AEC 2015: Does Reality Match the Hype?

ASEAN ECONOMIC COMMUNITY 2015: Does Reality Match the Hype?


The ASEAN Economic Community (AEC) was meant to be established on 01 January 2015, with the goal of creating a single market to provide businesses with access to more than 600 million people in the region. However, realising that the deadline could not be met, and despite all the official buzz that was created around “AEC 2015”, the implementation date was eventually moved to 31 December 2015. With less than four months to go until the new target date is reached, the question of where we stand in terms of achieving a free flow of goods, services, capital, investment and skilled labour is critical.

Opinions vary on each member State’s readiness for economic integration. Companies, especially smaller and mid-sized businesses, are having trouble keeping up with the latest developments and with preparing for the changes to come. Scepticism in the private sector has started to replace the initial excitement about the prospect of a single market as uncertainty is growing about how committed many of the region’s governments actually are to the idea.

While Thailand’s official position has been made clear — “we are ready on our part” and “we have met all our commitments” — concern has been raised in the Thai media that the AEC represents a significant competitive threat to Thai companies and workers, and that Thai people are unprepared due to a lack of sufficient English language skills.

NON-TARIFF BARRIERS STILL WIDELY USED

So, what has been achieved to date and what can be expected of the AEC?

In Thailand, we can see that customs tariffs on goods traded between ASEAN members have been significantly reduced to a low level or almost zero. Within the region, however, improvements to trade facilitation by integrating customs clearance and harmonizing standards are lagging; non-tariff barriers are still widely used or are newly erected in the form of quotas, standards or licensing rules.

The foregoing obstacles contribute to a relatively low rate of intra-ASEAN trade; of the total US$ 2.6 trillion worth of trade conducted by ASEAN members per annum, only 25 per cent represents trade among ASEAN members. By way of contrast, 75 per cent of European Union trade is among European Union members.

In Thailand, especially, little progress has been made concerning the liberalisation of foreign investment, not least in the service sector. Despite all the roadmaps and agreements stating that ASEAN members will be permitted equity ownership of up to 70 per cent in other member countries’ service companies, no laws have been amended in this regard. Thailand has always permitted foreign nationals to own manufacturing operations, thereby complying with the AEC’s aims. However, from the additionally agreed upon 128 sectors scheduled to be liberalised, only retail and wholesale businesses have been opened to foreign majority shareholding so far.

If it was ever the intent of the AEC to open borders for the free movement of labour, it is still highly unlikely to happen, at least in the foreseeable future. Under the Mutual Recognition Act signed by the ASEAN members, the signatories agree to recognize the qualifications of certain professions of other States. Despite having agreed upon such mutual recognition, Thailand will not waive the requirement for obtaining work permits and visas for ASEAN nationals seeking employment in the Kingdom. Moreover, it intends to administer examinations conducted in the Thai language for these professionals, which, in reality, will negate the idea of the Mutual Recognition Act completely.

GREAT OPPORTUNITY, EXTREME DIVERSITY

Without doubt, South-East Asia is a region of great opportunity; however, it is also one of extreme diversity, and uneven political and economic development. This development gap may render the idea of “one integrated market and a single production base” unbalanced and fragile (a situation mirrored by the Eurogroup’s recent experience with its own single currency project). Formidable challenges lie ahead that will require investment in human resources development and industrial innovation as well as significant improvements in productivity, in order to maintain the current economic growth rates as a catalyst for economic integration.

Amid all the excitement and opportunity, the region and its leaders have to develop a sense of ownership regarding ASEAN and commit definitively to the vision of common prosperity. AEC 2015 may best be considered as a process rather than a destination, and one that requires a considerable amount of short-term sacrifice. However, time is of the essence in driving this process of integration, as the period of economic prosperity for developing countries may soon be over, if it has not already come to a halt. The BRIC nations have lost their shine as growth engines of the global economy; a missed opportunity as they failed to reform their inefficient economies — which are plagued by corruption, insufficient infrastructures and high private debt — during times of economic boom.

While the developing countries are currently reemerging as drivers of the global economy, growth rates in ASEAN are shrinking drastically. Region wide, financial markets and currency exchange rates are under pressure; over the last 12 months, for example, the Malaysian Ringgit has lost more than 25 per cent of its value to the US Dollar. In the aftermath of the stock market turmoil at the end of August, not only sceptics see the developing economies at the beginning of a prolonged downward trend, also resulting in meager growth prospects for the South-East Asian region.

AEC 2015 is an investment in ASEAN’s future — it would be a shame if the opportunity were to be missed.

For more information, contact Mr. Andreas C. Richter at: richter@brslawyers.com.


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Disclaimer: Publications contained herein are for general information purposes only. Publications contained herein are not to be understood as and are not to be relied upon as legal advice.