Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Ahead of the 43rd ASEAN Summit in Jakarta, Joanna Octavia, Head of Programming at Asia House, identifies the critical issues at stake and analyses the likely areas of consensus and divergence among the Member States.
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Key messages:
The summit
The 43rd ASEAN Summit, which takes place September 5-7 in Jakarta, is expected to have far-reaching effects on international cooperation and regional integration. Current ASEAN chair Indonesia has confidently positioned the organisation and its combined US$3.66tn GDP at the centre of a shifting global economic order, underscoring the organisation’s global significance and its potential for growth.
With 27 world leaders and international bodies expected to attend, the summit will seek to strengthen ASEAN cooperation on the digital economy, energy transition, and on the resilience of supply chains – all of which are critical to promoting economic growth, trade, and investment within the organisation.
Businesses should expect significant progress in these areas, leading to positive developments in trade agreements, investment opportunities, and cross-border partnerships, both within ASEAN and between the organisation and its partners.
As the only ASEAN member that is also in the Group of 20 largest global economies (G20), Indonesia is well-positioned to align ASEAN’s economic interests with the global agenda, shaping both the organisation’s trajectory and Jakarta’s own strategic positioning on the international stage. For instance, Indonesia’s focus on sustainable energy transitions during its 2022 G20 presidency is also a major theme under this year’s ASEAN chairmanship. Moreover, Indonesia is strategically positioning itself as a key player in the region’s digital transformation, taking the lead in driving the conversation on regulatory interoperability across the region.
Digital ASEAN
Leaders at the summit aim to push forward the ASEAN Digital Economy Framework Agreement (DEFA), a key initiative to facilitate the creation of an ASEAN Digital Economic Community by 2045. While formal DEFA negotiations were originally slated to begin before 2025, a pre-summit meeting of ASEAN economic ministers in August suggested that DEFA negotiations will start as early as the end of 2023. This carries profound implications for businesses operating in the region.
The DEFA will establish the foundation for digital economy interoperability in the region, facilitating institutional and regulatory convergence that benefits businesses operating across ASEAN. For example, greater interoperability between different digital regimes[2] will allow technology companies – such as Tokopedia or Shopee – to improve operational efficiencies and expand services to other markets.
A regionwide digital economy pact with agreed standards on data management and cybersecurity measures would reinforce ASEAN’s commitment to further integration and interconnectedness. A more predictable digital business environment would also deepen ASEAN’s lure to multinational corporations by highlighting value and opportunity.
Further, the DEFA offers something to all of ASEAN’s diverse economies – a strong policy framework for countries at the early stages of digital transformation, and greater gains from digital integration for those with more established digital economies. For instance, the DEFA can provide early adopters with clear guidelines, strategies, and best practices for navigating the complexities of the digital economy. The DEFA also enables members with a more mature digital economy to shape regional digital policies and standards, thereby creating a conducive environment for businesses while fostering harmonisation across ASEAN.
While DEFA’s primary objective revolves around cross-border digital trade, the upcoming summit is expected to broaden the dialogue on the potential and pitfalls of artificial intelligence (AI), specifically focusing on ethics, transparency, and accountability. This would be a significant development given the rapid growth of AI and the disruption it is expected to trigger across industries.
But while the summit will aim to capitalise on the global momentum in promoting exploration and application of AI[3], it is unlikely to agree a concrete policy for ASEAN. This is because countries with advanced AI developments, like Singapore, are not rushing to set AI regulations.
ASEAN’s energy transition
As Southeast Asia’s largest economy – and one concerned about its reliance on coal, being a major producer – host Indonesia is well positioned to drive ASEAN’s energy transition. Building on its 2022 G20 presidency, Indonesia has signalled its continuing leadership and commitment to climate change mitigation. It is anticipated that the ASEAN Summit will underline the ASEAN Strategy for Carbon Neutrality as a comprehensive regional strategy for energy transition, complementing the national initiatives to meet individual member’s pledges under the Paris Agreement, and highlighting the importance of private sector support in shaping the trajectory toward net-zero emissions. The regional strategy is expected to promote market-based solutions, including investment in low-carbon technologies and sustainable infrastructure.
