Asean typifies anti-globalisation

Since World War II, the world has experienced a steady wave of globalisation. However, a series of recent events suggests that the tide may be turning. International trade as a proportion of global GDP has stopped growing in the past decade. World trade grew at 1.9%, while world GDP grew 2.3% in 2016.

Momentum for trade liberalisation at a multilateral level has stumbled. The Doha round of negotiations among the World Trade Organisation members, aiming to lower trade barriers and revising international trade rules, seems to have stalled, even though the WTO’s Trade Facilitation Agreement that simplifies and harmonises customs processes among two-thirds of the WTO members, has just recently started to come into effect.

Since members of the Association of Southeast Asian Nations (Asean) and the European Union (EU) have reopened talks on a trade agreement earlier this month, this goal is both optimistic and challenging.

The growing anti-globalisation has also taken root in the EU whose 28 member states have formed a single market allowing free movement without tariffs of goods and people. The EU also has a customs union in which they agree to impose common external tariffs on goods from non-member countries.

Since voters in Britain decided to leave the EU by a narrow margin, Theresa May has replaced David Cameron as the prime minister of the UK. For her and her cabinet, “Brexit means Brexit”. She aims to trigger the mechanism for leaving the EU by the end of March.

What does the EU mean for members of Asean? In the decade from 2005 to 2015, the EU’s 28 members took 13% of Asean’s exports, while the UK accounted for just 1.5% in 2015. A quarter of the exports from Asean countries to the EU were electrical machinery. Other key exports to the EU are machinery, 15%, clothing, 8%, and footwear, 6%.

And over the same period, 10% of Asean’s imports came from the EU, consisting of machinery, electrical machinery, aircraft, vehicles and pharmaceutical products. In 2015, just 1.1% of Asean’s total imports came from the UK.

Turning to investment, the EU accounted for 19% of total foreign direct investment in Asean during the same period from 20052015. The top EU investors in the region are the Netherlands, the UK, Luxembourg, France, and Denmark. The EU invests mainly in wholesale and retail trade, finance and insurance, mining, information and communication and real estate.

With or without Brexit, the EU is a key market for Asean. But it has never been Asean’s role model. Considering its development gaps among country members, Asean does not have any intention to become a customs union and a single market like the EU. The regional grouping aims to become a production base for East Asia, and thus for its own Asean Economic Community in which the mobility of trade in goods, skilled labour and investment is vital.

Now, what does Asean mean for the EU? In the decade from 2005-2015, Asean took 2% of the EU’s exports, while 3% of the EU’s total imports came from Southeast Asia. But the story will change.

If we look at the trend in the past three decades, five out of the world’s seven gainers in terms of value-added in the manufacturing sector were developing countries, namely China, Korea, India, Indonesia, and Thailand. By 2050, six out of the seven largest economies will be today’s emerging economies: Indonesia will be the fourth largest, while the Philippines, Vietnam, Thailand, and Malaysia will be among the top 25. So, there will be a shift in terms of sources of economic growth and trade.

Second, when it comes to trade engagement, Asean was quite proactive. The regional grouping established the Asean Free Trade Area (AFTA) in 1992 before the WTO was founded in 1995, and signed the Asean Trade in Goods Agreement in 2009.

Today, Asean’s main challenge is to push for further integration in the region and to work on non-tariff measures with its trading partners. The number of non-tariff measures does not reflect the level of protectionism, but transparency does matter to smooth trade.

Emmanuel Bonoan, CEO of KPMG in the Philippines, one of the panellists at the Asean-EU Business Summit held on March 10 in Manila, said strong political will is required in order to improve transparency of non-tariff measures.

At the same meeting, Asean and the EU agreed to re-open talks on a trade agreement. This is an optimistic and challenging goal. Learning from the EU template of a trade deal, an Asean-EU deal will require a huge amount of homework for most Asean countries, in particular on the issues of intellectual property, investment, state-owned enterprises, competition policy, labour regulation, and environment regulations related to trade.

But one thing Asean and the EU can start working on, regardless of an Asean-EU trade pact, is to regularly review non-tariff measures.

The data on non-tariff measures for Asean are now publicly available at asean.i-tip.org, and all regulations for exported and imported products for the EU countries are available at exporthelp.europa.eu. These databases form a basis of transparency of trade related regulations in these two regions, allowing businesses to find information on required permits and licences for their exports and imports in the 10 Asean countries and the 28 EU members.

Asean and the EU have made efforts to improve the transparency of their regulations related to trade, non-tariff measures. However, there are more we could do to smoothen trade in the two regions such as sharing knowledge on product standards.

All in all, Asean and the EU should have good regulations to manage their imports and exports, the regulations that are scientifically justified, transparent, and non-discriminatory.

Lili Yan Ing is senior economist at the Economic Research Institute for Asean and East Asia (ERIA) and founder of ‘The Indonesian Economy’ (indonesianeconomy.com). Abigail Ho is research associate at ERIA.

Strong political will is required in order to improve transparency of non-tariff measures.