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.

China officially launched the Belt and Road Initiatives on May 2017. Attended by 29 partner countries (with the absence of some prominent neighbours such as India), the launching of the initiative has marked a new direction in China’s foreign policy, with scholars has signalled this initiative as a new shift in international politics.

The so-called “Belt and Road Initiatives” (BRI), however, is not Beijing’s new foreign policy project. It has been formulated since 2014, which was coincided with the establishment of Chinese-led initiative, the Asian Infrastructure Investment Bank (AIIB). Unlike AIIB, however, Beijing’s direct involvement is more prominent in the BRI, in which the initiative was directed and strongly controlled by Beijing, whilst the AIIB tended to be multilateral and based on expertise.

The ‘Old’ and ‘New’ Politics of Regionalism

The rise of BRI has raised some questions over the future of regionalism in many parts of the world. In 1995, Andrew Hurrell theorised the resurgence of ‘new regionalism’, which witnessed the political order into a new form of interstate cooperation based on geographical and spatial proximities. New Regionalism, he argued, emerged because of world reordering after the Cold War, which witnessed the fall of the Soviet Union and some new patterns of cooperation, which is different with the past.

However, some new developments in the 2000s have also showed stagnation and, more recently, signals towards reversal. Prior to the launching of BRI, the world has witnessed the crisis in the European Union (EU) with the United Kingdom called for exiting the EU through a referendum in 2016. On the other part of the world, ASEAN has also showed stagnation in the negotiation over South China Sea (although the diplomatic fora still continues until present) and the talks over the Regional Comprehensive Economic Partnership.

This is not to mention the shift in United States’ foreign policy under President Donald Trump, who seems not to be interested in maintaining the liberal world order, which is arguably central in the US foreign policy in the last decade.

The rise of Chinese-led AIIB and BRI therefore should be understood in this historical and political trajectory. At least three keys explanations pave the way of ‘the rise of China’ and its infrastructure project.

First, we need to understand ‘the rise of China’ as an effect of the 2008 global financial crisis that put the Anglo-American power, which has arguably been established since the Second Bretton Wood, at stake. The global financial crisis in the US and Europe has hit the most fundamental foundation of Anglo-American ‘structural power’, namely the financial architecture. As a result, many states are forced to adjust their key financial policy into the macro prudential reform that gives more power to the state to regulate national financial environment.

Yet, the recovery from the 2008-2009 crisis is not as smooth as analyst and scholars predicted. It contributes to the unrest in Greece, the rise of right-wing populism in many European states, as well as to the recent Brexit referendum in the United Kingdom. China, in contrast, has showed not only resilience to the crisis, but also its power to navigate the world political economic order through state-led industrial and developmental policies. With the decline of Anglo-American ‘neoliberal’ order, China has slowly gained prominence in world politics.

Second, the rise of China has also enabled by what Andrew Baker said as ‘ideational shift’ in the construction of world political and economic order. Since 1980s, the so-called Washington Consensus” has been taken seriously as the only alternative to manage the world economy. However, with the decline of neoliberal order amid the global financial crisis, the idea of free-market social liberalism that constitutes the foundation of liberal political-economic order has also been declined.

Interestingly, in early 2010s, the World Bank released a new document that redefines the framework for economic development, namely “New Structural Economics”. Authored by the Bank’s then Chief Economist, Justin Yifu Lin, the document has challenged the prominence of free-market mechanism and called for the return of the state in supporting industrial projects through constructing infrastructural cooperation. The framework may be debated among Economist, but it has undoubtedly re-framed political economic order into a new state-led direction, with many scholars referred as the return of ‘Keynesianism’ in world political economy.

Third, the rise of China could also be interpreted as the transformation of ‘territorial logic’ of regionalism to a new ‘infrastructural logic’ brought by the AIIB and BRI. I argue that this transformation has been enabled by the changing countours of world political economy with the decline of the neoliberal order and the rise of ‘new structuralism’ in world politics. The AIIB and BRI utilised this transformation to create a new basis for Chinese ‘structural power’ in world politics.

The Changing Logic of Territoriality

Theorists of new regionalism and the liberal institutionalists tended to argue that regionalism is crafted by a process of integration, which occurs in a set of geographical and territorial boundaries and unites the states within the boundaries to cooperate each other to maintain stability and avoid conflicts. It is the case with the ASEAN, in which the result to respondthe Cold War conflict and establish cooperation in a set of territorial boundaries, namely ‘Southeast Asia’.

However, missing from their argument is the historical origins of the ‘territorial logic’ that underpins this regional integration. Yet, in the 1990s, several Indochinese countries have agreed to join ASEAN, which marked the extension of territorial boundaries of the regionalism project. It shows that the ‘territorial logic’ that underpins regionalism, particularly in Southeast Asia, is constructed historically and socially. It was socially constructed by the changes in international political order and historically constructed by the similar political background with other ASEAN member states.

