[Salon] Southeast Asia’s Growing Importance to Global Trade



https://jstribune.com/osius-mealy-southeast-asias-growing-importance-to-global-trade/

Southeast Asia's Growing Importance to Global Trade
By Ted Osius and Marc P Mealy - March 2024

The world is in the initial stages of an evolution in the structure of global trade. While popular narratives about the era of globalization described a wide dispersion of trade flows and supply chains to all corners of the world, the reality was different. Global trade remained very concentrated. For example, close to 40 percent of global trade involved importing nations relying on three or fewer trading partners in different key sectors.

Multinational corporations see the growing importance of national security priorities and supply chain resilience in the trade policy of governments. Companies are responding with commercial decisions that gradually reduce the concentrated nature of global trade and shift supply chains, especially to India, Mexico, and Southeast Asia.

The ten member countries of the Association of Southeast Asian Nations or ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) are at the center of global economic competition, representing a future Asian commercial rival to China.

The Role of Trade Policy


In 2015, the ten member nations of ASEAN formed the ASEAN Economic Community, which is now collectively the fifth largest economy in the world ($3.6 trillion in combined gross domestic product). With annual economic growth of five percent, this region is projected to be the fourth largest economy in the world by 2030 (smaller than only the US, China and Germany) . With a regional population of over 650 million people and 915 million mobile connections,, ASEAN is the world’s fastest-growing internet market with a digital economy projected to exceed $300 billion by 2025.

Since the 1997 Asian financial crisis, ASEAN’s successful economic growth has been a result of various factors, with free trade agreements a prominent one. ASEAN nations individually and as a regional block have also been extensive users of bilateral and regional trade policy tools. After ASEAN became the first grouping to establish free trade agreements or FTAs with Asia’s six largest economies, the block led the development of Asia’s Regional Comprehensive Economic Partnership agreement, today the world’s largest free trade area. Four ASEAN nations (Brunei, Malaysia, Singapore, Vietnam) are members of the Comprehensive and Progressive Trans-Pacific Partnership agreement. On a bilateral basis, Singapore leads the region with its participation in twenty-seven bilateral and regional FTAs, followed by Vietnam which has signed eighteen.

Members of the US-ASEAN Business Council, who have invested billions of dollars in the region, often tell us that free trade agreements are one of the top five reasons they select an ASEAN nation over other nations to invest in.

As ASEAN nations pursue their socioeconomic priorities and the region focuses on the theme of “enhancing connectivity and resilience,” trade will continue to be a critical element in ASEAN’s policy tool kit.

Regionalization as a Trade Policy Priority


In recent years, two trends illustrate the evolution of Asia’s regional trade architecture, with implications for global trade.

First, intra-regional trade within Asia, as a share of Asia’s total trade, has increased gradually, led by the growth in trade of intermediate goods (for example, textiles used to make clothing or computer chips to make cell phones). In recent years this trend has been strengthened by the growth in the amount of Asia’s export value added being absorbed by final demand and consumption in Asia particularly by consumers in China, India, and ASEAN.

Second, the ASEAN-led Regional Comprehensive Economic Partnership agreement (which includes China and all of ASEAN’s other Asian free trade agreement partners except India) will make international trade within Asia more efficient for Asian businesses, relative to businesses located outside of Asia. The regional partnership’s share of global exports is expected to exceed the United States-Mexico-Canada Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership by 2040. China’s total trade with these nations reached nearly $2 trillion dollars in 2022.

Despite the presence of continued global economic headwinds, geopolitical challenges and potential shocks, ASEAN’s regional growth outlook in 2024 is positive in large part owing to the diverse sources of its economic growth. These include international trade, foreign investment, and domestic consumption. ASEAN’s exports to the world are forecast to exceed $3 trillion annually by 2031. Inflows of foreign direct investment inflows to ASEAN reached $224 billion in 2022.

Following are key ASEAN trade policy initiatives in 2024.

