Amrik Gosh

Antti Kotaniemi
Li Chong Yan
Mikolaj Skrzypek
2nd year Full‐time Master Studies, International Business

Development and challenges of ASEAN

Introduction

The aim of this essay is to give an overview of the development of ASEAN and
identify and present main challenges that the ASEAN is facing. To achieve this
goal, this essay is divided in three parts. Part 1 presents the reasons for establishing
the Association of Southeast Asian Nations or ASEAN and overview of its early
developments and shift of focus from military and security issues to economic and
trade related issues. First chapter also introduces the concept of ASEAN Regional
Forum or ARF. Part 2 presents introduces the contemporary ASEAN to the reader.
During chapter 2, ASEAN integration and diversity between its member nations is
described. Chapter also introduces the concept of ASEAN Economic Community or
AEC. Chapter also discusses about common internal problems of ASEAN. Part 3
presents external pressures that ASEAN member nations are currently facing due
to the unique location of the region. Many of the political issues that ASEAN mem‐
bers are facing is due to its geographic location.
This essay was written by a multi‐cultural study group that consisted of two
Asian and two European participants. We feel that the diversity gave us unique
view on the issues discussed in this essay. The topic was highly interesting due to
the fact that in recent years the region has been often in a centre of attention. All
of us have followed these developments mainly through news stories, but we feel
that through studying causes and backgrounds of these events for our essay have
given us better understanding of this diverse and fascinating region.

1. The creation of ASEAN

ASEAN is a regional intergovernmental organization originally developed for

promoting peace, stability and political and economic cooperation and integra‐
tion in the region.1It is important to understand that although ASEAN is geo‐
graphically small area, it forms a culturally complex region with different nations,
religious beliefs, laws, trading standards, political systems and conflicts. ASEAN
was created on 8th of August 1967, when the foreign ministers of Indonesia, Ma‐
laysia, The Philippines, Singapore, and Thailand, signed the ASEAN Declaration,
more commonly known as the Bangkok Declaration.2Original members were
later joined by Brunei, Cambodia, Laos, Myanmar, and Vietnam.
The creation of ASEAN was motivated by a fear of spreading communism in
the region. All the founding members, except Thailand, had also shared experi‐
ence of the Japanese occupation during the Second World War. ASEAN member
states hoped to balance the influence China, the U.S. and Japan in the region.
Similarly to the establishment European Coal and Steel Community over decade
earlier, reason for establishing ASEAN can be seen not only from an economical
viewpoint, but as a way to avoid conflicts and add stability in the region.3ASEAN
member states managed to prevent major conflict during the following decades.
During the early 1990s ASEAN’s motives were mainly political and military.
The region experienced dramatic geopolitical transformations during end of
1980s and early 1990s that resulted from end of the Cold War and the end of
Cambodian conflict. Changes made ASEAN nations growingly concerned about
the possible decline of U.S. military presence in the region, rising power of China
and possible remilitarization of Japan. During this time ASEAN created a region‐
wide security framework that was institutionalized in the ASEAN Regional Fo‐
rum or ARF. ARF was established in 1994 as a first region‐wide forum for securi‐
ty dialogue that involves ASEAN member countries and 17 other countries, in‐
cluding all the major regional and global powers.4

2. ASEAN focuses on economy and trade

In the 1990s due to rising regionalism and economic competition, ASEAN’s

focus changed from military and regional security issues to economy and trade.
ASEAN began to develop common market by forming ASEAN Free Trade Area,
or AFTA, a regional trade agreement signed by all the member states of ASEAN
in 28th of January 1992 in Singapore. Over the following decade ASEAN member

1
K. Cai, The Politics of Economic Regionalism: Explaining Regional Economic Integration in East Asia,
Palgrave MacMillan, Hampshire 2010, p. 120.
2
The Asean Declaration (Bangkok Declaration) Bangkok, 8 Augustus 1967, Association of Southeast Asian
nations, January 27 2016, http://asean.org/the‐asean‐declaration‐bangkok‐declaration‐bangkok‐8‐
august‐1967/ [access: 17 November, 2016].
3
M. Bonikowska, P. Rabiej, A. Turkowski, R. Tomański, ASEAN is building a common market, Centre
for International Relations, Warsaw January 2016, p. 2–3.
4
K. Cai, The Politics of Economi…, p. 121.

