Some experts say Asean might need to delay the single market by three
years, but if leaders insist on just a one-year delay, they have a lot of work
to do.
The 364-day delay of the Asean
Economic Community was a disappointing but necessary step for the group’s 10
members to get their houses in order before leading the community on to the
greater goal of the 16-nation Regional Comprehensive Economic Partnership
(RCEP).
The scorecard that the Asean secretariat
prepared early this year on how well (or badly) members had fared in making the
agreed preparations for the AEC was already a mild wake-up call.
That was followed by a more blunt
assessment prepared by the Jakarta-based Economic Research Institute for Asean
and East Asia (ERIA) in October and presented to Asean leaders in Phnom Penh
two weeks ago. It was a strong reminder of the prerequisites for the effective
launch of the AEC.
In a way, the critical decision
to delay the inauguration of the single market from Jan 1 to Dec 31, 2015, will
give all Asean members time to complete the unfinished targeted actions. During
that year, Asean will also have to prepare for the broader FTA under the banner
of the RCEP which will also include China, Japan, South Korea, Australia, New
Zealand and India.
Asean’s goal for the past 20
years has been to create a unified market of more than 600 million people with
a combined gross domestic product of US$2 trillion. But the 10 member countries
have so far only met 72% of the economic blueprint for merging their economies
into a single trade and investment bloc, with Singapore and Malaysia doing
best. Indonesia, Thailand and the
Philippines are struggling with cross-border trade issues, while Cambodia,
Vietnam, Laos and Myanmar are wrangling with tariff and non-tariff barriers
(NTB).
ERIA executive director Hidetoshi
Nishimura told the Bangkok Post that the leaders’ decision to delay the AEC by
just one year showed their determination to stick with the much-hyped 2015
deadline.
However, he added: “In order to
meet ERIA’s recommendation, even three years will be tough. However, the
determination for AEC 2015 has definitely been shown.
“ERIA is starting the next step
immediately in cooperation with Brunei. And the Jakarta Framework decided at
the last Summit is also a very important vessel for beyond 2015.” Mr Nishimura.
What needs to be done?
The ERIA’s 86-page report has
strongly recommended that Asean “seize the moment” and forge ahead to speed up
trade and investment facilitation and to continue and manage liberalisation.
ERIA chief economist Fukunai
Kimura is convinced that Asean needs to further maximise its current status of
a hub of the global production network by forging connectivity and
reducing network setup costs (part of
the institutional arrangement to facilitate foreign direct investment). It must
also develop logistics infrastructure and services (cost, time, reliability)
and promote trade liberalisation and facilitation.
Another important thing to do, Mr
Kimura says, is to develop more special economic zones and improve the
investment climate with proper economic infrastructure such as electricity
supply.
Echoing the ERIA report, Prof
Kimura recommended that Asean seriously address non-tariff barriers
systematically, and try to deliver better on trade, investment and transport
facilitation. As well, it must forge ahead on services and investment
liberalisation, enhance the AEC Blueprint Third Pillar (on small and medium
enterprises), and finish RCEP negotiations to deepen Asean integration with
East Asia and ensure a continuing central role for Southeast Asia.
Apart from providing specific
recommendations for each Asean country, the ERIA report has clearly portrayed
the impact of the rise of China and India.
China’s fast and dynamic
transformation, said the report, presents tremendous competitiveness challenges
to Asean industries and businesses in third-country and domestic markets across
wide range of industries.
For example, the drop in global
trade shares of Malaysia and the Philippines during the 2000s can be attributed
in part to the dramatic rise of China’s global share (from 3.3% in 1990 to
19.9% in 2008) in electrical and electronics equipment.
Some model simulations suggest
that China would significantly crowd out Asean exports in most Western and
other non-East Asian economies by 2020 if China liberalises unilaterally and
Asean does not follow suit and adjust accordingly.
Asean-India trade, meanwhile, has
been surging in recent years although the level is still relatively small
compared to Asean-China trade. However, India does not appear to be a compelling
constraint on Asean’s exports to third markets at the moment, the report
emphasised.
As India grows and its middle
class increases substantially, the potential for possible complementary
relationships between Asean countries and India will likely increase also.
“It’s a contrast: Both are large
economies with huge domestic markets — Asean consists of 10 countries with
varying priorities, policies, and institutions,” the ERIA said.
“Thus the potential for economies
of scale is better realised in the two countries as compared to Asean unless
there is greater connectivity, efficient facilitation, and a common regulatory
framework in Asean.”
Achara Ashayagachat
Business & Investment Opportunities
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