The ASEAN Economic Community: The Force Awakens?

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The ASEAN Economic Community: The Force Awakens?

The AEC is here, but can it deliver on its promise?

The ASEAN Economic Community: The Force Awakens?
Credit: REUTERS/Olivia Harris

The agreement on the creation of an ASEAN Economic Community signed on November 22 in Kuala Lumpur by the leading nations of Southeast Asia finally entered into force with much fanfare on December 31, heralding the “awakening” of what could be defined as a new Asian power bloc. Almost echoing the European Union’s Common Market of the 1950s, ASEAN seeks to allow for the free movement of goods, services and skilled labor, a major departure from what has been considered since the earliest days of its existence as a political project for peaceful regional integration.

For outsiders, the AEC is the culmination of the massive integrationist leaps made by ASEAN since the early 2000s, suggesting new momentum in the integration process of this gigantic market of 600 million people. But size matters not, and from a pragmatic perspective, the entry into force of the AEC is reminiscent of Shakespeare’s Much Ado About Nothing: Given ASEAN’s extremely weak institutional base, reliant on a skeleton secretariat of no more than 400 staff sustained by an annual budget of barely $17 million, there is much uncertainty as to whether ASEAN can deliver on its ambitious targets.

With the AEC, the 48-year-old ASEAN finds itself at a critical juncture, yet sobriety should drive any analysis. The reasons for skepticism center on two questions. First, can ASEAN effectively pursue coherent economic integration on the sole basis of voluntary commitments – especially given the extreme diversity of the region? Second, if so, which objectives it should pursue next to build on the AEC?

Unity in Diversity?

Significant hope has accompanied the AEC’s formation. Many analysts have pointed out that integrating ASEAN economies would create the world’s seventh-largest single market, and they are certainly right. However, taking advantage of this market requires dealing with its complexities and contradictions, and accommodating the vast differences and national sensibilities. The challenge of diversity is formidable enough: Politically, the somewhat cacophonous, unstable democracies of Indonesia and the Philippines cohabit with the Communist dictatorship of Vietnam and the military junta of Thailand; economically, high-developed states and top ranking economies stand along with some of the poorest countries in the world; culturally, the plurality of religions, languages, ethnicities, and ways of living is difficult to describe. To cite only one example, Malaysia and Indonesia’s Muslim populations co-exist with peoples who are mostly Buddhist (as in Myanmar), alongside the predominantly Roman Catholic Philippines. Against this kaleidoscopic backdrop, it is surely reasonable to question the ability of the AEC to deliver on its promise of a seamless economic bloc.

What is more, the extremely pervasive and, some would say, blind adherence to the overarching principles of consensus and non-interference, combined with the lack of a robust and sound institutional architecture, have left intact the problem of ensuring compliance and effective implementation of targets by national governments and agencies. In spite of the various commitments entered into under the AEC, ASEAN is still missing the necessary institutional glue, which could take the form of an overarching regional mechanism that ensures the smooth coordination of the vast array of government actors from the different national sectors, ministries and agencies. The numbers speak for themselves: Although 95 per cent of tariff lines are at zero, non-tariff barriers on goods and services render cross-border trade particularly painful. Consumer laws, intellectual property rights, land codes, and investment rules have yet to be harmonized at the regional level, while the lack of common, integrated banking structures, alongside the absence of an agreement on common and acceptable currencies, are likely to hinder market access for regional small and medium-sized enterprises. Also still unresolved is the question of the free movement of labor, including in the so-called “high-skilled sector,” with many ASEAN countries imposing heavy requirements on firms wanting to employ foreigners. Meanwhile, in the shadow of the regional debate on skilled labor migration, millions of marginalized migrants deemed unskilled, from domestic workers to fishermen, illegally flit between countries.

