ASEAN Economic Community: A project in progress

KUALA LUMPUR -- As the ASEAN Economic Community's (AEC) Dec 31, 2015 deadline looms, most observers see the plan which envisages an integrated production base with free movement of goods, services and skilled labor as not fully realized but rather a project in progress.

The AEC, one of three pillars of the ASEAN Community, has been drawing most enthusiasm since its blueprint was signed by leaders of the Association of Southeast Asian Nations (ASEAN) during the 13th ASEAN Summit in 2007.

"Regional community building is an ongoing and dynamic process, so while the AEC 2015 has succeeded in putting in place key frameworks and other fundamentals for the effective functioning of an economic community, this is not the end of the journey," said a report from the ASEAN Secretariat on Friday.

It is estimated that the measures under AEC implementation will raise overall GDP in ASEAN by 7 percent by 2025.

Commanding a combined gross domestic product (GDP) of $2.5 trillion and a combined market of 600 million consumers, AEC could lead to a major change in economic structures in Asia if realized.

Its integrated economic region was mainly built on four pillars: a single market and production base, a competitive economic region, equitable economic development and integration with the global economy with AEC Scorecard formulated to track the progress of the members.

Remarkable development has been made in implementing the first pillar, particularly in reducing tariffs for goods trade and in implementing single windows for better trade facilitation, although progress has been slow in liberalizing investment and capital flows.

To date, the ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) have virtually eliminated their intra-regional tariffs, with 99.2 percent of tariff lines at 0 percent. For the CLMV (Cambodia, Laos, Myanmar and Vietnam), the figure stands at 90.86 percent giving an ASEAN average of 95.99 percent, said a report of the ASEAN Secretariat.

Visible progress has also been achieved in the fourth pillar in signing regional free trade agreements (FTAs) for improved trade rules.

ASEAN has concluded FTAs with its six dialogue partners: Australia, India, China, Japan, South Korea and New Zealand, and is aiming to complete negotiations for the Regional Comprehensive Economic Partnership (RCEP) by the end of 2015.

"China will also work with relevant parties to finish at an early date negotiations on the RCEP while speeding up the talks on a China-Japan-South Korea FTA," Chinese President Xi Jinping said at an Asia-Pacific Economic Cooperation (APEC) CEO summit in Manila, the Philippines earlier this month.

RCEP could potentially lead to one of the world's biggest trade area covering over 3 billion people with a combined GDP of about $17 trillion.

Despite the strides made by ASEAN as a whole towards regional integration, some members are not yet ready for the community by year-end due to such hurdles as slow national regulatory reforms in accordance with the ASEAN blueprint, development gap between member states, weak democratic institutions and people's participation, said Chheang Vannarith, chairman of the Cambodian Institute for Strategic Studies.

He called on ASEAN to provide more capacity building support to the less-developed CLMV members.

At the country level, the realization of the AEC can help Cambodia attract more foreign direct investment and Cambodian companies will have more opportunity to expand their market as the nation has "great potential to be an important actor in regional and global production chains due to its relatively cheap labor forces and improved infrastructure," Vannarith said.

For more developed Thailand, its automobile industry has benefited from the single production base with parts from other ASEAN countries able to cross borders without tariffs and other impediments.

Thailand can also benefit from economic integration by increasing outbound investment, analysts said.

The degree to which each country can reap the benefits of regional integration "depends to some extend on their implementation of new ASEAN rules and regulations," opined Vitavas Srivihok, deputy permanent secretary of the Ministry of Foreign Affairs of Thailand.

Middle-income and more advanced economies such as Malaysia and Singapore will retain their positions specializing in semi-manufactures and research and development. Singapore's financial sector and service industry are also expected to be boosted by the AEC, economists said.

To meet the deadline for AEC implementation, less developed ASEAN members must ensure that the ASEAN Master Plan on Connectivity as spelled out in the AEC Blueprint and all relevant projects in the Initiative for ASEAN Integration (IAI) are adequately realized by overcoming a combination of financial shortfalls, poor governance, corruption and the inability of national governments to manage international and interdepartmental coordination, noted Pou Sothirak, executive director of the Cambodian Institute for Cooperation and Peace.

It is suggested that strategies that will narrow the income gap and allow spillovers from richer, more technologically advanced members to least developed countries be strengthened and sustained.

Malaysian Prime Minister Najib Razak revealed on Thursday that the implementation rate of AEC measures have reached 92.7 percent with 469 measures carried out, 37 still pending and some to be addressed on a priority basis early next year.

"ASEAN might have missed or may miss some deadlines, but in general, we are moving strongly ahead," the prime minister said.

Although the AEC may not deliver on a fully integrated single market and production base for ASEAN stakeholders in 2015, the project in progress will surely help ASEAN members to withstand more challenges with confidence in the constant flux of global economy.