Nov 8, 2014

ASEAN - The pitfalls of integration

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Is the Asean way getting in the way of closer economic integration?

Next Thursday, a ceremony will be held in Nay Pyi Taw where Myanmar will symbolically hand over the Asean chair to Malaysia, represented by Prime Minister Datuk Seri Najib Razak. Malaysia officially assumes the role on Jan 1.

Myanmar will also be hosting Asean heads of government for the 25th Asean Summit as well as other regional meetings, one of which will see US President Barack Obama attending. Top on the agenda will be Asean’s ongoing economic integration besides other matters including geopolitical issues.

On Nov 19, another ceremony will take place in Kuala Lumpur where Myanmar will hand over the chair of the Asean Business Advisory Council (Asean BAC) to Tan Sri Dr Munir Majid, the current chairman of the Malaysian chapter of the Asean BAC.

Munir also officially assumes his role on Jan 1.

Asean’s challenges

Being the chair next year, Malaysia is tasked with sheperding the regional grouping to a significant milestone in its 47-year history, the formation of the Asean Economic Community (AEC), which comes into being on Dec 31, 2015.

However, this significance is likely lost on most Malaysians largely because of Asean’s remoteness from their lives. Asean is the world of summits and meetings, of government leaders, policymakers, think tanks and their ilk.

Aptly, Malaysia has chosen the theme “A people-centric Asean” for next year but not much is known as yet about what programme or plans will flow from this theme.

What is known is that Malaysians have the lowest levels of awareness of Asean matters among the regional grouping’s citizens, according to findings carried out by the Asean Foundation earlier this year.

The findings belie Malaysia’s trade links with her neighbours.

Trade with Asean has risen by leaps and bounds, with members accounting for 28.1% of exports last year while they accounted for 26.7% of Malaysia’s imports.

How can Asean create awareness about itself and the fruits of regional integration? Munir, whose Asean BAC represents the private sector’s lobby group to the Asean Secretariat, suggests the implementation of simple measures to create such awareness.

“Why can’t we have an Asean line at airport immigration counters or why can’t we have business travel cards among member countries so that we don’t have to apply for visas? These are the low hanging fruits that create awareness,” he tells StarBizWeek.

The Asean way getting in the way

Economic integration is the best way forward to deeper regional ties with the AEC being one of three pillars forming the Asean Community.

In fact, given that the region already has deepening trade and investment ties, the AEC will pave the way for integration under the Asean Political Security Community and the Asean Socio-Cultural Community pillars.

However, dithering over trade in services and free movement of labour is holding back more meaningful integration. Those who follow Asean issues often refer to the grouping’s penchant for concensus through more meetings and forums as the “Asean way”.

Munir points out that there is a wide gap between what the AEC has achieved and the realities on the ground. “There are national sensitivities that must be navigated.

“It takes a long time to negotiate,” he says.

The AEC envisions a single market and production base, a highly competitive economic region, a region of equitable economic development, and a regional economy fully integrated into the global economy.

“Its not going to be perfect, which is likely to be the case, and while there has been genuine progress in economic integration, there’ll be shortfalls and at the same time there’ll be new initiatives to drive the AEC forward,” Munir says, referring to the Dec 31, 2015 deadline.

Even where agreements have been signed, there will still be obstacles as signatories have to amend legislation and that takes a long time.

Munir says the reality is that the enabling legislation in the domestic jurisdiction is not always followed through. Indeed, observers say that Asean needs to be restructured to be more nimble in carrying out its duties to integrate the region.

While barriers for trade in goods are almost all gone, there are still non-tariff barriers to contend with. Also, not all sectors and industries are opened to foreign investment. Malaysia’s automotive industry comes to mind.

Furthermore, progress on the economic integration blueprint, which uses a scorecard system to chart compliance, does not give the full picture of realities on the ground. Critics argue that this is an imperfect system.

One critic notes that the scorecard does not assess how well or effectively obligations are being implemented, it just assesses whether these regulations are in place.

Munir says while the scorecard has its uses, the Asean private sector prefers to know more about immediate concerns such as how to operate in different jurisdictions.

“For example, I’m interested in the banking/financial services industry and its operating environment,” Munir, who is also Bank Muamalat Malaysia Bhd chairman, says. He prefers to see Asean integrate project by project and sort out the issues as they come up. “If you go on the basis of having everything in place first (the enabling legislation), nothing will get done. Build around these projects, solve the problems arising from these projects, then percentages of compliance doesn’t matter anymore,” Munir says.

He adds that when benefits of working across borders are seen for a project, there will be more momentum for integration.

Forward Asean

Munir says globalisation, liberalisation and competition are already happening. “The AEC focuses our minds ... liberalisation and competition will happen even faster and more with the AEC,” he says.

Inevitably, there will be winners and losers as well as a period of readjustment but it will not be a zero-sum game. “It will be dynamic and competitive, consumers will gain, businesses will gain and the economy will benefit,” Munir says.

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