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An optimist’s view of Asean integration

by November 27, 2016 General



IN my efforts to peek into the future–specifically the prospects of the Asean Economic Community, or Asean regional integration–I interviewed Dr. Roberto F. de Ocampo, an economist by training, chairman of the Philippine Veterans Bank and a member of the board of advisers of the RFO Center for Public Finance and Regional Cooperation, an Asian Development Bank regional knowledge hub.

He is also one of the first Southeast Asian members of the Trilateral Commission, a global think tank of noted national leaders; a founding partner of a Washington D.C.-based Global Advisory Group and a founding director of the recently formed Global Economic Forum: the Emerging Markets Forum; former president of the Manila-based Asian Institute of Management; and currently director of the Global Reporting Initiative. He was Philippine finance secretary from 1994 to 1998 and director of a number of private corporations.

When I asked Dr. de Ocampo about the prospects of Asean economic integration in the next 20 years, he gave me the text of a speech he gave last November 10 at the Asian Business Conference: “Labuan: Connecting Asian Economies” in Labuan, Malaysia. A reading of the text shows that Dr. de Ocampo is indeed optimistic about the prospects of Asean economic integration. But he suggested that the Brunei-Indonesia-Malaysia-Philippine East Asean Growth Area (BIMP-EAGA) offers the winning opportunity that the Asean 10 should start.

On the factors that could impact the realization of the Asean Economic Community (AEC) vision, Dr. de Ocampo starts with the opportunities:

“1. Large Asean markets. With a combined population of over 622 million, Asean has a vast consumer base, just behind China and India globally. Asean is the United States’ trading partner and the largest Asian destination for US investment. It also receives the largest chunk of outgoing investment from the EU at 24 percent. At current growth rates, Asean should become the fourth largest market after the EU, the US and China by 2030. But attractive opportunities also lie within. The share of intra-Asean trade is at 24 percent or about a quarter every year. The reductions of tariff rates, regulatory and structural reforms, and improvement in connectivity have strengthened trade relations among Asean nations.

“2. There is also room for greater productivity. Over 50 percent of Asean’s population is under the age of 30, making it a large portion of both the current and future workforce. Much as we value the wisdom of the not-so-young, a youthful and productive population can drive economies. And that is one strength and appeal of Asean. With this, I believe investment in education and technical training becomes imperative for us to tap into the potentials of having this large and youthful workforce.

“3. Finally, there is an opportunity to deepen and fortify synergies through our existing Asean Free Trade Agreements and consolidating the “Plus One FTAs” into a Regional Comprehensive Economic Partnership (RCEP). Negotiations for RCEP are currently ongoing, and the participants include the 10 Asean member states, China, India, Japan, South Korea, Australia and New Zealand. If this economic pact offers comprehensive and high quality commitments and agreements, this will have a tremendous impact on the flow of trade, FDI and skills in the region. Global economic relationships may shift, and dependence on Western markets might ease.”

He then adds the challenges:

“The AEC envisions transforming Asean into a region with free movement of goods, skilled labor and services. Of these, managing labor mobility is one of the most challenging issues being discussed in Asean, primarily because it involves the movement of people. This issue touches on sensitive topics of national concern such as local jobs, brain drain and migration. It is no secret that many Southeast Asian nations still hold restrictive labor practices and are short on the political will to push this agenda forward. We have mutual recognition agreements covering eight professions and we have streamlined business visa procedures for business visits and temporary cross-border work. However, these represent a modest beginning to the envisioned free movement of labor that hopes to address skills shortages and provide employers the ability to hire skilled talent from the region.

“The rise of new non-tariff barriers, despite the reductions in tariff rates, is another challenge we have yet to seriously address in Asean.

“According to the Global Trade Alert database, non-tariff measures have been rising in the biggest Asean economies since the global financial crisis. From 2009 to 2013, a total of 186 non-tariff measures were implemented. Most of them were applied by the bigger economies: 75 by Indonesia, 39 by Vietnam, 27 by Thailand, 16 by Malaysia, and 15 by Singapore.

“Now the threats are mostly, in my opinion, geopolitical. The disputed maritime territories are creating tensions and division within Asean and its partners. China, Taiwan, the Philippines, Vietnam, Malaysia and Brunei claim parts or all of the resource-rich South China Sea–making it a hot spot of regional tension. Members are divided on how to respond to China’s growing assertiveness on the economic, military and diplomatic fronts. Even though the decision of the Permanent Court of Arbitration in the Hague went in the Philippines’ favor, our new President shifted the country’s foreign policy in favor of China (without necessarily rejecting the arbitration tribunal’s verdict.) With this game-changing shift, the question now begs, ‘can Asean set a unified policy over China and the South China Sea?’

“But looking ahead, the biggest threat now lies in how the economic giants, China and the US will evolve their co-existence into a much more peaceful one. The United States is reaching dramatic conclusions to the US elections, and one concern that seems to have emerged during their debates is isolationism. We are seeing politicians, or wannabe politicians, calling for a more protectionist stance, to close borders, and to bring jobs back home or the reversal of globalization. This is counter to the free enterprise principles embraced by the US before and the Great Asian Pivot of the outgoing [Obama] administration.

