Dec 30, 2013

Thailand - AEC SPECIAL REPORT: Huge challenges ahead

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Asia News Network looks at how Asean countries are preparing for economic integration in 2015. With only two years to go, what are the progress so far and what remains to be done?

When Asean leaders gathered at a posh hotel in Singapore in 1992, they knew the time had come to get their act together to accelerate the grouping’s economic integration and compete with the rest of the world. They agreed to the establishment of the Asean Free Trade Area among the six members after years of foot-dragging.

But the members’ different levels of economic development and progress made this scheme unattractive at first. Nonetheless, the leaders decided to move ahead knowing fully well that forming a single production base for the grouping was the way to go in a globalised economy.

The free trade zone within Asean, the leaders envisioned, would take time to materialise so the first time frame was set for 2020. This was later revised to 2010.

As time passed by—with a new regional environment emerging after the collapse of the Berlin Wall and the relationship between the former Indochina and Asean countries was no longer adversarial—Myanmar, formerly Burma, also wanted to join Asean. Under a new peaceful environment came cooperation among all countries in Southeast Asia.

From 1995-1999, Asean added four new members, fulfilling the founding fathers’ dream of having all 10 countries under one roof.

In 2007, Asean adopted the blueprint of the Asean Economic Community (AEC), Asean Political and Security Community (APSC) and Asean Socio-Cultural Community (ASCC). These three pillars are key components of the Asean Community (AC).

Implementation of blueprint

At the Asean Summit in Brunei Darussalam in October 2013, Asean leaders expressed satisfaction over the health of Asean’s overall economy. Against the weak global economy, Asean economic growth last year was 5.6 per cent with total direct foreign investments of US$108.2 billion coupled with a total volume of trade worth $2.47 trillion.

To sustain such an impressive level of economic growth, continued economic integration is needed.

By the end of September 2013, Asean has implemented 279 measures related to AEC or a score card of 79.9 per cent. There has been progress in the implementation of the Asean Single Window, custom integration and the process of harmonising standards and conformance procedure.

Asean leaders also acknowledged that there are still areas that member countries need to do more in terms of facilitating trade and investment and reducing barriers. Under Brunei’s chairmanship, special effort has been given to financial literacy among the members. In addition, member countries still have to ratify agreements and ensure full compliance in order to accelerate economic integration further. There is also a need for amendments or enactment of domestic laws that would align with the region’s regulations and frameworks.

For the time being, Asean members have paid most of their attention to AEC. However, without sufficient progress in the political/security and socio-cultural pillars, the economic integration in Asean would be further delayed.

Out of 667 actions under the AC roadmap, 345 of them fall under ASCC. A report on the mid-term review released in October 2013 showed that while overall assessment was positive, there were areas that member countries need further political will, especially those related to social justice and rights.

Some Asean members still do not share information on this issue.

the implementation of political and security pillar has been uneven. Asean members have done generally well on external relations with the 10 dialogue partners. Now there are 75 ambassadors from non-Asean countries and organisations accredited to the Jakarta-based Asean Secretariat and 37 Asean Committees in third countries.

The US, China, Japan and Australia have established their permanent representative offices for Asean in Jakarta. India will soon set up a similar mission. Signatories of the Treaty of Amity and Cooperation have increased to 32.

In 2011, Asean has been instrumental in bringing in major powers to take part in the leaders-only forum known as East Asia Summit comprising leaders from 18 countries: Asean, China, Japan, South Korea, India, Australia, New Zealand, US and Russia.

Truth be told, at least 32 out of 143 action plans as of July 2013 that have not been implemented by Asean members belong to the security cooperation that involves conflict management and prevention. Other common security schemes such as peace-keeping and quick response to crisis remain untouched. These are considered sensitive issues as they involve sovereignty and go against the principle of non-interference.

Balancing act

When Asean leaders agreed in November 2011 to begin the negotiation on the Regional Comprehensive Economic Cooperation (RCEP), it was spurred by various economic developments in the region and shifts of relations among major economic powers.

Asean realises that the maintenance of economic growth in Asean must be linked to broader economic communities both near and far. The grouping views the Trans-Pacific Partnership (TPP)—the US-led trading block—as a powerful external factor that could dilute the leading role of Asean.

As a precautionary measure, Asean then proposed the Asean-led RCEP to mitigate possible implications from the fast-moving TPP. So far, the RCEP negotiation has gone through two rounds in Bandar Seri Begawan and Brisbane. Representatives from 16 East Asian countries have agreed to the 2015 deadline for the framework’s conclusion. This time frame is pivotal as it would provide further impetus in deepening economic integration within Asean.

The main RCEP objective is to achieve a comprehensive, high-quality and mutually beneficial economic partnership among the members. In more ways than one, the RCEP negotiation is very mindful of the TPP and its objectives.

Asean leaders also want to make the RCEP a distinctive regional joint effort. Due to the different economic development among member countries, the RCEP will take into consideration provisions on special and differential treatment to least-developed members like Laos, Cambodia, Myanmar and Vietnam. TPP does not have these provisions.

Given the current tension among the three East Asian economic giants—China, Japan and South Korea—over their territorial disputes, future RCEP negotiation is in jeopardy. In the past, economic matters were given priority and were immune to political interference. That is no longer true today.

