After almost two decades of discussion, the ASEAN Economic Community (AEC) will be proclaimed on 31st December. The AEC is a potentially significant and competitive economic region, should it be allowed to develop according to the aspiration of being a “single market and production base, with free flow of services, investments, and labour, by the year 2020”.
The ASEAN region as a composite trading block has the third highest population at 634 million, after China and India. GDP per capita is rapidly rising. The AEC would be the 4th largest exporter after China, the EU, and the United States, with still very much scope for growth from Cambodia, Myanmar, the Philippines, and Vietnam from a diverse range of activities ranging from agriculture, food, minerals and commodities, electronics, and services. The coming AEC is already the 4th largest importer of goods after the United States, EU, and China, making it one of the biggest markets in the world.
Unlike the other trade regions, the AEC still has so much potential for growth with rising population, rising incomes, growing consumer sophistication, and improving infrastructure.
Perhaps the biggest benefit of the upcoming AEC is the expected boost this will give to intra-ASEAN trade. Most ASEAN nations have previously put their efforts into developing external relationships with the major trading nations like the EU, Japan and the US through bilateral and free trade agreements. To some extent, the potential of intra-ASEAN trade was neglected, perhaps with the exception of the entrepot of Singapore.
The AEC is an opportunity to refocus trade efforts within the region, especially when Vietnam, Cambodia, Indonesia are rapidly developing, and Myanmar is opening up for business with the rest of the region.
The social, cultural, political and business interchange within the region has traditionally been low, until the rapid increase of intra-ASEAN travel, due to the low-cost airline explosion within the region.
Today intra-ASEAN trade is approximately 25% of total trade, growing around 10.5% per annum, and expected to reach 30% of total ASEAN trade by the year 2020.
However the necessary infrastructure to support intra-ASEAN trade growth is lagging behind with a delay in the completion of the Trans-Asia Highway in Cambodia, and vastly inadequate border checkpoints between Malaysia and Thailand in Sadao and Kelantan.
Some infrastructure development projects have been severely hit by finance shortfalls within member states.
There are a number of outstanding issues concerning the growth and development of the AEC.
The ASEAN Secretariat based in Jakarta has a small staff, where the best talent is lacking due to the small salaries paid. The Secretariat unlike the EU bureaucratic apparatus in Brussels relies on cooperation between the member state governments for policy direction, funding and implementation of the AEC.
Thus the frontline of AEC implementation are the individual country ministries, which presents many problems, as some issues require multi-ministry cooperation and coordination, which is not always easy to achieve as particular ministries have their own visions and agendas. Getting cooperation of these ministries isn’t easy.
There are numerous structural and procedural issues yet to be contended with. At the inter-governmental level, laws and regulations are yet to be coordinated and harmonized. So in-effect there is one community with 10 sets of regulations in effect this coming January 1st. Consumer laws, intellectual property rights, company and corporate codes (no provision for ASEAN owned companies), land codes, and investment rules are all different among the individual member states.
There are no integrated banking structures, no agreement on common and acceptable currencies (some ASEAN currencies are not interchangeable), no double taxation agreements, and no formal agreements on immigration.
There is not even any such thing as a common ASEAN business visa. These issues are going to hinder market access for regional SMEs. Any local market operations will have to fulfil local laws and regulations which may not be easy for non-citizens to meet and adhere to.
Even though there are some preferential tariffs for a number of classes of ASEAN originating goods, non-tariff barriers are still in existence, which are insurmountable in some cases like the need for import licenses (APs) in Malaysia, and the need to have a registered company which can only be formed by Thai nationals within Thailand.
Some of these problems are occurring because of the very nature of ASEAN itself. ASEAN was founded on the basis of consultation, consensus, and non-interference in the internal affairs of other members. This means that no formal problem solving mechanism exists, and the ASEAN Secretariat is a facilitator rather than implementer of policy. Illegal workers, human trafficking, money laundering, and haze issues between member states have no formal mechanisms through which these issues can be solved from an ASEAN perspective.
This weakens the force for regional integration.
