EXECUTIVE SUMMARY
- The establishment of a Comprehensive Strategic Partnership (CSP) between ASEAN and Japan during the 50th anniversary of their partnership in September 2023 reaffirms Japan’s role as a trusted partner in Southeast Asia.
- Among ASEAN dialogue partners, Japan has been recognised as a “courteous power” that aligns well with Southeast Asian cultural norms and values. Beyond that, Japan has emerged as the most trusted and strategically relevant middle power to ASEAN in the 2024 State of Southeast Asia survey.
- Japan’s trusted status has enabled it to play a greater security role in the region, including through the new Official Security Assistance (OSA) introduced in 2023 to strengthen the security capabilities of like-minded regional countries.
- Japan’s engagement in the “Free and Open Indo-Pacific” strategy and its active role in various minilateral configurations demonstrate its strategic intent not only to foster a rules-based international order but also to enhance interoperability among regional militaries.
- Japan has recently enhanced its alliance with the United States and deepened collaborations with the Philippines, Australia, and the UK, effectively transforming the traditional “Hub and Spokes” framework into a robust network of aligned partners. This strategic evolution positions Japan to effectively bridge QUAD and ASEAN nations, facilitating the creation of a comprehensive regional security network.
* William Choong is Senior Fellow at the Regional Strategic and Political Studies Programme and Managing Editor of Fulcrum, and Joanne Lin is Associate Senior Fellow at the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2024/54, 18 July 2024
INTRODUCTION
ASEAN and Japan celebrated five decades of partnership in a Commemorative Summit in December 2023,[1] with the theme “Trusted Partners”. This aptly encapsulated a relationship built on Japan’s respectful diplomacy and ASEAN’s preference for mutual respect and shared values. Amidst the diverse challenges and opportunities in the region, Japan’s role as a trusted partner remains pivotal in shaping regional partnerships across Southeast Asia. The establishment of the Comprehensive Strategic Partnership (CSP) between ASEAN and Japan in 2023[2] underscores this strategic role.
Among ASEAN’s dialogue partners, Japan has distinguished itself as a “courteous power”[3] that aligns well with the cultural norms and values of Southeast Asian countries. Beyond its status as one of the region’s top economic, security and diplomatic partners,[4]Japan has earned the reputation of being the most relied-upon partner in the region.
Japan’s reputation in the region was reaffirmed in the State of Southeast Asia 2024 Survey,[5] where it not only maintained its position as the most trusted power but also emerged as the most strategically relevant middle power to ASEAN. While other middle powers such as Australia, the EU, India and the United Kingdom (UK) experienced a decrease in their perceived influence, Japan saw a doubling of its perceived political and strategic influence in Southeast Asia.
This Perspective delves into Japan’s status as a beacon of trust and growing influence in the broader regional multilateral framework. It is argued that Japan can leverage its stock of trust in Southeast Asia to play a bigger security role in the region. Japan’s enduring role as an all-weather friend to Southeast Asia[6] over the past five decades is reaffirmed in the survey.[7] The report continues to underscore the region’s confidence in Japan as the most trusted among five key powers, including the US, EU, China and India. When asked if Japan will “do the right thing” to contribute to global peace, security, prosperity and governance, the majority of respondents (58.9%) expressed confidence, a 4.4% increase from 2023.
Trust and Distrust Rankings of Major Powers
Source: State of Southeast Asia 2024 Survey
Among those who trust Japan, the largest group of respondents (36.5%) believe Japan is a responsible stakeholder that respects and champions international law. The second biggest reason for trust in Japan (27.7%) is its vast economic resources and its political will to provide global leadership. Approximately one-fifth of respondents (21.1%) trust Japan because they admire its civilisation and culture.
In the ranking of dialogue partners by strategic relevance to the region, Japan is the frontrunner among all the middle powers, behind only China and the US. Japan surpasses all other middle powers including the EU, South Korea, UK, Australia, Russia, India, Canada and New Zealand.
Dialogue Partners’ Strategic Relevance to ASEAN
Source: State of Southeast Asia 2024 Survey
Southeast Asian perception of Japan’s growing influence in the region is also evident in other survey responses. When asked which country is the most influential political-strategic power in the region, the number of respondents ranking Japan at the top nearly doubled from 1.9% last year to 3.7% this year. Although Japan ranks far behind China, US and ASEAN, its perceived growing influence sets it apart from other middle powers like Australia, the EU, India, and the UK, which witnessed a decline.
GROWING SECURITY ROLE IN SOUTHEAST ASIA
Southeast Asians’ trust in Japan has been conducive for Tokyo to play a bigger security role in the region. Since the 1990s, Japan has shouldered increased responsibility for maintaining security in the Asia-Pacific region.[8] During the tenures of Prime Minister Shinzo Abe (2007-2008, 2012-2020), Japan assumed a more assertive stance in both military and diplomatic spheres, largely driven by the resurgence of China.[9]
According to Abe, Japan would make a “proactive contribution to the peace”. To this end, Japan has demonstrated its resolve to build a regional security framework, based on shared principles of international law, no recourse to the use of force, and a rules-based order in both words and deeds. In 2016, Abe introduced the concept of a “Free and Open Indo-Pacific” (FOIP), aiming to capitalise on emerging opportunities and challenges across Asia and Africa. This vision is rooted in a commitment to a rules-based international order, peace, stability and economic prosperity.[10] Further refining this vision, Japan unveiled its “New Plan for a FOIP” in March 2023, acknowledging evolving global dynamics, including the rise of emerging and developing countries as well as pressing global challenges such as climate change and technology advancements.[11]]
In April 2023, Japan introduced the Official Security Assistance (OSA) programme,[12] which provides material equipment and infrastructure assistance to meet the security needs of recipient countries especially in Southeast Asia and South Asia.[13] The defence equipment provided under the OSA is limited to areas such as rescue, transport, warning, surveillance and minesweeping.[14] Japan’s rationale for the OSA was straightforward: to strengthen the security of like-minded states by improving their “deterrence capacities”, particularly in the face of “China’s growing attempts to unilaterally change the status quo by force”.[15] This serves to bolster the security capabilities of ASEAN countries, including by provision of radars and satellite systems, and reinforces Japan’s strategic engagement with the region, representing a tangible demonstration of Japan’s commitment to regional security.
The OSA is a continuation of a long-standing trend whereby Japan sought to bolster the security capacities of like-minded regional countries. While Japan’s Official Development Assistance (ODA) can only be used for social and economic development, Japan used a “sleight of hand” to send vessels, aircraft and radar systems to help Southeast Asian claimant states in the South China Sea bolster their maritime capabilities.[16] In 2013, Japan delivered 10 multi-role patrol vessels to the Philippines Coast Guard, and dispatched another two patrol boats in 2022. Tokyo has dispatched six second-hand fishery patrol ships to Vietnam. Another six will be sent by 2025.
In April 2024, Japan upgraded its alliance with the US – arguably the biggest elevation of the alliance since 1951. For the first time, the two militaries would be put under the command of a US four-star general, thus resembling the US-South Korea alliance setup, which is structured under an expeditious “fight tonight” deterrent posture.[17] The two allies plan to enable “seamless integration of operations and capabilities for interoperability.” Speaking in April 2024, Joe Biden and Fumio Kishida singled out China, saying the two allies would “respond to challenges by China through close coordination”.[18]
Within the same week, Japan and the US also incorporated the Philippines into a first-ever trilateral arrangement, which, according to Kishida would “bolster a free and open international order based on the rule of law”. President Biden reaffirmed US defence commitments to Tokyo and Manila – a clear signal to China, which had been involved in an altercation with Philippine forces in the South China Sea.[19] While Manila and Tokyo are not formal military allies with each other, the institutional linkages between the US, Japan and the Philippines are expected to grow. This would serve as a deterrent to assertive Chinese actions in disputed areas such as the South China Sea.[20]
At the same set of meetings, President Biden and Prime Minister Kishida also announced that Japan will join the second pillar of the Australia-United Kingdom-US (AUKUS) trilateral security arrangement. The second pillar would involve the development of advanced capabilities such as cyber assets, artificial intelligence and quantum capabilities.[21]The US and Japan also announced a regular series of US-Japan-UK exercises, which are slated to begin in 2025.
This underscores the thickening web of US allies and like-minded partners to uphold the regional order. Japan is already emerging as a key player in emerging minilateral arrangements, involving US allies and like-minded partners. In August 2023, the leaders of Japan, South Korea and the US inaugurated a new trilateral partnership, which would enable the three countries to consult and coordinate, on an annual basis, at various levels of their governments concerning common security and other related challenges.[22] A new multi-domain exercise, to be held annually, is also in the planning stages.[23]
Japan is also playing a role in other minilaterals. In early May, the defence ministers of Australia, Japan, the Philippines and the US met at the US Indo-Pacific Command headquarters in Hawaii to affirm their shared vision for a “free, open secure and prosperous Indo-Pacific” The meeting was apposite, given that both the US and the Philippines had just finished their annual US-Philippine Balikatan exercises (with Japan and Australia as observers), which are aimed at deterring China in the Taiwan Strait and the South China Sea.[24] In Hawaii, the defence ministers of Australia, Japan and the US also met for the 13th time to deepen cooperation to promote regional security. They announced additional trilateral exercises, such as F-35 training in the three countries, and the conduct of a first-ever combined live-fire air and missile defence exercise in 2027.
WHEN A SPOKE BECOMES A HUB
The trifecta of Southeast Asia’s growing trust in Japan, Tokyo’s willingness and ability to play an increased security role, and the thickening of a minilateral security network in the face of growing Chinese assertiveness puts Japan in a position to enhance defence cooperation with ASEAN, and also to integrate individual Southeast Asian countries into a framework involving some (or all) members of the Quadrilateral Security Dialogue (Quad).
Defence Cooperation with ASEAN
Japan already plays an active role in the ASEAN Defence Ministers’ Meeting Plus (ADMM-Plus), which spans various domains including humanitarian assistance and disaster relief, maritime security, military medicine, counterterrorism, peacekeeping operations, and cybersecurity, and has been positively received by the region.[25] In November 2023, Japan introduced a new Japan-ASEAN Ministerial Initiative for Enhanced Defense Cooperation (JASMINE).[26] JASMINE seeks to elevate ASEAN-Japan defence cooperation amid a dynamic security landscape by focusing on four key aspects, namely: (i) ensuring a security environment that does not allow unilateral attempts to change the status quo by force or coercion; (ii) expanding ASEAN-Japan defence cooperation; (iii) pursuing further friendship and opportunities between ASEAN-Japan defence officials; and (iv) supporting defence cooperation between ASEAN, Japan and the Pacific Island countries. JASMINE mirrors Japan’s vision as laid out in Japan’s Vientiane Vision in 2016. Tokyo said it wanted practical defence cooperation with ASEAN countries based on capacity building, the transfer of equipment, and joint participation in exercises.
Maritime security has emerged as a central focus for Japan, driven by escalating concerns over China’s naval activities.[27] In this context, Japan can serve as a bridge to facilitate ASEAN’s utilisation of the Quad’s Indo-Pacific Partnership for Maritime Domain Awareness,[28] leveraging innovative technology to provide real-time information on maritime activities. Collaboration in this regard will be instrumental in combating illegal, unreported, and unregulated (IUU) fishing and addressing humanitarian crises. Coordination with existing maritime centers in the region, such as the Information Fusion Centre in Singapore and the Thai Maritime Enforcement Coordinating Centre, will enhance the effectiveness of such endeavours.
Furthermore, Japan should prioritise providing regular updates to ASEAN on developments in the Indo-Pacific region, particularly regarding minilateral initiatives like the Quad and other trilateral groupings. These updates could be shared on the sidelines of events such as the ADMM-Plus or security forums like the Shangri-La Dialogue in Singapore, fostering greater trust and confidence-building between ASEAN and Japan. Such dialogues will not only enhance functional cooperation but also facilitate a clearer articulation of their respective strategic roles in the region.[29]
Quad-lite Minilaterals
By virtue of its deep linkages with the US and its San Francisco alliance network and growing defence connections with ASEAN countries, Japan is in a strategic position to link the Quad and ASEAN countries into a wider security network. Broadly speaking, the Quad and ASEAN share a common goal of ensuring regional stability and security, as well as common principles, such as the promotion of an open, inclusive and rules-based regional architecture. The point of divergence lies in what is perceived to be the Quad’s potential to undermine the centrality of ASEAN, and the consequent effects of ASEAN or its member countries working closer with the Quad (i.e. China’s opposition to such activities, given Sino-US rivalry and competition for power and influence in the Indo-Pacific). For many ASEAN countries, Quad membership is out of the question. That said, however, many Southeast Asians have become increasingly receptive to working with Quad countries to strengthen regional stability. In the 2024 State of Southeast Asia Survey, 40.9% of respondents deemed that the Quad would be beneficial to the region — up from 31% in 2023.[30]
The Quad’s ‘flexible’ and ‘nimble’ character can be expressed in what Hoang and Choong term as “Quad-lite” configurations among members of the Quad, as well as between Quad members and Southeast Asian countries. While such Quad-lite collaborations do not carry the Quad “brand” (and thus do not heighten Chinese perceptions of threat), they provide building blocks for bolstering strategic coherence and interoperability among members.[31] This thickening web includes defence and security cooperation, but also other functional domains such as economics, supply chains, and technologies.[32]
In August 2023, navies from Australia, Japan, the Philippines, and the US conducted a multilateral exercise in the South China Sea. This included the helicopter destroyer JS Izumo and destroyer JS Samidare, the US Navy Littoral Combat Ship USS Mobile and the Royal Australian Navy amphibious assault ship Canberra and frigate HMAS Anzac.[33] In April 2024, the four countries carried out joint air and naval drills, again in the South China Sea.[34] A joint statement issued by the Defence Chiefs of the four countries highlighted their “collective commitment to strengthen regional and international cooperation in support of a free and open Indo-Pacific”, and to stand with all countries “in safeguarding international order based on the rule of law”.[35]
In August 2023, the Talisman Sabre exercises involved not just Australian and American soldiers, but also soldiers, marines and aviators from Japan, South Korea and the UK. Military personnel from the Philippines, Singapore and Thailand attended as observers.[36] In September 2023, Singapore and Japan were part of a large-scale Super Garuda Shield exercise carried out by Indonesia and the US. Brunei, Malaysia and the Philippines participated as observers.[37]
Such Quad-lite interactions are not restricted to the defence/security domain. Australia, Japan and the US have offered their support for clean energy and decarbonisation projects in Vietnam. The US-Japan Mekong Power Partnership, which seeks to facilitate clean energy deployment and electrical connectivity, involves Cambodia, Laos, Thailand and Vietnam.[38] The US-led Indo-Pacific Economic Framework comprises all four Quad countries and seven Southeast Asian countries.
These working Quad-lite arrangements do not constitute an overly anti-China defence network, but this network can serve as a potential deterrent to assertive Chinese behaviour. It also means Southeast Asian countries can pursue flexible and timely arrangements with the US and its allies in the pursuit of their national interests and regional stability. The fact that Japan takes a more nuanced approach to China helps it gain traction in the region. As opposed to the US, which at times has used megaphone diplomacy to castigate China, Japan tends to take a more low-key approach, engaging with China in the realm of economics and working with Beijing even in more sensitive political and security matters. In 2018, for example, Mr Abe forged 52 memorandums of understanding with China to facilitate bilateral cooperation in third-country markets. In May 2024, there was a trilateral summit involving China, South Korea Japan. The summit discussed economic issues, as well as regional and global issues such as the Korean peninsula, the war in Ukraine and war between Israel and Hamas in the Gaza Strip.
