Is ASEAN economic integration a myth or reality?

ASEAN-Economic-Community

An integrated ASEAN is undoubtedly an attractive notion. In 2015, statistics showed that in totality, it would balloon into a total population of 628 million with a combined gross domestic product (GDP) of US$2.4 trillion. With anticipated growth, ASEAN is expected to be the 4th largest economy by 2030.

In recent years as the regional bloc work towards the ASEAN Vision 2020, market watchers have questioned the feasibility of an integrated economy as it seems to be facing several issues that beset its progression.

Tan Sri Datuk Dr Rebecca Fatima, Senior Policy Fellow at the Economic Research Institute for ASEAN and East Asia, shared her thoughts in her talk – ASEAN Economic integration: Myth or Reality, held on 27 November 2017 at the Lee Kuan Yew School of Public Policy. 

Reality – growth through economic integration

From the beginning, ASEAN has made steady and continuous progress towards its vision of economic integration since 1975. The economic collaborations have continued to grow and expand over the years from appointing the ASEAN Economic Ministers (AEM), creating the Preferential Trade Agreement (1980s), ASEAN Free Trade Area (AFTA), ASEAN Framework Agreement on Services (AFAS) before finally giving birth to the AEC Blueprint, with a focus on predominantly trade and slowly expanding to skilled manpower and even including investment flows, highlighting the confidence and willingness to make this integration a reality on multiple economic pillars.

The creation of AEC blueprint

In 2007, ASEAN came together to establish the AEC Blueprint, which provided the guiding principles to become an integrated and competitive dynamic region, enabling free flow of goods, services, capital and skilled workers and investment. Initially, 2020 was the stipulated timeline, however the leaders affirmed their strong confidence and commitment by accelerating the creation of AEC by 2015.

The groundwork for success

The ASEAN single market started with a vision and progressed gradually into a reality with AFTA which enabled the removal of both tariffs and non-tariff barriers, including integrating and harmonising standards and conformance procedures to facilitate faster and preferential trade among countries. Work continues to progress towards the establishment of the ASEAN Single Window, a single flow of data, information and decision-making procedure, designed to expedite the customs clearance, reduce transaction time and costs and eventually increase productivity and competitiveness. 

Besides facilitating trade within ASEAN, the regional bloc also placed the members on equal footing in negotiations with its dialogue partners through the Regional Comprehensive Economic Partnership (RCEP), consisting of six countries – China, India, Japan, South Korea, Australia and New Zealand. RCEP discussions include negotiations in trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce and small and medium enterprises. In totality, the 16 RCEP participating countries account for almost half of the world’s population, contributing to about 30 percent of the global GDP and over a quarter of world export, hence securing improved market access for goods and services.   

Working towards AEC blueprint 2025

Even though, much momentum and progress has been achieved from 2015, significant milestones were not completed and the creation of the AEC Blueprint 2025 supports the continuation and completion of the outstanding. In fact, it sets even bolder goals and directives with these 5 key pillars:

1) a highly integrated and cohesive economy;

2) competitive, innovative and dynamic ASEAN;

3) an ASEAN with enhanced economic connectivity and deeper sectoral cooperation;

4) a resilient, inclusive and people-oriented and people-centred ASEAN; and

5) a global ASEAN.

To ensure accountability and transparency, the community implemented the Consolidated Strategic Action Plan (CSAP), which reinforces the timely implementation of the goals in the blueprint, and also allows for the effective tracking of its progress.

Even though the ASEAN countries started with a crystal-clear vision and ambitious goals, the inconsistent implementation of policies and outcomes trigger detractors to question the reality – can this vision really be achieved?