One of the major issues weakening the potential development of the AEC is the apparent lack of political commitment for a common market by the leadership of the respective ASEAN members. Thailand is currently in a struggle to determine how the country should be governed. Malaysia is in the grip of corruption scandals where the prime minister is holding onto power. Myanmar is going through a massive change in the way it will be governed. Indonesia is still struggling with how its archipelago should be governed. There is a view from Vietnam that business within the country is not ready for the AEC.
Intense nationalistic sentiments among for example Thais, exasperated by the recent Preach Vihear Temple conflict along the Thai-Cambodian border need to be softened to get full advantage out of the AEC. The dispute in the International Court of Justice over Pedra Branca, and the Philippine rift with China over the South China Sea show the delicacy of relationships among ASEAN members. The recent Thai court decision on the guilt of Zaw Lin and Win Zaw Tun in the murder of two young British tourists may also show how fragile intra-ASEAN relationships can be.
The AEC is going to fall far short of achieving its full potential of becoming a major influence in global trade.
The AEC is not intended to be the same model as the EEC. The AEC is far from being any fully integrated economic community. The lack of social, cultural, and political integration within the ASEAN region indicates the massive job ahead that Europe had been through decades ago. There is still a lot of public ignorance about what the AEC is, and lack of excitement or expectation for what should be a major event within the region. Respective national media are scant on information about the forthcoming launch of the AEC.
Economic nationalism is very strong within ASEAN. Malaysia has its Government Linked Companies (GLCs), State Economic Development Corporations (SEDCs), Thailand its Crown Property Bureau, and family business empires within each country which have vested interests in keeping market access at the current status quo. The AEC is seen as a threat to many existing business empires, which fear open market access. Many of these business empires have enormous political influence upon their respective governments.
The AEC could be deemed to conflict with the special advantages bumiputera businesses in Malaysia enjoy in areas of government tendering and contracting.
It is yet to be seen how some of these businesses will behave within an AEC environment. However what can be said for sure is that the AEC will not create any level playing field for ASEAN businesses in the foreseeable future.
With the problems the EU is currently facing, maybe it is wisdom in hindsight that the leaders of ASEAN have been extremely cautious in their approach to the formation of the AEC. Any opening up of the labour market could also be a potential disaster. A free flow of labour across ASEAN would potentially put many under-qualified people out of work according to Gyorgy Sziraczki, the director of the ILO in Vietnam.
This could lead to economic downturns in some of the more susceptible parts of the AEC like Lao PDR and Cambodia. The AEC rather than promoting intra-ASEAN trade, lead to a more domestic orientation, where unemployed may see the informal economy looking much more attractive means of making a living.
However, if the leadership of ASEAN see the opportunities of dramatically increasing intra-ASEAN trade, then the AEC has great potential to assist the region withstand any steep economic downturn around the rest of the world.
Projects that are able to boost regional synergies like coordination of education, river system water management, energy, transport, banking and finance, may very quickly improve regional integration. Regional clustering can be developed in education, auto-parts, food production, electronic parts, and the value adding of basic commodities to benefit the economies of the region.
Infrastructure development will be vital to the success of the AEC. For this purpose the ASEAN Infrastructure Fund, financed by member countries and the Asian Development Bank will be extremely important. The recent ASEAN summit in Kuala Lumpur also reactivated the ASEAN Joint Consultative Committee to resolve trade and investment issues.
The slowness of the AEC should not be seen as a failure of ASEAN. We can see the slow pace that ASEAN makes decisions, with the long period it is taking to admit Timur Leste as ASEAN’s 11th member.
The vital questions here are whether the AEC will be able attract direct foreign investment to the region? Take advantage of rising opportunities like international education? Stop the talent drain from the region with China becoming more aggressive in attracting the best from the region? and Create an ASEAN awareness within the region?
Sadly, one may expect the fate of the AEC to be similar to that of the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), and the Brunei Darussalam-Indonesia-Malaysia-The Philippines East ASEAN Growth Area (BIMP-EAGA). They are in existence by name, but with little real substance on the ground.
France returns to Laos
The geographical location of Laos, a small landlocked state surrounded by China, Thailand, Myanmar, Vietnam and Cambodia, has made it imperative for this country to pursue a well-balanced multi-faceted foreign policy that hinges on the development of a mobile system of economic and political counterbalances.
