ASEAN Finds Its Voice on Islamic State

3 10 2014

By Luke Hunt

The bloc has finally broken its silence. Can it now contribute to the fight against the terrorist outfit?

In a refreshing departure from its usual say nothing approach to all things diplomatic, ASEAN has finally broken its silence over the self-anointed Islamic State (IS), and issued its first joint statement on the crisis, warning of the threat the terrorist outfit poses to global security.

It also backed United Nations Security Council resolutions calling on the international community to suppress the flow of foreign terrorist fighters and their financing, saying they “not only pose a threat to the people of Iraq and Syria, but also to all countries in Middle East, and, if left unchecked, to the rest of the world.”

The statement was issued after an ASEAN-US ministerial meeting on the sidelines of the United Nations General Assembly. It also said ASEAN denounces “all acts of destruction, violence, and terror in all its forms.”

ASEAN countries – in particular Muslim-dominated Indonesia, Malaysia and Brunei – had been coy about the rise of IS, also known as ISIS and ISIL – and its spread from Syria westward into much of Iraq where it is now threatening Baghdad and laying siege to the Kurdistan region.

Authorities fear up to 200 Indonesians and at least 30 Malaysians have traveled to Syria and Iraq to fight with IS, including women.

Hundreds more, including Cambodians and Australians, have also been reported among the multinational force made up of militias and mercenaries and their presence has raised the prospect that terrorist designs for an Islamic caliphate could be exported back to Southeast Asia.

Among the latest warnings, Malaysian Defense Minister Hishammuddin Hussein raised the prospect of a strike by Islamic State within Southeast Asia and said its influence and the spread of their ideology had to be stopped.

Philippine authorities are on alert for any attempt by IS militants to enter the country after the Abu Sayyaf Group (ASG) in the country’s south threatened to kill two Germans it had taken hostage in retaliation for U.S.-led air strikes in Iraq and Syria. ASG, among other regional militant groups – including former Jemaah Islamiyah leaders –  has sworn allegiance to IS.

There have also been threats to kill Pope Francis, leader of the Catholic Church, raising further security concerns for his planned trip to the Philippines in January.

The latest threats came after reports of recently formed Islamic terrorist groups in Malaysia. The country’s eastern state of Sabah, and its proximity to the civil wars in the Southern Philippines, has proven to be particularly vulnerable to attacks.

U.S. Secretary of State John Kerry praised the ASEAN ministers for taking a strong stand against IS and for supporting global efforts to counter the network headed by Abu Bakr al-Baghdad.

But within ASEAN old habits do die hard. The vagaries of the 10-nation bloc, and perhaps a desire  by Muslim members Indonesia, Malaysia and Brunei to tread carefully on this subject, resulted in no mention of IS in the statement by name.

Such concerns were highlighted by Malaysian Prime Minister Najib Razak, who blundered during a speech to his political followers three months ago when he appeared to praise IS militants for their tenacity when he said ISIL was capable of defeating a much bigger enemy like the Iraqi army: “Why? Because they are afraid of those who are brave.”

His words raised eyebrows in the West and Muslim worlds alike before Najib’s office moved to clarify the prime minister’s remarks and downplay any interpretations that he was glorifying IS. The latest statement from ASEAN should further clarify the stand being taken by the bloc. The question now is whether ASEAN countries are prepared to commit financially or with boots on the ground?

Source :

The Diplomat

The ASEAN Economic Community’s labour policy needs work

29 09 2014

By Sanchita Basu Das

Driven by the looming 2015 deadline, discussion is heating up about the impact ASEAN’s Economic Community (AEC) will have on employment. Set to begin on 31 December 2015, the AEC envisions ASEAN as a single market and production base characterised by the free flow of goods, services, investments and the freer flow of capital and skills. Two key factors will affect the region’s employment prospects.

The ASEAN Economic Community’s labour policy needs work
27 September 2014
Author: Sanchita Basu Das, ISEAS

Driven by the looming 2015 deadline, discussion is heating up about the impact ASEAN’s Economic Community (AEC) will have on employment. Set to begin on 31 December 2015, the AEC envisions ASEAN as a single market and production base characterised by the free flow of goods, services, investments and the freer flow of capital and skills. Two key factors will affect the region’s employment prospects.

