COUNTDOWN TO AEC 2015

Grand blueprint for Asean’s future

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AEC plan aims to transform region into global economic powerhouse

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Second of three parts

THE grand vision of the Association of Southeast Asian Nations (Asean) to transform itself into a single market may have some shortcomings, but it is not wanting in ambition.

A reason for the AEC: This example, provided by Asian Development Bank, shows the manufacturing network of a typical automaker in the Asean, along with the existing intra-Asean trade agreements that apply (AFTA = Asean Free Trade Agreement; CEPT = Common Effective Preferential Tariff).

A reason for the AEC: This example, provided by Asian Development Bank, shows the manufacturing network of a typical automaker in the Asean, along with the existing intra-Asean trade agreements that apply (AFTA = Asean Free Trade Agreement; CEPT = Common Effective Preferential Tariff).

The ‘master plan’ is provided by a 60-page “Asean Economic Community Blueprint,” adopted by the 10 members of Asean on November 20, 2007. In the blueprint, the Asean Economic Community (AEC) is defined by four key characteristics: It is envisioned to be a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully-integrated into the global economy.

Forming the vision was the easy part; making the vision a reality is proving to be a formidable challenge.

Monday’s first installment of this week’s special report outlined some of those broad challenges, which are largely the result of the unique nature of the Asean collective. An Asian Development Bank analysis published in the latter part of last year describes it as ‘open regionalism’: An association based on selective cooperation rather than conformity, with an economic and political orientation that is primarily outward-looking.

Numerous experts have lamented the “lack of awareness” of businesses and the general public as a major stumbling block to achieving its implementation by the December 31, 2015 deadline set for it. Thus in today’s installment, the key details of what the AEC is and what it is supposed to accomplish are explained.

Regional strength
Giovanni Capannelli, who is a principal economist for the Asian Development Bank’s (ADB) Central and West Asia department, laid out the formidable attributes of the Asean as an economic bloc in a recent study. In 2012, the Asean’s combined GDP was more than $2.3 trillion, 3.2 percent of the world’s total, and effectively the third-largest economy in Asia after China and Japan, respectively. Capannelli pointed out that the Asean’s global share of GDP has doubled since 1990; in the same time period, the average per capita income in the Asean rose to nearly $3,800, or from about one-fifth to one-third of the global average.

“A relatively large and still young population, with a growing middle class of well over 100 million people, represents one of ASEAN’s major strengths,” Capannelli wrote. With a population approaching 630 million, the Asean would be the world’s third most-populous country; while a vast number of those people are still impoverished the average poverty incidence in the Asean region has been reduced in the past decade from more than 25 percent to about 15 percent, although different sources provide slightly different indicators.

Capannelli also points out the strategic advantages of the Asean region, which lies at the intersection of South and East Asia and Oceania. Land and sea routes connect the Asean with both of its two biggest potential markets, China and India. And besides its abundant biodiversity, human resources, and substantial agricultural base, the region is also rich in natural resources such as oil, gas, minerals, and hydropower.

Optimizing the advantages
In order to make the most of the region’s growing strength, the AEC is designed to address the biggest handicap of the Asean – the wide disparity of economic attributes and outcomes among its member states—by proceeding along two tracks simultaneously.

The first track, according to the AEC blueprint, focuses on establishing the ‘single market’ with “new mechanisms and measures to strengthen the implementation of its existing economic initiatives; accelerating regional integration in the priority sectors; facilitating movement of business persons, skilled labor and talents; and strengthening the institutional mechanisms of Asean.”

The second track deals with the “development divide” between the so-called CLMV countries—Cambodia, Laos, Myanmar, and Vietnam – and the rest of the bloc. This effort to accelerate the integration of the CLMV countries for the most part takes the form of separate accommodating guidelines for them with regard to the timeline for completing the AEC’s priority measures. For example, phase-in of the AEC’s internal tariff elimination scheme for the “Asean-6” (Brunei, Indonesia, Malaysia, Philippines, Thailand, and Singapore) was to happen by 2010, with exemptions for certain sensitive products being allowed up to this year. For the CLMV countries, the non-tariff scheme’s implementation was given a deadline of 2015, with some exemptions in place up to 2018.

