ASEAN Economic Community: In Search of a Single Production Base

June 13, 2017/in ASEAN Notes/by aseansc

A key motivation behind the pursuit of a comprehensive ASEAN Economic Community is to establish a single production base. By doing so, ASEAN member states hope to increase their competitiveness, which in turn will boost exports and continue to attract investment to the region. However, whilst ASEAN has been successful in tariff reduction, Non-Tariff Barriers (NTBs) impede a truly single production base and ASEAN Economic Community. Given the slow progress at the regional level, ASEAN members must individually take unilateral action in addressing NTBs, as well as advancing trade facilitation measures, such as coordinating and sustaining investment in infrastructure with a regional orientation.

Why does ASEAN need to establish a single production base? In the last decade, the way that the globalised economy conducts trade has undergone dramatic transformation. Whereas in previous decades goods were produced from their initial to final production stage in one country, we have now moved to global production sharing. Trade is now increasingly intra-firm, with design, trading of parts and components, and final assembly conducted across global production networks. The place of a country in the value chain of global production involves specification in a certain task based on relative cost advantage, which determines production locations and trade flows. Furthermore, the division of production has become more fragmented and no longer solely confined to the production of goods, with the growth of the service sector that goes into the production of final goods.

ASEAN members are integrated into these production networks given their export led growth models. However, the relatively smaller economies of ASEAN member states have not been large enough to produce products from start to finish in one country competitively. Through this process, ASEAN members struggle to move up the production chain into value-added production. Furthermore, import substitution measures in previous decades that have sought to address this have shown to be inefficient and impede rather than advance economic growth, whilst failing to move countries up the value chain sustainably.

Furthermore, the huge and growing internal markets of China and India, as well as other regional trading arrangements such as the Single Market of the European Union (EU) and North American Free Trade Agreement (NAFTA), have created structural change in the global political economy. For ASEAN members who value foreign direct investment for economic development, these structural changes have led to trade and investment diversion away from their economies, and ASEAN has received a diminishing share of foreign direct investments. This has acted as a driving force for ASEAN economic integration, as establishing a single regional production base would allow ASEAN to exploit economies of scale and increase the region’s competitiveness.

Achieving this goal has never been so relevant for ASEAN. Regional production sharing creates opportunities for participation in the international division of labour, with factor endowments and relative prices determining which country produces what components. Small and developing ASEAN member states can choose to specialise in a stage of production, and a regional production base further allows for small and medium enterprises within ASEAN to specialise in any one part of the value chain to engage in global trade. Developing member states in ASEAN should engage in the way trade increasingly takes place in the form of ‘tasks’ at the regional level rather than goods being produced from beginning to end in a given country to exploit comparative advantage.

However, political and institutional constraints have impeded the realisation of this goal. On the one hand, ASEAN members have not been ready to liberalise their markets as their members economies are competing rather than complementary. Furthermore, politically sensitive sectors continue to be protected. Despite attempts to liberalise trade since the 1992 ASEAN Free Trade Area, Non-Tariff Barriers (NTBs) such as complex licensing regulations, quotas, and corrupt customs procedures continue to be significant impediments to regional free trade. Furthermore, ASEAN has been institutionally weak in addressing NTBs, given the lack of a coercive mechanism to ensure compliance and limited monitoring capacity of the ASEAN Secretariat.

Non-Tariff Barriers in ASEAN create an environment that is inefficient and increases the costs for engaging in regional production. Alternative and non-complementary sets of rules, uneven product standards, and mixed tariff measures under bilateral and weak multilateral agreements prevent harmonisation, and act as serious impediments to regional integration and discourage investment. As a case in point, Multinational Enterprises (MNEs) have become the leading vehicle for ASEAN member states to enter global production networks. However, ASEAN members have been increasingly unattractive to MNEs to engage in regional production due to the extra costs of production sharing through non-tariff barriers, poor infrastructure and connectivity, and the difficulty of coordinating activities regionally into the production of a final good. These associated costs often outweigh the gains of lower labour costs, where ASEAN members often derive their current comparative advantage.

Thus establishing an integrated single production base seeks to address these issues. Trade based on regional production sharing, through networked trade or value chains, functions more efficiently through a regional trading system with one set of rules, standards, and market access commitments. By creating a single production base with tariff free movement between ASEAN members, the costs of producing goods from start to finish in the region will be significantly reduced. This would enhance competitiveness that would boosts exports, and make the region a more attractive for investment.

To realise a single production base and true ASEAN Economic Community, ASEAN needs stronger institutional governance. However, given the slow progress on this at the regional level, ASEAN member states should act unilaterally in tackling NTBs. In complementing the pursuit of a single production base, ASEAN members must continue to invest in infrastructure and improve regional connectivity. Through better infrastructure, the costs of producing goods and services regionally will be significantly reduced. This allows for trade facilitation that allows for better regional integration and improves competitiveness.

