Five ASEAN Trade Developments to Watch Out For

ASEAN’s combined GDP growth was 3.4 percent in 2021 and the recovery outlook is positive despite circling global headwinds. The 54th ASEAN Economic Ministers’ Summit in Siem Reap, Cambodia, in September 2022, forecasts regional growth of 5.2 percent in 2023.

The OECD says the pace of growth will vary between markets. The Philippines will have the fastest rate of around seven percent in 2022, while Myanmar could see negative growth. Finance Ministers also committed to completing a mid-term review of the ASEAN Economic Community’s (AEC) Blueprint 2025 program. This will be followed by the publication of a new report setting out the region’s post-2025 vision.

Established at the end of 2015, the AEC created a single economic and free trade area across the 10 members: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Tariffs on many products were removed. Regulatory mechanisms for customs integration, patent protection, and harmonizing trade in various sectors, including pharmaceutical products and digital technologies, were put in place. Another stated goal of the AEC is to narrow the development gap within ASEAN.

Takeaways:

• ASEAN economic growth is back on track after the pandemic
• The AEC plans to set out a future vision beyond 2025
• Narrowing the economic divide between ASEAN nations is a key objective

With ASEAN economies fully open for business now, inbound investment is forecast to accelerate. Following a decrease to USD 122 billion in 2020, which was influenced by the pandemic, foreign direct investment into ASEAN rebounded to USD 174 billion in 2021. This matched the 2019 regional total.

ASEAN accounted for 11 percent of global FDI from 2020 to 2021. Highlight areas of investment in 2021 were finance and insurance services, manufacturing, wholesale and retail trade, and information and communications systems.

Future investment flows will be influenced by some ASEAN markets, such as Indonesia and Vietnam, building electric vehicle (EV) production and supply chains. Prioritizing low-carbon technologies is expected to attract new financing region-wide. The electronics and semiconductor sectors should grow rapidly.

Across ASEAN, a rapid transformation towards cashless digital economies will spur growth in eCommerce. ASEAN’s vibrant start-up tech sector is also primed for expansion, especially in eCommerce, fintech, travel, and hospitality.

Takeaways:

• Inbound investment to ASEAN in 2021 matched the 2019 level
• Investment in EVs and low-carbon technologies will expand and diversify
• A dynamic start-up sector will drive innovation across the region

Indonesia’s House of Representatives ratified the Regional Comprehensive Economic Partnership (RCEP) agreement in August 2022. This is a significant step for RCEP as Indonesia is Southeast Asia’s largest economy and the 2022 G20 President. Indonesia’s government believes ratification will increase its exports and imports by a combined USD 9 billion by 2040.

The RCEP is the world’s largest free-trade agreement, covering almost one-third of the global population. The landmark deal was signed in November 2021 by the 10 ASEAN markets plus China, Japan, South Korea, Australia, and New Zealand. Member nations comprise 30 percent of global GDP, one-quarter of trade in goods and services, and 31 percent of inbound investment flows.

RCEP entered into force on 1 January 2022 and reduces tariffs by up to 91 percent between members for trading goods and services. It will also harmonize commercial protocols in areas such as investment, intellectual property, competition, and eCommerce. Only, the Philippines and Myanmar are yet to ratify RCEP, while Hong Kong applied to join in 2023.

Takeaways:

• 13 of the 15 RCEP signatory nations have ratified the agreement
• Indonesia says RCEP membership could boost its economy by USD 9 billion annually
• Hong Kong has applied to join RCEP in 2023

Two major trade summits in late 2022 will place the geopolitical spotlight firmly on ASEAN. As the 2022 President of the G20 group of the world’s largest economies, Indonesia will host the annual G20 Heads of State and Government Summit.

Titled “Recover Together, Recover Stronger”, the event takes place in Bali, from 15-16 November, potentially bringing together Presidents Xi, Putin, and Biden for the first time. Various related inter-governmental and global business leader meetings are also being hosted in Bali throughout 2022.

Immediately after the G20 Summit in Bali, the Asia Pacific Economic Cooperation (APEC) Leaders’ Meeting will take place in Thailand. Hosted in Bangkok from 18-19 November, the meeting will be attended by leaders of 15 nations and territories in the Asia Pacific, plus the US, Canada, Russia, Chile, Mexico, and Peru.

The Seven ASEAN members are Brunei Darussalam, Indonesia, Malaysia, Philippines, Thailand, Singapore, and Vietnam. In addition, APEC Finance, Trade, Health, and Tourism Ministers are hosting their respective meetings in Thailand in 2022.

Takeaways:

• Two major global summits in 2022 will place ASEAN in the global spotlight
• Bali is hosting the G20 State and Government Summit in November
• Bangkok is the setting for the APEC Leaders’ Meeting in November

ASEAN’s strict geographical location rule for membership prevents significant enlargement. However, Timor Leste, a small nation of 1.3 million people, will become the 11th member. Timor Leste applied to join ASEAN in 2011, and various economic and structural feasibility studies have been completed. Approval has yet to be granted, partly due to pandemic delays.

Remaining outside of ASEAN currently precludes Timor Leste from applying for membership in RCEP. During an official visit to Vietnam in July 2022, East Timor’s President, Jose Ramos-Horta, reaffirmed a determination to join ASEAN. His government believes a breakthrough could occur once Indonesia, a major trading partner with Timor Leste, assumes the rotating ASEAN presidency in 2023. In August 2022, Indonesian news agency Antara described Timor Leste’s accession as “one of Indonesia's priorities during its presidency.”

Takeaways:

• Timor Leste hopes to become ASEAN’s 11th member in 2023
• Indonesia says Timor Leste’s accession is a priority during its ASEAN presidency
• Further expansion of ASEAN is unlikely soon