Achieving the ASEAN Economic Community 2015: Challenges for Member Countries and Businesses

9. ASEAN Economic Integration: Perspectives from Singapore

9 ASEAN Economic Integration: Perspectives from Singapore Ong Keng Yong When the leaders of five countries in Southeast Asia decided to come together and form the Association of Southeast Asian Nations (ASEAN) almost forty-three years ago, the Cold War was being fought and the military conflict in Vietnam was escalating beyond the country’s borders. Indonesia, Malaysia, the Philippines, Singapore, and Thailand perceived a common threat to their survival as non-communist sovereign states. Launching ASEAN was an instinctive response to immediate fears and passing problems generated by the convulsions of the war in Vietnam. Some saw ASEAN as no more than an anti-communist front. However, ASEAN was more than that and its subsequent development has transformed the grouping’s apparent mission. From Politics to Economics In the Bangkok Declaration of 1967 that brought ASEAN into being, economic cooperation was held out as one of the organization’s key objectives and specific actions were taken to move ASEAN towards this 126 Ong Keng Yong goal. Tariff reduction was regarded as the first step to increasing trade and strengthening economic ties, but negotiations were protracted. By 1977 ASEAN produced its first-ever preferential trading arrangements. Singapore’s open economy was a pathfinder. Multinational companies and foreign direct investment (FDI) were warmly welcomed in Singapore. They led to a rapid expansion of the economy and helped Singapore to industrialize quickly. Gradually the other ASEAN countries were also attracted to such a policy. At the same time, the notion of developing a larger market beyond the national boundary through economic cooperation with neighbouring states was articulated as a way forward, not just for Singapore, but for the rest of ASEAN as well. Malaysia and Thailand were opened up and their economic development accelerated, with noticeable benefits for their business and people sectors. In the 1970s and 1980s, external developments, particularly what was happening in China, Europe, Japan, and the United States, and the dramatic increase of oil prices, pushed the ASEAN countries to coalesce as a more substantive regional body. Brunei joined ASEAN in 1984, after its formal independence. In 1995, Vietnam was admitted into ASEAN. In 1997, Laos and Myanmar entered the grouping, and in 1999, Cambodia became an ASEAN member. This completed the Southeast Asian footprint of the organization and firmly established ASEAN’s role as the collective enterprise for managing challenges and opportunities affecting the region. The Cambodian crisis from 1978 to the 1990s further strengthened ASEAN’s habit of consultation and cooperation. The perceived common threat rallied the ASEAN countries into joint actions to secure peace and stability, from which economic prosperity was derived. The geography of ASEAN is also important. Being in the middle between the huge continental economies of China and India, and straddling the major sea lanes and shipping routes connecting Europe/ Middle East with Asia/Australia and New Zealand, ASEAN is situated in a strategic location impinging on the interests of all the major powers of the world, especially those that dominate the global economy. This central position was adroitly capitalized on by ASEAN to play a prominent role in managing stakeholders’ interests in Southeast Asia and the immediate neighbourhood. Various ASEAN-centric mechanisms (such as the ASEAN Plus One and ASEAN Plus Three processes, the ASEAN Regional Forum, and the East Asia Summit) were set up to engage those interested in the region, and top-level meetings were held on an annual Perspectives from Singapore 127 basis. Consequently, ASEAN is at the centre of the regional architecture and ASEAN’s relations with all the major powers and big neighbours have been positive and mutually beneficial. As globalization snowballed into an all-pervasive development and the emerging economies in Asia, Central/Eastern Europe, and Latin America became more attractive to foreign investors, ASEAN’s economic competitiveness seemed under threat. The ASEAN Free Trade Area (AFTA) initiative was seen as too slow moving. The fear was that ASEAN would lose out in the competition for FDI and the region would be sidelined and become irrelevant in the globalization process. As the grouping entered the twenty-first century, ASEAN leaders decided to commission a landmark study by the private sector consultancy, Mckinsey and Company. The conclusion of the study persuaded ASEAN leaders to accelerate market integration and trade liberalization. The key was providing a substantial economy of scale and exploiting ASEAN’s potential as a huge market of 550 million consumers. By developing...