304
started to eliminating most tariff barriers on manufactured goods, non‐tariff bar‐
riers, and procedures and development of common product certification stand‐
ards between member countries.5
Current aim of ASEAN member’s is to gradually reduce tariffs on goods im‐
ported from other ASEAN member states to zero, which is required under the
ASEAN Trade in Goods Agreement (ATIGA). In the early 1990s ASEAN began
developing close economic ties with countries of Asian‐Pacific region and region‐
al organizations such as European Union.6Regional cooperation was promoted
with the creation of the ASEAN Plus Three forum in 1997, which included China,
South Korea and Japan and the East Asia Summit in 2005, that expanded to in‐
clude India, Australia, New Zealand, Russia and the United States.7

2.1. Seventh‐largest economy in the world

Today ASEAN promotes intergovernmental collaboration and co‐operation

between its member states, and develops economic and trade growth in the re‐
gion. Together ASEAN forms the seventh‐largest economy in the world. It is es‐
timated that ASEAN will grow to be the fourth‐largest economic zone by 2050.
With its population of 600 million people, ASEAN has the third‐largest labour
force in the world, behind China and India. Almost 60 per cent of its total growth
since 1990 has come from sectors such as manufacturing, retail, telecommunica‐
tions, and transportation.8
Collectively ASEAN is the fourth‐largest exporting region in the world and it
accounts for 7 per cent of global exports. The exports of its member states have
diversified and while Vietnam specializes in textiles and apparel, Singapore and
Malaysia export electronics. Thailand on the other hand is specializing in export‐
ing vehicle parts and other member nations are exporting mainly natural re‐
sources such as palm oil, coal, cocoa and tin. Myanmar have large reserves of oil,
gas, and minerals.
About 25 percent of region’s export go to other ASEAN nations, and less than
half of intraregional trade is going to NAFTA countries, while exports to Europe‐
an Union are rising rapidly. China is becoming increasingly important export

5
Ibidem, p. 70, 121.
6
M. Bonikowska, P. Rabiej, A. Turkowski, R. Tomański, ASEAN is building…, p. 3.
7
Association of Southeast Asian Nations (ASEAN), The Nuclear Threat Initiative, May 9 2016,
http://www.nti.org/learn/treaties‐and‐regimes/association‐southeast‐asian‐nations‐asean/ [access: 17
November, 2016].
8
H.V. Vinayak, F. Thompson, O. Tonby, Understanding ASEAN: Seven things you need to know, McKin‐
sey&Company, May 2014, http://www.mckinsey.com/industries/public‐sector/our‐insights/under‐
standing‐asean‐seven‐things‐you‐need‐to‐know [access: 17 November, 2016].

305
market for many ASEAN countries. ASEAN has free‐trade agreements with Aus‐
tralia, China, India, Japan, New Zealand, and South Korea9.

2.2. Diverse group

The ASEAN nations are a diverse group, when measuring level of develop‐
ment, culture and political systems between its member nations. This has con‐
tributed divide between the member nations, mainly between more developed
founding members and Brunei and less developed member nations such as My‐
anmar, Cambodia, Laos and Vietnam. There are also territorial claims between
member nations, for instance between Thailand and Cambodia10.
Inequality among region becomes evident when comparing GDP per capita
of different member nations. For example in Singapore GDP per capita is more
than 40 times higher than in Myanmar. Huge differences also manifest them‐
selves in doing business. In the 2016 Doing Business ranking leaders like Singa‐
pore or Malaysia occupy the 1st (Singapore), and the 18th position (Malaysia),
while the worst in this regard are Cambodia, Laos, and Myanmar, with their
127th, 134th and 167th positions. However despite this, the income growth
throughout the region has been relatively strong since 2000 and for example Vi‐
etnam has doubled its per capita GDP from $1,300 to $2,600. Extreme poverty is
rapidly declining and ever increasing percent of households are now part of the
consuming class11.