Given Japan’s thickening linkages with the US and within the Quad, its deep relationships with Southeast Asian countries and their high level of trust in Tokyo, Japan is best placed to act as a bridge between the Quad and ASEAN countries in defence of the regional order. Going forward, Japan can encourage Southeast Asian countries to participate in military exercises involving some, if not all, Quad member countries. This could involve repeated and scheduled participation of Southeast Asian countries in the aforementioned exercises, namely, Garuda Shield, Talisman Sabre and even future iterations of the August 2023 military exercises involving Australia, Japan, the Philippines and the US in the South China Sea. In addition, Japan can consider involving more Southeast Asian countries in its Indo-Pacific Endeavour series of annual naval deployments involving its light carriers and escorting destroyers. These deployments typically involve other Quad countries. The 2022 and 2023 editions saw two ASEAN countries taking part,[39] while 2019 had seen Japanese interactions with five ASEAN countries, namely Brunei, Malaysia, the Philippines, Singapore, and Vietnam.[40]
Japan’s involvement in such Quad-lite arrangements would act as an incentive for Southeast Asian countries to do likewise. This would be beneficial to the regional order on two counts. First, the sustained participation of ASEAN countries in Quad-lite exercises will help to form patterns of cooperative norms and habits between Quad nations and Southeast Asian countries, and thus increase interoperability and coordination for future contingencies. Second, the participation of ASEAN countries in such a Quad-lite network could potentially deter Chinese behaviour that may upset the regional status quo. China has taken notice of such thickening linkages between Quad countries and ASEAN states, stressing that it opposed the “practice of bloc parties” by relevant countries.[xli] Put differently, China is keenly aware of such arrangements, and they could have some deterrent value vis-à-vis assertive Chinese behaviour.
CONCLUSION
Japan is in an advantageous position to link up the Quad and various Southeast Asian countries. By leveraging on its long-standing trust capital in Southeast Asia and its linkages to minilaterals such as the Quad, Japan can help to build a sustainable regional order based on shared principles that deter potential aggressors. In other words, the “courteous power” can bare some teeth in the pursuit of regional stability. To paraphrase Ciorciari and Tsutsui, the “courteous power” can facilitate through its growing strategic weight rather than a strong fist to nudge Southeast Asian countries towards the path Japan wants them to take – for the sake of regional security.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- The European Union (EU) consistently occupies the top spot in Southeast Asia as the preferred and trusted “third party” in hedging against the uncertainties of US-China rivalry and in commitment to “doing the right thing” in the wider interests of the global community.
- The EU’s strong economic and normative presence in the region is recognised. It is ASEAN’s third largest trading partner and source of FDI. Brussels is also recognised for its strong values regarding multilateralism and its commitment to a rules-based order, forming the cornerstone of the ASEAN-EU strategic partnership.
- However, trust in the EU amongst Southeast Asians is at its lowest level since it launched its Indo-Pacific Strategy in 2021. This is due, in part, to the preoccupation of its member states with domestic and European issues such as Ukraine, as well as unresolved disputes and trade concerns with Southeast Asian countries over palm oil and the EU’s carbon policies. Concerns about human rights violations, democratic backsliding and governance deficit happening in several ASEAN countries continue to underscore the inherent tensions between the EU’s normative aspiration and its pragmatic engagements in the region.
- The EU has room for improvement if it wishes to make good on its Indo-Pacific strategy. It needs to recognise the practical limitations that Southeast Asian countries have in complying with its regulations. It can facilitate economic development across the region through capacity-building programmes aimed at harmonising regulatory standards. It should also focus on its strengths in areas of non-traditional security rather than traditional military domains. Most importantly, the EU should recalibrate its balancing of principles and pragmatism to not only advance mutual interests but also cement its relevance in Southeast Asia.
* Eugene R.L. Tan is a Research Officer with the Regional Strategic and Political Studies Programme at ISEAS – Yusof Ishak Institute; and Joanne Lin is Co-coordinator and Associate Senior Fellow at the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2024/41, 5 June 2024
INTRODUCTION
The European Union’s (EU) role in Southeast Asia continues to be acknowledged, particularly amid the escalating competition between the US and China. As a longstanding dialogue partner of ASEAN since 1977, the EU has emerged as a major development partner for ASEAN and stands as the region’s third largest trading partner and foreign direct investment (FDI) source.[1] As its relations with ASEAN have been elevated to a strategic level since 2020, the EU has extended its influence beyond economic and normative domains.
There is plenty of evidence underscoring the EU’s consistent image as a reliable and pivotal actor in Southeast Asia. In the State of Southeast Asia surveys,[2] the EU has, since 2021, occupied the top spot as the region’s preferred and trusted “third party” in hedging against the uncertainties of the US-China strategic rivalry (see Figure 1). The EU also remains a trusted global actor committed to “doing the right thing” in the wider interests of the global community, according to the same survey. Notably, in the 2024 survey,[3] the EU emerged as the fourth most strategically relevant dialogue partner, among eleven countries, positioning it closely behind China, the US, and Japan (see Table 1).
Figure 1: Annual ranking of preferred and trusted third-party for ASEAN
Source: State of Southeast Asia Surveys[4]
Table 1: Dialogue Partners ranked in order of strategic relevance in 2024
| Rank | Dialogue Partner | Mean Score |
| 1 | China | 8.98 |
| 2 | US | 8.79 |
| 3 | Japan | 7.48 |
| 4 | EU | 6.38 |
| 5 | ROK | 5.71 |
| 6 | UK | 5.52 |
| 7 | Australia | 5.51 |
| 8 | Russia | 5.08 |
| 9 | India | 5.04 |
| 10 | Canada | 3.81 |
| 11 | NZ | 3.70 |
Source: 2024 State of Southeast Asia Survey
The EU seems poised to strengthen its role as a middle power in an increasingly strategic region of geopolitical contestation. In 2021, the European Council launched its Strategy for Cooperation in the Indo-Pacific in an attempt to strengthen its access to regional markets, strengthen its supply chain and uphold the tenets of a rules-based international order as an alternative to China’s Belt and Road Initiative (BRI).[5] Despite the EU’s ambition in the Indo-Pacific, it faces certain constraints. The ongoing war on its Eastern flank and serious concern about its ability to fund its own defence amid wavering US support cast doubt on the EU’s commitment to Southeast Asia. Furthermore, echoes of disunity have been getting louder, not only from smaller member states like Hungary,[6] but also between larger member states like France and Germany; notably, the lack of a “common front” in their bilateral relationships with China[7] is indicative of wider divergences between the pair of countries leading the EU’s Indo-Pacific approach. Considering these challenges, German Chancellor Olaf Scholz characterised Europe’s trajectory in the last two years as a “Zeitenwende” (i.e. historic turning point), prompting an inward focus on addressing domestic capacity and challenges.
The perception of a disunited and conflict-ridden Europe can have ripple effects in Southeast Asia. Concurrently, persistent concerns about human rights violations, democratic backsliding and governance deficit in certain ASEAN countries continue to underscore the inherent tensions between the EU’s normative aspiration and its pragmatic engagements in the region. This article examines the EU’s role as a resilient and reliable middle power in shaping Southeast Asia’s future, while exploring avenues for the EU to play a more influential role in the region.
EU’S ECONOMIC AND NORMATIVE POWER IN SOUTHEAST ASIA
Despite the absence of a Free Trade Agreement (FTA) with ASEAN, the EU maintains a robust economic presence in the region. As ASEAN’s third largest trading partner (trailing only behind China and the US), ASEAN-EU trade reached US$ 295.2 billion in 2022, marking a significant 9.6% year-on-year growth.[8] Additionally, the EU maintains its economic foothold as the third-largest source of FDI into ASEAN, with a substantive inflow of US$24 billion in 2022.[9] According to data from ASEAN Investment Reports[10] from the same period, EU member states such as France, Germany and the Netherlands were among ASEAN’s top sources of FDI.
Moreover, EU institutions, alongside their member states were the second largest provider of official development assistance (ODA) to the region between 2015 and 2021 (see Figure 2), signifying the EU’s multifaceted economic commitment to the region. The EU has also been viewed as the fourth most influential economic power in the region in the State of Southeast Asia from 2019 – 2024, ahead of middle powers such as Australia, India, South Korea, and the United Kingdom (UK).
Figure 2: Proportion of ODA Commitments by Countries and International Organizations (2015 – 2021)
Source: Lowy Institute Southeast Asia Aid Map[11]
Beyond its economic clout, Brussels is also recognised as a strong normative actor in the region. As part of its Strategy for Cooperation in the Indo-Pacific,[12] the EU has sought to cooperate with like-minded countries to set standards and promote good regulatory practices.[13] It indicated its ambition to promote an open and rules-based regional security architecture and safeguard freedom of navigation in the region through capacity-building initiatives. As such, shared values, including multilateralism and commitment to a rules-based order, remain the cornerstone of the ASEAN-EU strategic partnership.[14] This has translated into greater confidence in Brussels’ capacity to champion global free trade and maintain a rules-based order, with the EU ranking above other middle powers in the region across both measures (see Figures 3 and 4).
Figures 3 and 4: Annual ranking of external partners based on the degree of confidence that they will champion global trade or provide leadership to maintain a rules-based order
Source: State of Southeast Asia Surveys[15]
“PROTECTIONIST” BRUSSELS AND DIVERGING VALUES
While the EU’s influence and standing appear relatively strong, its engagement with the region is not without challenges. Persistent economic issues, such as unresolved disputes over palm oil and regional anxiety regarding the EU’s carbon policies, present ongoing obstacles. Furthermore, regional, and global geopolitical challenges such as the Myanmar crisis and the Israel-Hamas war complicate the EU’s engagements with some ASEAN member states, particularly Muslim-majority countries. As such, trust levels in the EU amongst Southeast Asians are at their lowest since it launched its Indo-Pacific Strategy in 2021 (see Figure 5).
Figure 5: Confidence in the EU to “do the right thing” to contribute to global peace, security, prosperity, and governance among Southeast Asian Respondents
Source: State of Southeast Asia Surveys[16]
A growing source of distrust are the EU’s ongoing trade disputes with Indonesia and Malaysia over protectionist practices. The EU formally challenged Indonesia’s “unlawful export restrictions” on nickel and iron ores at the WTO.[17] The WTO has ruled in favour of the EU since October 2022, and the ban remains in effect while Indonesia appeals the decision.[18] Concurrently, the EU’s implementation of the Renewable Energy Directive (RED II)[19] to phase out the import of palm oil by 2030 has sparked contention. As the largest producers of palm oil globally, both Indonesia and Malaysia have lodged cases with the WTO,[20] arguing that the EU had similarly infringed on the rules of international trade. Similar concerns have been voiced by rubber producers across the region in response to the EU’s regulation on deforestation-free products, which entered into force in June 2023.[21] Producers from Indonesia,[22] Malaysia, Thailand and Cambodia have expressed concern that Brussels’ “unilateral and unrealistic”[23] action would disproportionately disadvantage smaller farmers over large corporations.
As such, the perceived disjuncture between Brussels’ opposition to Indonesian critical mineral protectionism and its own exercise of “protectionist”[24] and “discriminatory”[25] practices, such as favouring European biofuels like rapeseed oil,[26] invites accusations of hypocrisy and double standards. Moreover, the EU’s Carbon Border Adjustment Mechanism (CBAM) has been criticised as a protectionist tool benefiting EU companies at the expense of Southeast Asian competitors.[27] These measures have incurred reputational costs for the EU in the region,[28] as reflected in the decline in confidence in the EU to champion the global free trade agenda, between 2020 and 2024 among Indonesian and Malaysian respondents (see Figure 6).
Figure 6: Confidence among Malaysian and Indonesian Respondents in the EU to “do the right thing” to contribute to global peace, security, prosperity, and governance
Source: State of Southeast Asia Surveys[29]
These trade disputes with Indonesia and Malaysia have impeded progress in an already tricky free trade agreement (FTA) negotiation process for the EU. For instance, despite engaging in 16 rounds of talks since 2016, the EU and Indonesia have made little headway, with no resolution in sight.[30] Similarly, the EU and Malaysia have suspended talks on their bilateral FTA since 2012.[31] At the regional level, the EU has only managed to put into force bilateral FTAs with two ASEAN member states – Singapore and Vietnam, with two others, namely Thailand and the Philippines, remaining under negotiation (see Annex A). This limited progress has hindered efforts to establish a wider region-to-region FTA between the EU and ASEAN, dampening regional confidence in the EU’s ability to champion the global free trade agenda over time.
On another front, the EU’s emphasis on values such as “fair trade”,[32] particularly in linking trade to democracy and other non-economic outcomes, has proven to be counterproductive and fraught with sensitivities.[33] The inherent misalignment regarding democracy is a persistent point of contention due to the diverse governance system in Southeast Asia,[34] leading ASEAN countries to consistently resist European democracy and human rights policies.[35] While it should be noted that Brussels has tamped down its proselytizing on “values”, it still holds numerous criticisms and resolutions against all ASEAN countries, including Singapore (see Annex A). Cognisant of this, the EU has struggled to prevent bilateral issues from complicating inter-regional cooperation.[36]
The increasing divergence between the worldviews of ASEAN and the EU is further exemplified by their differing responses to the war in Ukraine and the Israel-Hamas conflict. On the former, the EU has taken a firm stance against Russia’s aggression while ASEAN’s reaction has been largely ambivalent, with only Singapore imposing financial sanctions on Russia in response to its invasion of Ukraine.[37] Interestingly, the State of Southeast Asia 2024 Survey[38] highlights that economic concerns, such as the increase in energy and food prices, are prioritised by the majority in the region (68.4%). This emphasis underscores the region’s focus on immediate economic challenges over broader values such as the erosion of trust in a rules-based order and the violation of national sovereignty (14.5%).
On the Israel-Hamas conflict, there is a convergence of opinion between the EU and ASEAN on humanitarian grounds, with both parties agreeing that Israel should not be allowed to cut off humanitarian aid from the Gaza strip. Beyond this singular intersection however, opinions between the two regions diverge significantly. For the EU, the predominant position is to condemn the attacks on Israeli civilians on 7 October as “unjustifiable and inexcusable”.[39] By contrast, ASEAN member states have had a plethora of different responses to the conflict,[40] which is reflected in the ASEAN Foreign Ministers Statement.[41] While the position of some ASEAN member states, like the Philippines, may align more closely with that of the EU, others such as Malaysia and Indonesia have instead shown solidarity with the Palestinians.[42]
A UNION DIVIDED AND WEAK
Apart from trade tensions and diverging values, Southeast Asian respondents have been consistently concerned regarding the EU’s potential to be distracted by internal affairs and its perceived lack of capacity or political will to engage globally. These concerns were the two most cited reasons in the State of Southeast Survey between 2020 and 2024 for respondents to distrust Brussels (see Table 2).
Table 2: Proportion of Southeast Asian responses to the question “Why do you distrust the EU?”
| Response to “Why do you distrust the EU?” (%) | 2020 | 2021 | 2022 | 2023 | 2024 |
| The EU does not have the capacity or political will for global leadership | 33.70 | 25.90 | 26.70 | 33.40 | 28.20 |
| My country’s political culture and worldview are incompatible with The EU’s | 16.60 | 9.50 | 12.40 | 9.20 | 16.50 |
| I am concerned that The EU is distracted with its internal affairs and thus cannot focus on global concerns and issues | 35.40 | 38.70 | 30.10 | 29.40 | 28.70 |
| The EU’s stance on environment, human rights, and climate change could be used to threaten my country’s interests and sovereignty | 3.50 | 15.10 | 17.70 | 14.50 | 11.10 |
| I do not consider The EU a reliable power | 10.80 | 10.80 | 13.10 | 13.50 | 15.50 |
Source: State of Southeast Asia Surveys[43]
Indeed, realistic concerns persist regarding the EU’s ability to foster solidarity amongst its member states. Contentious disagreements within the EU over funding support to Kyiv underscores this challenge[44] Furthermore, domestic issues such as mounting dissatisfaction over the rising cost of living, agricultural protests sparked by EU’s regulations,[45] the European debt crisis and bailout negotiations[46] as well as the complexities of the EU’s policy towards Israel and Palestine[47] are just some examples of internal tensions.
Externally, the ongoing conflict in Ukraine and the escalating violence in the Middle East are expected to strain the EU’s policymaking capabilities and divert resources from its Indo-Pacific ambitions.[48] Furthermore, the EU’s overreliance on the North Atlantic Treaty Organization (NATO) for its defence raises questions about its commitment to security cooperation with Southeast Asia. With the possibility of a second Donald Trump US presidency on the cards following the upcoming US Presidential elections, EU members may face increased pressure to bolster their defence spending,[49] further complicating the EU’s strategic posture.
Indeed, despite its lofty ambitions to play a security role in the Indo-Pacific, the EU’s security endeavours have unfolded in a piecemeal manner that is primarily led by larger member states, with Germany and France accounting for 79% of all arms transfers from EU countries to the region between 2019 and 2023 (see Figure 7).
