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The Business Times: If ASEAN Means Business

11 Sep The Business Times: If ASEAN Means Business

THE recent Asean Summit and related meetings in Jakarta generated many headlines about the high politics of the region. A new map in the South China Sea drew considerable concern, as did ongoing violence in Myanmar. Diplomatic gestures were noted, particularly that US President Joe Biden skipped the summit, sending Vice-President Kamala Harris in his place.

None of these is trivial. Should there be conflict and instability, negative consequences for the economy and business will be high. Western investors might then bypass Asean as Biden did. Yet, other factors also matter to business and, quite aside from the high politics, bear attention.

Post-pandemic uncertainties

Complex and challenging conditions are evident in the slow growth seen in the first half of the year. There is no easy, even and immediate bounce-back to pre-pandemic levels. Some feel the “scars” from the pandemic – profits lag for companies in most sectors, and many workers struggle to secure jobs. Governments face budget constraints and cannot pump-prime growth. There is also a risk of pandemic amnesia, failing to prepare and build resilience against future shocks.

Global factors and soft international demand impact Asean exports. Supply chains are also shifting, with some in the US and elsewhere emphasising home- and near-shoring.

Investors are more cautious about emerging countries, especially with higher capital costs and weakening global rules.

Many factors are megatrends beyond the control of Asean, but there is much else that can be done. Chief is that individual governments must undertake reform and adjust to the new, harsher conditions. Just as importantly, the group must renew efforts to work together to enhance the role of the region.

The call for Asean centrality – the theme of the Asean Business and Investment Summit 2023, held just before the leaders met – is as such not just the diplomatic question of which world leaders come calling. Just as importantly, centrality is about how member states cohere. Rather than each government acting only for itself, cooperation and integration are essentials.

First steps have been taken. The Asean economic community, inaugurated in 2015, has brought intra-Asean tariffs on almost all goods to zero or near-zero levels. But this has to be further enhanced with a raft of deeper measures. The post-pandemic challenges demand bolder and more decisive action.

Integration and opportunities

One priority must be to rationalise non-tariff measures. This is ongoing and proves tricky because some measures – such as safety standards – do have legitimate reasons. Yet beyond the details, reducing and harmonising them are critical to bringing down transaction costs and reducing red tape from excessive and multiple regulations. This would propel not only a greater trade flow among Asean members, but also enable linkages to global supply chains.

This is where the geopolitics of Sino-American tensions intersect with Asean economic and trade policy. A silver lining of that superpower storm is that many investors are looking to invest in countries other than China. Vietnam is receiving attention and, even more so, supply chains could be anchored across Asean as a whole. This would utilise the comparative advantages of the diverse countries, whose strengths at different segments include resources, advanced manufacturing, as well as research and development.

Beyond being an alternative to China, Asean must aim to succeed because of its own dynamics. One key is to emphasise region-wide efforts to capture emerging opportunities from digital and green trends. Both go beyond narrowly-defined sectors such as technology, and are cross-cutting issues that transform economies and emphasise new dimensions of competitiveness.

For example, consider how trade supply chains can gain. Existing Asean efforts to have a “single window” and repository for trade can be enhanced by the digitalisation of trade documentation. In combination, these measures can lead to greater ease and productivity in trade, and also lower carbon emissions and increase speed.

In many ways, green and digital factors are essential strategies for emerging stronger in the new global conditions. It is therefore promising that Asean has taken clear steps forward with both at the recent summit. A Digital Economy Framework Agreement is slated for conclusion by 2025. Developments are visible for green power cables and grids, and Asean has also endorsed a strategy for carbon neutrality as an important frame to its economic community.

In these areas, the provision of finance and setting regional standards will be critical. Asean members will need to find appropriate and ambitious standards aligned with scientific and international benchmarks, as well as the diverse realities across the region. Guiding this must not only be narrowly-nationalist interests, but an understanding that all members – small and large – benefit from working together.

Regionwide perspectives

Under Indonesia’s chairmanship this year, the theme has been that “Asean matters”. Notwithstanding this assertion, long-running debates about the group’s political relevance will no doubt continue, given superpower rivalries.

A second – and perhaps less recognised – element of the theme emphasises the region as an “epicentrum of growth”. With the challenging post-pandemic conditions, this bears redoubled emphasis – to highlight Asean as a source of growth and demonstrate its relevance to the business agenda.

This will require not only hard work, but also boldness and intentionality to set such directions and undertake reform. Asean must develop a forward-looking and future-proof agenda, to be resilient against future shocks and leverage new drivers for growth. Such efforts were called for in the 2016 book Global Megatrends: Implications for the Asean Economic Community, which I edited with the Indonesian economist Julia Tijaja, and are now an imperative.

Moving forward will need not only governmental efforts, but also support from the Asean Secretariat, which is headquartered in Jakarta but must think about the region as a whole. Business chambers and investors, as well as the think tank experts of the region, should be important partners in this work.

The Asean Business and Investment Summit brought many CEOs and top companies as well as experts to Jakarta to discuss what more can and must be done. These included not just Asean companies but many from other countries, including – even if Biden was elsewhere – the US. There is also reason for experts and policy institutes to come together in a think tank summit. Cross-sector and cross-border partnerships between governments, businesses and expert bodies will be key to building a true Asean community.

To many, Asean already matters. While far from flawless, our region continues to outperform global averages and is now growing faster than China. Yet because it matters, more is to be expected if Asean means business and wants to matter more to businesses.

Simon Tay is chairman of the Singapore Institute of International Affairs (SIIA). He spoke at the first plenary session of the ASEAN Business and Investment Summit that was held in Jakarta on 3-4 September 2023.

This article is part of a series of SIIA column on “The Politics that Matter to Business” for The Business Times. It was first published on 11 September 2023.