Asean and the new world disorder

14 January 2017
As appeared in The Star Online

THE buzzword among think tanks on global strategy in the West is “World Disorder”. This follows, particularly, Donald Trump’s victory last November in the United States Presidential election – he will be inaugurated on Jan 20 – but also the British Brexit vote in June and anxiety over the possible triumph of populist right-wing parties, in France especially, this year.

There is a common opposition in these developments to the global and local liberal order, to free trade and movement of peoples, and to the political value system that has characterised the West and, tangentially, the rest of the world.

However the reality for emerging and developing countries is likely to be different, and the stack of concerns over disturbance to the world order is not the same.

For the longest time those not in the West had been buzzing, if we remember, about a new world, particularly economic, order. There has been some little progress, notably establishment of the G-20 in 1999 whose leaders’ summit did not convene until 2008 following the Western financial crisis, but by and large the institutions of the international order set up at the end of the Second World War remained intact.

Developing countries nevertheless benefited immensely from the open system of trade of that international order – China, particularly, since its opening up in 1978 – as they were able to take advantage of their low cost of production to penetrate Western markets.

Asean countries have also been beneficiaries of this open trading system. Now Asean is on the path of greater economic integration to attract investment and to encourage trade, not just among member states, but also from and with the world. A number of them have moved or are moving up the economic ladder, aiming for greater productivity and higher value-added products and services – all predicated on the existing open global trading and economic system.

Now this system may be changed, or may not be as open. It would however be a mistake for Asean – and rising Asia more generally – to succumb to the doom and gloom that seem to have settled on the West. Now is the time for Asia and Asean to show their mettle.

Efforts at Asean economic integration should be redoubled to extract growth from regional economic activity. Intra-regional trade should be enhanced beyond the present 25% of total trade.

In its first year, the Asean Economic Community (AEC) did not show any spectacular rise in intra-regional economic activity, or any great push to address barriers to trade and investment.

Thailand, for instance, reported only a 1.8% increase in exports to Asean in baht terms for 11 months up to November in 2016. Yet the increase to CLMV (Cambodia, Laos, Myanmar and Vietnam) was 2.8%, with an expected 3% increase in 2017.

This shows that where there is greater intensity of economic activity and integration – CLMV+T (Thailand) – there will be potential gains. Many barriers have come down and connectivity is improving. The CLMVT sub-region is becoming the powerhouse of Asean growth, with the inclusion also of China’s Yunnan and Guangxi provinces. CLMV economic growth is actually 6-8% while the Asean average is closer to four.

The removal of non-tariff measures and barriers (NTBs) will help generate greater trade, investment and economic activity across Asean. Alas, there was no significant NTB action in 2016, despite agreement by Asean economic ministers that focused working groups start addressing the problem in four prioritised sectors.

The officials and private sector must step up the pace this year as Asean is increasingly challenged by the global post trade liberalisation environment promised by the Trump administration.

The Regional Comprehensive Economic Partnership (RCEP) is rightly seen as a further extension of the AEC and, with the impending demise of the Trans-Pacific Partnership (TPP), as its successor leading right up to the Free Trade Area of the Asia-Pacific (FTAAP).

The question is who will lead the charge as America shies away from free trade? The obvious – and ironic – answer is: China. Indeed, Xi Jinping was up to the challenge, going by his statements at the Apec summit in Peru last November.

However, China itself has many adjustments to make such as opening its markets further and liberalising foreign investment in protected sectors. So there is plenty of negotiation to come. But it cannot take as long as the ten years it took to arrive at the TPP agreement.

The point is, alternative regional growth areas have to be founded. Asia’s rise, especially economic, that has been so much talked about, used to come easy in terms of the ready framework of free trade. Now it gets harder. Asia, including Asean countries of course, have to take the lead to fashion for themselves the rules and details of the order upon which they will plot their further progress.

There are some among the 11 TPP Remainers who argue for its resuscitation, even if it is without the US. It is, however, going to be a complex exercise. Dropping the entry into force provisions is easy enough, but would it make economic sense without the US? Would China be invited to join? Would the provisions in the TPP form the basis of the FTAAP or should they be introduced in the RCEP which was supposed to have been concluded at the end of last year but is now going full speed ahead for completion this year? Certainly, increased complexity would push it back.

It might be better, therefore, to work on what is there in RCEP and add to it later. Who knows, America may, after Trump, want to join the regional grouping.

So Asian and Asean countries must now take the lead in free trade arrangements, regionally to begin with, but with others as well. This is the main challenge they face from the “world disorder” being widely discussed in the West.

Asia – and Asean – are less troubled by the two other components of global liberal order threatened by right-wing populism in the West. First, between individual rights and state control, they are far closer to the latter. Thus the threatened values such as equal justice and tolerance are of less concern to them as they found their legitimacy on economic satisfaction – at least for now.

Secondly, apart from Japan and Korea, they range from agnostic to hostile on security arrangements and alliances. As the wheels come off Barack Obama’s pivot to Asia-Pacific, they will just wait to see what takes its place. The loose screws were to be tightened by the TPP.

With the TPP as good as gone, what has been lost is meaningful US strategic commitment to the region. But it would be wrong to assume America has gone isolationist.

With the rise of China, belief in the region in manifest American destiny – if ever it existed to any degree – has receded. Some Asean countries may have wanted greater US commitment in the region as a balancer – but at no time as Roman Consul.

Think tanks in the West, with their affinity to American leadership and commitment, are greatly concerned with the uncertainty that will be caused by Trump’s transactional approach to security. In Asia, even Japan and Korea have come to learn that their security can be exposed to transactional risk. There is no certainty about their security. It is constantly being tested. They see variable results, in the Middle East, with Russia in the Ukraine and Crimea. With this realism they see less movement towards “world disorder”.

Of course, Trump will be more nakedly transactional. In Asia and Asean the gravest danger, as they see it, is to their trade. They see that Trump feels the cost of the series of transactions has been too high for America.

But it should not be concluded Trump will abandon American leadership. In fact he is making it more muscular, in his way, whether short-sighted or not. For Asean – and Asia generally – the main concern is its ramifications in trade and economy. Less so grand and emphatic recoiling from the threat of “world disorder.”

Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.