The Rise of Economic Nationalism in ASEAN

Amidst unprecedented supply chain shocks associated with geopolitical uncertainties, economic nationalism in ASEAN member states have been on the rise, counteracting decades-long attempts at economic integration within the 10-nation group. From Malaysia’s chicken export ban to Indonesia’s restrictions on palm oil exports, trade ties are increasingly sidelined in favor of nationalistic interests while US-China tensions have also reshaped trade relations, albeit in a different manner. 

Attempts at ASEAN economic integration first began in 1992 with the ASEAN Free Trade Area (AFTA), which aimed to reduce intra-ASEAN tariffs and promote free trade amongst member states. Key goals were met, with the average tariff rate for goods traded under the CEPT (Common Effective Preferential Tariff Scheme) falling from 12.76% in January 1993 to 2.36% in January 2003.

More than twenty years on, global volatilities have instead led to a growing economic nationalism across ASEAN. Inter-ASEAN trade in relation to member states’ cumulative trade volume fell from a ratio of 0.225 in the first three quarters of 2022 to 0.218 in the first three quarters of 2023. Though this is not a significant decline, ASEAN economic cooperation has also been plagued by a rise in resource nationalism, with resource-rich countries such as Indonesia and Malaysia imposing a slew of both temporary and permanent export bans. Still, the rise of economic nationalism in ASEAN has been somewhat tempered by the US-China trade war, which in turn has spurred China to seek freer trade in the Asia and Oceania regions.

In the face of the Russo-Ukraine War, supply chain disruptions have led to instances of protectionism by ASEAN member states to prioritize the immediate wellbeing of their citizens. In Malaysia, grain shortages brought about by the overseas war led to rising costs in the production costs of chicken. Coupled with a wave of disease infection amongst the chicken population and poor weather, Malaysia experienced a shortage in chicken supply. As a result, Malaysia announced a chicken export ban in May 2022. This had large effects on neighbors such as Singapore, who sourced a majority of its chicken supply from Malaysia at that point. True to her pragmatic stance of hedging her trading partners, Singapore immediately began negotiations to source chicken from other ASEAN nations Indonesia and Thailand instead, thus mitigating any negative impacts of the ban. 

However, other such instances of export bans have had much more pronounced impacts. In April 2022, Indonesia imposed a temporary ban on palm oil exports to ensure sufficient supply for locals amidst rapidly rising prices, showing its desire to prioritize keeping domestic inflation low over committing to free trade. This ban had huge impacts both within and without Southeast Asia, with Indonesia responsible for over 50% of the world’s palm oil. Spain, China, India and Pakistan in particular were the most severely impacted, as the main importers of Indonesia’s palm oil. Impacts were particularly severe due to the importance of palm oil as the most widely used vegetable oil, as well as a raw material (crude palm oil), which led to raised costs for food and biofuel worldwide.

Indonesia's palm oil plantations. Image Credit: The Ethicalist

Beyond immediate trigger events that cause temporary supply chain disruptions, some ASEAN nations have also begun to adopt more protectionist measures simply because of the desire to prioritize domestic economic growth instead. For example, Indonesia turned to protectionism to prioritize its domestic economic growth with the tightening of export restrictions on raw nickel. 

Indonesia’s reliance on raw material exports as a source of economic growth has long been a point of concern for economists, and the Indonesian government has been diversifying accordingly over time, to mixed results. However, the Covid-induced recession led the government to take on the more decisive, albeit blunter, measure of banning all export of raw nickel as a last-ditch attempt to promote diversification. In their statement, the government said that they hope this move will promote successful downstreaming, meaning the growth of local activity in the related, higher value industry of nickel processing. Essentially, it is the government's intention to leverage Indonesia’s crucial role as one of the largest suppliers of raw nickel to force investors to support the setting up of nickel processing infrastructure within the country, instead of exporting it to processing plants elsewhere.

The phenomena of self-interest hindering ASEAN economic cooperation and free trade is certainly not a new one. Early in ASEAN’s journey towards increased economic cooperation, in the late 1970s, the ASEAN Preferential Trading Agreements (PTA) was stunted by the self interest of 4 out of the 5 signatories, who were still in their Import Substitution Industrialization (ISI) phase. This caused them to be competitive economies, leading to their reluctance to support legitimate tariff reductions. Therefore, in practice, the PTA was little more than a sham, since goods of major interest to the member states were not included in the agreement, and irrelevant products were marked for tariff reduction, such as snow ploughs and nuclear reactors, both of which no ASEAN country had ever produced. Fast forward to today, the inability of some member states to achieve the status of developed nation has led to the erosion of the progress made in the late 1990s and early 2000s in regards to inter-ASEAN and regional economic cooperation, as such nations once again prioritize their own economic growth.

However, ASEAN cooperation with China has somewhat reduced member states’ economic nationalism. With the continuing strain on US-China trade, China has been eager to find trade partners in Asia and Oceania. A Boston Consulting Group study found that China-ASEAN trade is slated to increase by US$616 billion over the next decade, the largest absolute increase worldwide. Additionally, the Regional Comprehensive Economic Partnership (RCEP), which involves ASEAN, China, Japan, Korea, Australia and New Zealand, was signed in 2020 and came into effect in 2022. As the world’s largest FTA covering one-third of global GDP, it would curb the scope of nationalistic measures that ASEAN member states can undertake. Indeed, the RCEP prohibits non-tariff measures on the importation or exportation between member states, except in accordance with the rights and obligations under the WTO Agreement or the RCEP. Still, such measures only have a limited efficacy in promoting free trade, since certain nations who continue to prioritize their own domestic interests and autonomy, such as Malaysia and Indonesia, have not ratified the RCEP agreement.

Proposed trade pact spanning 16 countries. Image credit: India Today

In conclusion, inter-ASEAN economic cooperation may no longer be the headline-grabbing topic as it once was in the late 1990s and early 2000s. Still, ASEAN is commonly regarded as an economic dark horse, due to its potential as a region with a relatively youthful population, rapid evolution and resilience in the face of unprecedented challenges, such as the pandemic.

References

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