MySay: Prioritising Asean-wide regionalisation

This article first appeared in Forum, The Edge Malaysia Weekly, on February 25, 2019 - March 03, 2019.
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One of the world’s oldest parliaments is struggling to resolve what is essentially a parliamentary problem. Britain is grappling with Brexit after having decided to exit the European Union. The divorce has been agreed upon but the British cannot agree to the terms of the divorce. Spurned, the Europeans feel some of the terms of the separation lack the trade-offs of a split.

The Common Market and broader EU agenda began with the Treaty of Rome in 1957 without Britain as one of its original signatories. Britain’s application for membership was rejected twice before being accepted in 1973. While the Europeans were initially lukewarm towards Britain, the British themselves have always been in two minds about being part of Europe.

The 1992 Maastricht Treaty formally created the EU with Britain on board but the latter opted out of the currency and monetary union while being part of the European Parliament. Britain became part of the single market customs union and benefited from the mobility of people within the EU, although it was the latter that generated the political backlash that led to Brexit.

Compared with the Europeans, we in Asean are a very loose association. Despite the name and the ambition stated in Asean Community 2015, which has come to pass, Asean is not even an exclusive relationship. Individual members can negotiate separate free trade agreements with a third party, for example. There are minimal institutional constructs that bind us together.

It took 40 years after the Bangkok Declaration that formed Asean in 1967 to have the Asean Charter in 2008, which expressed a desire to form the Asean Community, a big part of which ambition is the Asean Economic Community (AEC) 2015. The AEC 2015 is a good and necessary plan for Asean and its members but as is with most things Asean-wide, it lacks execution. The AEC blueprint was a comprehensive, if overly ambitious, document. It aimed to transform Asean into a single market and production base and contained the necessary action items. In 2015, Asean shifted the timeline by another 10 years by introducing a more comprehensive Asean Community Vision 2025.

The EU integration and ongoing Brexit shows how difficult it is to realise and sustain a regional integration agenda. What was not envisioned when the Treaty of Rome was signed was the collapse of the Berlin Wall, which saw the admission to the EU of 12 Eastern and Central European countries by 2007. The same thing happened in Asean — its initial members in 1967 were Indonesia, Malaysia, Singapore, Thailand and the Philippines but it was later expanded to include the remaining five Southeast Asian nations.

The Brexit lesson, imperfect though it may be, is that it is difficult for Britain to exit without negative consequences because the union, all things considered, had produced more good than bad. That speaks volume about economic integration generally. Problems of all sorts will arise from the heterogeneity of members and the multi-speeds and multi-levels of institutional preparedness within the union but the European nations that formed the EU have benefited from greater economic integration as the world itself has changed from when the EU was formed in 1957 to what it is today.

China’s entry into the World Trade Organisation (WTO) in 2001 changed world economics, particularly world trade, in very fundamental ways and the ways economies respond to this China phenomenon define their places in the new order. Clearly, the entry of a continental economy such as China redefined markets and global production on the same scale as economies of similar size — other continental economies. The ability of Britain or any single European economy to respond to this sort of change is inferior to how they respond as a group. Brexit, therefore, in my view, is a poor response and Britain is struggling to find a better outcome while the EU wants to strengthen its continental economy.

Therein lies the lesson for Malaysia within Asean. Regardless of the effectiveness of the bloc in executing its plans, the logic of regionalisation as a bulwark against the emergence of continental economies in the new world economic order remains a sound one. China has conceptualised a global strategy and it has begun implementing the main building blocks of its view of the world’s economy in the next millennium. Besides investments in technology, China has invested in two key initiatives: control of natural resources and global logistics. Its Belt and Road Initiative is already in the implementation stage and Southeast Asia is central to this initiative, no matter how it is sliced.

Yet, the possibility of the Asean Economic Community remains largely unrealised and members will find themselves on the receiving end of these changes that are shaped by major powers. That is why economies such as Malaysia should prioritise the regionalisation agenda — the structural transformation of the economy to address the issues of dependency on commodities, low productivity and low wages and the inequality in distribution will have to find solutions within the larger dynamics of a regional economy. To find solutions to these challenges within the existing domestic dynamics is almost oxymoronic.

The Malaysian economy has to find the logic and even the resources for its transformation beyond its own shores. Malaysia should therefore make the Asean agenda one of its key policies — a regional agenda that shapes the national economic agenda while also converging diplomatic, economic and trade policies towards achieving the pursuit of national economic security. “Going it alone” will only domesticate the economy further, which will inevitably lower its growth potential.

If the implementation of Asean-wide regionalisation is too slow, Malaysia should concurrently pursue as many bilateral arrangements as possible with its immediate neighbours — regionalisation via the accumulation of bilateral arrangements.

The Malaysia-Singapore bilateral relationship has the most potential but is perhaps also the prickliest. Where things are today, its potential benefits are largely based on complementarities and therefore it is a more cooperative model. But the institutional memories are still based on a competitive model based on substitutability. There should be more resolve to settle the outstanding issues in the water agreement that seems to be a stumbling block to so much potential for bilateral economic cooperation. For example, even a limited customs union to facilitate selected free flow of goods between the two countries will change the regional supply chain logic significantly.

The Iskandar Malaysia development has the right ideas to capitalise on price differential flows between Singapore and southern Johor but a transplanted logic such as the Forest City Development is quite disastrous on several fronts. This penchant for and belief that real estate developments are economic drivers should be avoided in bilateral arrangements.

There are also opportunities to have more localised initiatives, especially north of the peninsula, with Thailand. There are two main links — one via rail through Padang Besar and another via road through Bukit Kayu Hitam. Both links provide continuous connectivity between Bangkok and Singapore via Hat Yai. On the eastern side, Rantau Panjang in Kelantan has both road and rail links to Thailand, connecting to Hat Yai as well, although the rail link from Sungai Kolok across the border from Rantau Panjang to Tumpat no longer operates. Tumpat is linked by rail to Gemas and onwards to Woodlands in Singapore.

The area defined by these towns — Hat Yai in Thailand, and Padang Besar and Rantau Panjang in the peninsula — should be turned into a special development region, a strategic zone in a world whose logic is still that of resources and logistics. Malaysia has invested heavily in the double-track railway and North-South Expressway, both of which link up with Hat Yai, whose population is as cosmopolitan as that of George Town in Penang.

Penang is already a medical tourism destination, attracting about three-quarters of all medical tourists to the country, mainly from Indonesia. There are more than 40 weekly flights from Indonesia’s second largest city, Medan, to Penang and an equal number of return flights. Penang is, therefore, well connected to the northern part of Sumatra, a tie-up that started many decades ago.

The populations of southern Thailand, northern Sumatra and Singapore are just under Malaysia’s but their aggregate gross domestic product is 20% larger. That is the potential — a mix of one of the world’s highest income countries and developing areas defined by location and already linked to many parts of the world. For this sort of regional initiative to materialise, all parties need to see the big picture and the possibilities in it.

All of these will have a far more catalytic effect on the economy than massive, loan-financed projects such as the East Coast Rail Link. It will certainly not cost the RM70 billion to RM100 billion being cited for the ECRL. That sort of project should be cancelled and the focus directed to regionalisation instead to reduce administrative and national divisions between neighbours.


Dr Nungsari A Radhi is an economist and the views expressed here are not related to any of his organisational affiliations

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