The key is to scale up, work collectively and reduce cost

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Ambassador Ong, former ASEAN Secretary-General, says that most encouraging is the fact that many ASEAN and non-ASEAN multinational companies are already operating production networks based on the ASEAN single market model.
AUGUST 29, 2018 - 11:19 AM

Ambassador Ong Keng Yong
Executive Deputy Chairman,
S Rajaratnam School of International Studies (RSIS)

What are some memorable issues or anecdotes relating to the ASEAN economic pillar?

To me, the impetus for an ASEAN economic community was the 1997-1998 Asian Financial Crisis which clearly demonstrated the vulnerability of South-east Asian economies to uncontrollable developments and forces in the developed world. Further, when things "go south", the rest of the world which came to the region to make money would pack and leave. The excuse was often the loss of economic competitiveness in South-east Asian countries. The situation seemed helpless.

Fortunately, a few enlightened leaders in ASEAN Member States came together and agreed to employ private-sector expertise to come out with a future-oriented solution. This led to the almost forgotten McKinsey ASEAN Competitiveness Study. The basic idea was to scale up, work collectively and reduce the cost of doing business and producing goods in South-east Asia to attract and root foreign investors, which should bring more job opportunities and technology.

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To obtain quick results, priority sectors (for example, consumer goods, electronics and touristics) were designated. To expand the market, free trade agreements (FTA) with larger trading partners such as Australia, China, Japan and India were recommended.

An unforgettable picture etched in my mind is that of a Thai senator who approached me personally in Chiang Mai on the sidelines of an ASEAN meeting with some onions from farms in Thailand and proclaimed that soon there would be no more such Thai onions as cheaper Chinese onions would wipe out his country's onion production! At that point, ASEAN and China were in negotiations for their FTA. The fear in some quarters of Thailand was that the huge quantities of inexpensive agricultural goods from China into ASEAN would destroy ASEAN farm produce. Yet, another almost forgotten initiative - the "early harvest package" - was introduced to allow ASEAN vegetables and tropical fruits to enter the Chinese market even as the officials were tied down with tedious negotiations to conclude the FTA.

In the quest for ASEAN economic integration, member states have come out with many bureaucratic and policy innovations:

  • the ASEAN Single Window and Self Certification on Rules of Origin for quick documentation and trade facilitation;
  • the AEC Scorecard for reporting to ASEAN Leaders at the annual ASEAN Summit on implementation of economic integration measures;
  • the Master Plan on ASEAN Connectivity which is to strengthen and provide hard and soft infrastructure for facilitating business, industrialisation and trade in ASEAN Member States.

What are the changes you have seen between then and now in ASEAN?

Today, almost all products and services which an ASEAN Member State creates can be exported to another ASEAN Member State with practically no tariff. The availability of the inexpensive dragon fruit (from a cactus plant) in the whole of the ASEAN region is a classic example. Previously, this was grown in a specific part of northern Vietnam and sold for mostly domestic consumption. Now, one can buy it in all ASEAN capital cities. It is also grown in several ASEAN Member States. The different ingredients for the common cup or packet instant noodles are now produced in various ASEAN Member States as the manufacturers capitalised on economy of scale and lower cost of production across the region.

The key point is that ASEAN economic integration has cut tariffs on goods to a minimum and competitively-priced goods from all ASEAN Member States are available in all ASEAN Member States.

Now, agriculture and food, civil aviation and tourism, education, environment, ICT, and even migration and youth sectors are all linked up under an economic umbrella with better coordinated policy development.

Just look at the ASEAN Economic Community (AEC) Blueprint 2025 in the approved vision document "ASEAN 2025: Forging Ahead Together" where all conceivable domains connected with the economy of the region are provided.

To be sure, the coordination is not all smooth and implementation of the measures stated therein appears aspirational. In some cases, turf battles and nativist sentiments still predominate. At the same time, ASEAN economic integration comes across as purposeful and no longer just on paper.

What do you consider to be some of the most significant economic developments that has impacted ASEAN and its relevance?

ASEAN GDP growth in the last few years was better than expected. For the next three to four years, the World Bank and the International Monetary Fund have predicted ASEAN growth at more than 5 per cent.

Macro-economic development is a steady process and there is consultation and cooperation among finance and economic planners of ASEAN Member States.

ASEAN's commitment to trade liberalisation and globalisation is firm and reform of domestic policy to further open up the market is active. Movement of capital, goods, services and skilled human resources is proceeding steadily. This is a vastly different picture from 10 years ago.

ASEAN is increasingly confident of managing an economic and financial crisis originating from outside the region. The talks to finalise the Regional Comprehensive Economic Partnership are reaching a conclusion. There is a need to strengthen engagement with the private sector and those in the services sector. More work is to be done. Overall, the big and strategic things have been mapped and being implemented. There is no need to be pessimistic about the state of ASEAN's economic integration. Just keep going and finish what has been laid down in the AEC 2025 Blueprint.

What is your vision of the AEC in the next 10 years?

It is important to remember that the AEC is not a European Union-type economic integration in South-east Asia. The AEC constitutes the most ambitious programme of economic cooperation in the developing world, and implementing this agenda will be technically and politically difficult.

For ASEAN leaders, the AEC is the strategic imperative. They have anticipated the trends and embarked on a long-term strategy to keep ASEAN open and make it a single market. It is a response to globalisation and the rise of the giant economies of China and India. The challenge is to ensure ASEAN survives as a viable regional inter-governmental organisation which matters to member states and friends. The AEC will always be influenced by external developments, particularly the state of the global economy.

However, the AEC must also reflect the diversity, raison d'etat and will of ASEAN nations. It should be uniquely South-east Asian and not simply a replication of another model from another part of the world. The standardisation and harmonisation of practices and rules are ongoing and the increasing volume of such ASEAN-centric practices and rules bears testimony to the currency of the AEC initiative.

The ASEAN Charter lays down the rule of law in ASEAN and there is more accountability and predictability even as the provisions for dispute settlement mechanisms and protection of intellectual property rights are still under-utilised. Most encouraging is the fact that many ASEAN and non-ASEAN multinational companies are already operating production networks based on the ASEAN single market model.

The prognosis is that the AEC is happening. There is constant pressure to give up the ASEAN agenda as political considerations surface from time to time. Nevertheless, with a skilful balance of interests, its demonstrated visionary leadership and proven track record of tackling common challenges in a collective manner, ASEAN can deliver the AEC. The grumbling and fumbling witnessed so far should not be mistaken as buyer's remorse and a claw-back of ASEAN economic integration.