Regional Economic Community Building Amidst Rising Protectionism and Economic Nationalism in ASEAN

Regional Economic Community Building amidst Rising Protectionism and Economic Nationalism in ASEAN

Alexander Chandra The Habibie Center

Abstract

Despite its ambitious ASEAN Economic Community (AEC) project, protectionism, and economic nationalism are on the rise in ASEAN. Protectionism, however, is not new to Southeast Asia, with governments across the region employing an inward- looking economic policy when they enjoy economic stability, and pursuing economic reform when confronted with major economic challenges. Unfortunately, embryonic industries will always exist in the region, and governments will find excuses to safeguard their existence. Drawing on the Murdoch School of critical political economy approach, this article argues that the inclination towards protectionism in ASEAN be primarily rooted in the domestic political economy of member states. Apart from bringing about domestic regulatory changes, major economic liberalisation initiatives of ASEAN, such as AFTA and the AEC, significantly redistribute power and resources, and ignite struggles between competing for domestic economic influences, many of which are in favour of government’s protection. Whilst existing technical initiatives to address protectionism are useful, major crises that encourage structural adjustments in all ASEAN Member States might be needed to overcome protectionist inclinations in the region.

Keywords: protectionism, economic nationalism, economic regionalism, ASEAN

Introduction Association’s economic integration project. The rise of protectionism, as an The long-awaited ASEAN Economic expression of economic nationalism, in Community (AEC) was finally launched particular, has been seen by many experts on 1st January 2016. Despite the success of and practitioners alike as a key hindrance the Association of Southeast Asian to ASEAN’s effort to deepen its economic Nations (ASEAN) in officially launching integration project. While senior officials its most ambitious project to date, of ASEAN Member States (AMS) have scepticisms linger over the viability of the consistently reiterated their countries’

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commitments towards the AEC; a strong domestic pressures, AMS become significant contrast is depicted on the more reserved in their commitments ground. Despite significant achievement towards the deepening of AEC project. in reducing tariff barriers over the past decade, for instance, non-tariff measures Protectionism, however, is not (NTMs)/non-tariff barriers (NTBs) remain new to Southeast Asia, with governments rampant across the region. Though the across the region employing such an incidence of NTMs in ASEAN is relatively inward-looking economic policy when moderate in comparison with other they enjoy economic stability. On the regions of the world (Cadot et al., 2013: other hand, major economic reforms, 12), these protective measures will prove usually pursued in the form of to be major stumbling blocks for ASEAN deregulation and liberalisation, are to attain its 2025 Economic Vision.1 commonly adopted when crises emerge. AMS’ positive attitude towards the Domestically in each AMS, deepening of ASEAN’s economic protectionist push against the AEC is integration in the immediate aftermath of mounting. Shortly prior and during the the late 1990s Asian financial crisis immediate aftermath of the AEC through the launching of the AEC is a launching, public debate on the subject case in point. Consistent with Jones’s was, unsurprisingly, becoming more (2015) Murdoch School of critical political- common. While many express their economy approach, this article argues that excitement about this ambitious regional the inclination towards protectionism in economic integration project, others ASEAN be primarily rooted in the remain sceptical, highlighting their domestic political-economy of AMS. More countries’ unpreparedness to face, inter specifically, as Jones further elaborates, alia, increasing competition as a result of agreements, such as the ASEAN Free the AEC. In Indonesia, for example, Trade Area (AFTA) and the AEC, call for professionals, such as engineers, and major rescaling of economic governance at workers express their concerns over the the regional level, which affects domestic potential flood of their more qualified regulatory changes that would peers from other AMS.2 Elsewhere, such significantly redistribute power and as in the Philippines and Vietnam, experts resources, and ignite struggles to promote and business practitioners alike also warn and constraints their effects (pp. 3-4). the difficulty that micro-, small-, and Whilst existing regional initiatives to medium-sized enterprises (MSMEs) address protectionism are useful, major would face amidst the AEC.3 With such crises that encourage major structural adjustments in all AMS might be needed

1 The AEC Vision 2025 is part of an overarching to overcome fundamental protectionist ASEAN Community Vision 2025 that was adopted inclination in the region.4 at the 27th ASEAN Summit, which took place in Kuala Lumpur, in November 2015. The document serves as a guide for ASEAN to deepen its economic integration post-2015. Further details concerning the AEC Vision 2025 see ASEAN 4 The Asian financial crisis in the late 1990s, for Secretariat (2015b). example, prompted ASEAN to accelerate and 2 See, for example, Tempo (2015) and Ambarita deepen its economic integration process. The AEC, (2015). which entails, amongst other things, indirect efforts 3 See, for example, Mercurio (2015) for the to address protectionism, is a major regional Philippines and Anh (2015) for Vietnam economic reform resulted from such a process. Journal of ASEAN Studies 3