Figure 7: Breakdown of Arms Transfers to Southeast Asia by EU member states respectively (2019-2023
Source: Stockholm International Peace Research Institute (SIPRI) Arms Transfer Database[50]
Similarly, despite its pledges to increase its naval presence in the Indo-Pacific, France remains the main driver of the EU’s naval efforts (see Figure 8). In 2023 alone, France led the EU by participating in 8 military exercises with Southeast Asian countries. However, it continues to trail middle powers in the region which have a more established naval presence, such as Australia and the United Kingdom (UK).
Figure 8: Number of Regional Military Exercises observed or participated in among external powers in 2023
Source: Data compiled by authors
STRENGTHENING EU’S RELEVANCE IN THE REGION
While the EU may face challenges in realising its security ambitions, it still holds some sway in the region and may yet find its sweet spot. Its steadfast role as a normative and economic partner has fostered trust among Southeast Asian states.
The EU has room for improvement if it wishes to make good on its Indo-Pacific strategy. Squaring away its trade disputes with countries in Southeast Asia is a tricky fruit for the EU to pick. However, the EU can recalibrate its balancing of principles and pragmatism by recognising the practical limitations that Southeast Asian countries have in complying with its regulations. Instead of expecting ASEAN to achieve EU trade standards outright, the EU can facilitate economic developments across the region through capacity-building programmes aimed at harmonising regulatory standards within ASEAN.
Rather than focusing on hard security, a domain better suited to its most capable member states,[51] the EU can focus its strengths on areas of non-traditional security. These include cybersecurity, food security, combatting Illegal, Unreported and Unregulated (IUU) fishing, climate change mitigation, sustainable development, and the regulation of emerging technologies such as AI governance and data protection.
In sum, the EU has been a steadfast partner for Southeast Asian countries and has fared well as a normative and economic power in the region. By working on its trade relations, prioritising pragmatism and focusing on areas of strength, the EU can remain a relevant and reliable middle power in Southeast Asia.
Annex A
Summary of Relations between ASEAN Member States – EU
| AMS | Key Agreements Signed with EU | Key Agreements in Progress | Bilateral Issues with the EU |
| ASEAN | EU-ASEAN Strrategic Partnership EU-ASEAN Plan of Action 2018-2022 EU-ASEAN Cooperation Agreement EU-ASEAN Comprehensive Air Transport Agreement | EU-ASEAN FTA | |
| Brunei | EU-Brunei Partnership and Cooperation Agreement (PCA) | HUMAN RIGHTS: EU Parliament condemned the entry into force of the Sharia Penal code due to human rights concerns | |
| Cambodia | EU-Cambodia 1977 Cooperation Agreement | HUMAN RIGHTS: EU Commission withdrew part of tariff preferences under Everything but Arms (EBA) scheme due to human rights issues. HUMAN RIGHTS: EU Parliament adopts resolution regarding political persecution and human rights violations | |
| Indonesia | EU-Indonesia Comprehensive Economic Partnership Agreement | BIOFUELS: Dispute over palm oil HUMAN RIGHTS & DEMOCRACY: EU Parliament “expressed concern” over proposed Indonesian criminal code | |
| Laos | EU-Laos 1997 Cooperation Agreement Everything But Arms (EBA) Trade Initiative [Not agreement] | HUMAN RIGHTS: EU notes human rights concerns on displaced people from dam construction, sexual exploitation of children HUMAN RIGHTS: EU “raised concern” about lack of progress on human rights issues | |
| Malaysia | EU-Malaysia Partnership and Cooperation Agreement (PCA) | EU-Malaysia FTA | BIOFUELS: EU Commission launched the Renewable Energy Directive which led to disputes about biofuels such as palm oil HUMAN RIGHTS & DEMOCRACY: EU Parliament has condemned the use of the death penalty, the lack of LGBTQ Rights and no freedom of speech |
| Myanmar | Everything But Arms (EBA) Trade Initiative [Not agreement] | DEMOCRACY: Sanctions and condemnations due to military coup HUMAN RIGHTS: Condemnations due to Rohingya Crisis | |
| Philippines | EU-Philippines Partnership and Cooperation Agreement (PCA) Agreement on finding a “peaceful and inclusive solution” to SCS GSP+ trade preferences scheme | EU-Philippines FTA | HUMAN RIGHTS: The Philippines “reminded” to comply with Human Rights standards as part of its commitment to the GSP+ Agreement HUMAN RIGHTS: Threatened to withdraw temporarily GSP+ Preferences (but no action yet) HUMAN RIGHTS: Strongly condemned extrajudicial killings and human rights violations in Duterte’s war on drugs |
| Singapore | EU-Singapore Partnership and Cooperation Agreement (EUSPCA) EU-Singapore Free Trade Agreement (EUSFTA) EU-Singapore Investment Protection Agreement (EUSIPA) EU-Singapore Digital Partnership (EUSDP) | HUMAN RIGHTS: EU Parliament calls for the abolition of the death penalty | |
| Thailand | EU-Thailand 1980 Framework Agreement EU-Thailand Partnership and Cooperation Agreement | EU-Thailand FTA | HUMAN RIGHTS: EU Parliament adopted “several resolutions” condemning Human Rights and migrant/labour rights violations |
| Vietnam | EU-Vietnam Partnership and Cooperation Agreement (PCA) EU-Vietnam Free Trade Agreement EU-Vietnam Investment Protection Agreement EU-Vietnam Framework Participation Agreement EU-Vietnam Sustainable Energy Transition Programme (SETP) | HUMAN RIGHTS & DEMOCRACY: EU Parliament adopted a resolution on Vietnam for unlawful arrest of human rights activists and journalists |
Source: European Parliament Fact Sheets on the European Union: Southeast Asia[52]
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735. Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- At the centre of the US-China trade war are the semiconductor chip and green industries.
- ASEAN is clearly benefiting from the resultant reconfiguration of the global supply chains in these two industries in terms of trade, value addition and foreign direct investment, at least in the short run. However, these benefits can be more than offset by the greater disruption to the global supply chains should US-China tensions continue to escalate.
- Its high trade reliance on China while having the US as its largest investor (by far) and key source of technology transfers puts ASEAN in an increasingly precarious situation should the US-China supply chain decoupling intensifies.
- Forcing ASEAN to choose sides – whether to be in the US or China supply chain system – will be impossible and disruptive, and ASEAN should continue to take the pragmatic approach and reject choosing sides.
* Aufa Doarest is Private Sector Specialist at the World Bank Group’s Finance, Competitiveness and Innovation and Maria Monica Wihardja is Economist and Visiting Fellow at ISEAS – Yusof Ishak Institute and Adjunct Assistant Professor at the National University of Singapore.
ISEAS Perspective 2024/35, 17 May 2024
INTRODUCTION
Interdependence within the global supply chain has been exacerbated by the growing dependence for intermediate inputs on only a few firms and a few countries (Pangestu, 2023). The semiconductor industry and the green technology industry are two examples of highly concentrated supply chains where firms from East Asia (e.g., China, Taiwan and South Korea) are now the dominant suppliers (Miller, 2022; Nguyen-Quoc, 2023).
The heightened dependence of the US on China has raised geopolitical rivalry between the two countries and driven the reconfiguration of supply chains. Countries and companies now seek to ‘decouple’, ‘diversify’ and ‘de-risk’ their supply chain configuration away from their adversaries. Consequently, supply chains in Asia are undergoing major changes.
At the country level, a number of strategies are being adopted, including re-routing trade flows through intermediary countries; home-shoring investment through investment subsidies and tax credits; and increasing self-reliance through import substitution and research and development (R&D). At the corporate level, multinational companies (MNCs) in Asia and worldwide are adapting by adopting the ‘China Plus One’ or ‘China Plus Two or Three’ model to broaden their supply base outside China while maintaining a presence in China (Nguyen-Quoc, 2023).
This essay reviews and analyses how ASEAN economies have been impacted by the changing dynamics in the global supply chain. We focus on two industries, namely the semiconductor industry and the electric vehicle (EV) industry,[1] and look at the impacts from three angles: trade, investment and R&D.
THE US INDUSTRIAL POLICY IN CHIP AND GREEN TECHNOLOGY
Since 2018, during the Trump administration, the US has been restricting the exports of “emerging and foundational technologies” to entities abroad whenever those technologies are “essential to the national security of the US” (Bradford, 2023). This started with the Export Control Reform Act of 2018 enforced through the maintenance of a Commerce Control List and a licensing system as well as a narrower export control instrument known as the Entity List. Although the idea was to restrict exports exclusively for advanced technologies that could endanger national strategic interest – dubbed as the ‘small yard, high fence’ strategy – these export restrictions were later expanded in terms of both technologies and entities. For example, in 2020, the 2018 export restrictions to ban Huawei’s access to semiconductors were extended to cover all foreign technology companies (instead of only US firms) that use US chipmaking equipment and software tools.
In August 2022, the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act allocated USD280 billion to catalyse investments in domestic semiconductor R&D and manufacturing capacity. In October 2022, a set of export restrictions were issued to cut off China’s access to advanced AI chips and choke point technologies[2] (Ing and Markus, 2023). Later, these export restrictions were expanded into restrictions on direct investment (Shalal and Freifeld, 2023) and financial investment (private equity and venture capitals) (Siqi, 2024), as well as restrictions on individuals who hold US passports from working for Chinese chip companies (Lin and Hao, 2022).
In a spirit similar to the CHIPS and Science Act, in August 2022, the US also signed into law the Inflation Reduction Act (IRA) to catalyse investment in R&D and domestic manufacturing capacity in leading-edge green technologies, including carbon capture and storage as well as EV (Badlam et al, 2022b).[3] The law will direct USD400 billion into a mix of tax incentives, grants, and loan guarantees.
The concentration of green technology production and the critical minerals associated with it in China—and in a few Chinese firms—has sounded an alarm bell for the US. For example, China dominates 75 percent of Solar Photovoltaic technology and battery manufacturing compared to the small share the US has of only 5 percent in the production of both technologies (Li and Zhao, 2023). Similarly, China commands 55 percent of wind technology manufacturing.
The IRA is the US’ biggest and most significant national policy to combat climate change. However, it is unclear whether the IRA will leave any room for collaboration in low-carbon technologies where China is a major player, or lead to race-to-the-bottom protectionist industrial policies and strategic competition similar to that now found in the chip industry (Li and Zhao, 2023). Given the high concentration of green technology in China, diversification of trade sources is commendable. However, focusing on where the green technologies are built could risk slowing down the low-carbon transition in the US and globally.
THE CHALLENGES OF SUPPLY CHAIN RECONFIGURATION
At the centre of the US-China trade war and supply chain reconfiguration are chip and green technologies. Chip production-related activities, including assembling, packaging and testing, account for a significant share of the GDP and/or exports of ASEAN countries such as Malaysia, Singapore, Thailand and the Philippines (EDB, 2022a; EDB, 2022b).[4]
Supply chain reconfiguration in this context refers to aspects of production being shifted to countries or firms which are not necessarily the most competitive and efficient, due to geopolitical and national security factors. The new countries and firms may even have siloed technologies and production processes that are disconnected from others in the supply chain.
The impacts of supply chain reconfiguration on ASEAN economies can be strongly noted in three areas, namely (1) trade diversion through several intermediary countries to avoid goods flowing directly from China to the US, (2) relocation of FDI, (3) Research and Development (R&D) activities. The following sections discuss these separately.
TRADE [5]
China’s dominance as the world’s manufacturing superpower (Baldwin, 2024) is partly reflected in a significant increase in China’s export of EV (including Completely Built-Up and Completely Knocked Down cars but not parts such as batteries) and chips between 2017 and 2022. Within that period, China’s export of chips almost doubled, from USD 72 billion to USD129 billion, while China’s export of EV increased by almost 13 times, from USD2 billion to USD25 billion (Figure 1 and Figure 2).
Figure 1: China’s export and import of chips (in million USD)
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations
Figure 2: China’s export and import of EVs (in million USD)
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations
The US-China tech war, especially the escalating restrictions on China’s access to US technologies that started in 2018, are reflected in the trade in chips between the two countries in 2022. After an increasing trend since 2017, China’s import value of chip from the US declined from USD15.1 billion in 2021 accounting for 10.2 percent share of China’s total import of chips, to USD11.6 billion in 2022 accounting for 8.0 percent share (Table 1). Mirroring China’s import value decline is US’ export value decline of chips to China.
Table 1: US’ export of chips to China and China’s import of chips from the US
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations.
Note: There are multiple reasons for discrepancies in exports and imports data so that they don’t always mirror each other. See: https://wits.worldbank.org/wits/wits/witshelp/content/data_retrieval/T/Intro/B2.Imports_Exports_and_Mirror.htm
The US decision to diversify its trading partners and move away from China affects international trade in chips. First, China’s chips export destination pattern has slightly shifted. The share of China’s chips export to the US dropped from 19 percent in 2018 to 11 percent in 2022. At the same time, the share of China’s chips export to ASEAN countries increased slightly from 18 percent in 2018 to 20 percent in 2022 (Table 2). While the changes in the destination pattern may be due to lack of domestic demand in the US, the positive trend of US import of chips, increasing from USD79.7 billion in 2018 to USD87.2 billion in 2022, reveals that US domestic demand has actually gotten stronger. It is predicted that the demand for chips will continue to increase as AI, robots and EV become the new normal in people’s everyday lives.
Table 2: Chips export shares of China, ASEAN and Mexico (%)
| China’s Chips Export Share (%) | ASEAN’s Chips Export Share (%) | Mexico’s Chips Export Share (%) | |||
| China to ASEAN | China to Mexico | China to USA | ASEAN to USA | Mexico to USA | |
| 2017 | 17.4 | 1.3 | 17.9 | 12.0 | 69 |
| 2018 | 18.4 | 1.4 | 19.2 | 9.0 | 65 |
| 2019 | 19.5 | 1.3 | 16.6 | 9.8 | 58 |
| 2020 | 21.5 | 1.3 | 12.7 | 11.9 | 60 |
| 2021 | 20.2 | 1.4 | 10.4 | 11.5 | 65 |
| 2022 | 20.1 | 1.6 | 11.1 | 14.0 | 67 |
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations
Second, this export diversion is reflected in the import pattern of chips. The US import share of chips has shown an increasing reliance on ASEAN and a decreasing reliance on China (Figure 3). Both ASEAN and China accounted for 34 percent of US chips import in 2017; but while ASEAN’s share increased to 48 percent in 2022, China’s share was halved to 17 percent. Meanwhile the share of Mexico in US chips imports has barely changed while the share held by other countries has increased by 4 percentage points in the same period. This shows that ASEAN is clearly benefiting from US’ import diversion away from China.
Figure 3: US import of chips
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations
Unlike the chips trade, the trend of EV trade between the US and China continued to be robust in terms of value until 2022 but declined in terms of reliance (or share) (Table 3). The US used to account for 28.1 percent of China’s export in EVs but this fell to only 7.9 percent in 2022. At the same time, China had accounted for 52.5 percent of US’ import in EV but this declined to 12.8 percent in 2022.; ASEAN’s export of EVs has been increasingly going to the US (Table 4) while ASEAN’s import of EVs has been increasingly coming from China (Figure 4). The two-wheeler EV has been driving the increase in ASEAN’s export of EVs to the US. The main exporter before the COVID-19 pandemic was Vietnam.
Table 3: US’ import from China and China’s export to the US of EVs
| China’s export of EVs to the US | US’ import from China of EVs | |||
| Value (in USD billion) | Share (%) | Value (in USD billion) | Share (%) | |
| 2017 | 0.3 | 16.6 | 0.1 | 23.9 |
| 2018 | 0.7 | 28.1 | 0.4 | 52.5 |
| 2019 | 0.7 | 21.4 | 0.4 | 20.7 |
| 2020 | 1.0 | 20.4 | 0.9 | 33.4 |
| 2021 | 1.8 | 12.6 | 1.0 | 15.3 |
| 2022 | 2.0 | 7.9 | 1.6 | 12.8 |
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations.
