Why Asean is failing – Reality lags behind aspiration in economic integration
30 September, 2016
As appeared in Official Monetary and Financial Institutions Forum
Much attention has focused on Europe and its real and imagined shortcomings – particularly since Britain’s June vote to leave the European Union. Asia is habitually declared to be winning a global economic contest. Indeed, one of the factors fuelling Brexiteers’ desire to withdraw has been the wish to tilt British business towards the east.
However, not everything in this part of the world is as successful as popularly imagined. In particular, Asean – the 10-nation Association of Southeast Asian Nations, which forged a vaunted common market last year – is not working in the way grand declarations have proclaimed. In a pattern of self-deception which has become a regional characteristic, Asean – and its intellectual apologists – continue to deny what is plain for all to see.
The region undoubtedly faces weighty problems. A new regional geopolitics has emerged, shaped by a strategic contest for influence between China and the US. Yet the much-hyped ‘centrality’ of Asean to its member countries is a piece of fiction, exposed by the less than unanimous position of member states regarding Asean’s position in territorial disputes with China over the South China Sea.
In economic integration there is no doubting the region’s potential, but so far reality lags well behind aspiration. Intra-Asean trade is 23.6% of the total, well above the 17.6% of trade carried out with China but a long way behind the EU’s integration level of 62.9%.
There are many ways of increasing intra-Asean trade. Measures are needed to generate greater complementarity in Asean economies and boost trade in services, which face many barriers. Governments must take further steps to dismantle non-tariff barriers and other hindrances to trade in goods, extending Asean’s good track record in this field. And the region needs to do more to facilitate e-commerce. Asean retail internet sales are only 1-2% of total sales, against over 10% in developed economies.
In general, regulation hinders use of technology, finance and the mobilisation of capital in the region as well as the free movement of skilled labour. If not for the ingenuity and persistence of business people, the Asean economy would not have made what little progress it has.
Whether in economics or in security, the deft hand that characterised Asean in the 1960s and 1970s now seems to have deserted it. There is no one around anymore with the clout, panache and imagination of Malaysia’s Tun Razak, Singapore’s Lee Kuan Yew or Indonesia’s Suharto. This lack of leadership is the reason why Asean is failing today.
Asean is good at organising meetings, with rotating chairs, among its members. There are many partners (the so-called Asean-plus countries) at the Asean Regional Forum (established in 1994, now with 27 members) and the East Asia Summit (set up in 2005, now with 18 members). The nations come and attest to Asean ‘centrality’. Yet, after the hoopla and the linking of arms, there is a lack of decision-making specificity and poor follow-up, except for the organising of more meetings. One regional expert speaks of ‘inherent institutional paralysis’.
A unified economy and the movement of people to drive it could be Asean’s saviour. Yet even simple things seem to take forever to happen. The leaders talk grandly about making Asean ‘people-centric’. Yet they cannot ensure Asean lanes at airports and other points of entry, or organise the issuance of an Asean business travel card.
The region’s size, growth and demographics are compelling. But problems abound that, unless checked, will result in a sub-optimal Asean economy. Regional leaders should examine seriously how Asean is failing and why – and then take steps to turn the tide.
Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.