In Southeast Asia, a region whose exports depend 40% on global value chains, with strong links to international trade hubs, the pandemic poses a systemic risk. However, the reorganization of global value chains, while triggering a return to industrialized countries, could represent an opportunity, favoring a process of relocating production plants now present, for example, in China. Following the pandemic, managers of important multinational companies are in fact willing to diversify their supply chains centered on China: according to a survey by Q.I.M.A.67% of European business executives and 80% of American executives surveyed would be willing to replace their Chinese partners with Southeast Asian suppliers.
In the second quarter of 2020, compared to the same period of the previous year, the economy of Malaysia contracted by 17,1%, the Philippines by 16,5%, Singapore -13,2%, Thailand -12,2% , Indonesia – 5,3%; only Vietnam managed to register a marginal increase of 0,4%. Favorable moment also confirmed by the entry into force on 1st August of thefree trade agreement with the EU: the treaty will favor increases in bilateral trade flows of up to 30%, making the country one of the main logistic and commercial platforms for trade between Asia and Europe. The agreement represents the second signed by Brussels with an ASEAN country after the one with Singapore in 2019: the objective of the treaty is the complete elimination of duties on 99% of goods traded between counterparties over 10 years, with 65% of these zeroed since the entry into force in August. In addition to benefiting from the removal of tariff barriers, European companies will also see a reduction in non-tariff obstacles, through the adoption of Community and international standards, and will enjoy greater access to the Vietnamese market thanks to the possibility of participating in tenders procurement under the same conditions as local actors. The ratification by Hanoi of international conventions regarding respect for workers' rights and environmental protection will also be guaranteed.
The agreement intervenes on the customs tariffs currently in force between the two areas, replacing them with a preferential duty reduced compared to the standard, which on some product categories is even eliminated completely. However, this preferential tariff is applied only to goods that have obtained preferential origin, for which registration in the REX database and compliance with the rules in Annex 2 of Protocol 1 of the EVFTA is required. Furthermore, it was decided that in order to prove the preferential origin of European products destined for the Vietnamese market, an invoice declaration made by an exporter registered in the REX system is required, while it will not be possible to use EUR1 certificates or approved exporter status either . As regards European subjects already registered in the REX system, it is possible to directly use the registration number in one's possession to obtain the customs advantages provided for by the EVFTA, unless the products are different from those registered, and in which case an integration is necessary.
As reported by Sace, in recent years Vietnam has shown economic growth of just under 7% per year in 2015-19 and forecast at 2,3% in 2020 and 8% in 2021 and has stood out for its reactivity in the current context of the pandemic crisis, establishing itself as an important manufacturing hub. EU-Vietnam trade rose from €12,7 billion in 2010 to €45,5 billion in 2019. Among the main beneficiary countries of the agreement we find Italy, in 2019 the third European exporter after Germany and France with 1,3 billion of goods sold, on the other hand recording a trade deficit exceeding 1,8 billion, also due to the high percentage of duties applied to European products.
From a sectoral point of view, the following will benefit from this agreement: mechanical engineering, which constitutes almost 30% of the value exported in 2019 and which, in some sectors, was subject to duties of up to 35%; leather products, equal to 16% of exports, and taxed up to 10%; electrical appliances (7%), which were subject to duties of up to 30%. The agreement also represents an opportunity to increase the export of Italian food and drink products, until now subject to very high duties, which could reach 50% in the case of wine and some dairy products, guaranteeing their correct recognition of origin. In fact, 169 European Geographical Indications will be protected, 38 of which are Italian, with a significant advantage for the Made in Italy brand in a sector heavily penalized by forgeries.
THEAsian Development Bank (ADB), in its recent September outlook confirmed the negative prospects for developing Asian economies, estimating an annual contraction of 2020 GDP of 6,8%: the worst result since 1961. The 2021 rebound will be only partial, with expected growth of 6,1%. The need for fiscal measures to counter the economic crisis is estimated at 3,6 trillion dollars, equal to 15% of the regional GDP, in particular through income support policies. Indeed, for ASEAN economies, the ADB estimates a contraction of 2,7% in 2020. The disruption of value chains due to lockdowns and quarantine measures are having negative effects for countries heavily dependent on regional and international trade, among such as Singapore, Vietnam, Cambodia, Malaysia and Thailand.