First, structural change in the domestic economies of ASEAN’s member countries will impact the labour market, as trade integration leads member countries to reallocate resources from less productive to more productive economic activities. And some occupations are likely to grow as the ASEAN integration process progresses.

This kind of structural change, and changing employment dynamics, has occurred in the past. During the last two decades, ASEAN saw a decline in employment in agriculture, which has mainly been compensated by gains in the services sector. Currently, while agriculture accounts for 40 per cent of total employment, industry accounts for 19 per cent and services 41 per cent.

But this regional generalisation masks cross-country variations. Today, agriculture remains the largest employer for Cambodia, Laos, Myanmar, Thailand and Vietnam, while services sector employment plays an important role in Singapore, Brunei, Malaysia, the Philippines and Indonesia.

A recent publication by the International Labour Organization and the Asian Development Bank on six ASEAN countries — Cambodia, Indonesia, Laos, the Philippines, Thailand and Vietnam — found that with the AEC in place, jobs in agriculture; trade; transportation; and construction would increase in all six countries by 2025. Vietnam would gain six million additional jobs, Indonesia 1.9 million and Cambodia 1.1 million. But, for these economies, job losses would be felt in food processing, private services and mining industries.

Another impact of the AEC on the labour market could also be a shift in demand for particular occupations. The largest absolute demand is likely to be for low- and medium-skill jobs, though there will also be demand for high-skill jobs.

The establishment of Mutual Recognition Arrangements (MRAs) for professional services will also affect employment in the region. MRAs will promote the flow of skilled labour. Member states have adopted a framework for MRAs for seven professions — engineering, architecture, nursing, accountancy, surveying services, medicine and dentistry. MRAs will allow each member country to recognise education, experience, licences and certificates granted in other countries.

But so far, only the skills of architects and engineers — who are registered with the professional regulatory body both in their home countries and at the regional level — will receive cross-border recognition.

But with the MRAs, effective movement and the subsequent benefits will be limited as domestic rules and regulations governing these professions still apply.

For example, in Malaysia, foreign engineers have to be licensed by the Board of Engineers for specific projects and must be sponsored by the Malaysian company carrying out the project. The Malaysian company must further demonstrate to the Board of Engineers that they are not able to find a domestic engineer for the job. A foreign engineer in Malaysia must also be a registered engineer in his or her home country, have a minimum of 10 years experience and must have a physical presence in Malaysia for at least 180 days in one calendar year.

Similarly, for architects to become fully licensed, most countries impose restrictions on residency or nationality. Foreign architects are often allowed to work on a project-based basis and, in most cases, employers have to submit proof that an equivalent national professional is not available for the job.

Domestic regulations will also limit the cross-border movement of nurses. For example, in order for a Filipino nurse to practise in Thailand, the candidate must pass the national licensure exam in Thai. As for the surveying profession, the MRA only provides the enabling framework of broad principles for further bilateral and multilateral negotiations among ASEAN member states. MRAs will be unable to provide greater mobility unless they address the domestic rules and regulations of ASEAN economies.

The advent of the AEC will not immediately change the ASEAN labour market. Over time, economic integration may cause structural changes and with that changes in employment scenarios. But policymakers will have enough transition time to address issues in their domestic economies.

The AEC may result in higher welfare, wages and employment. But it is expected that these benefits will be distributed unevenly among countries, sectors and genders. To address this, coordinated and coherent policies will be needed at both regional and national levels to ensure inclusive and fair outcomes. Policymakers should also continue with their efforts to ensure quality education and training in their economies as ASEAN strives to remain competitive and to develop itself as a regional production base in the future.

Sanchita Basu Das is a Fellow and Lead Researcher in Economic Affairs at the ASEAN Studies Centre, Institute of Southeast Asian Studies (ISEAS), Singapore.

Source :

East Asia Forum

An ASEAN Econonic Community by 2015? – Analysis

28 09 2014

The Association of Southeast Asian Nations is the most successful regional grouping in the developing would. Its latest project is to establish an ASEAN Economic Community by 31 December 2015, consisting of economic, political-security, and social cultural components. This column argues that giving commitments more teeth is the key challenge to be overcome in realising the ASEAN Economic Community if it is to be more than a political exercise in solidarity.

