When Google recently tried to move some engineers urgently from Malaysia to Thailand, the search engine titan hit a roadblock. Thai labour laws meant that getting the permits needed to employ Malaysian engineers in the neighbouring southeast Asian country took far longer than it had expected.
“The time it takes to move talent where we want means we can’t move as fast as we would like,” says Sajith Sivanandan, chief executive of Google Malaysia.
Cumbersome labour laws are just one of the obstacles hampering the creation of a highly anticipated economic bloc called the Asean Economic Community (AEC) that is supposed to be in place across the 10-nation Association of Southeast Asian Nations (Asean) by December.
As China slows and India’s prospects remain unpredictable, businesses are looking to Asean countries and their 620m population as the next growth frontier in Asia. The aim of the AEC is to knit a hodgepodge of countries, ranging from economically deprived Laos with 4m people, to Indonesia, the region’s biggest economy, with a population of 250m, to propel growth in the region.
Asean has a combined gross domestic product of $2.4tn, which is more than India, and it would rank as the world’s seventh largest economy if it were a country. The Asian Development Bank expects its GDP to grow 5.1 per cent this year, well above the 3.5 per cent projected for the world economy by the International Monetary Fund.
Najib Razak, Malaysia’s prime minister, talks grandly about the AEC being about creating “an economic union unlike anything since the days of empire”. Yet business leaders, including one of his brothers, see it differently.
While they believe the AEC has potential, like Google they are increasingly frustrated by non-tariff barriers, protectionism and bureaucracy that could see the project fall far short of the vision set in 2007.
“I always think it’s helpful to call a spade a spade,” says Nazir Razak, chairman of CIMB Group, Malaysia’s second-biggest bank and the prime minister’s youngest brother. “We should not leave anyone with the expectation that [the] AEC will be the single production base with free movement of goods and services, investment and skilled labour and free movement of capital as currently described.”
The banker warns that people and businesses in Asean countries “will be disappointed, or worse, angry, if they get all dressed up for the wrong party”.
While significant progress has been made cutting tariffs across Asean countries, businesses must still navigate a thicket of different product standards that make it hard to sell across the region and hamper the ability of new companies to enter the market.
The sleep regulation drug melatonin, for example, is considered a health supplement in Singapore but a prescription drug in Thailand. There is also no standard approval process that would allow food ingredients authorised in one Asean country to be sold in another.
Nor is Asean a customs union, so importing and exporting within the bloc involves different procedures that often result in goods waiting at ports for weeks until paperwork is cleared, which maximises opportunities for corruption.
“Differences in regulations, especially non-tariff barriers, remain a serious obstacle to the free flow of goods and services,” says Joerg Wolle, chief executive of DKSH, a Swiss marketing and distribution group that employs 27,000 in the region.
One symptom of such barriers is the low level of intra-regional trade. McKinsey, the consultancy, estimates that such trade fell to 24 per cent of the Asean’s total trade in 2012, after peaking at almost 25 per cent in 2007. It attributed the decline to non-tariff barriers.
Tony Fernandes, chief executive of AirAsia, possibly the most visible “Asean” company, argues not only that the region needs one aviation authority, but also that the principle should be applied across most industries.
“If Asean is to be a common market, investors have to see us as a common market, which means one approving authority — you get one licence to operate in 10 countries,” he said last month.
Asean’s policy making body, the Jakarta-based Asean secretariat, has made some progress. Last November, it unveiled a pilot customs transit system in Malaysia, Singapore and Thailand to harmonise procedures for road freight. But business leaders say that with a staff of only 300 and an annual budget of $17m progress will be limited.
Such is the level of frustration that companies, unusually for Asean business leaders, have started to lobby policy makers through the Asean Business Club, a group that includes Mr Fernandes and the heads of some of the largest family-controlled businesses in Asean, including Francis Yeoh, head of Malaysia’s cement-to-utilities conglomerate YTL, and Fernando Zobel de Ayala, president of Ayala, a Philippines conglomerate.
In addition to identifying six problem sectors, it has proposed seconding private sector experts to the secretariat to speed up capital market integration in Asean countries where progress has been painfully slow.
Yet the biggest barrier to the implementation of the AEC may be protectionism. In the motor sector there are already signs that Indonesia is determined to create a national car policy that favours its domestic industry.
The Asean Business Club says there are “strong political and nationalistic pressures” to ensure a high percentage of jobs for locals, which may partly explain Google’s difficulties.
Mr Nazir warns that given this kind of “powerful enemy”, the AEC needs to show some quick successes to gain credibility. “If too many people, especially those with political careers, see it as a disappointment or that they or their constituents are losers from integration [then] the AEC could stall — or worse reverse.” –http://www.ft.com/cms/s/0/a46df7ca-acde-11e4-beeb-00144feab7de.html#ixzz3SX9Yx1hH
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