Although ASEAN’s economic diversity and less than fully aligned security interests will hamper further significant progress towards regional economic and political integration, individually and collectively, the outlook for economic growth in the region ranges is fair-to-excellent, only Myanmar and Thailand excepted. ASEAN (Association of South-East Asian Nations) is an economic and political grouping consisting of ten South-East Asian countries. While the members share many interests, their economic diversity hampers the outlook for significantly greater economic integration and their differing geopolitical orientation will make it difficult to make further progress towards political integration, particularly in light of Sino-US geopolitical competition. Countries very significantly in terms of demographics, economic development and domestic-political regimes, ranging from liberal laissez-faire economies like Singapore to less non-market economies like Vietnam. Geopolitically, some countries are semi-aligned with China (Cambodia, Laos), while others are treaty allies of the United States (Philippines, Thailand). Compared to the most successful example of economic and political integration, the European Union, the region is economically more heterogenous, it is less aligned in terms of security, and it lacks important intra-regional leadership to drive regional integration.
· ASEAN has ten members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam. ASEAN was founded in 1967 and its charter commits member to accelerate economic growth, social progress and cultural development as well as promote regional peace and stability.
· The population of ASEAN countries is almost 700 million. In purchasing power parity terms, ASEAN economies account for around 7% of the global economy. At markets exchange rates, however, ASEAN economies account for a far smaller share of global economic output, roughly equivalent to Japan or Germany.
· Several ASEAN countries are among the fastest-growing economies in the world. Economic growth is higher than in Latin America, Eastern Europe and the Middle East. The IMF projects Cambodia and Indonesia to grow more than 5% in 2024-29 and the Philippines and Vietnam to average growth of more than 6%. The ASEAN laggards, Brunei, Myanmar and Thailand will average real GDP growth of 2-3%. Unweighted average real GDP growth (ex-Singapore) is projected to be 4.4%.
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ASEAN is a large free-trade area and it has various free-trade agreements with other countries, but both the ASEAN FTA and FTAs with third parties are largely limited to tariff-free market access for goods. All ASEAN members are part of ASEAN’s Free-Trade Area (AFTA). AFTA establishes a common effective preferential tariff of 0-0.5% among its members, meaning that ASEAN members largely trade goods duty-free amongst each other. But as an FTA, individual members continue to impose tariffs on trade with extra-ASEAN countries based on their national schedules. ASEAN also free-trade agreements with third countries, such as Australia, China, India, Japan, Korea and New Zealand. In 2020, ASEAN signed up to Regional Comprehensive Economic Partnership (RCEP), which also includes all the countries ASEAN has FTAs with, except India. Most ASEAN members are also members of Belt and Road Initiative in view of building connectivity, some countries are more wary of Chinese influence (Philippines, Vietnam) than others (Laos, Cambodia). Some ASEAN members are also parties to other, separate free-trade agreements. Brunei, Malaysia, Singapore, Vietnam, for example, are members of high-quality Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which goes way beyond lowering tariffs, compromises eleven Asian and Latin American economies and whose original purpose was to tie the United States more closely to East and South-East Asia, until Washington backed out of negotiations in 2017.
· ASEAN FTA (or AFTA) was established in 1992. However, Vietnam, Laos, Myanmar and Cambodia have not fully implemented internal preferential tariffs yet. In 1995, ASEAN adopted a Framework Agreement on Trade in Services and Mutual Recognition Agreements (MRAs) in order to make progress on liberalization of trade in services. But progress has been limited, leading to the liberalization and mutual recognition of a small number of selected professions.
· ASEAN has several FTAs with other countries, including ASEAN bilateral FTAs with Australia and New Zealand, China, India, Japan, Korea. In 2020, ASEAN signed on to RCEP, which foresees the liberalization of 90% of tariffs within the next two decades and is mainly focused on tariff reduction and common rules, but fails to tackle ever more important non-tariff barriers and other trade-related issues. As such, its economic benefits will be limited, except for allowing for greater goods supply chain integration across the region.