By Jayant Menon

The Association of Southeast Asian Nations (ASEAN) is the most successful regional grouping in the developing would.  Born as a politico-security pact in the aftermath of the Viet Nam War in 1967, it started with five countries: Indonesia, Malaysia, the Philippines, Singapore and Thailand.  Brunei Darussalam joined in 1984, followed by Viet Nam in 1995, Lao PDR and Myanmar in 1997, and finally Cambodia in 1999, bringing the total to 10 countries. Apart from expanding its membership, ASEAN has evolved to embrace an ambitious economic agenda. Its latest project is to establish an ASEAN Community by 31 December, 2015, consisting of three components: Economic, Political-Security, and Social Cultural.  If ASEAN were one economy, as the ASEAN Economic Community intends it to be, it would be seventh largest in the world with a combined GDP of $2.4 trillion in 2013. With over 600 million people, ASEAN’s potential market is larger than the EU, and has the world’s third largest workforce (Hill and Menon 2012).

The following three questions are fundamental to the ASEAN Economic Community, and are addressed in turn, below: (i) What are the achievements to date in terms of realising an ASEAN Economic Community?; (ii) What are the remaining challenges; and (iii) Is the deadline likely to be met, and will it matter?

Achievements to date

There have been a number of noteworthy achievements by ASEAN member states on the road to ASEAN Economic Community 2015:

Tariffs. This is a success story of political commitment for ASEAN member states. Following the implementation of the ASEAN Free Trade Area, common effective preferential tariff rates are virtually zero for ASEAN-6. More than 70% of intra-ASEAN trade is conducted at zero most-favoured nation tariff rates, and less than 5% are subject to tariffs above 10% (WTO 2011).
Trade facilitation. The five original member states of ASEAN have live implementation of national single windows already with planned full rollout to all significant ports and airports by 2015.
Investment liberalisation and facilitation. The original ASEAN member states are near achieving international best practices while the newer members have to catch-up.
Services liberalisation. Mutual recognition agreements or their equivalent have been agreed for three types of goods and seven professions, and a “‘framework agreement”’ has been concluded.
Remaining challenges

But challenges remain within each of the ASEAN Economic Community’s four pillars.

The biggest challenges relate to Pillar 1 – creating a single market and production base. This is despite the fact that the single market concept is nowhere near as ambitious as that in Europe (Lloyd 2005).  To hasten progress in this pillar, ASEAN needs to prioritise the following:

Eliminating non-tariff barriers, which are increasingly replacing tariffs as protective measures (Soesastro 2006);
Strengthening trade facilitation by ensuring live implementation of national single windows in the newer member countries to complete the ASEAN Single Window; and
Further liberalising investment and services trade  by improving the business climate and reducing the cost of doing business, including prescribing standard rules governing licensing and other regulatory regimes; and
Expanding the number of mutual recognition agreements and ensuring that they are implemented in a way that leads to increased skilled labour mobility.
Pillar 2 aims at creating a highly competitive economic region. In order to do this, competition policy needs to be improved, and intellectual property rights protection strengthened. These are difficult areas of reform, and questions remain as to how effective a role a regional approach can play compared to national action or a multilateral approach. Nevertheless, there are potentially considerable benefits regionally from the harmonisation of standards and regulatory convergence, particularly in developing a regional market.

Pillar 3 involves creating a region of equitable economic development. ASEAN is significantly more diverse than Europe, in economic, political, cultural, and linguistic terms. The huge disparities in income and levels of development that currently characterise ASEAN are inconsistent with the concept of an economic community, however defined. Sub-regional arrangements such as the Initiative for ASEAN Integration have been proposed to accelerate integration of the newer members- Cambodia, Lao PDR, Myanmar and Vietnam- into ASEAN.

While sub-regional zones can potentially help reduce development gaps and support the growth of global value chains, the reality is that neither the Initiative for ASEAN Integration nor other sub-regional initiatives will have the resources, or the ability, to fully address the development divide. Unlike in Europe, the wealthier countries of ASEAN are very small- Singapore and Brunei- and cannot finance the kind of transfers required in order to make a dent in filling the huge developmental gaps. While these initiatives and support from bilateral and multilateral donor agencies can play a part, the solution must come from within the countries themselves, and through broader economic reforms that promote trade and investment, and thereby enable them to catch-up. Indeed, this is what they have been doing, and what has been happening (Menon 2013).

