On August 8, 2024, the people of Southeast Asia will commemorate the 57th anniversary of ASEAN, founded in 1967 in Bangkok by five founding countries—Indonesia, Malaysia, the Philippines, Thailand, and Singapore. ASEAN was established during the Cold War to create stability and promote cooperation in a region often beset by political turbulence. Over time, ASEAN has placed greater emphasis on promoting economic development and cultural exchange among its members, maintaining regional peace and stability, and building closer relations with like-minded foreign powers.

The strategic significance of Southeast Asia cannot be underestimated. This region is the most accessible tropical expanse in the world, situated at the crossroads of maritime routes between East Asia and the Middle East, and the Mediterranean. It is no wonder that Southeast Asia has historically attracted the interest of global powers seeking to establish a foothold here. Nevertheless, ASEAN has so far managed to maintain the region’s relative stability and peace, enabling its 10 member countries to focus on their economic development while coordinating policies at the regional level through various work programs under the economic pillar of the ASEAN Community.

Supporters and critics alike generally agree that ASEAN has played an increasingly significant role in the global supply chain in the last three decades. However, the strategic environment in which ASEAN operates has changed dramatically compared to ten or fifteen years ago. Trade wars between major countries, the spread of COVID-19, wars and security issues in critical parts of the world economy, and how countries respond to an increasingly fragmented global economy have all led to continuous disruptions in the global supply chain. In this context, two general questions are intriguing to explore as ASEAN enters its 57th year: how deeply has ASEAN integrated its ten member economies, and how should ASEAN respond to the changing global economic environment now and in the future?

ASEAN’s Progress
Thanks to the tireless efforts of ASEAN Economic Ministers, senior officials, and their subordinates, ASEAN economic integration has been accelerated through numerous initiatives and frameworks designed to strengthen economic connectivity, trade, and investment among member countries. The ASEAN Economic Community Blueprint 2025, a continuation and deepening of the previous blueprint, contains a comprehensive plan to enhance ASEAN economic integration, with a particular emphasis on creating an integrated and cohesive economic region, boosting competitiveness and productivity, promoting innovation, and developing a resilient, inclusive, and people-oriented ASEAN.

In brief, ASEAN's economic integration agenda rests on three fundamental agreements that have been refined and improved over time: the ASEAN Trade in Goods Agreement, the ASEAN Trade in Services Agreement, and the ASEAN Comprehensive Investment Agreement. These agreements are supplemented with various understandings, protocols, directives, implementing agreements, and procedures to facilitate the implementation of all ASEAN economic agreements.

ASEAN also recognizes the importance of digital transformation to drive economic growth and integration. To this end, a series of work programs are being implemented to leverage technological advancements within the ASEAN Digital Integration Framework to develop digital trade, cross-border e-commerce, and innovation to support the digital economy. Concurrently, ASEAN is developing the Smart Cities Network Initiatives to promote sustainable urban development and improve quality of life through technology and innovation.

To further facilitate regional economic development, ASEAN is currently finalizing work programs under the Master Plan on ASEAN Connectivity 2025, focused on improving physical, institutional, and people-to-people connectivity through infrastructure projects, policy harmonization, and human resource development. Two of the projects related to connectivity development are the ASEAN Highway Network (AHN) and the ASEAN Power Grid (APG).

ASEAN operates in a global context and therefore also focuses on fostering economic cooperation with neighboring countries. In this regard, ASEAN has and is implementing free trade agreements with its partners, namely China, Japan, South Korea, India, Australia, and New Zealand. Several of these agreements are undergoing reviews to improve market access, facilitation, or cooperation to ensure fair benefits for member countries. Most recently, in November 2020, ASEAN signed the Regional Comprehensive Economic Partnership (RCEP) with key partners—China, Japan, South Korea, as well as Australia and New Zealand. RCEP is the world's largest trade agreement by market size (population) and aims to strengthen market access and economic cooperation among its members. RCEP can be seen as a means to realize the aspiration of making this region a new center of global economic growth.

Moving Forward
While the prospects are promising, ASEAN faces at least five major challenges that require special attention. The first is the economic disparity among its member countries, which can hinder integration efforts. This challenge can be effectively addressed only if ASEAN—both individually and collectively—succeeds in promoting quality growth where no member country or segment of society is left behind.

