World Economy

Asean at Inflexion Point

Asean may be an attractive market, but there are still significant barriers to business, such as non-tariff barriers, an uneven investment landscape that lags behind many other emerging economies
Chan Chun Sing (L) and CEO of the Singapore Business Federation Ho Meng Kit,  at The Business Times Leaders Forum on Monday.Chan Chun Sing (L) and CEO of the Singapore Business Federation Ho Meng Kit,  at The Business Times Leaders Forum on Monday.

With the rise in unilateralism and protectionism, the Association of Southeast Asian Nations will need to innovate and create, redefining itself as a market for ideas in addition to a production base for goods, said Singapore Trade and Industry Minister Chan Chun Sing on Monday.

The regional bloc also needs to ensure its economies are digitally connected and enabled, and continually update its trade architecture, Chan said in his keynote address at the Business Times Leaders' Forum held in Singapore, Todayonline reported.

"Given the challenges, Asean must press on with regional economic integration, and strive to achieve a level of coherence and connectedness among us such that the world sees Asean as one market," he said.

Asean is at an inflexion point, said Chan. The open and rules-based multilateral trading system, regional integration and economic cooperation that supported growth are now under increasing pressure.

While economic globalization brought its benefits, the "uneven gains" that came with it have also been exploited. This has led to inward-looking sentiments gaining ground, challenging the relevance and value of international platforms such as Asean, he said. Such tensions between major economic players have also led to increased trade friction, which will have spillover effects, including on Asean.

Call for Collective Stance

Urging Asean to take a collective stance, Chan also called on it to redefine its value proposition to ensure its "continued centrality and relevance".

Asean may be an attractive market—it is the sixth largest economy in the world today—but there are still significant barriers to business, such as non-tariff barriers, an uneven investment landscape that lags behind many other emerging economies as well as the need for greater regulatory coherence in the services market.

Asean stayed resilient during the 2008 global financial as it pushed ahead with closer trade cooperation and economic integration after the 1997 Asian Financial Crisis and subsequent dot-com bubble burst. This shows how "weathering the storms together is far better than going it alone", Chan said.

To maintain its competitiveness in the long-run and shift up the value chain, it will have to innovate to help member economies unlock new, scalable and sustainable means of growth. The member states cannot rely solely on domestic initiatives and need to partner one another to help foster a more robust innovation ecosystem, he added.

The impact of cross-border data flows on world gross domestic product has surpassed that of the trade of global goods. To support digital connectivity and create new growth sectors, Asean needs to address issues such as policies on data flows and localization, intellectual property, cyber security and digital trade facilitation, he noted.

"Bottom-line is, very few external parties will look at Asean individually as sufficiently attractive but collectively, we can be a very attractive destination for talent, ideas for markets, for external parties."

As the Asean chair this year, Singapore will work closely with the member states to deliver "tangible outcomes" for various initiatives, he said.

The next lap of economic integration is complex, and will require Asean to be even more united and creative in realizing the benefits of closer economic integration and connection, Chan said.

"For Singapore, this is an effort worth doing as one, and this is what Singapore is committed to do together with the rest of the Asean partners. Not only maintain our attractiveness as a location of choice for investment, trade and ideas, but it is also for us to extend our current advantages that are already apparent," he said.

Finding Other Ways

Despite Asean's many advantages, such as its youthful population and expanding middle class, the region's positive outlook cannot be taken for granted. For one thing, its traditional bases of competitiveness face the constant threat of erosion, he noted. The inevitable climb in wages and growing adoption of automation requires the region to find other ways to remain a relevant and attractive investment destination.

"Asean has done well in eliminating tariffs and gradually reducing services barriers. However, non-tariff barriers still hinder the free flow of goods, and the investment landscape is uneven and lagging behind many other emerging economies," he pointed out.

Next, technological advancements mean that other parts of the world can more rapidly leapfrog what Asean has taken decades to achieve incrementally.  "If Asean does not collectively build a compelling vision for innovation and the digital economy, we will be left behind," he stressed.

With the challenges that lie ahead, Asean must press on with economic integration and strive to achieve a greater level of connectedness among members. He outlined three ways of doing so.

First, it must ensure that the trade architecture is continually updated and enhanced towards greater coherence. Second, Asean needs to ensure that their economies are digitally connected and digitally enabled. Finally, Asean needs the capacity to innovate and create to maintain its competitiveness in the long run, shifting the region up the value chain.

"If we can align our interests even as we tackle longstanding or unfamiliar issues, Asean will stand a better chance at maintaining our growth trajectories, and staying at the forefront of the global economy," he concluded.


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