Australia and the ASEAN Economic Community
Mr Simon Merrifield, Australian Ambassador to ASEAN
Remarks to Auscham Vietnam Business Luncheons
Hanoi and Ho Chi Minh City
10-11 December 2015
Thanks for the opportunity to be with you today. This is my fourth visit to Vietnam since taking up my role two years ago. The thing that always strikes me about being here is the go-ahead vibe and sense of purpose. It’s much more pronounced here than in other member states.
In ASEAN itself, as an organisation, Vietnam is deeply engaged in the issues, focused on the big picture, and positioning itself with a view to the future and the outside world. We work closely with our Vietnamese colleagues and have partnered in some important and ambitious projects. Vietnam’s influence in regional issues seems to be very much on the rise, and our bilateral relationship has matured into one of our most important in Southeast Asia - on the back of a strong trading relationship, deep education links, shared strategic interests and a common commitment to global economic integration.
As you all know, we are approaching an important moment in the history of Southeast Asia, with the birth of the ASEAN Community just three weeks away. This will be a key milestone in a long transition from a loose intergovernmental arrangement to something more integrated. One component of it, the ASEAN Economic Community, or AEC, is likely to be of most interest to you here today. I’d like to use my time with you give you my take of what the AEC means, why the Australia Government thinks it’s important, and why Australian businesses should think deeply about the opportunities it presents.
ASEAN has always been an important institution for Australian Governments. Well before it was fashionable, and well before ASEAN became a byword for Southeast Asia’s economic dynamism. That’s why Australia became ASEAN’s first dialogue partner in 1974, it’s why we pursued AANZFTA, and it’s why we have an Ambassador to ASEAN today.
And it’s also why DFAT and Austrade collaborated on our publication “Why ASEAN and Why Now” - to provide insights to Australian business on this dynamic and critical region. If you haven’t yet seen it, I commend it to you.
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 achievement has had 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 has produced a great set of numbers:
- A $2.57 trillion economy, with growth rates almost doubling per capita GDP in just 7 years.
- A population of 625 mn with 65% under 35, and
- ASEAN has attracted 8 per cent of global FDI, a shade more than China.
Those accomplishments have been great news for Australia. Where once we saw Southeast Asia as a poor and volatile region, with trade figures that barely registered, today ASEAN is our second largest trading partner, with two way trade now over $100 billion, which well exceeds our trade with Japan, the EU and the US. And it is well over a hundred-fold of what it was when we became an ASEAN dialogue partner in 1974.
Australia has worked closely with ASEAN over the decades of its remarkable journey. Not just with its ten member states as individual countries 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 East Asia Summit, 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 through significant development cooperation programs with the ASEAN Secretariat, with the ADB and with other partners. We build capacity across a range of trade policy and trade facilitation areas, and strengthen the policy basis for the economic integration agenda. And we work to address some of the downsides of integration, like our major aid investment in strengthening judicial responses to human trafficking.
So with those equities, we take very seriously the impending declaration of the ASEAN Community. 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 their different stages of development, 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. There will be no sudden switchover to new arrangements. But measured in five year chunks, progress will be impressive.
As it has been thus far: 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 within ASEAN 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.
So ASEAN has been a framework for liberalisation and reform, for advancing integration, for opening up borders and for enabling value chains. And it’s a pathway to help narrow the wealth gap between ASEAN’s richer and poorer members.
It has also afforded its Member States the collective weight to develop their 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 interdependent region raises the equities of all involved – the more we all have at stake, the more we all care about it not 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 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 well before governments sought 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. Why ASEAN Why Now goes into more detail on RVCs and why Australian businesses should find ways to tap into them.
If Australian businesses are to realise the most attractive opportunities, they will need a solid in-market presence to appreciate and understand the unfolding changes.
Smart businesses will be reading the implications of the integration trend and thinking about how to develop regional strategies to their best advantage. About what accelerating urbanisation in the region will mean, about the strong growth trajectory in services, about the extraordinary uptake of digital technology. And some businesses will be looking at ways to turn some of the key challenges to regional prosperity into opportunities. Concerns over productivity in Southeast Asia present real opportunities for training providers, if they can land the right modalities for service delivery in country. And engineering providers will be reflecting carefully on the region’s infrastructure deficit. There is a strong fit between what the region is looking for and Australian capability to deliver.
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. Australian companies, meanwhile, invest almost 60 per cent more in New Zealand than they do in ASEAN, despite the New Zealand economy being less than one-tenth the size of ASEAN. That’s great for New Zealand, and more power to them, but it’s probably not the key to a major international growth strategy.
With some very notable exceptions (ANZ, Blackmores, Linfox, Lend Lease, Telstra, Visy, Woodside) Australian business engagement has been thinner than seems right for a region of such dynamism, such international focus, such proximity to our shores and so many ready pathways to greater engagement, including deep migration and educational links.
From a government perspective, we have been hard at work on our longstanding relationship with ASEAN, which has never been stronger or more important to us. Among many other things this includes the work we have done to improve the trading environment, using both aid-for-trade programs and through negotiating FTAs.
That includes our FTAs with individual ASEAN members and with ASEAN as a whole. Indeed, AANZFTA is a ground-breaking agreement in several ways. It was Australia’s first multi-country FTA (and our largest, to date). It was the first time Australia and New Zealand were involved jointly in negotiating an FTA with third countries. And it was the first time ASEAN embarked on FTA negotiations covering all sectors including goods, services, investment and intellectual property simultaneously. That made it the most comprehensive FTA that ASEAN had negotiated. The confidence that that built, some say, underpinned ASEAN’s ambition to pursue the RCEP vision.
In winding up, let me say that the emergence of ASEAN as a leading economic player is good news for Australia. And the AEC can only make this better. To be sure, it’s a long game, with gradual changes, in an environment which rewards those who can adjust their thinking towards five-year horizons.
In this room, I know I am preaching to the converted, but be assured that the Government is right behind ASEAN’s integration agenda, and very keen to encourage Australian board rooms to take a closer look at what is on offer in the region and think deeply about whether an ASEAN strategy might work as part of their plans for future growth.
With that, thank you for listening this morning and let me pass over to Janelle Casey from Austrade, who will take you through some of the key messages of our report.