Having said this, ASEAN has made some positive steps towards establishing a single production base, however much is left to be achieved if ASEAN is to achieve a truly single market and ASEAN Economic Community.

Suraj Shah is a Visiting Fellow at ASEAN Studies Center, Faculty of Social and Political Sciences, Universitas Gadjah Mada.

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RELIGION: BOON OR BANE FOR DEMOCRACY?December 20, 2023 - 12:32 am
In December 2022, the Indonesian government passed a law that penalizes sex outside marriage. This is only one of the many changes in the criminal code that observers warn of the increasing conservatism in the country.

Indonesia houses the largest Muslim population in the world and is also a republic whose democratic experiences and milestones have been widely studied by scholars within and beyond the region. This makes Indonesia a compelling case for reflection on the nexus and tensions between religion and democracy. Is religion compatible with democracy? What opportunities and challenges does the “Islamic Renaissance” entail in the country? Democracy on Religion

Liberal democracy espouses secularism, the separation of church and state, and freedom of religion. In an “ideal” democratic system, the state must not endorse nor support any specific religion while guaranteeing the free exercise of religion among citizens. This is essential in a democracy for many reasons. Religious freedom is a crucial civil right that enhances citizens’ individuality and relations with others. It stops one religion from dominating society, hence promoting diversity and co-existence. At the same time, it prevents policies from being framed according to religious beliefs, which may result in discrimination and repression of fundamental human rights.

Religion and its Tensions with Democracy: The Case of Indonesia

This is particularly important for Indonesia. While the country is predominantly Muslim, Indonesia also has many ethnolinguistic groups with different cultures and practices. It is a challenge in itself to build one nation with an immensely heterogeneous society. The diversity in the country resulted in years of ethnic conflict and violence. Even a religious minority, the Ahmadiyya, faces intimidation and oppression in the exercise of their faith. Indonesia’s dilemma points to the longstanding debate in human rights discourse and practice – are human rights universal, or are they relative to culture and local customs? While I am more inclined to support the former, it is important to be aware and carefully consider the context of a country when designing human rights advocacy and interventions.

However imperfect, the democratization process in Indonesia has assisted in facilitating efforts for reconciliation and balancing competing interests in the country. Recently, the President stunned the world when he acknowledged past grave human rights abuses in the country, including an anti-communist purge in the ’60s and the arrest of democracy activists during the Suharto presidency.

Indonesia sits in between secularism and theocracy. The country’s fundamental law espouses Pancasila, which is the foundational political theory of Indonesia. Through its five principles, Indonesian society believes in one God and aspires to create a just and civilized humanity, unity, democracy, and social justice for all. This tells us that, by principle, Indonesia gives importance to pluralism and citizenship. Scholars and practitioners of the law also adopt legal pluralism and believe that different legal systems are complementary rather than contradictory. For example, community practices and customs are considered along with national and local regulations in settling disputes and conflicts at the village level.

However, in recent years, Indonesia has seen the expanding role of Islam in the country’s social and political life. Aside from Islam being a “source of ethical and cultural guidance”, many Islamic organizations have secured formal power, which allows them to easily introduce measures within the state apparatus that cement their own interests. Hardliner Islamic groups have also proliferated, and fundamentalist thought and practices are becoming more and more widespread. Islamic identity politics have also been evident since Widodo coalesced with conservative Islamic factions and appointed Amin, an influential Islamic figure, as his vice president. The new penal code tends to be more religious than secular. This has implications for Indonesia’s supposed secularism and diversity. How can the Indonesian government best represent the interests and aspirations of all?

As Indonesia continues to modernize and extend its economic and political ascendancy in the region, rapid changes in its social relations and dynamics are also expected. This demands a more careful look at the kind of laws and “social controls” that the government enforces. Suppose conservative forces are forwarding laws in the name of protecting tradition and keeping Indonesian values in check. In that case, it should not be at the expense of fundamental civil and political liberties, nor should it be to repress vulnerable groups even further, such as women, LGBT+, and ethnic communities. Admittedly, this is easier said than done. Hence, political representation must reflect the diversity and vibrance of Indonesian society. If only one group dominates political and policy discourse, it ultimately jeopardizes the general will.

When religion becomes the yardstick for crafting rules and policies, it creates biases, whether intended or not. Propositions that are credible and necessary but “contradictory” to a certain religion may be rejected simply because they do not fit the personal convictions of decision-makers. Integrating religion into politics usually leads to oppressive and harmful policymaking. Religion is also a form of heuristics or cognitive shortcut that devalues deliberation and discussion. Instead of scrutinizing issues, people may resort to using their religion as the sole basis for their position on a particular matter. Democracies ought to be deliberative and pluralistic.

