The fiction of a unified, harmonised Asean

David Pilling
Financial Times
December 9, 2015

The bloc favours consensus. Its lack of overarching ambition is a strength as well as its weakness

If you think European nations are having a hard time holding it together — strained by disputes over immigration, austerity and debt — spare a thought for the 10 countries that form the Association of Southeast Asian Nations.

True, compared with Europe, they face few fatally divisive problems. Most of Southeast Asia is contending with the impact of a slowing China and braced for the turbulence that could accompany the steady normalisation of US monetary policy. Yet there are no big financial transfers within Asean, a loose federation akin to the EU of the 1950s. No country is threatening to leave, nor are there fundamental differences over the direction of policy.

Still, as Asean prepares for an important milestone this month — the creation of a theoretically single market — it is worth reflecting on the incredible diversity of the “new bloc on the block”.

The 625m people of Asean live in states that range from the sprawling Indonesian archipelago of 250m souls to the tiny sultanate of Brunei, with 400,000. You have Singapore, with a gross domestic product per capita of $55,000, and Cambodia at just over $1,000. There are cacophonous, if imperfect, democracies (Indonesia, the Philippines); Communist dictatorships (Vietnam); and military juntas (Thailand). There are states with majority Muslim populations, such as Malaysia and Indonesia; ones that are mostly Buddhist, including Myanmar; and the predominantly Roman Catholic Philippines.

Asean countries are even split over which side of the road to drive on. In five of them it is the left, and five the right — although in Vietnam they drive on both. Given this diversity, it is no small miracle that Asean is forging ahead with integration by creating the Asean Economic Community, which formally takes effect on December 31.

Theoretically, this creates a unified market in goods and services, and clears the path to free movement of people and harmonisation of regulations. It should be no surprise that much of this is fiction.

Although 95 per cent of tariff lines are at zero, non-tariff barriers, from diverging regulatory standards to dysfunctional ports, make trade between nations frustratingly hard. Nor is there anything like free movement of labour, even in the skilled sector, which is supposedly on its way to full liberalisation. Multinationals operating in Asean complain that it is often hard to transfer staff from one country to another. Meanwhile, millions of unskilled migrants, from construction workers to fishermen, flit between countries in the shadows. In the penumbra of regulation, there is flagrant violation of human rights and even outright trafficking.

Asean has no ability to sanction countries that flout its rules. It is “all carrot and no stick”, Jayant Menon, an expert on trade integration at the Asian Development Bank, told a Financial Times conference on the subject recently. Asean has a skeleton secretariat, to put it kindly, based in Jakarta. It has a budget of $17m — not enough to get an EU commissioner out of bed in the morning.

Asked who you call when you want to call Asean, Abdul Farid Alias, president of Maybank, a Malaysian bank that has a presence in every Asean country, responds curtly: “No one.”

In spite of such flaws, some companies are trying to treat Asean as a single market. General Motors and GlaxoSmithKline have made Singapore their regional hub, though that may be because of the ease of doing business in the city state rather the attractions of Asean. Others are seeking to build production centres in Indonesia, Thailand or the Philippines.

Rising wages in China are making these and other countries, including Myanmar and Cambodia for textiles, and Vietnam for textiles and electronics, more attractive. Diageo, the drinks group, has placed hefty bets on Asean — lured, says Sam Fischer, its regional president, by consistent growth, young populations and the prospect of an expanding urban middle class. Yet it has sometimes been disappointed, such as when Indonesia suddenly clamped down on alcohol sales this year. Above all, says Mr Fischer, foreign investors want Asean to enforce clear and consistent rules. That may be a problem.

The “Asean way” favours consensus. Its lack of overarching ambition is a strength as well as a weakness. By taking a softly softly approach over the nearly five decades since it was founded, Asean has avoided pooled sovereignty and a single currency, both of which have become so contentious in Europe. It has held its project together with remarkably little friction. It has scored quiet successes, from steady tariff reduction to nudging Myanmar back into the fold of respectable nations.

Yet carrots and consensus can only take you so far. Those looking for a new but faster-growing
Europe in the heart of Asia will be disappointed.

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