The establishment of a regional strategy has the potential to substantially enhance green finance, particularly for the less-developed ASEAN members. Indonesia and Vietnam are already beneficiaries of the Just Energy Transition Partnership, an initiative that is promising them US$20bn and US$15.5bn respectively, in funding from partner governments, international organisations, financial institutions, and various other stakeholders to help implement decarbonisation efforts. Other private sector initiatives, such as the Southeast Asia Clean Energy Facility, managed by Singapore-based Clime Capital, have committed significant funding for various renewable energy projects in Southeast Asia. These include offshore wind energy in the Philippines, floating solar energy and storage in Vietnam, and electric vehicle (EV) schemes in Indonesia.
Building regional supply chains: the case of the electric vehicle ecosystem
Discussions on bolstering regional supply chains are due at the summit amid elevated geopolitical tensions and calls for supply chain resilience. With Dialogue Partners including the United States, the European Union, Japan, and China expected to attend, the summit presents an opportunity to showcase ASEAN’s growing centrality in global supply chains.[4] Japan, for instance, is eyeing the possibility of establishing alternative supply chains for key minerals – such as nickel and cobalt – of which Southeast Asia is a major producer. The broader East Asia Summit, which takes place immediately after the ASEAN meeting, is expected to deepen discussions on supply chain connectivity.[5]
At the heart of the debate for ASEAN is the potential for it to capture the lion’s share of global production is the rapidly emerging EV sector. The 42nd ASEAN Leaders’ Summit in May saw a declaration on developing a regional EV ecosystem aimed at establishing ASEAN as a global production hub for EVs. This came as several countries in ASEAN have already made concerted efforts through extensive investments in manufacturing and financial incentives to boost EV sales. The participation of Dialogue Partners with significant EV industries – including Japan, South Korea, and China – will also help facilitate harmonisation of standards.
Risks
In view of the momentum, the broad agreement already among member states and the clear benefits of pushing ahead with this agenda, it seems likely that progress will be made. However, gaining agreement among ASEAN member states on detailed policies has previously proven a challenge. Previous moves to further economic integration have faced hurdles, including strong competition between major ASEAN economies, conflicting priorities for member countries, and leadership transitions.
First, there is heightened competition between major ASEAN economies such as Indonesia and Vietnam in securing their positions within the shifting global supply chains. For instance, Indonesia and Vietnam, both rich in nickel reserves essential for lithium batteries powering EVs, are prime candidates for battery production due to their strategic resource advantage. As these countries navigate their roles within the proposed regional ASEAN supply chain ecosystem, competition for dominance will likely intensify.
Second, conflicting national interests and priorities could potentially impede seamless regional cooperation. The role of the ASEAN chair involves setting the agenda for discussions and initiatives during their term. With the rotation of chairmanships, discussions on regional and international issues among member states are often influenced by the domestic priorities of the chairing nation. In some cases, the agenda may be shaped by the strong political will and interests propelled by influential and politically connected groups who have a vested interest in resisting change.
Finally, considering the intricate nature of ASEAN’s initiatives, negotiations, and decision-making procedures, questions arise concerning the capacity and capability of next year ASEAN chair Laos to drive the regional economic integration agenda. The leadership transition from a well-established member like Indonesia to a comparatively smaller economy like Laos prompts considerations regarding the continuity and effectiveness of ASEAN’s efforts in addressing regional challenges and opportunities.
Conclusion
The 43rd ASEAN Summit will strengthen policy coordination among ASEAN leaders. This, in turn, will lead to a more conducive business environment characterised by streamlined regulations, improved trade facilitation, and greater harmonisation of standards.
For businesses, this means increased predictability and stability. With its growing weight in the global economy, ASEAN presents a unique opportunity for businesses to contribute to the region’s transformation.
As with all multilateral commitments, the proof will be in the implementation.
[1] The Association of Southeast Asian Nations comprises Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam.
[2] Some ASEAN members are actively promoting cross-border data flows, while others have strengthened data localisation laws. This has resulted in closed and less integrated data regimes that increased the costs of cross-border transactions.
[3]Many ASEAN countries have recognised the importance of AI in driving innovation, growth, and competitiveness, evidenced by the various national AI strategies and policies to promote AI research, development, and adoption in the respective countries.
[4] The region’s abundant resources, coupled with its burgeoning workforce and strategic location, makes it a preferred destination.
[5] Held after the annual ASEAN leaders’ meetings, the East Asia Summit involves leaders of the ASEAN Plus Six mechanism, along with Russia and the United States.
Asia House provides a range of services to help organisations navigate complexities in Asia and the Middle East. For more information please contact Charlie Humphreys, Director of Corporate Affairs: charlie.humphreys@asiahouse.co.uk
