Regional Economic Integration
In A Fragmented World
by Tommy Koh
Definition
What is regional economic integration? It is a process by which two or more countries agree to eliminate barriers between their economies and to create a single market.
Benefit
What are the benefits of regional economic integration? First, is the benefit of an economy of scale. By operating in a bigger economy, companies become more efficient and more competitive. Second, the merged economy can compete more effectively with other economies. Third, it enhances peace and reduces the prospect of conflict and war.
Successful Examples
I will refer to three successful examples of regional economic integration.
Australia – New Zealand
The first example is between Australia and New Zealand. In 1983, the two countries concluded the Australia – New Zealand Closer Economic Relations Trade Agreement (ANZCERTA). The agreement has effectively merged the two economies into a single economy. The agreement has worked well.
European Union
The second example is the European Union, consisting of 27 members. The EU’s integration extends beyond the economy. It has a parliament, a court, a common currency, and a common foreign and security policy. The original inspiration of European Integration was peace. The visionary founders wanted to prevent the European countries from going to war with each other again.
ASEAN
My third example is ASEAN, which has 10 members. ASEAN has agreed, in principle, to admit Timor Leste, as its 11th member but there is no timeline for when this will happen.
In theory, the 10 ASEAN economies have already been merged into a single economy and production platform. In practice, there are still some non-tariff barriers which have not yet been abolished.
Unlike the EU, ASEAN does not have a parliament, court, single currency, or a common foreign and security policy. ASEAN is confronted with a very troublesome member, Myanmar. It is clear that the military government of Myanmar has no intention to implement ASEAN’s 5-Point consensus on Myanmar. Faced with this situation, some commentators have suggested that ASEAN should suspend Myanmar’s membership. I don’t think there would be a consensus to do so.
The reality is that the military junta in Myanmar has the support of Thailand, Cambodia, Laos and Vietnam. My conclusion is based on the following development. On 22 December 2022, the Thai Foreign Minister invited the military junta’s foreign minister to a meeting in Bangkok. Thailand invited the foreign ministers of the remaining eight ASEAN countries to the meeting. Brunei, Indonesia, Malaysia, the Philippines and Singapore declined the invitation. However, Cambodia, Laos and Vietnam attended the meeting.
The ASEAN Foreign Ministers met in Jakarta, under the chairmanship of Indonesia, on the 3rd and 4th of February 2023. At the end of the meeting, the Indonesian Foreign Minister, Ibu Retno Marsudi, announced that the ASEAN Ministers had agreed on a “united approach” to deal with the Myanmar crisis through the 5-point consensus. Did Indonesia succeed in persuading Thailand to stop pursuing its policy of supporting the military junta? I don’t know the answer. I am therefore not sure whether the consensus was a real consensus or only a paper consensus.
The World has Changed
The world has changed in many negative ways. First, the support for free trade and investment has weakened. Second, the support for globalization has also weakened. Third, multilateralism has fewer champions than before. Fourth, protectionism and economic autarchy have gained a new momentum. Fifth, globalisation is in retreat and nationalism, onshoring and the ethos of my country first, are in ascendance. Sixth, instead of multilateralism, countries are resorting to unilateralism and bilateralism.
The United States
Since the end of World War Two, the United States has been a champion of free trade, free investment, and globalization. In a shocking reversal, in 2016, the United States elected a man, Donald Trump, who championed nationalism, protectionism, and unilateralism. Trump’s legacy has endured beyond his term of office.
In America today, free trade has no supporters. Trump withdrew the US from the 12-member free trade agreement, called the Trans Pacific Partnership (TPP). Biden is unable to rejoin the TTP (now known as the (CPTPP) because there is no support for him to do so. Instead, Biden has offered us something called the Indo-Pacific Economic Framework (IPEF). The fundamental weakness of IPEF is that it does not offer access to the US market.
I have more bad news about the United States. In the past, the US would comply with the rulings of the WTO’s dispute panels, even if they were against the US. In December 2022, the US refused to comply with the rulings of two dispute panels of the WTO. The first concerned the tariffs imposed by Trump, on steel and aluminum. The second concerned the decision of the US to cease recognising Hong Kong as a separate entity from China.
India
India’s decision not to sign the 16-member Regional Comprehensive Economic Partnership (RCEP) shocked the ASEAN countries. The ASEAN negotiators believed that they had taken care of India’s demands and concerns.
What are the “true” reasons which led India to opt out? I think there are two. The first is China. India’s relations with China are not good. This makes the trade surplus which China enjoys with India, a political issue in New Delhi. India fears that by joining the RCEP, India’s trade deficit with China will grow even bigger. There is also a feeling in New Delhi that India has opened its market to China’s exports, but China has not opened her market to India’s exports, including pharmaceuticals.
The second reason is that India is no longer in favour of multilateral trade agreements. India prefers to negotiate bilateral free trade agreements, with countries and entitles, such as, UK, Canada, the EU, Israel and the Gulf Cooperation Council (GCC)
My friends in ASEAN keep hoping that India will return to the RCEP. I don’t think India will do so, just as I do not think the US will return to the CPTPP.
Conclusion
There is a battle in the world between those who favour free trade and regional economic integration and those who preach protectionism and nationalism. I belong to the first camp. I will keep my faith and fight against the leaders of the second camp. The fight may be long and hard, but I am confident, that in the long run, we will prevail over the forces of darkness.
Professor Tommy Koh’s speech was delivered as the Opening Keynote Address for the ASEAN Law Academy Advanced Programme 2023 on Wednesday, 8 February 2023.