• The Asean Economic Community: A work in progress

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    CRISTINA ORTEGA

    SURELY a landmark event in the history of the Association of Southeast Asian Nations was the formal establishment of the Asean Economic Community on December 31, 2015. According to the AEC Blueprint 2015, the aim is “to transform Asean into 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.”

    The establishment of the AEC took place earlier than its original schedule and vindicates the decision of the leaders of Asean to accelerate it. It fulfilled the prediction of most academicians that the AEC was going to happen sooner than later. As reported by the Asean Secretariat, the AEC Blueprint 2015, which identified work plans and strategic schedules for the establishment of the AEC, has been substantially realized. A clear success that Asean can claim is the reduction of tariffs among member-countries: about 99 percent of tariff lines have been reduced to zero.

    The Philippine chairmanship of Asean this year 2017, on the 50th anniversary of the Association, is faced with the challenge of providing a leadership that will make a strong impetus for the actualization of the above stated aim of the AEC and is at the same time afforded an opportunity to push initiatives and measures that will enable the Filipino people to benefit meaningfully from being a part of the AEC.

    As stated by the primer on the Philippine chairmanship of Asean 2017, some of the benefits that could be expected with the realization of the AEC goal are: “It offers consumers more affordable products and services because simplified trade rules and processes within Asean would make this possible. It creates more employment opportunities by encouraging trade and investments. It inspires more Filipinos to start their own businesses or internationalize their existing enterprises. And it helps more Filipino professionals to practice in any Asean member state when qualification standards are harmonized (although they will still have to meet domestic requirements in the Asean country where they intend to work.)” Economics professors believe that the AEC is beneficial to Filipinos with opportunities lying in regional and global production networks or value chains. The Philippines could push the country’s economic growth due to higher demand in the Asean market for local products. The increased labor mobility could provide more job opportunities for Filipinos, easing the unemployment situation at home and increasing remittances from overseas Filipino workers.

    The Asean Economic Community remains very much a work in progress. As critics noted of the implementation of the Asean Blueprint 2015, levels of integration vary greatly by sector. The free flow of goods among Asean member countries continues to be limited by the use of non-tariff measures (NTMs). While minimizing NTMs is an action target in the Asean Blueprint 2015, the voluntary approach taken has met with limited success.

    Asean has been negotiating services liberalization since the creation of the ASEAN Framework Agreement on Services in 1996. The AEC Blueprint 2015 established clear targets to remove all restrictions on trade in services by 2015. Some Asean countries could not meet their targets by 2015. Service liberalization in Asean contains no commitment to address behind-the-borders issues, such as interconnection for telecom services or access to ATMs for banking, which are crucial to the creation of competitive markets. The difference n laws and regulations among member-countries is considerable and problematic.

    With regard to promoting cross-border movement of labor, Asean has achieved very little. The AEC Blueprint attempts to facilitate only the mobility of skilled professionals and makes no reference to unskilled labor despite the abundance of unskilled labor in many Asean countries.

    The lack of a strong momentum to deepen regional integration in Asean is largely a consequence of the member countries’ protectionist stances. Many Asean member-countries continue to view one another as rivals in their pursuit of exporting to the global market or attracting foreign investments. More complementation and less competition has however been observed in intra-industry trade. There has been more trade in products within the same industries.

    The readiness and preparedness of the Philippines for the AEC has been the subject of some debate. According to the Department of Trade and Industry, the main agency tasked with implementing Philippine participation in the AEC, “the country’s stable economic performance, along with various reforms it implemented has put the Philippines in a good position to benefit from the economic integration.” It is true the Philippines has been experiencing robust economic growth, consistent upward rankings in competitiveness, and successive credit upgrades. However, the Philippines still needs to improve its competitiveness and the capability of local industries to benefit from the AEC.

    The rosy government projection is not shared by some business leaders. The Philippines to them is not ready to face tougher competition from other Asean members under the AEC whether in trade, agriculture, industry or banking. They are particularly worried that Philippine banks are not ready to compete with the bigger banks of other Asean countries when the AEC is fully operational because of the heavier requirements of global standards.

    (To be continued tomorrow)

    This article is a position paper prepared by the economic cluster of the Philippine Ambassadors Foundation Inc. on the Asean Economic Community which was accepted by the PAFI board of governors at its last meeting.

    The author is a recently retired career ambassador. She served as Philippine ambassador to France, Belgium and the European Union, and was Assistant Secretary for Asian and Pacific Affairs. She is the convenor of the economic cluster of the Philippine Ambassadors Foundation Inc.

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