The single market may prove to be the building block of ASEAN -- with a twist

The "dynamism in business activity" in the newly launched ASEAN Economic Community has an upwards trajectory already enhanced by developments in logistics connectivity and huge cross-border business projects, says Malaysian business leader Tan Sri Dato' Dr Mohd Munir Abdul Majid. However the 2015 Chairman of the ASEAN Business Advisory Council and President of the ASEAN Business Club warns of impediments in continuing NTBs and NTMs and the reticence of AEC Blueprints to identify China as the future economic "centre of gravity" for both mainland and maritime ASEAN.

Tan Sri Munir Majid: "Business is agnostic. Investments are being made. Economic activities are taking place. The Greater Mekong Sub-Region is throbbing"

THE ASEAN ECONOMIC COMMUNITY (AEC) could turn out to be the saviour of the Association of Southeast Asian Nations (ASEAN). Whatever its shortcomings, it is real, unlike largely mere words of the ASEAN Political and Security Community, and the tamasha (carnival) of the Socio-Cultural communion.

Even so, there are developments worth noting which would make the AEC, or the ASEAN Community, not what is envisaged in the fine official plans.

But first let us acknowledge the so many things that are happening in the ASEAN economy, facilitated by economic ministers and officials, but most of all driven by business people who see its huge potential.

Business people appreciate all too well the size of the ASEAN market (at 640 million people, the third largest in the world), the total economy (US$2.6 trillion, the world’s seventh biggest), healthy growth rate of 4%-5% (which could make the ASEAN economy number four in the world in a little over a decade), and the powerful demographics (65% of the population under 35 years of age).

Despite complaints about non-tariff barriers and measures (NTBs and NTMs) that impede virtually zero tariffs for trade in goods in most places, despite still limited openness for trade in services, for investments in some strategic sectors, and for mobility of skilled labour, there is a dynamism in business activity not much seen elsewhere in a lacklustre global economy.

In economically under-rated Laos (with GDP of US$13.5 billion the smallest in ASEAN, not counting Brunei), there is potential and activity that belie its size. The proposed Kunming-Vientiane high speed railway, with a price tag over half the size of the country’s economy, will transform the country.

Already, huge projects in special economic zones are taking place whose activities cut across mainland South-East Asia. For Laos, conversion from being land-locked to being land-linked, is not just a slogan.

The connectivity from north to south, and east to west, is driving economic activity in what is commonly called the Mekong sub-region way beyond it, even into extra-ASEAN territory. There is a “T” in the traditional CLMV (Cambodia, Laos, Myanmar and Vietnam) countries – Thailand – which is very much in the mix.

The kingdom has great ambition to be ASEAN’s logistical hub, based on its central location in mainland South-East Asia, bordering Malaysia, Cambodia, Myanmar and Laos, with access to the Mekong, the Gulf of Thailand and the Andaman Sea.

But not just Thailand.

Under Prime Minister Modi India, which has been “Looking East” for a mighty long time, is moving to “Act East”.

Last November it was announced that India is providing a US$1 billion line of credit for a 3,200km highway linking the country with Myanmar and Thailand. Once completed it would add to pre-existing, largely historical, land and maritime linkages.

While significant, this is some way behind what is already happening in the CLMVT ASEAN sub-region, which is served by improving north-south connectivity and the East West Economic Corridor stretching 1450km from Danang in Vietnam, through Laos and Thailand, terminating at Mawlamvine Port in Myanmar.

Distance to global markets from Laos has already been considerably shortened, as with the other countries.

According to one calculation, with the East West Economic Corridor, existing global sea routes have been shortened by 3,000 nautical miles, “or a 10-day sea journey from east to west and vice versa” - generating enormous savings of freight and time costs for all investors along the region.

What with tax breaks and governmental support, many businesses are seizing the opportunity.

This “Greater Mekong sub-region” is getting linked up with China, particularly the provinces of Yunnan and Guangxi. Its growth rate is higher than the overall ASEAN average.

This whole area, with the two Chinese provinces, has a population of more than 400 million people. One calculation has it that it is more than half the size of the ASEAN economy. Thus there is an economic reality in mainland ASEAN with a gravitational pull towards China.

Of course all this is part of the AEC scheme. Construction materials and equipment, for example, moving seamlessly from Thailand to Laos for development projects. Car parts going from Laos to Thai assembly plants. Connectivity across ASEAN member countries.

Open regionalism, linking up with China and to a lesser extent with India which, after all, is part of  Regional Comprehensive Economic Partnership (RCEP).

Business is agnostic. Investments are being made. Economic activities are taking place. The Greater Mekong Sub-Region is throbbing.

However, from the viewpoint of the AEC and ASEAN generally, a few points need to be observed. The first is that antecedent to ASEAN economic centrality there are centrifugal forces pulling outwards.

This means policies for an ASEAN single market and production base must be enhanced so that whatever hubs that develop occur also because of the ASEAN economy even if there will always be extra-regional and global market attractions as well. Therefore removal of all those NTBs and NTMs remains essential for natural economic flow.

The ASEAN Business Advisory Council, as the lead and apex private sector body, is pushing hard for elimination of NTBs and NTMs in four key sectors – healthcare, retail, logistics and e-commerce, and agri-food.

The working groups, which ASEAN economic ministers again agreed last week should be formed, must get cracking.

The official sector is also doing its bit with the launch in Vientiane of the ASEAN Solutions for Investments, Servicesand Trade (ASSIST) web portal where sustained complaints against NTBs and NTMs will be posted.

This kind of name and shame way is a good start, but much more needs to be done particularly at the front end of such barriers.

A second observation to be noted is the possible bifurcation of ASEAN. Mainland and maritime South-East Asia not quite gelling together economically, with trade, investment and movement of peoples between the two areas becoming secondary or minimal as they forge different hubs and look more to extra-regional economic relationships.

This would be nothing new for Singapore which has always looked outward. Indonesia is huge enough to go ahead with its maritime development plans at whatever pace it can achieve.

The Philippines has always been a bit apart, but it is well integrated in trade with China whatever South China Sea problems it faces with the Asian giant. In any case, with a population in excess of 100 million there is plenty of unfulfilled potential in the domestic economy.

It is Malaysia that could be squeezed. With a relatively small population of just over 30 million, ASEAN offers the country a huge hinterland which it could benefit enormously from if the economy is not caught in the middle income trap, moves into higher value products and services, invests out of sectors it no longer is competitive in, and becomes a hub in modern services using advanced technology.

The great irony will be what is now called a two-speed ASEAN will become a two-part ASEAN, with mainland South-East Asia no longer looking like the poor cousin.

The final and most significant point to note is that the centre of economic gravity is China, whether for mainland or maritime Asean.

Through sheer economic and financial resources, and total strategic commitment, such as through One-Belt-One-Road (OBOR) and the Asian Infrastructure Investment Bank (AIIB), it has caused a frustration of the ASEAN community, including of the AEC, without actually willing it.

This does not mean there will be no ASEAN Community, based largely on economic foundation, but it will be one subsumed within a Greater China political economy, and not in the way intended.

This will be neither a good nor a bad thing. It all depends on the basis of relationships countries in the region, not just ASEAN, have with China, and what hold China would exercise over them.

The realist therefore might contend the ASEAN Community 2025 Blueprints, including on the AEC, would need to take into greater account the Greater China superstructure than they have done.

It would be useful if top ASEAN policy makers could have this conversation, but I doubt they ever will except in national confines.

Tan Sri 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. This article was first published by The Star, Malaysia.