For economic integration to succeed, minimum levels of uniformity in political, economic and cultural standing among countries are essential. Given the wide development gaps between countries, combined with the lack of solid and inclusive institutional structures and agencies to govern the newly formed markets under the AEC, ASEAN as an economic project is likely to emerge as a chain of disparate markets, divided between fast-growing modern economies (ASEAN-6) and inward-looking poor countries (Cambodia, Laos, Myanmar and Vietnam, CLMV). The fact that Myanmar’s total trade was worth $23 billion in 2013, compared with Singapore’s $783 billion, underscores the gulf.

Against this mixed backdrop, the ASEAN Civil Society Conference and ASEAN Peoples’ Forum recently warned of the dangers of “unequal and unsustainable economic growth,” which may lead to the negative externalities of “worsening poverty, inequalities of wealth, resources, power and opportunities between countries, between the rich and the poor and between men and women.” One could argue that the Economic Community project has sought to address the line of fracture between the ASEAN-6 and the CLMV through its stated goal of narrowing the development gaps, bolstering inter alia the development of intra-regional infrastructure, and reducing the administrative burdens of national regulations on the creation of new businesses and foreign investment. However praiseworthy, these objectives will take decades to achieve if ASEAN does not provide the adequate institutional means and material resources to give the final impetus to economic integration.

The China Factor

With the AEC, ASEAN seeks to position itself as a competitive alternative to the rising economic and military powers of China and India, maintain its central position at the very core of the Asian “noodle bowl” of agreements and multilateral frameworks, and boost its global clout as a common bloc to counter Beijing’s aggressive policy in the South China Sea. That said, economic influence goes hand in hand with political influence, and economic integration will be of little significance if it is not backed by sound political reforms. It is somewhat ironic that ASEAN as a regional entity, whose very raison d’être was born out of its leaders’ burning desire to avoid the recurrence of war and establish a durable and peaceful regional equilibrium, has to date remained focused on the integration of its economic pillar. Unfortunately, in the latter realm of political and security integration, there is no shortage of problems. The evolution of the security landscape in the Asia-Pacific region, together with the speed and scale of China’s construction activities in the Spratly Islands, are likely to determine the future path of the Association. In many aspects of ASEAN inter-state relations, it is still Beijing that calls the tune, the latter capitalizing on the grouping’s divides and confusion. Meanwhile, China’s massive military modernization program, which is equipping the People’s Liberation Army Navy with the ability to operate in areas far beyond its waters, has fuelled unrest in the disputed region, hinting at the emergence of an “old-fashioned arms race” among Asia-Pacific nations. In a similar trend, the power struggle between China and Japan is driving a fierce naval competition in the East China Sea, while the progressive involvement of the United States in the dispute through its historical alliances with Vietnam, the Philippines and Japan has exacerbated feelings of distrust, and widely polarized the already bitterly divided member states. The U.S. rebalance, illustrated by the presence of military vessels in the South China Sea, has been regarded by China as an act of provocation, symbolizing a U.S. shift from constructive engagement to containment.

But the simple, brutal truth of the matter is that the “wait and see” posture idiosyncratic to the so-called ASEAN way of conducting business has failed to live up to its original promise to “promote perpetual peace, everlasting amity and cooperation among their peoples which would contribute to their strength, solidarity and closer relationship.” The spectacular failure of the 10 ASEAN defense ministers to issue a joint declaration on the SCS at the biannual ASEAN Defense Ministers Plus meeting held last November is somehow reminiscent of the fiasco of the ASEAN Regional Forum’s summit of 2012 under the (China-friendly) Cambodian chairmanship. Incidents such as these make a case for a firm, resolute approach to the much divisive and contentious issue of China. Today, much of the hope rests with South Korean President Park Geun-hye’s attempts at a Northeast Asian trustpolitik, a strategy that aims at lumping together the three regional powers of China, Japan and South Korea in a pragmatic and functional cooperation framework, the so-called Northeast Asian Peace and Cooperation Initiative (NAPCI), to deal with matters of common concern, spanning nuclear safety, cyber security, climate change and disaster response, to name but a few. The non-participation of ASEAN in this new, innovative trilateral dialogue, perhaps best attests of the obsolescence of the organization’s “hands-off” approach and informal modus operandi as a response to China’s assertive divide et impera strategy.