In the meantime, however, the section also briefly highlights ASEAN’s development of domestic consensus efforts to address protectionism, remains a key element in the deepening of particularly in the area of elimination of ASEAN’s economic integration project NTMs/NTBs. Discussion in section four, (Yean and Das, 2015). In this regard, as meanwhile, is focused on exploring the Yean and Das further argue, greater domestic sources of protectionist policy coherence in domestic economies, inclination in ASEAN. More specifically, it increased stakeholder consultation, attempts to illustrate sector/actor-specific mitigation of the negative impact of AEC struggles that affect AMS’ commitments on domestic stakeholders, and the towards the deepening of ASEAN overcoming of resource constraint are economic integration. Furthermore, primary areas that ASEAN needs to pay section five makes an argument for the its attention to post-2015 (pp. 7-8). Aside deepening of ASEAN’s economic from this, an effective strategy to find integration in advancing domestic common denominators to lessen reforms that could assist the dismantling protectionism is also needed. Though past of protectionist inclination amongst AMS. initiatives, particularly the Priority Finally, the article is concluded in section Integration Sectors (PIS),5 were capable of six where the author attempts to identify attaining such a goal, AMS’ half-hearted specific policy-oriented recommendations commitments render these initiatives for consideration towards dismantling ineffective. The new AEC Vision 2025, protectionist inclination in the region. which identifies a new set of sectoral priorities for ASEAN, could potentially Domestic sources of protectionism: A serve as an arena in which efforts to lessen theoretical overview protectionist measures are tested.6 Protectionism is understood as a This article is divided into four form of government’s policies and actions sections. Whilst the subsequent section that restrict trade and economic openness two offers overview on the existing in favour of the protection of local literature of domestic sources of business and industries, which can be protectionism, the analysis in Section implemented through the imposition of three is dedicated to showing trends and tariffs, quotas, subsidies, as well as other pattern of protectionism in ASEAN. The forms of direct state intervention in the economy. Two notable arguments have 5 Launched in 2004, PIS is an initiative aimed at been commonly used to promote trade accelerating integration in sectors that are deemed protectionism, and these include national priority by AMS. Originally covering 11 sectors, security and infant industry arguments. including electronics, e-ASEAN, healthcare, wood- Whilst national security argument is often based products, automotive, rubber-based products, textile and apparel, agro-based products, advanced with consideration of protecting fisheries, air travel, and tourism, in 2006 logistics an industry that is deemed critical to was added as the 12th PIS. national security; infant industry 6 The new AEC Vision 2025 identifies several key argument generally calls for temporary sectors that are deemed important to enhance protection of fledging domestic industries connectivity and sectoral cooperation in the region, and these include: (1) transport; (2) information, from foreign competition (Warrier, 2011, communication, and technology (ICT); (3) e- p. 225). Amongst all arguments commerce; (4) energy; (5) food, agriculture, and commonly used to advance trade forestry; (6) tourism; (7) healthcare; (8) minerals; protectionism, infant industry argument and (9) and science and technology.