Regional integration is key to the economic development of Laos. A major integration mechanism is ASEAN, of which Laos has been a member since 1997. 99% of Laos’ residents believe that their country’s membership in this organization yields tangible economic benefits; 92.5% say it has improved their personal financial standing.
As a member of ASEAN, Laos is committed to developing relations with China, Thailand and Vietnam but pursues a preferential policy as regards each of them.
China remains number one investor in the Laotian economy ($ 8.5 billion) with the bulk of the finances channeled into the mining, transport infrastructure and energy sectors. In 2016, trade turnover between the two countries reached $ 2 billion , a significant amount for Laos with its less than 7 million population. The largest Chinese-Lao project is the railway from Kunming Province (PRC) to Laotian capital, Vientiane. China is ready to inject more than $ 6 billion in the project
Meanwhile, Laos has been stepping up cooperation with Vietnam, which maintains a wait and see position in relation to China. Laos views Vietnam as a political and ideological counterweight to China. Cultural ties with Vietnam serve as an additional means of preventing the transformation of Beijing’s economic influence into the ideological one. Members of the ruling People’s Revolutionary Party of Laos receive training in Vietnam.
With a view to diversify foreign economic and foreign policy relations, Laos is developing contacts with France, whose colony it used to be in the past. Paris is seen as a remote neighbor of Laos, a partner in the economic and cultural spheres. Since 1991 Laos has been a member of the international organization for the cooperation of the francophone states “Francophone”. According to the French Embassy in Vientiane, the number of Laotians who speak French amounts to 3% and has been increasing over the past 12 years.
Laos is home to two branches of the Institut Francais du Laos (IFL) – an organization that promotes the French language and culture abroad; the French language is on the curriculum of three of the country’s five universities. In March 2018, Laos was visited by leaders of “Francophone”, and in May 2018 – by representatives of the Francophone University Agency. The official mission of the latter is to create a new French-language communication and educational space. The visits resulted in the signing of agreements on further cooperation with both organizations.
The period that saw a catastrophic fall in the demand for the French language in Laos since the mid-1970s is coming to an end. Nevertheless, the Lao Ministry of Education has designated English as a compulsory subject in schools for the 2019 academic year. The decision was prompted by the currently prevailing position of English worldwide and Vientiane’s intention to develop economic ties not only with the Francophone, but also with the Anglosphere.
Along with the cultural influence, France is trying to build up its economic presence in Laos. In May 2018, a French delegation led by French Ambassador Claudine Ledo visited a special economic zone in the province of Savannakhet to examine the prospects for French investment. For Laos, France is the ninth largest trading partner accounting for only 0.2% of the Lao market but it holds top position among non-Asian countries in the volume of investment.
Trade turnover between Laos and France has been fluctuating in recent years between $ 34 and $73 billion. France is prepared to invest in the Lao economy but the volume of investment is determined by the extent of Vientiane’s openness to foreign investment flows and the ability of the Lao economy to ‘digest’ them.
The year 2019 will mark greater cooperation within ASEAN for Laos. Last year, economic issues within ASEAN prevailed over political ones in connection with trade conflicts between the United States, the European Union and the People’s Republic of China. ASEAN countries are planning to launch the Regional Comprehensive Economic Partnership program (RCEP).
If the program is fulfilled, it will become the largest trade agreement in the world. The cumulative GDP of the countries participating in it makes up 25% of the global GDP, the population accounts for 45%, and the trade turnover amounts to 30% (5). Australia, New Zealand, Japan, South Korea may all be attracted to the program. This will provide Vientiane with more opportunities to diversify foreign economic relations amid China’s growing financial presence in Southeast Asia.
France was the first European country to sign a partnership agreement with ASEAN. Paris regards this organization as key to its policy in the Indo-Pacific region and a major economic partner. The volume of French investments in the ASEAN economy in 2017 reached € 16 billion. France’s share in the ASEAN market is 1.6%. This figure has not changed for ten years.
Paris aims to give cooperation with ASEAN a new impetus, which will impart more momentum to French-Lao relations.
