Patron: Her Excellency The Right Honourable Dame Patsy Reddy, GNZM, QSO, Governor-General of New Zealand

A perspective on the ASEAN Economic Community (AEC)

The AEC has attracted a lot of attention from local and international business communities because of its huge market of more than 600 million people, with a combined GDP of US$2.4 trillion in 2013.  If current growth trends continue, it could be the world’s fourth largest economic grouping by 2050 (ADB, Article, 18 August 2014). A successful AEC could become an economic engine for global growth for decades to come.

However, as many have suggested, a number of challenges must first be tackled to make the AEC a success. Reaching the full potential that the AEC offers could take many years. At present, opinions are mixed on how far ASEAN countries have come in doing everything necessary to make the first big step towards realising that potential. Governments and the ASEAN Secretariat consider that more than 80% of their goals have been achieved, but the private sector does not see evidence of much progress when it comes to making it easier to do business across borders. In addition some businesses, especially smaller ones, have done little or nothing to prepare themselves for the AEC. Below are some of the issues that require elaboration and in-depth debate if the AEC is to realise fully the purposes for which it was set up and what it wants to achieve.

According to some business observers, ASEAN is not yet properly integrated as its individual members are still practising their own business policies and regulations. For instance, the private sector is still required to comply with much of the legal framework of ten countries instead of one ASEAN system that would make it easier to do business across Southeast Asia. Despite this concern, political and business leaders from ASEAN states told participants at the 45th World Economic Forum Annual Meeting at Davos-Klosters, Switzerland on 23 January 2015 that AEC will be a reality by the end of 2015. The Forum reported the following remarks made by ASEAN’s political and business leaders.

Pridiyathorn Devakula, Deputy Prime Minister of Thailand, said, “Some in the audience may not believe it, but believe me, we will have a single market by the end of the year.” He added that tariff reductions within the community have already been largely accomplished, but work remains on cutting non-tariff barriers.

“The free flow of goods, capital and labour will provide the opportunity for ASEAN to become the factory of the world,” said Hun Sen, Prime Minister of Cambodia.

Pham Binh Minh, Deputy Prime Minister and Minister of Foreign Affairs of Viet Nam, said, “Greater integration will provide many benefits to the entire ASEAN community.” He added that integration should spur governments on to implement structural reforms, and more developed ASEAN countries should assist the less developed states to catch up.

Abdul Wahid Omar, Minister of Economic Planning Unit, Malaysia, noted that the economic growth in the region has been at an average of 6% a year for decades. He said, “We now want to make sure that the economic prosperity we achieve is translated into higher personal income for the people.” He added that the integration of rules and regulations and the creation of an ASEAN identity – perhaps in part through a common time zone – are logical next steps.

The above statements by politicians appear to convey a firm vision of what the AEC is and that, by the end of 2015, everything must be in place so that the AEC becomes a reality. However, business leaders appear to convey more realistic messages. For instance, Anthony F. Fernandes, CEO of AirAsia, Malaysia, predicted, “Not everything will get done by December, but a lot will be fixed and it will be a fantastic platform.” He added, “ASEAN is growing faster than China or India, but it must be seen by outside investors as a single market.” However, Fernandes cautioned that the ten countries still have different regulatory systems and bureaucracies. Government leaders must make it easier for companies and investors to operate in all ten countries simultaneously.

A business leader from Indonesia, James T. Ready, CEO, Lippo Group, said that unlike northern Asia, with its emphasis on heavy industry that works closely with government, most of ASEAN ‘s economies depend on entrepreneurship, light industry and services. The AEC will particularly benefit the service sector, which gains competitiveness with scale. “If the AEC can become a reality this year, we are at the beginning of something quite fantastic,” he said.

Serge Pun, Chairman, Serge Pun & Associates (Myanmar), Myanmar, said that for years he had been a sceptic about ASEAN, but he is becoming a believer. He said that protectionist impulses are strong in both government and business, but governments now appear determined to make the AEC a reality. He added that the community’s diverse economies are an advantage, “as less developed countries such as Myanmar would welcome the unskilled jobs that more developed ASEAN members are shedding.”