International travel bans and the temporary closure of public spaces have hit the tourism and services sector. Countries heavily dependent on remittances, such as the Philippines, have experienced a decline in remittance flows, with negative effects on consumption and investment. Meanwhile, the containment measures have had profound effects on the labor market: the unemployment rate is expected to increase by 2,5% in Indonesia, 1,5% in Malaysia and 1,2% in the Philippines. In the end, the accommodating policy adopted by the US Federal Reserve has led to a constant depreciation of the dollar, with negative effects on the competitiveness of exports. THE'International Finance Corporation (IFC) underlines the risks that the pandemic will translate into a financial crisis due to the increase in non-performing loans: bankruptcies in the region are estimated to rise by 30%. To support the economic fabric and liquidity of companies, the IFC plans to disburse more than 7 billion dollars, with a focus on SMEs.
To counter the adverse effects of the pandemic, the ASEAN countries have adopted stimulus plans to support economic activity, with average values equal to 3,5% of GDP, but with peaks of up to 20%; to date, $355 billion has been spent on expansionary measures. The levels of public debt are consequently in a growing phase, both due to the reduction of the national income and to the increase in public expenditure for health and investments. However, not all Southeast Asian countries have the capacity to borrow funds on international markets: rising deficits may therefore not be sustainable if sustained over the long term. Some countries have turned to multilateral institutions to cover growing budgetary difficulties: Cambodia, Indonesia, Laos, Myanmar and the Philippines have benefited from loans from the World Bank through the Fast-Track Facility; Indonesia, Laos and the Philippines have obtained additional funding from the Asian Development Bank.
The various economies are progressively reducing the containment measures. And if most of the ASEAN countries have eased their lockdown measures and borders are gradually reopening, the deepening of the process of economic and commercial integration could be one of the fundamental guidelines for exiting the recession. In this regard, we note the Regional Comprehensive Economic Partnership (RCEP), a commercial agreement under negotiation between the 10 ASEAN countries with China, Japan, South Korea, Australia and New Zealand. If ratified, it would affect 30% of the world's population and around 29% of GDP. At the same time, during the 36th ASEAN Summit on 26 June, it was decided to set up a Covid-19 Asean Response Fund: ASEAN leaders agreed on the need to adopt coordinated economic recovery plans, so that the recovery is widespread throughout the region.
The second pillar of the recovery is represented by new sustainable infrastructure: central, in this sense, remain the Master Plan on Asean Connectivity (MPAC) 2025 which aims to boost regional trade, improve the efficiency of value chains and people's mobility. In the energy sector, theASEAN Plan of Action for Energy Cooperation (APAEC) recognized the need for a clean energy transition, with a target of 23% renewables in the overall energy mix. In this framework, digital infrastructures will play a central role in revitalizing the region and in ensuring an increase in potential long-term growth. It is no coincidence that the ADB estimates that the Indonesian economy could have an additional GDP of 2,8 trillion dollars by 2040, if we proceed towards a profound digitization of the country's economy.
The centrality of the ASEAN area is well understood by both China and Japan, both participants in the ASEAN+3 format summits. Beijing is pushing for stronger economic and trade integration, insisting on greater coordination between the Belt and Road China and the Asean Master Plan. A relationship also confirmed by the growth, despite the pandemic, of trade between China and its ASEAN partner, which in August reached 430 billion dollars, up 7% compared to the previous year. This result led to ASEAN overtaking the EU as Beijing's first trading partner. Furthermore, in the first six months of 2020, bilateral investments increased by 58% compared to the same period of the previous year. Therefore, China's exit from the emergency compared to the rest of the world could make ASEAN countries more dependent on exports and investments from Beijing.
In turn, Tokyo has launched a so-called "health diplomacy" in the area characterized by initial funding to partners in the region to strengthen the health system and promote vaccine research. At the same time, Japan and ASEAN countries jointly reiterated their concerns regarding territorial claims in the East and South China Seas. Statements falling within the Japanese strategy of the Free and Open Indo-Pacific (FOIP), aimed at countering Chinese expansionism through the strengthening of an economic and infrastructural partnership with the Rising Sun.
