2013 Oct 23
October 23, 2013

AEC single market–doable by 2015?

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THE Asean Economic Community (AEC) is one of the three pillars of Asean as outlined in the Asean Vision 2020. Its goal is to implement economic-integration measures for the creation of a single market, in which there is a free flow of goods, services, investment and a free flow of capital.

In 2007 Asean leaders agreed to accelerate the establishment of the single market to 2015 and to move closer to an European Union (EU)-style community of 600 million people.

The 2015 target to turn Asean into a rules-based organization, with harmonized trade and investment laws and rules, with hopefully a harmonized competition/antitrust policy and anti-corruption standards, is very ambitious.

Trade in goods: Before being updated and replaced in 2010 by Asean Trade in Goods Agreement (Atiga), the Asean Free Trade Area (Afta) had successfully implemented, ahead of schedule, the liberalization of trade and the reduction/elimination of tariffs applied to goods traded between Asean countries.

Atiga brings more transparency and flexibility to regional trade liberalization; it focuses not only on tariff liberalization and non-tariff measures, but it also includes matters related to simplification of the rules of origin.

In terms of free-trade agreements (FTAs) between Asean and external partners, the progress has been generally good. FTAs have been signed by Asean with China, India, South Korea, Australia and New Zealand.

Negotiations with the US and the EU are continuing; the Philippines is lagging behind in the negotiations of an FTA with the EU and with joining the Trans-Pacific Partnership, led by the US.

Asean Single Window: A cornerstone of creating a single market is the creation of the Asean Single Window for cross-border trade in goods. This will fulfill all import, export and transit-related regulatory requirements. If information is entered electronically, then individual data elements need only be submitted once. Each Asean member has agreed to establish a National Single Window by the end of 2012.

Trade in services: In contrast to free trade in goods, which has calculable economic net benefits, the liberalization of trade in services often involves value-added or high-technology “intangible” products, requiring the import of non-indigenous people and skills.

Careful adjustment is needed with regard to benefits and disadvantages. Less developed countries are more vulnerable when it comes to their smaller domestic service industries and the politically sensitive areas, such as immigration, jobs, cultural values, education and social cohesion.

The 1995 Asean Framework Agreement for Trade in Services (Afas) provides the broad guidelines for Asean members to progressively improve market access and ensure equal national treatment for cross-border services suppliers. Afas was updated in 2003.

Foreign direct investment: Foreign direct investment (FDI) is a key component of resource flows to Asean countries. Since 2000, FDI flows into Asean members grew at an annual average rate of 19 percent; unfortunately, the Philippines remained well below this average FDI growth.

The common framework for encouraging FDI into Asean is found in the Asean Comprehensive Investment Area (Acia). The main principles of the Acia include:

1. Immediate opening up of all industries for investment, with some exceptions specified in the Temporary Exclusion List (TEL) and the Sensitive List (SL), to Asean investors by 2010 and all other investors by 2020.

2. Granting immediate national treatment, with some exceptions as specified in the TEL and the SL, to all Asean investors by 2010 and to all investors by 2020.

Full realization of the Acia for the Asean-4, with the removal of TEL in manufacturing, agriculture, fisheries, forestry and mining, was subsequently rescheduled for 2015.

Conclusion—In an economically challenged global environment, Asean remains an attractive FDI destination, with impressive growth rates and huge potential. If Asean members can hit the 2015 target for the creation of the AEC, the area can transform itself and improve the prosperity of its citizens, as well as becoming a key player in the international economy. As mentioned above, part of this harmonization process will also have to focus on competition/antitrust policy and the fight against corruption. –Henry J. Schumacher / Asean-EU Perspective