Finally, Pillar 4 is about creating a region that is fully integrated into the global economy. The biggest strides have been made in this pillar, which has enabled ‘Factory ASEAN’ and global value chains to thrive. This underlies the fact that liberalisation thus far has been driven more by market forces than by regional agreements; and that the shift in focus from unilateral liberalisation to preferential liberalisation through trade agreements has not led to further external opening or domestic reform, since these trade agreements tend to be “weak” and “trade-light.” (Sally 2013; WTO 2011). ASEAN’s long-standing commitment to openness is a defining trait, and should continue if regionalism is to be sustained, let alone prosper.

Each of the four pillars presents a demanding set of challenges to be met if the ASEAN Economic Community is ever to be realised. Cutting across all of them is a need for greater engagement with the private sector and the broader community. Although the ASEAN Economic Community is a government-led agenda, it cannot succeed without fully engaging the business sector, and the public at large. Preparedness of the private sector has been astonishingly low, while awareness of the public equally abysmal (ASEAN-BAC 2013). This needs to change quickly if the ASEAN Economic Community is to make a difference.

Will the 2015 deadline be met?

Although ASEAN has come a long way towards realising its goal, the veracity of the challenges that remain suggests that it will fall short of the approaching deadline.  Indeed, ASEAN’s latest self-assessment from March 2013, the ASEAN Economic Community Scorecard, suggests that the region had reached only 77.5% of its targets between 2008-March 2013.

Recognising that the deadline will be missed is important to ensure that work continues past the 2015 deadline. Indeed, many of ASEAN’s working groups, task forces and the like seem almost preoccupied, somewhat prematurely, with a post-2015 agenda, confirming recognition of this reality. Moreover, the Scorecard reveals that the pace of reform seems to have slowed down rather than picked up, partly due to having to move on to the more difficult parts of the reform agenda.  Even if the pace were to pick up now, the real test for the ASEAN Economic Community will lie in the years beyond 2015.

Apart from hitting the remaining targets, the bigger challenge of implementing the accords legitimately lies beyond the deadline. This is no easy task when considering that domestic laws, or even the Constitution, may have to be amended to accommodate ASEAN Economic Community accords. The flexibility that characterises ASEAN cooperation and institutional arrangements, the so-called ASEAN Way, could give member states a pretext for non-compliance – and there are enforcement issues. Giving commitments more teeth is the key challenge to be overcome in realising the ASEAN Economic Community if it is to be more than a political exercise in solidarity. We should therefore view 2015 as a milestone rather than a hard target, and not a destination but rather as part of a journey (Severino and Menon 2013).

Finally, as recent disputes over property rights in the South China Sea have shown, progress on the economic front cannot be divorced from geopolitical issues facing some ASEAN member countries. Indeed, these events have reminded us that ASEAN was born as, and in many ways designed to be, a politico-security pact, and that the economic agenda is a more recent experiment. Given the interdependence between economics and geopolitics, however, the institution will have to weather the challenges that the latter poses on its cohesion if it is to progress on the former. So far, it has avoided getting involved in the geopolitics without creating too much discontent amongst its ranks.  Just how long it can continue down this path of ignorance before risking collateral damage to its structural integrity remains to be seen.


ASEAN Business Advisory Council (ASEAN-BAC), 2013. ASEAN-BAC Survey on ASEAN Competitiveness, 2013, Singapore: ASEAN-BAC.

Hill, H and J Menon (2012), “ASEAN Economic Integration: Driven by Markets, Bureaucrats, or Both?“, in M.E. Kreinin and M.G. Plummer (eds), The Oxford Handbook of International Commercial Policy, Oxford University Press, Oxford, pp. 357-386.

Lloyd, P (2005), “What is a Single Market? An Application to the Case of ASEAN”, ASEAN Economic Bulletin, 22 (3), pp. 251-265.

Menon, J (2013), “Narrowing the Development Divide in ASEAN: the Role of Policy”, Asian-Pacific Economic Literature 27(2), pp. 25-51.

