What US-Asean Connect means for the region

A new economic cooperation initiative, the US-Asean Connect, was launched during a summit in California last month between United States President Barack Obama and the 10 Asean leaders.

The US-Asean Connect has four pillars: first, business-connect, which supports commercial engagement between US and Asean businesses in sectors such as information and communications technology, and infrastructure.

Secondly, energy-connect, which assists in the development of the power sector in Asean with efficient and innovative technologies.

Third, innovation-connect, or encouraging South-east Asian emerging entrepreneurs through policy and knowledge exchange with practitioners.

And fourth, policy-connect, which supports Asean countries in creating a positive environment for trade and investment, including capacity building and technical support to Asean member states.

In addition, the US government has promised to establish three centres in Asean - in Singapore, Jakarta and Bangkok - to coordinate US economic engagement in the region and connect policymakers, entrepreneurs, investors and businesses.

Why do the two sides need the US-Asean Connect? In the economic domain, the US and Asean share a strong relationship. In 2014, trade between the two sides totalled US$254 billion (S$351 billion), which has grown from US$161 billion in 2006. US businesses have been the largest cumulative source of foreign direct investment in Asean, and US goods and services exports to Asean are said to have supported over 500,000 US jobs in 2014.

However, the aggregate figures do not tell the whole story. While the trade is mostly between the US and Singapore, Malaysia and Thailand, Singapore is the primary destination for investment due to its friendly investment policies and developed business infrastructure.

The US-Asean Connect is expected to ameliorate this asymmetry through policy-connect. This includes capacity building and technical support exercises for Asean countries and covers initiatives for small and medium-sized enterprises, the Asean Single Window (an initiative aimed at speeding up cargo clearance) and product standards cooperation for regional trade facilitation.

In the commercial domain, US businesses are actively engaged in Asean economies across several industries in South-east Asia, including hospitality, oil and gas, aerospace, energy services, electronic manufacturing, infrastructure and financial services. However, the approach is cautious for less-developed Asean countries lacking in skilled human resource and institutions, and which are still developing their investment regulations or undergoing a volatile political climate.

To increase US business' presence in South-east Asia more uniformly, the US-Asean Connect offers business-connect that, together with policy-connect, aims to provide the policy infrastructure for US businesses to capitalise on a growing Asean Economic Community, established in December last year.

In the infrastructure domain, despite Asean members' efforts in big infrastructure plans and the Public-Private Partnership (PPP) Infrastructure programme, US companies occupy only about 13 per cent of this market. US businesses are apprehensive about investment protection, long-term return, host country regulations and governance for PPP development.

The US does not have similar practices like China and Japan do to commit to infrastructure investment. China generally funds infrastructure projects through state-owned enterprises or with its government-provided loans. With the Asian Infrastructure Investment Bank (AIIB), China is a latecomer in developing a multilateral agency for infrastructure funding.

Japan has funded infrastructure projects through private companies, government agencies and multilateral ones such as the Japan International Cooperation Agency, the Japan Bank for International Cooperation and the Asian Development Bank. It has recently unveiled its plan to inject an additional US$110 billion into Asian infrastructure.

The energy-connect pillar focuses on the power sector of the region. According to the International Energy Agency, the sector is going to shape the energy outlook of Asean, with electricity demand tripling by 2040. The pillar mentions Asean's Energy Cooperation Plan 2015-2025 and the Master Plan on Asean Connectivity, showcasing the US' desire to be involved in South-east Asia's infrastructure investment more actively.

In the strategic domain, the establishment of three centres in Asean countries acts as a one-stop facility for US investors and participants to coordinate and market their activities. There were complaints that, though the US has many infrastructural investments in the region and products and technology back home, they are not marketed properly to Asean nations. Moreover, the growing competition between China and Japan to invest in South-east Asian infrastructure implies that the US should also be actively engaged in this sector.

The move could be seen as the Obama administration walking the talk since it said in 2011 that the US needs to make a "strategic pivot" in its foreign policy, with greater attention to the South-east Asian region. In nearly eight years of the Obama presidency, this is the third attempt to economically connect the US to South-east Asia, earlier ones being the US-Asean Expanded Economic Engagement in 2012 and the Trans-Pacific Partnership (TPP) last year.

The US-Asean Connect is thus expected to facilitate Asean economic integration. The four pillars will prompt Asean members to undertake the necessary reforms beneficial for both players. For Asean, this will make the region more competitive compared with China and India, while for the US, a strong and developed Asean can buffer the economic rise of China, especially in regional organisations such as the Asean+3 and the East Asia Summit.

The US-Asean Connect will also pave the way for more countries in the region to join the TPP. So far, it includes only Singapore, Malaysia, Brunei and Vietnam, while Thailand, Indonesia and the Philippines have expressed interest. The latest US initiative seems not only a path for the remaining Asean countries to join the TPP, but also silences critics who imply that the US is dividing Asean through its trade policy. Indeed, the US seems to be working for a stronger Asean amid growing geo-political and economic uncertainty.

• The writer is a fellow and lead researcher (economic affairs) at the Asean Studies Centre of the Iseas-Yusof Ishak Institute.

• S.E.A. View is a weekly column on South-east Asian affairs.

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A version of this article appeared in the print edition of The Straits Times on March 17, 2016, with the headline What US-Asean Connect means for the region. Subscribe