Economic community key to ASEAN’s centrality

Author: Peter Drysdale, Editor, East Asia Forum

Over the past few days ASEAN leaders met in Naypyidaw, the capital of Myanmar, for the first time ever at their 24th summit. Against what were once considered long odds, ASEAN has become a central feature of Asian regional architecture. It is a bulwark of regional stability and increasing prosperity in Southeast Asia and a pivotal element in the geopolitics of the whole Asian region. Individually all 10 member states have their fragilities — prominently now Thailand, given the uncertainties of its democratic future — but collectively they are a force that at critical points shapes regional outcomes and has standing in global affairs.

Indonesia is by far the biggest ASEAN state, both in economic and population terms, accounting for over a third of ASEAN’s 620 million people. For Indonesia, ASEAN centrality is a national mission and defines an approach to international diplomacy that carries weight despite the contradictions of coordination and coherence across a vastly diverse group of nations. There is no better example of such contradiction within the contradictions of ASEAN than Myanmar, this year’s chair. It is the poorest of the ASEAN states. It is ethnically and culturally as diverse and divided as any country in the region. Half a century ago, one of Southeast Asia’s most promising stars, with a rich civilisational history and assets for development, Myanmar collapsed under the weight of political oppression and claustrophobic inward-lookingness. Now it is committed to economic opening and political reform.

As K. Kesavapany suggested in an essay on the eve of the summit the Yangon meeting promises ‘to be one of the most challenging in ASEAN’s 47 years of existence’. Tensions over the South China Sea are threatening to cause geopolitical upheaval and damage aspirations to found an East Asian Community.

If the summit in Naypyidaw this weekend were merely the signal — within Myanmar, across the region and around the world — of acceptance of the new national road to regional leadership and the restoration of the country’s standing in the international community, then that would be a sufficient achievement in itself.

The summit certainly signalled that. But it also signalled much about where ASEAN itself is at, on the cusp of moving towards implementation of the ASEAN Economic Community (AEC) agenda — beyond a narrow free trade area towards the establishment of the cross-regional institutions that should see the emergence of an effective single location for production and eventually a single market. There is an array of scorecards for progress towards these objectives. While these scorecards and any measures of progress along the way to the AEC have their weaknesses and outs, they are seriously regarded politically and keep the heat on members to make the grade. The AEC will be a continuing work-in-progress over the next decade or more. It cannot be delivered on target next year. That is in part its nature. But it is on track.

What began as a purely security arrangement — a combination of a de facto non-aggression pact and soft bulwark against the spread of communism in Southeast Asia — has turned into a solid economic grouping at the centre of a set of trade and economic agreements with its partners, China, Japan, South Korea, India, Australia and New Zealand (the ASEAN plus six), across the region.

From the beginning, getting strategies to accelerate economic development right was a high priority. ASEAN’s first meeting of trade and economic ministers commissioned the Asian Development Bank (ADB) in 1969 (itself then just newly established) to chart a course for Southeast Asia’s development in the 1970s. The ADB study of the same name, led by famous Burmese economist, Hla Myint, defined the way forward through trade-oriented development focused on reform to promote competitiveness in global, rather than regional, markets. This strategy has served the ASEAN economies well, transforming trade and lifting incomes and ASEAN’s economic weight. It is a sweet irony that 30 years after this advice from one of its most famous sons and his colleagues, Myanmar has risen to the challenge.

While the Asian financial crisis shook ASEAN to its foundations, the transformation of Indonesia’s political system, of which the crisis was a harbinger, vastly strengthened ASEAN’s political core.

What the Naypyidaw summit foreshadows is an ASEAN that must focus more on getting its own act together through the AEC enterprise. The huge income gaps that remain between the original ASEAN members and the new, among which Myanmar is the most prominent outlier, will be narrowed importantly only through building a more deeply integrated ASEAN economy nested into global markets. Building links between small- and medium-sized national enterprises and international enterprises and unleashing private sector growth is one dimension of that. Attracting international investment in the infrastructure that will serve to integrate national markets and connect ASEAN to international markets is another.

In this week’s lead essay, Giovanni Capannelli notes ASEAN’s impressive achievements thus far: ‘With an average yearly GDP growth of 6 per cent over the last decade … ASEAN’s economy is rapidly expanding. In 2012, its 10 member countries’ average per-capita GDP was about US$3800 — half-way between India’s US$1600 and China’s US$6100. In the same year, ASEAN had an impressive 7 per cent of global exports, and its aggregate GDP covered about 3.3 per cent of the world’s total — double its share in 1990′. As he says, ‘Myanmar’s challenges mirror those faced by ASEAN as a group: strengthening internal cohesion and economic integration with other ASEAN members is prerequisite for its prosperity’.

With the Trans-Pacific Partnership still on hold, and Indonesia out of the running in that, ASEAN also holds the key to broader regional and political cooperation with its Regional Comprehensive Economic Partnership (RCEP) initiative which aims to extend the AEC to a broader community of Asian economies, and is scheduled for launch next year. ASEAN alone can’t drive RCEP to conclusion but it can hope, as is its wont, to provide the collective space that will. And that might also serve to ameliorate the side tensions, prominent in the lead-up to this summit, that bedevil the relationship between some ASEAN members (particularly Vietnam and the Philippines) and China over territorial issues.

Peter Drysdale is Editor of the East Asia Forum.