As Asean Moves Toward Common Market, It Looks To Europe For Lessons

Posted on October 19, 2012


BANGKOK–As the 10-member Association of Southeast Asian Nations prepares to form an economic union, Europe’s experience can offer lessons — some positive, some more cautionary.

The ASEAN Economic Community that’s set to launch on the last day of 2015 is similar to the European Union common market, which started as a small trade grouping half a century ago but has grown to include 27 countries with combined gross domestic product of nearly $17.6 billion last year, according to International Monetary Fund data.

Thailand – the disparity of ASEAN economies will make it hard to forge a common market (Photo: Wikipedia)

The thinking is that eliminating national barriers to trade and investment will boost growth and living standards and promote political stability across Southeast Asia the way it has in Europe. But it will mean shoe-horning together countries with wildly divergent cultures, political systems and income levels, ranging from Myanmar — a former pariah state just emerging from decades of international isolation, with per capita GDP of about $1,325 last year — to Singapore, a modern financial hub where GDP is pushing $60,000 per person when adjusted for purchasing power parity.

Europe’s experience absorbing the former Eastern bloc countries in the 1990s can be instructive for Asia, said Olli Rehn, the E.U.’s commissioner for economic and monetary affairs.

“Asia can learn from Europe’s enlargement process in terms of how to prepare countries which have less developed democratic and economic institutions to a level where they can better participate in regional integration,” Rehn, formerly a commissioner for E.U. enlargement, told The Wall Street Journal at a recent Asia-Europe meeting here.

ASEAN–which also includes Indonesia, Malaysia, Philippines, Thailand, Vietnam, Cambodia, Brunei and Laos–isn’t aiming for the type of monetary union that has proven so problematic in Europe. Yet the problems plaguing the euro zone are emblematic of what can happen when the potential pitfalls of a transnational project aren’t thought through carefully enough.

The Southeast Asian group “can learn that you have always to balance integration and common rules,” German Finance Minister Wolfgang Schaeuble told The Journal. “If it is not balanced, you will always get problems.”

Born in the shadow of two world wars that rent the continent and cost millions of lives, the E.U. began as a six-nation group of coal and steel producers who believed that cooperating on trade and industrial issues could foster peace. Over the years the project proved so successful at overcoming formerly intractable national hatreds — one reason the E.U. was just awarded the Nobel peace prize — that the union quickly spread eastward after the Iron Curtain fell.

Thai Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong, the host of the Bangkok meeting, alluded to Europe’s post-Cold War expansion as one of the more valuable case studies for ASEAN.

“We’d like to understand that as much as possible because in Asia there are some younger, newer economies that just joined the international community and those countries haven’t had the adult or fully developed institutions within the system — not only the infrastructure they might need, but also other institutions on the financial services side,” he said.

To be sure, ASEAN–with a population above 600 million and combined GDP of more than $2 trillion in 2011 –is so different from the E.U. in terms of culture, political temperament and level of economic development that what works in Europe is hardly guaranteed to succeed in Southeast Asia.

But some general principles from Europe’s experience that may be applicable.

“The pace and the mode (of integration), how to proceed step-by-step — there are lots of lessons that Asian countries can learn as they try to integrate their economies,” said Naoyuki Shinohara, an IMF deputy managing director.

Frederic Neumann, co-head of Asian economic research at HSBC, noted the importance of proper institutional and bureaucratic frameworks when problems inevitably arise.

In that sense, ASEAN may be ahead of the game. Earlier this year, as the euro zone scrambled to find ways to help distressed member states, ASEAN and its partners China, Japan and South Korea doubled to $120 billion the Chiang Mai Initiative, a fund that can support Asian countries suffering balance-of-payments or liquidity crises.

In addition, the ASEAN+3 Macroeconomic Research Office was established to monitor and analyze member states’ economies, to detect risks early and implement prompt remedial actions.

Of course, those regional backstops come with a backstory — the Asian financial crisis of 1997-’98 that exposed, in the midst of Asia’s supposed economic miracle, the precariousness of the region’s public finances.

Mr. Kittiratt said European officials at the Bangkok meeting were particularly interested in learning how the Asian financial crisis developed and how countries whose economies had collapsed worked their way back to fiscal health within a decade — after swallowing the type of bitter austerity medicine now proving so contentious in Europe.

HSBC’s Mr. Neumann said the global financial crisis had made an ASEAN common market even more essential.

The crisis “has reinforced the need for close cooperation within ASEAN because global trade is much more precarious,” he said. “You can’t depend on Western consumers anymore, so ASEAN needs to focus on domestic strength and on building its domestic market.”

If ASEAN is to achieve meaningful integration, however, it will have to get more serious about institution-building, Mr. Neumann said. The organization suffered a blow to its credibility earlier this year when disputes with China over territorial claims in the South China Sea prevented an ASEAN summit in Cambodia from issuing a closing communique.

“ASEAN works by consensus and informal rules, but the worry is that only carries you so far. As relationships become more complex, you need formal rules and procedures,” Mr. Neumann said. “Divergent regulations, conflict resolution – these are issues that can no longer be discussed over a cup of tea at ASEAN summits or finance ministers’ meetings. You need bureaucracy and experts.”