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probably enjoys the highest attraction for The preference dilution effect implies that policy-makers and economists alike, and the larger the political community, the this is likely to be continuously invoked less influence can be exerted by domestic since embryonic industries will always pressure groups on the policy-making exist (Kicsi and Buta, 2010, p. 179). process. The preference asymmetry effect, on the other hand, allows for Although strong arguments have compromises on a specific issue to take been made for free trade, protectionism place amongst different state actors and continuously resurfaces in new guises domestic pressure groups. Another set of (Gilpin, 2000). Throughout history, in fact, arguments focuses on the formation of a free trade has been the exception, whilst regional integration arrangement as a protectionism has been the rule (Bairoch, response of policy-makers to domestic 1993: 6). Indeed, if free trade is more pressures. In Milner’s (1997, pp. 76-77) efficient in comparison to trade view, such an arrangement can be seen as protectionism, it remains puzzling as to a government’s attempt to balance why the former is not more universally consumer interest with the pressures that and consistently adopted by countries emerge from private economic agents, around the world (Kaempfer et al., 2002, such as firms. p. 2). An understanding of domestic political-economy of foreign economic A more recent political-economy policy-making can offer some analysis on the domestic consideration of explanations to this query. foreign economic policy (FEP)-making is offered by Dent (2002). Drawing from Few hypotheses have been seminal work of Putnam’s two-level game developed to analyse the reactions of theory and assessment on the formulation politico-economic actors vis-à-vis of American FEP carried out by Ikenberry regionalism. One hypothesis, for example, et al. (1988), Dent’s contesting actor-based focuses on the type of domestic pressure influence theory maintains that the groups capable of pushing for process of FEP formulation is usually protectionist measures in a regional trade contingent upon four factors, and these liberalisation process (Hoekman and include: (1) state bureaucratic power, Leidy, 1993). Domestic industrial sectors, culture, and dynamics; (2) level of as Hoekman and Leidy further postulate, democratisation; (3) internationalisation can be divided into two types, including of civil society; and (4) economic holes and loopholes. Whilst some nationalism. Whilst the first condition, or domestic actors support the protectionist bureaucratic state power, culture, and measures attached to all domestic dynamics, generally occurs in a state- industries (also refers to ‘holes’), others centric society where constituents hold can be satisfied with the provisions that limited influence over FEP formulation, allow for only temporary protection, such the level of democratisation in a society as import restrictions, import subsidies determines the extent to which domestic (also called ‘loopholes’). Other scholars, constituents can exert their influence over such as De Melo and Panagariya (1993), a country’s FEP. Meanwhile, the level of argue that the ‘preference dilution effect’ civil society’s influence over FEP is also and the ‘preference-asymmetry effect’ dependent upon their knowledge may limit the power and the rent-seeking regarding international political and behaviour of domestic pressure groups. economic conditions. In this regard, more Journal of ASEAN Studies 5

outward-looking societies are more likely elites in political and business spheres, to assert a greater stake in the FEP and the broader imperatives of avoiding formulation process, and vice-versa. Last socio-political unrest that could but not least is economic nationalism, accompany structural adjustments which acts as the source of protectionism emerging from the AEC (pp. 3-4). in a country. In the ASEAN context, whilst economic nationalism and Elsewhere, this author has also protectionism today have been displayed argued that the relationship between in AMS’s half-hearted participation in nationalism and ASEAN regionalism be ASEAN economic community building, in symbiotic – the two variables can the past, cases of confiscation of foreign sometimes be mutually reinforcing, and assets were also common in some AMS. sometimes mutually exclusive and conflicting.8 Whilst it has always been More recently, Jones (2015) offers a assumed that nationalists are opponents more compelling political-economic to free trade agreements (FTAs) and/or argument to explain the domestic root of regional economic integration initiatives, protectionism in ASEAN. Using the they have not always been hostile to free Murdoch school approach,7 he argues that trade and closer economic ties with other the rhetoric and reality of AEC be states (Shulman, 2000, p. 365). As with primarily rooted in the domestic political other domestic actors, nationalists, today economy and social conflict of AMS. He have to adjust to the ongoing and intense went on to suggest that the proposed pressures of globalism and regionalism. rescaling of economic governance at the Incentives such as sustained economic regional level promotes domestic development, the promotion of national regulatory changes that would unity, identity, and culture, the promotion significantly redistribute power and of the state’s autonomy in international resources, and this stimulates struggles fora, the formation of regional collective between competing for domestic action to attain regional governance, and economic influences. Accordingly, whilst the elevation of their country’s bargaining the domestic socio-political coalitions that power at the international level are some underpin state power in Southeast Asia of the incentives that nationalists can generate political imperatives for some accrue from supporting initiatives such as level of economic openness, the same the AEC. forces also constraint AMS to pursue full liberalisation at the regional level. It is not Pattern of protectionism in ASEAN surprising, therefore, that the rich, Despite a commitment to open substantive, agenda of the AEC is often regionalism, the trend towards compromised by protectionist inclination protectionism is increasingly common in arising from domestic alliances between ASEAN. Data made available by the Global Trade Alert (GTA) (n.d.)9 suggests 7 The Murdoch School tradition emerged from the Asia Research Centre at Murdoch University, Australia, which has generated numerous 8 See, for example, Chandra (2008). influential studies on the political-economy of 9 The GTA is an initiative that provides real-time Southeast Asia since the 1980s (see, for example, information on measures that are likely to Robison et al. (1987), Hewison et al. (1993), and discriminate against international that is Rodan et al. (2006)). For further detail on this coordinated by a London-based think-tank, the approach see also Hameiri and Jones (2014). Centre for Economic Policy Research.