Note: There are multiple reasons for discrepancies in exports and imports data so that they don’t always mirror each other. See: https://wits.worldbank.org/wits/wits/witshelp/content/data_retrieval/T/Intro/B2.Imports_Exports_and_Mirror.htm
Table 4: EV export value (in USD million) and share (%)
| China to ASEAN | China to Mexico | China to USA | ASEAN to USA | Mexico to USA | ||||||
| Value | Share | Value | Share | Value | Share | Value | Share | Value | Share | |
| 2017 | 136.7 | 7.0 | 7.8 | 0.4 | 326.0 | 16.6 | 0.1 | 1.1 | 182.4 | 98.3 |
| 2018 | 119.9 | 4.5 | 12.1 | 0.5 | 746.3 | 28.1 | 4.7 | 9.1 | 43.3 | 64.5 |
| 2019 | 202.3 | 6.3 | 21.7 | 0.7 | 685.5 | 21.4 | 31.6 | 24.5 | 20.8 | 65.2 |
| 2020 | 200.0 | 3.9 | 13.8 | 0.3 | 1,033.9 | 20.4 | 43.8 | 28.1 | 24.9 | 36.7 |
| 2021 | 409.5 | 3.0 | 32.0 | 0.2 | 1,750.5 | 12.6 | 74.6 | 33.2 | 1,734.2 | 43.7 |
| 2022 | 1,073.6 | 4.2 | 80.1 | 0.3 | 2,017.4 | 7.9 | 243.9 | 51.2 | 2,341.5 | 54.8 |
| Note: Value in USD million. Share in %. | ||||||||||
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations
Figure 4: Source countries for ASEAN’s import of EVs (%)
Source: World Integrated Trade Solution (WITS, accessed February 2024), authors’ calculations
In short, while the US-China trade in chips shows signs of ‘decoupling’ (reduced trade values), the US-China trade in EVs shows signs of ‘diversifying’ (reduced trade shares) but not ‘decoupling’.
VALUE ADDITION
Looking at trade in total value or volume may not give the complete picture of trade diversion. China might divert its trade to the US through intermediary countries to avoid sanctions or higher tariffs placed on goods coming directly out of China and exports coming out these intermediary countries to the US may actually be high in Chinese content.
It is therefore important to also look at trade in value-added (TiVA) data of goods and services, which measure the value added by each country in the production of goods and services that are consumed worldwide (gross production minus the purchased intermediates). We use the OECD TiVA data used in Baldwin (2024) to analyse the changes in ASEAN participation in the global value added:
- ‘Foreign Production Exposure: iMport side (FPEM)’: Share of imported input from a source country out of all industrial inputs (including domestically source inputs) used by a country on a scale of 0 to 100. Industrial inputs extend beyond the manufacturing sector and includes the agriculture and service sectors as well. The higher the index, the more reliant (and exposed) a country is to the source country on the production side.
- ‘Foreign Production Exposure: eXport side (FPEX)’: Share of a country’s manufactured production from the manufacturing sector that is exported to a particular partner on a scale of 0 to 100. The higher the index, the more reliant (and exposed) a country is to the destination country on the sales side.
Data for ASEAN are taken as the average of all ASEAN countries. Instead of looking at reliance of trade in value-added in the chips and EV industries, we look at reliance of trade in value-added in the whole economy. With a lag in the OECD TiVA data (the latest TiVA data is for 2020),[6] we may not be able to see the impacts of the more current policies such as the CHIPS and Science Act and the Inflation Reduction Act. However, we can observe a longer-term trend of trade in value-added, including China’s increasing dominance and ASEAN’s increasing participation in global value added.
The US reliance on China’s industrial inputs skyrocketed since the mid-1990s to decline since 2015, albeit with a slight up-tick in 2022 (Figure 5a). Despite this decline, in 2020, US’ reliance on China’s industrial inputs was still three times higher than China’s reliance on US industrial inputs. On the sales side, China’s reliance on the US was more than 17 times higher than US reliance on China in 1995, but the ratio declined since the early 2000s to two times in 2020 (Figure 5b).
Figure 5a and 5b: US-China reliance on the production side, and US-China reliance on the sales side
Source: OECD TiVA (updated 2023, accessed February 2024), authors’ calculations
How has the participation of ASEAN economies in global value added changed?
China replaced the US as the dominant industrial input source for ASEAN countries in 2003 (Figure 6a). In 1995, ASEAN’s reliance on US industrial inputs was three times ASEAN’s reliance on China inputs. In 2020, ASEAN’s reliance on China’s industrial input was more than five times ASEAN’s reliance on that of the US. Similarly, China replaced the US as the dominant industrial output destination for ASEAN countries in 2011 (Figure 6c). In 1995, ASEAN’s reliance on the US market was more than eight times ASEAN’s reliance on that of China. In 2020, this flipped, with ASEAN’s reliance on China’s market coming close to 1.5 times ASEAN’s reliance on that of the US. Conversely, China’s reliance on ASEAN’s industrial inputs and market is increasing and is higher compared to US reliance on those of ASEAN (Figure 6b and Figure 6d).
Intensification of ASEAN’s reliance on both China’s industrial inputs (production side) and the US market (sales side) since 2016 indicates ASEAN’s growing role as an intermediary region for Chinese goods to the US. This is supported by evidence at the country level with the correlation between Vietnam’s exports to the US and Vietnam’s imports from China doubling from 0.4 in 2020 to more than 0.8 in 2024, where 1 shows perfect correlation (The Economist, 2024).
Source: OECD TiVA (updated 2023, accessed February 2024), authors’ calculations
FOREIGN DIRECT INVESTMENT
General FDI trends
Export-oriented FDI inflow positively correlates with the trade pattern. As the trade war intensifies, trade through intermediary countries and the investment inflow going to these intermediary countries surge, including investment to build new manufacturing factories. International investors have relocated or diversified their production locations away from China and sought other Asian economies as destination for FDI to de-risk their businesses from uncertainties arising from geopolitical tensions, pandemic-induced supply chain disruptions, and rising production costs in some countries while seeking potential gains from the new global value chain and emerging sectors such as chips and EVs.
The ASEAN region is a major beneficiary of this FDI relocation (ASEAN and UNCTAD, 2023). FDI inflow to ASEAN-6 (Malaysia, Singapore, Indonesia, Thailand, Vietnam, and the Philippines) reached an all-time high of USD227 billion in 2022 and surpassed the FDI inflow to China (Figure 7). Meanwhile, FDI into China fell to its 30-year low in 2023.
Figure 7: FDI (in USD mn) in China and ASEAN-6
Source: CEIC (accessed February 2024); authors’ calculations.
Note: ASEAN-6 is used instead of ASEAN since other ASEAN countries’ investment data is not up to date.
Reconfiguration of supply chain-related FDI in ASEAN can be categorized into two groups:
- Existing investors expanding their production capacities in the region.
- New investors with/without plant/business presence in China establishing in the region while keeping their presence in China, including Chinese and Taiwanese firms (e.g., the ‘China Plus One’ strategy), or moving their plant and businesses out of China because of the intense US-China conflict.
EVs, EV batteries, electronics and chips, data centres, and the digital economy received robust new and expanded investment in 2022 (ASEAN and UNCTAD, 2023). Manufacturing investment notably scored much stronger growth than in previous years with its share in total FDI in ASEAN rising more than three folds from just nine percent in 2020 to 28 percent in 2022.
FDI by Industry
The electronics and electrical industry accounted for more than 70 percent of new manufacturing investments at USD37 billion, with chips and electronic components alone making up 27 percent of the 70 percent (ASEAN and UNCTAD, 2023), reaching close to USD9.5 billion in 2022, six times the annual average between 2010 and 2019.
Besides chips and electronic components, the ASEAN region also attracted strong investment in EVs and EV battery production as well as charging stations. New investment in batteries rose by 656 percent in 2022 compared to 2021 to USD8.4 billion, accounting for 23 percent of new manufacturing investment (ASEAN and UNCTAD, 2023). Chips, electronic components and battery production combined accounted for half of new manufacturing investment in 2022. FDI in EV-related sectors shot up from USD2.1 billion in 2019 to USD18.1 billion in 2022 (ASEAN and UNCTAD, 2023).
FDI by source and host countries
It is predicted that FDI flows are being increasingly concentrated to countries that are geopolitically aligned with the investor (Ahn et al, 2023). The US, which recently upgraded its bilateral economic relationship with Singapore, Vietnam and Indonesia, was the largest investor in ASEAN with investment reaching USD37 billion in 2022.[7] It was also the largest investor by far in the manufacturing and financial sector. Japan was the third largest investor after intra-ASEAN investment. Japanese FDI in ASEAN was concentrated in the transportation and storage industry, accounted for 88 percent of investment in the industry, reflecting its interest in the automotive industry, including EVs. FDI from China fell by USD1 billion to USD16 billion in 2022, with investment predominantly being in infrastructure projects, EV-related activities and the digital economy.
How ASEAN countries benefit from the reconfiguration of the global supply chain depends on their specialized capabilities (Varas et al, 2021). For example, outsourced chip, assembly and testing (OSAT) firms have been diversifying their global footprints in Southeast Asia such as in Malaysia, Vietnam and the Philippines. Meanwhile, Singapore captured new investment in new chips factories and hosted one of the world’s leading global semiconductor research institutions, A*STAR, whose research goes beyond chip technology.
RESEARCH & DEVELOPMENT
The recent trade and technology war between the US and China has spurred R&D subsidies. The CHIPS and Science Act of 2022 directs USD200 billion of its total USD280 billion spending for scientific R&D and commercialization into chips (Badlam et al, 2022a). Similarly, the Inflation Reduction Act of 2022 increased and expanded tax credits for R&D activities including to jump-start R&D and commercialization of cutting-edge green technology such as EV (Badlam et al, 2022b). In the same year, China upgraded the country’s tax credits for investment in semiconductor R&D from existing chips subsidies worth at least USD150 billion. The R&D subsidies in chips and green technology spill over to other countries including the European Union and Japan. Although most R&D investment is made to unlock financial constraints in the upstream and midstream industries, it usually has a chain synergy effect that catalyses R&D in the downstream industry and the overall innovation ecosystem.
How does the R&D subsidy race affect ASEAN economies? First and foremost, most ASEAN countries do not have the capability (e.g., human capital, physical capital, and regulatory ecosystem) to do cutting-edge R&D. Second, not all ASEAN countries can afford to engage in a subsidy race. Third, technology has become synonymous with geopolitical alignment and trust is a prerequisite to technology transfers. The US as the largest investor in ASEAN is key to bringing new technology to ASEAN as investment often times comes with technology transfers. At the same time, countries with a good reputation in patent and copyright law have an additional advantage in getting R&D investment.
ASEAN economies will not and should not rush into the R&D subsidy race and could instead promote an ASEAN R&D hub, perhaps located in Singapore, as a way to create a production ecosystem in the region.
CONCLUSION
ASEAN’s high trade reliance on China while having the US (by far) as its largest investor and key source of technology transfers puts it in an increasingly precarious situation if US-China supply chain decoupling intensifies. Forcing ASEAN to choose sides – to be in the US or China supply chain system – will be impossible and disruptive, and ASEAN should continue to take the pragmatic approach and reject that option. In the short run, some ASEAN countries are benefiting from the relocation of global supply chains as shown by trade, value addition and FDI data, but the high level of interdependence of global supply chains and the manufacturing hubs in China suggests that these benefits could be more than offset in the long term by the greater disruption to the global supply chains if the US-China tensions continue to escalate.
REFERENCES
Ahn, J., Carton, B., Habib, A., Malacrino, D., Muir, D. and Presbitero, A., 2023. ‘Geoeconomic fragmentation and foreign direct investment’. Chapter 4, IMF World Economic Outlook: A Rocky Recovery. IMF Publication.
The ASEAN Secretariat and United Nations Conference on Trade and Development (ASEAN and UNCTAD). 2023. A Special ASEAN Investment Report 2023. International Investment Trends: Key Issues and Policy Options. Jakarta: ASEAN Secretariat.
Badlam, Justin, S. Clark, S. Gajendragadkar, A. Kumar, S. O’Rourke, and D. Swartz. 2022a. ‘The CHIPS and Science Act: Here’s what’s in it’. McKinsey & Company Publication. Link: https://www.mckinsey.com/industries/public-sector/our-insights/the-chips-and-science-act-heres-whats-in-it#/
Badlam, Justin, J. Cox, A. Kumar, N. Mehta, S. O’Rourke, and J. Silvis. 2022b. ‘The Inflation Reduction Act: Here’s what’s in it’. Link: https://www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it
Baldwin, Richard. 2024. ‘China is the World’s Sole Manufacturing Superpower: A Line Sketch of the Rise’. CEPR Publication. Link: https://cepr.org/voxeu/columns/china-worlds-sole-manufacturing-superpower-line-sketch-rise
Bradford, Anu. 2023. Digital Empires: The Global Battle to Regulate Technology. Oxford University Press.
Curran, E., S. Donnan, M. Cousin, N.D. Tu Uyen, Q. Nguyen, M. Martewicz, M. Averbuch, B. Murray, A. Lee, G. Sihombing, and C. Jiao. ‘These Five Countries Are Key Economic ‘Connectors’ in a Fragmenting World’. Businessweek, Bloomberg New Economy.
Dahlman, Abigail, and Mary E. Lovely. 2023. ‘US-led Effort to Diversity Indo-Pacific Supply Chains Away from China Runs Counter to Trends’. Peterson Institute for International Economics (PIIE) Publication. Link: https://www.piie.com/blogs/realtime-economics/us-led-effort-diversify-indo-pacific-supply-chains-away-china-runs-counter
Ebrahimi, Arrian. 2023. ‘China Boosts Semiconductor Subsidies as US Tightens Restrictions’. The Diplomat. Link: https://thediplomat.com/2023/09/china-boosts-semiconductor-subsidies-as-us-tightens-restrictions/
Economic Development Board Singapore (EDB). 2022a. ‘Southeast Asia’s Rising Semiconductor Fortunes’. Link: https://www.edb.gov.sg/en/business-insights/insights/southeast-asia-s-rising-semiconductor-fortunes.html
Economic Development Board Singapore (EDB). 2022b. ‘Diverse Capabilities, Infrastructure Help Drive Chips Industry in Singapore’. Link: https://www.edb.gov.sg/en/business-insights/insights/diverse-capabilities-infrastructure-help-drive-chips-industry-in-singapore.html
Ing, Lili Yan, and Ivana Markus. 2023. ‘ASEAN in the Global Semiconductor Race’. Fulcrum. ISEAS-Yusof Ishak Institute Publication. Link: https://fulcrum.sg/aseanfocus/asean-in-the-global-semiconductor-race/
Li, Cheng, and Xiuye Zhao. 2023. ‘Renewable energy should not be the next semiconductor in US-China competition.’ Brooking Institution Commentary. Link: https://www.brookings.edu/articles/renewable-energy-should-not-be-the-next-semiconductor-in-us-china-competition/
Lin, Liza, and Karen Hao. 2022. ‘American Executives in Limbo at Chinese Chip Companies After US Ban’. Wall Street Journal. Link: https://www.wsj.com/articles/american-executives-in-limbo-at-chinese-chip-companies-after-u-s-ban-11665912757
Miller, Chris. 2022. Chip War. The Fight for the World’s Most Critical Technology. Scribner Publication.
Nguyen-Quoc, Thang. 2023. ‘The Deglobalization Myth: How Asia’s Supply Chains Are Changing’. Hinrich Foundation Publication. Link: https://www.hinrichfoundation.com/research/wp/trade-and-geopolitics/how-asia-supply-chains-are-changing/
Pangestu, Mari Elka. 2023. ‘Critical Minerals: Challenges for Diversification, Climate Change and Development’. Slide Presentation at Peterson Institute for International Economics Webinar, on 27 April 2023. Link: https://www.piie.com/sites/default/files/2023-04/2025-04-27pangestu-ppt.pdf
Ross, Laura. 2020. ‘Inside the iPhone: How Apple Sources from 43 Countries Nearly Seamlessly’. Link: https://www.thomasnet.com/insights/iphone-supply-chain/
Shalal, Andrea, and Karen Freifeld. 2023. ‘US starts process to restrict some investment in key tech in China’. Reuters. Link: https://www.reuters.com/technology/us-starts-process-restrict-some-investment-key-tech-china-2023-08-09/
Siqi, Ji. 2024. ‘US Congress considers new legislation to further restrict investment in Chinese tech sectors’. South China Morning Post. Link: https://www.scmp.com/news/china/article/3250360/us-congress-considers-new-legislation-further-restrict-investment-chinese-tech-sectors
The Economist. 2024. ‘How Trump and Biden have failed to cut ties with China’. The Economist. Link: https://www.economist.com/finance-and-economics/2024/02/27/how-trump-and-biden-have-failed-to-cut-ties-with-china
Varas, Antonio, Raj Varadarajan, Jimmy Goodrich, Falan Yinug. 2021. Strengthening the Global Semiconductor Supply Chain in an Uncertain Era. Boston Consulting Group (BCG) and Semiconductor Industry Association (SIA) Publication. Link: https://www.semiconductors.org/wp-content/uploads/2021/05/BCG-x-SIA-Strengthening-the-Global-Semiconductor-Value-Chain-April-2021_1.pdf
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
• ASEAN Economic Community (AEC) building is a long journey. For continued relevance and impact, the AEC must remain dynamic while taking into consideration evolving contexts and emerging opportunities and challenges.
