ASEAN Economic Community formally created – is it real?

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AEC graphicLeaders of the Association of Southeast Asian Nations, or ASEAN, on November 22 declared the establishment of the long-planned regional economic bloc, the ASEAN Economic Community (AEC), encompassing 10 countries, a population of more than 600 million people and a combined GDP of $2.5 trillion.

The AEC is meant to be an economic, political, security and socio-cultural community and should become a single market with a free flow of goods, capital and skilled labour in the ASEAN region similar to the European Union.

The declaration was signed at the ASEAN Summit held last weekend in Kuala Lumpur. Summit host Malaysian Prime Minister Najib Razak at the signing ceremony, which was witnessed by UN Secretary-General Ban Ki-moon, hailed the establishment of the AEC “as a landmark achievement” more than a dozen years after the concept was first proposed.

Many tariff barriers have already been eliminated among ASEAN states although many politically sensitive sectors remain protected, such as agriculture, auto production and steel.

The AEC should have actually been launched in January this year but has been postponed to December 31, 2015 because many regulations were still under negotiation.

However, analysts say that the AEC agreement was more a “rhetoric act” rather than a real inauguration of a new free-trade zone as the AEC was far from having achieved its primary goal of allowing freer movement of skilled workers, trade and capital for the region.

The ASEAN Civil Society Conference and the ASEAN Peoples’ Forum on November 23 expressed disappointment with the AEC documents, terming them “replete with language that is premised on a people-centered community that belongs to all, there still remains serious skepticism on the part of civil society as to what the  agreements reached and commitments made by ASEAN governments will actually mean for human rights, democracy, development and environment for the ASEAN people.”

The groups also stated that “as ASEAN moves towards regional economic integration, unequal and unsustainable economic growth will result in worsening poverty, inequalities of wealth, resources, power and opportunities between countries, between the rich and the poor and between men and women.”

In terms of trade, there still remain barriers, resulting from a combination of protectionism and poor planning, which are holding back the AEC from exploiting its potential, experts say.

“December 31, 2015, will not see ASEAN achieving all its AEC targets,” says Jayant Menon, lead economist at the Asian Development Bank (ADB).

It is true that a web of trade deals has ensured more than 70 per cent of intra-ASEAN trade is tariff-free in principle, with most of the remainder subject to relatively low tariffs. Less than 5 per cent of trade within the bloc carries tariffs higher than 10 per cent of value.

But persistent non-tariff barriers remain the “single biggest obstacle” to free trade, says Ruth Banomyong, director of the Center for Logistics Research at Thammasat University in Bangkok.

For example, some countries apply more thorough customs inspections on agricultural goods, he says, increasing delays – and costs – of imports. “These are trade barriers by the back door,” he says.

In addition, businesses are not fully behind the project either. According to a survey, “only 7 per cent of respondents reported having detailed knowledge of AEC initiatives,” says ADB’s Menon. “There are estimates that less than a fifth of ASEAN businesses have made any plans for the end of 2015.”

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Reading Time: 2 minutes

Leaders of the Association of Southeast Asian Nations, or ASEAN, on November 22 declared the establishment of the long-planned regional economic bloc, the ASEAN Economic Community (AEC), encompassing 10 countries, a population of more than 600 million people and a combined GDP of $2.5 trillion.

Reading Time: 2 minutes

AEC graphicLeaders of the Association of Southeast Asian Nations, or ASEAN, on November 22 declared the establishment of the long-planned regional economic bloc, the ASEAN Economic Community (AEC), encompassing 10 countries, a population of more than 600 million people and a combined GDP of $2.5 trillion.

The AEC is meant to be an economic, political, security and socio-cultural community and should become a single market with a free flow of goods, capital and skilled labour in the ASEAN region similar to the European Union.

The declaration was signed at the ASEAN Summit held last weekend in Kuala Lumpur. Summit host Malaysian Prime Minister Najib Razak at the signing ceremony, which was witnessed by UN Secretary-General Ban Ki-moon, hailed the establishment of the AEC “as a landmark achievement” more than a dozen years after the concept was first proposed.

Many tariff barriers have already been eliminated among ASEAN states although many politically sensitive sectors remain protected, such as agriculture, auto production and steel.

The AEC should have actually been launched in January this year but has been postponed to December 31, 2015 because many regulations were still under negotiation.

However, analysts say that the AEC agreement was more a “rhetoric act” rather than a real inauguration of a new free-trade zone as the AEC was far from having achieved its primary goal of allowing freer movement of skilled workers, trade and capital for the region.

The ASEAN Civil Society Conference and the ASEAN Peoples’ Forum on November 23 expressed disappointment with the AEC documents, terming them “replete with language that is premised on a people-centered community that belongs to all, there still remains serious skepticism on the part of civil society as to what the  agreements reached and commitments made by ASEAN governments will actually mean for human rights, democracy, development and environment for the ASEAN people.”

The groups also stated that “as ASEAN moves towards regional economic integration, unequal and unsustainable economic growth will result in worsening poverty, inequalities of wealth, resources, power and opportunities between countries, between the rich and the poor and between men and women.”

In terms of trade, there still remain barriers, resulting from a combination of protectionism and poor planning, which are holding back the AEC from exploiting its potential, experts say.

“December 31, 2015, will not see ASEAN achieving all its AEC targets,” says Jayant Menon, lead economist at the Asian Development Bank (ADB).

It is true that a web of trade deals has ensured more than 70 per cent of intra-ASEAN trade is tariff-free in principle, with most of the remainder subject to relatively low tariffs. Less than 5 per cent of trade within the bloc carries tariffs higher than 10 per cent of value.

But persistent non-tariff barriers remain the “single biggest obstacle” to free trade, says Ruth Banomyong, director of the Center for Logistics Research at Thammasat University in Bangkok.

For example, some countries apply more thorough customs inspections on agricultural goods, he says, increasing delays – and costs – of imports. “These are trade barriers by the back door,” he says.

In addition, businesses are not fully behind the project either. According to a survey, “only 7 per cent of respondents reported having detailed knowledge of AEC initiatives,” says ADB’s Menon. “There are estimates that less than a fifth of ASEAN businesses have made any plans for the end of 2015.”

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