First of two parts
The Association of Southeast Asian Nations’ (Asean’s) goal of economic integration by the end of this year has been largely written off by critics. But despite the delay, analysts still see sizeable gains from the Asean Economic Community (AEC), particularly for the region’s bigger economies.
In a March 4 presentation, BMI Research’s head of Asia research, Cedric Chehab, said Asean’s collective gross domestic product (GDP) would grow from $2.4 trillion in 2013 to more than $6.2 trillion by 2023, expanding at a compound annual growth rate of more than 10 percent. Asean’s share of global GDP is expected to increase from 3.2 percent to 4.7 percent by 2023, with its share of world trade rising from 5 to 6 percent.
“Asia’s GDP will double while that of the Asean will more than double, and it’s faster growth than the Middle East and as large and larger than Africa…it’s quite difficult to find other regions with as strong growth prospects as Asean,” Chehab said.
The economic growth will occur despite Asean’s expected failure to meet its self-imposed deadline, he said.
“We don’t believe the AEC will actually meet the end-2015 deadline and, in fact, we see the AEC as more of an evolution rather than a revolution. The move toward the AEC will be a gradual process given the numerous trade and non-tariff barriers that currently exist,” he added.
The AEC is seen as the “realization of the end-goal of regional economic integration” by Asean’s 10 member economies, comprising Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, encompassing more than 620 million people.
The AEC aims to transform Asean into a region with “free movement of goods, services, investment, skilled labor and freer flow of capital,” based on four key pillars of a single market and production base, a highly competitive economic region, equitable economic development and full integration into the global economy.
Yet, after first being proposed in 2007 as part of the Asean Vision 2020, the deadline for the AEC was moved from January 1, 2015 to December 31, 2015, with observers now reportedly eyeing a “post-2015 agenda,” despite official reassurances.
In November 2014, Asean reported that “good progress” had been made across approximately 88 percent of three pillars of the AEC. However, business has shown skepticism, with respondents to a survey of U.S. businesses in the region expressing doubts whether the AEC’s goals would be achieved even by 2020.
According to the “Asean Business Outlook Survey 2015,” just 4 percent of respondents considered it likely that the organization would achieve the AEC goals by the end-2015 deadline, down from 23 percent in the corresponding survey the previous year.
Nevertheless, 66 percent of respondents said Asean markets would become more important to their companies’ global revenues over the next two years, with 89 percent forecasting increased trade and investment over the coming five years.
According to the Asian Development Bank’s Jayant Menon, Asean has made the greatest progress in tariff reduction, with more than 70 percent of intra-Asean trade now incurring zero tariffs under the Asean Free Trade Area. According to Asean, average tariff rates on intra-Asean imports have declined from nearly 3 percent in 2003 to 0.5 percent in 2014.
However, gaps remain between the region’s larger and smaller economies in areas such as trade facilitation and investment liberalization, while services trade has proved harder to liberalize. Menon also cited problems in protecting intellectual property rights as well as reducing development disparities between the region’s rich and poor, although progress with the fourth pillar has seen the rise of “Factory Asean.”
“Accommodating AEC accords will not be easy when they require changes to domestic laws or even the national constitution. The flexibility that characterizes Asean cooperation, the celebrated ‘Asean way’, may hand member states a convenient pretext for non-compliance,” he warned in East Asia Forum.
“If the AEC is to be more than a display of political solidarity, Asean must find a way to give the commitments more teeth. The 2015 deadline should be viewed not as the final destination but as a milestone on the slow and long journey towards the AEC.”
Highlighting the region’s economic divide, both Brunei and Singapore had GDP per capita exceeding $35,000 in 2013, while Indonesia, Malaysia, the Philippines and Thailand ranged from $2,700 to $10,400.
Part II on Tuesday