Ever since Asean leaders first made regional integration by 2015 their goal six years ago, work has been under way to make the investments and carry out the reforms necessary to bring the Asean Economic Community into being.
However, many economists, academics and diplomats for years have been sceptical about the readiness of such a diverse group of 10 countries to form an economic union. Difficult obstacles emerged and progress appeared to slow as the clock ticked closer to the deadline.
Last September at a meeting in Cambodia, officials finally conceded that the launch of the AEC would be delayed to the end of 2015 from the beginning. They settled on December 31, and not a day later, as a face-saving choice after so many years of “AEC 2015” sloganeering and propaganda. The decision undermined Asean’s credibility, not only in the eyes of the international community but also among regional and domestic audiences.
The main hurdles in the way of the AEC are a mismatch between political ambitions, a lack of capabilities, and often a lack of political will in several member states, according to a recent report by the CIMB Asean Research Institute (CARI).
The study’s authors made independent assessments of key areas identified for integration, including free trade, customs harmonisation, competition law and policy, investment regimes, free flow of services, standards and non-tariff barriers as well as SME support projects. One finding was that reported implementation progress did not fully match the reality but was influenced by political motives, said the report, entitled “The Asean Economic Community: The Status of Implementation, Challenges and Bottlenecks”.
“The scorecard which is based on self-assessment of Asean governments is misleading. The results show that 67.5% of targets have been achieved under Phase I and II. However I think the data is too limited to say so,” said Dr J?rn Dosch, the report’s principal author and a professor of International Relations at Monash University, at the report’s launch in Kuala Lumpur.
“The scorecard does not measure actual enforcement of completion acts and similar legal instruments regarding the different stages in implementation in each member state.”
Because no country wants to be seen as being behind its neighbours, there are political influences behind the progress reports, in his view.
Dato’ Sri Nazir Razak, group chief executive of CIMB Group, said leaders across the region needed to grasp the urgency of the situation.
“Asean needs to get serious. Businesses across Asean are banking on AEC to deliver,” he said. “The issue here is not to criticise the remarkable efforts by our governments, but to constructively examine where the shortfalls are, identify where these gaps can be closed.”
Now is the time for all member states to go beyond rhetoric and start to really concentrate on the commitment to integration by building on binding agreement, he added.
Dr Dosch highlighted the stagnation of intra-Asean trade volume as a concern, noting that 95-98% of all businesses in the Asean market are small and medium enterprises, most of which have little interest and opportunity to expand across national borders.
At the same time, many of the bigger enterprises in the region are outward-oriented and tend to concentrate on as well as compete with each other to get access to the US, EU, and China markets.
Official data show that intra-Asean trade has not risen markedly since 2003, and by just 4.4% since 1998. It has remained at roughly 25% of total Asean trade volume.
Strikingly, it notes that usage of existing free trade provisions in Asean is low and that nearly half of the businesses surveyed (46%) said they were not planning to use preferential provisions in the future. The findings are disturbing given that trade has been tariff-free since 2010 for 99% of goods traded among the six main Asean economies. (see graphic on the left).
“It is also about the competition. Many countries in the region produce similar products, so they are not necessary interested in opening up,” explained Dr Dosch.
“This forces Asean countries to be outside-oriented. For example, China, the United States and Europe are more important for companies in Malaysia than Indonesia or the Philippines. Political emphasis on intraregional trade does not correspond to the economic reality.”
Even if and when the AEC becomes a reality, he doubts that intra-Asean trade will ever reach the 50% level that some promoters of integration want to see. The focus at the moment should be on developing trade opportunities within the borders of East Asia, rather than just Asean. He suggested that Asean should remain the core market, but what is much more important for businesses is external relations.
“One of the core challenges [within Asean] is customs regimes, making cross-border trade easier and more straightforward, using administrative steps and making it easier for a company to export and import,” he said. “These are real advantages that the corporate sector would want and would value. However, some members have been reluctant to enforce new regimes.”
The gradual introduction of the Asean Single Window (ASW), Asean Customs Declaration Document (ACDD) and certificates of origin are all steps toward a fully computerised Asean Customs Transit System (ACTS). The overall goal is to reduce average clearance times per container to less than 30 minutes. (see graphic below).
However, the World Bank Logistics Performance Index (LPI), which the efficiency of the clearance process, showed slight declines between 2007 and 2012 for Indonesia, Vietnam, the Philippines and Thailand.
The Global Enabling Trade Report, published by the World Economic Forum since 2008, also notes few changes in the efficiency of import-export procedures in Asean (see graphic above).
“The need for the government to eliminate non-tariff barriers for Asean integration is still considered one of the main obstacles for reaching the AEC 2015 dream,” Dr Surin Pitsuwan, the former Asean secretary-general, told Asia Focus. “Each nation should look at the long-term national benefit and reduce protectionist forces.”
To achieve the target, he said, Asean economies should enhance cross-border investment and encourage their SMEs to go beyond their borders with support from governments. He remains hopeful that intraregional trade could reach 35% in 2020.
Dr Surin noted one positive sign, which has been the increasing scale of intraregional investment in the past few years. It is evident that Asean countries are a lot more willing to invest in their neighbours but more work needs to be done.
“It goes without saying that Asean is not in the position to create a level playing field for all SMEs in the region or to single-handedly increase their competitiveness,” the CARI report emphasised. “The Action Plan for SME Development is extremely ambitious, however; some would say unrealistic.”
While there have been many successful and innovative SME promotions, they resemble a patchwork as they are not usually part of a coordinated regional strategy.
“SME service centres and funding development projects should be promoted,” said Dr Dosch. “Once more companies take advantage of the existing rules, the easier intraregional trade will be improved. The governments then should follow up to reduce some of the impediments that currently exist.
“However, this is the area where Asean is lagging behind. Many agreements that have been signed and things that have been promised to the private sector have not really been fulfilled and put into practice.”
The economic and development gaps among member states also are daunting, the report points out. Having to unite one of the wealthiest countries in the world, Singapore (GDP US$43,929 per capita) under the same umbrella as one of the poorest, Myanmar ($715) poses a lot of difficulties. The ratio between the lowest and highest national GDP per capita in Asean is 1:61 compared with 1:8 in the European Union.
The report also calls for Asean member states to take more ownership of the integration process. “Economic integration cannot work on the basis of non-binding agreement. If member states are allowed to opt out at any time or choose not to implement agreed actions, integration is hardly achievable,” says Dr Dosch, who calls the famously consensus-focused “Asean Way” a dilemma for the group.
In any case, the report maintains that when the AEC begins is far less important than how serious the participants are about it.
“We have to be realistic about what can be achieved. The vision of the AEC is indeed so far-reaching. Many companies strongly believe that there will be a fully integrated market and single production base, free movement of goods and workers when the realisation arrives,” said Dr Dosch.
“However, given the state of implementation at the moment and the resistances that exist at national levels among member states, this makes it unlikely that all the objectives can be achieved. We need to note that AEC 2015 is a process, not the end point.”
But some senior officials have a different view, even if they privately view that integration may not be easily achievable.
Indonesian Foreign Minister Marty Natalegawa, on a recent visit to Thailand, said that what he wanted was for the Asean population to wake up on Jan 1, 2016 feeling different from the way they did on Dec 31, 2015.
“We can be scientific about this, especially for the economic domain. We have already achieved about 75% [of the goals],” he said. “But I think regional community is not about facts and data alone, it is about the sense of community. The idea of not getting there is not an option; it is not even on the table. We have to get there by 2015.”
