Asean path to economic union muddied by sea rift

Sun, 05 August 2012
By Neil Chatterjee
Oman Daily Observer

DISCORD in Southeast Asia over how to deal with Beijing’s claims in the South China Sea comes as the region struggles to overcome competing national interests and form a European Union-style economic community by 2015. Political leaders and officials say the row may not directly affect plans by the Association of Southeast Asian Nations (Asean) for the economic integration of countries ranging from wealthy Singapore to impoverished Myanmar.

But what doesn’t help is China’s growing investment in the bloc’s poorer members, which critics say gives it influence that it has effectively used to block a unified Asean stance in the South China Sea dispute. The South China Sea, which stretches from China to Indonesia and from Vietnam to the Philippines, lies atop what are believed to be rich reserves of oil and gas.

“It’s not going to hold progress (on integration) hostage,” Asean Secretary-General Surin Pitsuwan told diplomats in Jakarta, referring to a recent meeting in Cambodia, where rifts over the South China Sea prevented the group’s foreign ministers from issuing a communiqué for the first time in its history.

“It is an early warning sign... this will not be the last.”

Southeast Asia is a hot destination for investors seeking returns that are drying up in Europe, still to recover in the United States and slowing in the rest of Asia.

Estimated net flows into offshore Asean funds stood at $1.4 billion in 2012 through June, according to data reported until July 10. By comparison, China and India offshore funds saw net outflows worth $1.6 billion and $185 million respectively.

Investors have high hopes for plans by the 10-member Asean for a single market and production base for a combined economy of $2 trillion, with free movement of goods, services, investment and skilled labour among 600 million people.

While there is consensus in Asean for economic union, the group struggles with political differences ranging from a land border dispute between Thailand and Cambodia to a cultural spat between Malaysia and Indonesia. The most destructive is the inability to deal with claims by four of its members, and China and Taiwan, in the South China Sea.

Since only some elements of the economic plan will be in place by 2015, such as zero tariffs, more developed members may have to push on with integration in a two-tier model, just as the European Union did, leaving the others at risk of missing out on regional investment.

Asean’s older and more developed members are Singapore, Malaysia, Thailand, the Philippines, Indonesia and Brunei. Vietnam, Laos, Cambodia and Myanmar joined later.

The two-tier model could leave fringe members further exposed to influence from China — and the United States — as they seek influence through investment and diplomacy in a “Great Game” played out in the tropics.

China is already the top investor in Cambodia and Myanmar and is catching up with investment by Europe, Japan and the United States in the region overall.

“The difference is that China is giving something that Cambodia needs, while Asean is promising something that is abstract,” said Aleksius Jemadu, dean of the school of political and social sciences at Pelita Harapan University in Jakarta.

“Asean countries will act based more on their domestic needs ... When this community is built we can’t expect them to be in unison, just like what happened to the South China Sea.”

At the Phnom Penh meeting of foreign ministers, some diplomats said Cambodia blocked the South China Sea dispute being put on the agenda at China’s behest. Cambodian diplomats in turn accused the Philippines and Vietnam of trying to hijack the meeting.

China has maintained it wants to deal with the issue bilaterally.

The Philippines has said it deplored Asean’s failure to address the row and criticised Cambodia for its handling of the issue.

Cambodia had GDP per capita of $900 in 2011 and foreign direct investment (FDI) of $800 million in 2010, according to World Bank figures. That compares to Singapore’s $46,241 per capita and $39 billion in FDI.

The China Daily has said Beijing’s investment in Cambodia from 1994 until 2011 was $8.8 billion.

Even without the economic and political differences, a lack of capacity among some of Asean’s members is making it hard to implement economic agreements.

Completion of measures towards a single market in its 2010-2011 phase was only 49 per cent overall, according to Asean’s latest scorecard, with reform lagging in food and agriculture.

“Early achievements were based on low hanging fruit... The process of transposing regional commitments into national laws is the biggest (challenge),” said Subash Pillai, Asean’s director of market integration.