Southeast Asian leaders in their summit late last month declared that the ASEAN Community will be launched on Dec. 31. Compared with the European Union, which involves transfer of some state sovereignty to the union and the use of a common currency for most of its members, the ASEAN Community will be a rather loose supranational grouping. Even so, it should try to develop a sense of unity — the basis for healthy and robust development as a community — among the participating countries and their citizens. Narrowing the huge economic gap among its members and overcoming problems arising from political diversity will be among its key challenges.
Japan, for its part, should take the creation of the new regional community as a chance to consider anew how it should approach the 10-member Association of Southeast Asian Nations as a whole — which is expected to develop into a single market with a population of more than 600 million in the form of the ASEAN Economic Community (AEC). While Japan has ostensibly sought deeper ties with the regional group, its interests have so far focused mainly on individual ASEAN members and on investing in them as production bases and markets for its businesses.
The ASEAN Community has its roots in the idea to create an East Asia Economic Caucus, proposed in 1990 by then-Malaysian Prime Minister Mahathir Mohamad, who thought that Southeast Asian nations need to form a regional free trade zone to cope with economic challenges from Western powers. While the ASEAN Community aims to achieve integration in three areas — economic, political and security, and social and cultural affairs — it is unclear at this stage how the members will pursue community-building except in the economic arena because of their vast political, ethnic and religious diversity. Some member states have territorial disputes among themselves and with China in the South China Sea, and their attitude toward Beijing, which seeks to expand its influence in the region, differs.
Currently, only the AEC has substance. Six economically advanced ASEAN members — Indonesia, Malaysia, Singapore, Thailand, the Philippines and Brunei — in principle abolished tariffs on intra-regional trade in 2010. The other four poorer economies — Cambodia, Laos, Myanmar and Vietnam — are to follow suit by 2018. The member states are also seeking to simplify trade procedures, ease restriction on the movement of skilled workers and liberalize investments in the service sector.
The AEC will be larger than the EU in terms of the combined population of its members. But its total GDP at $2.57 trillion is smaller than Japan’s and way below that of the EU. The economic gap between its richest and poorest members is huge. While Singapore enjoys per capita GDP of over $50,000, the corresponding figures in Cambodia and Myanmar are less than one-fiftieth that. Opening domestic industries to regional competition will be a challenge. The retail sector in Indonesia and the Philippines, car manufacturers in Malaysia and Vietnam and the financial businesses of Myanmar and Laos are likely to put up resistance to liberalization. Some ASEAN members have already introduced taxes on luxury goods, a move that runs counter to market-opening efforts.
Some member countries are also lagging in constructing infrastructure such as roads and ports. One big problem is the moves toward protectionism and failures to remove nontariff barriers by individual member countries as they try to alleviate the impact of China’s economic slowdown. The AEC as a whole does not have a concrete road map to abolish nontariff barriers by its members. It is clear that the ASEAN members need to solve a number of problems before turning the AEC into a vibrant and sustainable economic community.
Unlike the EU, the AEC does not aim for complete freedom in the movement of people within the region, establishment of a common parliament and administrative organization or creation of a common currency. It secretariat is weak, with a budget worth only about 0.3 percent of the EU’s.
Although prospects for the AEC are hard to foretell, the members’ economic development since the 1980s has been significant. According to the International Monetary Fund, ASEAN members achieved annual GDP growth of 5.4 percent in real terms on average from 1990 through 2014 — much higher than Japan’s 1.1 percent. Its exports increased ninefold and imports eightfold over the same period. Its importance in the global supply chain has grown as its intra-regional economic integration and division of labor progressed thanks to an increase in foreign direct investment.
As some 9,000 Japanese firms are operating in the region, Japan should resolve on growing together with ASEAN and helping it lay the foundation for a community that is aimed at accelerating regional development as well as stabilization in the political and security arenas. Japan can and should help the AEC in such areas as narrowing the economic gap among its members and raising their labor productivity.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.