2.3. ASEAN Integration

Regional integration in ASEAN has progressed gradually. Examples of re‐

gional integration are the ASEAN+3 (ASEAN, Japan, China and South Korea),
ASEAN+6 (ASEAN+3, India, Australia and New Zealand). As major milestone is
the establishment of ASEAN Economic community in 201512.
In 1997, the Asian financial crisis caused the collapse of Asian stock markets,
devaluations of domestic currencies, and reduction in asset prices in Asian coun‐
tries. According to some experts, the Asian financial crisis uncovered many weak‐
nesses in Asian banking sector, such as weak financial infrastructures, lack of
transparency and weak governance and regulation. During the aftermath of the

9
Ibidem.
10
M. Bonikowska, P. Rabiej, A. Turkowski, R. Tomański, ASEAN is building a common market, Centre
for International Relations, Warsaw January 2016, p. 7.
11
Ibidem; H.V. Vinayak, F. Thompson, O. Tonby, Understanding ASEAN...
12
OECD (2016), Economic Outlook for Southeast Asia, China and India 2016: Enhancing Regional Ties,
OECD Publishing, Paris, 2016, http://dx.doi.org/10.1787/saeo‐2016‐en, p. 32 [access: 17 November,
2016].

306
Asian Financial crisis idea of ASEAN Economic Community was introduced as
a tool to support economic growth and protect the region from potential future
shocks13.
At the 9th ASEAN Summit in January 2007, the ASEAN member countries af‐
firmed their commitment to accelerate the ASEAN Community by 2015 and signed
the Cebu Declaration on the Acceleration of the Establishment of an ASEAN Eco‐
nomic Community by 2015.14Related to AEC, ASEAN has concluded and signed
several agreements with the end goal of creating a single market and production
base. These include the following: ASEAN Trade in Goods Agreement (ATIGA),
ASEAN Framework Agreement on Services (AFTAS), ASEAN Comprehensive
Investment Agreement (ACIA), ASEAN Agreements on the Movement of Natural
Persons (AAMNP), ASEAN Mutual Recognition Arrangement on Services
(MRAs).15Aim of these agreements is to create an open single market, with free
movement of goods, services, investments, skilled workers and liberalized capital
market could ensure more balanced development for entire region.
Major challenge for ASEAN member states is lowering tariffs and non‐tariff
barriers and harmonize custom procedures16. If successful, AEC integration might
transform the region into more competitive region among the global economy.
Still, many business leaders and critics have responded to AEC sluggishly due to
large diversity between ten nations and due to the fact that the real effects of AEC
will be visible after several years. There are still major challenges in AEC integra‐
tion. Majority of ASEAN countries are still low and middle income economies.
Some critics have argued that the income inequality gap among member nations
might wider due to the AEC integration. This kind of development would result
in national differences between price levels, purchasing power and investments17.

2.4. Consensus‐based decision‐making

While the individual members of ASEAN have their national interests, they
have been able to achieve consensus in many issues. This is due to the fact that
each member nation understands that by acting as a unified body, ASEAN com‐
mands far greater inflence than its members could be able achieve individually18.

13
A. Pooittiwong, B. Ramirez, ASEAN Economic Integration: Opportunities and Challenges that lie Ahead,
International Policy Digest, January 6 2016, https://intpolicydigest.org/2016/01/06/asean‐economic‐
integration‐opportunities‐and‐challenges‐that‐lie‐ahead/ [access: 17 November, 2016].
14
ASEAN Economic Community, Association of Southeast Asian Nations, http://asean.org/asean‐
economic‐community/ [access: 17 November, 2016].
15
Ibidem.
16
M. Bonikowska, P. Rabiej, A. Turkowski, R. Tomański, ASEAN is building…, p. 4.
17
A. Pooittiwong, B. Ramirez, ASEAN Economic Integration...
18
K. Cai, The Politics of Economic Regionalism: Explaining Regional Economic Integration in East Asia,
Palgrave MacMillan, Hampshire 2010, p. 120.

