While there is no doubt that the Asean Economic Community (AEC) has huge potential as a single economic bloc of 10 Southeast Asian member countries, the deadline set for integration is unrealistic.
When realised, the AEC will have an economy worth $2.5 trillion and a population of more than 620 million. Full integration will lift the game from the current Asean Free Trade Area and create a single market and production base where goods, services and skilled labour can move freely, accompanied by freer movement of capital.
However, we are unlikely to see the launch of a functioning AEC by the end of this year as per the 2007 Cebu Declaration, which was overly ambitious in fast-tracking integration from the 2020 deadline originally set in 2003.
The launch date has already been postponed from January this year so as to allow more time to put in place the necessary regulations and complete other preparatory work. But the hurdle to integration doesn’t comprise merely administration and paperwork.
Though most preparatory targets have already been met among the original member countries, the process of integration will have to continue well beyond 2015, realised through a step-by-step process that overcomes persistent challenges.
Most economists and experts would agree that the AEC’ s target date will be missed, due to challenges and structural weaknesses within Asean that include ineffectual institutions, limited resources and a poor track record of implementation.
Among the most sceptical are businessmen and investors. Respondents to a recent Asean Business Outlook Survey said their doubts extended to the practicality of AEC rules for doing business across borders amid uncertainty over the timeframe and feasibility of the Asean Economic Blueprint.
Non-tariff barriers have been growing in the larger Asean economies while trade in services is limited due to restrictions in most member states, according to the Global Trade Alert database.
Many businesses are still reluctant to apply for incentives offered under the AEC Blueprint, as the harmonisation of customs, standards and conformances has not been addressed adequately. This is due to the lack of a well-established structure to remove non-tariff barriers within member states, as cited in the EIRA Discussion Series on Standards Harmonisation in Asean published in November 2013.
Labour mobility within Asean is also limited, as the AEC Blueprint only dictates freedom of movement for highly skilled persons and qualified professionals, and not for lower-skilled labourers. This partial regime portends ill for greater economic integration, given that the majority of migrant workers are considered non- or low-skilled labourers. The AEC’s planned regulation of labour migration flows lacks region-wide perspective and has failed to overcome the challenges created by political sensitivities. As a result the liberalisation of low-skilled worker movement is weakened, as argued in a report by the Swiss National Centre of Competence in Research in January.
Freeing up movement of capital continues to face challenges in some Asean member states. Although there are indications that some countries are open, many still impose various restrictions on capital flows, particularly on outflows. For the logic of an economic community to prevail, the extensive controls on capital flows need to be relaxed and liberalised. But no Asean country, with the possible exception of Singapore, is expected to have dismantled all capital account and related restrictions by the end of this year, notes a study on “Managing Capital Flows in an Economic Community: the Case of Asean Capital Account Liberalisation”, published in the August 2012 edition of Japan’s Public Policy Review.
Indeed, the pessimistic view appears to have some justification, given that many of the AEC-related deadlines have been missed.
Meanwhile implementation of the Asean Master Plan on Connectivity has been delayed due to a combination of financial shortfalls, poor governance, corruption and the inability of national governments to manage international and interdepartmental coordination, not to mention the structural incapacity of Asean to pull the AEC along.
The Asean Secretariat lacks serious financial and intellectual resources. Asean needs to forge a stronger regional institution, prevent narrow national interests trumping broader regional visions, and must do more to bring in effective sanction mechanisms for non-compliance and non-cooperation among members. Without fixing these shortfalls, the realisation of the AEC will continue to be sluggish and will spill well beyond this year.
It is fair to conclude that despite visible progress on reducing tariffs for goods, improving trade facilitation and enhancing trade rules, the launch of the AEC will be a long road strewn with potholes. Asean leaders must pull up their socks and push much harder if they are to launch the AEC with credibility in less than six months, deadline or no deadline.
POU SOTHIRAK is executive director of the Cambodian Institute for Cooperation and Peace.