Regional Agreement on the Digital Economy

In November 2023, ASEAN’s leaders launched negotiations on a Digital Economic Framework Agreement, expected to be concluded by 2025, with the potential to add between one to two trillion US dollars in value to the ASEAN region by 2030. The Agreement seeks region-wide rules in nine areas: digital trade; cross-border e-commerce; payments and e-invoicing; digital ID and authentication; online safety and cybersecurity; cross-border data flows and data protection; competition policy; cooperation on emerging technology topics; and talent mobility and cooperation.

A Future Free Trade Agreement with Canada


In 2021, ASEAN and Canada announced an agreement to start negotiations on an ASEAN-Canada Free Trade Agreement, aiming to conclude negotiations in 2025. Canada and Mexico already have preferential market access trade relationships with Brunei, Malaysia, Singapore, and Vietnam as members of the Comprehensive and Progressive Trans-Pacific Partnership Free Trade Area agreement. ASEAN is currently one of Canada’s top five trade partners and, according to one estimate, an ASEAN-Canada FTA could add over $2 billion to Canada’s GDP.

Upgrading the Free Trade Agreement with China


China has been ASEAN’s number one trade partner for over a decade, and in recent years ASEAN has moved ahead of both the EU and US to become China’s number one trade partner. In addition, ASEAN-China total two-way trade flows are now approaching the levels of the world’s largest bilateral trade relationships like the US-Canada, US-Mexico, and US-EU.

ASEAN and China are currently negotiating new commitments to upgrade the ASEAN-China 3.0 Free Trade Agreement with the fifth round of negotiations held in January in China and a sixth round scheduled to be held in April in Singapore. The government of Thailand, which chairs the ASEAN negotiating team, announced that talks covering small and medium-sized enterprises, trade competition, consumer protection, technical regulations, goods standardization, and inspection and certification processes have been concluded. Areas still being negotiated include digital trade in goods, investment, customs, green economy, and trade facilitation.

Upgrading the Intra-ASEAN Trade in Goods Agreement


The ASEAN Economic Community aims to develop a regional economy that increases cross border movement of goods among member states. In 2022, ASEAN governments agreed to start negotiations to upgrade the existing Trade in Goods Agreement. The goal is to further regional economic integration to ensure ASEAN stays abreast of global economic trends, including building more resilient supply chain and taking advantage of the changes in the U.S.-China economic relationship.

Currently individual ASEAN nations like Vietnam and Malaysia position themselves as alternatives to China, as companies expand to locations outside of China as part of their supply chain resilience strategies. However in many industries China’s ability to scale up production simply can’t be matched by other individual countries. Therefore, the ASEAN strategy is to improve regional economic integration with the goal of enhancing the region’s attraction as a commercial alternative to China by allowing greater region-wide scaling of supply chains.

ASEAN as an Regional Economic Bloc Matters to America


Four ASEAN nations are ranked in America’s top twenty trade partners (Vietnam, Singapore, Malaysia, and Thailand). Vietnam enjoys an especially booming economic relationship with America, now ranked as America’s eighth largest partner in two-way goods trade in the world.

For the United States, launching free trade policy initiatives has often been a bipartisan political “no go” in an election year, given the disparate effect of such policies on different parts of the country. This trend is likely to continue in 2024, but America cannot be complacent. For the ASEAN nations, international trade policy will continue to be a strategically important tool to support their economic priorities.

ASEAN’s growth as a regional economic block has elevated the value it places on developing region-wide trade policy. Many of America’s leading competitors either already have preferential trade agreements with ASEAN as a region, or are negotiating new agreements with the region. More importantly, these regional trade agreements provide competitors with opportunities to influence ASEAN in the development of regional commercial regulations, rules and standards (all of which can benefit America’s competitors).

America’s current economic position in ASEAN was determined by decisions made years ago. The future of America’s economically competitive position to effectively engage ASEAN tomorrow will be determined by the decisions made today. 



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