Will we see an ASEAN Economic Community by 2015?

Published on Monday, 15 December 2014

Published by Jayant Menon on Monday, 15 December 2014

Launched as a political bloc and security pact in the aftermath of the Viet Nam War, the Association of Southeast Asian Nations (ASEAN) has evolved to embrace an ambitious economic agenda. Its latest project is to establish the ASEAN Economic Community (AEC) by 31 December 2015. But is this likely? The blueprint for achieving the goal envisages the AEC standing on four pillars and meeting the deadline depends on progress on each of them.
 
There have been a number of noteworthy achievements on the first pillar of realizing a single market and production base. The greatest success has been in tariff reduction. Following the implementation of the ASEAN Free Trade Area, common effective preferential tariff rates between the ASEAN-6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) fell to virtually zero. As a result, more than 70% of intra-ASEAN trade incurs no tariffs and less than 5% is subject to tariffs above 10%. With tariff rates largely irrelevant, leaders need to prioritize eliminating non-tariff barriers.
 
Some progress has been made in trade facilitation and investment liberalization. The National Single Window—a one-stop shop to speed customs clearance—has gone live in the ASEAN-6. In addition, these economies now approximate international best practice in investment liberalization. But the four newer ASEAN members—Cambodia, Lao PDR, Myanmar, and Viet Nam—lag in both areas. 
 
Trade in services has seen less liberalization partly because it has a much shorter history than trade in goods and is harder to grasp. Agreements have been finalized to mutually recognize qualifications for some services, but the number of such services needs to be expanded and agreements need to be implemented in ways that improve mobility for skilled labor.
 
To achieve the second pillar of a highly competitive economic region, competition policy needs to be improved and the protection of intellectual property rights strengthened. These are difficult areas to reform. Questions remain regarding how effective a regional approach can be compared with national action or a multilateral approach. Standards harmonization and regulatory convergence may offer considerable benefits to ASEAN as it develops its regional market. But developments with the ASEAN+6 Regional Comprehensive Economic Partnership (RCEP) may supersede this.
 
To achieve the third pillar of equitable economic development, the huge income and development disparities among ASEAN members must be addressed. Such disparities are inconsistent with the idea of economic community, however conceived. While the Initiative for ASEAN Integration and other ASEAN related programs may help narrow the gap, progress must ultimately come from within the newer members themselves as they institute broad economic reform that promotes trade and investment—as they have been doing.
 
The fourth pillar of full integration into the global economy has seen the greatest strides, which has enabled a thriving “Factory ASEAN.” Progress to date underlines how liberalization has been driven more by market forces and unilateral actions than by regional agreements. ASEAN’s long-standing commitment to openness is one of its defining features and needs to be burnished to sustain and advance regionalism in Southeast Asia.
 
Each of the four pillars presents a demanding set of challenges to be met before the AEC can be fully realized. Although ASEAN has come a long way toward realizing its goal, the challenges that remain suggest that the AEC will not meet its approaching deadline. The AEC Scorecard, ASEAN’s self-assessment mechanism, suggests that the region achieved only 76.5% of the AEC targets that were due by March 2013. The real test for the community lies with implementation, however, and this is post-2015. 
 
Accommodating AEC accords will not be easy when they require changes to domestic laws or even the national constitution. The flexibility that characterizes ASEAN cooperation, the celebrated “ASEAN way,” may hand member states a convenient pretext for non-compliance. How to enforce the accords remains an issue. If the AEC is to be more than a display of political solidarity, ASEAN must find a way to give the commitments more teeth. The 2015 deadline should be viewed not as the final destination but as a milestone on the slow and long journey toward the AEC.
 
A modified version of this blog first appeared in the East Asia Forum
 
The views expressed in this paper draw upon the ADB-ISEAS publication, The ASEAN Economic Community: A Work in Progress, but are those of the author alone and do not necessarily reflect the views and policies of the Asian Development Bank, its Board of Governors or the governments they represent.