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What Asean must do to navigate these perilous times

By Frank-Jürgen Richter

Straits Times, November 22, 2018

Last year to a backdrop of resounding backlash worldwide against free trade and multinational institutions, Asean celebrated 50 years as a proponent of these ever-more endangered ideals. The prevailing spirit of protectionism and isolationism, and no less a looming trade war and the simmering tensions in the South China Sea, all put no small damper on the occasion.

In truth, the milestone was worth celebrating, especially in today’s political climate. To be sure, the now 10-member grouping will be applauded more as an aspirant of these principles of free trade and pooled sovereignty than as their absolute embodiment; but Asean can be held up as a relative success story for those who still understand the promise of free markets and multi-stakeholder policymaking.

The group’s pursuit of a single market and its commitment to trade openness have in the last decades helped billions achieve some degree of economic prosperity; and with a young workforce, better infrastructure and growing incomes, the world’s sixth largest economy (taken together) offers a beacon of hope as it works towards an even more integrated and cohesive economy.

PROMISE AND PERIL

But if 50 years on, the promise of Asean is great, so too are the obstacles from within and without that currently imperil it. Asean may be poised for further prosperity, but it must make more than symbolic progress on further integration if it hopes to retain competitiveness in the globalising economy, to achieve regional security and more influence vis-a-vis neighbouring powers. And, alas, it must do so while simultaneously playing a neutral, mediating friend to the two superpowers – the United States and China – involved in a high-stakes stand-off.

Asean must look to strengthen itself, while also engaging China and the US – neither of whom it can afford to alienate. Its ability to effectively do the latter will depend upon its ability to effectively do the former, and vice versa – and the region’s hope for continued growth and security will depend upon successfully doing both.

ASEAN AND AMERICA

However problematic Asean’s relations with the current US administration become, its long-standing economic ties with America are indispensable. While the US accounts for more than 10 per cent of Asean exports, member states have received US$274 billion (S$376 billion) in cumulative investment from the US – more than that directed to China, India, Japan and South Korea combined. Simply put, Asean cannot isolate itself from the US.

Indeed, in dealing with the current US administration, there is not much member states can do and a whole lot they absolutely cannot do. They must not escalate disputes in the South China Sea, and they must not become embroiled in the tit-for-tat trade war between the US and China.

Given its centrality to global supply chains as a manufacturer of intermediate goods, Asean members will bear the brunt of the trade war if American firms begin to onshore production.

Though US President Donald Trump appeared willing to leave allies high and dry when he withdrew the US from the Trans-Pacific Partnership trade agreement, for the time being it behoves Asean to cautiously and neutrally wait out the tensions and trade dispute, and to remain optimistic that better days may not be far off. In the meantime, without appearing to choose sides, Asean members can tacitly support the US by maintaining the rules-based system that America – if not its current president – has long championed.

To the same end, they should wholeheartedly commit to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. By participating in the revised version of a trade pact that the US conceived of and campaigned for, they can indirectly demonstrate their eagerness for engaging with the US. What’s more, there’s good reason to think either the current or next administration will rejoin the agreement.

ASEAN AND CHINA

Asean’s dealings with its neighbour to the north will also require the most prudent diplomacy.

Not only does regional security depend on Sino-Asean ties, but the economic partnership is vital to South-east Asia – 14 per cent of foreign direct investment reaching Asean states comes from China, and more than 10 per cent of Asean exports are purchased by the Chinese.

Asean members should capitalise on participation in the Regional Comprehensive Economic Partnership free trade pact, an agreement that includes China as a signatory and that constitutes a great opportunity for regional growth and integration. But in doing so Asean must judiciously remind the US that the pact was never a Chinese-led initiative, and four of its six non-Asean signatories are US allies.

Asean must engage with China, just as they must engage with the US. But Asean must not let one super power pit it against the other, and the member states mustn’t let themselves be courted by either at the expense of their regional unity.

Case in point, member states must cooperate to de-escalate tensions in the South China Sea, and above all avoid temptations towards divisive behaviours. And, after all, while the name of the game is first to passively avoid the pitfalls of a hazardous and unfavourable situation, Asean can actively take measures – however small – to ease the predicament. Neither the US nor China wants conflict – and Asean, through its many annual forums, can offer the two powers a neutral platform for discussion, for managing suspicions, and from which they may publicly demonstrate to the world their commitment to regional peace and stability.

ASEAN’S OWN VULNERABILITIES

If Asean hopes to effectively manage its engagement with world powers, the group must make good on its aim to fortify itself not only as a united economic community but as a political-security community.

To be able to play a more assertive role in regional matters, and to wield enough influence to help foster cooperation between the US and China, Asean itself will need stronger, more centralised leadership, and more institutional heft. Member states will also need to address lingering, and potentially festering, vulnerabilities.

Asean’s move towards a single market must be accompanied and underpinned by a move towards a more centralised political union. The underfunded and understaffed secretariat must be granted more power, while alternatives to the rotational chairmanship should be revisited.

A single market allowing the free flow of goods, services, labour, investments and capital – and even one day a common currency – are desirable goals; but they won’t be realised without a central bureaucracy and institutions strong enough to ensure envisioned policies become realities.

At times accused of prioritising form over substance, the so-called Asean Way – with its “non-interference principle” and “consensus decision-making process” – is to some extent bereft of a mechanism for decisive action.

Though tariffs are on the decline, only 50 per cent of businesses have taken advantage of the regional free trade agreement’s tariff reductions. Moreover, non-tariff protective measures continue to pop up in place of tariffs.

Asean member states must pool more sovereignty and commit themselves to a stronger central bureaucracy with institutions that function to enforce policy and solve problems.

At the same time, Asean will need to remedy its vulnerabilities. Economic development gaps between members – Singapore was 47 times richer than Cambodia in 2015 – and wealth inequalities within member nations – Indonesia’s four richest individuals are wealthier than the poorest 100 million – risk destabilising a region that has been spared such unrest over the recent decades of rapid growth, which lifted millions out of poverty.

Investing in Asean’s human capital and workforce skills will help ensure the fruits of developing economies are shared by lower-skilled workers.

MAKING THE BEST OF UNCERTAIN TIMES

Ultimately, even a more powerful, centralised Asean can’t expect to dictate how US-China relations play out, nor can it hope to completely immunise itself against all repercussions.

For a fortified Asean, the intent must be to help encourage positive outcomes, to weather any negative fallout, and to meanwhile capitalise on opportunities.

A stronger, less vulnerable Asean can operate as a more coherent, influential regional actor. It will be more capable of successfully managing its relations vis-a-vis the two world powers, as well as increasing engagement with other regional middle powers like India, Australia, Russia and Japan. Doing the latter can wean Asean members off their dependence on the support of the two great powers, and will generally afford them more strategic latitude in economic and political matters.

If Asean can negotiate this tricky path, it will boost its chances for further regional growth and security, making it an uncommon success story at a time when the pillars of progress are being undermined everywhere.

 

The writer is founder and chairman of Horasis, a global visions community. Horasis will host its Horasis Asia Meeting in Binh Duong New City, Vietnam over Nov 25-26.