Economy /
What Does the ASEAN Business Summit Mean for the Region’s Future?
ASEAN is one of the few successful examples of a trade bloc in an emerging region. The latest ASEAN business and its parent summit produced many interesting resolutions and outcomes. How will they influence the trade blocs and Southeast Asia’s future?
The ASEAN 2019 Business and Investment Summit crystallized the trade blocs joint political positions. It also brought new views on business into light. The summit which ran from 2nd to 3rd of November ended on a largely positive note.
The most important joint political statements reaffirmed were the movement to a unified position on the South China Sea, and greater digital connectivity.
A common theme in the summit was how innovative businesses and models should be supported.
Before the summit began, the main goals were set as the movement into the digital age, and human development and empowerment.
From a social standpoint, activist groups also influenced the goals and discussions of the summit. Before the summit, Rohingya supporters sent demands to the leaders of ASEAN member countries. Discussion panels about human rights were a part of the summit.
The main outcomes of the summit have been the development of the RCEP agreement, a new direction for intra-bloc relations, and business development in SE Asian countries.
India’s exit from the RCEP is not necessarily a failing on the part of the ASEAN members or the potential members of the RCEP agreement.
Demolishing trade barriers has helped many of the world’s economies achieve massive growth in GDP, trade diversification, and the wealth of residents. Yet, even a good solution may not be the exact fit for a certain economy.
India is still a developing economy and not a mature one. India’s trade balance has been negative and continued to decrease and now for the past 15 years, lowering import barriers for the RCEP would have compounded this negative balance of trade tendency for India.
Intra-bloc relations have deepened because of the 2019 summit. Multiple leaders urged to increase the bloc’s unity on foreign problems.
Written resolutions do not always turn into active projects. Yet, the united front on digital economy and empowerment, is a strong indicator of declarations becoming actions.
Business and investment talks at the summit show that a new age of business is coming to ASEAN. Multiple calls from some of the members of the ASEAN for a move to business 4.0 (a reference to the fourth industrial revolution) show that the bloc has chosen to rapidly innovate, instead of going through the usual course of development.
From a geographical standpoint, the push for innovative businesses and business models could be the answer to the trade bloc’s members’ reliance on agricultural commodities and goods exports. Innovative digital businesses are less dependent on location and aren’t dependent on worldwide commodity price fluctuations. Increasing the share of digital business could create a strong and stable business ecosystem in the ASEAN.
The 2019 summit will be an influential one. The trade bloc members will feel the impact from its outcomes both directly, and indirectly. SE Asia and the whole of Asia will become different because of the outcomes of the ASEAN summit, and the related Business and Investment summit.
India pulling out of the RCEP agreement will undermine its benefits. Nevertheless, the majority of the potential signatories of it shouldn’t find more drawbacks than benefits for them individually.
The RCEP centres around opening up trade barriers, through the lowering of tariffs and a phaseout of them. Out of all potential signatory countries, only Malaysia and Thailand face some of the same concerns that caused India to decide to not pursue the signing of the agreement. A significant share of exports of both Thailand and Malaysia belongs to machines and chemical products – similar to India. Being a signatory of the RCEP would mean an increased risk of a potential decline in these exporting industries. That’s the reason why India’s Mr Modi took the step to pull India out of the negotiations
Malaysia and Thailand are unlikely to pull out. Increasing trade liberalisation in the region would benefit these already strong exporting economies. Geopolitical alliances and allies also could have played a part in India’s decision to withdraw. The unending land territorial disputes with China, in the face of a phaseout of trade barriers to Chinese goods, would have likely not been a popular decision with some voters. That’s not the case with Malaysia and Thailand, whose disagreements with China aren’t as complex as India’s.
Major geopolitical trends in Asia will be affected by the outcomes of the ASEAN 2019 business summit.
A theme of discussions and resolutions in the Business and Investment summit was the digital age and innovative businesses. Members of the summit agreed that increasing cooperation is needed. Prime Minister of Malaysia, Mr Mahathir, said that “[…] we need to overcome the separation of the members of the ASEAN countries”.
Association of South East Asian Nations, from its founding, has laid foundations to a stronger South East Asia. Increasing development of the region through cooperation should spur states in other regions of Asia. Whether increasing digitalisation of the region and its businesses will contribute to the whole continent’s state, or just the region’s, remains to be seen.
ASEAN previously released an indirect resolution on its stance about the South China Sea islands, and the wider Pacific Ocean territory (The ASEAN outlook on the Indo-Pacific). The resolution called for peaceful dispute resolution. The division of Asian countries on this issue will decline, as the parent event of the Business and Investment Summit, the ASEAN summit, ended with progress made on the code of conduct agreement for the South China Sea.
Asia, as a region, is opening up to free trade with other trade blocks or countries. The recent free trade agreements between the European Union and Japan, Republic of Korea, and Singapore have facilitated trade between mostly East Asian countries, and the 2nd largest economy in the world.
As every trend, it won’t last forever. More and more Asian, and particularly East and South-East Asian economies will become mature ones in the next few decades (Republic of Korea, Singapore). The terms of previously signed free trade deals may then no longer suit the needs of these countries.
Each trade deal is also causing increasing discussions in the continent about the benefits of trade agreements. The discussions have led to increasing pressure on local politicians for talks and signing of free trade agreements (India is the clearest example).
Along with corruption issues (Asia Pacific region received an average score of 44 in the 2018 edition of CPI) and economic inequality in the region, the pressure could lead new political parties into power.
The wider continental trend is to increase free trade and to lower tariffs on foreign products. It is a way of gaining access to lucrative markets. The doubts about intra-regional trade could lead to a diverging consensus on trade in the continent. Consequently, declining opportunities for access to lucrative markets.
Countries, and their allies, which have already signed agreements with trade partners, could slow down the phaseout of tariffs. Increasing doubts about the benefits of FTAs by countries like India have a strong possibility to become a wider anti-free trade trend.
Diverging opinions on wider regional trends are an inevitable consequence of meetings where countries with very different economies meet. South and South East Asian nations members range from island to continental states, and from those relying on agricultural exports to full services economies.
A way to increase cooperation could be information exchange. H. Milner in International Theories of Cooperation Among Nations, argues that even critics of the parent theory, agree that greater information sharing and communication, should strengthen cooperation between governments. The greater cooperation will be needed, as in the next decade, some of these nations will have to deal with major territorial and economic decisions (South China Sea islands, the RCEP).
ASEAN is not only its trade component, it is also a fruitful political forum which facilitates development through cooperation. From the outcomes of the summit, the region’s future will take an increasing turn towards digitalisation. However, due to many differences between the members, joint actions could meet resistance.
