Preparations for the 2015 integration of the member-economies of the Association of Southeast Asian Nations have been picking up in the past few years.
With little more than six months left, there is both excitement and anxiety as economists, government officials and business executives try to figure out the impact of putting together a regional economy with an estimated gross domestic product of $2 trillion and a population base of more than half a billion people.
The excitement was dashed last week when an economist at the Asian Development Bank monitoring the creation of the Asean Economic Community (AEC) predicted that a fully integrated regional economy could be realistically achieved only by 2025 because of many Asean members’ difficulties in implementing measures related to “non-tariff barriers”.
“It’s highly unlikely that the Asean will meet all the targets by 2015. That’s quite clear. Even the Asean scorecards show that,” said Jayant Menon, lead economist at the ADB’s Office of Regional Economic Integration.
Menon noted that the tariff targets would likely be met as Asean had achieved about three-quarters of the goals on this segment. Through the Asean Trade in Goods Agreement, most of the import duties in Asean have fallen to zero since January 2010. More than 99 per cent of goods traded in Malaysia, Thailand, the Philippines,
Singapore, Indonesia and Brunei are already at zero tariff, while Cambodia, Laos, Myanmar and Vietnam have been offering 0-5 per cent duties on 98.6 per cent of goods sourced within the region. Only a few critical products are still protected by tariffs within Asean, among them rice, sugar, pigs and chicken.
The problem is with the targets on the non-tariff barriers – including the adequacy of infrastructure, intellectual property rights protection, Customs automation and modernisation, addressing red tape and other forms of corruption, streamlining business procedures and implementing a competition policy.
The harmonisation of these policies across the 10 Asean member-states has become very challenging as it requires constitutional changes in countries like the Philippines, where foreign equity ownership is restricted.
The non-tariff barriers are worse in the new member-countries where there is still a lot of red tape and most Customs procedures are not automated, leaving much room for corruption, according to Menon.
In the Philippines, the biggest non-tariff barrier identified is infrastructure, whose relative weakness means that related trade and business costs (for example, shipping costs) remain high. Graft and corruption, while declining, also remain a problem.
But there are people who believe that the Philippines is prepared for the Asean integration. According to Trade Under-secretary Adrian Cristobal Jr, the country is “primed and ready”.
A considerable number of Philippine companies have established their presence within Asean, and are engaged in healthy competition with businesses located in the region, Cristobal notes. But that’s just half of the picture.
Our record on regional companies investing in the Philippines is dismal due to restrictions to the entry of foreigners here.
It is in this area where the Philippines has been lagging behind integration efforts. While the government should address the many non-tariff barriers to allow the country to benefit more from intra-Asean trade, it should also exert extra effort in moving to allow foreign investors to put up businesses here.
There is a general consensus that the establishment of the AEC will herald “a new era for borderless competition” across industries as it transforms the Asean countries into a single market covered by free flow of goods, services, skilled labour, investments and capital. This should benefit consumers in the region, as genuine competition leads to high-quality and competitively priced products and services.
The Philippine Congress and the Aquino administration must initiate steps to liberalise the entry of foreign investors to as many sectors as possible. Congress must also now pass a comprehensive competition law in order to address what economists have long been saying about the Philippines: that it suffers from the absence of a “culture of competition”, and that monopolies and cartels are an accepted part of doing business here.