Enrico Letta

Italy-ASEAN Association – Chairman, Dean Psia-

SciencesPo, Paris

Milan, 14th June 2018

The global relevance of

the Association of

South-East Asian

Nations (Asean)

Overview The intervention will focus on the following topics:

• The ASEAN Way, how does it work and what

is its integration model?

• Some data about the ASEAN’s leading

countries

• The trade relation EU-ASEAN, between the

bilateral and the region-to-region approach

• The main regional issues: the China-ASEAN

relationship; the relevance of the manufacturing

sector; the socio-economic differences among the

ASEAN Member States; the different shades of

‘stability’ among the MSs; where is the ASEAN

Way leading?

The ASEAN Way

How does it work and what is its integration model?

• ASEAN promotes cooperation and facilitates economic,

political security, educational and socio-cultural

integration. Since its formation in August 1967, its

principal aim has been accelerating economic growth and

socio-cultural evolution.

• The 'ASEAN Way' refers to a methodology of solving

issues that respects the cultural norms of Southeast Asia:

informal, personal, based on compromise and consensus.

Critics object that the ASEAN Way forces the organisation

to adopt only those policies which satisfy the lowest

common denominator.

The ASEAN Way

How does it work and what is its integration model?

• The ASEAN community is organized among 3 pillars: Security, Economic and Socio-

Cultural Communities.

• The ASEAN Secretariat’s basic function is to provide efficiency in the coordination of

ASEAN organs and for more effective implementation of ASEAN projects and activities. It

is based in Jakarta and Dato Lim Jock Hoi from Brunei is the Secretary General.

• The Chairmanship of ASEAN rotate annually. A Member State assuming the

Chairmanship shall chair the ASEAN Summit, the Coordinating Council, the 3 Community

Councils, and the relevant ASEAN Sectorial Ministerial Bodies and the Committee of

Permanent Representatives. Singapore is the Chair for 2018.

• The ASEAN Economic Community (AEC) is the most developed of the 3 pillars. A single

market exists since 2015; banking and financial integration is foreseen for 2020.

Some Data

The ASEAN leading countries

• The ASEAN area is

foreseen to become the

fifth economic power in the

world by 2022.

• Its integration, as well as

national peculiarities are

pivotal in reaching the goal.

Source: WEO Database, IMF, October 2017 - The Future of ASEAN – Time to Act, PwC Growth Markets Center, May 2018

Some Data

The ASEAN leading countries

• The GDP champion is, by

far, Indonesia, while

Singapore leads the ‘per

capita’ ranking.

• Growth-wise, Laos and

Cambodia have the best

performance.

• The aggregate GDP is

close to $2.900 billions with

an average growth of 4,8% Source: ASEAN Secretariat, 2017; WEO Database, IMF, October 2017; World Bank, 2018 - The Future of ASEAN – Time to Act, PwC Growth Markets Center, May 2018

Some Data

The ASEAN leading countries

• Singapore leads the way

both in education and

health.

• Myanmar and Laos are the

worst performers.

• Philippines represent the

average of the area: 36%

of tertiary educated people

and almost 26/1000 under-

5 mortality rate. Source: ASEAN Secretariat, 2017; WEO Database, IMF, October 2017; World Bank, 2018 - The Future of ASEAN – Time to Act, PwC Growth Markets Center, May 2018

ASEAN-EU Trade relations Between the bilateral and the region-to-region approach

• ASEAN represents the EU's 3rd trading partner outside Europe, after the US and China.

The EU is ASEAN 2nd largest trading partner after China, accounting for around 13% of

ASEAN trade.

• The EU is the largest investor in ASEAN countries accounting for 22% of total FDI

inflows in the region. EU companies have invested an average of €19 billion annually in

the region.

• EU's main exports to ASEAN are chemical products, machinery and transport equipment.

The main imports from ASEAN are machinery and transport equipment, agricultural

products as well as textiles and clothing.

• Negotiations for a region-to-region FTA with ASEAN were launched in 2007 and paused

in 2009 to give way to bilateral FTAs negotiations (Singapore and Malaysia were

launched in 2010; Vietnam in 2012; Thailand in 2013; Philippines in 2015; Indonesia in

2016).

ASEAN -EU Trade relations

Between the bilateral and the region-to-region approach

• The European Commission and the ASEAN MSs are undertaking a stocktaking exercise

to explore the prospects towards the resumption of region-to-region negotiations.

Meanwhile, the European Commission finalized negotiations of a bilateral FTA with

Singapore in October 2014 and with Vietnam in December 2015.

ASEAN-EU Trade relations

Between the bilateral and the region-to-region approach

• Singapore is the EU's largest commercial partner in ASEAN,

accounting for slightly under one-third of EU-ASEAN trade and

roughly two-thirds of investment flows. Over 10.000 EU

companies are established in Singapore and use it as a hub to

serve the whole South Pacific.

• The FTA is the first deal between the EU and a the Southeast

Asian economy, but still awaits for ratification by the Council and

the European Parliament (foreseen before the end of 2019).

• The agreement is considered to be a new generation FTA, as it

has ambitious chapters on services, public procurement,

intellectual property rights, energy, SMEs, environment and labor

standards.