The above statements by both political and business leaders convey great optimism about the AEC and its vision, but how realistic are they?

In reality, integration and the free flow of resources will only occur gradually, step by step, sector by sector. Progress will very probably be uneven with some resolutions here and there reflecting the nature of global and regional politics. Even though tariffs have been largely reduced, non-tariff barriers to trade (NTBs) are still used widely in the form of quotas and licences, although this is expected to scale down over time.

Furthermore, free movement of skilled labour and capital and investment are far from being achieved. For instance, to be competitive under the free flow of labour in ASEAN countries, the less developed countries in particular will need to improve levels of education and training for eight professions: doctors, dentists, nurses, engineers, architects, accountants, surveyors and the tourism industry. How can ASEAN make its least ready and less-developed members overcome the fear of being overtaken by more competitive and efficient neighbours? What aspects of HRD for the Community should be strengthened or developed to ensure a level playing field? For instance, English has been chosen as a common language for ASEAN: has this been adequately addressed for citizens of member countries at all levels and sectors? How does the growing appetite for learning Mandarin for job and business opportunities with Chinese companies affect the uptake of English language in the community and the requirement for each member country and the need for potential workers in each country to learn the national language?

In the big picture, as we are all aware, member countries are at different levels of economic and political development. Broadly speaking a distinction can be made between old members (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) and new members (Cambodia, Laos, Myanmar and Viet Nam). In addition, on its own each country is different from the others; it has its own domestic policies that could be at odds with those of one or more other member countries. For instance, a fiscal policy stand by one nation that undermined other members and exacerbated the income inequalities between the rich and poor members could lead to disputes affecting the region’s peace and stability. This can be illustrated by a remark made by the former Trade Minister of Indonesia at the ASEAN Business Summit in Bangkok in December 2014. She reaffirmed that Indonesia, a giant of ASEAN, is willing to move forward with ASEAN if it can ensure that income disparities are diminishing and not increasing between member countries. Furthermore, she said that in order to strengthen democracy, Indonesia would need to create 2-3 million jobs per year, and this would require 7% economic growth per year. How would the AEC create a “level playing field” where each member can enjoy “fair play”?

“ASEAN minus X” Proposal

In order to address the different levels of development and different views and to move forward in the ASEAN consensus way, Chaly Mah, CEO of Deloitte Asia-Pacific, speaking at the Bangkok Business Summit, suggested that a coalition of the willing should be encouraged. For example, a few willing ASEAN countries can move forward in certain areas that they are ready for, and the remaining members then join the initiative or get involved at a later stage. This proposal would allow areas which are hard to implement or reach consensus on to be tested by a few countries. If they are successful, other countries can join in later. The proposal seems plausible, but how would it impact on the consensus measure which ASEAN has adopted since its inception? How would it impact on the mood of “togetherness”? Should one of the objectives of the AEC be to leave no one behind? What would the “ASEAN minus X” proposal do to the community spirit? Would it send the wrong message, that national interests take priority over community interests?

Other concerns include the delicate balance and sensitivity between the domestic political and economic short-term and long-term interests and priorities of member countries, and the interests of the whole community. Will the traditional consensus and non-interference approach continue to be a valid and reliable tool for leaders to use to progress the community?

Furthermore, who is going to ensure these values and approaches continue to be adhered to? Can the AEC depend on the ASEAN Secretariat? Does it have the capacity and reliable capability and resources to manage and execute its expanded agenda and goals? Does a static budget of $15 million dollars per annum enable the entity to attract a higher calibre of personnel to execute and implement the ever-increasing activities of the Secretariat?

