2014 Aug 27
August 27, 2014

27/8/2014 – Gaining from the AEC

0 Comment

IT is important to get ready for the Asean Economic Community (AEC), which is scheduled to start on January 1, 2016. Asean has achieved world-wide recognition for being one of the most dynamic and integrated regions. The growing purchasing power of the 600-million consumer market and the ongoing progress of the regional agenda are offering an integrated market and production base for both business and consumers.

The European chambers of commerce in Asean, including the European Chamber of Commerce of the Philippines (ECCP), are taking this development seriously. We formed an Asean-EU Business Council (AEBC) already in 2011 and launched the first Asean-EU Business Summit in Jakarta that year. The success of the summit in Jakarta in 2011 and of the second and third in Phnom Penh in 2012 and Hanoi in 2013 have shown that these events are unique chances for the business communities of Asean and EU to interact and directly convey their views, concerns and wishes to economic leaders of the two regions.

Understanding the importance of AEC (Asean’s total gross domestic product, or GDP, is estimated at $2,339 billion in 2012; total Asean trade was $2.4 trillion in 2011) the European chambers in Asean and European businesses active in many of the Asean countries decided in Hanoi to strengthen the AEBC and establish its own secretariat by early 2014. This has been done; the AEBC operates out of Singapore (because many regional headquarters of multinational companies, or MNCs, are there) and Jakarta (because of the Asean Secretariat being placed there). The tasks of the council are:

• It will act as a platform between European businesses and European chambers of commerce in Asean with a view to advocate European business interests in the region;

• The council will identify through regional working groups the key regulatory issues and barriers that affect or may affect European businesses operating and investing in the Asean region;

• It will undertake advocacy in Asean on behalf of its members (MNCs and European chambers) and liaise with EU and Asean administrators (EU Commission, Asean Secretariat, member-states, etc.), business groups and related parties by originating, promoting, supporting, anticipating or addressing key policies, laws, regulations or developments which would affect its members;

• It will build networks and develop awareness within Asean and the EU by organizing relevant events; and

• It will assist Asean businesses, interested to invest or to do business in the EU, along the same lines stated above.

The AEC is one of the three pillars of Asean as outlined in the Asean Vision 2020. The 2016 target to turn Asean into a rules- based organization, with harmonized trade and investment laws and rules, is very ambitious. There are three key areas of focus for Asean members: trade in goods, trade in services and inward investment or Foreign Direct Investment (FDI). Taking each of these in turn:

Trade in goods

BEFORE being updated and replaced in 2010 by Asean Trade in Goods Agreement (Atiga), the Asean internal market known as 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 among Asean countries.

Atiga brings more transparency and flexibility to regional trade liberalization and consolidates all prior Afta and the Common Effective Preferential Tariff commitments related to trade in goods.

Trade in services

IN contrast to free trade in goods, the liberalization of trade in services is more complicated; it involves value-added or high-technology “intangible” products, requiring the import of non-indigenous people and skills. Careful calibration is needed with regards to benefits and disadvantages.

Free trade in services within the region has been implemented through several rounds of negotiations, resulting in packages of detailed commitments from each Asean member, in agreed economic sectors. Asean has concluded seven packages of commitments since 1996. There have also been three packages of commitments in financial services and two in air transport. Asean members have also entered into a series of Mutual Recognition Agreements for cross-border cooperation on professional services, facilitating easier movement of professional services providers in the region.

Foreign direct investment

FDI is a key component of resource flows to Asean countries. Over the last decade, FDI flows into Asean members grew at an annual average rate of 19 percent. The common framework for encouraging FDI into Asean is found in the Asean Comprehensive Investment Area (Acia). The main principles of the Acia include:

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

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

Within the overall framework, each Asean country has adopted its own strategy to attract FDI. As in the EU, efforts to create a “level playing field” between the countries in the single market leaves national governments with freedom to provide their own tax and other incentives to investors.

In conclusion, there is so much to gain from playing an active role in the AEC and—most important—getting ready now. –Henry J. Schumacher / Asean-EU Perspective