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