Circular Economy in ASEAN: A Brief View On Plastics Harmonization and Micro and SME Inclusion

This article is written by Muhammad Rasyid Ridho - an Research Assistant at Centre for World Trade Studies Universitas Gadjah Mada (CWTS UGM). The original article was posted in the website of ASEAN Studies Center, Universitas Gadjah Mada.

On 18 October 2021, ASEAN’s Framework for Circular Economy for the ASEAN Economic Community (AEC) was promulgated at the 20th AEC Council Meeting. It signifies the importance of the circular economy (CE) as part of the AEC. This system is ostensible as an environmental-friendly alternative. However, ASEAN’s decision on this issue after six years of AEC establishment brings a simple question, what does “CE” mean, since it is quite a novel term for this region? Besides, how will this concept fit into the more extensive framework of AEC?

There is plenty of definition regarding CE. The most popular one is from the Ellen MacArthur Foundation (2012), a restorative industrial economic system to ensure the effective flow means of production and rebuild the used resources. The very purpose of this approach is to “close the loop” of the production process for attaining sustainability of the environment (Winkler, 2011). The “closure” is needed since the “linear economy” prevails as the major production process, which is characterized by “take-make-dispose”, dependent on new material use, and with no concern for the potential value generation of waste, which leads to the accumulation of waste as its negative consequence (Rathinamoorthy, 2019). The basic principles of CE are reduced, reuse, and recycle, sometimes with other additions such as repair, refurbishment, remanufacture, and repurposing.

Indeed, there are already many attempts from Southeast Asian scholars to explain CE. Most of the research is focused on its technical implementation and potential in the future in various fields. The level where it is operated also ranges from the village to the national level. However, despite the different nature or scopes of those research, it is to be noted that several kinds of research from these countries bring out similar tone-related factors of CE adoption and the recommendations. In the factors of adoption or consumption, it includes the willingness of stakeholders, personal attitude, economic cost and benefit, public acceptance or support, government incentives and support, company culture, and consumer demand (Pasaribu, 2006; Ngan et al., 2019; Jan 2022; Gue et al., 2020; Akkalatham & Taghipour, 2021; Piyathanavong et al., 2021; Tseng et al., 2021; Abbasi et al., 2022).

These researches also point out the recommendations such as: putting the commitment into long-term legal, regulation, and masterplan favoring CE with its enforcement; giving incentives in the forms of funding, grants, or tax to practicing-CE enterprises; raising public awareness; coordinating between stakeholders (between government agencies or government-private-society); campaigning awareness; and supporting research and development (Pasaribu, 2006; Ha, Levillain-Tomasini, Xuan, 2019; Wichai‑utcha & Chavalparit, 2019; Adi & Wibowo, 2020; Abdul-hamid et al., 2020; Dung et al., 2020; Dung & Hong, 2021; Hoa & Khanh, 2021; Khor & Teoh, 2021; Taghipour & Akkalatham. 2021; Vân, 2021; Vu et al., 2021; Bueta, 2022; Mangmeechai, 2022). While these researches are conducted in different countries, which automatically only puts emphasis on their respective countries. Thus, there is still a limit on how CE could be seen from a regional perspective. In addition, the other CE common principle that is being implemented in these countries is the 3R (reuse, reduce, recycle) approach (Rahmadi, 2020).

As explained by Anbumozhi and Kimura (2018), while the linear economy is the motor of ASEAN growth, it cannot solve the problem of diminishing natural-nonrenewable resources, inequality, and climate crisis. It has become one of the reasons why the Framework of CE was recently promulgated. Of the strategic priorities contained in the Framework, one that needs to be put into focus is standard harmonization. It is deemed necessary to fulfilling this aspect in the right platform and focus because its absence would be one obstacle to further coordination of regional CE practices, which possibly lead to deeper regional integration in the future (Kojima, 2019).

However, since there are a lot of areas in which sector needs to be great, thus ASEAN perhaps could pick an urgent sector on which it needs to be focused. Regarding this issue, then revisiting the report of Akenji et al. (2019) would be appropriate since their report brings a fresh outlook on regional CE practice, especially on the issue of plastic. He proposes several points regarding the position in which ASEAN could involve, which are: a regional guideline of plastic use; a network of research and development; technical standards for products and recycling; agreement on plastic pollution. Plastic waste has become an issue due to the total ASEAN contribution to plastic waste is 31 million (Trajano, 2022). The timing could not be better; in the same year, ASEAN announced the Framework of CE in AEC and the ASEAN Regional Action Plan for Combating Marine Debris in the ASEAN Member States (2021-2025. The framework could serve as a big umbrella, and the action plan complements the specific aspect. Thus, integrating these two frameworks should promote CE as the long-term remedy for the plastic problem.

It is mentioned briefly in the Framework that micro, small and medium-sized enterprises (MSMEs) are considered on CE practices in ASEAN. The inclusion of SMEs is essential due to their vast numbers in the region, which is approximately 71 million (Tan, 2022). They contribute 97% of total business activity and employ 67% of the working population (Tan, 2022). It is found that enterprises which implement CE practices are more resilient to global economic shocks than others due to their inclination to shorten the supply chain and follow local business situations (Rishanti & Suharyadi, 2020). In relation to the previous discussion, MSMEs need to be catered to in the framework relating to CE and the plastic issue. They need to be supported because it is evidently easier for the bigger company to transition to the CE scheme, while it is another problem for MSMEs due to its perceived high cost. In this regard, then we can revisit OECD’s (2021) suggestion of “greening the SMEs”. The suggestions include capacity support, availability of low-interest financing; incentives through tax exemption or deduction; and government-backed and free consultancy for these MSMEs to give needed information on technical or cost calculation of CE adoption. These are the area where the private sector, MSMEs, and society are essential to tackle the plastic problem at its root while simultaneously creating a circular chain -especially related to plastic- in the region. The intended consequence of MSME inclusion in the CE scheme is more public exposure to CE and a reverse of the known trend that only limited knowledgeable people who are eager to consume CE-based products (Dinh & Nguyen, 2018). Indeed, as a sign of a stronger commitment, the top-down initiatives in form of a more legally binding agreement to translate into national policy serves as the cornerstone for the thriving CE and MSME.