ASEAN Economic Integration
Guest walk in front of a big billboard related to the celebration of ASEAN’s 50th anniversary at the ASEAN Secretariat in Jakarta on Friday (11/8). President Joko Widodo, who was present at the celebration, urged ASEAN to continue to maintain its unity and centrality.
On Aug. 8, 10 Southeast Asian countries commemorated the 50th anniversary of the establishment of the Association of Southeast Asian Nations, better known as ASEAN. Fifty years ago, probably no one would have imagined that ASEAN would be what it is today.
The association has not only succeeded in creating political peace and stability in Southeast Asia, but has also made this region one of the world\'s economic centers, improving the welfare of its people through economic integration.
Regional economic integration
Although, according the Bangkok Declaration, ASEAN\'s goal is to promote economic, social and cultural development, the main drivers behind ASEAN\'s establishment were political and strategic objectives. The escalation of the Cold War that culminated in the 1960s and the fear of a domino effect of communism in Southeast Asia prompted five Southeast Asian countries to strengthen cooperation with one another.
The focus of such cooperation was the creation of stability and peace in the region. Only after ASEAN has been in existence for nine years did these countries agree to start cooperation in the economic field. In the first 25 years, ASEAN even avoided the word "integration" and preferred to use the word "cooperation", especially in the economic field. This is in accordance with the direction of the economic policies of member countries, which at that time preferred import substitution policies.
However, after the end of the Cold War in the early 1990s, ASEAN paid more attention to the economic aspects and began to think about regional integration. A free-trade area, previously a taboo at the discussions, has been a major goal since 1993. The economic integration was further deepened and expanded, culminating in 2015 in the establishment of the ASEAN Economic Community.
Currently, economic integration is even regarded one of the major success stories of ASEAN. The trade proportion between these countries increased from 16 percent to 25 percent over the past 30 years. Trade with other countries also increased eight-fold. Foreign investment increased on average by 9 percent annually.
About 8 percent of the world\'s foreign investment is in ASEAN, compared to 3.5 percent in 1990. This enables the Southeast Asian economy to grow by more than 5 percent per year and has lifted 150 million people out of poverty.
The future of integration
A number of things make economic integration successful. Since the early 1980s, ASEAN has been a destination for the relocation of production facilities from several developed and newly industrialized countries, such as Japan, Korea and Taiwan.
Regional production networks have grown and expanded with the agreement on the ASEAN Free Trade Area (AFTA). A conducive world situation with strong trade and economic growth, as well as the success of multilateral trade agreements, made ASEAN’s economic initiative fruitful.
However, will the supportive situation continue? The global situation is currently undergoing profound change, so the challenge for ASEAN is also getting bigger.
Increased protectionist tendencies in some developed countries, such as the United States, lead to increased risk of a trade war. World trade is currently growing at a slower pace than economic growth. Ten years ago, trade could grow twice as fast as the economy.
In addition, the world is entering an era of rapid technological changes today, with various implications for economic activities. The digital economy has changed and will continue to change the way people do transactions. Various types of services that previously only served the domestic market can now be exported or imported.
ASEAN should be able to change its paradigm and parameters on economic integration. Various agreements in services and the digital economy should get more attention in the next stage of integration.
In addition, there are demographic challenges. Although Indonesia, the Philippines and Myanmar will still enjoy demographic bonuses for more than a dozen years, the number of older people continues to increase. Policies at the national level are the answer to anticipating this problem, but regional cooperation can be helpful. One way is to open talks on the movement of the workforce more actively, including for semi-skilled workers.
The importance of deep integration
The challenges above show that ASEAN economic integration is becoming increasingly necessary. A study by the Productivity Commission of Australia (2017) showed that ASEAN and East Asian countries could lose up to 9 percent of their gross domestic product (GDP) if they adopt protectionist measures.
Meanwhile, if they continue to integrate, they can benefit to the tune of about 3.5 percent of GDP. Unlike the EU that emphasizes legal and institutional aspects, the integration in ASEAN places more emphasis on the principle of togetherness and flexibility among its members. This was the key to successful economic integration in Southeast Asia in the past.
However, in the future, the requirement of economic integration is no longer easy to meet. Stronger political, legal and institutional support in ASEAN will be the key to success. ASEAN is also becoming increasingly important for Indonesia. Through ASEAN, Indonesia can achieve regional agreements with a stronger bargaining position than if Indonesia engaged in bilateral agreements with its trading partner nations.
ASEAN countries can also be an extension of Indonesia\'s manufacturing bases and services, in addition to being a source of material and inputs for domestic economic activities. The aging demographic composition of some ASEAN countries also creates opportunities for Indonesian people to work in other countries.
To that end, Indonesia should encourage talks on the protection of migrant workers at the ASEAN level, even encouraging deeper agreement on international labor traffic, especially for semi-skilled and less skilled workers. Indonesia should be able to become an ASEAN leader again, as it was in the past. Without a strong regional economy, it will be increasingly difficult for Indonesia to realize its dream of becoming a developed country by the year 2045.
YOSE RIZAL DAMURI
Head of the Department of Economy at the Centre for Strategic and International Studies (CSIS)