Severino, R and J Menon (2013), “The ASEAN Community: An Overview”, in Basu S, J Menon, R Severino and O Shresta (eds.), The ASEAN Economic Community: A Work in Progress, ADB and ISEAS, Singapore, pp. 1-30.

Sally, R (2013). “ASEAN FTAs: State of Play and Outlook for ASEAN’s Regional and Global Integration:, in Basu S, J Menon, R Severino and O Shresta (eds.), The ASEAN Economic Community: A Work in Progress, ADB and ISEAS, Singapore, pp. 320-81.

Soesastro, H (2006), “Regional Integration in East Asia: Achievements and Future Prospects”, Asian Economic Policy Review, 1 (2), pp. 215-234.

WTO (2011), World Trade Report 2011, Geneva, WTO.

Source :

Eurasia Review

Why the ASEAN Economic Community Will Struggle

25 09 2014

By Ji Xianbai

Serious weaknesses within ASEAN threaten the realization of the bloc’s regional project.

The recently released U.S. Chamber of Commerce ASEAN Business Outlook Survey 2015 highlighted the widespread concern that the much-anticipated ASEAN Economic Community (AEC) would not be launched by the end-2015 deadline. Indeed, most respondents were pessimistic about the inauguration of the AEC by 2020 or later. This is not the first time that AEC faces a probable delay: In 2012, the commencement of the AEC was postponed to December 31, 2015 from the original plan of January 1, 2015. Despite ASEAN Secretary-General Surin Pitsuwan’s firm reassurance that “[t]here will be no more delays and that all ten ASEAN countries will participate,” even the most fervent proponents of AEC are beginning to worry about the increasingly diminishing chance of delivering AEC on time as 2015 closes in.

ASEAN Economic Community

AEC originates from the ASEAN Vision 2020, which was adopted in 1997 on the 30th anniversary of ASEAN. It aspires to create a single market and production base with a free flow of goods, services, investments, capital and skilled labor by 2020. In 2003, ASEAN leaders signed the Declaration of ASEAN Concord II and agreed to establish the AEC by 2020. The 2007 Cebu Declaration accelerated the establishment of the AEC to 2015, and ASEAN introduced the AEC Blueprint, which was substantiated into the Roadmap for the ASEAN Community (2009-2015) two years later, to guide the implementation of the AEC.

To track the progress of the AEC, the AEC Scorecard, a compliance tool developed based on the EU Internal Market Scorecard, was adopted by ASEAN. To date, two official scorecards have been published, one in 2010 and the other in 2012. According to the AEC Scorecard 2012, the implementation rates of AEC’s four primary objectives: (a) single market and production base; (b) competitive economic region; (c) equitable economic development; and (d) integration into the global economy were 65.9 percent, 67.9 percent, 66.7 percent, and 85.7 percent, respectively, with 187 out of 277 measures being fully implemented by 2011. The formation of AEC appeared to be on track, which makes it all the more intriguing that so few people expect it to come into force even by 2020.

A Frail Locomotive

On the surface, the skepticism seems understandable – after all, it took the Europeans almost half a century to construct their European Community in the remarkable European integration process. Indeed, some critics point out that many of the specified deadlines of AEC implementation have been missed and some major initiatives have not taken off the ground. For example, only 50 percent of the ASEAN Master Plan on Connectivity has been realized due to a combination of financing shortfalls, poor governance, corruption, and the inability of national governments to manage international and interdepartmental coordination. However, ad hoc failures in implementing certain specific AEC targets are not the biggest concern; rather, it is the structural incapacity of the ASEAN to pull the AEC along.

If the AEC were a train, then the ASEAN Secretariat would be the locomotive. Yet, the ASEAN Secretariat itself lacks the financial and intellectual resources to act in that capacity. Astonishingly, the resources at its disposal have remained unchanged for 15 years, even though the region’s GDP had more than quadrupled. In 2013, the ASEAN Secretariat’s total budget was $16 million, a trifling amount for an institution growing in prominence with an ever expanding mandate and activities. In contrast, the European Commission was operating with a budget for its own administration of approximately $4.3 billion in 2012, and European governments spent many times that figure to launch their own regional project.

