Responding to COVID-19: A key role for ASEAN in the region

Indexes measuring global policy uncertainty are showing unprecedented levels of uncertainty. The World Pandemics Uncertainty Index that measures economic uncertainty associated with pandemics and other disease outbreaks since 1996 is at record highs.

Economic uncertainty was already at a high level before Covid-19 and contributed to a deteriorating outlook for world economic growth.  Escalating trade tensions were a key factor in this.

Restoring real economic activity and growth will depend on the extent to which policy uncertainty can be reduced, as high levels of uncertainty restrain recoveries from economic downturns. The more uncertain the policy environment the less likely consumers are to spend, or business to make contracts or invest. 

Government action to reduce uncertainty

In addition to Covid-19 related domestic policy initiatives, a wide range of governments have joined to issue statements on their determination to cooperate and refrain from actions that might adversely affect other countries. 

These statements are important indications of international cooperation.  But it is often unclear what follow‑up action will occur and how effective such statements of good intention will be in resisting domestic pressures to adopt inward-looking policies. 

Exceptionally high levels of uncertainty about the future were also characteristic of the 1930s during the Great Depression, with wide use of beggar-thy-neighbour policies characterizing the trade environment prior to the descent into world war.  To reduce uncertainty, and provide a more structured, normative environment to support economic activity, the post-World War II planners turned to the creation of international institutions underpinned by legally binding rules and commitments.

This work of institution building was particularly successful in ensuring trade policy did not repeat the 1930s experience of exacerbating major shocks to the world economy. The system of trade rules contained in the 1947 General Agreement on Tariffs and Trade (GATT) and its successor 1995 agreement establishing the World Trade Organization (WTO), supported by WTO-consistent regional and bilateral agreements, has grown to encompass most countries and an increasingly broader range of policy matters.

Given this history, it would seem reasonable to look at a reinvigoration of multilateral institutions as a key avenue for pursuing the actions that are necessary today.

A key multilateral institution in the Asia-Pacific region that could play an important role is the ASEAN-based architecture.

ASEAN and crises – a story of innovation and reform

The 1997-98 East Asian Financial Crisis was a major shock to ASEAN, exposing weaknesses in domestic policies and a lack of resilience in the grouping. However, in the aftermath of the crisis a new era of ASEAN’s evolution began in which there were significant domestic reforms and the beginning of economic institution building that embraced regional partners.

Key developments were the formation of the ASEAN Plus Three (China, Japan and South Korea) forum, the launch of the Chiang Mai Initiative, and a series of successive ASEAN+1 free trade agreements (FTAs) with China, South Korea, Japan, India and a single FTA with Australia and New Zealand (AANZFTA).  Importantly, this process was not interrupted by the 2008-09 Global Financial Crisis with the most ambitious of the FTAs, AANZFTA, being concluded at the height of the crisis. In 2011 ASEAN invited its FTA partners to join it in the negotiation of a Regional Comprehensive Economic Partnership (RCEP) – a visionary effort to improve economic and trade connections across a huge geographic and economic space.

Significantly, ASEAN used its engagement with its partners to drive stronger internal integration and this was the basis for the establishment of the ASEAN Economic Community in 2015.

The ASEAN-based regional architecture and responding to the crises

The ASEAN Summit, expected to be held on June 27 and 28 in Da Nang, Vietnam, is an opportunity for ASEAN to mobilize its regional architecture to address the challenges posed by the health and economic crises.

Three key priorities are:

• Ensuring access to medical supplies and food during the immediate course of the crises.
• Restoring trade and supply chains where these have been disrupted by the crises, as part of a broader strategy to restore global growth.
• Ensuring access to the global manufacturing processes, supply chains and open trade that will be essential parts of a strategy to make a vaccine available in a timely and affordable manner to all countries.

ASEAN’s FTAs establish a legal framework for many of the issues relevant to these priorities:

• The ease with which goods can cross borders.
• The processes by which goods are approved or become attractive for domestic sale.
• Open markets for trade in goods.
• The ability to set up the chain of service activities essential to make possible cross-border economic transactions, including global manufacturing.

The key strengths of the ASEAN-based institutions to date have been this legal framework and the creation of networks of officials across the region in each policy area.  But progress has been measured in years, not the days and weeks essential to agile responses in situations such as the present crises.

An urgent priority, then, should be for ASEAN and its partners to build on the existing legal framework and official networks to engage in the day-to-day cooperation and coordination that is needed to address the three key priorities listed above, and to ensure the necessary consultation with businesses across all sectors.  Regular consultation with business through industry associations would ensure more informed government decision making but is not currently a key feature of the ASEAN-based architecture. In addition, the significance of the current health and economic crises require business to also step up and look for opportunities to assist governments address the crises.  This improved decision-making and consultation would be a key institutional innovation.

A second innovation would be to invite cooperation between the ASEAN-based architecture and a more recent but also important regional initiative – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Informal cooperation between the ASEAN+1 FTAs and CPTPP would bring together the critical economic and geographical space that will be most effective in addressing the three priorities, especially given the diversity and complexity of the networks that make up modern production processes, supply chains and trade. For the same reason, it would make sense for this cooperation to also include the economy of Taiwan, given its key role in trade networks and distribution hubs.

This second innovation would be more informal and focused on identifying areas where the countries and economies involved could work to identify and address problems impeding the resumption of cross‑border transactions. It should be facilitated by the fact that seven countries participate in both forums.

Australia as a constructive partner in the ASEAN-based institutions

Australia has been an ASEAN Dialogue Partner since 1974 and an ASEAN FTA Partner since 2010. The first Australia-ASEAN Leaders meeting was held in Australia in 2018. As a group, ASEAN has been Australia’s second or third largest trade partner over the last decade.

Australia shares a strong interest with ASEAN and other regional partners to work together to ensure cross-border economic transactions can resume where these have been disrupted by Covid-19. Australia could bring resources and expertise to support ASEAN given the important role the ASEAN-based institutions can play in restoring confidence.

Importantly, the ASEAN-based institutions have – like Australia’s economic progress since the 1980s – been based on increasing openness to the world.  This openness has brought significant benefits and will only be preserved and adapted to the current challenges if countries are prepared to work together. As outlined here, existing institutions can be mobilized and strengthened to provide the stable environment backed by legal commitments that a strong recovery needs.

By Milton Churche and Michael Mugliston, visiting fellows, Institute for International Trade, University of Adelaide.

The views expressed here are the authors, and may not necessarily represent the views of the Institute for International Trade.