307
ASEAN links its member nations to developed Asian nations like Taiwan, South
Korea and Japan and world powers such as China, Russia, United States and
India. Integration brings relatively small nations influence that they could not
individually achieve. Integration also makes it harder for superpowers such as
China, India or the USA to isolate individual members of ASEAN.
Key difference of ASEAN to EU is its basic principles of mutual respect for
sovereignty of its member nations, non‐interference in the internal affairs and
consensus‐based decision‐making. These principles might pose severe problems
between further cooperation and management of ASEAN, since its members
don’t necessarily always share common political values and national interests19.
These constraints question the very principles of ASEAN; its ability to promote
integration, regional development, consensus‐based decision‐making and effective
implementation of policies. Moreover, ASEAN nations have all adopted similar
export‐oriented industrialization strategies with competitive economic structure,
and in many cases single ASEAN member nations have more complimentary
economic ties with many other countries outside ASEAN, for example China,
India, Japan, EU and the U.S.20.
During 2012 ASEAN summit in Phnom Penh, ASEAN member nations could
not agree how to deal with China. Several ASEAN member countries: the Philip‐
pines, Vietnam, Malaysia, Brunei and Indonesia had territorial disputes with
China due to the South China Sea. However Cambodia, blocked any suggestions
of an international court against China21. ASEAN has been criticized that its aim
for regional stability and principle of non‐interference strengthen the rule of au‐
thoritarian governments, although human rights and democratic ideals has been
raised during the ceremonial speeches. Despite this, common standards have
helped trade grow and lift people out of poverty and improved the competitive‐
ness of the ASEAN member nations. The reason why ASEAN common market is
not successfully implemented so far is due to the fact that lesser developed mem‐
ber nations might get exploited by more developed countries if ASEAN would be
considered as a single market.

3. Strait of Malacca

Why is the region so important to global economy? ASEAN member nations

are located in a strategically important area; large shares of global trade pass
through ASEAN member nations territorial waters each year. The Strait of Malac‐

19
Ibidem.
20
Ibidem, p. 123.
21
Asean nations fail to reach agreement on South China Sea, BBC News, July 13 2012, http://www.bbc.
com/news/world‐asia‐18825148 [access: 17 November, 2016].

308
ca is one of the busiest shipping lanes in the world. Narrow, 850 km stretch of
water between the Malay Peninsula and the Indonesian island of Sumatra sepa‐
rates Malaysia and Indonesia and links Europe and Middle East with the Asia‐
Pacific. According to estimates, around 40 per cent of the world’s trade is passing
through the Strait of Malacca22.
The Strait of Malacca is also one of the eight oil transit chokepoints that are
critical to the worldʹs oil supply. Oil is primarily coming from Middle East and
heading towards Indonesia, China, South Korea and Japan. According to esti‐
mates, 15.2 million barrels of oil passes through the Strait of Malacca per day. The
narrowest point in the strait is only 1.7 miles wide, which creates a natural bottle‐
neck for shipping and makes it vulnerable to piracy or terrorist attacks23.

Figure 1. World’s major oil transit chokepoints

Source: J. Bender, These 8 narrow chokepoints are critical to the world’s oil trade, Business Insider, April
12015, http://www.businessinsider.com/worlds‐eight‐oil‐chokepoints‐2015‐4?IR=T[access: 17 No‐
vember, 2016].

22
Strait of Malacca,Encyclopaedia Britannica, December 3 2014, https://www.britannica.com/
place/Strait‐of‐Malacca [access: 17 November, 2016].
23
J. Bender, These 8 narrow chokepoints are critical to the world’s oil trade, Business Insider, April 1 2015,
http://www.businessinsider.com/worlds‐eight‐oil‐chokepoints‐2015‐4?IR=T [access: 17 November,
2016].