Not surprisingly, the ASEAN Secretariat is significantly understaffed. As of 2012, the ASEAN Secretariat employed about 300 people, while the European Commission employed roughly 34,000. Given budget constraints, a typical entry-level ASEAN headquarters professional is paid approximately $3000 per month – and this after major improvements in the remuneration package in recent years. Thus, the ASEAN Secretariat struggles to recruit well-educated staff from countries like Singapore and Brunei, or to compete with other regional organizations, such as the Asian Development Bank, which offers the brightest brains in the region a minimum annual wage of $74,100.

The AEC could perhaps still be achieved if the ASEAN member states (AMSs) were genuinely united in striving for the common good, not least the benefits derived from the envisaged economies of scale as a result of a Southeast Asian single market. Unfortunately, delays in delivering AEC reflect one of the most daunting challenges facing ASEAN: the AMSs’ inability or unwillingness to see themselves as a true single market. For example, Indonesia has refrained from ratifying the ASEAN Multilateral Agreement for Full Liberalization of Air Freight Services (MAFLAFS), to protect its domestic aviation industry from regional competitors, primarily from Singapore, Malaysia and Thailand. Without the participation of Indonesia, the single aviation market exists in name only and there is certainly no “open sky” above ASEAN territory. Other examples abound. Apparently, more often than not, narrower national interests trump a broader regional vision, while short-term thinking outweighs long-term benefits. Worse, it seems that the entrenched “ASEAN Way” of non-interference in domestic affairs in politics risks being translated and relegated to non-recognition of mutual interest in economics. In the absence of strong regional institutions and sanction mechanisms for non-compliance and non-cooperation, only peer pressure incentivizes AMSs to respect community commitments.

Last but not least, the slow progress and the obstacles encountered in implementing the AEC is an inevitable result of the generalized awareness deficit of ASEAN and AEC across the region – citizens in Southeast Asia know very little about ASEAN. An ASEAN Secretariat survey in 2013 found that three out of four ASEAN citizens lack even a basic understanding of ASEAN. Again, ASEAN can learn from the European experience in promoting public awareness about the European Union (EU). To enable EU citizens who are directly affected by EU legislation to understand the decisions that have been made in Brussels, translations of EU legislation into all 24 official languages and dissemination by national authorities are required before the new laws come into force. Regardless of their language, citizens of the EU at least know what their leaders are doing.

For ASEAN, the only working language is English, a language that is not cognate with any of the other languages in the region. The adoption of English has been hailed by some as “ASEAN’s Best Policy”; however, the very low English proficiency in the region makes it very hard for ordinary ASEAN citizens to follow regional agendas, which are often available in English only. Admittedly, copying the EU approach will take time, cost money, and entail complex regional and historical differences, but raising ASEAN awareness with the more effective use of communication channels would be conducive to the establishment of the AEC. By informing ASEAN citizens about the enormous economic potential the AEC is capable of unleashing, domestic lobbying pressure and public scrutiny would surge to pressure AMS governments to keep their promises and honor their pledge to build the AEC by 2015. In addition, greater public understanding of the AEC would encourage more people to take advantage of what after all would be a vibrant single market encompassing a GDP of $2.3 trillion and 600 million people.

If the AEC is to launch on schedule, it will certainly need a more powerful ASEAN Secretariat. It will also require all ten member states to abandon parochial obsessions in favor of shared prosperity.

Ji Xianbai is PhD candidate at S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore on the prestigious Nanyang President’s Graduate Scholarship (NPGS). He is also Associate Fellow at European Union Centre in Singapore.

Source :

The Diplomat



Is Bigger Better for ASEAN in a Mega-Regional World?

13 09 2014

by Razeen Sally

Big-block trade agreements or ‘mega-regionals’, revolving around one or more major powers, are the latest trend in trade policy negotiations. ASEAN is involved in two: the American-led Trans-Pacific Partnership (TPP) and the Chinese-led Regional Comprehensive Economic Partnership (RCEP). But are mega-regionals good for trade and economic growth? Will they spur regional and global economic integration? And where does ASEAN stand?

As of 2013, there were 261 FTAs concluded in Asia, over 100 of which are already in force. Asia’s three major powers, China, Japan and India, are heavily involved as are ASEAN countries Singapore, Malaysia and Thailand. ASEAN also has its own ASEAN Free Trade Area (AFTA), which will be upgraded into the ASEAN Economic Community (AEC) in 2015. And ASEAN has collective FTAs with China, Japan, South Korea, India, and Australia–New Zealand.

