[Square] ASEAN: Alternative Hub for Global Supply Chains in the Post-COVID-19 Era

Im Seong-nam, Ambassador to ASEAN

The world is now entering a new era due to the shock of the novel coronavirus infection (COVID-19). From an economic perspective, the global supply chain, which aimed at optimizing inventory and minimizing costs, has been shaken. The golden age of global division of labor that has supported the world economy since the 1990s, following the fall of the Berlin Wall and the collapse of the Soviet Union, is undergoing changes in some form.

Signs of this have already appeared since last year. The US-China trade war and the struggle for technological supremacy triggered changes in the international trade environment. Amid this, the COVID-19 crisis highlighted issues in the mask supply chain. We were no exception. In early February, due to the COVID-19 outbreak in China, the operation of our domestic automobile factories was halted.

Now, the Association of Southeast Asian Nations (ASEAN) is drawing attention as a new alternative for the global supply chain. News has emerged of Google and Microsoft relocating production lines to Vietnam and Thailand. Japan has also allocated $2.2 billion in subsidies for companies moving production bases to third countries, including ASEAN. South Korea has long been fostering new production bases through focused investment in Vietnam among ASEAN countries.

From a corporate perspective, ASEAN has many advantages. With abundant labor and a favorable geographic location, ASEAN itself is a continuously growing large economic bloc. With a population of 650 million, an average age of about 30, and a rapidly increasing middle class, the region adapts quickly to the digital economy, such as smartphones and fintech (finance + technology), and purchasing power is also increasing. The prospect that ASEAN will rise to become the world's 4th largest economy by 2050 is encouraging.

ASEAN is also moving swiftly, viewing the current situation as an opportune time to attract global manufacturing investment. Malaysia announced a $35 billion economic stimulus package earlier this month, offering benefits such as manufacturing tax reductions, financial support, wage subsidies, and expedited corporate establishment approvals to attract foreign investment. In Indonesia, the so-called 'Omnibus Law,' a reform bill covering jobs, taxation, capital relocation, and environmental sectors, was submitted in February and is under review; they also announced plans to develop industrial complexes for companies relocating from China. The Philippines recently introduced the 'CREATE Law,' focusing on corporate tax reductions to attract foreign investment. These moves by ASEAN countries are attracting the attention of multinational corporations.

In fact, it is not easy for any company to reorganize the existing global supply chain, which has contributed to profit maximization, overnight. However, it is necessary to carefully read the flow of change and prepare for the future. In the case of China, our largest trading partner, it is important to note that the core of its industrial policy is seeking a shift to high value-added sectors such as 5G, artificial intelligence (AI), batteries, and solar energy.

The New Southern Policy started as a reflection on how our perspective had long been limited to the Korean Peninsula vicinity. The changes in the global supply chain caused by COVID-19 will become an opportunity within a crisis to enhance relations between us and ASEAN. In this context, the Korea-ASEAN Special Summit held in Busan last November, just before the COVID-19 outbreak, can be considered a masterstroke. Especially, the Korea-ASEAN Industrial Cooperation Organization, Science and Technology Cooperation Center, and Joint Standardization Research Center agreed upon by the leaders can serve as catalysts for coexistence between our companies and ASEAN during this global supply chain transition. Depending on our strategy and efforts, we can realize a regional supply chain case between Korea and ASEAN as an alternative global supply chain. The New Southern Policy will serve as a primer for realizing such an alternative, and the government will continue to strengthen its resolve.