The second challenge is policy coordination and harmonization. The recent global trend toward implementing national economic resilience policies could incentivize ASEAN countries to introduce new regulations that may not align with regional commitments under ASEAN. Historically, there has been a tendency within ASEAN to introduce national variations of regional agreements. Differences in regulatory standards and business practices have proven to be challenges for promoting economic integration. This may explain why intra-ASEAN trade has consistently accounted for only around 25% of ASEAN’s total trade with the world.

Navigating the process of economic integration amidst current geopolitical and geo-economic tensions requires ASEAN to adopt a multi-faceted strategy emphasizing resilience, diversification, cooperation, and strategic adjustments. Several key approaches must be pursued to ensure that ASEAN remains united, relevant, and resilient amidst various contemporary and future challenges. To this end, ASEAN needs to strengthen intra-ASEAN trade and investment by continuously improving the existing supply chains in ASEAN and promoting industrial complementarity among member countries to reduce dependence on non-ASEAN markets. Efforts in this direction should be supported by further simplifying customs procedures and reducing non-tariff barriers to boost intra-ASEAN trade. Effective implementation of the ASEAN Single Window and harmonization of standards could be crucial steps in this direction.

Implementing the RCEP Agreement can encourage ASEAN to strengthen policy coordination and harmonization if ASEAN wants to derive proportional benefits from RCEP, and not just for its non-ASEAN partners. Efforts in this direction might include aligning investment policies, labor standards, and environmental standards at the ASEAN level. Additionally, developing clear mechanisms for responding to economic and financial crises can help ASEAN respond effectively to future external shocks, such as by strengthening the ASEAN+3 Macroeconomic Research Office (AMRO) and the Chiang Mai Initiative Multilateralization (CMIM).

The third challenge, closely related to the above, is diversifying and maximizing economic partnerships based on clear strategies to achieve extensive supply chain resilience. This can be done by diversifying sources of critical inputs and enhancing local production capacities to mitigate the impact of global disruptions. Ensuring the effective implementation of the RCEP Agreement, including expanding its membership, is one approach. As the world's largest FTA, RCEP offers its 15 member countries an opportunity to form resilient regional supply chains with ASEAN as the “hub.” Instead of individually exploring the formation of resilient supply chains with other regions, ASEAN countries should play a leadership role in fully operationalizing RCEP with non-ASEAN partners in the agreement.

Simultaneously, ASEAN should continue to explore and deepen trade development with other major economies, including the European Union, the United States, and other emerging markets. Diversifying trade partnerships can reduce ASEAN’s vulnerability to disruptions in any one of its major markets. Active participation in multilateral trade forums like the WTO can also help ASEAN contribute to strengthening the rules-based global trading system and mitigating the impact of protectionism.

Fourth, ASEAN needs to accelerate the implementation of the ASEAN Digital Integration Framework to promote digital trade, e-commerce, and innovation. This includes investing in digital infrastructure and promoting digital literacy among member countries. Additionally, initiatives like the ASEAN Smart Cities Network need to be expedited to create sustainable urban areas and promote technological innovation to position ASEAN as a hub of growth driven by technological advancements. Parallel to this, ASEAN should also focus on sustainable development and green growth, which can strengthen the region’s long-term resilience. ASEAN can leverage initiatives like the ASEAN Green Bond Standards to attract investment in sustainability projects.

The fifth and final challenge is maintaining a balanced approach in its relations with major powers such as China, the United States, and the European Union. Jointly prepared and executed diplomatic efforts to prevent ASEAN from being drawn into one geopolitical camp will help maintain ASEAN’s strategic relevance in the region and the world. This involves collective decision-making to advocate for common positions in international negotiations.

ASEAN’s ability to advance its economic integration agenda amid global tensions will largely depend on its capacity to strengthen intra-regional ties, diversify partnerships with other countries, implement digital transformation, build regional economic resilience, coordinate and harmonize policies both nationally and regionally, and conduct proactive diplomacy. All these require strong leadership within ASEAN, and as a critical mass in ASEAN, it is reasonable to hope that Indonesia will once again play its key role in leading ASEAN to the next level.

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Iman Pambagyo is a former director general of trade negotiations and an Indonesian ambassador in charge of the WTO.

The views expressed in this article are those of the author.

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