Expert Opinions on the ASEAN Economic Community (AEC)
ASEAN Department, Ministry of Foreign Affairs of Thailand: ASEAN Economic Community (AEC)’s Opportunities for Trade and Investment for MSMEs
Siriruj Chulakaratana: ASEAN after 31 December 2015: A View Point From the Manufacturing Sector
Jerrold W. Huguet: The Invisible Community
Dato Steven C.M. Wong: AEC 2025 Blueprint: Fresh Vision, Ambition and Momentum Required
George Manzano and Kristine Joy Martin: The ASEAN Economic Community 2015: The Fear and the Promise
Nguyen Hong Son: Free Flows of Skilled Labor: Mobility of an Important Production Factor in ASEAN
Taing Ratana: The present situation and possible future development of the ASEAN Economic Community (AEC)
Kaewkamol Karen Pitakdumrongkit: Ways Forward: Can the ASEAN Economic Community Help Address the Middle Income Trap Problem?
ASEAN Economic Community (AEC)’s Opportunities for Trade and Investment for MSMEs (Micro, Small and Medium Enterprises)
ASEAN Department, Ministry of Foreign Affairs of Thailand
An Overview on the ASEAN Community
ASEAN have a combined population of approximately 625 million people, accounting for 10 % of the world’s population. In 2014, ASEAN’s GDP reached more than US$ 2.6 trillion, while average GDP per capita grew by almost 80% to over US$ 4,000. On 31st December 2015, the ten ASEAN members officially launched the long-awaited ASEAN Community, which consists of three pillars, namely ASEAN Political-Security Community (APSC), ASEAN Economic Community (AEC), and ASEAN Socio-Cultural Community (ASCC). With this important milestone, ASEAN has set the target towards further heights of development and a wider and deeper integrated region, in order to increase global competiveness.
ASEAN’s Success on the Implementation of AEC Blueprint 2015
The key measures under AEC Blueprint 2015 that have been accomplished and are being undertaken by ASEAN are as follows:
On free flow of goods, ASEAN-6(!) so only 4 MS? Who? have virtually eliminated the intra-regional tariff s, with 99.2% of tariff lines at 0%, while the figure of CLMV stands at 90.86%, giving an ASEAN average of 95.99%.
On Trade facilitation, several measures being carried out. They include ASEAN-wide Self-Certification scheme, ASEAN Trade Repository, and ASEAN Single Window system.
To reduce technical barriers to trade, eff orts have been placed on the development of Mutual Recognition Arrangements (MRAs) for electrical equipment and electronics, cosmetics and medicinal products. In addition, the harmonization of standards has been harmonized in ASEAN for the sectors on electrical and electronic equipments, automotive, cosmetics, etc.
On trade in services, ASEAN Member States have eased restrictions to cross-border trade, while eight MRAs have been concluded namely on engineering services, nursing services, architectural services, framework for surveying qualifi cations, medical practitioners, dental practitioners, accounting services, and tourism professionals.
To enhance ASEAN’s integration into the global economy, the achievements have been made through five Free Trade Agreements with China, Japan, Korea, Australia and New Zealand, and India. Moreover, ASEAN is now negotiating FTAs with Hong Kong and with other FTAs Dialogue Partners, also known as the Regional Comprehensive Economic Partnership (RCEP), expected to be concluded by 2016.
Thailand’s Policies on AEC
Currently, the state’s policies promoting Thailand’s role in the ASEAN Economic Community (AEC) focus on the speeding up of efforts to enhance connectivity in the areas of the economy, trade and investment within the ASEAN region and expanding economic cooperation with neighboring countries; the development of the Special Economic Zones (SEZs) particularly in the border areas; the revision of law and regulations to facilitate the business operations, trade and investment both domestically and internationally such as revising the Export and Import Goods Acts B.E. 1979; the enhancement of competitiveness for the agricultural sector to increase value-added agricultural products; the enhancement of competitiveness of Thai manufacturers at all levels, particularly the provision of special attention to SMEs so that they will be competitive, pursue business activities together with counterparts in ASEAN Member States and link up with the global supply chain; as well as the adjustments of trade regulations and customs procedures to facilitate trade. The key examples of the activities for promoting the AEC are:
• The establishment of AEC Business Support Centers at the Ministry of Commerce and trade provincial offi ces all over the country.
• The arrangement of MSMEs training courses to provide knowledge on how to add value to the products and how to do business in an international environment
• The organization of export promotion activities and exhibitions to promote Thailand’s products in ASEAN countries.
