Why South Korea eyes ASEAN


June 9, 2017

Speaking Of Asia

Why South Korea eyes ASEAN

 

Having vaulted itself in quick time into the ranks of advanced nations, South Korea is undeniably something of a modern miracle. Its success in riding on East Asia’s growth, combined with massive investments in education and innovation, has led to raised living standards and longevity, as well as given it a leading edge in a variety of fields from steel to consumer electronics and shipbuilding. A firm defence yoke to the United States lent it strategic cover as it focused its energies on growth.

That model has run its course in more ways than one. China is steadily lengthening its supply chain, buying less from its southern neighbour. Its strategic space has been crimped too by an assertive Beijing, despite a series of overtures to China from Seoul.

And the future is uncertain. There is no saying where US foreign and military policy might go. Economic growth has more than halved from the 1965-2005 period, requiring the manufacturing- and export- dependent nation to grow more of its domestic and services economy. As demographics go, at their current rates of reproduction, some fear that the South Korean, as a subspecies, may be significantly extinct by 2070. On top of it all, a generation of spoilt young Koreans has emerged, with outsize expectations for themselves but little of the work ethic of their forebears. Youth unemployment is rising, partly because the educated young are too picky to go where the jobs are. There are only so many prestigious openings at the headquarters of the giant chaebols, where they think they deserve to be. It is not unknown for a mother to call up managers to question why they gave her 23-year-old a bad time in the office, or factory.

In other words, Seoul is in a bit of a cabbage pickle.It’s time for creative thinking and fortunately for the nation of 51 million, there are some active minds at work. One train of thought that has been gaining momentum is a foreign and economic policy that eschews its reflexive North-east Asian orientation and looks southward towards the 10 nations of ASEAN, especially as they edge towards building an economic community that accounts for a market of more than 600 million people and an economy of US$2.5 trillion (S$3.5 trillion).

Last week, the South Korean scholar Shin Yoon Hwan of Sogang University, who is President of the Korean Association of South-east Asian Studies, even suggested at the annual Jeju Forum that ASEAN ought to widen its membership to include South Korea. After all, he argued, at its birth the grouping had offered Sri Lanka, a South Asian nation, a chair at the high table.

As Professor Shin sees it, the benefits of closer integration with ASEAN are mutual. For instance, the Japan-ASEAN technology gap may be too wide but the Korea-ASEAN gap is just enough for both to enjoy complementarity for their goods in world markets. The region is also now the top destination for South Korean tourists and ranks fifth in the South Korean foreign direct investment list. Besides, there is a shared colonial heritage from the days of the Japanese Occupation.

Undoubtedly, there is merit in some of what he says. At a time when globalisation and open markets are under deep scrutiny, any joint effort to lift the game is welcome. Two-way trade between South Korea and ASEAN has been stagnating, and there simply is no chance of attaining the US$200 billion targeted by 2020.

And South Koreans do seem comfortable in ASEAN; one in nine travels to an ASEAN country every year, chiefly to Thailand and the Philippines. About 330,000 people from ASEAN states live and work in South Korea. And exclusionist and isocultural as they tend to be, a small but growing number of Koreans are marrying people from the region. South-east Asia is also in the thrall of hallyu, or Korean Wave, thanks to the popularity of its songs, drama and cuisine.

ST ILLUSTRATION : MANNY FRANCISCO

Still, good intentions aside, the question is how to get results. Hallyu’s soft power can prove fleeting if tastes change, as they are known to. For a more lasting glue, Seoul will need to work harder.

Time to open up

Eight years ago, President Lee Myung Bak announced his New Asia Initiative, which sought to widen his country’s focus from North-east Asia. It was a theme he reiterated at the following year’s Shangri La Dialogue. Seoul did appoint its first ambassador to ASEAN in 2012 but, beyond that, movement has been fitful, especially on security cooperation. South Korea did join ReCAAP, the Singapore-based body that fights piracy and armed robbery on the high seas, but has seemed hesitant about doing more. Certainly, compared with China and Japan, which actively woo the region with aid and defence equipment, its profile does not show up quite enough.

