Specialized industry groups needed to pursue ASEAN economic integration

18 September, 2014
As appeared in Jakarta Post

To make further and meaningful progress in its community-building agenda, ASEAN must fashion a bottom-up approach in its engagement in the lead up to ASEAN integration next year.

The ASEAN community is an elitist construct. As an example, in creating the ASEAN Economic Community (AEC), the involvement of the private sector in the plans of action and their implementation has been minimal. The gulf between policy and actual business practice has to be narrowed. The private sector must be engaged to close this gap and to deepen the economic community in the next phase of the AEC’s evolution.

The building of communities is a long-term process and the same is true of an economic community. At its forum in Singapore recently, this point was acknowledged by the ASEAN Business Club (ABC). It was acknowledged that good progress had been made toward the establishment of the AEC, but it also recognized, however, that gaps remain between official pronouncements and practical experience. Future progress should involve the private sector in a more structured and effective manner.

Last year, the ABC produced a gap analysis, the Lift-the-Barriers report, covering six sectors. It proposed measures to fill these gaps. Decision makers were engaged to make the ABC’s case. This year, progress in filling the gaps in the six sectors was reviewed while additional sectoral reports were considered: legal and taxation; automotives and manufacturing; minerals, oil and gas; food and beverages; retail, and financial services and capital markets.

Progress in closing the gaps identified last year has not been satisfactory. And the gaps identified in the new sector reports, which will be finalized in the coming weeks after discussions at the forum, have to be similarly filled.

The ABC forum held last week came up with a specific structural solution to fill those gaps — the establishment of professional, objective and country-neutral sectoral groups in the ASEAN secretariat to propose measures to ASEAN leaders and decision makers to close the gaps and to deepen economic integration. These groups would be funded separately from the secretariat budget. If it is not possible to have all sectoral groups operating at once, it would be sensible to start at least with the financial services and capital markets sector, which, after all, is the lifeblood of the real economy.

The secretariat is overwhelmed. It does not have the financial or human resources to drive the integration process, which becomes all the more complex as it is deepened. While it may be able to deal with the macro issues and proposals, specialists are needed to take the lead in specialized sectors to feed into the decision-making process by ASEAN leaders. Contributions to the budget for this enhancement should be separated from the overall secretariat budget.

A second significant proposal from the ABC forum last week was the need to ensure that small and medium enterprises (SMEs) are well prepared for the opportunities and challenges that lay ahead with the opening up of the region with the AEC.

SMEs form the backbone of the ASEAN economy. In countries such as Indonesia, they employ well over 90 percent of the working population. Just imagine the socioeconomic and political strain if they are not able to compete in the AEC’s free market and if unemployment rises in ASEAN because of structural economic change.

It is incumbent, therefore, that they are efficient and competitive; not just to take on new competition but also to avail themselves of the opportunities the AEC will provide. A situation, such as that in the US, should not be allowed to occur in which SMEs go into full retreat against the advance of large companies and conglomerates.

A specialized SME-focused working group should, therefore, also operate through the ASEAN secretariat to help resolve SME concerns, as well as finding ways to raise their level of competitiveness, such as providing access to finance, employing better management methods and using the latest technology.

While there is an established ASEAN SME working group and the ASEAN Business Advisory Council also has its own working group, the situation for SMEs on the eve of the AEC’s establishment — and other sub-ASEAN groupings such as the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP) — calls for a committed and consolidated effort to address their concerns.

In the coming weeks, the ABC Lift-the-Barriers report will be finalized and circulated to ASEAN decision makers and industry groups.

Lobbying and advocacy will follow, with the hope that in the run-up to the end of 2015 under Malaysia’s chairmanship of ASEAN, better results will emerge from the ABC’s efforts.

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.