The above are some of the issues that will need a clear framework and process to guide the AEC to achieve its full potential and enhance its credibility and reputation. As many have noted, ASEAN has since its inception accomplished a lot. Peace and tolerance between member countries over the years have provided a solid platform for economic development, thereby improving the living standards of their people. But it cannot be complacent about these achievements if it wants to achieve a fair society and leave no one behind. Together, ASEAN can do more, but separately it would do less. What is important, as asserted by George Yeo, former Foreign Minister of Singapore and now a businessman, is that member countries “are not at each other’s throats or massing armies against each other, cracking down on its population.” It is important that they are not embroiled in conflict. In other words, even though outsiders may perceive that ASEAN forums or meetings are nothing more than talk fests, it is vital to keep the conversation going as “jaw-jaw is better than war-war.” The exchange of views in ASEAN forums and confidence in the relationships established can add to greater understanding and further strengthen confidence-building, thereby increasing the security and stability of the region. What is required is to sustain and increase ASEAN’s efforts to foster a greater sense of citizenship and ASEAN spirit among people at all levels. But how can community spirit be fostered when many of its member populations do not know enough and are not even aware of what the AEC is attempting to achieve?

The critical question that many observers around the globe ask is: How is the AEC going to manage the many challenges facing it and foster a spirit of togetherness, ethnic affinity and belonging to a common root or civilisation when each member country has different levels of economic, political and social development, are old and new, rich and poor and have different priorities in terms of domestic issues? Can ASEAN stick to its long-standing “ASEAN Way”, its consensus and non-interference agreement without undue influence from those outside the ASEAN community? We have already witnessed some fragility within ASEAN over bilateral border disputes and between maritime claimant states and mainland states over the South China Sea disputes.

Nations outside ASEAN have been critical at times of what they see as the snail’s pace of progress of ASEAN because of its reliance on consensus or unanimity decision-making. But this is also seen as a strength in itself as it reduces and prevents conflict and, after all, ASEAN is made up of peoples and countries of varied needs and developments. Can ASEAN sustain its past successful recipe of step-by-step change? What other areas of focus does it need to put in place to ensure long-lasting economic growth, stability, peace and prosperity for the citizens of its member countries and for the global community generally? How does it embrace and balance new and old ways of thinking for sustained peace and increased prosperity among its members? Does ASEAN’s Secretariat have the capacity, capability and adequate resources to drive and implement the necessary changes, especially to foster greater awareness among the populations of its member states?

Lastly, what would be the impact of labour movement between countries: legal or illegal movements across borders; questions of sovereignty; citizenship; weak institutions which can be easily exploited by criminals, both ASEAN citizens and outsiders? For example, one of the unintended consequences of war and poverty is the displacement of citizens of war-torn countries around the globe, who are prepared to take great risks in seeking new lives outside their country of birth, and this has provided a platform for people-smuggling and trafficking activities across national boundaries. How will AEC deal with these potential risks and the transformations caused by the borderless regional economic architecture and landscape? After all, one of the implicit or unexpressed goals of the AEC, like the EU, would be to reduce racial or ethnic identities, and not to enhance them.

Perhaps it is far too early to pass judgement on whether ASEAN and its current and future leaders can successfully integrate themselves into an economic community. Integration has the potential to bring both benefits (in terms of significant increases in standards of living) and costs (such as loss of autonomy in economic management). It is unclear at present whether all current and future leaders of member countries will be prepared to accept the loss of autonomy, be prepared to face up to new realities and accept regional and global priorities and interests over national ones. This will be a complex challenge and only time will tell whether they will succeed in this bold ambition to reconnect with their common root and to integrate themselves in a modern world with ever-changing realities. The answer lies above all with the leaders of the member countries. Meanwhile, it is wise for ASEAN to stick to its proven successful recipe for peace and stability of step-by-step change, and to avoid the temptation to do what outsiders may want, as the long-lasting solutions rest with all members of ASEAN. ASEAN is about peace, stability and harmony. ASEAN has to find and foster its own ways and values, and the AEC is another step forward.
The Association of Southeast Asian Nations has dared itself is to become a single integrated community by 2015.  The challenge has raised high expectations inside and outside the region.  Would it be able to achieve the aspiration?  Efforts to construct the community have intensified, yet the clock ticks and the deadline looms.  Although the result may not match what national aspiring leaders for regional unification want to see, but it would be likely to exceed the expectations of cynical outsiders.  ASEAN is the linchpin of East Asian regionalism, by design and by default.  What happens to the Association and community development agenda over the next several years will have far-reaching implications for the Asia Pacific Region, and not least for the nations and peoples of Southeast Asia.