Human rights activists and organizations in Indonesia have sounded the alarm on many changes in the criminal code that could stifle individual freedoms and lead to setbacks in the country’s democratic progress. Aside from banning sex outside marriage, the government also reinstated laws that criminalize insulting the President and other state officials and institutions. They also increased the punishment for blasphemy. These laws can be disproportionately used against individuals and groups with legitimate criticisms and concerns about the government. It may also render already marginalized communities even more vulnerable. Religion, Populism, and Repression

This trend is not only unique to Indonesia. Much of the world has seen the rise of “nationalist” movements, often within the pretext of religion and safeguarding culture. India’s Modi has exhibited Hindu nationalist tendencies, which have meant greater intolerance against the Muslim minority in the country. Myanmar’s Tatmadaw has weaponized Buddhism to rally support from the public and account for its atrocities.

The use of religion to justify repressive and oppressive regimes is apparent. Religion is an effective tool to unify a group of people and subject them to a specific set of beliefs and values, which may be highly prejudiced and absurd. Religion acts as a moral compass that defines what is right and what is wrong. Because religion is subjective, it can easily be manipulated to serve political objectives. Populists and autocrats can bastardize religion to create a public enemy, instill an “us vs them” mentality, and sow further polarization.

Failed democracies thrive out of fear, whether it is real or manufactured. Religion can be a potent force to ingrain this fear. This hysteria against change and modernization is easy to whip up when people already have preexisting beliefs. It is not too difficult to segregate people and label them as the “other”. When this distinction is entrenched, it is convenient to normalize discrimination and violence.

It is said that Indonesia is a model for “Moderate Islam” when compared to the Middle East; the “Indonesian way” can complement Western values and democracy. It also has the potential to correct Islamophobia and promote Islam as a religion of peace. On the other hand, if Indonesia cannot find its balance and condone fundamentalist and hardliner Islamic groups to flourish, Indonesia will certainly regress in its hard-won democratic gains.

Religion has inherent contradictions with democracy. Subscribing to a religion and structuring a supposedly diverse society using its tenets is monopolistic and can bring about intolerance. It is paramount for democracies to ensure that civil, political, and socioeconomic rights are not deprived based on religion and other forms of cleavages. The access and exercise of power should be as widely distributed as possible. Public office should not be limited to certain political clans or religious organizations. For instance, at the village level, cultural and socioeconomic elites must share power and administration with vulnerable and historically marginalized groups. There are more reasons and illustrative cases, present and past, to posit that religion is more of a bane than a boon to democracy. At the moment in world history when (dis)information is fast and instant, we must maintain vigilance in dealing with autocratic agendas in the guise of “respecting” values and tradition. It is easier to believe and conform than to reflect and deliberate. But democracy dies when we rely on shortcuts to define what is good for us. Democracy dies, slowly and deliberately, when we allow a few to sabotage our freedoms and liberties to increase their own. Demagogues and despots are usually cunning and do things “in the name of God”.

REFERENCES

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Evans, T. (2012). Separation of Mosque and State in Indonesia. Policy, 27(4), 35–39.

Głodek, A., & Grzywacz, A. (2020). Indonesia – between religion and democracy, Warsaw: Boym Institute. Retrieved from https://instytutboyma.org/en/indonesia-between-religion-and-democracy

Jaffrey, S. (2020). Is Indonesia Becoming a Two-Tier Democracy?, Washington D.C.: Carnegie Endowment for International Peace.

Jamaluddin, M., Chen, H. & Watson, A. (2022). Indonesia bans sex outside marriage as parliament passes sweeping new criminal code, Jakarta: CNN.

Klinken, G. v. (2019). Living in a Sacred Cosmos: Indonesia and the Future of Islam. Journal of the Humanities and Social Sciences of Southeast Asia, 175(1), 81–135. http://doi:10.1111/jssr.12088

McWilliams, E. (2018). Democracy in Indonesia: A Progress Report, Washington D.C.: The Foreign Service Journal.

Nagda, A. (2020). The Diplomat. [Online] Available at: https://thediplomat.com/2020/03/the-islamization-of-indonesias-foreign-policy/

Omelicheva, M. & Ahmed, R. (2018). Religion and politics: examining the impact of faith on political participation. Religion, State, and Society, 46(1), 4–25.

The World Factbook. (2023). Indonesia, s.l.: Central Intelligence Agency.

Wieringa, S. E. (2006). Islamization in Indonesia: Women Activists’ Discourses. Signs: Journal of Women in Culture and Society, 32 (1), 40–27.

Short Biography:

Kay Conales is a student of the Asia Pacific-Master of Arts in Human Rights and Democratization of the Institute of Human Rights and Peace Studies (IHRP) of Mahidol University (Thailand). She also studied in the Faculty of Social and Political Sciences (FISIPOL) of APMA’s partner-university Universitas Gadjah Mada (Indonesia). She can be reached through e-mail at ksconales@gmail.com.

ASEAN Economic Community: In Search of a Single Production Base

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