• Notable progress has been made under the two AEC Blueprints (2015 and 2025), particularly in laying down the frameworks for regional economic integration and community building. Nonetheless, gaps remain in implementation, calling for a more streamlined but result-oriented agenda and stronger institutional coordination.
• Today, the AEC is faced with a markedly different context and unprecedented challenges resulting from a poly-crisis, involving geo-economic fragmentation, supply chain restructuring, and climactic changes. Without adjustment, ASEAN’s pillar and sector-centric approach can be expected to fall short in effectively responding to these challenges.
• As AEC 2025 enters its final quarter, ASEAN needs to recalibrate its priorities. It also increasingly needs to take a whole-of-community approach to integration, as issues and their solutions are spread across multiple sectors. Furthermore, as it develops the AEC Post-2025 agenda, it needs to strike a balance between ambition and pragmatism, and to support substance with institutions and processes.
Trends in Southeast Asia 2024/7, March 2024
EXECUTIVE SUMMARY
• The clean energy transition momentum is gathering pace globally, and in Southeast Asia as well. The transition is dependent on an uninterrupted supply of critical minerals and metals that are essential for the production of low-carbon technologies.
• The supply of critical minerals is impeded by several constraints. First is the dominance of a handful of countries in both the upstream and downstream parts of the supply chain. Second is the current geopolitical race to secure supplies leading to greater protectionist behaviours, exhibited through export bans and trade impediments.
• This study focuses on four selected critical minerals which are important to the region. Two criteria are used in determining a mineral having high significance: (1) There are significant deposits of it which can be tapped on to bolster Southeast Asia’s strategic position in the supply chains; and (2) It is an essential input in industries and sectors of importance in Southeast Asia. The four critical minerals examined in this study are: copper, nickel, bauxite (alumina), and rare earth elements (REEs).
• The study makes three recommendations to enhance ASEAN’s role in the critical minerals supply chains. The first addresses the insufficiency of investments in early-stage exploration and exploitation of critical minerals and, in the process, calls for an embracing of circular economy principles. The second appeals for investments at all stages, including in technology to tap into downstream activities beyond refining and purification, and in the manufacturing of component parts such as battery cell storage and permanent magnets. The third calls for improvements in sustainability management in the mining sector, which is generally extremely environmentally and socially damaging to communities.
Trends in Southeast Asia 2024/3, February 2024
EXECUTIVE SUMMARY
- Indonesia’s Chairmanship in 2023 has advanced the AOIP’s implementation through tangible projects and activities, thereby elevating the AOIP as a pivotal platform for promoting ASEAN’s central role.
- Beyond Indonesia’s Chairmanship, ASEAN needs to prioritise a consistent and impactful implementation of the AOIP across successive Chairmanships. This is essential to solidify the AOIP’s standing as a strategic document to reinforce ASEAN’s central role in the region.
- To advance the AOIP and ensure its ongoing strategic relevance, ASEAN can adopt some key strategies. These include assuming a leadership role in implementation, formulating a multi-year work plan, maintaining a commitment to quality-focused approaches, transforming bilateral activities into regional projects, and establishing a dedicated fund.
- While the AOIP alone may not fully address escalating strategic competition, leveraging ASEAN-led mechanisms for its implementation positions the organisation as a “bridge-builder”. This role allows ASEAN to actively contribute to inclusive multilateral solutions, and foster dialogue and cooperation among regional powers.
* Joanne Lin is Co-coordinator of the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute, and Lead Researcher (Political-Security) at the Centre.
ISEAS Perspective 2024/9, 2 February 2024
INTRODUCTION
ASEAN embraced the ASEAN Outlook on the Indo-Pacific (AOIP)[1] in 2019 as a strategic response to escalating geopolitical tensions[2] and the growing influence of major powers in the region. The Outlook reflects ASEAN’s commitment to maintaining its centrality and leading role in the region by promoting its mechanisms and adhering to key principles such as inclusivity, openness, and a rules-based framework.
Specifically, the Outlook aims to foster practical and tangible cooperation with ASEAN’s external partners in four key areas: maritime cooperation, economic, connectivity, and sustainable development. Despite Indonesia’s advocacy and support from ASEAN’s dialogue partners, the initial implementation faced criticism for its sluggish progress and perceived lack of concrete initiatives during the first four years.
Apart from discussions and sporadic activities[3] with dialogue partners, there was no course of action for the implementation of the AOIP until November 2022, when ASEAN leaders adopted the Declaration on Mainstreaming Four Priority Areas of The ASEAN Outlook on The Indo-Pacific within ASEAN-Led Mechanisms.[4] The declaration acknowledged the need for collective leadership with ASEAN to proactively address emerging challenges in the region. It also endorsed a List of Criteria on Mainstreaming the AOIP (an internal document) to implement the four priority areas of the AOIP through ASEAN-led mechanisms such as the ASEAN Plus-One, ASEAN Plus Three (APT), East Asia Summit (EAS), the ASEAN Regional Forum (ARF) and the ASEAN Defence Ministers’ Meeting Plus (ADMM-Plus).
This development helped set the stage for Indonesia’s Chairmanship in 2023 to advance AOIP’s implementation through tangible projects and activities. A notable achievement was the inaugural ASEAN Indo-Pacific Forum in September 2023[5] focusing on green infrastructure and resilient supply chains, sustainable and innovative financing, digital transformation and the creative economy. The Forum brought together ASEAN member states and external partners and reportedly identified 93 cooperation projects worth US$38.2 billion, with an additional 73 potential projects amounting to US$17.8 billion.[6]
For the first time since the AOIP’s adoption, the initiative seems to yield tangible benefits to the region, attracting new commitments by ASEAN’s external partners. As a result, regional leaders increasingly recognise the AOIP as a pivotal platform for promoting ASEAN’s central role and mechanisms.[7] The initiative has also been praised by Singapore Prime Minister Lee Hsien Loong, who commended it for being “omnidirectional and inclusive”.[8]
Despite the success of the Forum, questions linger regarding the AOIP’s effectiveness in shaping the regional architecture as well as in addressing current and future geostrategic challenges. There are also uncertainties in the prospect of advancing the AOIP beyond Indonesia’s Chairmanship. This Perspective addresses these questions and explores potential strategies for ASEAN to ensure the continued relevance and successful implementation of the AOIP across all chairmanships.
ASSESSING THE IMPACT AND LIMITATIONS OF THE AOIP
Despite its lack of a strategic dimension, the AOIP has been deemed successful in securing buy-ins from ASEAN’s external partners, mainly owing to its mild and apolitical nature, and for focusing on cooperation rather than rivalry.[9] The document’s neutrality (which differs from most Indo-Pacific strategies) makes it possible for most countries to accept the AOIP’s values and cooperation.
The overwhelming support from ASEAN’s dialogue and external partners, including China (a target of various Indo-Pacific strategies) has led to an increasing recognition of the AOIP’s benefits by more ASEAN countries. Currently, seven dialogue partners, namely India, Japan, the US, Australia, China, the Republic of Korea (ROK) and New Zealand have issued standalone statements with ASEAN regarding AOIP cooperation. While Canada and the EU have not issued separate statements, they have incorporated similar language in joint leaders’ statements with ASEAN. This has therefore enabled ASEAN to be a norm-setter and to play a leading role in the Indo-Pacific.
Beyond dialogue partners, most other external partners of ASEAN have committed to various forms of concrete cooperation across AOIP’s priority areas, enhancing the prospects for sustained implementation and for more partners in the long run.
While the AOIP has increased ASEAN’s standing in the regional architecture through the support of external partners, its strategic impact in addressing or mitigating the negative consequences of major power strategic competition in the region remains in question.
Despite garnering support from ASEAN’s partners, the AOIP’s lack of a strategic thrust hampers its ability to effectively manage external threats, particularly those posed by China. The inclusive nature of the AOIP makes it challenging for ASEAN to be viewed as a “like-minded” partner by countries that have a vested interest in the Indo-Pacific, such as the US, Japan, Australia and India (QUAD members), as well as countries such as the ROK, UK, Canada, France and Germany. This is especially so when ASEAN refuses to speak out against China for its aggression in regional flashpoints such as the South China Sea and the Taiwan Strait.
Essentially, the AOIP’s limited strategic perspective and its absence of a hard power component constrain its efficacy in addressing conflicts. Apart from preventive diplomacy, it is unable to deter security threats or provide a strategic balance[10] in the region. This has prompted Indonesia’s former Foreign Minister Marty Natalegawa to claim that the AOIP was more of a defensive and programmatic approach than a bold one seeking to actively confront geopolitical challenges.[11]
The proliferation of non-ASEAN security groupings like the QUAD and AUKUS demonstrate that ASEAN-led initiatives such as the AOIP may not adequately meet the region’s security needs. Opinion polls, as reflected in surveys like the State of Southeast Asia Survey reports,[12] suggest that major powers’ security initiatives may weaken ASEAN’s centrality, despite their rhetorical support for the AOIP and ASEAN centrality.
Although there is increasing interest for ASEAN to take on a greater responsibility in managing major power rivalries, the region is far from being a provider of regional security.[13] Notwithstanding the AOIP being created to address geostrategic tensions, the defence sector, in particular, has been hesitant to adopt the Indo-Pacific concept. The ASEAN Defence Ministers’ Meeting (ADMM) has only recently adopted a concept paper on the implementation of the AOIP from a defence perspective,[14] four years after the AOIP was published. Moreover, despite the expansive scope of maritime cooperation, the ADMM can only approve one AOIP activity each year and the activity should be one-off and informal in nature – signalling a lack of enthusiasm to mainstream the AOIP in the defence sector.
As such, under Indonesia’s leadership, the AOIP’s implementation has focused on softer cooperation and easier objectives like green infrastructure, digital developments, sustainable development, and the promotion of trade and investment.
This has led some observers to argue that the AOIP primarily symbolises the group’s aspirations rather than offering a concrete pathway to achieve specific outcomes.[15] Therefore, the Outlook may only be sufficient to kickstart and support more processes, dialogues, and lower-hanging cooperation rather than achieving tangible strategic outcomes, particularly those pertaining to security.
AOIP’S IMPLEMENTATION BEYOND INDONESIA’S CHAIRMANSHIP
The significant advancement of the AOIP’s implementation in 2023 was not surprising. Indonesia’s fervent push for extensive implementation was notably in line with President Joko Widodo’s priority of establishing the country as a Global Maritime Fulcrum. However, the enthusiasm for the AOIP’s continued progress beyond Indonesia’s Chairmanship remains uncertain.
During the early stages of formulating this Outlook, ASEAN countries were not unified in their perspectives on the narratives surrounding the Indo-Pacific or their level of support for the concept.[16] As such, despite the ultimate endorsement of the AOIP by all ASEAN countries, one of the significant challenges in its implementation is the varying degree of ownership among the member countries, along with their willingness and ability to allocate resources for its implementation.
Encouragingly, the AOIP is gradually becoming internalised within ASEAN as an instrument that brings tangible benefits to the grouping. As noted in the ASEAN Leaders’ Declaration on ASEAN As an Epicentrum of Growth[17] adopted in September 2023, ASEAN leaders have committed to further efforts in operationalising the AOIP by expediting AOIP projects and activities initiated by ASEAN or jointly with external partners, and to support the list of concrete projects identified at the inaugural ASEAN-Indo-Pacific Forum[18].
The Foreign Minister of Laos as the Chair of ASEAN in 2024 has given the reassurance that Laos will continue the implementation of ASEAN’s initiatives, including the AOIP.[19] Similar to Indonesia’s priorities in 2023, it is expected that Laos will strengthen the connectivity and sustainable development aspects of the AOIP by focusing on integrating and connecting economies, digital transformation, and climate change resilience.[20] Additionally, the Secretary-General of ASEAN Kao Kim Hourn has expressed hope that Laos might consider convening the 2nd ASEAN-Indo-Pacific Forum this year, with a theme that is in line with Laos’ Chairmanship priorities.
Importantly, Indonesia’s efforts in pushing for the mainstreaming of the AOIP has resulted in some level of institutionalisation through the creation of processes such as the “List of Criteria on Mainstreaming the AOIP”. Systematic processes have been put in place to identify, evaluate, track and monitor programmes, projects and activities under the AOIP undertaken by the ASEAN Secretariat. This form of tracking is expected to persist across Chairmanships, irrespective of the levels of motivation and aspiration that each Chair may have towards the Indo-Pacific and the Outlook. Overall, these developments suggest a growing recognition of the AOIP’s significance within ASEAN.
POTENTIAL STRATEGIES IN ADVANCING THE AOIP
In advancing the implementation of the AOIP, ASEAN may consider the following strategies. Firstly, a multi-year work plan encompassing a list of activities is crucial for maintaining a consistent trajectory of progress and ensuring a more impactful implementation. While external partners may propose recommendations for joint activities, ASEAN should also assess its own needs to prioritise specific areas of cooperation to align with frameworks such as the ASEAN Maritime Outlook (AMO),[21] which can offer a clearer direction for ASEAN’s maritime efforts in the Indo-Pacific.[22]
Secondly, to reinforce ASEAN centrality, the grouping should take the lead in proposing programmes and projects under the AOIP that will contribute to ASEAN community building and meet sectoral bodies’ priorities. ASEAN should identify the most appropriate partners to implement specific projects based on the strength of each country. ASEAN should also ensure synergies in the activities across ASEAN-led mechanisms. This approach will prevent overlaps in activities or workshops proposed by external partners for a more streamlined implementation.
Thirdly, the identification of AOIP initiatives should involve meaningful efforts rather than a mere re-packaging of existing cooperation under various Plans of Action. ASEAN should focus on innovative initiatives that can enhance AOIP’s strategic value across ASEAN-led mechanisms including the EAS, ADMM-Plus, and the ARF, prioritising quality over quantity. Quantity-focused approaches may lead to competition among dialogue partners and undermine the strategic essence of the AOIP. ASEAN should shift its focus from an obsession with numbers or statistics to activities that yield not only output but meaningful outcomes that can increase its members’ capabilities in a strategic competition.
Fourthly, although ASEAN has identified an extensive list of concrete projects, predominantly of a bilateral nature, as seen at the inaugural ASEAN-Indo-Pacific Forum, there is a crucial need to transform these isolated initiatives into cohesive ASEAN strategic objectives. The transformation can be achieved through the process of “connecting the connectivities”[23] or fostering collaboration and knowledge-sharing among member states to produce innovative projects. Moving forward, a concerted effort should be made to ensure that AOIP projects or activities deliver benefits to as many ASEAN member states as possible, thereby solidifying their status as true “ASEAN” initiatives.
Lastly, there is a pressing need to establish a dedicated fund to implement AOIP activities. This will allow ASEAN to rely more on internal funding for its neutrality and centrality, and to assert more control over its priorities. While cooperation with external partners should persist, having an independent funding mechanism will let ASEAN determine the nature and execution of projects. Furthermore, this will ease the burden of the current and future Chairs in organising larger-scale events such as the ASEAN-Indo-Pacific Forum, and provide more incentives for them to host more such activities.