· ASEAN is not to be confused with Asia-Pacific Economic Cooperation (APEC), which 21 members, including the United States and China as well as ASEAN members, such as Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. APEC is committed to voluntary liberalization and open regionalism, meaning that trade and economic concessions are extended to all countries, including non-APEC members. APEC has made limited progress in terms of trade liberalization.
Further progress on intra-regional economic integration will prove challenging given the high degree of economic and political diversity, including geopolitical outlook. In 2007, ASEAN member states signed a declaration pledging to establish an “EU-style community”. In 2015, ASEAN also launched the ASEAN Economic Community (AEC) with the aim of creating a common market, including further trade liberalization and regulatory harmonization as well as the establishment of the four freedoms, namely the goods, services, capital and labor. EU-style community can mean many things, but appears to be primarily focused on establishing an EU-style single market, guaranteeing the so-called “four freedoms,” namely the free flow of goods, services, capital and labor across borders. It may also imply the establishment of a customs unions rather than a more basic free-trade area, increasing alignment of currency and macroeconomic policies, and banking and capital market integration. Less ambitiously, ASEAN set a goal of establishing a single market (four freedoms) by 2015. This goal has been pushed back to 2025, but looks highly unlikely to be realized next year.
· ASEAN economies are very diverse in terms of their level of development. Per capita income in purchasing power parity terms varies widely, from $132,000 in Singapore to $5,200 in Myanmar. This makes economic integration more difficult, particularly the free movement of labor.
· Although ASEAN is a free-trade area, intra-regional trade is limited, and members trade far more with countries outside the region, pointing to the importance of the region’s role in multi-national supply chains that supply goods to the United States, European and, increasingly, China.
· Not a single ASEAN member has more than one other ASEAN members as its top export market: Brunei (Singapore is 4th largest export market), Cambodia (none), Indonesia (none), Laos (Indonesia 3rd), Malaysia (Singapore 2nd), Myanmar (Thailand 1st), Philippines (none), Singapore (Malaysia 3rd), Thailand (Vietnam 5th), Vietnam (none). The United States, the EU, China, Japan and Hong Kong dominate the ranking of ASEAN members top-five export markets.
· Progress on monetary cooperation is in its infancy. Due to its low level of intra-regional trade, ASEAN is far from being an optimal currency area. Stable foreign-exchange rates require a broader alignment of macroeconomic policies, which is economically and politically difficult to achieve, given economic diversity, different economic structures and an eagerness to preserve macroeconomic policy autonomy.
Greater political cooperation and integration will also be hampered by the less than fully aligned security interests of ASEAN members, especially in light of intensifying US-China competition. As in the case of Europe’s greater economic homogeneity, at least in the early stages of integration from 1949/ 51/ 57 (NATO/ European Coal and Steel Community/ Treaty of Rome) to 1995 (Austria, Finland, Sweden join EU), ASEAN is much less aligned in terms of security. ASEAN predecessor organization, the Association of South-East Asia (ASA) established in 1961 by Thailand, Malaya and the Philippines, was partly driven by similar interests in terms of the Cold War, the right against Communism, including Communist insurgencies in Malaya and the Philippines. Today, however, ASEAN, unlike Europe, misses many of the features that facilitated European political (and economic) integration. ASEAN also lacks the equivalent of Franco-German leadership, a major engine of European integration. Europe also benefitted from the presence of an external security guarantor (United States, NATO). SEATO was never as cohesive and encompassing a security alliance as NATO and was ultimately dissolved in 1977. By contrast, ASEAN members are much less aligned in terms of security policies. Cambodia and Laos lean towards China, while the Philippines and Vietnam are effectively engaged in security competition with China, while the Philippines and Thailand are US treaty allies. This will make it difficult to find intra-ASEAN consensus in terms of internal political integration in view of diverging international security (and economic) interests.
· ASEAN is broadly committed to upholding the status quo and object to China’s nine-dash line that claims most of the South China Sea. But the degree of security conflict with China in the South China Sea varies. The Philippines and Vietnam’s dispute are far more intense than those of Indonesia, Malaysia or Brunei. The Philippines and Thailand are US treaty allies. All of this makes substantial progress on political integration difficult, as ASEAN members will object to giving up autonomy, domestically or internationally.