Thailand amid Asean economic integration

Signs promoting the Asean Economic Community (AEC) in Bangkok during the 2016 New Year celebrations. While it has been overhyped, the AEC is still a critical component that keeps Asean sufficiently together. (Photo by PANUPONG CHANGCHAI)

The first year and a half of the Asean Community has transpired not with a bang but a whimper. Thailand's role in it has been correspondingly uneventful. The first 18 months of the Asean Economic Community (AEC), one of three pillars together with the Asean Political-Security Community and Asean Socio-Cultural Community, witnessed no fundamental or qualitative differences from trade and investment patterns prior to its introduction. If the AEC is to work out as intended, it has to be reshaped and reoriented from traditional lenses to new realities based on intra-regional investments in tandem with global value chains.

Trade among Asean economies remains dominated by the original five founders of the 10-member organisation -- namely Indonesia, Malaysia, the Philippines, Singapore and Thailand. While Cambodia, Laos, Myanmar, and Vietnam (CLMV) have accounted more from a low base since their membership entries, their combined weight remains modest, whereas Brunei is simply a marginal player in the AEC. Most important, intra-Asean trade has stayed in the same range of 24% for more than two decades.

On trade, Asean remains dependent on external markets. Yet several new trends are worthy of attention. First, mainland Asean economies have shown signs of tighter trade linkages, especially between Thailand and Vietnam. This pattern portends a mainland Southeast Asia that may become more economically integrated versus the broader Asean.

Second, intra-Asean investments are promising and have contributed to regional value chains' development. This is the area where the AEC should be focused -- more on intra-regional investment than trade.

Third, Asean's economic integration may best be viewed as a series of growing connectivity, not just in infrastructure but also in people and domestic and multinational firms. While it has been overhyped and is unlikely to lead to bona fide economic integration as measured in Europe and North America, the AEC is still a critical component keeping Asean sufficiently together for its member states' larger benefit.

Intra-Asean trade is mostly confined to the older, original members of the organisation, namely Singapore, Thailand, Malaysia, Indonesia and the Philippines. Brunei is an anomalous member because its size is so tiny compared to the rest. This means Brunei is economically negligible in practical terms. Cambodia and Laos are also small but their economies are relatively more diversified than Brunei's, which is oil dependent.

External markets account for the majority of Asean's trade. The lack of intra-regional trade is consequential for the AEC. This is the reason the AEC is envisaged as a regional production base to boost Asean's economic competitiveness and integration with the world economy, while promoting a more equitable economic development in the region. The AEC was not conceived as a European-style integration platform.

Reinforcing this reliance on outside markets is Asean's growth model. Asean's growth has traditionally depended on foreign direct investment, mostly from outside the region. Thus the Asean growth model relies on investment from outside geared for regional production and aimed largely for external markets. Intra-Asean trade is not insignificant but it simply has not made much headway in terms of economic integration.

Another indication of the AEC's limitations is the eight career sectors that are supposed to be freer in regional mobility. These eight sectors are engineering services, nursing services, architectural services, surveying qualifications, accountancy services, dental practitioners, medical practitioners, and tourism such as tour guides.

The AEC is intended to foster limited labour movement of professionals, but this scheme has gone nowhere. Dentists, for example, cannot just move to set up shop somewhere else in Asean member countries. Domestic obstacles from local professional registration and protectionism to language barriers have stood in the way. Moreover, the prospects appear dim insofar as labour migration among professionals in the region will take off anytime soon.

Migrant labour that has moved around the region have been mostly unskilled, many undocumented, an issue not addressed in the AEC. Overall, there should be no illusion about the AEC. It is designed to facilitate and coordinate, not integrate and enmesh, Asean economies, which remain dependent on external markets.

But there is a silver lining for economic integration in Asean. In mainland Asean economies, labour market integration underpins several million migrants from Cambodia and Myanmar who work in Thailand. Over the past decade, bilateral trade between Vietnam and Thailand has nearly trebled, and Vietnam has become Thailand's second-largest trade partner in the region, supplanting Singapore, behind only Malaysia. Thai foreign direct investment in CLMV (Cambodia, Laos, Myanmar, and Vietnam) has increased on an unprecedented scale.

Infrastructure connectivity enables road travel between Myanmar to central Vietnam, across Thailand and Laos. Such is the promise of mainland economic integration while the AEC moves at a slower pace. In the near term, Asean's growing connectivity, especially on communications and transport infrastructure, may turn out to be an effective substitute for integration. In other words, Asean connectivity is economic integration minus supra-nationality. Connectivity is thus more consistent with the Asean fundamental makeup, and warrants more focus than integration.

In addition to CLMV, another space that may be called CLMT -- Cambodia, Laos, Myanmar, and Thailand -- has a combined market of 145 million people, with more than half trillion dollars in GDP. This mainland frame, with Thailand as a natural centre, already harbours infrastructure connectivity, which will expand indefinitely. Its demographics profile is relatively young, below 40 years of age on average, with rising incomes.

As mentioned above, migrant labour movements are fluid and integrated. Healthcare and financial services have also been more integrated, as many ATM machines in Thailand offer neighbouring languages. A broader mainland frame would be the Greater Mekong Subregion, which includes all five mainland Asean countries plus China's southwestern Yunnan province and Guangxi autonomous region. This space has a combined 335 million market with a US$1.2 trillion GDP. Again, these economies are connected by road infrastructure. If the rail connectivity come on stream, it could be a game changer for mainland Asean.

Thus for Thailand, the AEC is useful as a broader market cooperation and regional insurance policy in the face of global uncertainty. World trade has been slowing down, whereas the World Trade Organization's Doha Round has floundered. The global trading system is becoming more protectionist, unilateral at worst and increasingly bilateral and regional at best.

As a result, bilateral trade agreements have been on the rise. So are regional preferential trade agreements. Thailand should certainly look to the AEC for future economic growth and development. But perhaps Thailand's stronger drivers are geography and history. In the distant past, mainland Southeast Asia was more integrated on the ground when borders did not yet exist. That era is coming back from the past, backed by geographical proximity. It is where Thailand should situate itself for future growth and development irrespective of the AEC's unimpressive prospects.

For regional economic enmeshment, the AEC Blueprint 2025 lays out a large wish list of what Asean economies should do to boost integration. It is effectively a revamp and relaunch of the AEC. There are sections envisaging the way forward for the AEC, particularly the focus on intra-regional investments by indigenous multinationals to link up and benefit from global value chains.

Asean's technocrats and economic planners know what needs to be done for the AEC but until Asean governments have the collective wherewithal to act on these plans, Thailand should pin its hopes more on mainland economic integration while staying on board with the broader AEC.

Thitinan Pongsudhirak is associate professor and director of the Institute of Security and International Studies, Faculty of Political Science, Chulalongkorn University.

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