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that, to date, AMS still make use of NTMs to this global trade body (refer to considerable amount of measures that are Table 2). The same report also suggests harmful to trade. The GTA classifies trade that out of the total 2,178 notified NTMs, measures as ‘green’, ‘amber’, and ‘red’ to the largest concentration of these harmful indicate their degree of ‘harmfulness’, trade measures is in the form of technical with the red classification being the most barriers to trade, which account for 1,188 harmful. Amongst 630 protective measures, followed by sanitary and measures that AMS adopt, 339 of them are phytosanitary measures (SPS), amounting classified ‘red’, whilst 182 and 109 of these to 735 measures. Ironically, however, measures are classified ‘green’ and many of the SPS measures are linked to ‘amber’ respectively (refer to Table 1). resource-based products that are part of With 346 measures, the majority of which, ASEAN’s PIS. or 191 of them, are in ‘red’ category, Indonesia is the heaviest user of protectionist policies in the region. Moreover, despite the country’s recent Table 1. Harmful trade measures in ASEAN aggressive moves in international trade Countries Green Amber Red Total negotiations, Vietnam comes second as Brunei 1 0 0 1 the AMS commonly issuing a Darussalam protectionist policy that is harmful to trade. Out of 107 measures, 60 of them are Cambodia 2 0 1 3 under ‘red’ category, whilst 29 and 18 of Indonesia 94 61 191 346 these measures are classified ‘green’ and Lao PDR 1 0 0 1 ‘amber’ respectively. Malaysia 16 12 24 52 Myanmar 4 1 3 8 Furthermore, since tariffs are already low (refer to Diagram 1), most Philippines 11 3 7 21 protectionist policies in ASEAN are in the Singapore 9 4 21 34 form of NTMs/NTBs, despite the 2007 Thailand 15 10 32 57 AEC Blueprint setting the deadlines for Vietnam 29 18 60 107 10 the elimination of NTBs. To date, as the Total 182 109 339 630 ASEAN Secretariat (2015, pp. 16-17) notes Source: GTA (n.d.). in its ASEAN Integration Report 2015, though the feasibility to calculate the number of NTMs identified as NTBs, or the number of NTBs eliminated, is small, it is possible, however, using the Integrated Trade Intelligence

Portal of the World Trade Organisation (WTO), to find the list of AMS’ notified

10 The AEC 2007 Blueprint deadline for the elimination of NTBs include: 2010 for Brunei Darussalam, Indonesia, Malaysia, Singapore, and Thailand; 2012 for the Philippines; 2015, with the flexibilities up to 2018, for Cambodia, Laos, Myanmar, and Vietnam. Journal of ASEAN Studies 7

Source: ASEAN Secretariat (2015: 9).

Table 2. ASEAN’s notified NTMs to the WTO

ADP CV QR SG SPS SSG TBT Total I F I F F I F I F F I F BRN 0 0 0 0 0 0 0 2 1 0 2 0 5 CAM 0 0 0 0 0 0 0 0 0 0 2 1 3 IND 20 15 0 0 0 10 16 53 42 0 78 14 248 LAO 0 0 0 0 0 0 0 1 0 0 1 0 1 MYS 8 19 0 0 0 2 0 27 6 0 205 6 273 MMR 0 0 0 0 0 0 0 0 0 0 1 0 1 PHL 1 0 0 0 0 4 7 119 142 7 242 1 523 SGP 0 0 0 0 43 0 0 36 17 0 28 11 135 THA 4 34 0 0 59 2 2 205 18 0 523 22 869 VNM 0 0 0 0 0 1 1 43 23 0 44 7 119 Total 33 68 0 0 102 19 26 486 249 7 1,126 62 2,178

Note: ADP: Antidumping; CV: Countervailing; QR: Quantitative restriction; SG: Safeguards; SPS: Sanitary and Phytosanitary; SSG: Special safeguard; TBT: a Technical barrier to trade; I: Initiated; F: In force.

Source: ASEAN Secretariat (2015: 16).

