ASEAN stands at the centre of a dynamic economic tapestry in Asia and Oceania.
Flanked by the industrial powerhouses of China, Japan and the South Korea, Asean has been playing a pivotal role in fostering regional economic integration.
The three countries and Asean, with the help of the Regional Comprehensive Economic Partnership (RCEP) agreement, are facilitating the economic development of South-East Asia through trade, investment, technological innovation, and supply chain integration.
Asean’s journey, starting with five countries – Indonesia, Malaysia, the Philippines, Singapore and Thailand – toward regional integration began in 1967 with a focus on promoting peace and stability.
Recognising the inter-connectedness of economic prosperity and regional security, the Asean member states embarked on initiatives such as the Asean Free Trade Area (Afta) in 1992.
The Afta was formed to eliminate tariffs on most goods traded among the Asean member states, facilitating the movement of products and boosting intra-regional trade by about 222 times by 2016 compared with 1967 levels.
Asean now has 10 members, and the Afta has not only spurred economic growth among them but also created an attractive market for external investors, particularly from the North-East Asian economic giants.
The economic growth of Japan, South Korea and China has been a significant driver of the region’s long-term growth and integration.
The three countries’ robust appetite for raw materials and their position as manufacturing powerhouses have fuelled trade with Asean.
China is Asean’s largest trading partner, with bilateral trade exceeding US$722bil, and Japan is the third exceeding US$268bil after United States’ US$420bil, South Korea is the forth with around US$223bil in 2022.
The United States, incidentally, is Asean’s second-largest trade partner with a two-way trade volume of US$420bil.
But Asean’s economic journey has not been smooth. Indonesia, Malaysia, South Korea and Thailand experienced a serious economic downturn due to the 1997 Asian financial crisis.
At that time, Japan played an extremely important role in helping revitalise Asean’s economy as a whole by pumping in as much as US$30bil into the Asean and South Korea economies under the “New Miyazawa Initiative” framework.
China, too, played a key role in revitalising the Asean economy by keeping the yuan’s exchange rate flat. And Japan and South Korea, with their technological prowess, also played crucial roles in stabilising the region’s economy.
Japanese foreign direct investment (FDI) in Asean member states has played a vital role in developing infrastructure, and promoting technological advancements in fields such as electronics and automotive manufacturing.
Now Asean-made cars are exported to the Middle East, Africa and even Japan. South Korea, too, has invested heavily in the region, particularly in Vietnam, contributing to its emergence as a manufacturing hub.
To be sure, these investments have fostered knowledge transfer and upgrading of Asean workforce’s skills, thereby enhancing the region’s competitiveness in the global market. China, too, has invested heavily in Asean.
The establishment of the RCEP has further bolstered regional economic integration.
This mega trade agreement among all the 10 Asean member states and China, Japan, South Korea, Australia and New Zealand has created a free trade zone encompassing nearly a third of the global population (2.3 billion) and a cumulative gross domestic product of US$26 trillion.
And the RCEP has eliminated tariffs on more than 90% of goods traded among the 15 signatory economies, thereby helping expand trade and attracting investments.
Besides, the RCEP promotes the harmonisation of regulations and standards, simplifying cross-border trade and creating a more predictable business environment.
This economic integration has significant implications for the development of South-East Asian countries, as increased trade flows lead to economies of scale, allowing Asean producers to benefit from relatively low production costs and compete more effectively in the global market.Also, FDI by China, Japan and South Korea provides much-needed capital for infrastructure development, industrialisation and job creation in the region, with a 2021 study by the Asian Development Bank estimating that the RCEP could increase signatory countries’ incremental income by up to US$514bil by 2030.
But challenges remain. The gap in development level of Asean member states has created disparities in benefits, as less-developed countries struggle to compete with established players such as Indonesia, Malaysia, Thailand and Vietnam.
In addition, a surge in imports from more advanced economies could threaten the domestic industries of some Asean member states. As such, effective policy response is needed to bridge these gaps and ensure inclusive growth.
In conclusion, Asean, China, Japan, and South Korea are playing a critical role in shaping the economic landscape of Asia and Oceania.
Through trade, investment, technology transfer and supply chain integration, these economies are fostering a dynamic regional economy.
The RCEP, with its focus on trade facilitation and harmonisation of regulations, is a milestone in the region’s economic journey.
Moving forward, ensuring equitable distribution of benefits and narrowing the capacity and development gaps among the region’s economies remain crucial for maximising the positive impact of regional economic integration on the development of Asia and Oceania. — China Daily/ANN
Kimihiro Fukuyama is an associate professor at the Graduate School of Management, Ritsumeikan Asia Pacific University. The views expressed here are the writer’s own.