Myth – a façade that seems too good to be true

Considering the degree of diversity in culture, knowledge, productivity and economic development among its members, the AEC faces challenges in executing its goal of an integrated economy:

An overly ambitious to-do list

While establishing the AEC Blueprint 2025 and CSAP were integral as it ensured the commitments of all its member states, the documents merely provided extensive directions for implementation. The CSAP alone consisted 153 measures and 513 action lines to be executed through 2025. Given limited resources and budget, Dr Rebecca highlighted that the AEC should review its institutional structure for implementation, and evaluation of its strategies, measures and processes to ensure achievement of goals on time.  

Conflicting agendas among ASEAN and its members

ASEAN member states have made commitments in areas such as the elimination of non-tariff measures (NTMs), non-tariff barriers, customs integration, and adopting the ASEAN Single Window to promote economic integration within the region. While these commitments were spelt out regionally, the implementation needs to be carried out by nation states, that be facing unique legal and political restrictions domestically.

For example, the Mutual Recognition Agreement (MRA) was set up to allow practitioners of eight professions to practice in other ASEAN states. The professions include medicine, dentistry, architecture, engineering, nursing, tourism and accountancy. However, only the MRA for Engineering Services, established in 2005, is operational. As for the others, they are still in discussion and subjected to approval from domestic customs and legal regulations.

Differing implementation & outcomes

The AEC consists of countries in varying levels of economic development. Hence, some countries may not have the resources to implement policies for a seamless economic integration.

One example is The ASEAN Single Window that aims to expedite cargo clearance and promote ASEAN economic integration by allowing electronic exchanges of documents among member states. Currently, only Singapore, Malaysia, Indonesia and Thailand are using electronic certificates of origin. The less-developed countries may face challenges in terms of funding, technological infrastructure, talent and legal framework to execute this arrangement. Such restrictions faced by individual member states pose a challenge in the fulfilment of the commitments set out regionally.

Redefining ‘The ASEAN Way’

Dr Rebecca highlighted three core elements to ASEAN’s role in fostering economic integration in region: its consensus decision-making approach; its role in the region; the structure for the implementation and eventual evaluation of its strategies and operation.

Consensus decision-making approach

“The ASEAN Way” of consensus decision-making may have led the pathway to success. However, the fourth industrial revolution requires a new approach to break through the current bottlenecks, which calls for quicker and more adaptable governances and regulations.

Its role in the region

ASEAN also needs to work towards an “ASEAN centrality” in its negotiations with dialogue partners. For example, the RCEP is an opportunity for ASEAN partners to work together as diverse members to negotiate terms and showcase their economic leadership internationally. Hence, the Free Trade Agreement of Asia Pacific (FTAAP) provides the challenge and opportunity for ASEAN to collaborate on a global scale.

Re-evaluating its structure

ASEAN needs to review its structure for implementation, monitoring and evaluation of its strategies and operation. Dr. Rebecca believes that ASEAN should take a more systemic approach in the implementation of initiatives, and expand their scope to collaborate with think tanks, research institutes and even the private sector. For example, e-commerce has been cited as one of ASEAN’s priorities for 2018. Yet, e-commerce involves more than the influencing factors in the economic pillar. It also involves security for movement of physical goods and data; and skills development to enable micro, small and medium enterprises (MSMEs) and the youth of the region to realise the opportunities by this new way of doing business. Hence, a new approach must be adopted.

In response to these considerations, Dr. Rebecca suggests that ASEAN should envisage their economic integration holistically, in order to discover opportunities for collaboration between its ASEAN Political-Security Community, ASEAN Socio-Cultural Community and the AEC, as it works towards building an economic community within the region. Dr. Rebecca emphasised that the operation of silo between these pillars works towards the disadvantage for economic integration. The ‘whole of ASEAN’ approach would align the goals across the region, and enable countries to take a holistic look at the implementation of its commitments to the region.

Conclusion

There is no doubt in ASEAN’s potential to achieve economic integration. It will be a reality as long as the region is politically, economically and socially united towards this vision.


The article is written as an event coverage for the ASEAN Economic Integration – Myth or Reality talk which was held at the Lee Kuan Yew School of Public Policy on 27 November 2017.