Granted this is not entirely its fault; every time Seoul looks to widen its aperture, its North Korean sibling has pulled its focus back into the neighbourhood either by an act of aggression, such as the sinking of a navy ship, or by conducting ballistic missile or nuclear weapon tests.

But those irritants will not go away. What then should South Korea do to maintain and build momentum?

First, it can contribute to globalisation by keeping its markets open and contributing to wider market opening. South Korea is a part of the RCEP process, the ASEAN-led initiative for a Regional Comprehensive Economic Partnership between ASEAN and the six states ( Australia, China, India, Japan, Korea, and New Zealand) with which it has free trade agreements. But it could go further perhaps by dropping its wariness of the Trans-Pacific Partnership (TPP) agreement, especially as the 11 parties to that arrangement desperately try to salvage the accord despite America’s withdrawal from it.

South Korean participation would be a boost for TPP in more ways than one, including widening its strategic options. Likewise, an early conclusion of an Open Skies Agreement with ASEAN would benefit its own tourism sector. Amazingly, there are virtually no direct flights linking ASEAN capitals to Jeju, South Korea’s beautiful resort island.

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South Korea also must seek to fully partner with ASEAN as the Fourth Industrial Revolution gathers momentum. The country has led the Bloomberg Innovation Index in recent years and has much to offer the region as it copes with change. The new landscape of automation and additive manufacturing offers Korean companies opportunities to look beyond traditional investment destinations based on market size and wage-competitiveness to a new climate where efficient logistics and expertise in high-tech manufacturing will be key.

A Korea technological university in an ASEAN country, backed by its engineering companies, that draws students from ASEAN as well as Korea would not only boost technical skills in the region but also build a slate of engineers familiar with Korean technology who would carry this knowledge and goodwill into their occupations. This will eventually help boost Korean companies’ chances of winning business in the region.

On the strategic side of the equation, Seoul has to show more than a transactional interest in defence arrangements with ASEAN. It should signal clearly that it, as much as any other nation, places value in keeping the sealanes of communication open, and will act to do so. One lesson it could draw from ASEAN is on how this region seeks to balance all major powers, and particularly how it deals with Japan.

South-east Asians, who have endured much pain at the hands of the Japanese in an earlier era, have learnt to forgive and move on, even as they will never forget Japanese excesses. South Korea, on this score, far too often shows up as a boat that, to borrow F. Scott Fitzgerald’s words, beats back against the current, ceaselessly borne into the past.

A version of this article appeared in the print edition of The Straits Times on June 09, 2017, with the headline ‘Why South Korea eyes ASEAN’. Print Edition | Subscribe
 

 

ASEAN’s Pathway to engage the world


June 7, 2017

ASEAN’s Pathway to engage the world

by Joko Siswanto and Alwin Adityo, OJK

http://www.eastasiaforum.org/2017/06/03/aseans-pathway-to-engage-the-world/

 

Image result for ASEAN 50

 

At the ASEAN Summit in Manila last month, Philippine President and this year’s ASEAN Chair Rodrigo Duterte declared that ASEAN stands at the centre and future of the Asia Pacific region. The declaration reflects ASEAN’s working plan and motto for this year: ‘partnering for change, engaging the world’.

The ambitious working plan shows that ASEAN, celebrating its 50th anniversary this year, has the desire and appetite for a bigger role on the global stage.

ASEAN could boost its global role through greater engagement with its external partners. ASEAN’s external trade is worth more than trade between its members. Over the past 15 years, the value of extra-ASEAN trade has consistently tripled that of intra-ASEAN trade. The relative magnitude of external trade may lead some to wonder whether it’s time for ASEAN to pursue a more aggressive trade agenda externally.

ASEAN member states conduct trade negotiations with the ‘ASEAN centrality’ principle in mind. According to the ASEAN Charter, ASEAN centrality serves as the ‘primary driving force in [the organisation] and cooperation with its external partners’.

