not easily done. There remains much to be done on skilled labour mobility within ASEAN but the priority remains on the liberalisation of goods and services.

Opportunities and challenges to ASEAN economic integration

US-China Trade Tension
While Dr. Ong believes that the ongoing US-China trade tension will negatively affect ASEAN’s growth in the long run, he believes that the spillover effects of it may actually benefit ASEAN through the relocation of operations of Chinese and US companies from mainland China to Southeast Asia. He believes that this may ultimately help expedite the integration of ASEAN, as these companies seek to export to other ASEAN markets as they start to view ASEAN as not simply a manufacturing hub but also as a growing consumer base.

Another consequence from the US-China trade tension has been the increase of orders received by Malaysian manufacturers but not all manufacturers could fill those orders due to the lack of foreign manpower. Dr. Ong noted that the Ministry of Human Resources have made some progress in coming up with new policies related to the hiring of foreign workers and is cautiously optimistic that a substantive announcement will be made in the coming months.

With regards to Malaysia’s position on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Dr. Ong said Malaysia needs to deliberate its position thoroughly during this time of uncertainty. On another note, while the CPTPP does not involve China, Dr. Ong opined the possibility of China joining the agreement in the future should not be discounted.

Fourth Industrial Revolution (4IR) and the Digital Economy
With digitisation projected to add US$1 trillion to the ASEAN economy, 4IR is one of the priority areas of ASEAN this year. In 2018, MITI launched the Industry 4WRD, a national policy outlining the digitisation of the manufacturing sector and its related services. One of the programmes under Industry 4WRD include the Readiness Assessment Programme where companies can apply for assessment to identify the gaps in their 4IR readiness and how they can prepare for it.

One area of 4IR is the automation of certain parts of the manufacturing industry. Dr. Ong said that MITI is encouraging small and medium enterprises to start their 4IR journey because the digitisation of jobs can help alleviate the shortage of low-skilled foreign workers. Through the Digital Transformation Acceleration Program (DTAP), the Malaysia Digital Economy Corporation (MDEC) is helping manufacturers digitise relevant sections of their businesses to reduce reliance on foreign labour. However, Dr. Ong noted that Malaysia should also look at the digitisation of services as well, and it should not just be limited to legal services. One potential benefit of the digitisation of the manufacturing supply chain is that it creates a demand for big data analytics.

Automotive Industry
The third national car project gained a lot of attention when it was announced. The project is handled by Malaysian Industry-Government Group for High Technology (MIGHT) while MITI coordinates with MIGHT on the national automotive policy. Dr. Ong says MITI is looking at how a third national car would fit into the automotive sector. He believes that the Malaysian automotive sector has an advantage as it has experience working with a diverse group of foreign carmakers including those from Europe, Japan and Korea. The automotive sector in the country is well integrated and local vendors can use this to venture to other markers in the ASEAN region and beyond.

Conclusion

The full economic integration of ASEAN depends on the implementation of the many related policies and framework endorsed. Strong political will is needed to see through the implementation of the ASEAN Economic Community Blueprint 2025 and Malaysia remains committed to expediting the economic integration of ASEAN.