The Opportunities for Micro, Small, and Medium Enterprises (MSMEs)
With greater market access, freer flow of goods, services and skilled labor, the ASEAN Economic Community will provide MSMEs with more trade and investment opportunities in the region. Accordingly, it is important that MSMEs are encouraged to upgrade their capabilities to remain competitive, including considering plans for their ventures into the new markets.
At present, Thailand is giving priority to the strengthening of capacity and competitiveness for MSMEs by directing their attention toward efficiency enhancement of the production process, product development, as well as organizational management and operations. In addition, Thailand places high importance on raising awareness on AEC among businesses, particularly MSMEs, including encouraging them to utilize AEC opportunities through the existing ASEAN Agreements and FTAs.
With regard to the future direction of ASEAN economic integration for the next 10 years, ASEAN will emphasize on further deepening and broadening the regional economy and following up on the implementation of measures under the AEC Blueprint 2025. In addition, ASEAN places high importance on the development of MSMEs, innovation, research and development with the view to enhance regional competitiveness, attract trade and foreign direct investment, and strengthen the role of MSMEs in integrating the region into the global value chain.
ASEAN after 31 December 2015: A View Point From the Manufacturing Sector
Siriruj Chulakaratana, Director, Bureau of International Industrial Economics, Ministry of Industry of Thailand
On 31 December 2015, ASEAN Economic Community or AEC was officially commenced. One of most important goal of AEC is
to encourage an economic integration, transforming ASEAN into a single production base where goods can be manufactured and distributed effectively within the region and beyond. AEC Blueprint, the plan to execute this goal, called for ASEAN members efforts toward freer movement of goods, capital, services and some skill workforce by eliminating both tariff and non-tariff barriers. Apart from the huge market opportunities from AEC economic integration, the free flow of raw materials, intermediate goods and capitals as well as skilled labors could help enhance the ASEAN’s overall competitiveness in terms of low production cost. In addition, this would support the production network and industrial complementation among ASEAN, attracting more foreign investment as well as increasing more bargaining power of ASEAN.
Having transcended the timeline of 31 December 2015, I reckon that one may not obviously notice any differences occurred after becoming AEC. This is not because AEC is ineffective but the process of becoming AEC has long started since the establishment of the ASEAN Free Trade Agreement of AFTA in 1992. This initiative has been enhanced into more substantive idea of AEC in the year 1997 with goal to become a single economic identity in 2015, as we are aware. The tasks specified in the blueprint has been carried out since the beginning of AFTA and most of them have already been fulfilled especially for the ASEAN six, the founding members of ASEAN. For instance, the tariff rates of these six ASEAN members, Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand have already reduced to zero percent since 2012or three years ago according to the AEC Blueprint, while those of CLMV are committed to tariff eliminating within 2015 with extension flexibility until 2018.
Despite earlier remarks, I do not intend to say that AEC is now less crucial. On the contrary, the importance of AEC is now escalating especially in term of production networking potential. Utilizing production networks and industrial complementation among her members
by mean of the value chain creation among the ASEAN can create a huge advantage to each member and region as a whole. Realizing this opportunity, ASEAN aims for further economic integration, as indicated in the new AEC Blueprint 2025’s vision to “create a deeply integrated and highly cohesive ASEAN economy” that would support sustained high economic growth and resilience even in the face of global economic shock and volatilities.
To this end, I anticipate that the ASEAN integration is not going to be customs unions, a common market or an economic/political union like that of EU. Therefore, the important question is how ASEAN can further integrate while tariff has already been removed. One way to do that, in my opinion, is to create more value chain utilizing the differences in comparative advantages among ASEAN members. This production network will not only link each member together but also generate competitive advantages to ASEAN product and consequently create more income in this region. In order to do so, trade and investment within ASEAN must be promoted, while all trade and investment barriers must be removed. In addition, law and regulation rerated to trade investment should be aligned and harmonized to ensure the freer movements of all production factors so that the value chain can effectively be formed. Meanwhile, the task of ASEAN after 2015 is therefore to identify and address concerns on trade and investment barriers along with a more focus on law regulatory reform in order to successfully achieve a fully realization of becoming AEC.
The Invisible Community
Jerrold W. Huguet, Consultant on Population and Development, Bangkok, Thailand
On 31 December 2015 the ASEAN Economic Community (AEC) came into existence. Governments and people in the ten countries
that comprise the Association of Southeast Asian Nations are right to be proud of the accomplishments made by individual countries in
the region and toward economic and social integration of the region as a whole.
Integration has been greater in the economic sphere than the social sphere, however. The harmonization of trade procedures and standards has promoted a great increase in the volume of trade among the Member States and enhanced the competitiveness of the region.
Progress on the specifi c issue of migration of workers among countries has been less apparent. In Thailand, and probably in some other countries in the region, there is a widespread misperception that the AEC will lead to the free movement of workers among countries in ASEAN. In fact, that is not a goal of ASEAN. ASEAN and its Member States approach the management of skilled and low-skilled migrant workers very differently.
