Will the ASEAN way save the world?

NEXT week will see the leaders of the most powerful nations in the Asia Pacific gather in Brunei to discuss regional cooperation under the glowering clouds of a struggling global economy.

The meeting of the Association of Southeast Asian Nations or ASEAN comes just days after the International Monetary Fund (IMF) downgraded global growth from 3.5% to 3.3% in 2013 and warned that conditions would remain challenging even among developing countries that have proved to be more robust than their developed counterparts.

ASEAN is also being conducted parallel to the IMF and World Bank spring meetings where calls continued from multiple fronts for countries to ease harsh austerity programs to boost growth and, at the same time for the world’s central bankers to be more cautious about feeding more money into the financial system, lest it spark new investment bubbles and an inflation outbreak.  

In the backdrop of a historic visit by US President Barrack Obama, the 21st ASEAN summit closed in November 2012 after making significant strides on key trade, human rights and regional disputes including the South China Sea issue.

Obama, the first ever sitting president to visit host Cambodia, during talks with ASEAN leaders pledged to engage in a range of issues including economic and security aspects. Assuring of a long engagement, Obama had remarked on the rapid increase in relations between the two sides and insisted that continued meetings would result in more extensive engagement.

However, it is unlikely that US investment will be funnelled to the Asia Pacific region to ease financial pressures given the slack recovery seen in the West, which has pushed Asia Pacific countries to depend on each other for economic impetus. In such an environment, the ASEAN summit gains in importance not just to its member countries but the entire region.

With this bleak reality in mind, ASEAN and its partners last year launched negotiations of a comprehensive partnership agreement that, when completed, will be the world’s biggest regional free trade deal.

Australia, China, India, Korea, Japan and New Zealand officially kicked off negotiations for the Regional Comprehensive Economic Partnership or RCEP at the final day of the 21st meeting of the Association of Southeast Asian Nations.

When completed, the RCEP will span 16 countries with a combined market of over three billion people and a combined GDP of about US$ 19.78 trillion based on 2011 figures. RCEP negotiations are expected to commence in 2013, making it one of the most important talking points for delegates in Brunei next week.  

In addition it was reported that South Korea, China and Japan had also agreed to form a free trade agreement at the summit, which is expected to formally begin this year. Malaysia and Indonesia during bilateral meetings with China called for more investment from the world’s fastest growing economy and promised to fast track trade agreements but these need to move beyond words.

Trade between ASEAN and China is set to continue its expansion with the bloc’s largest trade partner encouraged to step up investment in the region. Trade between China and ASEAN has sky-rocketed from US$ 7.9 billion in 1991 to US$ 292.7 billion in 2010.

It is now up to ASEAN leaders to write an impressive Brunei chapter but they will continue to be dogged by challenges from within and outside the region. Finger-pointing about excessive austerity and lack of support for demand, unmanageable capital flows stoked by central banks pumping out money, competitive devaluations, excessive sovereign debt and papered-over banking weaknesses have all grabbed headlines in the international media. ASEAN clearly has its work cut out and now it is time to roll up sleeves and get to it.