Asean centrality reckons with its moment of truth

Not since the 1997 Asian Financial Crisis has the Association of Southeast Asian Nations (Asean) been put on a stress test as existential as the COVID-19 pandemic.

Intertwined health and economic crises have handed the world an impossibly wicked problem to solve. But this is no one-off disaster: COVID-19 is radically accelerating ongoing trends threatening the future of nations. Asean countries find themselves among the most vulnerable.

While demand may slowly recover, global supply chains continue to consolidate and shorten. The pressure to near-source and reshore production closer to home markets has never been greater. Lockdown containment strategies have made people poorer, widening inequality further and magnifying resentment from those whom globalization has shortchanged.

Nationalist sentiments, the polarization of domestic politics, and authoritarian creep all find this pandemic very fertile ground. Meanwhile, trade and geopolitical tensions persist and will only be amplified as leaders seek to secure domestic support. The crisis has likewise fast-tracked the Fourth Industrial Revolution, leaving those unprepared for digitization in the dust. The ground beneath Asean’s feet has suddenly shifted much faster than its leaders can cope. Trade has long been the region’s premise for prosperity: its fortunes as Asia’s trading hub ride on the success of global economic integration. That the project of globalization is now put on pause cannot be good news for Southeast Asians. That the project could be unwound in COVID-19’s wake would be even more disastrous.

Large powers, like the United States and China, can afford to be self-sufficient as the world closes in on itself. The rest, like all of Asean’s member countries save for Indonesia, are not so lucky. Small players need to play smart. Asean’s peculiar challenge is to collectively confront all these issues with a weak center. Despite its best efforts, an EU (European Union) it is not: Asean is far from being considered a single market, nor does it have a strong central bureaucracy to drive its agenda forward. It will have to play whatever hand it is dealt, using its regional mechanisms. Asean centrality remains its best, yet most unused, ace.

Asean centrality espouses the idea that its members ought to come together to address shared challenges while sitting at the fulcrum of the wider Asia-Pacific region’s political economy. It also means Asean needs to make good on its promise to integrate economically to present itself as a single market, and fast.

At no other time has this idea been more important, when trade and investment competition is sure to grow more intense postpandemic. As supply chains shorten and trading partners look inwards, Asean countries need to look toward each other.

To compete as a single market, Asean needs to harmonize standards and eliminate nontariff barriers—of which there are already around 9,500—in a mutually accountable, time-bound and monitored manner. For example, there are 1,984 sanitary and phytosanitary measures comprising 33.2 percent of the total nontariff measures. Considering the lessons of the pandemic, removing incongruent regulations and harmonizing toward a common regional standard would not only boost trade but also protect public health.

Asean should also leverage digital technology to make cross-border trade easier. Implementation of the Asean Single Window, which can fast-track the movement of goods after being entered into a single customs database, should be sped up. Estimates place technological adoption of customs processes could cut transaction costs by up to 25 percent.

Member states should also look at complementarity, or intentionally setting up value chains spread across specific countries. Moving from trading intermediate to final consumption goods is also critical. There is tremendous upside potential as Asean concludes negotiations with its partners on the Regional Comprehensive Economic Partnership, which can boost intra-Asian trade by at least $200 billion by 2022.

COVID-19 has upended inertia on digital transformation. Institutionalizing digital IDs for both people and businesses suddenly seems more plausible as contagion risks reinforce the impetus to enable digitization of government services and distribution of cash transfers electronically.

Southeast Asia’s digital economy, valued at $100 billion in 2019 and projected to be $300 billion by 2025, is a resilient growth driver. Boosting regional internet connectivity infrastructure, improving ease of doing business across borders, and resolving customs and logistics bottlenecks are investments toward a stronger, low-touch digital Asean economy.

These priorities not only allow Asean to depict itself as a more attractive regional market, but have the potential to boost intraregional trade—languishing at less than a quarter of total trade for more than a decade now—as a measure of resilience against downturns in global trade activity.

Tourism, contributing 12.6 percent to the regional economy, is another sector that can benefit from the framework of Asean centrality. COVID-19 has exposed the region’s weaknesses in coordinating travel restrictions. Harmonizing travel regulations will not only make the region safer, but can boost intra-Asean tourism, which currently comprises only 36.7 percent of total arrivals. Here, Asean can fit the EU’s mold in setting common airline regulations and minimum standards for airport safeguards. An Asean health card can facilitate trust and ease mobility.

Now may be the best time to reexamine how Asean functions at a fundamental level. To fully realize Asean centrality, its secretariat must be strengthened with more funding and greater monitoring powers. It may also be a time for the secretary general to take on a higher-profile leadership role, and for the regional organization to reconsider its consensus-based decision-making process.

These are small initiatives to kick-start some momentum in achieving Asean centrality. Ultimately, the project of integration works best if it is also driven by the private sector. The region’s big empires and micro, small and medium-sized enterprises alike will have to connect and crack institutional inertia at the national government level, playing their part in integrating value chains closer and forging stronger financial, production, and cultural bonds.

Asean’s enduring search for relevance has reached a critical juncture as COVID-19 leaves a more fractured world in its wake. With its usual external partners preoccupied with domestic crises, no one can help Asean more than Asean itself.

The weaknesses of Asean’s formula for past successes have been exposed by COVID-19. That the music of global free trade will never take a pause is now in question. This pandemic is thus a wake-up call for Asean: It can no longer hinge its fate on its external trading partners. More tests will come and the global economy will hit another set of brakes sooner or later. If not another pandemic, then perhaps a climate crisis.

Presenting itself as an integrated, single market under the framework of Asean centrality is its best recourse.

How Asean rises to the challenges of this moment will determine whether it exists as a mere talk shop, as critics like to say, or as a powerful convenor of ideas and catalyst for action, as its best champions have envisioned. Asean’s continued relevance as a regional institution is at stake. INQ

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines, or MAP. The author is a former finance secretary of the

Philippines. He is now an Asia Fellow at the Milken Institute, a global nonprofit, nonpartisan think tank. He is also a founding partner at Ikhlas Capital, a pan-Asean private equity growth platform. For previous articles, please visit map.org.ph.