Given these constraints, it will certainly be no easy task for the impoverished, tiny state of Laos to assume the ASEAN chairmanship in 2016. There is great uncertainty as to whether Laos will be able to provide ASEAN with the much-needed leadership and diplomatic acumen to find a common denominator among the widely diverging national views, and further the momentum of integration generated by the AEC. Strategically located at the heart of continental ASEAN and wedged between the fast-emerging states of Thailand and Vietnam, Laos has attracted considerable attention from China in recent years. In 2014, China became Laos’s leading investor with funds totaling more than $5 billion, while the Sino-Laos agreement on the building of a $6 billion high-speed railway project as part of the PRC’s One Belt, One Road project offers a telling glimpse into how Laos has become a frontier for Chinese investment. An unwanted corollary of this increasingly dyadic relationship would imply a situation in which Laos faces a major political dilemma, emerging out of the discord between declared loyalty to ASEAN and actual economic dependence on Chinese investment. In this scenario, whereby the rotating chair, supposedly bound by an imperative of independence and neutrality, favors one party over another and/or accedes to external demands, would deal a serious blow to ASEAN credibility. Malaysia’s leadership and principled attitude during the 2015 chairmanship turned out to be a particularly well-suited approach in these years of crucial change and uncertainty, yet Kuala Lumpur has set the bar particularly high for the small, landlocked Republic of Laos.

Connecting the Dots, Closing the Chasms

These mounting challenges demonstrate that a certain relaxation of the principles of consensus and non-interference, alongside greater emphasis on regional institution-building, are currently needed to accommodate the ever-evolving economic and security landscape in the Asia-Pacific region. This is not to suggest that an integration process along the lines of the EU, underpinned by deep institutionalization through robust governance structures and complex legal frameworks, is the remedy par excellence to ASEAN’s problems. However, if ASEAN is to realize what it purports to be –  “politically cohesive, economically integrated, socially responsible” and “truly people-oriented, people-centered rules-based” concert of Southeast Asian nations, it will need more than just empty statements to overcome the “say-do” chasm and address the pervasive issues of worsening poverty and inequalities of wealth, resources, power and opportunities, let alone the questions of human rights and democracy.

Inevitably, a clear core message requires a certain amount of consistency between words and deeds, between the official rhetoric and actual behavior. Over the past few years, the language of ASEAN official documents, marked with strong commitments to fundamental rights and the rule of law, has proven a hard sell for ASEAN people at a time when Thailand’s military junta, led by General Prayuth Chan-o-cha, is making draconian efforts to curb freedom of expression, while Vietnamese independent writers, bloggers, and rights activists continue to face ruthless persecution by the Communist Party, regardless of the outcry generated within the international community.

Ultimately, it is clear that the workings and developments of the AEC should not be seen independently from, but rather as complementary to, the crafting of the political and security and socio-cultural communities. As member states slowly absorb the externalities generated by the AEC, ASEAN leaders may want to consider preparing the groundwork to build more stable, secure societies, deepen ties with geographical neighbors and, eventually, develop a shared sense of regional community and purpose. Otherwise, any attempt at more integration is likely to ring hollow, and all the hard work that brought about the AEC will have served only to paper over the cracks of ASEAN community-building, thereby consciously hiding the divisive tendencies and disagreements underneath the surface, and inevitably falling short of the goal of an ASEAN identity.

Elodie Sellier has conducted extensive research on Europe-Asia relations and has worked for various international organizations, including the European Union Delegation to Hong Kong and Macao, the Brussels-based think-tank Centre for European Policy Studies (CEPS) and the International Crisis Group (ICG).