What does ASEAN centrality mean when it comes to trade? The approach is interpreted as a requirement that any benefits or commitments given in ‘ASEAN+1’ free trade agreements cannot exceed those granted in intra-ASEAN FTAs. Liberalisation measures in ASEAN’s FTAs with Japan or India, for example, are likely to be weaker than those in agreements between ASEAN countries.

This implies that ASEAN’s internal trade agenda has been given higher priority than its external trade agenda. For example, in the intra-ASEAN FTAs, Indonesia allows the establishment of foreign bank offices in all provincial capitals subject to an economic needs test. But in ASEAN+1 FTAs, such as the ASEAN–Australia–New Zealand FTA and the ASEAN–South Korea FTA, banks from partner countries can only set up shop in a limited number of cities.

Looking forward, it will be hard for ASEAN to not seek more intensive engagement with its external partners. ASEAN, home to a rising middle class and nearly 400 million people under the age of 35, is a very attractive region for investors. It should not be surprising that many countries, including the United States under the Trump administration, will seek more intensive engagement with ASEAN including on issues of trade and investment.

ASEAN is also taking a lead role on negotiating what is now the world’s sole megaregional trade deal, the Regional Comprehensive Economic Partnership (RCEP). RCEP’s 16 members account for 46 per cent of the world’s population and 24 per cent of global GDP. The agreement aims to offer better terms on trade in goods, services and investment for ASEAN as well as RCEP’s six extra-regional economies.

In addition to RCEP, ASEAN is looking beyond the Asia Pacific for more intensive engagement in trade. Just last month, ASEAN agreed to revive FTA talks with its second-largest external source of foreign direct investment — the EU — after initial discussions were shelved in 2009.

Given that most of ASEAN’s trade is with countries outside the group, ASEAN should seek to maximise whenever an opportunity arises to negotiate an FTA with its external trading partners. These include the six countries that join ASEAN to form RCEP — Australia, China, India, Japan, New Zealand and South Korea — as well as the EU.

The more FTAs ASEAN has with its trading partners, the more likely ASEAN will become more integrated in global supply chains. Peter Petri and Michael Plummer have argued that limiting external economic relationships to common ASEAN-wide agreements is not necessarily advantageous — it may also constrain the ability of members to maximise gains from trade and investment.

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In ASEAN+1 FTAs, market access negotiations with respective trading partners are conducted bilaterally between the partner and each ASEAN member state individually — not with ASEAN as a whole. Thus there is an opportunity for each ASEAN member state to compete with one another to divert trade and investment from the trading partner to their respective countries.

Yet some countries have an incentive to act differently. As the largest country in ASEAN, Indonesia has vast potential as an attractive trade and investment destination. To attract more trade and investment from ASEAN’s trading partners, Indonesia may consider giving them treatment that is better, or at least on the same level, as that given exclusively to the other ASEAN member states.

Significant economic benefits could be reaped from more intensive engagement between ASEAN and its trading partners. Ideally, each ASEAN member state would be tempted to abandon the ‘ASEAN centrality’ concept as it pertains to FTAs, and extend to its trading partners the preferential treatment that under past circumstances would only be given to other ASEAN member states. From a purely economic standpoint, this would no doubt benefit ASEAN through increased extra-ASEAN trade. Such an approach would certainly be in line with ASEAN’s 2017 motto of ‘engaging the world’.

Yet extending the preferential treatment to trading partners in this way is easier said than done. Petri and Plummer note that regional policy concerns often have complex historical, political and cultural roots and can rarely be resolved by economic arguments alone.

A clear pathway exists for ASEAN to reap more trade and investment benefits through expanding its engagement with other countries. But first, ASEAN may need to change the norm that the best terms on trade should be reserved exclusively for other member states. Then ASEAN will be able to maximise the benefits from engaging the world.

Joko Siswanto is an analyst at the Banking Research and Regulation Department, Indonesia Financial Services Authority (OJK)

Alwin Adityo works at the Banking Research and Regulation Department, Indonesia Financial Services Authority (OJK).