ASEAN-EU Trade relations

Between the bilateral and the region-to-region approach

• In 2016, the EU-Vietnam FTA was concluded. The legal review is

currently on-going and will be followed by translation into the

EU's official languages and Vietnamese. The Commission will

then present a proposal to the Council and the EP.

• EU exports to Vietnam are dominated by electrical machinery,

aircraft, vehicles, and pharmaceutical products. Vietnam's key

export to the EU are telephone sets, footwear, textiles, coffee,

rice, seafood, and furniture. The EU has a negative trade

balance in goods with Vietnam.

• The FTA deal includes the elimination of nearly all tariffs.

Vietnam will liberalize tariffs over a 10-year period. The

agreement also covers public procurement, investment, IPR,

sustainable development and labor.

Regional issues

The China-ASEAN relationship

• Initially, ASEAN was a grouping of non-communist nations in the frontline of the Cold War in

Asia. China fought against Vietnam in the 1979 war and continues to have fraught relations

with several ASEAN MSs with overlapping territorial claims in the South China Sea.

• In contrast to ongoing political tensions, China-ASEAN economic interactions have

flourished since the 1990s. Regional value chains in East Asia have become more

prominent. The manufactured components for assembly in China come primarily from

Southeast Asia.

• China-ASEAN FTA, China’s first one, entered into force in 2010. China-ASEAN trade

increased to $40 billion in 2000 and is forecast to reach $1.000 billion by 2020. China,

ASEAN, South Korea, Japan, Australia, New Zealand, and India are currently negotiating a

Regional Comprehensive Economic Partnership agreement.

• The One Belt One Road Initiative highlighted the importance of China’s commitment to

infrastructure investment, and creation of the AIIB promised funding to Southeast Asia.

Regional issues

The relevance of the manufacturing sector

• Manufacturing has been one of the key sectors contributing to ASEAN’s growth, and this is

expected to continue with a 6,6 % annual growth rate from 2016 to 2020. The drivers of

manufacturing’s growth are its 630 million consumers and, in particular, the burgeoning

middle class, with its rising incomes and consumption.

• Supplementing this are ASEAN’s global exports, that capitalize on the maritime trade

routes to other countries, particularly in Asia-Pacific. ASEAN also continues to have

attractive operating costs, such as low labor costs, drawing businesses from other large

manufacturing bases (i.e. China).

• A robust economic outlook for ASEAN will continue the steady demand for fuels, but given

the region’s inadequate production capacity to meet domestic needs, its reliance on

imports will also rise significantly, raising concerns over energy security.

Regional issues

Socio-economic differences among ASEAN MSs

• Integration of civil societies and national

business environments is still far from what we

saw among EU founding members in the 1950s.

• Based on Poverty, HR Weakness and Economic

Vulnerability, Laos, Cambodia and Myanmar are

to be considered, according to the UN, as Least

Developed Countries.

• Singapore (5th) and Brunei (30th) are among the

50 most developed countries in the World and

Indonesia is a member of G20.

• Malaysia, Vietnam, Thailand and the Philippines

are ‘Tiger Cub Economies’, trying to follow the

path of the 4 Tigers of the 1990s.

Regional issues

Different shades of stability among ASEAN MSs

• Stability has shown to be one of key factors for growth, as shown by

Singapore and Brunei.

• Nevertheless political stability and economic growth are not enough

anymore to gather the attention of businesses and investors, if not

combined with a strong belief and a thoughtful promotion of regional

integration and free and fair trade.

• Inequality, corruption, poor labour and environmental standards, and

discrimination of minorities are still evident in many countries.

• Machismo of the Filipino Duterte, the Rohingya crisis in Myanmar,

religious and political terrorism in Indonesia, Malaysia and the

Philippines, and the South China Sea disputes are main sources of

concern over stability in the region.

Safest Countries in the World

Index, safearound.com

1st Denmark

6th Singapore

43rd Vietnam

51st Malaysia

56th Cambodia

69th Indonesia

85th Laos

98th Thailand

100th Philippines

129th Myanmar

160th Syria

N.C. Brunei

Regional issues

Where is the ASEAN way leading?

• ASEAN as a group will be the fifth economic power in the World by 2022.

• Banking and financial integration, foreseen for 2020, is pivotal to this development. To go

beyond forecasts ASEAN needs to speed-up negotiations for an FTA with the EU and the

RCEP with China, Japan, India, South Korea, Australia and New Zealand.

• Fighting corruption and discrimination, adopt golden standards on competition and

sustainability is of paramount importance. Addressing stability and security issues, as well

as energy dependency, will be key elements to lead ASEAN to the role of global power.

• Deepening the yield of political integration, based on shared norms and values, would

make ASEAN the EU best partner in addressing global issues, while it is already the most

attractive area for European businesses.

Thanks for your attention.

References:

• https://www.asean.org

• https://ec.europa.eu/trade

• https://cpianalysis.org

• https://safearound.com

• https://www.cia.gov/library/publications/the-world-factbook/

• https://data.worldbank.org/

• The Future of ASEAN – Time to Act, PwC Growth Markets Center, May 2018

• EU-ASEAN Business Sentiment Survey, EU-ASEAN Business Council, 2017

• Il Miracolo ASEAN, Kishore Mahbubani, Jeffery Sng, Arel – Il Mulino, 2018