Mr Lee Yi Shyan at the 10th ASEAN Leadership Forum

SPEECH BY SENIOR MINISTER OF STATE FOR TRADE AND INDUSTRY AND NATIONAL DEVELOPMENT MR LEE YI SHYAN, AT THE 10th ASEAN LEADERSHIP FORUM, 18 JUL 2013, 1050 HRS, SUNWAY RESORT HOTEL & SPA, PETALING JAYA, MALAYSIA

TOWARDS DEEPER ASEAN INTEGRATION

Your Excellencies

Distinguished guests

Ladies and gentlemen

Good morning. Allow me to first thank the Asian Strategy and Leadership Institute for inviting me to be part of this distinguished forum. Clearly, how we could strengthen ASEAN Community building and integration is of great interests to all of us in this room. 

The last time I participated in the ASEAN Leadership Forum was  in June 2008. We then discussed ways to tackle spiralling oil prices, worrisome food prices and the threat of pandemic flu. Little did we realize that the world was about to be consumed by a financial crisis of magnitude we have not seen for a century.  The stealth with which the crisis unfolded beneath our carpets reminded us once again the global economy has not just realised the benefits of an enlarged market but also interconnected our vulnerabilities. We are, as a system, as strong as the weakest links.

The question we would ask this morning is: how in face with a more volatile and unstable world, we could further enhance our individual country’s economic stability by improving our collective resilience? How could ASEAN hasten the pace of integration amongst its members and with the larger region so that she could serve as a counter-weight to instability elsewhere?  

ASEAN Economic Community (AEC)               

Thankfully in the five years, ASEAN has pressed on with its integration efforts and achieved some notable results under the Asean Economic Community (AEC) Blueprint 2007.  It is well and good.

Now that we have completed about 80% of AEC 2015 Blueprint measures, we should ask ourselves how we could re-double our efforts in implementing the remaining measures in the 2 years remaining. How could we realistically tackle and remove hindrances in the areas of customs integration, standards and conformance, and transport?

Indeed, with a combined population of 600 million people and a GDP that is the third largest in Asia, ASEAN is a relatively attractive end- market and investment destination. The OECD projected that by 2030, the global middle class will grow almost threefold, with 85% of this growth expected to come from Asia¹. A recent Deloitte study predicted that five of the top 15 manufacturing locations in the world will be in ASEAN by 2018². Underlying this optimism are some unsaid assumptions which in my view include that Asean members continue to undertake pro-growth macro-economic policies and our momentum in regional integration.  

External Pressure and Competition

But whether Asean can realise its full economic potentials and maintain its proportionate share of growth within Asia depends on not just its efforts in integration but also external factors, such as adjusting itself to the steadily growing China and India. World Bank estimates that the growth rate of China and India would each be 7.9% and 7% by 2015.  Their combined GDP will exceed that of the G7 OECD economies by 2025³. The rise of  “the Dragon and the Elephant” as some writers vividly put it, would mean that Asean’s immediate environment  is not static but a dynamic one. I think we all would agree that Asean’s pace of adjustments must take into account the dynamics of the larger regional integration efforts to remain attractive and competitive.

The ongoing negotiations of the Trans-Pacific Partnership (TPP), the trilateral China-Japan-Korea FTA and the recently launched Trans-Atlantic Trade and Investment Partnership (TTIP) between the US and EU are but good examples of larger regional integration efforts. They are welcomed initiatives particularly as many of their members are major Asean trading partners, and also if they offer the prospect of still larger integration with Asean. Otherwise, they can also signal a shift in trade and economic gravity away from Asean towards their integrated markets.

The TTIP will account for an estimated US$4.7 trillion in transatlantic trade and investment.⁴  As for the CJKFTA, trade among the three economies totalled almost US$700 billion in 2011⁵, with existing trade among them currently constituting only 10% to 20% of their total export value⁶. With the entry of Japan, the TPP would account for about one-third of world trade⁷.  Indeed, ASEAN’s share of world trade while consistent, has shown little growth in recent years, compared to major non-ASEAN countries in Asia⁸.

