Siah Hwee Ang: ASEAN single market on the backburner

The ASEAN Economic Community (AEC) was established in December 2015.

There was a lot of hype about the potential of the region.

It boasts a population of more than 633 million (just shy of being twice the size of the US population) and has a gross domestic product of more than US$2.8 trillion (NZ$3.9t).

But recent events have cast uncertainty over the AEC's potential.

The integration of the AEC was never expected to be smooth, but disputes over the South China Sea and the impact of the Brexit are currently commanding a lot of attention.

ASEAN business economics

The Brexit has produced a number of lessons for ASEAN, in particular around deep integration.

It highlights the need for ASEAN countries to open up to each other to avoid following in the footsteps of the European Union.

Yet, given the history and relationships among the group of Southeast Asian nations since its beginnings in 1967, it is hard to see the group coming together just to avoid the EU scenario.

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In fact, the Brexit could serve as a major lesson on how painful it can be if integration doesn't work. The Grexit came awfully close to providing a similar lesson.

The Brexit will have scant impact on each of the ASEAN countries in the immediate term.

Singapore is likely to see the strongest impact as its exports to the EU and United Kingdom constitute 10.7 per cent of GDP. Malaysia may also feel the effect on its exports (7.6 per cent of GDP).

Only Singapore and Vietnam have concluded negotiations with the EU (pre-Brexit) over a free trade agreement although both agreements have yet to be ratified.

The ruling of the Arbitral Tribunal at The Hague in favour of the Philippines on China's claims in the South China Sea sparked a war of words between the parties.

Many other countries were dragged into the contentious issue, including the ASEAN members, many of whom chose not to speak out.

This latest South China Sea saga comes at a time when economic uncertainty is rife around the world, including within ASEAN.

It does not help much that China is banking on its ASEAN neighbours to support its One Belt One Road Initiative that seeks to revitalise world trade.

The South China Sea has become a major conflict as it involves political and economic consequences on a larger scale.

Presumably, some countries will remain tight-lipped around this issue because of the multitude of economic considerations at stake. The interwoven nature of trade between countries creates a need for balancing priorities.

ASEAN allure

The AEC will live on. Ironically, just as with the Brexit campaign, migration is also major issue standing in the face of integration.

A lot of wrinkles still need to be ironed out to support labour mobility. Easing the ability to recognise qualifications across countries will make major inroads in this area.

The Brexit and South China Sea disputes are likely to bring up some differences in opinion among the ASEAN group.

Cautious collaboration is best the way to describe the ASEAN group, but recent events will no doubt cause the group to become even more cautious.

The consolation, at least, is that many of the individual countries in ASEAN are experiencing healthy growth.

For example, Singapore's economy grew by 2.2 per cent year-on-year in the second quarter of 2016 and Vietnam's economy is on track for 6.3 per cent growth in 2016.

Although a single larger AEC market remains elusive, we can still fall back on targeting strong bilateral relationships with individual countries in the ASEAN group.

After all, the group is expected to grow faster than the world average in the coming years.

Siah Hwee Ang is the BNZ chair in business in Asia at Victoria University.

Source: Stuff