309
Conclusion

Thanks to its increasing labour force, ASEAN is rapidly becoming a major

manufacturing, export hub and consumer market, since China’s growth is evolv‐
ing from exports to internal consumption based economy. Goal of ASEAN na‐
tions is to take over the role of the largest factory in the world from China.
ASEAN member nations have to overcome several internal and external chal‐
lenges before this goal can be properly implemented. ASEAN must seek for co‐
operation, economic growth and political stability within its member nations,
trading partners and balancing its position between major nations operating in‐
side and vicinity of its region.
U.S. has been one of the most important foreign investors and trading part‐
ners of ASEAN. A lot like China, U.S. has diverse and complex bilateral relations
and economic ties with ASEAN member nations. In recent years, however, U.S.
share of trade in the region has declined. To regain its competitive edge in the
region, U.S. started negotiations towards Trans‐Pacific Partnership, TPP, a trade
agreement between twelve Pacific Rim countries during Obama administration.
Under Obama administration U.S. also started to reinforce its military presence in
the area. Barack Obama has expressed a desire that his successor continues both
of these efforts. However recently elected president Donald Trump has resisted
the TPP and declared that the U.S. will withdraw from the TPP agreement. The
ASEAN currently has free trade agreements with six partners: China (ACFTA),
South Korea (AKFTA), Japan (AJCEP), India (AIFTA) and Australia and New
Zealand (AANZFTA). In August 2012, negotiations for the Regional Comprehen‐
sive Economic Partnership (RCEP) were launched by ASEAN member countries
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singa‐
pore, Thailand, Vietnam, and partner countries that ASEAN has FTAs China,
India, Japan, South Korea, Australia and New Zealand.
It is still good to remember, that due to its expansive politics, China has had
border issues with many ASEAN member nations. This has raised hatred and
protest against Chinese in the ASEAN countries. However at the same time, Chi‐
na is one of the most important trading partners with ASEAN and each ASEAN
member nation has diverse and complex bilateral relations and economic ties
with China. In the future Chinese Asian Infrastructure Investment Bank, AIIB, is
expected to finance big infrastructure projects in ASEAN countries. Chinese
funded projects in ASEAN countries are part of China’s global plan of Maritime
Silk Road. China aims not only to revive old silk road trading route from China’s
western provinces through Central Asia to Middle East and Europe, but also
create a new sea route that would include a network of ports and naval bases
built and operated with Chinese participation from Shanghai to Europe. Purpose
of undertaking have raised some concern especially in U.S. and India. Currently

310
EU and Japan are the biggest foreign investors in ASEAN countries and the big‐
gest trading partners in the region. Both have strong economic ties in the region.
Japan’s involvement has escalated tensions between Japan and China. India, who
has been concerned about the freedom of navigation in the South China Sea, has
deepened its relations with ASEAN nations.

References

ASEAN Economic Community, Association of Southeast Asian Nations, http://asean.

org/asean‐economic‐community/.
Asean nations fail to reach agreement on South China Sea, BBC News, July 13 2012,
http://www.bbc.com/news/world‐asia‐18825148.
Association of Southeast Asian Nations (ASEAN), The Nuclear Threat Initiative, May 9
2016, http://www.nti.org/learn/treaties‐and‐regimes/association‐southeast‐asian‐
nations‐asean/.
Bender J., These 8 narrow chokepoints are critical to the world’s oil trade, Business Indsider, April 1
2015, http://www.businessinsider.com/worlds‐eight‐oil‐chokepoints‐2015‐4?IR=T.
Bonikowska M., Rabiej P., Turkowski A., Tomański R., ASEAN is building a common mar‐
ket, Centre for International Relations, January 2016.
Cai K., The Politics of Economic Regionalism: Explaining Regional Economic Integration in East
Asia, Palgrave MacMillan, 2010.
OECD (2016), Economic Outlook for Southeast Asia, China and India 2016: Enhancing Regio‐
nal Ties, OECD Publishing, Paris, 2016, http://dx.doi.org/10.1787/saeo‐2016‐en.
Pooittiwong A., Ramirez B., ASEAN Economic Integration: Opportunities and Challenges that lie
Ahead, International Policy Digest, January 6 2016, https://intpolicydigest.org/2016/
01/06/asean‐economic‐integration‐opportunities‐and‐challenges‐that‐lie‐ahead/.
Strait of Malacca, Encyclopaedia Britannica, December 3 2014, https://www.britan‐
nica.com/place/Strait‐of‐Malacca.
The Asean Declaration (Bangkok Declaration) Bangkok, 8 Augustus 1967, Association of
Southeast Asian nations, January 27 2016, http://asean.org/the‐asean‐declaration‐
bangkok‐declaration‐bangkok‐8‐august‐1967/.
Vinayak H.V., Thompson F., Tonby O., Understanding ASEAN: Seven things you need to
know, McKinsey&Company, May 2014, http://www.mckinsey.com/industries/
public‐sector/our‐insights/understanding‐asean‐seven‐things‐you‐need‐to‐know.