CONCLUSION
The AOIP has experienced significant success during the Indonesia Chairmanship. However, achieving consistent and impactful implementation of the AOIP across successive Chairmanships is imperative to solidify the Outlook as a strategic document that can bolster ASEAN’s central role. The analysis above highlights crucial factors for ensuring AOIP’s success, emphasising the importance of ASEAN’s leadership, developing a multi-year work plan, ensuring commitment to quality-focused approaches, transforming bilateral activities into regional projects, and establishing a dedicated fund. These will not only foster a sustained momentum in advancing the AOIP but also ensure its strategic relevance.
The analysis also underscores that relying solely on the AOIP may prove inadequate in addressing the rising strategic competition and the multitudes of initiatives led by major powers. However, leveraging ASEAN-led mechanisms, particularly the EAS (the region’s premier leaders-led forum) in the implementation of the AOIP, has the potential to position ASEAN as a pivotal “bridge-builder”. Secretary-General of the United Nations Antonio Guterres has emphasised ASEAN’s crucial role in ‘building bridges of understanding’ and advancing multilateral solutions.[24] This approach empowers ASEAN to facilitate extensive dialogue among regional powers and foster interactions between countries like China and the US. Furthermore, it allows ASEAN to actively contribute to shaping guiding principles and norms, advocating for multilateralism, and working towards a more inclusive regional architecture.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
• After more than a decade of deliberations, ASEAN leaders agreed on 11 November 2022 in principle to admit Timor-Leste as the eleventh member of the regional organization and to grant Timor-Leste observer status to attend all ASEAN meetings. Timor-Leste has demonstrated positive developmental progress, and fact-finding missions across the three ASEAN Community pillars have returned generally optimistic results.
• However, an assessment of Timor-Leste’s ability to fulfil its commitments and obligations reveals that the country will need to close the gap with the ten existing members on matters such as the ratification and implementation of legally binding agreements and derivative work plans. Creating enforcement mechanisms and finding ways to implement commitments at the local level will be important.
• Timor-Leste has put in place institutional structures and implementing agencies for advancing cooperation with ASEAN. It is also moving towards harmonizing its laws with ASEAN instruments. However, its capacity remains in question due to a lack of substantive knowledge and technical expertise among government officials, as well as inadequate infrastructure, logistics and facilities for hosting ASEAN meetings.
• Strengthening human capital will be a top priority for Timor-Leste. This includes not only enhancing its personnel’s knowledge and technical expertise on ASEAN processes and procedures but also skills such as English language proficiency and negotiation. Coordinated capacity-building assistance from ASEAN and dialogue partners will be important. These efforts must also be met with economic diversification and growth of its nascent private sector.
• Apart from bridging gaps, ASEAN needs to grapple with its reservations that Timor-Leste’s economic limitations may slow down the realization of the ASEAN Economic Community. There are also concerns that Timor-Leste’s membership may entrench differences within the bloc, particularly with regard to geopolitical issues, and dilute the organization’s effectiveness or further complicate the consensus-based decision-making process.
Trends in Southeast Asia 2024/1, January 2024
EXECUTIVE SUMMARY
- Geopolitical tensions between the US and China have been rising, with international trade facing more frequent challenges in what has become a tit-for-tat retaliatory landscape. Moreover, economic security initiatives have become more strategic and sophisticated, and more players now find themselves caught in the crosswinds of the strategic battleground.
- The US-China trade spat has seen ASEAN emerging as a viable alternative to China as a manufacturing hub, especially for technology-related goods. ASEAN economies collectively account for around 30% of US Electrical and Electronics (E&E) imports, notably on par with China, in 2022.
- Major economies have stepped up their engagement with ASEAN economies this year through the G2G channel and at a business level through the relocation of operations out of China into Thailand and Vietnam as part of a China+1 diversification strategy. China’s strict zero-COVID policies may have also catalysed the search for viable alternative production bases.
- ASEAN economies should proactively maintain their favourable position amid the global supply chain recalibration. Possible strategies could include: 1) Active engagement with key trade partners, 2) Domestic policies that provide a stable and predictable business environment, 3) Productive capacity upgrading policies, 4) Leveraging on multilateralism and 5) Strengthening the public-private-academic nexus.
* Kristina Fong Siew Leng is Lead Researcher (Economic Affairs) of the ASEAN Studies Centre. The author wishes to thank Jayant Menon, Senior Fellow of the Regional Economic Studies Programme, Sharon Seah, Senior Fellow and Coordinator of the ASEAN Studies Centre and Climate Change in Southeast Asia Programme, and Joanne Lin, Lead Researcher and Co-coordinator of the ASEAN Studies Centre for their valuable comments and suggestions.
ISEAS Perspective 2023/76, 26 September 2023
A MORE SOPHISTICATED GEOPOLITICAL BATTLEFIELD
As geopolitical tensions between the US and China continue to rise, middle powers and small countries alike remain inadvertently caught in the crosswinds and become part of the strategic battleground. Whilst the Trump presidency (2017-21) was dominated by a barrage of retaliatory tariff increases between the two economic majors, the approach to international trade policy has since become more sophisticated, taking on elements of investment policy. One such approach has countries building up capacity onshore and attracting new investments in key strategic areas in the technology supply chain, exemplified by the US CHIPS Act of 2022[1] and the European Chips Act[2] enacted in September 2023. Some non-tariff barrier approaches are more direct and are laced with a security angle, such as China’s export restrictions on key rare metals (gallium and germanium, and related compounds)[3] (effective 1 August 2023), the US’ export caps on Chinese technology giant, Huawei[4] and more recently, the Netherlands’ additional restrictions on the export of ASML Holding’s chipmaking machinery to China.[5] This back and forth is set to continue with new measures and announcements of counter-policy measures making the headlines more frequently as it becomes increasingly a race for technological dominance as much as to address economic security concerns. That said, official dialogue between the US and China on trade and investment matters, including the establishment of a working group, convey some positive signals that having a ceiling to, if not a de-escalation in, trade tensions would be the preference of both sides.[6]
ASEAN RESILIENCY AMID GEOPOLITICAL UNCERTAINTIES
Although small in its constituent parts, the ASEAN region has grown in importance as an integral node in global value chains, as both a manufacturing hub and a significant player in the technology supply chain network. The region has effectively emerged as a viable alternative to well-established supply chains, diverting some of the global manufacturing concentration away from China. To assess the extent of the trade pattern shifts catalysed by the onset of the Trump, tariff-driven trade war, and ASEAN’s standing in the global ecosystem, we take into consideration trade data from the 2016-2022 period, covering the period before the Trump trade war, through the pandemic and into the present day.
Figure 1. Import pattern shifts for the US and China (2016-2022)
Source: UNCTAD and author’s analysis
From the initial analysis of both the US’ and China’s import patterns for this period, we observe a notable shift in imports away from one another and subsequent positive spillovers to the ASEAN region, as shown in Figure 1. For the US, the share of overall imports from China fell to 17% in 2022 from 21% in 2016, while the share of China’s imports from the US fell more marginally to 7% in 2022 from 9% in 2016. ASEAN’s share of imports correspondingly grew to 11% for the US (2016: 7%) and 15% for China (2016: 12%). Notably, there are significant dynamics exhibited by the changing patterns in the Electrical and Electronics components (E&E) imports. For the US, the significant shift away from China as a key backward linkage in this sector has resulted in import shares falling to 30% in 2022 (2016: 42%), while the shift to ASEAN in tandem has resulted in import shares totaling 29% in 2022 (2016: 20%). For context, ASEAN-sourced imports for E&E products make up almost a third of US imports of these components compared to a fifth before the Trump trade tensions started. This puts ASEAN on par with China in terms of import shares for the US in this respect. That said, some of this change could have also resulted from Chinese MNCs adding capacity to ASEAN locations for their own de-risking strategies on account of rising tariff rates imposed by the US.
Comparatively, China’s import share trends over this period are more stable, with shifts in imports from ASEAN for the main categories observed more muted in comparison. Import shares for overall products stood at 15% (2016: 12.4%) and 19% for E&E components as at 2022 (2016: 18%), reinforcing the central importance of ASEAN in the trade landscape. Amid the ongoing US-China trade rivalry, ASEAN’s relationship with China has remained intact, while its relationship with the US has strengthened. However, it should be noted that despite the growing ties with the US, ASEAN’s overall trade with China stood at USD 730.1 billion in 2022, 1.7 times that with the US which had a corresponding value of USD 422.5 billion. Moreover, China constitutes 19.1% of ASEAN’s total trade, whilst the US makes up only 11.0%.
A BROAD ROLE FOR ASEAN IN INTERNATIONAL TRADE
ASEAN’s changing trade patterns with major economies reflects its growing importance, as seen in Table 1. Although European economies did not see substantial changes to imports from ASEAN over the period, Japan experienced an increase in ASEAN import share, especially for that of E&E products to 16.9% in 2022 from 13.7% in 2016. This too can be a shift away from reliance on China; Japan’s import shares from there fell from a significant 52.3% in 2016 to 42.2% in 2022 in E&E components. Not only has ASEAN grown in importance as an upstream producer for major economies, it has also markedly grown as an export destination for economies such as China and Japan (Table 1). All in all, the ASEAN region is greatly intertwined in the global supply chain, with its importance growing as both a viable backward and forward linkage. That said, it illustrates the importance and provides growing impetus for all stakeholders in the global value chain to prioritise the relationships between developed economies and China with ASEAN, and vice versa.
Table 1. Major economies and their trade dynamics with ASEAN
Source: UNCTAD and author’s analysis
ASEAN’S COMPETITIVENESS IN KEY AREAS OF MERCHANDISE TRADE
As Table 2 on Revealed Comparative Advantage (RCAs)[7] shows, ASEAN is an evident choice for supply chain recalibration to ‘de-risk and diversify’. Illustrated by the RCA values of more than 1, Malaysia, the Philippines, Singapore, and Thailand have maintained their productive competitiveness in semiconductors and related electronics over this period, while Vietnam has established its standing in this regard driven by the additional capacity built up in this sector since the onset of the trade spat. Given the high level of sophistication and specialisation along the technology value chain, most of the trade diversification trends at the start of the US-China trade tensions could have initially been centred around labour-intensive and lower-tech activities.[8] However, the tide could be shifting as even very niche producers such as TSMC, a global leader in semiconductor foundries, is seeing the need to diversify from its home base of Taiwan. This may provide more high-tech opportunities for those ASEAN countries that have capabilities to move up the value chain, such as Singapore.[9] Apart from these products, resource-endowed ASEAN countries such as Indonesia and Malaysia also find themselves competitive in the supply of integral energy-related exports such as natural gas.
Table 2. Revealed Comparative Advantage (RCAs) of ASEAN countries in selected products
Source: UNCTAD (SITC Product code classifications); Note: SITC Product code of 776: Cathode valves and tubes include that of semiconductors and integrated circuits.
THE ASEAN REGION IN FOCUS FOR MAJOR TRADE PARTNERS
The region holds strategic importance with respect to backward and forward linkages and has become increasingly significant in the technology value chain, especially as a China+1 diversification strategy. As a positive spillover, the added focus on the ASEAN region as a major global trade player has spurred greater industrial capacity building in select sectors; this has led to sectoral specialisation and enhanced economic development through human capital and technological upgrading. Thus, from the perspective of ASEAN and its trade partners, it is of mutual benefit to continue active engagement and remain open to trade growth. This stance has already taken root as perceptions of ASEAN as a leader in championing global free trade amongst respondents surveyed in the ISEAS State of Southeast Asia 2023 has risen from 15.5% in 2022 to 23.5% in 2023.
To ensure economic security, major powers that are wary of China have stepped up their engagement with ASEAN, for example through a slew of face-to-face high-profile roadshows this year. One notable example is US Secretary of the Treasury Janet Yellen’s trip to Vietnam in July, after earlier trips to China and India. Objectives of the trip included enhancing cooperation between the countries in manufacturing, and promoting the G7’s Just Energy Transition Partnership (JETP) funding for renewable energy adoption, of which USD 15.5 billion were allocated to Vietnam. In the same trip, Treasury Secretary Yellen also promoted the USD 500 million available funding for international semiconductor factories under the CHIPS Act, to build up capabilities along the global technology supply chain. All these activities laid the groundwork for the official upgrade of US-Vietnam relations to a Comprehensive Strategic Partnership in September,[10] along with a spate of business deals and partnerships quickly revealed thereafter involving the participation of technology heavyweights such as Nvidia and Microsoft.[11]
MULTINATIONALS HAVE ALSO TAKEN INTEREST IN ASEAN
There have also been moves by multinational businesses, especially those in the E&E sector, to do more in ASEAN countries as part of their own strategies for self-preservation. Several major computer hardware manufacturers have announced concrete plans to diversify away from their reliance on China. In January, Dell announced its intention to completely shift away from “Made in China” chips by the end of 2024 and target at least 20% of its laptop production in Vietnam this year.[12] Subsequently, HP announced in July that they are working with suppliers to shift more production of consumer and commercial laptops to Thailand and Mexico this year, with preliminary intentions to move some of this capacity to Vietnam next year as well.[13] Apple has also diversified some of its MacBook production to Vietnam this year, marking the first time its laptops have been produced outside China.[14] Malaysia has also gained some sizeable wins with Infineon Technologies announcing that it will build the world’s largest 200-millimeter Silicon Carbide (SiC) power fab there,[15] as well as Tesla making known its intentions to set up a headquarters there later this year.
ASEAN HAS WELL-ESTABLISHED TRADE AND INVESTMENT AGREEMENTS
One of ASEAN’s strengths is that it already has some robust formal relationships with major economies individually and at bloc level. These established platforms for active engagement in trade and investment activities are beneficial to facilitate greater collaboration, and perhaps, more importantly, brings ASEAN to the fore with respect to the latest global developments. Some notable Free Trade Agreements include the Regional Comprehensive Economic Partnership (an ASEAN+6 trade deal, that includes China), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (which includes four ASEAN countries – Brunei, Malaysia, Singapore and Thailand + 8 including Australia and Japan), ASEAN+1 FTAs with China, South Korea and India. Of note, the ASEAN-China FTA is currently undergoing an upgrade and the ASEAN-India Trade in Goods Agreement (AITIGA) is being reviewed. Other major bilateral FTAs include Singapore’s bilateral FTAs with the European Union (EU), United Kingdom (UK), and the United States, Vietnam’s bilateral FTAs with the EU and UK, and Thailand’s bilateral FTAs with China, Australia and Japan, with some notable ongoing negotiations between the EU and US and a number of ASEAN economies. Most recently, the EU announced the start of a scoping exercise to relaunch negotiations for the EU-Philippines FTA when the European Commission’s President Ursula von der Leyen visited the country in late July.[16]
STRENGTHENING ECONOMIC LEVERAGE WHILE REMAINING NEUTRAL
In tandem with the more focused interest that major economies’ have taken in ASEAN economies, ASEAN economies should take proactive steps to maintain their favourable position amid the global supply chain recalibration. Some possible policy strategies are:
- Pursuing active engagement with key trade partners – In line with how major economies and companies have been stepping up efforts to engage with ASEAN, it is important for ASEAN economies to show the same level of commitment and, likewise, pursue opportunities and build up relationships with key trade and investment partners. Although, ASEAN is undoubtedly in a favourable position in terms of manufacturing capabilities and competitive aspects such as production costs, ASEAN economies are not the only ones on the radar of major economies. India has frequently emerged as a key market for E&E components relocation. Complementing high-level G2G engagements this year, companies such as Tesla and Apple are seeking to build up a viable technology hub in India. Thus, there is a risk that potential complacency may lead to a loss in some of the strategic leverage ASEAN currently holds. Active engagement will also help ASEAN economies de-risk their own supply chains as well.
- Promoting domestic policies that provide a stable and predictable business environment Amid global risks and uncertainties, companies prefer operating in a business environment characterised by economic policy certainty and political stability. Thus, placing emphasis on this objective will help regional economies rank higher in terms of a relocation preference. In the latest IMD World Competitiveness Ranking 2023, five ASEAN economies feature in its assessment of 64 economies. Singapore ranks highest in terms of government and business efficiency, while the Philippines ranks the lowest. To note, Malaysia’s rankings in both these measures appear to be lower than what would be expected of an upper-middle income economy.
