The year [2016] started with a bang for ASEAN.
After eight years of preparation, leaders of the 10-nation regional association launched the ambitious ASEAN Economic Community (AEC), a treaty aimed at creating a single, seamless production base and consumer market – the world’s third largest in terms of population.

But the months that followed weren’t so kind.

A wave of protectionism in the West not only engendered local market volatility but also derailed the 12-nation Trans Pacific Partnership trade deal that would have provided a tangible boost to export growth and spurred vital reforms.

At the same time, the region has been suffering from depressed global trade volumes while some of its high-value supply chains have come under competitive pressure from China.

What progress has been made with the AEC? Let’s just say it’s still early days.

The official start of the AEC on Jan 1, 2016, should have been seen as a milestone rather than an inflection point.

The treaty built on ASEAN’s past economic integration; after all, free trade in goods and some services liberalisation has, in principle, been in place for almost a decade now, but the broader goal of a true economic community isn’t close to being realised yet.

Meanwhile, the most ambitious and attractive aspects of AEC, such as investment liberalisation and the free flow of skilled labour (at least from an investor perspective), may not be fully realised for years to come, at best.

ASEAN leaders know well that the AEC is a work-in-progress.

Last year they released a new blueprint outlining additional steps that need to be taken through 2025.

But in order to fulfil the AEC’s commitments, ASEAN’s institutional framework must be upgraded.

The ASEAN Secretariat is notoriously ill-equipped in both resources and authority and lacks a monitoring mechanism to do a better job of implementing the AEC’s provisions.

In ASEAN’s defence, this was discussed in the updated blueprint, but these words urgently need to be turned into actions.

Without an improved ASEAN infrastructure, the AEC will continue to be hindered by domestic political developments, and at times, international disputes.

Just look back at 2016: it was a busy year for ASEAN.

Vietnam underwent a leadership transition in January; the Philippines elected a new president in May; Malaysia’s Sarawak state had regional legislature elections (also in May); in Indonesia President Joko Widodo reshuffled his Cabinet in July; and Thailand reflected on the passing of the country’s revered King Bhumibol Adulyadej in October.

The busy political calendar will continue into 2017: Jakarta will have gubernatorial elections in February, and general elections in Thailand and Malaysia are possible later in the year.

With a full plate of domestic issues, it will be hard for politicians to double-down on ASEAN integration.

But this is not the time to slacken the resolve.

Why are the stakes so high?

For ASEAN to maintain its competitiveness in key supply chains such as electronics, much more needs to be done to reduce non-tariff barriers and improve services liberalisation.

On the labour front, ASEAN has already implemented region-wide MRAs (mutual recognition agreements) to incentivise the flow of skilled labour, a key pillar of the AEC.

However, actual implementation appears limited. Moreover, “soft” impediments, such as onerous language or re-licensing requirements, are impeding the effective flow of skilled labour.

Individual ASEAN economies have significant labour market mismatches stemming from underinvestment in education in some places, and weak science and technology instruction in others.

Businesses in both Indonesia and Thailand, for example, suffer shortages of certain qualified workers, which weighs on investment and growth.

As such, speeding up the MRAs to get the intra-ASEAN flow of skilled labour happening will allow firms to operate more efficient supply chains and make better use of competitive advantages in the respective countries.

One possible promise on the horizon is that the Philippines will take over the rotating leadership of ASEAN in 2017 – which happens to be the association’s 50th anniversary.

The Philippine political establishment has been staunchly pro-ASEAN in recent years, and there is hope that President Rodrigo Duterte will push hard for accelerated integration.

After all, it is in the interests of the Philippines to promote services liberalisation given its sizeable surplus labour force, much of which is trained in professions such as nursing, which is in high demand in other ASEAN economies.

But this isn’t just a Philippine story.

The truth of the matter is that growth could stall across the region as the global economic environment remains uncertain.

Moreover, the past policy of relying on exports to developed markets looks increasingly less tenable.

ASEAN now needs to deepen integration to take advantage of its diverse production environment and large consumer market.

It’s time to push ahead with the AEC. By Joseph Incalcaterra, 22 December 2016


The views and opinions expressed in this article do not necessarily reflect the official policy or position of the ASEAN Trade Union Council.