Summary

The aim of this essay is to give an overview of the development of ASEAN and identify
and present main challenges that the ASEAN is facing. ASEAN is a regional intergov‐
ernmental organization originally developed for promoting peace, stability and political
and economic cooperation and integration in the region.24It is important to understand
that although ASEAN is geographically small are, it forms a culturally complex region

24
K. Cai, The Politics of Economic…, p. 120.

311
with different nations, religious beliefs, laws, trading standards, political systems and
conflicts. Collectively ASEAN is the fourth‐largest exporting region in the world and it
accounts for 7 per cent of global exports. The exports of its member states have diversi‐
fied and while Vietnam specializes in textiles and apparel, Singapore and Malaysia ex‐
port electronics. Thailand on the other hand is specializing in exporting vehicle parts and
other member nations are exporting mainly natural resources such as palm oil, coal,
cocoa and tin. Myanmar have large reserves of oil, gas, and minerals.
About 25 percent of region’s export go to other ASEAN nations, and less than half of
intraregional trade is going to NAFTA countries, while exports to European Union are
rising rapidly. China is becoming increasingly important export market for many
ASEAN countries. ASEAN has free‐trade agreements with Australia, China, India, Japan,
New Zealand, and South Korea25.
Major challenge for ASEAN member states is lowering tariffs and non‐tariff barriers and
harmonize custom procedures26. If successful, AEC integration might transform the
region into more competitive region among the global economy.

Keywords: ASEAN, AEC, trade, military, economy, Strait of Malacca

ROZWÓJ I WYZWANIA STOJĄCE PRZEZ ASEAN

Streszczenie
Celem niniejszego artykułu jest przedstawienie rozwoju ASEAN oraz określenie i przed‐
stawienie głównych wyzwań stojących przed tym stowarzyszeniem. ASEAN jest regio‐
nalną organizacją międzyrządową pierwotnie założoną w celu promowania stabilności
i współpracy politycznej i gospodarczej oraz integracji w regionie. ASEAN to region
skomplikowany kulturowo z różnymi narodami, przekonaniami religijnymi, prawami,
standardami handlowymi, systemami politycznymi i konfliktami. Obszar ASEAN jest
czwartym pod względem wielkości eksportu regionem na świecie (7 procent globalnego
eksportu). Eksport państw członkowskich jest zróżnicowany. Wietnam specjalizuje się
w przemyśle tekstylnym i odzieżowym, Singapur i w Malezja w elektronicznym, Taj‐
landia specjalizuje się w eksporcie części pojazdów. Inne państwa członkowskie ekspor‐
tują głównie surowce naturalne takie jak olej palmowy, węgiel, kakao i cyna. Myanmar
posiada duże zasoby ropy, gazu i minerałów.
Około 25 procent eksportu skierowana jest do innych państw ASEAN, a mniej niż poło‐
wa handlu trafia do krajów NAFTA. Eksport do Unii Europejskiej szybko wzrasta.
Również Chiny stają się coraz ważniejszym rynkiem eksportowym dla wielu państw
ASEAN. ASEAN ma umowy o wolnym handlu z Australią, Chinami, Indiami, Japonią,
Nową Zelandią i Koreą Południową.
Głównym wyzwaniem dla państw członkowskich ASEAN jest obniżenie taryf i barier
pozataryfowych oraz harmonizacja procedur niestandardowych. Jeśli uda się to zreal‐
izować, region może stać się jeszcze bardziej konkurencyjny.

25
HV. Vinayak, F. Thompson, O. Tonby, Understanding ASEAN…
26
M. Bonikowska, P. Rabiej, A. Turkowski, R. Tomański, op. cit., p. 4.

312