The Chinese-led Belt and Road Initiatives, I shall argue, challenges this old ‘territorial logic’ and offers a new framework of regionalism based on the infrastructural and, furthermore, industrial cooperation. This form of cooperation is not new; ASEAN has attempted to establish such cooperation in the 1980s. However, the so-called ‘ASEAN Industrial Project’ was soon replaced by ASEAN Free Trade Area, which was based upon the ‘neoliberal’ logic of cooperation.

With the decline of neoliberal order and the rise of this mode of infrastructural cooperation, it will not be surprising to see the return of more complex form of regional infrastructural and industrial cooperation in the future. The infrastructural cooperation will arguably leads into a deeper connection of regional project, regardless the geographical locus of cooperation, with China leads the way to finance the cooperation.

Consider, for example, China’s involvement in Africa. With growing multilateral projects on African infrastructural development, China has showed that regional cooperation could also involve external partners, particularly when it comes to development project. As Justin Yifu Lin and Andrea Goldstein has recently argued, the rise of infrastructural cooperation could lead into ‘African Industrial revolution’, which obviously re-frame African economic cooperation in the region.

Moreover, the rise of Belt and Road Initiatives necessitates a new understanding of regionalism in world politics. It is clear that logic of regionalism is on the way for being challenged by the rise of new pattern of cooperation brought by China. However, regionalism is still far from crisis. It is the task for scholars who study regionalism in Southeast Asia to lay out future research programmes to respond this new politics of regionalism in the future.

Ahmad Rizky Mardhatillah Umar is a Researcher at ASEAN Studies Center, Universitas Gadjah Mada

‘Brexit’ has created shockwaves through the European Union and called into question whether regional integration is sustainable, and ASEAN is watching developments closely. A key issue that ASEAN must learn from ‘Brexit’ is to address the ‘Communication Deficit’ by engaging in social integration.

The ‘Communication Deficit’ refers to the difficulty European institutions and actors have in disseminating information to the citizens of Europe. A lack of information often creates suspicion and skepticism, and undermines the trust society has in its institutions. Indeed, common criticisms of the European Union point to its elitist, highly bureaucratised and complex structures. Furthermore, communication administered by the European Union is of an academic nature consisting of technical jargon, reducing accessibility for the nonprofessional. From the British perspective, the elitist nature of the European Union has been popularised by leading Eurosceptic Nigel Farage, who in 2010 questioned the leadership credentials of the President of the European Council Herman Van Rumpy and the democratic structures of the European Union:  

“You have the charisma of a damp rag, and the appearance of a low grade bank clerk. And the question that I want to ask, that we’re all going to ask, is who are you? I’ve never heard of you, nobody in Europe has heard of you. I would like to ask you Mr. President, who voted for you?… And what mechanism do the peoples of Europe have to remove you? Is this European democracy?”

The notion of a ‘Communication Deficit’ in the European Union has been acknowledged for some time. In Bernd Spanier’s 2012 chapter entitled ‘Europe, anyone?’, he tracks the use of popular voting in individual member-states to decide on European wide issues in the period between the Maastricht Treaty in 1992 until the Global Financial Crisis in 2008. Poignantly, he argues that such voting systems are ‘problematic when member states which usually adhere to a representative model of democracy, suddenly resort to direct, plebiscitary models whenever fundamental decisions about Europe are to be taken.’

A key issue that Spanier highlights is that the lack of clarity of information regarding the inner workings of the European Union significantly raises the political transaction costs in seeking policy ratification at home. From a European perspective, this often leads to unfavourable outcomes, where political processes often distort the realities of European governance. Indeed, political game theorist highlights where ministers in council agree to unpopular measures, and then blame these unpopular measures on Brussels on their return home to retain their own political capital. Finally, the lack of pan-European media outlets to report on the European Union mean that national media outlets disseminate information to the public, creating space for a nationalist version of events.

The European Union has attempted to address this problem, though with little success. The Commission’s 2005 White Paper on Communication Policy proposed to move from ‘institution-centered’ to ‘citizen-centered’ communication. Furthermore, the European Parliament’s 2006 Herrero Report called for improving general knowledge regarding the European Union amongst its citizens. However, Britain’s referendum outcome in favour of ‘leave’, and in particular the character of the debates leading up to the referendum, show that the European Union has failed in addressing the ‘Communication Deficit’.

A key theme of the debates in the run up to the referendum was that traditional arguments based on economic reasoning did not have the desired persuasive effect of encouraging undecided voters to vote for ‘remain’. Indeed, one could argue that Chancellor George Osborne’s hyperbolic claim that households would be £4,300 worse off as a result of ‘Brexit’ served to alienate and create further distance between the voters and pro-European political classes.