The strength of FTAs varies enormously. US FTAs in Asia are by far the strongest. They have the widest sectoral coverage and go deepest with disciplines to ensure market access. But they contain exemptions for politically sensitive sectors and are riddled with complex and discriminatory rules-of-origin (ROO) requirements. EU FTAs in Asia are also relatively strong. But intra-Asian FTAs are generally ‘trade-light’. The better ones remove tariffs on most goods, but they are weak on disciplining protectionist regulatory barriers in goods, services, investment and public procurement. That is true across the board of Chinese, Japanese and Indian FTAs, as well as the FTAs of ASEAN countries.

Overall, the new wave of FTAs has not given a big boost to trade and foreign investment. But nor has it impeded trade growth. Effects have been broadly neutral, or at best marginally positive.

Now attention has shifted to mega-regionals. There are three being negotiated: the TPP, RCEP and the EU-US Transatlantic Trade and Investment Partnership (TTIP). The TPP’s membership is 12 to date (US, Mexico, Canada, Chile, Peru, Australia, New Zealand, Japan, Singapore, Brunei, Malaysia and Vietnam). It started earlier than the others and is the closest to completion. RCEP’s members are the ASEAN 10 countries plus China, Japan, South Korea, India, Australia and New Zealand. Taken together, these three mega-regionals account for the bulk of world trade and GDP.

Mega-regionals potentially amplify the gains from trade liberalisation. If done cleanly and comprehensively, they would iron out distortions caused by multiple and overlapping FTAs among members (such as differing ROOs). With a bigger integrated economic space, they can reap economies of scale and spur technological innovation. This is particularly important for global supply chains. Regional production networks to serve global markets are the biggest drivers of productivity, employment and growth in international trade. They have a big stake in integrated regional and cross-regional markets. Still, mega-regionals are not ’multilateral’: they discriminate against non-members. That is a big potential source of disruption to global supply chains.

The TTIP and the TPP are the most ambitious mega-regionals. They cover markets for all goods, services, investment and government procurement, and go deep into regulatory disciplines — including on intellectual property, food safety and technical standards — and customs procedures. In the TPP, ‘twenty-first century’ innovations include rules to facilitate supply chains and e-commerce.

But there are major barriers that stand in the way of success.

Protectionist lobbies are big obstacles in several countries, including parts of agriculture and autos in the USA, agriculture in Japan, government procurement in Malaysia, and state-owned enterprises in Vietnam. The US insists on intellectual-property, public-health, labour and environmental standards, and ROO requirements that may impede market access for developing countries. And the Obama administration lacks Trade Promotion Authority from Congress, without which the TPP is unlikely to be concluded and ratified. The TTIP has also been slowed down by obstacles on both sides of the Atlantic.

RCEP looks the least ambitious. If it follows the pattern of intra-Asian FTAs, it will remove tariffs on about 90 per cent of goods over a fairly long timeframe. But it will have weak disciplines on non-tariff regulatory barriers that are the biggest obstacles to trade in the region. It might end up agglomerating the ‘noodle-bowl’ of FTAs among members rather than ironing out distortions among them. In such a scenario, RCEP will create little new trade and investment, and cause extra complications for global supply chains. But negotiations still have some way to go.

Much depends on US and Chinese leadership. President Obama’s leadership is needed to conclude a ‘high-quality, twenty-first century’ TPP — and open the door to eventual Chinese membership. But Obama has conspicuously failed to lead on international trade. Similarly, the Chinese leadership has been defensive on trade policy for almost a decade. But there are signs that China is becoming interested again in regional and global trade liberalisation. It will take Chinese leadership to inject more ambition into RCEP.

All ASEAN countries are in RCEP and four are in the TPP. What should they do on mega-regionals? First, they should push for ambitious agreements that are wide (with maximum sectoral coverage) and deep (with strong disciplines on regulatory barriers), with relatively simple ROOs and open accession clauses for non-members. Only this type of mega-regional is likely to create significant trade and investment, and facilitate the expansion of global supply chains. Second, they should back this up with intra-ASEAN measures, such as accelerating progress on the AEC and strengthening provisions in existing FTAs.