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Source: Evenett and Fritz (2015: 72-73).

measures such as license and permit Given the sheer size of its economy, requirements, pre-shipment inspections, much attention on the protectionism and new labelling requirements, were debates in the region has been given to often imposed to reinforce the previous Indonesia. Although the country is not ones, often with added strictness, whilst the worst offender in the region in others involved complex cross- imposing new Trade-Restrictive bureaucracy between ministries. In order regulations, it is one of the worst when it to promote domestic industries, comes to NTMs (Patunru and Rahardja, Indonesia was also active in imposing 2015, p. 7). While the number of policies, such as local content liberalising measures adopted has requirements and export restrictions, increased from 3 in 2009 to 78 in 2015, the many of which propelled complicated number of discriminatory policies has and cumbersome business environment risen from 30 to 213 in the same period in the country (Patunru and Rahardja, (Evenett and Fritz, 2015, pp. 72-73) (refer 2015, p. 7). to Diagram 2). The 16th GTA Report even considered Indonesia as the worst Several initiatives have been ‘offender’ for increasing protectionism introduced to address the issue of NTMs since the global financial crisis.11 These in ASEAN. As ASEAN Secretariat (2015, NTMs, most of which imposed by the p. 16) reports, in addition to aligning and country’s Minister of Trade and include upgrading their NTMs database in line with the new NTM classification system 11 In addition to NTMs imposed for trade in goods, of the United Nations Conference on th the 16 GTA report in 2014 also highlights that Trade and Development (UNCTAD), Indonesia, along with the Philippines and Thailand, are the top three most restrictive each AMS has also established inter- countries with regard to services trade (Evenett, agency bodies to strengthen coordination 2014). Journal of ASEAN Studies 9

in addressing these protectionist There is little doubt, however, measures. Other initiatives, such as the that protectionism in ASEAN is mainly ASEAN Solutions for Investments, rooted in the domestic political-economy Service, and Trade (ASSIST), which is a of its AMS. Whilst regional economic consultative, internet-based facility that integration projects are often argued as offers a structured mechanism for the rational responses to globalisation and private sector to lodge their complaints in growing international competition, in a transparent and open manner (MITI, Southeast Asian context, they are most 2015) and the ASEAN Trade Repository, and foremost political projects that are an electronic interface through which the generated and promoted by specific public can freely access the information social and political forces and contested available on National Trade Repositories by those threatened by the so-called ‘neo- of each AMS,12 are also expected to liberal’ restructuring and adjustments contribute to the elimination of various (Jayasuriya, 2003). Notwithstanding protectionist measures in ASEAN. diversity in the state-society relations across different AMS, two common Domestic sources of protectionism in features can be found in the region, ASEAN including the central role played by the economy in politics and the intricate By and large, the economies of linkages between the state, political Southeast Asia display mixed economic actors, and politically influential regimes that accommodate economic domestic social forces, particularly openness, market mechanism, and corporate sectors, that is embedded multilateralism in trade policy, on the within the so-called patronage networks one hand, and state-driven models and (Nesadurai, 2014, p. 228). interventionist practices, on the other (Nesadurai, 2012, p. 18). Despite their Business-state relations deserve ambitious content, present regional particular attention in this regard. As economic integration initiatives of Jones (2015, p. 7) argues, the ASEAN, such as the AEC, remain development trajectories that have been shallow in reality. As Dosch (2015, p. 3) developed in Southeast Asia have created rightly points out, the AEC reflects the forms of state power that are amenable to same hesitant pattern that was evident in the interests of these non-state actors. The previous ASEAN’s economic integration long process, developed throughout the ventures, such as the ASEAN Preferential Cold War period, of the state-led Trade Arrangement (APTA) and AFTA. development process that was backed by Indeed, as highlighted in the previous Western governments, donor agencies, section three, although, on the positive and international financial institutions side, the Association has managed to has cultivated the symbiotic relationship reduce Member States’ tariff level to a between political bureaucracy and considerable degree, protectionism is business groups, whilst marginalising creeping in by way of NTMs/NTBs. opposition groups (Rodan et al., 2006). In Indonesia, for instance, the then Suharto’s regime exchanged protection to ethnic-Chinese business elite for 12 Further detail about the ASEAN Trade economic support to advance the Repository is available in its official website at (accessed 24th January 2016): http://atr.asean.org/. interests of the regime (Robison, 1986),

