ASEAN, Australia and the AEC
Remarks by Mr Simon Merrifield
Australian Ambassador to ASEAN
Indonesia-Australia Business Conference
Royal Ambarukmo Hotel, Yogyakarta, 17 November 2015
ASEAN has always been a particularly important institution for Australia. Well before it was fashionable. That’s why we became ASEAN’s first dialogue partner in 1974 and why we have a Mission to ASEAN today.
Since forming in 1967, ASEAN has been a constant in Southeast Asia’s transition from a poor and turbulent region to one of prosperity and optimism.
Southeast Asia’s economic success has many drivers but key among them is ASEAN’s success as an organisation. It’s been key to building the trust and habits of cooperation that have underwritten Southeast Asia’s stability and growth. And that stability and growth provides a great set of numbers:
- A $2.57 trillion economy, with growth doubling per capita GDP in just 7 years.
- A population of 625 mn with 65% under 35, and
- A magnet for global FDI, accounting for 8 per cent in 2013.
Australia has worked closely with ASEAN over the decades of its remarkable journey. Not just with its member governments but with ASEAN as an institution. We now have a strategic partnership and collaborate on major ASEAN-led arrangements, such in the premier leaders forum – the EAS; in the regional security and defence ministers fora, and of course on the trade and economic agenda including negotiations for the RCEP. We are ASEAN’s most comprehensive FTA partner; we work together on regional economic integration, as we do on human security, helping to address some of the downsides of integration like human trafficking.
And we share robust trade ties, with two way trade in goods and services now over $100 billion. As an aggregated economy ASEAN is our number two trading partner.
So with that background, we take the impending declaration of the ASEAN Community very seriously. This is a signature year for ASEAN and an important time for all of ASEAN’s key partners.
It is not always well understood what ASEAN intends the AEC to be. So it’s important to clarify that.
ASEAN has in mind an enhanced economic partnership among its members, and a partnership that looks outwards to the world. It aspires to a single market and production base, achieved over time through the elimination of barriers to the flow of goods, services, investment and skilled labour.
It does not aspire to be a version of the EU. It is not interested in EU-style strong central institutions. It doesn’t want a common currency, or a customs union, or a single immigration zone. Without dominant central institutions, implementation and compliance will sit with member states. They will proceed at different speeds reflecting the different stages of development of each, and it’s likely the AEC will work more seamlessly in some parts of Southeast Asia than others.
The transition will play out over an extended timeframe. 2015 is not an end point but a milestone - on a long journey that has already been underway for years. So 2016 in ASEAN will be a lot like 2015. It will largely be business as usual, with changes being felt incrementally over time. There is no sudden switchover to new arrangements. But measured in five year chunks, the progress will be vast and impressive.
As it has been: ASEAN integration has been occurring since the end of the Cold War. Agreements in the 1990s put regional integration at the centre of ASEAN’s economic agenda where it has been ever since. That’s why tariffs have all but gone. The World Bank says ASEAN’s integration project has gone well: it has been trade creating rather than trade diverting; trade has become more efficient; it has helped attract FDI; and it has stimulated development in the less well-off member states.
In many ways the AEC has become a brand name for the burgeoning Southeast Asian economies. It’s also a framework for liberalisation and reform, for advancing integration, for opening up borders and for enabling value chains. Such a framework helps set the economic reform agenda among ASEAN’s emerging members and aims to narrow the wealth gap between them.
It has also allowed ASEAN the platform and the collective weight to develop its economic engagement with the world beyond – we have seen that through the creation of valuable FTAs such as AANZFTA and we are seeing it on a significantly greater scale through the negotiation of the RCEP.
This iterative integration is obviously important for the region’s continuing prosperity, but it is also strategically valuable because a more enmeshed, economically interdependent region raises the equities of all involved – the more we all have at stake in an enterprise, the more we all care about it coming unstuck.
So the AEC is a fundamental part of what ASEAN has done and continues to do in the region. ASEAN hasn’t just got lucky, being seen as neutral turf at a time of intensifying geopolitical dynamics. Rather, its track record of fostering trust and building cooperation has helped generate the all-important buy-in of external players to what it calls “ASEAN centrality’ – where ASEAN takes the role of ringmaster in regional organisations.
ASEAN’s export success has increasingly been built on a network of regional value chains within and between countries in different ASEAN markets. Businesses in ASEAN have been developing strong trade and investment connectivity before governments were moved to enable it. These RVCs have been a key contributor to the ASEAN connectivity agenda – they both drive economic integration and benefit from it. The value chain connections in ASEAN are quite varied. There are the obvious examples of manufacturers and component suppliers, but RVCs in ASEAN also tend to encompass a much wider group of relationships, such as R&D, logistics, administrative functions and marketing. Our publication Why ASEAN Why Now goes into more detail on RVCs and why Australian businesses should find ways to tap into them.
As Australians, are we making enough of this? It’s great that ASEAN is our second largest trading partner, and it’s great that investment levels in both directions are rising, but there is significant room for growth. We are not a top-ten investor in ASEAN but in 2013 rankings Belgium, Luxembourg and the Netherlands were. Our competitors are certainly recognising the opportunities. Smart businesses with an eye on this region have been reading the implications of the integration trend and thinking about how to develop regional strategies to their best advantage. If Australian businesses are to realise the most attractive opportunities ASEAN has to offer, they will need an in-country presence in ASEAN markets to secure the most attractive opportunities.
From a government perspective, we have been hard at work on our longstanding relationship with ASEAN, includes our sustained efforts to improve the trading environment. This includes our free trade agreements with ASEAN members and with ASEAN as a whole. Indeed, AANZFTA is ASEAN’s most comprehensive and ambitious FTA, and its successful negotiation underpinned the ambition and confidence to pursue the RCEP vision.
2014 marked 40 years of the ASEAN Australia partnership, which has never been stronger, more productive or more important than it is today. But business engagement is thinner than seems right for a region of such dynamism, such international attention, such proximity and so many ready pathways to greater engagement, including deep migration and educational links.
The emergence of ASEAN as a leading economic player is good news for Australia. The advent of the AEC can only make this better, with improvements over time to regulatory regimes and the broader enabling environment. ASEAN’s diverse markets, urbanised population, growing services sector and dynamic growth trajectory make a compelling case. There is a strong fit between the region’s primary growth drivers and Australia’s capability to meet them, and a demand for skills as economies look to move up the value chain. This all adds up to considerable opportunities for Australian companies.
But this is a long game, with steady incremental changes, in an environment which rewards those who can adjust their thinking, as ASEAN does, into five year horizons. This is not a place for quick wins.
I’d encourage you to take a closer look at what is on offer in the region and think deeply about how ASEAN might fit with your own future growth strategies. I’d encourage you to read through our publication Why ASEAN Why Now for our considered thoughts on what this dynamic region might offer you.