nbj: What is currently happening in the ASEAN region?
Nathan Sundram: On the economic front, the 10 ASEAN organization countries are now working towards establishing an ASEAN economic community, which is very much different from what the EU has. But there are elements of that. They are building a competitive economic region as part of the single-market production base. At the same time, they are looking at insuring that the benefits of integration are widely spread out to all the countries. They are also focusing on narrowing the gaps as they integrate. And the fourth pillar of integration is actually plugging ASEAN into the global economy, because 75% of trade is still external outside of ASEAN, so the ASEAN economic community is going to be outward-looking and open.
nbj: Tell me more about that fourth pillar—opening up to the outside world.
NS: A couple strategies—one is looking at free-trade agreements with the key partners. So far, there are five free-trade agreements—with China, Japan, Korea, Australia/New Zealand as one undertaking, and then India. They finished one aspect with India, which is a trade in goods, and now they are working on the services and investments. These are five key agreements, and on top of that, now they have launched a regional comprehensive economic partnership, which will bring together ASEAN and all its major trading partners. If the United States and Russia are interested, they can also come on board with this particular kind of agreement. I think it will take about three years to get everything in order.
nbj: Do you expect that the United States will become a partner in the future?
NS: It's a possibility, because I think the United States is also thinking of some form of greater engagement with ASEAN. Based on the last ASEAN/U.S. leaders meeting held just a few weeks back, I think both sides have agreed that now they will look at an expanded economic engagement, or what they call an E3 initiative, where they are looking at a trade facilitation agreement as a start. I think the United States would like to go into a free-trade negotiation only when they see that ASEAN—similar to the EU—is able to meet a much higher free-trade agreement because ASEAN’s agreement—if you compare it with TPP [Trans-Pacific Partnership]—is not so advanced. I think, in a sense, the United States would prefer to have something first on the trade facilitation agreement, where it would be easier for U.S. goods to come into the region so there is more free flow of trade. I think they will focus on that aspect of it.
nbj: Do you anticipate that this will foment more importation of goods into ASEAN, or more export?
NS: Both. It will further enhance trade between the United States and ASEAN in both directions. U.S. exports to ASEAN are close to about $70 billion. And the other way around, the United States imports about $110 to $112 billion from ASEAN, so ASEAN still has a trade surplus with the United States. But with greater trade facilitation, there will be more flow of goods both ways.
Services will be another big component. If we look country-specific, the United States tends to export high-value items. The biggest partner is Singapore—around $26 billion; then Malaysia—around $12 billion; and then Thailand—around $8 billion. And these are things like telecommunications, computer equipment, consumer electronics. And from the ASEAN side, it is also electronic products, textiles and apparel.
nbj: We’ve heard that, as China has become a more expensive place to manufacture goods, a lot of companies are opening up plants in Vietnam, Indonesia and Thailand.
NS: That’s for two reasons. One is increasing wage costs in China, and also the issue of stability. More than ten years ago, many of the ASEAN firms from Japan moved to China. And there was actually a time during the financial crisis when a lot of companies went over to China. But they are now coming back because of the high wage costs and the instability, in terms of tensions. The Japanese have a ten-year strategy to relocate all of their companies to ASEAN countries, because of the economic community. They see that ASEAN will be a one-market production base, so they feel that it is a good time to come back to the region.
nbj: Are there cultural differences between the countries that are barriers to harmonization?
NS: Yes. Within ASEAN, I think the most important issue now is looking at how to narrow those gaps. One is on the development side. At one end, economically speaking, it is actually the diversity that helps ASEAN because you can place your production in the various countries. If you are looking for textiles, then you can go to Cambodia, for example. And if you are looking high-end, you can go to Malaysia or Singapore.
nbj: Our audience is concerned with supplement and nutrition. Is that a promising market in ASEAN?
NS: Yes. Health is considered one of ASEAN’s priority sectors. Health and nutrition. In fact, they are working on a mutual recognition arrangement for health supplements under that. ASEAN has typically put traditional medicine and health supplements together. I think there are some issues there because there is a preference now to look at splitting traditional medicine and health supplements. In the next year or so, you will see some development in this area, in terms of a mutual recognition arrangement or at least a regulatory frame for trading these particular aspects.
nbj: Would you anticipate possible opportunities for manufacturing in that sector moving to ASEAN countries?
NS: Some of those bigger countries, like Thailand and Indonesia, prefer it that way because they don’t just want to be a market for exports from other countries. If you want to sell your product here, perhaps you should also put your production in this particular region. That is what some countries are trying to do now, to have both. If ASEAN is going to be a single market, it is good to put your production here because there are 600 million people and it's growing. We have a big middle-income channel, a young population, and all the countries in the region are connected with a free-trade agreement. If you are an ASEAN-based foreign company, you can make use of this free-trade agreement.
nbj: What are some good examples of foreign companies that have set up manufacturing in ASEAN countries and had good success?
NS: I think the Japanese have been very good in this. For example, Toyota—they have production bases all over Thailand. They produce here and they sell. Another would be Caterpillar, the U.S. company. They recognize that this region is growing and requires more of this heavy equipment, so they are looking at establishing a factory in Thailand, a big one. And they have also done so in Indonesia because Indonesia said, “If you want to export to my country then you put your production here.” It looks like that is the trend—as the region integrates, you have to put your production bases in the region.
nbj: Why invest in production in ASEAN versus, say, China?
NS: There is good opportunity for the companies to put their production in the ASEAN region. It's integrating and coming up with new integration agreements. For example, they have a new agreement called the ASEAN Comprehensive Investment Agreement that gives protection. There is one agreement for foreign companies investing in the region to use, so it provides investment liberalization and investment facilitation measures. ASEAN is trying to sell the region as a single investment destination.
You have different factor endowments in each country. You still have cheap labor in some of these countries, especially Cambodia. And then, ASEAN is also rich in resources—you can always get your resources here. The region is also going to be more linked up. So there are a lot of opportunities in the region and a bigger middle class.
nbj: How would you describe the financial stability of the ASEAN market?
NS: ASEAN economies continue to be resilient. They are growing around 4.7%, despite the uncertainties. If you look at the foreign direct investment coming into the region, they did about $90 billion in 2011 and are still doing well. But of course, we are globally linked now so there will be some impact if the situation worsens in the United States and the EU. The small, export-oriented countries like Singapore, Malaysia and Thailand will be affected by this.
One of the strategies they are looking at is diversifying the market. Inter-ASEAN trade is now about 25% of the trade, about $500 billion. That's a buffer. I think the whole of Asia needs to really start looking at absorbing more consumer final goods. They are not consuming the final goods. The major consumption is still in the United States and EU. They need to change the spending habits of the people in the region. People here tend to save more than spend.
ASEAN Is the new China
nbj: What is currently happening in the ASEAN region?