BORDERLESS ASEAN: Better teamwork

Southeast Asia's borders are eroding as the region's politicians look to deepen integration and boost their economies. Direct aggregate foreign investment in Asean in 2013 surpassed China's, nearly half a century after the political and economic organization was founded. Tariff cuts have lifted regional trade volume, which has increased by 270% in the last decade. That figure is likely to rise further as leaders across the region ready for the launch, by the end of next year, of the Asean (Association of Southeast Asian Nations) Economic Community.

     People, companies and cash are flowing through the region at an unprecedented rate. Direct investment among association members grew more than fivefold over the decade to 2012, as infrastructure projects have helped enhance mobility, and ambitious businesses have embarked on regionwide projects to increase their customer bases. What are the coming highs and lows of integration? Read on...

Asean Economic Community all set to bring the neighborhood together

TETSUYA IGUCHI, Editor-in-chief, Nikkei Editorial Headquarters for Asia

BANGKOK -- Singaporean and Malaysian leaders agreed April 7 to soon launch the Kuala Lumpur-Singapore High Speed Railway project. It is scheduled for completion in 2020.

Cars await loading at Laem Chabang, Thailand's biggest port.

     The line will connect the two international cities, around 300km apart, in only 90 minutes. Construction costs, excluding land purchases, are estimated at up to $30 billion. The two countries plan to simplify immigration procedures for commuters by the time the project is completed.

     A total of 13.17 million visits were made to Malaysia from Singapore in 2013, up about 20% from five years earlier, while the number heading the other way doubled to 1.28 million. An estimated 400,000 Malaysians work in Singapore. The flow of people between the two countries will sharply increase if the rail line is completed.

     The project "will make a tremendous difference to the psychology of our people and to the overall interrelationship and cooperation between the two countries," Singapore's Prime Minister Lee Hsien Loong said.

     Moves to facilitate the cross-border transfer of people, goods and capital to promote economic development are spreading within the Association of Southeast Asian Nations. The Strait of Malacca to the west of the Malay Peninsula lies midway between Singapore and Kuala Lumpur. A key junction for east-west trade, the strait has now drawn attention as a strategic link between Malaysia and Indonesia.

     In 1996, then-Malaysian Prime Minister Mahathir bin Mohamad proposed to Indonesian President Suharto that the two countries build a 50km bridge over the Strait of Malacca. The proposed project to link the countries, which stumbled as a result of the Asian currency crisis, is again emerging under the initiative of a private Malaysian company called Strait of Malacca Partners. The company envisions building an undersea tunnel connecting Malacca State with the Indonesian island of Sumatra, said Managing Director Lim Sue Beng.

    The project is estimated to cost $193 billion, which is expected to take 80 years to recover the cost through revenue generated by the operation of the tunnel. It is necessary therefore "to get a consensus from many people from both Malaysian and Indonesian sides," said Datuk Seri Idris Haron, chief minister of Malacca State, who still thinks the tunnel is a good idea. If it is built, it would be another success for bringing Asean nations closer together. Malaysia, with a gross domestic product of more than $10,000 per capita, is the third-wealthiest nation in Asean. And 3 million Indonesians are estimated to work and live in Malaysia.

Upscaling

Tenaga Nasional, the biggest electric power company in Malaysia, is undertaking feasibility studies jointly with Indonesia's state-run electricity supplier PLN and coal company Bukit Asam to lay a 50km undersea cable across the Strait of Malacca to connect the two countries' grids.

     Indonesia plans to build a coal-fired power plant in Sumatra's Riau Province and sell electricity to Malaysia. Under the plan, Indonesia will sell electricity from coal-rich Sumatra to a power hungry Malaysia. Rapid industrialization means Malaysia needs daytime electricity, and Sumatra will receive power from across the strait at night, when its energy consumption increases.

     Countries and businesses cannot ignore the upscaling effect of dismantling national boundaries.

     The port of Laem Chabang, Thailand's biggest trading port, is 80km southeast of Bangkok. It is always busy, as it exclusively handles automobile exports from the country. In 2013, 1.11 million vehicles were shipped from Laem Chabang, up by a factor of about 4.8 over the past decade. "Shipments may exceed the port's current capacity of 1.5 million vehicles per year in or after 2017," Yutaka Miyaji, president of NYK Line (Thailand), said.

     Moves to reduce tariffs within Asean are a boon for Laem Chabang. Six member countries have already phased out tariffs for automobiles to zero, effective from 2010. The remaining four, including Vietnam, are required to follow suit by 2018.

     Indonesia, which is emerging as a major Asean auto producer, has no intention of playing second fiddle to Thailand. At a May 21-23 World Economic Forum meeting in Manila, Indonesian Minister of Trade Muhammad Lutfi said automakers operating in Indonesia, such as Toyota Motor, Honda Motor and Mitsubishi Motors, will double their output.

     "We are going to be a source of production in the region," Lutfi jokingly told those on the stage, including the Philippine and Malaysian trade ministers. "We are going to export traffic jams from Jakarta."

     If transportation time and cost in Thailand, Vietnam, Laos, Cambodia, Malaysia and Myanmar are to be reduced to levels seen in Singapore, which has the most efficient system in Asean, benefits could be significant. According to the Asian Foundation report, commodity exports from Cambodia to Thailand and Vietnam will increase 30% from current levels, and those from Malaysia and Myanmar to Thailand by 10%.

Worries

Of course there are some concerns over hasty integration. "If you combined the top three (banks) -- BPI (Bank of the Philippine Islands), BDO Unibank and Metropolitan Bank and Trust Company -- we're only as big as Bangkok Bank, and that is No. 7," said BDO President Nestor Tan in May 27 parliamentary testimony. "That's how small we are."

     Filipino workers in Singapore called for holding an event to celebrate their country's Independence Day through social network Facebook, but Singaporean criticism led to the withdrawal of the plan. This shows that worker migration in Asean will meet local protest.

     Historically speaking, however, Asean's only choice is to integrate. Foreign ministers from Thailand, Indonesia, Malaysia, the Philippines and Singapore signed the founding Asean Declaration in Bangkok on Aug. 8, 1967. Relations among Southeast Asian nations were turbulent at that time. For example, tensions were boiling between Indonesia and Malaysia a few years before the declaration, and Singapore got independent from Malaysia in 1965.

     The East-West confrontation, symbolized by the Vietnam War, prompted Southeast Asian nations to pursue regional solidarity. After signing the declaration, then Indonesian Foreign Minister Adam Malik described Asean as "a region which can stand on its own feet, strong enough to defend itself against any negative influence from outside the region."

     Nearly 50 years have since passed. At the Asean summit held May 11 in Myanmar's capital of Naypyitaw, Vietnam's Prime Minister Nguyen Tan Dung criticized China by name for the launch of oil drilling in the South China Sea. "In face of this extremely serious situation, Vietnam requests that Asean strengthen solidarity and unity," he said.

     China's rapid rise as an economic and military superpower seems to urge the Asean countries to pull down their borders faster.