“Another serious concern is security in the region. The threat of terrorism is real in Asia, and transnational organized crimes infiltrate our borders. Asean needs to address these issues that pose serious threats to the public and our institutions. Our countries also face national insurgencies and local rebellions and these we need to deal with through peaceful negotiations–unlike global terrorism which requires a different approach.”

So Dr. de Ocampo makes this suggestion:

“I believe Asean should refrain from assuming the unrealistic premise that we should replicate the European Union model of an economic community and apply it in our region. From our past mishaps with SEATO, we have learned that Asian nations have diverse characteristics and cultures that our approach should be uniquely our own. In particular, we shouldn’t consider having a common currency because in this arrangement having separate fiscal policies will not work. We should also refrain from dreaming of a United States of Asia, which was the premise of the European Union….

“Instead we should focus on ensuring the fulfillment of our respective commitments in AEC. We need to cascade regional targets to country level for timely and efficient implementation of measures. We need to engage the private sector and conduct public-private consultations in the process, and we need to strengthen our monitoring system and enforcement of AEC commitments. At present, there is no central governing body in Asean and no alternative convening power in the region that would tackle regional problems, monitor the enforcement agreements and facilitate conflict resolution. We need to explore alternatives such as further building the capability of the Asean Secretariat and increasing its funding. Or create a body beyond the Asean Secretariat?

“One notable effort to ensure that the economic progress pursued by Asean is felt by the less developed areas of Asean is the creation of the BIMP-EAGA, or the Brunei-Indonesia-Malaysia-Philippines East Asia Growth Area (BIMP-EAGA) in 1994. It is a subregional cooperation [organization]that seeks to accelerate economic development of less-developed locations in BIMP. These locations are in strategic proximity to each other and have some of the world’s richest resources

“While this remains in existence, unfortunately, succeeding leaderships did not have the same point of view leading to the somewhat dormancy of BIMP-EAGA. On the Philippines’ side, we now have a President who comes from Mindanao, which is part of BIMP-EAGA, and we expect his administration to pursue the rebirth of this organization. Last month, we saw Philippine President Duterte and Brunei Sultan Hassanal Bolkiah publicly announce their intention to revive and strengthen BIMP-EAGA through broadened trade cooperation. I am hopeful about this development, primarily because connectivity and strategic geographical location creates unique opportunities for economic cooperation between the focused areas of East Malaysia, East Indonesia, Mindanao and Brunei Darussalam.

“On the Asia-Pacific Economic Cooperation, or APEC, a 21-member group that aims to achieve greater prosperity in the region through free and open trade and investment. Seven of the Asean member states are part of APEC, together with big countries such as the US, China, Japan, Russia and Canada. They avoid political discussions here, but focus on economic cooperation and at present, they are studying the possibility of a Free Trade Area in Asia Pacific (FTAAP), the envisioned mega trade and investment deal of the 21 countries

“In APEC, all economies have an equal say and decision-making is reached by consensus. There are no binding commitments or treaty obligations—these bilateral agreements usually come at the side meetings during APEC gatherings. Commitments are undertaken on a voluntary basis and capacity-building projects help members implement APEC initiatives. It is also not a common market nor is it a rules-based organization like the WTO.5

“In 1996, the first time the Philippines hosted APEC, the APEC Business Advisory Council (ABAC) was formed to represent the business community in the APEC discussions. Their participation in APEC is critical because they provide the business sector perspective and response to industry-related issues that normally feed into the agreements. Last year when we hosted APEC again after almost 20 years, we emphasized the role of MSMEs (micro, small and medium enterprises) in regional growth and have pursued SME-led initiatives to strengthen their participation in global and regional supply chains. This is one big opportunity that we shouldn’t miss. Technology has enabled our MSMEs to increase their efficiency and expand their networks, and we see B2B transactions happening mostly online. APEC, offering a wider market, can help our MSMEs tap new market opportunities and benefit from new business technologies.

“The only concern, again, that I have is on the political dynamics between APEC member economies. Sharp political tensions are present, particularly among the big nations. There is also some concern regarding the political will of APEC leaders in pursuing the FTAAP, or even the APEC-borne TransPacific Partnership (TPP). Asean member states like Malaysia, Singapore and Vietnam have engaged with the US in the TPP, a reflection of their willingness to take on a high-level trade agreement while the rest, including the Philippine,s are content in pursuing RCEP. What is in the TPP that are not usually contained in other FTAs? TPP is called the 21st century mega trade deal because it introduces binding commitments aimed at addressing 21st century issues such as e-commerce, copyright protection and enforcement, labor standards, environment standards, and regulation of state-owned enterprises. All of these are perceived to be, to some extent, US standards that support their own interests. So if you think about it, with the diplomatic shifts happening and the different pathways that AEC and APEC are undertaking, our relationships are less certain. Economic fora and partnerships are supposed to create a unified vision but we struggle finding a common set of measures to achieve our shared goals.

“We are nowhere close to attaining the APEC vision of a free and open trade and investment environment in the region, and non-trade barriers are still in place,” Dr. de Ocampo concedes.

“But we should pick our wins in areas where we can. And this applies also to Asean and BIMP-EAGA. We have made significant strides in our economic pacts despite the misses. Regional and global uncertainties loom but so do the opportunities….”

(Gil H. A. Santos (aka Guillermo H A Santos) also teaches journalism and international relations at the Lyceum of the Philippines. He is a geopolitical analyst and is president of the Center for Philippine Futuristics Studies and Management.)