The leaders of the 10 member states of the Association of Southeast Asian Nations (Asean) pledged in 2007 to create an “Asean Economic Community” by 2015 and to “transform [it] into a region with free movement of goods, services, investment, skilled labour and freer flow of capital.”
On the face of it, that 2015 deadline is unlikely to be met – not by a long shot.
But perhaps the problem is one of language and differences in interpretation. As Rodolfo Severino, a Filipino diplomat and secretary-general of Asean from 1998 to 2002, told FinanceAsia, that 2015 pledge was an affirmation of members’ continued commitments and an envisaged “milestone” rather than a strict deadline.
Just how much progress has been made towards an Asean Economic Community is sure to be a topic of discussion at Tuesday’s session of the Asian Financial Forum in Hong Kong. One panel is titled “Strategic Opportunities with the upcoming Asean Economic Community”. This sort of upbeat-sounding rhetoric is one reason why observers may be feeling short-changed by the realities of the AEC.
“Nothing is going to happen just because 2015 will be here,” said Severino. “Asean is not going to be transformed overnight and there is not going to be a sudden rush of trade and investment.”
Jayant Menon, economist at the Asian Development Bank, described the AEC as “a work in progress” that “won’t be realised”. By Asean’s own assessment, it is perhaps two-thirds of the way to meeting the goals set in 2007 but these comprise the most straightforward tariffs.
Tariffs on most traded goods have fallen close to zero, except for a handful of industries viewed as particularly strategic, such as Malaysian automobiles. Agriculture and steel are other sectors that continue to be protected by member states because of strong domestic lobbies.
“Real achievements have been made,” Menon said – at least with regard to signing Asean agreements. Implementation in domestic markets is often a different story but he argued that production networks for regional and global supply chain-related trade has been liberalised. This concerns the making and trading of parts and components, not finished goods – which often takes place outside of Asean.
“There has been a focus on presenting Asean as a seamless production base to foreign investors,” Menon said. “This was happening anyway but the AEC gave this a certain [additional] momentum, and is more wide ranging.”
But progress has stalled in the case of non-tariff barriers such as quotas and import licencing, which remain endemic within Asean.
There has also been very little agreement on the regional integration of services, including banking and finance. Across Asean, services account for more than half of GDP, so the majority of economic activity remains constrained by a matrix of regulatory barriers.
Severino said most Asean governments, due to pressure from vested interests at home, are still reluctant to remove non-tariff barriers. In some sectors consumers are insufficiently empowered to take on privileged business owners.
There are also what Severino terms non-tariff “measures”, as opposed to “barriers”, which exist for reasons other than industrial policy: for example, certain sectors may be deemed vital to national security and so cannot be opened.
The most progress has been seen in those service industries that are too new and fast-paced to have been captured yet by government cronies, notably information technology.
The trend globally is for non-tariff barriers to continue shrinking or even disappear altogether and Asean’s AEC project still provides a broad and public goal for member governments. “The question of regional economic integration is a foregone conclusion,” Severino said, particularly because individual countries are too small to deal with the likes of China, the US, Japan and European Union on their own. “Remember that Asean has come a long way since its founding in 1967.”
But for Menon, other regional trade deals may yet supersede AEC. In particular, Asean has begun talks with six partners: India, Australia, New Zealand, China, Japan and South Korea. The Asean+6 forum will be slow going – particularly with regard to India – but if any deals do emerge, they will be more significant.
There is also the US-led Trans-Pacific Partnership, which includes four Asean members (Brunei, Malaysia, Singapore and Vietnam).
The AEC, even if it was fully implemented, would still leave a messy, fragmented trading environment for Asean countries. “This can’t be the end game,” Menon said. “Ultimately you need the World Trade Organisation to tie it all together.”
