Tuesday, April 14, 2015

Upcoming ASEAN Economic Community From The Perspective Of A Non ASEAN

Establishment of ASEAN Economic Community
The ASEAN Economic Community (AEC) originates from the ASEAN Vision 2020, which was adopted in 1997 on the 30th anniversary of the Association of Southeast Asian Nations, made up of Brunei Darussalam, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam (ASEAN). With a population of more than 600 million and a nominal GDP of about $2.31 trillion, ASEAN is a strong economic community in Asia and also a driver of global growth.
The AEC is the realisation of the end goal of economic integration as espoused in the Vision 2020, which is based on a convergence of interests of ASEAN member countries to deepen and broaden economic integration through existing and new initiatives with clear timelines. AEC will have to envisage the key characteristics: (i) a single market and production base, (ii) a highly competitive economic region, (iii) a region of equitable economic development, and (iv) a region fully integrated into the global economy. By end of 2015, the AEC will be already started to realize those goals of regional economic integration and to create a single market and production base for the region by 2020.
AEC Establishment Outcome
The AEC will establish ASEAN as a single market and production base making ASEAN more dynamic and competitive with new mechanisms and measures to strengthen the implementation of its existing economic initiatives; accelerating regional integration in the priority sectors; facilitating movement of business persons, skilled labour and talents; and strengthening the institutional mechanisms of ASEAN.
The AEC establishment will bring within ASEAN with five core elements: free flow of goods, services, investment, skilled labour; and freer flow of capital. A single market for goods (and services) will also facilitate the development of production networks in the region and enhance ASEAN’s capacity to serve as a global production centre or as a part of the global supply chain.
With free flow of goods (and services) including the elimination of tariff and non-tariff barriers to internal trade, coordination of rules of origin for customs purposes and trade facilitation, the AEC will significantly lower tariffs and non-tariff barriers that will increase trade flows and result in market access for ASEAN business into larger markets and benefiting from market conditions similar to domestic competitors. This will provide for significant facilitation for cross-border intra-ASEAN trade. Hence, ASEAN is expected to become a highly competitive economic region in which the people in this region will be able to enjoy a free flow of goods and services, as well as progressive competitiveness.
While the free flow of investment will offer enhanced investment protection to all ASEAN investors and their investments in other ASEAN member countries, including the settlement mechanism of an investor state dispute leading to a non-discrimination principle including national treatment and most-favored nation treatment for all ASEAN investors when investing in other ASEAN countries. Those principles will ensure the investment in another ASEAN country not be treated less favorably than a domestic company that is a very important element in providing investor confidence when investing cross-border
Meanwhile, AEC will provide the stepping stones for ASEAN to create a true single block to compete in at the global level for trading and investment opportunities. With the deceleration of neighboring economies, i.e. China and India, and as the U.S. shifts its focus to the East, ASEAN is going to become a destination for investment. In fact, investment into ASEAN is already at an all-time high, with FDI inflows into this region’s five largest trading countries (Singapore, Malaysia, Indonesia, the Philippines, and Thailand) totaling US$128.4 billion in 2013, according to Bank of America Merrill Lynch.
However, the goal of single ASEAN market will take many years, achieved gradually, step by step, sector by sector. Especially, the question is whether all ASEAN countries are ready for the single market and production base or not. At present the ASEAN member countries have only achieved more than 85 percent implementation on the liberalization and facilitation of free flow of goods, services, investment, skilled labor and capital.
AEC From Non ASEAN Perspective
With the AEC establishment, the impact for businesses will not only be felt intra-ASEAN but also on a wider, global scale, for companies from United States, China, Japan, the European Union members and many more (Non ASEAN).
Currently the ASEAN countries already have implemented FTAs with several individual countries, thus for effective trade with these non-ASEAN countries, the ASEAN region has de facto become a single market already for trade flows. Several key ASEAN members (Brunei, Malaysia, Singapore and Vietnam) are ongoing negotiating for the Trans-Pacific Partnership, a U.S.-led regional free trade agreement (TPP) with the fact that the currently 12 TPP member group represents two-fifths of world GDP, including economic heavyweights such as the United States, Japan, Canada, Australia, and Mexico.
The ASEAN member countries have also been concluding individual free trade agreements with the European Union. Additionally, the Regional Comprehensive Economic Partnership (RCEP) which is a proposed agreement for creating a free trade network between ASEAN and the six countries with whom ASEAN has existing FTAs (Australia, China, India, Japan, Korea and New Zealand).
When the TPP and the RCEP and the individual FTAs with the EU take effect, AEC become even more important in providing legal certainty to foreign investors. The non ASEAN companies could benefit from the investment protection of the ASEAN Comprehensive Investment Agreement (ACIA) if they fulfill certain conditions. 
With the AEC establishment, the ASEAN internal market will be opened for other ASEAN countries that will likely be followed by gradual opening of markets for non-ASEAN trade and investment as the whole ASEAN is firmly aiming to be part of the global market and production base. The effect on global trade can be widened significantly in the ASEAN and from a global supply chain perspective, maintaining an ASEAN single production base should be successful in streamlining production in less developed economies where costs are cheaper and non ASEAN companies can use this region as a production base for further trade with the wider region to reach an even greater consumer base.
Author: Oliver Massmann – Ho Gia Le Hoang