What Brexit means for ASEAN

RUI HAO PUAH, 27 JUN, 2016, http://www.newmandala.org/brexit-means-asean/?platform=hootsuite

The split between the UK and EU will have economic, political and psychological repercussions for Southeast Asia.

On 23 June, the United Kingdom comprising England, Wales, Scotland and Northern Ireland, voted to leave the European Union. The final result saw 51.9 per cent of voters choosing to leave with 48.1 per cent deciding to remain.

With 72.7 per cent voter turnout, nobody denies that the result does not represent the will of the people. However the UK remains deeply divided on Brexit — Scotland and Northern Ireland see their economic and political destinies tied up with the pan-European project, while England and Wales, with the notable exception of London, want to leave the European Union.

But the results also have implications for another longstanding exercise in regional integration on the other side of the globe — the Association of Southeast Asian Nations (ASEAN). Specifically, what does Brexit mean for ASEAN, a parallel regional grouping often compared to the EU, and how will Brexit reverberate politically in the region?

The implications are both economic and political.

The immediate economic impact of Brexit is a significant weakening of the pound and Euro against ASEAN currencies, with markets noting tensions within the Eurozone. The flight to dollar-denominated assets has also prompted an appreciation of the US dollar against ASEAN currencies, with the notable exception of the embattled Malaysian Rupiah. The long-term financial impact will depend on how politicians handle the Brexit negotiations and how they manage centrifugal forces within the EU.

With their weaker purchasing power, British and Eurozone buyers will reduce their demand for exports from UK’s leading trading partners in ASEAN — namely Singapore, Malaysia, Thailand and Vietnam. Conversely, ASEAN consumers will benefit from discounted Eurozone goods, including cheaper education and school fees.

ASEAN countries battling economic slowdowns such as Malaysia and Indonesia — caused by political turmoil and low oil prices respectively — are well positioned to benefit as US demand for imports strengthens with the stronger greenback.

The looming question is that of trade and investment. Following the suspension of FTA negotiations between EU and ASEAN in 2009, individual ASEAN countries have resorted to bilateral negotiations with the EU, namely Singapore and Malaysia (2010), Vietnam (2012), Thailand (2013) and the Philippines (2015).

With Brexit, the UK is set to intensify its search for trading partners abroad. Outgoing PM David Cameron’s July 2015 ASEAN trip to Indonesia, Singapore, Vietnam, and Malaysia reflected the imperative to diversify the British economy away from the EU and North America, a contingency plan now made real by Brexit.

In fact, Brexit may well create the impetus to expedite trade and investment deals, particularly with fast growing economies of Vietnam and Indonesia. Both are two of ASEAN’s demographically most promising countries but underperform regarding trade with the UK. Other targets may include traditional partners Singapore and Malaysia, the former the UK’s fifth largest trading partner outside Europe.

As such, Brexit has brought economic gains for the ASEAN region because it has untangled the UK economy, Europe’s second largest, from the EU’s labyrinth regulations and wishy-washy human rights policies that hinder closer engagement. What Brexit also does is to further shelve prospects of a renewed EU-ASEAN trade agreement. Although one less EU member makes for fewer complications, the EU is not in a state to negotiate before it gets its house in order.

The political implications are also as interesting and diverse.

ASEAN countries have mostly drawn conclusions for what Brexit means for ASEAN from the experiences and needs of locals. The Philippines, whose economy is traditionally reliant on remittances from millions of Filipinos working overseas, has focused on the perils of outward migration due to increasing intra-ASEAN labor mobility and Philippines non-competitiveness — for example losing its workers to more vibrant ASEAN economies.

Malaysia, amid an internal atmosphere of poisonous political exchanges, learned the need for civilized dialogue in contrast to “sharp exchanges” in the Brexit debate. In Thailand, inspired by the cross-border immigration issues raised by Brexit, one opinion piece focused on the need for ASEAN to be relevant to cross-border human development issues such as migration, human rights, human trafficking and maritime security.

Indonesia on the other hand, concerned with economic growth amid a faltering economy, played up the increased opportunity to deepen its economic relationship with the UK.

Despite the myriad of interpretations, the impact of Brexit on ASEAN integration is arguably psychological. One big lesson is the folly of pushing “closer, deeper integration” while ignoring public resistance, not just in Britain, but also in Euroskeptic regions scattered throughout Europe. In this regard, ASEAN is also similar in the sense of being an elite-driven concept, although ASEAN-skepticism exists to a much lesser degree especially in developing countries such as Vietnam, Cambodia, and Laos that stand most to gain from intra-ASEAN economic mobility.

ASEAN countries such as Indonesia and to some extent Thailand, which aspire to regional leadership through ASEAN and a greater voice on the world stage, also have every reason to champion the ASEAN cause. Politically, ASEAN countries are more concerned with safeguarding their sovereignty and developing their national economies more so than seeking convergence in their monetary or even foreign policies, unlike the EU. Hence, we see a contrast.

Brexit is framed as the Brits’ rejection of an “all-powerful supranational bureaucracy” controlling their immigration policies, overruling their national courts and diluting Westminster’s power at the expense of ineffective representation in Brussels. In ASEAN, the risks to sovereignty come not in the form of intrusive bureaucracies, but rather big power influence and nascent nationalism vis-à-vis ASEAN neighbors fueled by historical animosities and economic competition. After all, ASEAN was founded in 1967 as a way of managing testy relations between post-colonial states and a long-term strategy of bringing sustainable peace to the region, not unlike the EU, whose beginnings trace back to the 1952 European Coal and Steel Community born out of the need to manage Franco-German rivalry.

However, Brexit and the risks of EU bureaucratic and legal overreach should not be a vindication of ASEAN’s much-storied gradualism, or put famously, the ‘ASEAN way’ of informality and consensus building. After all, gradualism is often a euphemism for disunity and ineffectiveness.

As an economic entity, ASEAN has been slow to get off its feet and has mainly relied on integration with larger economies such as China (RCEP), US (TPP), Japan, India or South Korea to drive its intra-regional economic cooperation. Goals of closer economic integration were superficially met in 2015 with the ASEAN Economic Community.

Politically ASEAN is torn between China and the US as seen from its repeated inability to issue joint statements relating to China’s actions in the South China Sea. This first happened in July 2012 when the regional grouping ended a meeting in Cambodia failing to reach a communiqué on the South China Sea and recently in June 2016 when country chair Malaysia retracted a statement, and ASEAN broke into mutual recrimination, pointing fingers at Cambodia and Laos being overly influenced by China.