This overall framework now comprises some 321 individual measures—the number has grown over time from an original list of about 230 measures—which are organized into the four ‘pillars’ of the single market and production base, regional economic competitiveness, equitable economic development, and global economic integration. As of the end of 2012, 239 measures or about 74.5 percent of the total had been completed. A number of sources indicate the completion rate as of the end of last year was about 82 percent, but as the data is sourced from individual countries’ own assessments there is some skepticism whether or not the AEC initiative has actually made that much progress.

Single market and production base
This ‘pillar’ of the AEC is the most extensive of the four, with 197 separate measures. The key areas of the single market and production base pillar are the facilitation of the free flow of goods, services, investment, capital, and skilled labor, enhancing 12 priority integration sectors, and a special emphasis on regional food security through strengthening the food, agriculture and forestry sectors.

Because the overall single market initiative is so broad, implementation of measures to complete the key areas has been slow. Each requires a considerable amount of work to adjust domestic laws and processes on the part of individual member states, and so the achievement noted in AEC ‘scorecard’ reports may be misleading. In one of these reports, for example, the Asean notes that while most of the “horizontal measures”—steps related to external relations between individual Asean nations or between member states and the Asean directorate – have been completed, specific (presumably, “vertical”) measures are still “ongoing.”

Competitive economic region
The competitive economic region pillar, to describe it in its simplest terms, is intended to clarify and rationalize “best practices” throughout Asean in terms of competition policy, consumer protection, intellectual property rights, the transport, energy, mineral, and information technology sectors, taxation, and e-commerce.

Progress in this area has been the fastest of the four, with nearly 90 percent of 90 individual measures already considered completed. But again, the progress may be misleading; many of the measures involve creating statements of principles or policy, which require follow-up through the enactment of actual laws and regulations in individual member states.

Equitable economic development
This pillar has two key areas: Development of small and medium enterprises (SMEs), and the Initiative for Asean Integration (IAI). IAI is described by the Asean as an “exploration of new modalities and approaches to ensure that the benefits of the AEC trickle down to the smaller Asean economies (i.e., the CLMV countries) and sub-regions such as the Brunei Darussalam-Indonesia-Malaysia-Philippines East Asean Growth Area (BIMP-EAGA) and Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT).

The intent is certainly noble in that it seeks to formalize policy and procedures to ensure that economic growth through the creation of the AEC is “inclusive,” but progress here has been slower than for any of the other three pillars; of 18 key measures, only 11 had been completed by the end of 2012, and little progress has been made since then. The problems are primarily related to SME development, an Asean official explained; because the objective is to give a wider range of businesses access to international markets, “the work that needs to be done involves, in a lot of cases, examining things like business licensing, customs issues, training and capacity-building, and other things,” which are almost exclusively domestic concerns and are at the mercy of the capabilities of national governments.

External economic relations
The external economic relations pillar is in many ways more straightforward than the other three, because it deals specifically with Asean member states’ joining the “Asean + 1” series of free trade agreements. So far, these agreements include China, Japan, South Korea, Australia and New Zealand, and India.

How this part of the AEC initiative might be affected by the ongoing negotiations over the Regional Comprehensive Economic Partnership (RCEP), which would gather the separate Asean + 1 pacts into one large-scale agreement, is yet to be determined, although the presumption is the AEC package would be amended to include it. However, that is not anticipated to be an issue that will have to be addressed before the end of this year. The sixth round of RECP negotiations were held during the first week of December last year with little progress being made; more meetings, including a conference of experts in e-commerce, are being held this week in Bangkok, Thailand.

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