It is against such a competitive dynamics that ASEAN must work to strengthen its relevance on the global stage.  Individually, most ASEAN countries are too small to be important players in the game. But as an integrated group, we have a better chance of leveraging our collective strengths to respond to external challenges.  This is why we must continue to exert our utmost efforts at realising the AEC 2015 vision.  I would offer a few suggestions:

AEC 2015

Behind-the-border issues: Under AEC 2015 vision, we have done much in removing import tariffs among ASEAN countries under the ATIGA.  ASEAN now needs to focus its attention to tackling behind-the-border issues that hamper trade. These non-tariff measures range from complex import licensing procedures to ineffective implementation of existing commitments, and they can leave detrimental impact on business operations. Work is already underway in ASEAN on this, but these issues would likely entail a multi-year endeavour, as they may involve a review of policies or an overhaul of existing operations by domestic agencies and regulatory bodies.  I urge my fellow ASEAN colleagues to prioritise this work and enable our officials to focus much needed attention on this front.

Services and investment liberalisation. ASEAN will also need to continue to signal that it is open for business and attract investment.  Many investors are bullish on ASEAN’s prospects, but give the feedback that ASEAN need to be more responsive in terms of services and investment liberalisation.  These are already part of our AEC targets for 2015.  Is there more that ASEAN can do in these areas to continue to preserve the attention of investors and attract FDIs, including the SMEs? 

Pro-business regulations. Another area of direct relevance to business interests are on regulatory regimes. In order to deepen economic integration, we will need to move our regulatory regimes closer together and towards international norms.  Divergent regulations will frustrate businesses with long value chains fragmented across ASEAN.  We have pitched the AEC as a providing a single market and production base for businesses to operate in.  Businesses with international production networks find it effective to use the different specialisations in ASEAN for the different stages of the production chain.  ASEAN will need to focus on reducing the transaction costs of business operations such that companies do not have to contend with unhelpful business regulations at each of these stages.

RCEP as building block. Further, I see the ASEAN-led Regional Comprehensive Economic Partnership (RCEP) playing an important role in our endeavour towards deeper integration beyond 2015.  We have committed to making the RCEP to be a modern and high quality FTA.  Negotiators will need to ensure that the RCEP upholds open, simple, and flexible trade rules for businesses to operate easily in, in order to further integrate ASEAN into the global value chain. With 16 parties, the RCEP could potentially reshape the economic architecture of Asia. 

Domestic reform. In addition, the RCEP, as a high-quality agreement, has the potential to trigger a timely examination of domestic policies and spur ASEAN countries to undertake domestic reforms, which would eventually set the stage for deeper regional integration.  More importantly, we must not lose sight of the fundamental aim in all these endeavours – which is to create trade and business opportunities in ASEAN, facilitate job creation, and improve economic growth and standard of living. Singapore will continue to place high priority on ASEAN’s integration agenda and provide strong support to our common goals for ASEAN.

Conclusion

Fellow colleagues, to sum up, ASEAN’s efforts at economic integration have helped to anchor ASEAN’s relevance to the world and improve its competitiveness as a region. Trade has shown to increase with integration. ASEAN must sustain this momentum and build on the positive inroads made.  With a unified will and collective vision, I am confident we can fulfil most of our 2015 targets and embark on the next steps beyond that.

On this note, I wish you a productive session ahead.  Thank you.

¹ Source: The emerging middle class in developing countries, November 2010, OECD.

² Source: Deloitte Global Competitiveness Index 2013. The 5 ASEAN countries are Singapore, Vietnam, Indonesia, Malaysia and Thailand

³ Source: Looking to 2060: Long-term growth prospects for the world, OCED, Nov 2012.

⁴ Source: Los Angeles Times “Reshaping the world through trade” 11 Jul 2013.

⁵ Source: Wikipedia

⁶ Source: China Institute of International Studies, Apr 2013.

⁷ Source: Center for Strategic & International Studies, May 2013.

⁸ Source: WTO International Trade Statistics 2010, 2011, 2012. China's share of world trade has increased from 11.6% in 2009 to 12.6% in 2011 while India's share has increased from 2.2% to 2.7% in the same period. On the other hand, ASEAN's share of both world exports and world imports has remained stagnant at about 8.9% and 8% respectively from 2009 to 2011.