Commentary by Chalongphob Sussangkarn
In response to East-West Dialogue Issue 2 lead article, How (and Why) the United States Should Help to Build an ASEAN Economic Community, by Michael G. Plummer.
Revitalizing ASEAN Competitiveness
Chalongphob Sussangkarn
Minister of Finance of Thailand (2007) and President, Thailand Development Research Institute (1996-2007)
ASEAN integration was among the ideas presented in a meeting at the Thailand Development Research Institute (TDRI) toward the end of the 1980s. TDRI was hosting a ministerial-level business delegation from West Germany, and the meeting was attended by TDRI trustees (including policymakers and business leaders) and senior staff. The forceful message from the German delegation was that ASEAN should integrate into a single market, to make it a more attractive destination for foreign investment. Europe’s experience was cited to stress the importance of size and economies of scale. The idea struck me as something to think about for the distant future. Nevertheless, it made a strong impression on me and shaped the way I have viewed ASEAN economic integration ever since. I cannot say to what extent the meeting influenced Mr. Anand Panyarachun, who was among the TDRI trustees. But in 1991, after becoming prime minister, he proposed the idea of the ASEAN Free Trade Area (AFTA), which was endorsed by the other ASEAN leaders at the Fourth ASEAN Summit in Singapore in January 1992.
Implementing AFTA became the main economic preoccupation of ASEAN during the first part of the 1990s. Since almost all ASEAN economies were performing very well and attracting global attention, no serious thought was given to economic integration beyond AFTA. A couple of events changed that. The first was the economic crisis that hit the region in 1997, and the second was the rapid emergence of China in the global production network.
The crisis showed that ASEAN economies still had many fundamental weaknesses, and were not as strong as previously thought. The emergence of China raised many questions about ASEAN competitiveness. China quickly replaced ASEAN as the focal point for foreign direct investment (FDI) and as the manufacturing hub for labor intensive products to feed the world market. In fact, even though the crisis gave some breathing room to many ASEAN industries in the form of large depreciations of ASEAN currencies, particularly against the Chinese yuan, China’s exports increased much faster than ASEAN’s after the crisis.
In 2004 China’s exports overtook ASEAN’s in value for the first time, and by 2007 exceeded them by more than 50 percent.
The message for ASEAN from the emergence of China is clear. Size does matter. In bolstering its competitiveness, ASEAN needs integration beyond AFTA, to reduce the costs of doing business in ASEAN and to make the region more attractive for foreign investment. Without this change, there is a real danger that each ASEAN economy will become marginalized.
I believe that the challenge from China was the key push factor that led ASEAN leaders to seriously consider further ASEAN integration. At the Ninth ASEAN Summit (Bali, October 2003), the leaders agreed on 2020 as the target for the ASEAN Economic Community (AEC). The date was moved forward to 2015 at the Twelfth ASEAN Summit (Cebu, January 2007), and the AEC Blueprint was adopted at the Thirteenth ASEAN Summit (Singapore, November 2007), where the ASEAN Charter was also signed.
Greater ASEAN integration to revitalize competitiveness is also important for ASEAN’s traditional trade and investment partners, such as the United States. I am in full agreement with Plummer that the United States will benefit from and should promote successful ASEAN integration. Remember that the stock of U.S. FDI assets is still far larger in ASEAN than in China. A revitalized ASEAN will add value to these assets as well as provide further opportunities for U.S. companies in the future. At the same time, ASEAN still needs strong relationships with the United States—both economic and in terms of security. U.S. engagement in ASEAN integration will therefore bring mutual benefits.
Plummer has suggested excellent initiatives that the United States can take to further engage ASEAN. To these I would like to add policy research networking, as a means of pushing forward mutual engagement. After the crisis, much policy research networking emerged in East Asia, and ideas and debates arising from these networking activities have shaped many aspects of East Asian integration. Similar networking among policy research organizations in ASEAN and the United States should be equally productive for future U.S.-ASEAN engagement.