But it must be recognised that mega-regionals, and indeed other FTAs, are not a universal remedy. Political realities will inevitably dilute their ambition and quality. Given their gaps and distortions, they are unlikely to deliver the huge gains that many pundits predict. This applies to the TPP, RCEP and the AEC. The key policy implication that follows is that ASEAN countries should go as fast, wide and deep as possible with unilateral liberalisation. They should also ‘multilateralise’ preferences in existing FTAs as far as possible, that is, to extend them to non-members on a non-discriminatory basis. This is how ASEAN countries have liberalised and integrated into global supply chains in the past. That is unlikely to change in the future.

Razeen Sally is Associate Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore.

Source :

East Asia Forum

ASEAN Economic Community: What Could Go Wrong?

13 09 2014

Banking integration in ASEAN gathers pace

29 08 2014

by Thiam Hee Ng

The ASEAN Economic Community, planned to come into effect in 2015, is expected to liberalise goods, capital and skilled labour flows in the ASEAN region. While there has been considerable progress in the area of trade integration, financial integration still lags behind. The ASEAN Banking Integration Framework, which aims to liberalise the banking market by 2020, could help pave the way for further integration and the entry of ASEAN banks into regional banking markets.

Greater banking integration in ASEAN will benefit the region.

Allowing banks to operate across borders enables them to take advantage of economies of scale to increase efficiency and reduce costs. The entry of regional banks into domestic markets can increase competition, leading to lower prices and a greater variety of banking products and services. Heightened competition may also spur banks to expand into rural areas which are traditionally underserved by banks. Extending banking to the rural poor is an important means of promoting inclusive economic growth in ASEAN.

Currently, the level of integration in ASEAN’s banking sector is relatively limited. The share of ASEAN’s banking assets held by regional banks is generally smaller than global banks. Indonesia has the highest share of banking assets held by other ASEAN banks at almost 15 per cent, followed by Malaysia at around 9 per cent. Malaysian and Singaporean banks have been actively expanding their operations in recent years into other ASEAN markets. For example, CIMB Bank from Malaysia has large subsidiaries in Thailand and Indonesia while United Overseas Bank of Singapore has a strong presence in Malaysia and Thailand. Greater intra-ASEAN trade and investment could also help encourage more banks to expand their operations regionally to better serve their clients.

While the share of ASEAN banks in the region’s banking market is still relatively small, it is not that different from that of European banks in the five largest European Union countries which benefit from operating in an integrated common market. This suggests that dropping regulatory barriers alone may not be sufficient to bring about close cross-border integration.

Entrenched incumbents in a saturated market may be hard to dislodge. Hence Singaporean banks which are dominant in their highly developed banking market will be hard to challenge. The three largest Singaporean banks control 80 per cent of assets in the banking system in the country. However, banks in Indonesia and the Philippines which have large populations and relatively underdeveloped banking sectors are likely to come under greater competitive pressure from other regional banks. The banking systems in Indonesia and the Philippines are also more fragmented. The three largest banks in Indonesia and the Philippines only have 35 per cent and 41 per cent of total national banking assets respectively.

As barriers to entry fall, the prospects of stronger competition from other ASEAN banks could push banks to merge as they look to strengthen their domestic position and better compete against regional rivals. Three Malaysian financial institutions, CIMB Bank, RHB Bank and Malaysian Building Society Berhad (MBSB) announced plans in July 2014 to merge. The merged entity is expected to overtake Maybank to become the largest Malaysian bank. The merger will help consolidate the banking market in Malaysia and create a regional banking power that can hold its own in its home market and have the resources to expand to other countries.

While recognising there are potential gains, it is important to note that closer integration can give rise to new risks. As the region’s banking system becomes more tightly knit, there is potential for contagion and spillover effects. Hence, the authorities should work together to strengthen regulatory and supervisory cooperation frameworks to deal with potential spillovers.

As ASEAN is getting ready to reap the benefits from greater banking integration, it should also be ready to cope with the complex challenge of supervising banks whose operations span the region.

Thiam Hee Ng is Senior Economist at the Office of Regional Economic Integration, Asian Development Bank.


East Asia Forum