Table 3. IMD World Competitiveness Rankings 2023
Source: IMD World Competitiveness Center
- Prioritising productive capacity upgrading policies – Being at the forefront of technological development lends itself well to how the prospects of an economy are perceived. Targeting capital investments in new technologies and having a workforce sufficiently skilled to reap the benefits of these technologies, should be high on the priority list of ASEAN governments. Regional economies must tread carefully so as not to unleash beggar-thy-neighbour policy implications akin to the impacts some developed economies are now facing by virtue of the competitive subsidy regimes they have adopted.[17] Relocation attraction should not be based on costs alone and hence, having a robust foundation of capital and skills can help limit adverse spillover effects, as there is more to the value proposition than attractive subsidies.
- Leveraging on multilateralism – Strengthening respective domestic productive capacities and building up industrial specialisation may be worthwhile objectives for economies to pursue independently, but there are certain benefits to acting together as a bloc, especially in terms of collective interests and for smaller ASEAN member states to benefit in terms of visibility and credibility. Moreover, collaborating as a bloc on aspects such as digital upgrading and harmonisation of standards would also strengthen the region as an attractive business ecosystem. In terms of active participation in high-profile and multilateral FTAs, it would serve to maintain the region’s relevance in the global supply chain and avoid the risk of ‘being left out’ of key global economic developments. Moreover, deep FTAs, such as the ones initiated by the EU and the US, can also set the stage for economic reforms in investment protection and labour rights, which could also make these economies more attractive from an investor perspective, if implemented in a non-distortive way for the host country. In preparation for accession to high-profile FTAs such as RCEP and CPTPP, ASEAN countries involved are required to amend relevant domestic laws in order to comply with the terms of the deal. These FTAs also provide an opportunity for CLMV countries to transition to open regionalism through the multilateralisation of preferential terms of the trade accords they are party to.[18] As a start, the RCEP requires these countries to extend preferential tariffs to all RCEP members, above and beyond ASEAN. In this context, the Margin of Preference (MOP)[19] would ideally be reduced to zero and hence, again, help to increase the attractiveness of ASEAN as a trading bloc ecosystem. As of 2018, the import-weighted MOP for Cambodia, Laos and Vietnam stood at 10%[20] which is more than double that for other ASEAN economies.
- Strengthening the public-private-academic nexus – In any major industrial development, it is vital that a clear and constant line of communication between the business sector and the government exists. The benefits of this are particularly important for new areas of business and innovation. Businesses would gain a better pulse on new technological developments in their industry and perhaps even be market leaders in the area. This would be useful for policy prescriptions, especially to capacity build for the future. Moreover, businesses would also be able to provide relevant and valuable feedback on the right kind of policy mix for their industry to sustainably grow. The further integration of academic output and knowledge-sharing to this nexus, would enhance the innovation capabilities and competitiveness of economies in the region.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- COVID-19 and the rise of the digital economy are excellent opportunities for ASEAN to accelerate its regional integration push.
- However, the ASEAN Digital Integration Index (ADII) shows that the area of digital skills and talent is ASEAN’s worst-performing indicator of the six digital integration benchmarks used to measure digital integration.
- ASEAN needs to enhance the digital skills and mobility of talents in the region.
- It can do this by leveraging the regional tech companies’ abilities to scale up the integration of its workforce to a regional-wide digital economy ecosystem, and adding digital workers to the ASEAN Mutual Recognition Arrangements (MRAs) to facilitate their movement in the region. These two measures are critical in ensuring that the demand for digital talents is met.
- ASEAN also needs to facilitate intra-ASEAN student mobility and digital skill advancement early through educational platforms such as the ASEAN University Network and other student mobility programmes.
* Melinda Martinus is Lead Researcher at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute. Farah Nadine Seth was formerly Research Officer at the ASEAN Studies Centre, ISEAS –Yusof Ishak Institute.
ISEAS Perspective 2023/48, 21 June 2023
INTRODUCTION
COVID-19 has intractably accelerated the digital economy in Southeast Asia. The interaction between the health crisis and the digital economy in the region has raised consumer dependencies on digital services such as telemedicine, video conferencing platforms, financial services, and e-commerce. According to Google, Temasek, and Bain’s annual E-Conomy SEA 2022 Report, ASEAN’s digital economy is on course to reach US$600 billion-US$1 trillion by 2030, with sustained long-term projections.[1]
The growth of the region’s digital economy will help ASEAN accelerate its regional integration. One excellent example is integration in the financial sector through digital payment systems. Currently, the central banks of five Southeast Asian countries—Malaysia, Indonesia, the Philippines, Thailand and Singapore—have linked up their digital payment systems, improving inclusivity, cross-border economic activities and efficiency.[2]
Recognising the potential for both growth and regional integration, ASEAN has been boosting its digital integration activities. For instance, the ASEAN Digital Integration Framework and Action Plan (DIFAP) serves as the overall blueprint for ASEAN’s digital integration efforts.[3] The ASEAN Agreement on Electronic Commerce, which entered into force in 2019, attempts to harmonise principles and rules to promote e-commerce in the region and to strengthen the capacity to implement them.[4] The COVID-19 crisis has also inspired ASEAN to double down on its agenda to accelerate digital transformation. The Bandar Seri Begawan Roadmap: An ASEAN Digital Transformation Agenda to Accelerate ASEAN’s Economic Recovery and Digital Economy Integration outlines a multi-year roadmap to deepen ASEAN digital integration and connectivity against the backdrop of COVID-19.[5]
The digital economy will undoubtedly become an enabling factor in ASEAN’s growth journey. However, it creates an unprecedented demand for digital workers equipped with in-demand technical skills. Singapore needs 1.2 million additional digital workers by 2025 – a 55 per cent increase from today’s levels – to remain competitive.[6] For Indonesia, an additional 600,000 digital talents annually are needed to service its digital transformation pipeline until 2030.[7] Meanwhile, a digital talent survey conducted by a Malaysian think tank, the Social and Economic Research Initiative (SERI), found that only 4.8 per cent of Malaysian private sector respondents feel that the existing labour market can fully meet their digital talent needs.[8]
The baseline study of the ASEAN Digital Integration Index (ADII),[9] which serves as a benchmark for ASEAN digital integration efforts, indicates that among its six digital integration components: ASEAN is currently performing the poorest in Digital Skills and Talent. This Perspective offers some analysis of the underlying causes of this dismal performance and identifies three opportunities to enhance digital skills.
ASEAN DIGITAL INTEGRATION: SKILL AND TALENT PILLAR REMAINS DISMAL
ASEAN has made efforts to monitor integration initiatives across the region through the ASEAN Digital Integration Index (ADII) which provides an evidence-based analysis of the state of implementation in priority areasof the ASEAN Digital Integration Framework (DIF)for member countries. The report categorises digital integration initiatives according to six pillars, namely (i) Digital Trade and Logistics; (ii) Data Protection and Cybersecurity; (iii) Digital Payments and Identities; (iv) Digital Skills and Talent; (v) Innovation and Entrepreneurship; and (vi) Institutional and Infrastructural Readiness. An overview of the ADII pillar scores for the region ranked by level of integration can be found below:
Table 1: ADII Pillar Scores
| ADII Pillars | Score (out of 100) | Rank |
| Institutional and Infrastructural Readiness | 62.85 | 1 |
| Data Protection and Cybersecurity | 62.81 | 2 |
| Digital Payments and Identities | 58.84 | 3 |
| Digital Trade and Logistics | 55.27 | 4 |
| Innovation and Entrepreneurship | 49.32 | 5 |
| Digital Skills and Talent | 48.21 | 6 |
Source: ADII
While all elements of digital integration are vital to regional integration efforts, the ADII report highlights the need to prioritise human capital development with regards to digital skills (and innovation), given that a digitally trained workforce would form the backbone for regional digitalisation. Moreover, knowledge-intensive sectors within the growing digitally-driven industry – such as ICT and e-commerce – not only require skilled labour to manage and continually innovate increasingly complex digital tools, but also entail ordinary consumers having the requisite digital skills to competently utilise and tap into digital platforms and technologies for their business needs and day-to-day activities.[10]
The urgency of developing a digital talent base is underscored by the fact that the ‘Digital Skills and Talents’ pillar fares the worst in the ADII assessment. Below is a breakdown of the indicators used to compute the scores of the Digital Skills and Talent pillar. Each indicator is scored against 20 with a total score of 100 for the entire pillar.
Chart 1: Breakdown of indicators for Digital Skills and Talent
Source: ADII
The report noted that the indicator for Science, Technology, Engineering and Mathematics (STEM) graduates is low; its score of 5.82 is less than half of that for university graduates with business-relevant skillsets (12.67). However, the indicator for the overall population with digital skills fares best (13.11), with the report noting that the general population already exhibits adequate digital skills (e.g. basic computer skills and digital reading), likely self-taught through day-to-day activities and work requirements. Meanwhile, the proportion of employment in knowledge-intensive services is the lowest (4.48), and the level of multi-stakeholder collaboration in research and development is still unsatisfactory (12.13).
It is challenging to compare the performance of digital skills and talents highlighted by the ADII with other economies because of different methodological assessments. Be that as it may, the talent indicator in the World Digital Competitiveness Ranking 2022 by the International Institute for Management Development (IMD) can serve as a benchmark to compare ASEAN countries with other major economies in Asia and the Pacific (Table 2).[11]
Table 2 ASEAN Countries and Asia and the Pacific Economies’ Talent Ranking 2022
| Countries | Talent Ranking (63 global countries) ** |
| ASEAN Countries* | |
| Indonesia | 51 |
| Malaysia | 33 |
| Philippines | 54 |
| Singapore | 12 |
| Thailand | 45 |
| Asia and the Pacific Economies | |
| China | 40 |
| Hong Kong SAR | 14 |
| India | 52 |
| Japan | 41 |
| Republic of Korea | 38 |
| Taiwan (ROC) | 19 |
Source: The World Digital Competitiveness Ranking 2022 by the International Institute for Management Development (IMD)
*Brunei, Cambodia, Laos, Myanmar, and Vietnam were not assessed in the ranking
** The talent ranking was assessed by the indicators of talent readiness, investment and development, and appeal to the global community.
According to the ranking, four ASEAN countries—Malaysia, Thailand, Indonesia, and the Philippines—appear in the bottom 50 per cent (out of 63 countries assessed). Singapore is the only regional country that ends up in the top 20 per cent of the list. Leaving Singapore aside, Indonesia, Malaysia, the Philippines do not fare much worse than other developing economies such as China and India. Even Japan only fares marginally better than China. This indicates that ASEAN digital talents are still competitive enough to attract digital economy investments.
Developing digital skills is a common focus area for various ASEAN digital and connectivity initiatives.[12] The ADII report makes two key recommendations for boosting the digital talent base: (1) Prioritisation of the development of digital capabilities and formal employment opportunities to enhance digitalisation. Its proposals include channelling educational resources towards STEM courses and ensuring inclusive access to digital upskilling initiatives, and (2) Collaboration with the private sector to identify, develop and grow relevant digital skillsets.
MANAGING DIGITAL TALENTS AND SKILLS
To manage this challenge, there are at least three opportunities that can be exploited by ASEAN.
Leveraging the Growth of Regional Technology Companies
ASEAN can explore leveraging the rise of regional technology companies to integrate the workforce into digital platforms. Not only are these companies able to facilitate digital access for users and service providers, they also have the resources to provide skills training, thus accommodating new entrants into the digital workforce.
The three largest digital companies in the region – GoTo, Grab and SEA – valued at over US$10 billion,[13] have initiated a variety of digital enhancement skills for different purposes but with the ultimate aim of increasing the digitally-ready citizenry and integrating more people into the digital workforce and ecosystem. Their tech-oriented workplace requires individuals to have intermediate or work-related digital skills in critically assessing data and developing original digital content. Such skills include digital marketing, digital graphic design, and the increasingly important skills of data management and business analysis.
Grab is making inroads in improving basic digital skills, with “improving digital inclusion and digital literacy in Southeast Asia” as one of its key goals to be achieved by 2025 under their “GrabforGood” social impact programme.[14] Microsoft, in turn, embarked on a regional skills training and digital literacy partnership in 2019, providing Grab drivers and merchant-partners the opportunity to tap on a Microsoft Digital Literacy certification programme[15]via GrabAcademy, Grab’s online training platform. In 2021, over 780,000 partners benefitted from this scheme.[16]
Grab is also focused on improving digital literacy among the general public. In Singapore, it partnered with the Infocomm Media Development Authority (IMDA) to facilitate the running of more than a hundred digital clinics for senior citizens to foster greater digital literacy, with a targeted reach of 10,000 senior citizens within a year.[17] In Indonesia, the company supported the government’s digital literacy campaign by running two programmes for merchant-partners and the general public to foster both basic (through ‘Siberkreasi’) and intermediate digital skills (through the ‘Digital Talent Scholarship’). The programmes have helped upskill more than 12,000 MSMEs to date.[18]
Similarly, GoTo places considerable focus on talent development programmes such as its GO-Academy talent incubator[19] as well as its Generasi GIGIH programme[20] under its non-profit Yayasan Anak Bangsa Bisa. Through engineering bootcamps, tech competitions, and internship opportunities, GoTo focuses on harnessing young digital talent and integrating them into the larger Indonesian tech ecosystem. Not to be outdone, Grab and Microsoft partnered with selected regional universities to train students with in-demand technical skills through provision of Microsoft’s industry-recognised certification programme as well as applied learning opportunities through Grab-facilitated industry-relevant projects, competitions and internship stints.[21] Grab also runs other talent development programmes across the region such as the Grab Unicorn Apprentice programme in Vietnam, as well as the Grab Campus Apprenticeship programme in Indonesia.[22]
The regional tech companies’ roles in integrating people with digital platforms and scaling up initiatives for digital education have been quite promising. It demonstrates that the burden of providing formal and informal digital education can be shared by governments with private sector players who have the ability to mobilise at scale. However, policies must ensure the enabling conditions for the private sector to pursue workforce training sustainably. The recent mass layoffs of digital workers in the region have shown that the regional tech companies are still operating under capital spending, and thus global disruptions like rising interest rates amid high inflation easily necessitate them to restructure their workforce.[23]
Adding Digital Workers to the ASEAN Mutual Recognition Arrangements
The key to successful digital integration is to ensure an adequate supply of digital workers to grow a digital ecosystem in the region. At this time when ASEAN governments are shaping their digitalisation roadmaps, ensuring the mobility of digital workers is critical for meeting the demand and distribution of digital talents across the region.
One of the key features of ASEAN economic integration is the free movement of skilled workers under Mutual Recognition Arrangements (MRAs), a set of policies that enable the qualifications of service suppliers recognised by authorities in their home country to be mutually recognised by other countries who are signatories to the MRA. ASEAN MRAs can arguably help to facilitate an increase in the number of skilled workers across ASEAN countries so that industries across the region can efficiently find the appropriate talents quickly.[24] Currently, the arrangements only recognise eight categories of highly skilled occupations such as engineers, nurses, architects, surveyors, dentists, medical practitioners, tourism professionals, and accountants but not digitally skilled talents. However, the implementation of ASEAN MRAs has been hampered by domestic rules and regulations on employment and licensing requirements.[25]
ASEAN countries like Singapore and Thailand have begun to pursue their own labour immigration policies. For instance, Singapore’s Overseas Network and Expertise Pass and Thailand’s Long Term Resident (LTR) visa for highly skilled professionals are intended to pull global and high-income top talents into specialised industries. To an extent, it is the slow implementation of ASEAN MRAs that pushes these countries to pursue their labour policies rather wait upon the ASEAN-led mechanism.
To be sure, the full operationalisation of the ASEAN MRAs is politically challenging. Employers often raise their demanded educational credentials and validity, due to the fact that their confidence in the region’s educational quality is low.[26] There are also considerable gaps among ASEAN countries in assuring standardised educational quality across the region. In addition, the ASEAN MRAs have faltered because the regional governments often raise new barriers in response to pressure from domestic lobbies to protect domestic employment and wages.
But it should be noted that the rise of the digital economy has created uniform demand for digital workforce with similar skillsets. Given the rising demand in digital workforce across the region, adding digital workers might look politically feasible in the future. Having digital workforce on the ASEAN MRAs will also facilitate cross-pollination of knowledge, information, and inventions across the region. The challenge remains on the effective operationalisation of the arrangements.
Facilitating Intra-ASEAN Students and Young Workforces’ Mobility Early
While it is true that ensuring the digital skills of the young workforce is vital for the region to fully tap into the digital economy, ensuring the mobility of young talents is relevant too. Giving them the opportunity to travel across the region for work-study practices, internships, apprenticeships, and traineeship will ensure that businesses and industries can absorb them quickly.
