ASEAN Can Keep Pace With China and India in the Asian Century Horse Race

It is said that if the numbers are anything to go by, the 21st century will be the Asian Century. Asia’s robust economic performance over the past two decades, compared to that in the rest of the world, has made the strongest case yet for the possibility that we are indeed already living in the Asian Century.

But when we talk of the Asian Century, about which Asian countries are we really talking? When referring to growth in the Asian Century, most people immediately link this to the growth of China and India.

But is the race really only made up of two horses galloping along at an uncatchable speed? Or is the Asian Century, like many a savvy gambler will tell you, a wide-open race, with several outsiders close behind, running stride for stride, with their Chinese and Indian counterparts?

Take as an example the Association of Southeast Asian Nations, which is starting to flex its growing regional and global muscle. Asean, with a population of approximately 600 million people, is more populous than the European Union or the Arab World, has a combined economy larger than India’s, and given its strategic geographical location, holds substantial geopolitical influence. And there is little doubt that since its establishment in 1967, Asean has come a long way.

But the major challenge facing Asean today is whether it can deliver in ways that the Asian Century front-runners would recognize. Among the measures it is pursuing is the establishment of a unified economic unit, an Asean Economic Community, which it is aiming to achieve by 2015.

This will be difficult enough, but things will be even tougher when you take into account the “handicap” with which some members are expected to race, not only in economic terms but also socially, culturally, religiously and politically.

Economically speaking, its role is crystal clear. The Asean Economic Community lays the groundwork for the establishment of a single market and a single production base, characterized by equitable development from all members. The Asean Economic Community will essentially serve as a platform for free trade across Asean nations, more or less eliminating the import duties that currently protect local producers, and will permit the circulation of goods throughout all member countries.

This is how things work in the European Union. However, ask any member of the EU and they will tell you the track they have been on has been riddled with rough patches that nearly stopped the race on a few occasions.

The far-seeing ones will tell you that the track ahead still has many challenges that could bring down the whole field if some of the race officials fail to do their jobs to the best of their abilities.

The Asean Economic Community will also need to address the gaps in the lack of connectivity and infrastructure, and human resources. It must also take into account that much more needs to be done for some of the weaker members to be considered as race-eligible as the most advanced Asean members.

The Asean Economic Community has the potential to make Asean the third economic powerhouse of Asia, behind China and India.

But with only three years to go, is there enough time to train those weaker members effectively, or will skepticism increase about Asean’s ability to achieve complete economic integration? Will Asean ensure that it can be effective and ease the concerns of members?

Insiders already recognize that a lot more effort, from all members, is needed to promote better growth and improve the fruits of development through regional integration. This would have to be done while narrowing the development gap between the haves and have-nots; equity may not be achieved until well after the 2015 finish line has already been crossed.

Look at Cambodia as an example. While already doing remarkably well in some areas, the country still performs desperately poor in others. This year, Cambodia is the chair of Asean, with the presidency run on the theme: “Asean: One Community, One Destiny.”

This stresses the collective aspiration to build a strong and cohesive group. But Cambodia will have to race alongside some skilled competitors. Although harmonizing rules at the regional level and aligning liberalization and protectionism in some sectors is key, countries like Malaysia and Indonesia still implement a number of protectionist measures through subsidies and import restrictions on some of their sensitive industries.

Trade from countries like Laos and Cambodia still has many hurdles to overcome at the point of entry, with customs and border patrols rigorously applying standards and procedures as they see fit. They are not always consistent with the spirit of the rules, either.

The free movement of labor is another critical issue for the Economic Community, but in some countries, like Thailand, foreigners in certain occupations are strictly regulated by their professional associations.

Free movement of labor has an extraordinary potential to boost efficiency in the business sector, but as Thailand shows, opening up this sector might still require a considerable amount of effort and time.

Liberalizing the services sector is another major challenge for Asean countries, including Indonesia. Some of the health care sub-sectors in Indonesia are closed to foreign investors, including general medical clinics or ambulance services, and require special permission from the Health Ministry.

But slow progress in liberalizing the service sector has not been limited to Indonesia. Most Asean countries’ services account for a significant proportion of most economies, and some members are skeptical about the overall benefits that the liberalization in services might bring to their respective economies. Also, the liberalization in services requires a considerable level of coordination across government agencies and, unlike in manufacturing, the policy in this sector remains murky.

Yet, for all its shortcomings, could Asean still stand out as the world’s second-most successful regional group, after the European Union? After all, Asean has survived more than four decades. It has united 10 diverse countries and brought a high degree of political and social cohesiveness to a region that was once much less so. The numbers will tell part of the story.

Will there be other forms of integration on the horizon? Will there ever be monetary union? Will member states ever delegate some of their sovereignty to a higher authority, following the example of the European Court? Will there ever be a regional bureaucracy and Asean institutions? And, perhaps most importantly, will there ever be Asean social safety nets, environmental protocols, and harmonized labor laws, to name but a few potential areas for cooperation?

For some, Asean is indeed the most promising intergovernmental organization in the developing world. The numbers support this, but numbers are only numbers. The people behind them count for much more.

Akira Moretto is deputy head of research at Strategic Asia, a consultancy-promoting cooperation between Asian countries.