Instead, arguments that created greater resonance amongst the electorate were those that focused on ‘values’ rather than economic reasoning, with Michael Gove’s now (in)famous quote “The British people have had enough of experts.” Political rhetoric instead focused on immigration, sovereign democratic values and competing visions of Britain’s sense of nationhood, and the ability of Britain to ‘take back control’ to model a future of its own making.

Why did the debates escalate into the less tangible issue of ‘values’, rather than focusing on the material issues at hand? One could argue that the ‘Communication Deficit’ means that European Citizens are largely unaware of how the European Union affects their daily lives. Indeed, surveys have frequently shown a significant proportion of the electorate were not entirely sure of what the EU is, does, or how it functions. What appears to be counter intuitive was that some of the regions that voted most heavily in favour of Britain leaving the European Union were those in receipt of the most EU development funding per person. Thus, the battleground became one of competing visions of what Britain’s underlying ‘values’ were, and whether or not they were compatible with the values of the European Union.

These constructivist elements of ‘values’ and the ‘Communication Deficit’ are especially pertinent in the British context. The rhetoric behind the founding of the European Union often highlights the efforts between France and Germany to establishing long lasting peace, which it has certainly been successful in this goal. These primary values that underlie the supranational institution of the EU, create value commitment for the French and German’s to the EU. However, this has not been the case for Britain. Indeed, rhetoric often focused on how Britain was an awkward participant of the EU, joining later only in 1973, retaining the pound in currency and not participating in the Schengen area. In light of this, British electorate felt they had less of a stake in the EU project. Thus in retrospect, Britain was especially susceptible to the negative effects of the ‘Communication Deficit’ and the failure of the European Union to communicate with the British electorate at the grassroots level has contributed to feelings of alienation and disenfranchisement.

This focus of the debate on ‘value’ rather than economic reasoning is often decried by those who campaigned to ‘remain’. However, in the complex processes of institution building, the importance of values should not be discounted. Institutionalists such as Douglas North argue that formal institutional design is the constitutive expression of the underlying values of a society, no matter how immaterial or intangible they are. One could argue that the ‘Communication Deficit’ of the European Union has led to a failure in constructing shared values, in that the British people had a stake in a union with Europe, thus contributing in favour of a ‘leave’ vote.

Lessons from ‘Brexit’ and the ‘Communication Deficit’ for ASEAN

One could argue that Brexit has legitimised ASEAN’s institutional form. Critics of ASEAN often decry ASEAN’s lack of supranational structure, whilst also criticising the norms of decision making by consensus, meaning that ASEAN can only move as fast as its slowest member. However, leading figures in ASEAN, such as former General Secretary Surin Pitsuwan, point to the high levels of diversity in ASEAN in terms of political forms, income levels and cultural differences that impede the pace of regionalism. Thus, ‘Brexit’ plays a part in legitimising the notion that there needs to be higher levels of common ground between member states when seeking closer cooperation. In light of this, ASEAN should take advantage of the slow top down regionalism process, and engage with the bottom up regionalisation process to construct common values and the idea of a South East Asian community in pursuit of regional integration.

Brexit has shown that integration based on economic and elite level political factors alone whilst ignoring social implications creates feelings of skepticism and disenfranchisement amongst the population. Similar to the European Union, ASEAN also carries an image of being an elitist political project, designed to expand market opportunities for big business whilst preventing information regarding decision-making processes being disseminated to the wider public. If ASEAN does seek closer cooperation with popular support, then it must address the ‘Communication Deficit’ in regards to regional integration. This issue is especially pertinent with democracies such as Indonesia. However, it is also highly relevant for the hybrid regimes in other ASEAN member states who derive legitimacy from economic wellbeing.

In light of this, the concepts of ‘Social Integration’, as proposed in the ASEAN Studies Center’s  monograph, ‘ASEAN in 2017: Regional Integration in an Age of Uncertainty’, is especially timely. ASEAN must create the idea and primary values of a Southeast Asian community with common goals in pursuing integration. Furthermore, this should not only be targeted at the elites in society, nor solely through universities and business associations. Communication must be extended to the grassroots level. This should be conducted through a more people-centered institutional form.

The European Union has acknowledged that it should move from ‘institution-centered’ to ‘citizen-centered’ communication. However, the failure of the European Union to do this effectively has led to catastrophic repercussions, with the disenfranchisement felt by large sections of British society resulting in a vote for leaving the European Union. As argued by Umar, ‘Brexit’ revealed the gap between the EU and the British people. Thus, if ASEAN is to avoid the fate of regional disintegration it too must learn from ‘Brexit’, and in seeking closer regional cooperation and integration it must address the ‘Communication Deficit’ and focus on a more people-centered and people-oriented institutional form.

Suraj Shah is a Visiting Fellow at ASEAN Studies Center, Faculty of Social and Political Sciences, Universitas Gadjah Mada, and a Graduate Student at King’s College University of London.