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whilst, subsequently, the surviving their allies (Nesadurai, 2003). Whilst this oligarchs in the post-Suharto era, along struggle generate substantial with other provincial politico-business deregulation, with the average import elites, reorganised themselves to tariffs, fell from 12.3 percent in the early dominate the country’s new democratic 1990s to 1.5 percent by mid-2006 (Hill and decentralised political institution and Menon, 2010, pp. 7-8), many of the through money politics and clientelist highly politically sensitive sectors networks (Robison and Hadiz, 2004). The remained protected (Jones, 2015, p. 12). same also applies to other ASEAN At the onset of AFTA implementation, countries, including Malaysia (where the for example, over two-thirds of ruling UMNO has actively cultivated agricultural products were excluded from support for Malay business elite in return the Common Effective Preferential for financial support),13 the Philippines Scheme (CEPT). (where landed oligarchs and crony capitalists cultivated under the Marcos More importantly, however, regime remain in control of the country’s when their business interests are democratic elites),14 and Thailand (where challenged by regional economic politico-business elites that have been integration initiatives, such as AFTA, cultivated under successive military business actors were able to overturn regimes were able to dominate Thai specific policy decisions through their politics in the late 1980s and were always connection with the ruling elite in competition for office thereafter).15 (Nesadurai, 2003, p. 122). Such circumstances often spark frictions Whilst these domestic amongst AMS. For example, the circumstances present significant reduction of import tariff under AFTA challenges to AMS’ intention to pursue has enabled Japanese firms to consolidate active engagement in international fora, their production in Thailand. Whilst this this does not mean reforms and vastly improved the automotive industry liberalisations have not taken place. Tariff of Thailand, the automotive sectors in liberalisation, as mentioned elsewhere in Malaysia were severely hit, and this this article, has been relatively successful, generated severe anti-AFTA resistance whilst the level of ASEAN’s economic amongst the country’s politically integration has arguably been deepened, connected producers (Wad, 2009, pp. 175- albeit slowly. As in the case with its past 178). Elsewhere in the Greater Mekong economic integration projects, the degree Subregion (GMS), Glassman (2010) also of liberalisation achieved in ASEAN is argues that, instead of facilitating the reflective of the outcome of struggles deepening of the GMS, this sub-regional between liberalising reformers, who initiative has, by and large, been used as emphasised the general welfare gains a platform for Thai and Chinese capitals offered by greater international economic to serve the Southeast Asian region and openness, and their opponents, who beyond. sought to maintain specific, national-scale protections benefiting themselves and Protectionism, however, has been more profound since the emergence of 2008/09 global financial crisis (GFC). 13 See, for example, Gomez and Jomo (1997). Although many of the Southeast Asian 14 See, for example, Hutchison (2006). economies were not heavily invested in 15 See, for example, Pasuk and Baker (2004). Journal of ASEAN Studies 11

the type of toxic assets that exposed political parties and business groups, also owners to deep losses in the West, the gives room for protectionist policy to GFC, nevertheless, affected the exist (Negara, 2015, pp. 4-6). economies of the region through trade and financial channels, reflecting the The push for protectionism is also region’s deep economic integration with evident in other ASEAN countries. In the rest of the world (Plummer, 2009, pp. Malaysia, for example, aside from its 1-2). Although ASEAN leaders were long-standing New Economic Policy, quick to issue a statement that which is dubbed by some as emphasised the region’s stance on anti- discriminatory and protectionist,17 the protectionism (McDermid, 2009),16 the country’s automotive sector remains one prolonged impacts of the GFC encourage of the most protected ones in the region. AMS to resort eventually to protectionist The sector was only liberalised as late as measures. 2004 under AFTA since the industry was considered as a key import substitution The protectionist inclination is project designed to generate a Malay particularly alarming in the largest capitalist class (Jones, 2015, p. 12). Until economy of ASEAN, or Indonesia. Whilst more recently, however, Malaysia’s much attention has been given to the automotive sector remains protected present administration of President Joko from foreign competition through the Widodo, the trend towards protectionism elaborate construction of tariff barriers, was already visible in the second term of investment-approval permits, differential Susilo Bambang Yudhoyono excise taxes, subsidised credit, administration (2009-2014). At the time, procurement arrangement, and tax not only that the country saw a allowances (Nehru, 2012).18 In the significant increase of NTMs to limit Philippines, meanwhile, the country’s imports and exports, but it was also investment climate has been hampered amongst the large and emerging by its 1987 constitution that supports economies that used this protectionist laws restricting foreign ownership of tool extensively to protect its domestic property to 40 percent (Article XII) industry (Oliver, 2012). Whilst past (Tacujan, 2013), whilst Presidential economic crises were able to generate Decree No. 1466, which prohibits ‘good policies’, during the present government cargoes to be transported by economic hardship, however, Indonesia non-Philippines flagged ships, also is more inclined towards making ‘bad’ restricts the country’s regional economic economic policies, including protectionist integration commitments.19 Similarly, in measures and various inward-looking Vietnam, the country’s steel sector lobby policies (Patunru and Rahardja, 2015). Aside from deteriorating domestic 17 See, for example, the comment made by the economic condition that has been fuelled former Envoy of the European Commission to by prolonged global economic Malaysia, Thierry Rommel, as quoted in Netto (2007). slowdown, slow exports, and weak 18 Despite this, as Nehru (2012) further explains, household confidence and consumption, the share of the main automotive producer of rising nationalism, driven by various Malaysia, or Proton, has been declining, with the company now utilises only 45 percent of its 16 See, for example, ASEAN Leaders’ statement at the capacity and is steadily losing ground to other 14th ASEAN Summit that took place in Hua Hin, domestic and international competitors. Thailand, in 2009. 19 As quoted in Port Calls Asia (2014).