First published in our partner International Affairs
On Refugees… And Myanmar: It’s Not Just The Rohingya
… And my life’s cold winter that knew no spring; Of my mind so weary and sick and wild, Of my heart too sad to sing. — Paul Laurence Dunbar
The world now has more refugees than at any time since after WW2, more than the population of Britain. They are often the consequence of wars usually instigated by great powers directly or through proxies. Civil strife accompanied by the demonization of minorities, killing and expulsion is another reason. Such is the story of the Rohingya in Burma, or Myanmar as it now likes to be known.
It is a country with the river Irrawaddy as a central artery. Bordering it is the heartland, peopled by the Bamar who make up 68 percent of the population and are Buddhist. The Rohingya are Muslim, look different and have lived in Rakhine state for at least five centuries. During WW2 they supported the British while the Buddhist Burmese supported the Japanese, their coreligionists. It brought lasting enmity. After years of propaganda and vilification, the Rohingya were stripped of citizenship. Not unlike Nazi Germany targeting Jewish people, new restrictive laws curtailed liberties, marriage rights, even children — limited to two. The vilification turned most neighboring Buddhist villages against the Rohingya, and those attacking and burning their villages were often these neighbors when not the military.
In this latest violence, 90 percent of the Rohingyas were driven out and about three-quarters of a million sought refuge across the border in Bangladesh. The story does not end with the Rohingya for there are other threatened minorities in Burma occupying the periphery in the north and south:
In northern Shan state, a simmering conflict with the Taang National Liberation Army dating back to 1963 has displaced 300,000. The army emboldened by the relatively meek response to the assault on the Rohingyas have intensified their efforts also against the ethnic Kokang’s Myanmar National Democratic Alliance Army. The consequence is an addition to the tens of thousands that had streamed from earlier conflicts over the border into China. Also in the north the largely Christian Kachin minority formed the Kachin Independence Army to defend their villages. The ongoing conflict has displaced more than 135,000 internally. And in the south the conflict with the Karen (Buddhist, Animist and 15 percent Christian) resulted in over 100,000 refugees … this time in Thailand, plus a 100,000 diaspora to the rest of the world including some 65,000 in the US. Myanmar’s perverse antipathy towards all its minorities makes a mockery of the Nobel Peace Prize awarded to Aung San Suu Kyi, its leader. Is meaningful censure an answer, or is innate tribalism an unconquerable primitive amygdala response?
The top five refugee hosting countries might also come as a surprise. Amid all the news of Angela Merkel’s generous offer to accept everyone entering her country, Germany is not one of them. Shortly thereafter her party lost by-elections and she is departing. The actual figures are Turkey (3.5 million), Pakistan (1.4 million), Uganda (1.4 million), Lebanon (1 million) and Iran (0.98 million). The chaos in countries adjoining them (think of Afghanistan, Iraq, Syria and Somalia) explains why, and the great power with a finger in each pie, when not actually baking it, is also not difficult to discern.
Imagine being forced to flee with just the clothes on your back or just a bag. A word here also for the people who had to do just that to escape wildfires. They all have our heartfelt sympathy, often taking a concrete form through donations to help. A happy new year to everyone and a better one for the unfortunate among us. We can try to make it so.
In Thailand, Mahathir offers a hypocritical take on ASEAN unity
“The stability and prosperity of our region,” Malaysian premier Mahathir Mohamad claimed earlier this week, “rely heavily on a united and integrated ASEAN.” The call for regional unity came as Malaysia’s prime minister was conferred an honorary doctorate in Thailand in the field of social leadership, entrepreneurship and politics, an occasion that marked Mahathir’s second visit to the country since winning a landmark election in May this year. His earlier visit saw him pledge to facilitate peace in the southern border provinces of Thailand amid a persistent separatist insurgency.
While his speech may have been stirring, Mahathir’s grandiose vision of a more unified ASEAN community does not extend to his own government’s policies, at least judging by the escalating border dispute Putrajaya has ignited in recent weeks with neighbouring Singapore. The same Mahathir that called for regional unity in Thailand is refusing to remove ships from disputed waters, while a senior member of his party threatened Singapore with “pain by a thousand cuts”. The provocative language harkens back to the long and tense relationship between the two countries since their 1965 split, with boundary issues typically flaring up in parallel with domestic politics.
