Trade and industry, International relations | Australia, Southeast Asia

16 March 2018

With the ASEAN region developing at a rapid rate, Australia needs to do more to build economic partnerships in Southeast Asia, Bradley Wood writes.

Ahead of Australia’s hosting of the ASEAN-Australia special summit on 17-19 of March 2018, there has been debate about the significance of ASEAN, and specifically ASEAN’s trade, to Australia. The debate highlights why Australia needs to engage with ASEAN now more than ever before.

So, just how important is ASEAN as an economic partner for Australia?

According to the most recent figures, as an ‘aggregated’ organisation in two-way trade terms, ASEAN represents Australia’s fourth-largest trade partner valued at A$100.5 billion. This is after APEC at A$528.6 billion, the G20 at A$513.2 billion, and the OECD at A$321 billion. Not far behind ASEAN is the European Union, valued at A$99.5 billion.

But citing two-way trade figures for aggregated organisations, or comparing these figures to Australia’s top trading partners by country, fails to accurately demonstrate the true economic picture.

In the latter case, ASEAN would then constitute Australia’s sixth-largest trading partner after including China, valued at A$174 billion.

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Take, for example, a comparison between ASEAN and the EU. Australia’s trade deficit with ASEAN is worth A$16 billion, while Australia’s trade deficit with the EU is worth more than double that at A$39.5 billion. But arguing that ASEAN is a more significant trade partner than the EU because the value of its trade is higher, and the value of its trade deficit is lower, is also inaccurate.

The deficit issue aside, Australia and ASEAN have been members of the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) since 2010. ASEAN has a larger population – 630 million compared to the European Union’s estimated 507 million – as well as additional FTAs with Australia, including bilateral agreements with Singapore (2003), Thailand (2005), and Malaysia (2013).

However, despite these advantages, ASEAN has only managed to become a marginally more significant trading partner than the EU, which does not have any FTAs with Australia.

Then there is the type of trade. ASEAN is a significant source of Australia’s fuel and heavy transport, and the EU is an important source of Australia’s medicines, medical supplies, and light transport. Both are also export destinations for Australia, with coal and gold heading to the EU, and crude petroleum and wheat going to ASEAN.

It’s hard to argue one is more important than the other based on current figures, as they are both complementary from Australia’s standpoint.

The argument could be made that Australia’s oil and fuel imports from ASEAN are vital to Australia’s economy and defence preparedness, making ASEAN a more important trade partner. But it could also be suggested that these resources can be readily sourced from alternative suppliers tomorrow, albeit at a greater cost and subsequent economic impact for Australia.

On the other hand, it would be much harder to find alternative sources for the medicines and medical supplies that Australia imports from the EU, even at a greater cost, due to the advanced manufacturing requirements such as the intellectual property constraints, research and development, and the custom chemical engineering production process. Not to mention lives may be at stake.

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The type of trade is thus another elusive point of comparison.

Then there are the foreign direct investment (FDI) figures. In 2016, the EU invested a total of A$30.4 billion in new direct foreign investment in Australia, which consisted of A$13.4 billion from the UK, A$5.2 billion from the Netherlands, and A$2.6 billion from Germany.

Compare this to ASEAN which invested just A$5.7 billion, with A$5.3 billion of this coming from Singapore alone.

Likewise, when it comes to Australia’s FDI abroad, ASEAN represents just 4.5 per cent of Australia’s total stock, most of which is invested in Singapore. The EU, on the other hand, represents 28.1 per cent of Australia’s FDI abroad.

All this adds up to show that the economic significance of ASEAN for Australia as an aggregate organisation is not as strong as some suggest. This is why Australia needs to take a more proactive approach to ASEAN, as there is much work to be done on the economic side bilaterally, including FTA’s with the major member populations of ASEAN such as Indonesia and Vietnam, as well as increasing Australia’s FDI in ASEAN states other than Singapore and vice versa.

The economic significance of ASEAN lies more in its economic potential rather than in today’s numbers. ASEAN member states have large growing populations and economies, and their geographic proximity to Australia will make them ideal trading partners.

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Australia is well placed to become a leading trading partner with some of the best agricultural products, natural resources, and services ready for export today. These exports will become increasingly sought-after by ASEAN member states and their millions of citizens as they enter the middle class in the years to come.

Nevertheless, these same variables will increase competition among ASEAN member states, arguably the most diverse neighbouring states in the world, as they compete for market access and finite natural resources to support their individual growth. Instability amongst ASEAN members in Southeast Asia would adversely impact Australia’s national interest, especially in maritime Southeast Asia where most of Australia’s trade passes by sea and air.

It’s here where ASEAN as an organisation will play its most important role for Australia. The sole test for ASEAN will be whether it can continue to prevent conflict among its members and their neighbours as this competition increases alongside their growing military capabilities, while also staying united as their individual national interests continue to diverge.

If ASEAN can, then no matter how much tangible progress is made on other issues such as the South China Sea, it’s a job well done. After all, continued peace and prosperity amongst ASEAN members and its regional neighbours should be the only outcome ASEAN is measured by.

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