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group has recently called for greater expressed their disagreement towards protection amidst challenges of weak liberalisation trade practices of the AEC. domestic demand and, at the same time, It argued that public health matters dirt-cheap steel imports from China.20 should not be left to the market Around the same time, state-owned mechanism (Bisnis Indonesia, 2016). In PetroVietnam also asked the government the public, the opinions are divided. A to limit fuel imports and take measures to commentary in The Jakarta Post argued, do local businesses to use products from for example, that Indonesian medical its two oil refineries.21 services in the country need to be improved, whilst attitude of local From a sectoral perspective, medical professionals need to be changed protectionism is merely a result of sector- so as to allow better treatments for the specific struggles for powers and patients. At the end of the day, as the resources within ASEAN societies. In an author of this commentary opines, ‘local extensive analysis on the professional physicians would only have themselves migration in ASEAN, Sumano (2013: 151- to blame if customers shift to foreign 204) argues that, in Thailand, the physicians’.22 country’s medical council was dominated by scarce, and, consequently, well-paid Can the deepening of the regional local doctors who feared competition economic integration address chronic from their peer abroad. In view of problem of protectionism in ASEAN? potential salary reduction, employers of these local doctors, both private and Can the deepening of ASEAN public hospitals, were expected to favour integration serve as a tool to promote liberalisation in the sector. It turned out. economic reforms and, thereby, However, public hospitals were divided, dismantle protectionist inclination between those in the rural areas where amongst countries in Southeast Asia? medical professionals were scarce, and This is certainly the expectation amongst those in the urban areas where such policy-makers and intellectual elite in the professionals were plenty. In the region. In the past, the Association’s meantime, private hospitals continued to regional economic integration initiatives, lure medical professionals from public particularly AFTA, were seen by many as institutions with higher salaries. a ‘training ground’ where AMS could Accordingly, employers in the sector learn to compete with one another before were hardly ever unified behind a they compete elsewhere in the global strongly pro-liberalisation stance, with market place.23 Many of these initiatives the Thai Medical Council insisted the looked at ways in which ASEAN could country maintain qualifying become more competitive, and this examinations in Thai, a de facto NTB entailed, inter alia, the removal of tariffs (Jones, 2015, p. 18). as much as NTMs/NTBs.

Similar circumstances also occur Recent literature, however, show in Indonesia. Recently, for instance, the a rather pessimistic view about the role Indonesian Medical Association that regionalism can play in dismantling protectionism. Štĕrbovă (2008), for

20 As reported by the Vietnamnet (2015). 22 See Dharmawan (2014). 21 As reported by the Thanh Nien News (2015). 23 See, for example, Ariff (1993). Journal of ASEAN Studies 13

