ASEAN integration pressures are abound

These involve economic and political factors.

It is believed that there are several economic and political pressures for ASEAN's integration to be extended beyond 2015.

According to a research report from UBS, these pressures are top-down external, top-down internal, bottom-up, and peer.

For the top-down external pressure, firstly, ASEAN's members have an incentive to integrate in order to improve their individual economic and political bargaining position with their more powerful neighbours.

Individually, China, the US and India have far larger economies and political clout than any single ASEAN economy.

As a group the ASEAN economies are still far less important than the US or China, but speaking as a group the ASEAN member states generally been able to command a stronger position than most of the member states could do alone.

Even those member states, like Indonesia, with greater economic and political influence find their position enhanced by their association with a successful ASEAN.

It is no co-incidence that ASEAN economic integration suddenly took a leap forward in the 1990s and 2000s as China's economy grew in size relative to the region.

This first, top-down external pressure on ASEAN to integrate is reminiscent of the pressure on European countries to integrate in the context of their relationships with the US and Russia over the last 60 years.

Here's more from UBS:

Top-down internal pressure - The second pressure is also top-down but internal. Most ASEAN member states have an incentive to encourage regional integration in order to avoid economic or political dominance by a larger member in the group.

Indonesia's population and economy could dominate its neighbours while Thailand likewise could dominate Laos and Cambodia individually.

ASEAN integration has allowed dialogue and agreements between the smaller member states and larger member states that might have been far more one-sided or failed to occur otherwise.

This second top-down internal pressure echoes the efforts of the European economies to bind an economically powerful Germany within a set of rules and agreements.

Bottom-up pressure - The third pressure is bottom-up. Companies in ASEAN wanting to expand are bound to look across borders.

That is partly because of the benefits of diversification but also because of the constraints on increasing returns to scale available for the dominant operators in many individual ASEAN economies.

Peer pressure - A fourth pressure relates to the competition between the US (plus Japan) and China for influence in Southeast Asia. We have highlighted this competition in a series of reports under our 'Friends' theme.

This peer pressure from ASEAN's larger 'Friends' has a number of avenues including better access to US and Chinese markets, investment flows and political support.

In that context, we suspect that operating across Southeast Asia may appear a better footprint for ASEAN companies expecting to compete with Chinese companies either in China or in the region. That implies another reason for bottom up support for ASEAN integration.

Separately, our conversations with Executives of Multinational Corporations operating in the region suggest a desire to see ASEAN as a single economic block – even though they readily admit the status quo is far from that reality.

The desire appears to come from the practical side of their operations and because they believe, as a regional operating area, ASEAN would be able to stake a greater claim to corporate resources. As such foreign investors at the company level are also advocating ASEAN integration.