This latest dispute straddles two sets of issues. On the maritime side, Malaysia’s October claim to extended limits of the Johor Bahru port has been rejected by Singapore on the grounds that the new boundaries exceed previous claims. In terms of airspace, Malaysia has voiced opposition to the Instrument Landing System (ILS), an assisted navigational aviation facility for Seletar Airport. Malaysia protests the system’s implementation on the grounds that it infringes on national sovereignty and creates adverse impacts on flight paths and shipping in Pasir Gudang.
Mahathir’s renewed aggression toward Singapore marks a notable about-face from predecessor NajibRazak’s efforts to build stronger ties between Malaysia and the city-state. Najib sought to increase mutual trust through cross-border infrastructure and education projects. “We certainly do not want to return to the era of confrontational diplomacy and barbed rhetoric between our two countries,” he declared earlier this year in a barely-veiled barb at Mahathir’s preceding stint in office. “It was an era that we want to forget.”
That attitude was echoed by international observers, who held high hopes for bilateral relations upon Mahathir’s election as PM in May despite his widely-known frosty attitude towards Singapore. A few months in, those hopes have given way to somber disillusionment. The tensions of the past several weeks have revived uncomfortable memories of cross-causeway relations during Mahathir’s first stint in power, when he ruled Malaysia with an iron fist from 1981 to 2003.
One focal point of tensions is Mahathir’s so-called 2001 “crooked bridge” plan, designed to replace the causeway linking the two countries with a bridge to allow ships to cross the Johor Strait. Singapore refused to back the project, declaring the bridge unnecessary as long as the causeway was in good condition. Mahathir’s insistence on building Malaysia’s end of the bridge, and more recent attempts to revive project discussions, have confirmed fears that his return to power would revive old issues previously laid to rest.
It’s difficult to determine exactly why Mahathir is so blatantly after confrontation with Singapore. Two main theories have emerged to explain the PM’s enmity towards Malaysia’s tiny neighbour. According to the first theory, the idiosyncratic Mahathir holds a grudge from his university days in Singapore, where he faced anti-Malay prejudice and condescension from Singaporeans.
Mahathir does indeed have a history of holding grudges. Long before the Seletar airport issue and the revival of the Johor Strait bridge project, Mahathir had one-time protégé Anwar Ibrahim thrown in jail on trumped up sodomy charges after they disagreed over financial policy in the wake of the 1997 Asian Financial Crisis. Anwar, who has since re-emerged as a critical political ally for Mahathir, was just one of a long list of political opponents to suffer similar fates during Mahathir’s first tenure.
That trend has carried over into the premier’s second term. Having already spoken at length of his soured impression of successor Abdullah Badawi, the newly reinstated leader is now going after predecessor Najib. Arrested in July in connection with the billion-dollar corruption scandal surrounding state investment fund 1MDB, Malaysia has also filed criminal charges against Goldman Sachs for its involvement in the embezzlement of large sums of money. The unfolding case against Najib is being held up as a litmus test of Mahathir’s commitment to justice. The supposedly “bitter” Mahathir is unlikely to disappoint.
The second theory, however, may offer a more straightforward explanation. It suggests Mahathir is using this latest spat with Singapore as a means of drawing attention away from domestic problems. A Nikkei Asian Review report released earlier this year held Mahathir’s government responsible for a rapidly declining ringgit, with the new administration lacking in substantial new economic policies and failing to curb capital outflow.
Mahathir’s economic woes are compounded by rising concerns over Malaysia’s ballooning debt. In the wake of the 1MDB scandal, realizations that government debt exceeds RM1 trillion – more than $238 billion – are ringing national alarm bells. The benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index has fallen nearly ten percent since Mahathir took office.
Amid rising debt, dubious economic policies, and broken election promises, Mahathir’s comments in Thailand earlier this week belied what could very well be a conscious strategy of exploiting regional tensions to maintain domestic control. While ASEAN unity almost certainly is the only path to shared regional prosperity, Mahathir does not seem to be to be listening to his own advice.
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