How can ASEAN bounce back: An EU perspective

KUALA LUMPUR – CIMB ASEAN Research Institute (CARI) hosted a CARI Briefings webinar under its COVID-19 Economic Recovery Plan Series, titled ‘How Can ASEAN Bounce Back: An EU Perspective’. The session featured Paolo R. Vergano, Senior Fellow of CARI and Partner at FratiniVergano – European Lawyers, and key expert for trade facilitation in the ARISE Plus project of the ASEAN Regional Integration Support by the EU.

Moderated by Tan Sri Dr. Munir Majid, Chairman of CARI, the discussion centred on ASEAN’s post-COVID-19 economic recovery through a trade and institutional perspective, and how ASEAN can draw lessons from the EU’s experience in fostering internal trade.

1. ASEAN cannot depend as much on external exports post-COVID-19, greater intraregional trade is vital to its recovery

Paolo observed that even before many ASEAN countries underwent lockdowns to combat the spread of COVID-19, many already suffered from supply chain disruptions caused by China’s earlier lockdown in January 2020.

According to IHS Markit’s PMI data, the disruption of raw materials, labour, and sub-assembly components caused ASEAN manufacturers to see their worst month on record in March 2020, with the headline PMI falling from 50.2 in February to a record low of 43.4 in March. Paolo cited April 2020 data from the World Trade Organization which projected world merchandise trade would drop by between 13% and 32% in 2020 due to COVID-19.[1]

He argued that for the open economies of ASEAN, a significant drop in global trade may provide the impetus for policymakers to re-evaluate the bloc’s current over-reliance on external export markets. Paolo stressed there is much room for improvement with intra-ASEAN merchandise trade constituting 23% of total trade in the region in 2018, and points out that intra-regional trade could provide a hedge against future external trade shocks.

He drew comparisons with the European Union, observing that intraEuropean trade accounted for 69% of their total trade in 2018.[2]

2. Regulatory transparency is a key factor in facilitating greater regional economic integration

Noting that EU and ASEAN are structurally different, there are certain EU practices that are in line with those that ASEAN has already committed. As an example, EU’s trade policies and Preferential Trade Agreements, generally take transparency, enforcement mechanisms and stakeholder engagement (primarily from the private sector and non-governmental organisations) into stronger account.

“Regulatory transparency, for example, will be one of the key factors in facilitating greater regional economic integration, just as it has been for the EU,” observed Paolo. “Traders wishing to engage in cross-border trade must first be aware of the existing rules and opportunities, and understand their rights”.

There are also existing mechanisms that require greater utilisation to boost intraASEAN trade. For instance, as part of their efforts to foster greater intra-regional trade through regulatory transparency, he noted that ASEAN states have promoted the ASEAN Solutions for Investments, Services and Trade (ASSIST).

Paolo explained that ASSIST is one of the mechanisms through which ASEAN policymakers hope to elicit the support of the private sector in removing non-tariff barriers (NTBs) and streamlining non-tariff measures (NTMs), expediting solutions for specific intra-ASEAN cross-border trading problems encountered by ASEAN’s based small-and-medium enterprises.

3. Free and open trade remains vital for both ASEAN and EU economies

Contrary to recent narratives of the death of globalisation, Paolo stressed that the global response to COVID-19 by many countries was a combination of both restricting certain trade while maintaining or facilitating others. While public lockdowns and travel restrictions have inevitably caused downward pressures on international trade, maintaining free and open trade has been vital for both ASEAN and EU economies to remain afloat and ensure continued access to vital goods.

Paolo observed that for both blocs, preserving supply chain connectivity (particularly internally) has been identified by both ASEAN and the EU as key goals in their larger response to COVID-19. During the Special ASEAN Summit held on 14 April, 2020, ASEAN Economic Ministers (AEMs) and Senior Economic Officials (SEOMs) were tasked with finding ways to preserve trade connectivity, particularly in relation to the smooth flow of essential goods such as medicine, food, and essential supplies.

After the initial shock, the European Commission worked well and fast with EU Member States to establish priority lanes for the transport of goods, to ensure the continued flow of essential goods and services.[3]

Conclusion

Tan Sri Munir, in his closing remarks, concurred that the real lessons to heed from COVID-19, especially for middle-powers like the EU and ASEAN, should be the continuing relevance of global openness and free trade. These will be particularly pertinent as countries struggle to return to pre-COVID-19 growth numbers while having to respond to increasing public skepticism over the benefits of globalisation.

The pandemic has exacerbated geo-economic tensions between great powers, with regional blocs like the EU and ASEAN being increasingly pressured to choose sides at the expense of their own internal cohesion.

“COVID-19 should ultimately serve as a wake-up call for ASEAN that greater regional integration is not some faraway luxury to consider, but increasingly a strategic necessity for a region that wants to preserve its economic vitality and geostrategic independence,” concluded Tan Sri Munir.