instance, argues that, over the years, More importantly, if properly regional integration has lost its historical adhered to, ASEAN’s economic role in supporting global trade integration initiatives possess the liberalisation, and has, in fact, become a potential to advance domestic reforms crucial obstacle to it. Aside from bringing that could assist the dismantling of the protectionist element into the legal uncompetitive, rent-seeking, behaviour aspect of the multilateral trading system, that paves the way for protectionist the increasing intervention of global inclination in AMS. As widely argued by trade negotiations into domestic policies, regionalism advocates, regional economic such as in the protection and enforcement integration could propel domestic of intellectual property rights, reforms that would enable governments government procurement, administrative to pursue policies that are welfare- procedures, and so on, is making improving, but incapable to do so in the countries more inclined to pursue absence of such a regional set-up.25 protectionist policies. Along similar line Unlike engagement made at the of argument, Abida (2013) also maintains multilateral and/or bilateral level, which, that, by creating preferential rules that as mentioned earlier, governments can are inconsistent with the principles of the find extremely intrusive towards their WTO, regional integration strategy can development agenda, the pace and create trade diversion, and increase the development of ASEAN economic risk of trade disputes with third party integration agenda have been built and countries that can generate a commercial designed to suit the development environment that is full of threats and capacity of its member countries. Though reprisals. this in itself is an apparent half-hearted commitment towards economic Fortunately, this is not the case integration amongst state apparatuses in with ASEAN. Given their vast economic ASEAN, regional economic integration dependence with non-ASEAN provides a more logical option for economies, AMS see the value in countries that wish to maintain status involving themselves actively in quo, on the one hand and pursue gradual multilateral trade negotiations, and have, economic reforms, on the other. therefore, consistently extended their continuous support for the conclusion of Given the emerging support for the WTO’s long-standing Doha round of economic nationalism and protectionism negotiations. It is also part of the reasons in the region, however, ASEAN is in dire why ASEAN’s trade agenda has been need to truly self-reflect on its expanded over the years to include bilateral free trade agreements and/or Partners with which the Association already has comprehensive economic partnership individual FTAs with. When and if completed, with its key Dialogue Partners, and, more RCEP will make up 45 percent of the world recently, the negotiations to create a population, and contribute a third of the world’s GDP. Whist initially planned to be completed by Regional Comprehensive Economic the end of 2016, it is understood that the new 24 Partnership (RCEP). schedule for additional negotiating rounds in 2017 has been set to further discuss sticking points in 24 Launched at the 21st ASEAN and Related the negotiations. For further information on RCEP, Summits in Phnom Penh, Cambodia, in 2012, see, for example, Ministry of Trade and Industry of RCEP is a free trade agreement currently being Singapore (n.d.). negotiated between ASEAN and its six Dialogue 25 See, for example, Niekerk (2005).

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achievement to date. Aside from technical cooperation on the issue communicating better its economic amongst AMS (Cadot et al., 2013, p. 2). integration policies to the public, the Another potential approach is to identify Association also is in need of a better common denominator to lessen approach in amplifying the message that protectionism. Whilst initiative, such as protectionism benefits the few, and ASEAN Trade Repository and the harms the masses. At the same time, the ASEAN Solutions for Investments, public also needs convincing of the fact Services, and Trade (ASSIST) may pave that the unwillingness of state the way for eventual elimination of apparatuses to distant themselves away NTMs/NTBs, priorities on the elimination from influential rent-seekers, which are of these measures can be focused, for often dominated by powerful business example, on the existing and new priority interests, keeps them away from potential integration sectors ASEAN. In the benefits that ASEAN economic meantime, however, the attainment of integration promises. domestic consensus, developed through greater policy coherence and extensive Concluding remarks stakeholder consultations, will prove to be a critical ingredient in overcoming Despite its ambitious AEC project, protectionism, on the one hand, and protectionism is on the rise throughout instilling popular support for ASEAN ASEAN. Protectionism, however, is not economic integration, on the other. new to Southeast Asia, with governments across the region employing such an About Author inward-looking economic policy when they enjoy economic stability, and pursue Alexander C. Chandra is an reforms when confronted with major Associate Fellow of the ASEAN Studies economic challenges. Unfortunately, Program, The Habibie Center. He was embryonic industries will always exist in former Executive Director of the ASEAN the region, and governments will find Business Advisory Council (ASEAN excuses to safeguard their existence. With BAC). Prior to joining the ASEAN BAC, the major decline in tariff lines, AMS can he was the Regional Coordinator for be expected to make use continuously of Trade Knowledge Network (TKN) NTMs/NTBs to serve such a protectionist Southeast Asia. He holds a Ph.D. in purpose. Southeast Asian Studies from the University of Hull, UK. His key interests Whilst it is difficult to predict the are political economy of Southeast and occurrence of the next crises, and East Asian regionalism, international whether ‘good’ policies could, indeed, trade, democratic governance and the emerge from such a catastrophic event, it role of the civil society in policy-making. is possible, however, to take gradual steps to eventually lessen the use of References protectionist measures. About NTMs/NTBs, for example, there is a merit Abida, M. (2013), ‘The Regional of considering incorporating efforts to Integration Agreements: A New eliminate these barriers in regulatory- Face of Protectionism’, reform agendas of each AMS, and International Journal of Economics improve information-sharing and Journal of ASEAN Studies 15

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