International trade is a double-edged sword for the 10 member countries of the Association of Southeast Asian Nations (ASEAN), says SMU Lee Kong Chian Visiting Professor of Law, Professor Rafael Leal-Arcas.

On the one hand, it provides an opportunity to export the region’s natural resources, products and services to other countries, boosting emerging economies. On the other, rapid growth in international trade might lead to the exploitation of natural resources and the need to navigate political sensitivities and uncertainties.

“The international trading system is a powerful and novel instrument for climate change mitigation, which is the biggest challenge humanity faces today,” says the international trade expert, who was the keynote speaker at the Conference on Sustainable Development and Commerce in ASEAN Cities, held by the ASEAN Law Research Network at the SMU Centre for Commercial Law in Asia.

“There’s tremendous potential for international trade in ASEAN countries in terms of natural resources – there’s a lot of hydropower in some member countries, for example. So, my take on this is there has to be political drive, political ambition, the coalition of the willing for all ASEAN countries to come together to help each other.”

The duty of co-operation is a fundamental legal principle that requires parties to a contract or other legally binding agreement to co-operate with each other in good faith and a reasonable manner. This duty exists even if there is no explicit contractual obligation to do so.

And this is where these opportunities come unstuck. How ASEAN countries work together – as stipulated in the duty of co-operation principle is “quite limited and rather restricted” compared to the European Union’s treaty, which compels member countries to help each other, adds Prof Leal-Arcas.

ASEAN’s missed opportunities

Home to 662 million people, ASEAN contributes to a combined GDP of more than US$3 trillion, making it a burgeoning economic powerhouse for international trade. Member countries are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. The organisation was set up in 1967, and negotiated the world’s largest free trade agreement – the Regional Comprehensive Economic Partnership (RCEP) – between ASEAN members, Australia, China, Japan, New Zealand and South Korea which entered into force on 1 January 2022.

“Different regions have different needs, levels of economic and environmental development. Not all of those pillars should be rolled out at the same pace, but the overall mission is energy security and climate action,” he says.

ASEAN has a lot of promise, but the Council on Foreign Relations says it lacks strategic vision, differing priorities between its countries, weak leadership, and a fragmented approach to China.

On this, Prof Leal-Arcas, who is visiting from the Queen Mary University of London, adds: “ASEAN countries should realise it’s in their interest to co-operate with and help each other. For example, Singapore is a very successful country, but it has to import [almost] everything, even water. Singapore needs Malaysia for water, and Indonesia for natural gas and so on.”

He describes ASEAN as a “club of countries that aim to help each other”, and when they form a trading block, it creates a “powerful legal instrument” for trade negotiations with third parties.

For example, with its population of almost 6 million people, less than the size of a typical Chinese city, Singapore may not have much clout on the trade negotiating table with China. Whereas, when it is part of ASEAN, representing 600 million people, more doors for trade can open.

Prof Leal-Arcas argues that ASEAN should consider amending its terms for greater co-operation to be more economically successful.

“Of course, it’s up to them to decide how close they wish to get politically, how much are they willing to give up some of their sovereignty that might be beneficial economically. They need to find the right balance between the national and supranational, too. It is a very delicate issue.”

He cites the megatrends underpinning how international trade – last century, it was environmental protection as a moral good. It’s now morphed into a different trend in the 21st Century for a price-based approach to punish environmental harm.

Incentives for trading differently

Prof Leal-Arcas offers evidence-backed sweeteners for ASEAN signatories to consider making the shift. He says international trade has increased 30-fold in the past five decades. That means every country trades more today than yesterday and will do even more tomorrow.

“Trade liberalisation means more trade, and that means more economic growth. If you have economic growth, then every country is better off, so it’s much better to trade.”

Prof Leal-Arcas encourages nations and trading blocs to rethink their assumptions about trading.

The benefits of international trade

Despite growing tensions of the rise of nationalistic goals, such as in Russia, open global trade policies are crucial to lifting living standards, protect human rights, contribute to peace and mitigate climate change.

“At a supranational level, when the 10 countries of ASEAN get together politically with a common position, it creates a powerful legal instrument to make a meaningful difference when negotiating with third parties for trade.”

Prof Leal-Arcas, who divides his time between Europe and Singapore, says the European Union’s approach to achieving the above can be extrapolated to other regions of the world. The formula involves five pillars – energy security, completing internal energy markets, energy efficiency, decarbonisation of the economy, and investing in research, technology and innovation.

However, that formula can’t be simply cut and pasted to the ASEAN region.

“We need to transform the way we understand international trade. Trade has been responsible for much environmental harm in that the more you trade, the more energy you consume, and therefore the higher the level of pollution. And now everyone assumes that trade damages the environment.

“But it doesn’t have to be that way. Trade can actually be a very powerful tool for environmental protection. We need to find new rules for the international trading system to reduce or even eliminate all the technical barriers to green goods, or even green services. By making use of mega-regional-trade agreements with binding provisions on environmental protection, such as decarbonising, there will be economic growth and mitigation of climate change."