RHTLaw Taylor Wessing Deputy Managing Partner and Head of Corporate Practice Azman Jaafar authored an article titled “Asean’s regional integration: Look beyond the South China Sea” for The Business Times

RHTLaw Taylor Wessing Deputy Managing Partner and Head of Corporate Practice Azman Jaafar authored an article titled “Asean’s regional integration: Look beyond the South China Sea” for The Business Times.

The article was first published in The Business Times dated 30 August 2016.

Asean’s regional integration: Look beyond the South China Sea

SMEs in Singapore have reason to stay the course on the Asean Economic Community despite simmering South China Sea tensions.

Source: The Business Times © Singapore Press Holdings Ltd.

Date: 30 August 2016

Author: Azman Jaafar

Recent developments have not been too kind to Asean’s efforts towards regional economic integration, but small and medium enterprises (SMEs) in Singapore should not lose faith in the region and the vision of the Asean Economic Community (AEC).

The Brexit vote in the United Kingdom and anti-globalisation rhetoric from the United States may have indirectly affected Asean’s integration efforts by making the political conditions for integration more challenging. Asean’s recent struggle to find common ground in the South China Sea dispute has raised questions about the unity and political will of Asean leadership.

Despite the challenges, there is a silver lining in these developments. We must understand that Asean is a unique regional grouping unlike the European Union (EU). Asean member states retain national sovereignty. Asean does things the “Asean Way”, with consultation and consensus as its central pillars. Without unanimous agreement, no decision or action will be made or taken by Asean.

Despite criticisms, the Asean Way has been credited with fostering close economic and socio-political cooperation in a region that is far more diverse in culture, religion and ethnicity than any other part of the world. Over the course of time from its inception in 1967, Asean has emerged as the most successful regional economic cooperation outside of the EU with trade growing from US$123.8 billion in 1995 to US$609 billion in 2013.

The perceived lack of political clout in relation to the South China Sea dispute should not be confused as a lack of political will to pursue the agenda of economic integration. Asean leaders recognise the economic benefits that regional integration will bring to its people. It is only a question of when – and not if – the AEC will be fully implemented. To this end, Asean has given itself to the year 2025 to achieve the vision of a highly integrated and cohesive regional economy.

SMEs in Singapore should remain confident of the positive outlook in the region. The Asean leadership has shown its commitment in pursuing deeper regional integration by constantly seeking ways to improve connectivity. Action plans issued by the Asean leadership are increasingly more detailed and definitive. Efforts in engaging the private sector, in response to survey findings which showed a general lack of awareness of the AEC within the business community, have also increased.

The Asean leadership views the development and progress of SMEs to be an essential aspect of the regional integration agenda. To this end, Asean has already implemented action plans to support Asean SMEs. Recent initiatives include the Asean Technology and Business Incubator and the Asean SME Guidebook.

The Asean focus on the development of SMEs complements our national initiatives to support Singaporean SMEs, by both government and non-government bodies. The provision of financial support to SMEs has always been a key item in the Singapore government’s Budget.

Non-government entities are also stepping up support for SMEs as part of their corporate social responsibility. For example, OCBC Bank has been very active in supporting its SME customers through financial and non-financial initiatives.

While there is still more to be done to lower non-tariff barriers in the AEC, the virtually zero-tariff environment today provides the impetus for Singapore SMEs to move production to Asean member states with lower production costs. With the streamlining of customs procedures, the costs of outsourcing will be reduced further.

SMEs engaged in the high-value services and investment sectors would benefit from the progressive implementation of initiatives towards freer movement of capital and services. In addition, improving infrastructure and education levels, and a rising middle class in emerging Asean economies are also motivating SMEs to expand into the region.

One of the fast-emerging markets in Asean today is Vietnam, where a “tech boom” is manifested by the rise in the number of high-technology parks and the emergence of a thriving tech startup sector. If these trends continue, Vietnam will soon realise its ambition to be the “Silicon Valley” of South-east Asia.

Likewise, Myanmar, considered to be among the “last frontier” economies in Asia, has pursued political and economic reforms that are fast attracting foreign investment. Indonesia, the largest economy in South-east Asia, has also been moving away from protectionist policies with the recent revision of its Negative Investment List.

Other macro-economic factors are also sharpening the international investment focus on the Asean region. Rising manufacturing costs in China are driving foreign investors southwards. The uncertainty in Europe following Brexit, and the possibility of the establishment of mega-regional free trade areas through the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership have also put Asean under the spotlight.

Singapore SMEs are well placed to draw on the potential of the AEC, given the strong reputation that goes with the Singapore brand and Asean. Singapore SMEs need to constantly monitor regional trends and developments so as to capitalise and leverage them. Economic integration will bring about not only greater opportunities and market access but also unprecedented levels of competition within the region. Singapore SMEs must constantly innovate and review their strategies, or risk falling behind.

While concrete steps have been taken towards deeper economic integration at the government-to-government level, it may take a longer time for the reality on the ground to reflect the effects of the establishment of the AEC. The private sector is a key driver of Asean economic growth and integration. SMEs form the backbone of the Singapore economy.

The road to regionalisation can be very painful for SMEs without adequate professional support. To facilitate the various initiatives, professional advisers must also be ready and willing to support the integration agenda. The ability to deliver multi-jurisdictional practical and specialised advice to our SMEs will give them the edge in their expansion into Asia.

The writer is deputy managing partner and one of the founding members of RHTLaw Taylor Wessing LLP. He heads the firm’s Indonesia Practice and manages the Asean Plus Group