Economic recovery plan series – CARI

CIMB Research

CIMB ASEAN Research Institute (CARI) hosted a CARI Briefings webinar under its COVID-19 Economic Recovery Plan Series. The session featured Paolo R. Vergano, Senior Fellow of CARI and Partner at FratiniVergano – European Lawyers, and key specialist for trade facilitation in the ARISE Plus project of the ASEAN Regional Integration Support by the EU.

Economy

Moderated by Tan Sri Dr. Munir Majid, Chairman of CARI, the discussion centered on ASEAN’s post-COVID-19 economic recovery through a trade and institutional perspective, and how ASEAN can draw lessons from the EU’s experience in fostering internal trade.


1. ASEAN cannot depend as much on external exports post-COVID-19, bigger intra-regional trade is vital to its recovery

The senior fellow observed that even before many ASEAN countries underwent lockdowns to fight the spread of COVID-19, many already suffered from supply chain disruptions caused by China’s earlier lockdown in January 2020. According to IHS Markit’s PMI data, the disruption of raw materials, labor, and sub-assembly components caused ASEAN manufacturers to see their worst month on record in March 2020, with the headline PMI falling from 50.2 in February to a record low of 43.4 in March. Paolo cited April 2020 data from the World Trade Organization which projected world merchandise trade would drop by between 13% and 32% in 2020 due to COVID-19.

Paolo argues that for the open economies of ASEAN, a significant drop in global trade may provide the impetus for policymakers to re-evaluate the bloc’s current over-reliance on external export markets. Paolo stresses there is much room for improvement with intra-ASEAN merchandise trade constituting 23% of total trade in the region in 2018, and points out that intra-regional trade could provide a hedge against future external trade shocks. Paolo draws comparisons with the European Union, observing that intra-European trade accounted for 69% of their total trade in 2018.

2. Regulatory transparency is a key factor in facilitating greater regional economic integration

Noting that the EU and ASEAN are structurally different, there are certain EU practices that are in line with those that ASEAN has already committed. As an example, EU’s trade policies and Preferential Trade Agreements, generally take transparency, enforcement mechanisms, and stakeholder engagement (primarily from the private sector and non-governmental organizations) into stronger account.

There are also existing mechanisms that require greater utilisation to boost intra-ASEAN trade. For instance, as part of their efforts to foster greater intra-regional trade through regulatory transparency, Paolo notes that ASEAN states have promoted the ASEAN Solutions for Investments, Services and Trade (ASSIST). Paolo explains that ASSIST is one of the mechanisms through which ASEAN policymakers hope to elicit the support of the private sector in removing non-tariff barriers (NTBs) and streamlining non-tariff measures (NTMs), expediting solutions for specific intra-ASEAN cross-border trading problems encountered by ASEAN’s based small-and-medium enterprises.

3. Free and open trade remains vital for both ASEAN and EU economies 

Contrary to recent narratives of the death of globalization, Paolo stresses that the global response to COVID-19 by many countries was a combination of both restricting certain trade while maintaining or facilitating others. While public lockdowns and travel restrictions have inevitably caused downward pressures on international trade, maintaining free and open trade has been vital for both ASEAN and EU economies to remain afloat and ensure continued access to vital goods.

Paolo observes that for both blocs, preserving supply chain connectivity (particularly internally) has been identified by both ASEAN and the EU as key goals in their larger response to COVID-19. During the Special ASEAN Summit held on 14 April 2020, ASEAN Economic Ministers (AEMs) and Senior Economic Officials (SEOMs) were tasked with finding ways to preserve trade connectivity, particularly in relation to the smooth flow of essential goods such as medicine, food, and essential supplies. After the initial shock, the European Commission worked well and fast with the EU Member States to establish priority lanes for the transport of goods, to ensure the continued flow of essential goods and services.

Tan Sri Munir, in his closing remarks, concurred that the real lessons to heed from COVID-19, especially for middle-powers like the EU and ASEAN, should be the continuing relevance of global openness and free trade. These will be particularly pertinent as countries struggle to return to pre-COVID-19 growth numbers while having to respond to increasing public skepticism over the benefits of globalisation. The pandemic has exacerbated geo-economic tensions between great powers, with regional blocs like the EU and ASEAN being increasingly pressured to choose sides at the expense of their own internal cohesion.

“COVID-19 should ultimately serve as a wake-up call for ASEAN that greater regional integration is not some faraway luxury to consider, but increasingly a strategic necessity for a region that wants to preserve its economic vitality and geostrategic independence,” concludes Tan Sri Munir.

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