The ASEAN Economic Community kicks off – will it succeed?

Reading Time: 3 minutes

ASEAN flagsToday, December 31, is the day when the ASEAN Economic Community (AEC) is officially being inaugurated. The new economic bloc, a free trade area of the ten member states of the Association of Southeast Asian Nations, or ASEAN, is encompassing a population of over 630 million people and a huge market of $2.6 trillion in combined GDP, making it the third-largest economy in Asia as a composite trading block and the seventh-largest worldwide.

Its combined population is third after China and India, and it is the fourth-largest exporter after China, the European Union and the United States, with still very much scope for growth from emerging countries such as Myanmar, the Philippines, Vietnam and Cambodia with their diverse economic sectors spanning over agriculture, food, minerals and commodities, textiles, electronics and services. The AEC is also the fourth-largest importer of goods globally after the United States, the European Union and China.

These are, however, just the bare numbers.

The main idea behind the AEC – whose concept has been discussed for over two decades – to create a single market and production base with free flow of services, investments and labour is loosely modeled after the European Union, but it is still far, far away from resembling the unified European economic bloc.

 

This has to do with structural differences between the two regions. European countries are standing culturally, economically and as per their political systems much closer to each other, while the gaps in ASEAN are much bigger. Within the ten AEC member states, there are democracies and semi-democracies, authoritarian governments, a junta-cum-monarchy, two communist countries and a sultanate. There are still strong nationalist tendencies and fragile inter-ASEAN relationships that have to do with religion, territorial disputes and historical feuds. Economic disparities reach from $53,224 nominal GDP per capita in the richest country Singapore to around $1,200 in Cambodia and Laos as per 2015 International Monetary Fund data.

There is no joint bureaucratic apparatus in the AEC like the one the European Union operates to push things forward in an efficient manner so that the AEC relies much on cooperation between member state governments to define and execute policy directions. The ASEAN Secretariat in Jakarta is understaffed and underfunded for this huge task.

That said, there are still a lot of unsolved issues for the AEC integration such as infrastructure gaps, no integrated banking structures, a lack of inter-governmental harmonization of laws and regulations, namely consumer laws, intellectual property rights, corporate and land codes, as well as streamlined and adjusted investment regulations.

The free movement of labour also remains quite theoretical. While ASEAN citizens don’t need visas to travel to other ASEAN countries, they are far from “free” to work and settle in another country without receiving the necessary immigration permissions apart from a few highly skilled professions such as medical doctors which – however – still have to comply with domestic standards and regulations.

There is also no real strategy against a possible huge wave of labour migration from poorer ASEAN nations to wealthier ones, and the problem of human trafficking and illegal workers is still drastically prevalent. And free labour movement could cause issues in countries which are not sufficiently prepared for it, such as Thailand with its low English proficiency where more well-paying skilled jobs could be taken over by immigrants e.g. from the Philippines and Malaysia who speak much better English and could push many under-qualified locals out of work, or Cambodia and Laos which could face an exodus of labourers to countries that pay higher wages which could trigger a backlash for their local low-cost, but busy industries and reasonable GDP growth over the past years back home.

The same applies to free movement of investment, or capital. Without efficient strategies to battle money laundering and tax evasion within ASEAN, no agreement on currencies accepted for interchange, soft currencies such as Indonesia’s rupiah, Myanmar’s kyat, Laos’ kip and Vietnam’s dong constantly dwindling in value and too few double taxation agreements, free flow of capital in ASEAN remains just a concept. This is going to hamper international businesses to access the AEC market and will be a reason for the AEC to fail in achieving its full potential on the global economic stage for a longer period of time, so that cheers about the AEC’s eventual formal establishment might come way too early.

 

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Reading Time: 3 minutes

Today, December 31, is the day when the ASEAN Economic Community (AEC) is officially being inaugurated. The new economic bloc, a free trade area of the ten member states of the Association of Southeast Asian Nations, or ASEAN, is encompassing a population of over 630 million people and a huge market of $2.6 trillion in combined GDP, making it the third-largest economy in Asia as a composite trading block and the seventh-largest worldwide.

Reading Time: 3 minutes

ASEAN flagsToday, December 31, is the day when the ASEAN Economic Community (AEC) is officially being inaugurated. The new economic bloc, a free trade area of the ten member states of the Association of Southeast Asian Nations, or ASEAN, is encompassing a population of over 630 million people and a huge market of $2.6 trillion in combined GDP, making it the third-largest economy in Asia as a composite trading block and the seventh-largest worldwide.

Its combined population is third after China and India, and it is the fourth-largest exporter after China, the European Union and the United States, with still very much scope for growth from emerging countries such as Myanmar, the Philippines, Vietnam and Cambodia with their diverse economic sectors spanning over agriculture, food, minerals and commodities, textiles, electronics and services. The AEC is also the fourth-largest importer of goods globally after the United States, the European Union and China.

These are, however, just the bare numbers.

The main idea behind the AEC – whose concept has been discussed for over two decades – to create a single market and production base with free flow of services, investments and labour is loosely modeled after the European Union, but it is still far, far away from resembling the unified European economic bloc.

 

This has to do with structural differences between the two regions. European countries are standing culturally, economically and as per their political systems much closer to each other, while the gaps in ASEAN are much bigger. Within the ten AEC member states, there are democracies and semi-democracies, authoritarian governments, a junta-cum-monarchy, two communist countries and a sultanate. There are still strong nationalist tendencies and fragile inter-ASEAN relationships that have to do with religion, territorial disputes and historical feuds. Economic disparities reach from $53,224 nominal GDP per capita in the richest country Singapore to around $1,200 in Cambodia and Laos as per 2015 International Monetary Fund data.

There is no joint bureaucratic apparatus in the AEC like the one the European Union operates to push things forward in an efficient manner so that the AEC relies much on cooperation between member state governments to define and execute policy directions. The ASEAN Secretariat in Jakarta is understaffed and underfunded for this huge task.

That said, there are still a lot of unsolved issues for the AEC integration such as infrastructure gaps, no integrated banking structures, a lack of inter-governmental harmonization of laws and regulations, namely consumer laws, intellectual property rights, corporate and land codes, as well as streamlined and adjusted investment regulations.

The free movement of labour also remains quite theoretical. While ASEAN citizens don’t need visas to travel to other ASEAN countries, they are far from “free” to work and settle in another country without receiving the necessary immigration permissions apart from a few highly skilled professions such as medical doctors which – however – still have to comply with domestic standards and regulations.

There is also no real strategy against a possible huge wave of labour migration from poorer ASEAN nations to wealthier ones, and the problem of human trafficking and illegal workers is still drastically prevalent. And free labour movement could cause issues in countries which are not sufficiently prepared for it, such as Thailand with its low English proficiency where more well-paying skilled jobs could be taken over by immigrants e.g. from the Philippines and Malaysia who speak much better English and could push many under-qualified locals out of work, or Cambodia and Laos which could face an exodus of labourers to countries that pay higher wages which could trigger a backlash for their local low-cost, but busy industries and reasonable GDP growth over the past years back home.

The same applies to free movement of investment, or capital. Without efficient strategies to battle money laundering and tax evasion within ASEAN, no agreement on currencies accepted for interchange, soft currencies such as Indonesia’s rupiah, Myanmar’s kyat, Laos’ kip and Vietnam’s dong constantly dwindling in value and too few double taxation agreements, free flow of capital in ASEAN remains just a concept. This is going to hamper international businesses to access the AEC market and will be a reason for the AEC to fail in achieving its full potential on the global economic stage for a longer period of time, so that cheers about the AEC’s eventual formal establishment might come way too early.

 

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