Currently, ASEAN countries’ workforce demographics vary greatly. Singapore, Brunei, Thailand, and Vietnam are starting to face an aging population. By 2050, more than 25 per cent of the population in those countries will be over 60 years old.[27] Meanwhile, Cambodia, Laos, Myanmar and Indonesia are entering a period of demographic bonus where the number in productive age groups is currently greater than the number in non-productive age groups. Getting young members of the workforce to move easily across borders to fill labour gaps cannot but be beneficial.
ASEAN has an opportunity to revive its various educational programmes under its Socio-Cultural Community Blueprint which still lacks a strategic mandate to optimise greater mobility of people within the region. One such opportunity is through the ASEAN University Network (AUN) whose current scope is to provide a network of cooperation among universities and to harmonise higher-education outcomes in the region. The Network’s role can be strengthened and expanded by utilising ASEAN Dialogue Partners’ Assistance, the private sector, and ASEAN countries’ contribution to facilitate student internship and traineeship in emerging digital industries. Other initiatives under the ASEAN umbrella such as the ASEAN Foundation can serve as a platform for industries and young talents to explore digital industries and operations.
Exposing young talents to opportunities to work regionally at an early stage is key to build a stronger regional economy. No single ASEAN economy can efficiently rely on its domestic workforce to tap the digital economy maximally. There are double benefits to be gained if ASEAN can facilitate the mobility of the young workforce early in their career. First, ASEAN has an opportunity to harmonise human capital standards needed by the regional digital economy. Young members of the workforce should be exposed to regional job market requirements that can help them make a career jump in the future. Second, ASEAN countries can ensure their digital talent gaps are met and their young utilised efficiently across national borders.
CONCLUSION
COVID-19 and the rise of the digital economy have provided an excellent opportunity for ASEAN to accelerate its regional integration push. The ecosystem of the digital economy can be sustained in the long run if the demand for digital skills and talent can be met. There are three key opportunities for ASEAN. First, ASEAN can collaborate with regional technology companies on digital education efforts to scale up the integration of the digital workforce regionally. Second, ASEAN must consider adding digital workers to the ASEAN MRAs to facilitate the mobility of professionals in the region and to make sure that its policies are operationalised. Third, ASEAN needs to facilitate intra-ASEAN student mobility and digital skill advancement early through educational platforms such as the AUN and other student mobility programmes.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- ASEAN regionalism is increasingly seen as being slow and ineffective, casting doubts on its leadership role in the region.
- Minilateral cooperation in ASEAN will allow a smaller group of like-minded ASEAN countries to work together in a targeted manner to deliver results where it matters.
- Such cooperation is not meant to replace multilateralism but rather to supplement what is not possible in the broader setting, and to promote its eventual expansion into greater regionalism when the time is ripe.
- Minilateral cooperation currently exists in ASEAN in many forms, such as: The Malacca Straits Patrol between Indonesia, Malaysia, Singapore and Thailand; the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area, and; the Laos-Thailand-Malaysia-Singapore Power Integration Project, among many others. This allows ASEAN countries to respond to opportunities and challenges in their geopolitical environment and to overcome weaknesses in existing ASEAN cooperation.
- ASEAN should look beyond existing minilateral cooperation to address in like manner more challenging issues such as the South China Sea.
*Joanne Lin is Co-coordinator of the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute, and Lead Researcher (Political-Security) at the Centre. Laura Lee is currently a Public Policy and Global Affairs undergraduate at Nanyang Technological University. She was an intern at the ASEAN Studies Centre from May to September 2022.
ISEAS Perspective 2023/16, 8 March 2023
INTRODUCTION
Minilateral groupings such as the Quadrilateral Security Dialogue (QUAD) and the trilateral security pact between Australia, the UK and the US (AUKUS) in the Indo-Pacific region have called into question the effectiveness of ASEAN and the security benefits it offers. It has also cast doubts on ASEAN’s centrality, especially its ability to satisfy the strategic needs of major powers.[1]
Although multilateralism will ensure an equal voice across all member countries (regardless of size and power), multilateral organisations are increasingly finding themselves in a deadlock, unable to act or slow to act, resulting in sub-optimal results.[2] This is starkly exemplified in the UN’s failure to prevent the outbreak of the Russia-Ukraine war or to end it.
Similarly, ASEAN finds itself increasingly unable to overcome challenges, with differing national interests among member states leaving the grouping divided and increasingly unable to achieve consensus. Since the bloc’s expansion from six to ten members in the 1990s, the divide between maritime and the newer continental (Mekong) countries in Southeast Asia has also become obvious.
In the State of Southeast Asia 2023 Survey Report[3], the top concern about ASEAN among regional respondents (at 82.6%) is that “ASEAN is slow and ineffective, and thus cannot cope with fluid political and economic developments, becoming irrelevant in the new world order”.
This has prompted observers and scholars to call for a paradigm shift to overcome ASEAN’s bureaucratic processes and institutional hurdles, and to become a nimbler organisation that can quickly adapt to rapid geopolitical and economic developments.[4]
This article suggests that ASEAN’s ineffectiveness may be overcome by a constructive form of ‘ASEAN minilateral cooperation’ that allows like-minded ASEAN countries to work together through concrete activities towards shared priorities (especially strategic ones) in a targeted manner for maximal impact.[5] Such minilateral cooperation could focus on issues of common interest and should not be mistaken for minilateral decision-making, which goes against the principles of the ASEAN Charter.
This is aligned to the growing preference for minilateral cooperation among countries (including major powers and ASEAN members). Besides the QUAD and AUKUS, there has been an increasing number of trilateral collaborations and engagements such as the trilateral security dialogue between Australia, Japan and the US and the Australia, India and Indonesia (AII) trilateral. The Five-Power Defence Arrangement between Australia, Malaysia, New Zealand, Singapore and the UK is an example of minilateral consultative defence cooperation; this was signed in 1971 to safeguard the external defence of Singapore and Malaysia,[6] and its functions later evolved to include non-conventional threats such as piracy and disaster relief.[7]
MINILATERAL DECISION-MAKING VERSUS MINILATERAL COOPERATION
Minilateralism is not entirely new to ASEAN. The regional organisation has a history of working in smaller groups. According to the ASEAN Charter Article 21, in the implementation of economic commitments, a formula for flexible participation, including the ASEAN Minus X formula, may be applied where there is a consensus to do so.”[8] It allows for the gradual, delayed participation of X number of state(s) in economic agreements, given the consensus of all member states (including the X states). This is to enable ASEAN to advance its cooperation and integration without being held back by members who are not ready.
However, misconceptions arise when the ASEAN-X formula is extended to decision-making process within ASEAN, as advocated by some scholars and practitioners. Often, this fails to recognise the high-degree of apprehension among several member states towards any shift away from the ASEAN fundamental principle of consultation and consensus, toward a majority-vote decision-making process.
For example, Professor Thitinan Pongsudhirak has suggested an a la carte formula allowing willing members to take common positions without waiting for unanimity among all ten countries. His proposed “ASEAN 5+X” model will allow the five original members of ASEAN, namely Indonesia, Malaysia, the Philippines, Thailand and Singapore to serve as a renewed core.[9] However, such a formula may go against ASEAN’s principle of equality (irrespective of the length of membership) and may deprive the newer members of the opportunity to lead ASEAN.
Similarly, in the case of the ASEAN Intergovernmental Commission on Human Rights (AICHR), Professor Vitit Muntarbhorn, a UN independent expert, viewed the “X minus Y formula” as a healthy development, especially as the credibility of AICHR is likely to suffer if it sits still on issues that require a substantive response” such as the situation in Myanmar.[10]
While these are innovative suggestions to help ASEAN overcome its alleged tendency to be slow and ineffective, the fear that one’s national interest or position can be overridden by a majority-vote will not sit well with member states. The entrenched processes within ASEAN are unlikely to be open to overnight reform.
Minilateral cooperation as suggested here is not about decision-making in a small group but rather, about an interest group being formed to focus on issues that matter more to some countries than to others. Humanitarian mine actions for example would be more relevant to ASEAN countries impacted by landmines and explosive remnants of war such as Cambodia and Laos, than to others. As such, ASEAN should not view minilateral cooperation to be an activity carried out by an exclusive group of members, but as an initiative involving an initial group of members that are ahead in certain areas of cooperation, and that will expand over time to include other interested members.
Premised upon the non-exclusive nature of such minilateral cooperation, the ASEAN-X formula can be expanded beyond economic cooperation into the security domain (such as areas like terrorism and preventive diplomacy)[11] in order to make progress on key transnational challenges, as well as future areas of cooperation such as artificial intelligence and space technologies where some members may not yet be ready.
ASEAN minilateralism can also take the form of a group of ASEAN members playing a greater leadership role in areas of cooperation that are specifically of greater relevance to them, such as in the case of the South China Sea where only four members are direct claimant states.
EXISTING MINILATERAL COOPERATION IN ASEAN
Similar to minilateral cooperation among major and middle powers, ASEAN countries have tried to develop various security configurations of their own in order to advance their own interests and respond to the opportunities and challenges in their geopolitical environment.[12] This takes into consideration existing gaps in ASEAN cooperation.[13]
On the security front, the Cambodia-Laos-Vietnam Trilateral Security Cooperation is an example of minilateral cooperation within ASEAN. It boosts cooperation in defence and humanitarian assistance between these three countries which have lingering border management and war legacy-related issues that can occasionally flare up.[14]
Another is the Malacca Straits Patrol between Indonesia, Malaysia, Singapore and Thailand, which was launched in 2004 to enhance security in the Straits of Malacca and Singapore through coordinated sea patrols and facilitate the sharing of information between ships and their naval operational centres.[15] Likewise, the Sulu Sea Trilateral patrols—a minilateral security collaboration between Indonesia, Malaysia and the Philippines,[16] was set up in 2017 to address transnational challenges in the Sulu Sea between the three countries. There have been talks to expand and broaden the partnership to other countries in Southeast Asia.[17]
Beyond the trilaterals and quadrilaterals, Our Eyes initiative—a platform for strategic information exchange to combat terrorism and violent extremism among six ASEAN countries, namely Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand—was launched in 2018.[18] The was later adopted as ASEAN Our Eyes initiative under the ASEAN Defence Ministers’ Meeting (ADMM) and serves as an example of a sub-regional minilateral initiative expanding into a full regional mechanism.
More recently, the first ASEAN Coast Guard Forum—initiated by Indonesia—took place last November to boost maritime security. Eight of the ten ASEAN countries, excepting for Myanmar and Cambodia, attended it;[19] the event was followed by the signing of the ASEAN Coast Guard Declaration[20] to promote safe and secure sea lanes in regional seas. What started as a proposal by the Indonesia Maritime Security Agency (Bakamla) to “present a coordinated approach” in matters relating to the South China Sea [21], generated a smaller grouping, made up particularly of those most directly involved, such as the claimant states in the case of the South China Sea, that could take the lead. A similar, but more extreme view was also expressed by Philippines’ Senator Maria Imelda Marcos when she proposed a code of conduct among claimants, instead of the 10-member ASEAN and China.[22]
Apart from security initiatives, ASEAN minilateralism in the economic sector such as the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA, launched in 1994) allows the four ASEAN members to boost growth in trade, investment and tourism through intra-regional shipping routes and air links. While boosting sub-regional economic growth, the initiative also contributes to greater ASEAN economic integration.
A new initiative for a regional QR code payment to be constructed between the central banks of five ASEAN members—Indonesia, Malaysia, Philippines, Thailand, and Singapore, launched in November last year[23] is also a form of minilateral arrangement that can help advance ASEAN economic integration, starting with partners who are ready and willing to later expand to include others in the grouping.
Likewise, energy cooperation through the ASEAN Power Grid to promote regional power interconnection is currently in a “minilateral” phase.[24] At this point, the Laos-Thailand-Malaysia-Singapore Power Integration Project serves as ASEAN’s pilot in addressing technical, legal and financial issues of multilateral electricity trade.[25]
The ASEAN Power Grid was originally envisioned in the 1990s as a region-wide initiative to encourage collaboration on energy efficiency and renewable energy innovation. However, after 20 years, not much progress has been made due to differences in energy policies and commitment, as well as economic inequality among ASEAN member states.[26]
To go beyond this difficult situation, countries that are ready for broader cooperation in the energy sector could proceed first and let others to follow when ready. In this way, cross-border cooperation on bilateral terms may be expanded to a sub-regional level, and ultimately allow for the creation of an integrated multilateral ASEAN power grid system. Similarly, the Trans ASEAN Gas Pipeline could potentially be another model of how bilateral and minilateral cooperation within ASEAN that has the potential to be scaled up to regional level.
EXPLORING NEW MINILATERAL INITIATIVES IN ASEAN
Beyond existing minilateral cooperation in ASEAN, there is potential for ASEAN to expand such an approach in order to address more challenging issues. The South China Sea is an area of contention within ASEAN due to competing national interests and to deep differences between ASEAN countries and China. ASEAN and China have worked together for 20 years on a Code of Conduct in the South China Sea,[27] but with no clear end in sight.
Claimant and non-claimant states within ASEAN may not share the same level of interest and priority with regard to the negotiations. Four out of the ten ASEAN members are claimant states, namely Brunei, Malaysia, the Philippines and Vietnam, while Indonesia has an overlapping claim with China in the Natuna Islands. Scholars have observed that non-claimant members have little or no interest in standing up against China.[28] They have also noted the possibility of an intra-ASEAN caucus (or an ASEAN South China Sea Forum) to coordinate more closely with each other on their respective national positions on the South China Sea issue and the Code of Conduct negotiations.[29] Such a caucus or forum may also be used for intra-ASEAN settlement of disputes. By settling disputes among themselves first, ASEAN claimants of the South China Sea may have a stronger stance in negotiating a Code of Conduct with China.[30] A consensus between the claimant states could serve as ASEAN’s negotiating position against China, resulting in greater bargaining power for ASEAN.
Indonesia and Vietnam set the stage for closer coordination by coming up with an agreement to demarcate their exclusive economic zones (EEZ) in December last year after 12 years of negotiation. The successful EEZ delimitation between Indonesia and Vietnam may also encourage the Philippines and Malaysia to follow suit.[31]
However, for such a minilateral caucus to work, a consensus should first be reached among all ASEAN countries to agree to leave certain issues and decision-making to a group of ASEAN members. In the case of the South China Sea, once claimant states have agreed on a common position, consensus should also be sought from non-claimant states, since the COC is to an agreement between all ten ASEAN countries and China (rather than between the claimant states alone).
Another potential area for minilateral cooperation is the ASEAN peacekeeping force. The initiative was proposed in 1994, 2003, and 2015 by Indonesia and Malaysia but failed to attain consensus among all ASEAN members. [32],[33] This is considering that eight ASEAN members (except Laos and Myanmar)[34] have contributed to the United Nations peacekeeping missions. The ASEAN Defence Ministers’ Meeting has been cooperating closely on peacekeeping operations, including through the ASEAN Peacekeeping Centres Network (APCN).[35] However, a joint force under the banner of ASEAN seems to be a distant dream. For the strong proponents of this initiative, perhaps a good starting point could be an ASEAN-X peacekeeping force to which willing members may contribute under the banner of ASEAN, allowing other members to join when they are ready.
Other forms of minilateral cooperation to complement ASEAN’s work could be in enhanced cooperation on counter-terrorism and anti-radicalisation among high-risk countries such as Indonesia, the Philippines, Malaysia, and Singapore.
CONCLUSION
Evolving geopolitical developments necessitate an exploration of new approaches to cooperation in order for ASEAN to stay relevant and uphold its centrality. The opportunity cost is high if ASEAN fails to take concrete action in dealing with important regional issues such as the South China Sea. While the preservation of ASEAN unity is important, the regional bloc must balance the usefulness of moving together against the loss of credibility if it fails to act.
Minilateral cooperation within ASEAN will allow it to make greater progress and to better serve the diverse interests of member states. Such cooperation is not meant to replace multilateralism but to supplement what is not possible in the broader setting, while facilitating its eventual expansion into greater regionalism when the time is ripe.
ENDNOTES
For endnotes, please refer to the original pdf document.
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