COUNTDOWN TO AEC 2015

Clock starts ticking on Asean integration

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But expectations for progress by Dec. deadline are lowered

First of three parts

ON December 31, 2015—it’s a Thursday—the Association of Southeast Asian Nations (Asean) will announce the creation of the Asean Economic Community (AEC). There is a growing consensus that milestone will be a lot less meaningful than was originally hoped.

In a conference hosted by the Angara Center for Law and Economics and the Metrobank Foundation at the beginning of this past December, the insights of a number of experts led to that conclusion. Although remarkable progress has been made, much of it has been easy progress, leaving the most difficult measures to be solved later.


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The speakers, led by Socioeconomic Planning Secretary and National Economic and Development Authority (NEDA) head Dr. Arsenio Balisacan, described the various thorny issues that need to be solved in order to make the AEC work as intended. He pointed out how some “stubborn” factors in the Philippine economy—persistent poverty and unemployment rates, and comparatively low rates of capital formation and foreign investment—might put the Philippines at a disadvantage.

Other speakers noted the great institutional and economic disparities among the 10-member regional bloc, as well as differences in progress in making necessary amendments to domestic laws and other institutional changes in preparation for regional integration.

Lack of awareness
One major handicap to progress on the AEC was described by Dr. Jayant Menon, lead economist for Regional Economic Integration at the Asian Development Bank. Over time the pace of progress towards completing AEC’s priority measures has slowed, which to Dr. Menon suggests that interest in the AEC is waning. He cited an ADB study in which 55 percent of businesses surveyed said they were unaware of the AEC, and less than 20 percent had made any plans to prepare for its December 2015 launch date.

The survey to which Dr. Menon was referring was conducted in early 2012 by the ADB, and the results published in an exhaustive assessment of the AEC by the Institute of Southeast Asian Studies in Singapore in 2013. The figures cited as examples are regional averages; the level of awareness and interest in the AEC in the Philippines are far lower. 80 percent of Philippine businesses surveyed said they were unaware of the AEC (only Singapore was worse, with 86 percent), and 91 percent said they were unaware of the AEC scorecard. By contrast, awareness of other Asean free trade agreements, such as those with China, Australia and New Zealand, and India ranges from 60 to 80 percent. Paradoxically, despite the widespread lack of awareness, 51 percent of the Philippine firms surveyed felt AEC 2015 would have some impact on their business.

In an e-mail message last week Dr. Menon commented, “A number of parties need to play a role in increasing awareness of the AEC before its deadline of December 2015,” a reasonable suggestion that The Manila Times has decided to follow in the coming months, beginning with this week’s overview of the broad issues in Asean integration.

Evolution of the AEC
According to the official Asean history, the Association of Southeast Asian Nations was founded on August 8, 1967, with the signing of the Asean Declaration by the foreign ministers of Thailand, Malaysia, the Philippines, Indonesia, and Singapore. The origins of Asean explain much about the challenges of bringing the Asean Economic Community from concept to reality.

The idea, which the history says took about 14 months to develop into a signed agreement, formed from multi-party negotiations over intraregional disputes. It was in that context—a desire to improve conflict resolution through better communications and consultation—that the guiding principles of “sovereignty, equality, territorial integrity, non-interference, consensus and unity in diversity” were first adopted.

The concept of the Asean as an economic arrangement developed much later, becoming a more-or-less official policy direction in the Asean Vision 2020 adopted in December 1997. The explicit goal of forming the Asean Economic Community by 2020 was adopted at the Asean Summit in Bali in October 2003.

As early as mid-2006 serious discussion about accelerating the timeframe for the AEC was taking place, and at the 12th Asean Summit in Cebu in January 2007, a formal declaration advancing the deadline from 2020 to 2015 “to transform Asean into a region with free movement of goods, services, investment, skilled labor, and freer flow of capital.” Many of the specific details about how to accomplish that were worked out at the next summit in November 2007 in Singapore, and at the 14th Asean Summit held in Thailand in 2009, the member states agreed to hold future summits twice a year, in acknowledgement of the great amount of work to be done in order to make the AEC a reality.

Not the EU
Speaking to reporters at the recent World Economic Forum in Davos, Switzerland, Malaysia’s Trade Minister Mustapa Mohamed said that the Asean would officially call itself a single market by year’s end even though, “We don’t have complete integration or harmonization yet, 2015 is laying the stage for bigger things to come.”

Part of the confusion among businesses and ordinary citizens about what the AEC will actually mean may come from the inaccurate description of it as a single market, which evokes comparisons with the European Union. Malaysia’s Mohamed stressed, however, that, “From day one, we know that we’re not going to adopt the EU model.”

A single or common market is a specific form of regional economic integration, one that the Asean will not achieve by the end of this year, and perhaps never will. What the Asean Economic Community blueprint actually describes is an enhanced version of what the Asean already is, a free trade area. A free trade area is characterized by the free intraregional movement of goods and services, with each of the member states maintaining their own external tariffs. There is no provision in the blueprint for a common external tariff, which would create a customs union. Only when Asean accomplished that could it move on to becoming a common market.

That may never happen, because of the nature of the Asean group as established from its very beginnings. Tasks like the harmonization of customs procedures and sanitary regulations, for example, have proven difficult because “unity through diversity” is an aspiration that is not conducive to creating supranational frameworks. In an ADB working paper published in November 2014, ADB’s Jayant Menon and Hal Hill of the Australian National University explain that the unique characteristics of the Asean which have made it the most durable of regional associations in the developing world despite the wide disparity of attributes among its members may limit it to a certain level of development. They describe it as “open regionalism,” a form of regional cooperation that has a primarily external focus. While this has allowed relatively rapid, stable economic growth, it is a framework which primarily supports individual rather than collective action.

Overcoming the information gap
That ‘external orientation’ is best reflected in the lopsided export balance of the Asean group; about 75 percent of the member states’ exports are to non-Asean countries, while only about 25 percent is interregional trade. In the recent Angara Center forum, it was noted by several speakers that the prospects for an increase in trade among Asean nations were dampened somewhat by this balance—Asean exporters are not likely to significantly cut back on trade with proven markets (such as China, the US, Korea, Japan, and Australia) in order to increase Asean commerce. Trade in Asean will grow, but its proportion to total trade will likely not.

The reality, which seems to be much better understood by companies actually involved in trade than it is by national governments or Asean planners, is likely a factor in the “lack of awareness” of the AEC. The AEC is perceived as being unlikely to have a great impact on business, and so it is not a key part of many businesses’ plans. This perspective is in a sense validated by the slower than anticipated progress towards achieving AEC’s priority measures as well; despite the December deadline, there is an apparent lack of urgency.

According to ADB’s Menon, overcoming the information gap should be a key focus of efforts now, not only to build interest in the AEC but also to help resolve some of the lingering issues, particularly institutional changes that need to be made within member states. “Asean itself needs to improve its communications policy by having more outreach activities, as must national governments and their respective agencies,” Menon said. “There is a need for more forums and seminar to discuss and debate the AEC, whether led by the public sector, private sector or multilateral and other donor agencies. Finally, civil society groups and NGOs need to play a role, in increasing awareness of the AEC among the citizenry, to promote community building.”

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