The ASEAN Asterisk
ASEAN’s growth is a pleasant asterisk to the global recession and the aftermath’s tepid economic performance. The region has tremendous potential. With a population of 620 million and a GDP of $2.2 trillion, it is a region that appears poised for a growth spurt. But there is the question of whether Eurozone problems, China’s transition, weak Indian economy, flat Japanese economy and a US dogged by sovereign debt can derail ASEAN’s promising future?
By George Lauriat, AJOT
*It is no secret the world’s largest economic powers aren’t doing so well: The US policy makers seem ready to base-jump off the fiscal cliff; China’s growth rate has slowed with weakness from its trade partners, and there is uncertainty with the new government; Growth in neighboring Asian giants India and Japan remains stagnant; And there is the seemingly never-ending Euro Zone crisis which has dampened the economies region wide and stifled demand from China’s favorite export partners.
Amid the gloomy returns there is a large, somewhat unexpected asterisk: Southeast Asia or more specifically, the ASEAN states [See Member State Chart].
Throughout an era filled with multiple global crises Southeast Asian nations like Indonesia, Malaysia, Singapore, the Philippines, Vietnam, and too a lesser extent, Thailand have continued to grow economically buoying the entire region’s prospects. With a population of 620 million, a GDP of $2.2 trillion, and a GDP growth rate expected to by 5.5% 2013-2017 (OECD estimates) which is commensurate with the pre-recession growth rates.
Now the region holds some real bargaining chips, and the world’s major economic powers want the ASEAN region to pull up a chair to the table. Specifically, there are dueling pact proposals with each of the proponents of each trying to include the ASEAN states in their respective trading blocs. There is the US led TPP (Trans Pacific Partnership) and on the other side of the table, the RCEP (Regional Comprehensive Economic Partnership) favored by China.
The sixteen-member RCEP includes the ten ASEAN nations plus China, Japan, South Korea, India, Australia and New Zealand, and negotiations are scheduled to start next year with the aim of completing the process by 2015.
The US led nine nation, TPP, includes four members of ASEAN, [Singapore, Brunei, Malaysia and Vietnam] plus Chile, Peru, New Zealand and the US. The avowed goal is to create a pan-Pacific trade group that links the Americas with Asia, particularly in Southeast Asia.
For the US, ASEAN is a starting point for a more ambitious Asian policy. In August, the US Ambassador to ASEAN, David Carden wrote in an op ed piece published in a Singapore newspaper which outlined the administration’s vision for ASEAN’s role in US Asian policy: “Under the Obama Administration, the United States has made a commitment to work with and support ASEAN as the central player in the Asia Pacific region’s emerging diplomatic architecture. ASEAN-centric multilateralism is compatible with and supportive of other elements of our rebalancing to Asia.”
Clearly the “re-balancing” Ambassador Carden is referring to is really a counter balancing of China’s growing influence in the region. This US policy objective has set up the dueling pacts between the RCEP and TPP.
The manifestation of this policy shift was President Obama’s recent trip to Southeast Asia.
In November the President visited Southeast Asia (Thailand, Myanmar and Cambodia) kicking off the launch of the US-ASEAN Expanded Economic Engagement plan or the so-called E3 initiative.
In his Bangkok (November 18th) address, President Obama said that the region is fast growing and a key to American security and jobs, “And that's why I've made restoring American engagement in this region [Asia] a top priority as president."
The US is negotiating with ten countries on both sides of the Pacific for inclusion in the TPP. The problem the Obama administration faces is the membership terms of the TPP, especially in regards to state-supported industry are a hard sell in Asia or even in the Americas. For example, Japan, a close ally, is lukewarm to TPP overtures because of the fear that state-supported Japanese farmers have to compete with cheaper agricultural imports from the US and others. The membership in the RCEP is less restrictive than the TPP, and the group already has traction in Asia.
And opening up the TPP would require a loosening of the trade terms that might not be acceptable at home. While the “exporting” of jobs to nations like Indonesia, Thailand or Malaysia doesn’t ring with the same political resonance, as it does with bogeyman “China,” it still remains a hot-button topic in US politics. In the US, job creation is rightly or wrongly more closely identified with exports than imports (and related services).
