South East Asian leaders have created a unified economic community in the region some 13 years after the idea was first mooted. The ASEAN Economic Community (AEC) is part of a larger ASEAN Community that aims for political, security, cultural and social integration.
The 10 leaders in the Association of South East Asian Nations (ASEAN) on Sunday signed a declaration during their summit establishing AEC. It hopes the organisation will compete with China and India.
The summit’s host, Malaysian Prime Minister Najib Razak, hailed the ASEAN Community as a “landmark achievement” and urged members to accelerate integration. “The region is primed to expand exponentially,” he said.
The AEC is now a reality and many of its fundamentals have been applied in the region, including the removal of tariff barriers and visa restrictions. It has also led to greater political and cultural cooperation.
AEC will bolster income and employment, and provide the region with stronger economic muscle in facing the other giants, said Michael G Plummer, a professor of international economics at the Europe Centre of Johns Hopkins University, based in Bologna, Italy.
“ASEAN integration will help balance the economic power of China and India,” Professor Plummer said. “Individually, ASEAN countries are, perhaps, too small to be important players in the economic and security game, but as an integrated group of more than half a billion people, they would be in the major league.”
There is a long way to go before the AEC becomes fully functional after becoming a legal entity on December 31. The region’s diversity can sometimes be a hindrance. ASEAN has 630 million people, speaking different languages, following various faiths and governed by various systems, including democracies, a military dictatorship, quasi-civilian, authoritarian, monarchy and communism.
“The AEC is arguably the most ambitious economic integration program in the developing world,” Professor Plummer said. “But implementation of the AEC is increasingly uphill. Much remains to be done and the region faces many challenges in finishing. The AEC is a process.”
ASEAN citizens will be allowed to work in other countries in the region but will be limited to jobs in eight sectors, including engineering, accountancy and tourism. This accounts for only 1.5% of the total jobs in the region, and host countries still can put up constitutional and regulatory hurdles restricting the inflow of talent.
Intra-regional trade has remained at around 24% of ASEAN’s total global trade for the last decade, far lower than 60% in the European Union.
ASEAN members also struggle to resolve diplomatic flare-ups among each other such as border disputes between Cambodia and Vietnam, or Indonesia’s inability to fight annual forest fires spreading haze for months over Malaysia, Singapore and Thailand.
Professor Plummer said progress had been slow in services liberalization. Cross-border flow of investment was also restricted by large exclusion lists and caps on foreign ownership. Government procurement and curbing monopolies by state-owned enterprises were highly sensitive and untouched.
Although the four poorer economies - Cambodia, Laos, Myanmar and Vietnam - have until 2018 to bring down tariffs, economic integration could further reinforce income equalities in the region, he said.
The AEC was envisaged in 2002 and a blueprint created in 2007 to face competition from China and India for market share and investments. While China’s economic growth is expected to slow to an average of 6% annually over the next five years, India’s expansion is likely to pick up to 7.3% in the same period, according to the Organization of Economic Cooperation and Development.
The AEC is one of the three pillars of the ASEAN Community, which was created by the signing of the declaration on Sunday. The other two are political security and socio-cultural.