The facts speak for themselves.
Going by its "roadmap",
Asean will by 2015 become an economic community with a US$2 trillion combined
market and become a magnet for integration across the whole of East Asia, the
world's most dynamic region.
This concept of an Asean Economic
Community (AEC) was mooted in 1997 - at the height of the Asian financial
crisis.
In their bid to keep Asean
relevant amid the rise of China and India, the region's leaders sought to build
the AEC on four planks - a single market and production base; a competitive
community; an area of equitable economic development; and a region integrated
into the global economy.
Fifteen years on and less than
three years away from the 2015 target, however, there is some cause for
concern.
Emeritus Senior Minister Goh Chok
Tong, speaking at a recent Asean conference organised by the Singapore
Institute of International Affairs (SIIA), summed up the zeitgeist: to keep the
region plugged into the global economy, Asean needs to pursue its economic
integration "relentlessly", he said, adding that the bloc will need
to work on two issues - liberalising the services sector across the region, and
non-tariff barriers.
Therein lies the rub. Asean
officials regularly tout that - according to a "scorecard" studying
the progress of the AEC - 66 per cent of measures to achieve a single market
and production base have been implemented. That figure, however, represents
low-hanging fruit, such as the removal of tariffs.
While the original Asean six -
Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand - boast
that 99.65 per cent of tariff lines across the region have been removed, the
fact is, non-tariff barriers (NTBs) continue to impede business.
In Malaysia, NTBs can be found in
the automotive, oil and gas sectors. In Indonesia there are restrictions on
beef imports.
In addition to restrictions on
the free flow of goods, freedom of workers' movements is another issue holding
up the AEC, says Ms Sanchita Basu Das, a lead economic researcher at the
Institute of Southeast Asian Studies and the editor of "Achieving The
Asean Economic Community 2015", a collection of essays studying the AEC's
implementation.
In Thailand, for example, the
Alien Employment Act prohibits foreigners from being employed in professions
such as civil engineering and legal services.
Says Ms Basu Das: "If you
say you have the free movement of labour but have restrictions, you cannot say
you enjoy such free movement of labour."
In terms of enhancing physical
connectivity, Asean has come some way. In 2010, it tabled a Connectivity
Masterplan to enhance physical and people-to-people links.
But the enabling Asean
Infrastructure Fund has initial equity of only $485 million. It has been
estimated that Asean will need to spend $60 billion a year on infrastructure.
"Asean has a lot of
connectivity initiatives, but a number of them are impeded by structural
weaknesses, low responsiveness to users, organisational inefficiencies, insufficient
funding and heavy dependence on overseas development aid," says
Pushpanathan Sundram, the managing director of EAS Strategic Advice, a
consultancy. He was formerly an Asean deputy secretary-general.
More importantly, the members of
Asean at its current stage of development face the same dilemma that other
regional bodies such as the European Union have faced - the surrender of more
sovereignty to a regional organisation. Put differently, many Asean countries
struggle with whether to put Asean's interests above their own national
interests.
A classic example is that of gas
pipelines in Thailand and Malaysia, which are held by monopolies. This would
hinder the formation of trans-Asean gas pipelines.
"For integration to move
ahead, we really need a change in mindsets. Asean countries have to think
regional and act national to implement locally the grouping's regional economic
commitments," says Pushpanathan.
This is not to say that all is
lost for the AEC. Asean, unlike the EU, started out more as a political body
than an economic one. The EU started out as an economic body focused on coal
and steel, and then took on political dimensions later. As a result,
expectations about the AEC should be moderated.
Moreover, the fact that Asean
remains externally oriented bodes well. During the Cold War, the bloc sought to
avoid being used as a geopolitical pawn by the superpowers, leading to
perceptions of a "fortress Asean". Today, however, it has sought to
be part of the great geopolitical game in Asia, seeking to draw in great powers
like China and the US. It has made itself relevant by signing free trade
agreements with countries such as Australia and China.
More importantly, Asean will not
lose out to China in the foreign direct investment stakes if the AEC leverages
on the fact that the grouping is made up of countries at different levels of
development.
Gautam Banerjee, the executive
chairman of PricewaterhouseCoopers Singapore, says Asean can entice potential
investors by getting them to locate "softer" functions such as
logistics, treasury and supply chain management in its more advanced countries,
say, Singapore, and get "heavy lifting" manufacturing operations done
in Malaysia, Thailand and Indonesia.
"If we can ignite some of
this thinking … Asean can be a credible challenge to China," said Banerjee
at the SIIA conference.
To an extent, this is already
happening. The Hong Kong Economic and Trade Office says some Hong Kong firms
have decided to invest in Asean countries rather than mainland China.
There is a combination of push
and pull factors, a spokesman adds. In China, labour costs have risen due to
the strengthening yuan. In addition, Asean's recent strong economic performance
and low labour costs have made the region attractive.
Looking ahead, Asean's economic
prospects would be much enhanced if the private sector - rather than the
bureaucrats - took the lead.
However, the entire AEC
enterprise is still very much a top-down endeavour and Asean watchers say it
receives relatively little input from businessmen, the very people who should
be spearheading integration.
The experiences of Thai companies
are indicative. According to a survey by the University of the Thai Chamber of
Commerce, only 11 per cent of firms polled said they understood what the AEC is
about. The rest said they had no idea.
No wonder then that the
utilisation of the Asean Free Trade Area by Asean firms stood at only 23 per
cent in 2008.
Granted, a group of business
leaders - including the chiefs of CIMB Bank, AirAsia and Ayala Group - has
launched the Asean Business Club, a private-sector initiative to engage in
Asean integration. But Asean still has its work cut out for it.
"Asean businessmen have let
their bureaucrats run away with whatever they want to do. They need to speak up
for themselves," says Dr Suthad Setboonsarng, senior adviser at
BowerGroupAsia, a business advisory firm.
"If it wants Asean to be
effective, the private sector has to guide governments. So don't complain about
Asean not working, if the private sector is not working."
Asean has been in the news
recently for failing to come up with a communique amid differences over its
handling of the contentious South China Sea issue, which involves China and
Asean member states such as Vietnam and the Philippines. The South China Sea
issue is important, but it will be a political issue that will continue to test
Asean's leadership and coherence for years to come.
In the meantime, however,
effective economic integration - the bread and butter of Asean's existence -
should deliver the goods that will make Asean relevant.
William Choong
The Straits Times
Business & Investment Opportunities
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