In the Driver’s Seat - Vietnam’s priorities as ASEAN Chair 2020

By Chen Chen Lee
Associate Director and Senior Fellow Singapore Institute of International Affairs

Thailand’s chairmanship of ASEAN this year has been largely marked by its domestic politics. The country held its first general elections since a military coup in 2014, and held its first coronation in seven decades for King Maha Vajiralongkorn. The significance of these events meant ASEAN retreating into the shadows for most Thai officials and people, at least in the first half of the year. To Thailand’s credit, it managed to nudge the regional grouping to issue the ASEAN Outlook on the Indo-Pacific (AOIP) at the 34th ASEAN Summit, reclaiming some of the narrative on the concept of Free and Open Indo-Pacific, and reasserting its centrality against a fast shifting regional order.

There is some optimism to Vietnam taking over the ASEAN Chair in 2020. The country has become the fastest growing economy in Southeast Asia, with a GDP growth of 7 percent, well above the region’s average of 4 percent [1]. It has emerged as a clear winner from the protracted and damaging US-China trade conflict [2]. While Vietnam’s economic openness, improved infrastructure and political stability have no doubt acted in its favour, the slow-down from the trade war could still affect Vietnam adversely in the long-run.

With geopolitical tensions on the rise in the region, a slowdown in global trade, and emerging transnational threats, Vietnam will have a full agenda when it chairs ASEAN in 2020. Managing the fallout from the US-China tension will be the most pressing issue for ASEAN. Not only does ASEAN wish to avoid choosing sides, it wants to be able to influence the shaping of the region’s economic and strategic architecture. That aside, Vietnam would do well to lead ASEAN to pay attention to these three areas:

Firstly, the combined internet economy of the 10 ASEAN countries will be worth $300 billion by 2025 [3]. Presently, it makes up 7 percent of ASEAN’s GDP [4], making ASEAN’s market for digital goods and services relatively untapped, and therefore with much room for expansion. ASEAN’s digital growth has been driven mainly by e-commerce, ride-hailing and internet gaming. In the last few years, the region has produced some of the most successful tech unicorns – Gojek, Grab, Lazada, Traveloka, Tokopedia, Razer, SEA group, VNG corporation – attracting millions of investments into the region. At the same time, the advent of e-commerce has opened up market access to many ASEAN MSMEs, who were previously left out of the global value chain.

Greater digital integration has the potential to accelerate GDP growth by up to US$1 trillion across ASEAN states by 2025 [5]. Acknowledging the benefits that digitisation could bring to the region, ASEAN has produced and endorsed a slew of agreements on e-commerce, digital integration, and personal data protection in the last two years.

Yet ASEAN needs to be mindful of the pitfalls of 4ID. Already there are concerns that the level of readiness for the Fourth Industrial Revolution (4IR) is uneven among ASEAN states, and that 4IR will widen the development gaps between the advanced and developing economies. The digital divide is real with 90 percent of the region's internet users located in just five countries: Indonesia, Malaysia, the Philippines, Thailand and Vietnam. The lack of a skilled workforce that is sufficiently digitally literate will also limit ASEAN’s potential to reap the full benefits of the digital economy.

Regulation of the digital economy remains a serious challenge. For example, the failure to develop sound and effective policies around data protection and data-sharing may have unintended geopolitical consequences, as the region gets entrapped by the race for tech supremacy between US and China. Currently, the region’s data privacy laws look patchy at best, with countries such as Brunei and Myanmar lacking data privacy laws, while, at the other extreme, Indonesia and Vietnam have sweeping legislation. ASEAN needs frameworks that ensure clarity for tech companies on handling user data, and transparency for customers on how their data is being used. These gaps need closing so that all are on the same regulatory page.

Secondly, efforts on climate change will take centre-stage next year as countries evaluate their national efforts in reducing greenhouse gas (GHG) emissions under the Paris Agreement. ASEAN is highly vulnerable to adverse impacts of climate change, with many countries vulnerable to rising sea levels because of their long coastlines and low-lying areas. Higher temperatures and extreme weather are also affecting ASEAN’s crop yields, spreading tropical diseases, and threatening the lives and livelihoods of its people. The Asian Development Bank (ADB) estimates that the impacts of climate change could reduce Southeast Asia’s GDP by 11 percent in 2100 in the event of business as usual emissions scenario [6].

While there is high-level commitment by ASEAN to tackle climate change, there remain practical and structural challenges. For example, ASEAN’s energy demand is expected to rise by 50 percent, and the region aims to source 23 percent of its primary energy from renewables by 2025. Yet, many ASEAN countries including Indonesia and Vietnam are still heavily reliant on coal, with its share in ASEAN power generation mix standing at 33 percent [7]. Despite the fall in solar energy prices, the abundance of coal reserves means that it is unlikely to be phased out in the near-medium term. Land transport is another major contributor to GHG emissions in the region. The absence of efficient public transport system and the low cost of private vehicles have resulted in the cities of Jakarta, Bangkok, Manila, and Kuala Lumpur being in a perpetual gridlock. Addressing ASEAN’s infrastructure deficit and woes is going to take a lot of resources, as well as political will.

Finally, any genuine action on climate change must include addressing the recurring haze problem. This year saw the return of severe haze to Southeast Asia, with Indonesia, Malaysia and Singapore most affected by forest fires from Indonesia. The amount of CO2 released by the fires in Indonesia between August and September this year exceeded the emissions of a mid-sized economy such as Spain for the year 2018 [8], exacerbating climate change. ASEAN may have a legally-binding agreement to tackle the transboundary haze pollution, but it is unlikely to achieve its target of a haze-free ASEAN by 2020, judging by existing efforts.

Thirdly, ASEAN’s economic success has been underpinned by its openness to trade and investment, but also, a rules-based order and a functioning multilateral system with the US and Europe at the centre. The near-collapse of this system is now challenging ASEAN’s prospect of becoming the world’s fourth largest economy by 2030, prompting calls from ASEAN leaders against nativist policies and to embrace a free and open trading system. At a recent United Nations General Assembly, Singapore’s Prime Minister Lee Hsien Loong said that multilateralism is not an option but a necessity - a sentiment that resonates among many ASEAN nations. In this regard, Thailand will be remembered for pushing for the conclusion of the Regional Comprehensive Economic Partnership (RCEP) under its chairmanship, after seven years of negotiations.

The trade agreement is now widely regarded as ASEAN’s commitment to free trade and its response to a broken multilateralism. Negotiation of RCEP took on a sense of urgency after the US withdrew from the TPP in 2017. The 16-member RCEP would cover 30 percent of both global trade and the world’s GDP, and entrenches ASEAN at the heart of the Asia-Pacific economy. RCEP is expected to plug in existing gaps in ASEAN’s bilateral trade agreements but also promote and fortify trade relations within ASEAN and between ASEAN and its regional trading partners, i.e. China, India, Japan, South Korea, Australia and New Zealand.

ASEAN should tout RCEP as proof that economic multilateralism is still very much alive and is the only way, as it works with its trading partners to ensure that the RCEP negotiations are eventually concluded – notwithstanding India’s continued intransigence – with a quality agreement.

ASEAN has made significant policy responses to key trends in the region in recent years, including setting substantive norms and creating frameworks for economic and social development.  Vietnam’s Chairmanship of the grouping in 2020 has the potential to continue with ASEAN’s constructive role in deepening trade integration, building an inclusive digital economy, and mitigating climate change. Vietnam’s hope for a cohesive and responsive ASEAN is timely, and should be welcomed by all.

Further reading