The China-Japan tension over overlapping claims in Diaoyu or Senkaku Island has already caused great concern within the region. Asean leaders fear that this longstanding conflict would affect economic integration in broader East Asia. Asean has maintained excellent relations with both countries without choosing either side. However, both China and Japan are pressuring individual members of Asean to display bias toward them over specific issues such as maritime security cooperation and air defence zone.

Myanmar and the Asean chair

According to Myanmar’s Than Than Lin, under Myanmar’s chairmanship, Asean will give priority to technical cooperation and capacity building.

She reiterated that these measures will help new Asean members integrate with Southeast and East Asian economies. It is also hoped that in the long run, RCEP would be a high-level FTA in terms of trade and investment liberalisation. In other words, RCEP should be attractive and efficient enough to compete with TPP.

At the moment, it is too premature to predict the nature of RCEP’s final framework but suffice it to say, the future comprehensive cooperation must be focused on Asean as well as East Asian characteristic especially the vast production networks that help to strengthen the economic interdependence within the region.

Asean economists believed that RCEP will eventually replace the current Asean free trade agreements with various dialogue partners. As such, it would serve as a role model for regional economic integration among countries at different level of development.

Implementation of RCEP will also contribute to global free trade.

Myanmar took up the Asean chair after 17 years of joining the grouping in 1997. To ensure the success of its first chairmanship, Naypyidaw adopted a comprehensive slogan to signal what the chair plans to work for the rest of 2014.

“Moving forwards in unity towards a peaceful and prosperous community” is the theme which Myanmar believes would shape the grouping’s agenda. The chair has made clear that as a new Asean member, its focus would be on capacity-building in all relevant areas, in particular efforts to integrate with AEC and other business practices.

Naypyidaw has also paid special attention to the development of small- and medium-sized enterprises (SMEs) inside the country. A new legislation on SMEs is pending in the National Assembly and the Ministry of Industry has recently established a SME Development Centre.

According to Dr Ei Shwe Sin Tun of the Ministry of Industry’s SME Department, SMEs registered in the country represented 92 per cent of enterprises, which in turn contributed 80 per cent of the gross domestic product.

Officials working on the economic agenda are also discussing further reforms in the areas of competition as well as industrial policies. Several capacity-building seminars on intellectual property rights and consumer production have been held in Naypyidaw in the past several months.

Asean Post-2015 vision

As the deadline of the Asean Community approaches, leaders must display their leadership to ensure that the blueprint detailing action plans in the three pillars—economic, political and security, social and cultural—are fully implemented.

Without political will, measures related to sensitive economic areas such as services and investment will remain “sensitive” and “untouchable”.

Further actions in political and security as well social and cultural fields would require similar decisiveness from Asean leaders, especially areas related to the enhancement of civil and political rights and democratisation. Furthermore, there is an urgent need to adopt a comprehensive campaign to inform private and public sectors on the outcome of economic integration. All stakeholders must understand changes that are taking place and affect their environment.

When Malaysia chairs Asean in 2015, the leaders must also take up new agendas that go beyond 2015. For Asean to remain competitive and relevant to the international community, it must adopt new strategies that encompass effective measures bridging development gaps among member countries, promote economic integration world-wide as well as ability to form common positions on key global issues. These measures include the strengthening of the Asean Secretariat, promoting compliance of all agreements, facilitating faster decision making-process while maintaining consensus among members and forging larger mandate for the role of the Asean Secretary General and its good office.

Engagement with major powers, especially the US, China, India, Japan and Russia, will remain the top priority of Asean external relations. With increased economic interdependence with these countries, Asean centrality is also at risk. In times of crisis, Asean would find itself in limbo to stay united with common positions and policies. In the past, Asean was able to balance its relations overall with major dialogue partners without difficulties.

However, growing tensions among key dialogue partners like China, the US and Japan have already impacted on broader cooperation within various Asean-led frameworks, especially schemes related to economic integration in East Asia. Asean needs to map out a comprehensive strategy to deal with the increased volatile external environment.

In confronting crises, Asean has responded collectively well during the financial crisis in 1997, the pandemic in 2003, the Indian Ocean tsunami in 2004 and Cyclone Nargis in 2008. However, calamities and human losses suffered by Filipinos due to Supertyphoon Haiyan in November 2013 showed the inadequacies of Asean decision-makers and organisations to respond to disaster and humanitarian crises.

Two years ago, the Asean Coordination Centre for Humanitarian Aid was set up to respond to these new threats but its role is still limited. So far, existing Asean institutions can only monitor and coordinate work among members. In response to the Philippine disaster, Asean Secretary General Le Luong Minh managed to activate his mandate without any further delay as coordinator of humanitarian aid.

It is imperative that Asean in the near future agrees on the so-called principle of automaticity to facilitate the role of the Asean Secretary General and his good office. This principle could further be broadened to cover the whole gamut of crisis confronting Asean.

As such, the leaders—as well as concerned authorities—would be able to respond quickly and effectively to emerging threats that require high-level decisions for sustainable actions and policy options. At this juncture, Asean senior officials are responsible for the leaders’ agenda.

Finally, given the changing power dynamics in the region and a multipolar world, Asean cannot rest on its laurels. There are many crossroads ahead. Asean will carry diplomatic weight only when it can maintain its centrality and act collectively and proactively both in time of progress and crisis.

Kavi Chongkittavorn

Asia News Network

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