It is a real question whether the Obama Administration makes the TPP an Administration success story. While one of the benefits of winning a second-term in office is a President can act with less concern about domestic politics, FTAs still have a tendency to get bogged down in Congressional gridlock.
The main advantage the Obama administration holds with respect to the TPP is many Asian nations are wary of China’s own economic and political intentions. The controversy in the South China Sea is often perceived by Southeast Asian states as just another example of muscle flexing by the region’s super-state. It’s not surprising all four of the ASEAN nations in the TPP [Singapore, Malaysia, Brunei and Vietnam] are extremely sensitive to Beijing’s expanding influence in the region and fear meddling in their internal affairs.
*The ASEAN Way
Trade pacts are fine, but the problem for ASEAN and Southeast nations in general is how to keep healthy economic growth at a time when the region’s strategic trade partners are under economic siege. The Eurozone crisis, US fiscal cliff, China’s government in transition, Middle East turmoil, the slowing of growth in India and Japan’s stagnant performance are all of concern to ASEAN business leaders. Much of ASEAN’s economic success is tied to being able to export to the major markets in Asia, Europe and the US. But ASEAN is also looking internally for trade growth through the establishment of the ASEAN Economic Community. Dr. Vo Tri Thanh, President of Central Institute for Economic Management (CIEM) during his speech at workshop held in Hanoi, in September said, "By the year 2015, ASEAN Economic Community will be established, facilitating the free flow of goods, services, investment and labor in the region. And all of the activities continue to encourage and promote international and regional integration."
According to the published guidelines, the ASEAN Economic Community will consist of five key components:
1. Free Flow of Goods;
2. Free Flow of Services;
3. Free Flow of Investment;
4. Free Flow of Capital;
5. Free Flow of Skilled Labor.
Currently, there is a relatively free flow of goods & services among ASEAN states. The free flow of investment is a little tricky as many of the ASEAN countries have specific rules guiding investment through local hands. This is also true for capital. The flow of “skilled labor” as opposed to unskilled labor is difficult to quantify – unskilled labor has long migrated to work, as the crowded causeway between Singapore and Malaysia has long attested.
The belief intra-ASEAN trade will be a key driver to regional economic performance, is shared by many outside the region as well. Deputy Secretary-General of the OECD said in November, “Domestic demand growth, and particularly private consumption and investment, will be the main drivers of growth in most ASEAN countries. Growth will be less reliant on net exports than in the past. The expansion of the middle class is likely to continue to boost domestic demand.”
However, there is a potential sticking point to any rosy forecast of ASEAN economic growth.
Deputy Secretary-General of the OECD Rintaro Tamaki
*The ASEAN Dichotomy
There really are two ASEAN’s. The first, largely composed of the original members, is already well into the process of industrialization, while the other made up of newly minted members like Laos, Cambodia and Myanmar (Burma) are developing economies. The original members are clearly on an upward path – Brunei and Singapore already have achieved GDPs on a per capita basis on a par with the G-7 nations. Vietnam is moving faster forward than most economists would have predicted. Malaysia and Thailand have showed remarkable economic resilience despite substantial natural (floods) and political (Thailand’s change of government) difficulties. But what of ASEAN’s other less developed members? What can be expected of Laos, Cambodia and Myanmar? Can they really be integrated into ASEAN?
The importance of integrating ASEAN’s little brothers into the whole was noted in a OECD report released in November, (OECD Southeast Asian Economic Outlook 2013: with Perspectives on China and India): “Growth for the ten ASEAN economies will be 5.5% over the 2013-2017 period, a robust rate matching the pre-crisis level of 2000-2007. However Southeast Asian governments need to strengthen action now to narrow social and economic disparities between countries in the region to sustain robust growth.” (Author’s italics).
The ASEAN challenge isn’t much different than the one the European Community faced after the disintegration of the Soviet Union and subsequent rebuilding of the former Eastern bloc states into the Euro-Zone.
While the gap between rich and poor is enormous in ASEAN, there are willing partners (RCEP & PTT) and the payoff could be sustained growth and a bigger role in global policy making.