ASEAN economic integration faces tough road ahead

SINGAPORE — The Association of South-east Asian Nations (ASEAN) has set a goal of merging the economies of its member states into an integrated economic region by the end of next year, but questions remain over whether the project, known as the ASEAN Economic Community (AEC), will be fully achieved come its end-2015 deadline.

The work that remains over the next year is expected to be much tougher as the effort shifts towards reviewing each country’s laws to open up domestic markets and allaying the protectionist concerns of local businesses and industries.

Analysts said much will depend on the political will of the countries to ensure that progress remains in sight, cautioning that the deadline should be seen more as a milestone in the integration effort to make the bloc a competitive economic region.

“The analogy is that we are waiting for a train of complete integration. The train will probably be a bit late and it’s running slower than we had hoped, but it has not been knocked off of the rails,” said Mr Simon Tay, chairman of the Singapore Institute of International Affairs. “But if we try driving it too fast, we will also have a derailment. So I think a steady, step-by-step process is needed.”

The AEC aims to create a single market and production base with free movement of services, goods, capital, investment and skilled labour. Given the project’s ambitious goals, analysts said, it is hardly surprising that it faces tremendous challenges.

But the opportunity is there for the 10-nation bloc, which groups Singapore with Indonesia, Thailand, the Philippines, Vietnam, Myanmar, Malaysia, Cambodia, Laos and Brunei. They have a combined nominal gross domestic product of US$2.4 trillion (S$3 trillion) and a population of more than 600 million people.

First mooted in 2003, the AEC is the economic plank of ASEAN’s three-part vision of political-security and sociocultural integration by the end of next year. The project aims to produce a highly competitive economic region of equitable economic development that is fully integrated into the global economy. To help it achieve its goals, the AEC provides a blueprint and a scorecard to track progress.

ASEAN leaders provided an update on their progress at the ASEAN Summit last month, with the chairman’s statement released after the meeting revealing that the bloc had implemented 82.1 per cent of the overall measures under the AEC. Noting that ASEAN was “at the tail end” of the implementation, it would prioritise fast-tracking the implementation of the remaining measures over the next year, the statement said.

So far, much of the success has been in the reduction of tariffs and the progressive liberalisation and removal of barriers to trade. But the remaining areas, which include issues such as eliminating non-tariff barriers, services liberalisation, labour migration, and the involvement of small- and medium-sized enterprises, are likely to be challenging to implement, said analysts.

“The remaining measures will be harder to achieve ... because if you want them to be achieved, it’s going to involve domestic adjustment. It means these countries have to adjust their domestic laws and regulations to comply with the AEC agreement,” said Dr Kaewkamol Pitakdumrongkit, an assistant professor at the S Rajaratnam School of International Studies’ Centre for Multilateralism Studies, who studies the AEC.

With the issue of labour migration, for example, she said that while the AEC provides for the free movement of skilled labour within the region under the Mutual Recognition Agreement (MRA), there are hurdles in the form of domestic regulations.

The MRA covers several professions, including medical and dental practitioners, engineers and architects. However, its implementation has been slow, particularly in the Philippines, due to curbs in the Constitution and other legislation which restrict the practice of professions to Filipino nationals.

Meanwhile, concerns about rising economic nationalism are also apparent in Indonesia, where laws do not allow foreign firms to list on the country’s stock exchange and regulations limit the percentage of foreign-owned businesses within industries, all of which pose obstacles to cross-border integration.

Because most of the changes that need to be enacted are domestic, analysts said the way forward will depend on the political will of member states to review their laws.

“There’s going to be a lot of convincing to do. Each country has to convince one another that if we work together, the AEC would bring mutual gains to all of us,” Dr Kaewkamol said.

Given that the grouping operates under the principles of the “ASEAN way” — which prefers non-interference in domestic political affairs — there are also questions over the level of enforcement that can help ensure the AEC project stays on course. Unlike the European Union, ASEAN is not a supranational union and the ASEAN Secretariat serves to coordinate rather than oversee the enforcement of measures.

The ASEAN Business Outlook Survey 2015, released in August by the United States Chamber of Commerce, highlighted the widespread scepticism that the AEC would meet its deadline for the end of next year. In fact, the report said most US businesses believed the AEC goals would not be realised until 2020 or later.

However, analysts noted that the ASEAN blueprint makes it clear that member states see the 2015 target more as a marker on the road towards regional integration and have already begun making preparations for the AEC’s post-2015 agenda.

“ASEAN has been sending signals early that 2015 is no longer a deadline, it’s a milestone on the road. So it’s not going to affect their reputation if they can’t meet the 2015 target,” said Ms Sanchita Basu Das, a fellow at the Institute of Southeast Asian Studies who studies the AEC.

As chair of ASEAN next year, Malaysia has stated its commitment to take the lead in developing plans for the post-2015 vision, with Malaysian Prime Minister Najib Razak saying last month it was “conscious that the formation of the ASEAN Community will happen on our watch and we will work tirelessly towards that ambition”.

Malaysia estimates that at least 95 per cent of the measures under the AEC blueprint will be achieved by the end of next year, said the Minister of International Trade and Industry, Mr Mustapa Mohamed.

Although it still faces significant challenges, the AEC initiative has been welcomed by major economic partners such as the US.

“The AEC is good for ASEAN and it is good for the US. It has already (opened) and will continue to open investment and trade opportunities, while reducing tariffs and non-tariff barriers,” said a spokesperson for the US Mission to ASEAN. “ASEAN integration is also in the strategic interest of the US. A more unified and central ASEAN will be even more able to foster peace and stability in South-east Asia,” the spokesperson added.


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