What Brexit Means for ASEAN

By Rui Hao Puah —

Prime Minister David Cameron visiting a pagoda in Vietnam on July 30, 2015. Source: The Prime Minister's Office's flickr photostream, used under a creative commons license.

Prime Minister David Cameron exiting a pagoda in Vietnam on July 30, 2015. Source: Number10gov’s flickr photostream, used under a creative commons license.

What does the United Kingdom (UK) vote to leave the European Union (EU) on June 23 mean for ASEAN, a regional grouping that has been often compared to the EU? How will Brexit reverberate economically and politically in Southeast Asia?

The immediate impact of Brexit is a significant weakening of the pound and euro against ASEAN currencies as markets respond to anxiety within the Eurozone. The flight to U.S. dollar-denominated assets has prompted an appreciation of the dollar against ASEAN currencies, with the notable exception of the embattled Malaysian ringgit. The long-term financial impact will depend on how the UK and other European governments handle the Brexit negotiations, and how centrifugal forces within the EU will be managed.

With their weaker purchasing power, British and Eurozone consumers will reduce their demand for exports from their main trading partners in ASEAN, including Malaysia, Singapore, Thailand, and Vietnam, and to a lesser extent Indonesia and the Philippines. Conversely, ASEAN consumers will benefit from discounted Eurozone goods, including services in high-demand sectors such as education. ASEAN countries battling economic slowdowns as a result of political uncertainty and low oil prices such as Malaysia  are well positioned to benefit as U.S. demand for imports will strengthen on the back of a stronger dollar.

The looming question is the longer-term impact of Brexit on trade and investment. Following the suspension of negotiations on a free trade agreement between the EU and ASEAN in 2009, individual ASEAN countries have resorted to bilateral negotiations with the EU. Singapore and Malaysia began talks in 2010, Vietnam in 2012, Thailand 2013, and the Philippines in 2015. Following Brexit, the UK can be expected to intensify its search for trading partners abroad. Prime Minister David Cameron’s ASEAN trip to Indonesia, Singapore, Vietnam, and Malaysia in July 2015 partly reflected the imperative to diversify the UK economy beyond the EU and North America.

Brexit will likely create an impetus for the UK to expedite trade and investment deals with ASEAN trading partners. In particular, London can be expected focus on fast-growing regional economies such as Vietnam and Indonesia, two of ASEAN’s demographically most promising countries that have underperformed in terms of trade with the UK, as well as traditional partners Singapore and Malaysia. Singapore, in particular, is the UK’s 5th largest trading partner outside of Europe. The UK economy, the EU’s second largest, now liberated from many of the EU’s protectionist non-tariff barriers, will likely see more trade creation with Asia, bringing economic gains for the Southeast Asian region.

Brexit also makes renewed talks on an EU-ASEAN free trade agreement less likely in the near future while the EU itself sorts out the messy implications of Brexit and attempts to get its own house in order.

The impact of Brexit on ASEAN’s own integration is chiefly psychological. ASEAN’s own push for greater economic integration was prompted and inspired by Europe’s methodical climb from a postwar customs union to an expanded single market, and today a centralized political and economic entity.

One big Brexit lesson is the folly of pushing “closer, deeper integration” while ignoring public resistance, not just in the UK, but also among Euro-skeptic pockets scattered throughout Europe. ASEAN is similar to the EU in that it is an elite-driven concept. However, skepticism about ASEAN exists to a much lesser degree, especially in newer members such as Cambodia, Laos, Myanmar, and Vietnam — which stand to gain the most from intra-ASEAN economic mobility. Countries such as Indonesia and to some extent Thailand, which aspire to a regional leadership role and a greater voice on the world stage through ASEAN, also have reasons to champion the ASEAN cause.

A key Brexit lesson for ASEAN is that it should seek greater regional cooperation without deeper integration. However, the more crucial lesson is to understand why the British people rejected regulatory overkill and the sinking economic fortunes of Europe, refusing to surrender their sovereignty in return for small gains. This is a warning against the further institutionalization of ASEAN and the development of its now very modest bureaucracy.

ASEAN today still faces the same trade-off between regionalization and national sovereignty, and has clearly and repeatedly opted for the path of regional cooperation and token identity building only as far as the lowest common denominator member country in ASEAN allows. Politically, ASEAN countries are more concerned with safeguarding their sovereignty and developing their national economies than seeking convergence in their monetary policies or even foreign policies like the EU.

Herein lies the difference: Brexit has been framed as the UK’s rejection of an “all-powerful supranational bureaucracy” controlling their immigration policies, overruling their national courts, and diluting Westminster’s power at the expense of ineffective representation in Brussels. In ASEAN, the risks to a member country’s sovereignty come not in the form of intrusive bureaucracies, but rather great power interference and influence, in addition to historical animosities and economic competition among ASEAN neighbors. After all, ASEAN was founded in 1967 as a way of managing testy relations between post-colonial states and a long-term mechanism for bringing sustainable peace to the region.

At least for the near future, ASEAN faces a different ball game than the EU. The benefits of ASEAN to member states are more geopolitical than economic. ASEAN brings with it the benefits of strength in numbers and promotes a common voice in a fast-evolving regional order, once stable during the bipolarity of the Cold War but now increasingly challenged by a growing and assertive China.

Yet the lessons drawn from Brexit to maintain an efficient bureaucracy and stay in touch with the people’s desire for popular sovereignty are still relevant.  In fact, for an ASEAN experiencing institutional growing pains, they could not be more timely.

Mr. Rui Hao Puah is a master’s candidate in political science at Columbia University.


3 comments for “What Brexit Means for ASEAN

  1. June 29, 2016 at 02:34

    Good analysis.
    However, probably no one is losing any sleep over AEC public resistance concerns…


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