The ASEAN Economic Community Blueprint adopted in 2007 calls for the promotion of the “free flow of skilled labour”. Since then, mutual recognition arrangements (MRAs) have been completed for only eight professions, namely: accountants, engineers, surveyors, architects, nurses, physicians, dentists and tourism workers (33 occupations). The MRAs do not ensure a “free flow of skilled labour”, however, because of the many restrictions that individual countries place on the licensing of those professionals. Education, training and work experience received in one country may not be recognized in another. Licensing examinations are often given only in the national language. Thus, come 2016, we cannot expect to see any significant increase in the number of professionals from ASEAN countries working in another country in the region.
In this regard, it is worth noting that the larger economies in the region that would potentially recruit more professionals as a result of the implementation of the AEC already are quite open with regard to the employment of foreigners in highly-skilled occupations. Singapore
has nearly a quarter million skilled and professional foreign workers and Thailand issues nearly 100,000 work permits a year to foreign professionals and highly-skilled workers.
Within the ASEAN structure, low-skilled migrant workers are considered within the ASEAN Socio-Cultural Community Blueprint. That Blueprint does not envisage any “free flow” of such workers. Its objective is to ensure fair and comprehensive migration policies and adequate protection for all migrant workers in accordance with the laws, regulations and policies of respective ASEAN Member States as well as to implement the ASEAN Declaration on the Protection and Promotion of the Rights of Migrant Workers.
That Declaration was adopted in Cebu, the Philippines, in January 2007 and aims to “promote decent, humane, productive, dignified and remunerative employment for migrant workers”. The Declaration contains significant weaknesses, however. The obligations of receiving and sending states are qualified by the phrase, “pursuant to the prevailing laws, regulations and policies of the receiving [or sending] states”. Article 4 of the Declaration states that, “Nothing in the present Declaration shall be interpreted as implying the regularisation of the situation of migrant workers who are undocumented.”
Even with these important qualifications in place, ASEAN Member States have not been able to agree upon a framework instrument for the implementation of the Declaration in the nine years since its adoption. In fact, a civil society grouping called the Task Force on ASEAN Migrant Workers developed such a comprehensive framework instrument by May 2009 but Member States have not adopted it.
Constructive dialogue on labour migration takes place in the ASEAN Forum on Migrant Labour, which includes representatives of Governments, employers and workers, as well as the International Labour Organization, International Organization for Migration and UN Women. These are non-binding discussions, however, and have not yet led to agreement on a framework instrument for the implementation of the ASEAN Declaration on migrant workers.
Thus, the formal inception of the AEC at the end of 2015 will not result in any change from the status quo concerning low-skilled migrant workers in the ASEAN region. It is to be hoped that the people in ASEAN countries will continue to become more familiar with each other and that people both within and outside of the region will gain a greater appreciation of the economic dynamism and cultural richness of South-East Asia. In the long run, the numerous initiatives of ASEAN should lead to greater integration of labour markets and movement of workers among the ten countries but such movement will not yet be apparent in 2016.
H.E. Kasit Piromya, National Reform Steering Assembly, former Minister of Foreign Affairs of Thailand
The ASEAN Economic Community (AEC) is one of the three pillars of the ASEAN Community (AC) that, by its official inception on 31
December 2015, has already had with it a firm foundation in the form of the ongoing ASEAN Free Trade Arrangements (AFTA) pertaining to customs-tariff reductions, lessening of non-tariff barriers, enhancing of cross border facilitations and harmonization of rules and regulations.
Discussions on ASEAN rules and regulations on migrant workers have been continuing coupled with the plan to increase the list of mutual acceptance and recognition of professional certificates and accreditation to enable and facilitate freer flow of the professionals within the ASEAN border.
All of the above must be accelerated to achieve more integration and help strengthen the attractiveness and competitiveness of the ASEAN Community as a production base and market.
In the case of Thailand, with its advantageous geographical location and already recognized global civil aviation hub as well as touristic, and well being or life style destination, it will have to urgently improve and expand airport and port facilities together with the modernization and standardization of customs and immigration services at the border entry or crossing points. Safety and security measures must also be enhanced and together with its neighbours joint border patrols on land, in coastal areas and rivers must be put in place in an expansive manner or in full coverage.
Surveillance over and suppression of cross border crimes including anti-piracy cooperation must be improved and enhanced. Intelligence gathering and networking must be improved to ensure market safety and normalcy of everyday life.
Transportation, communication, public utilities such as electricity, water supply, gas or oil pipelines, must be connected for the whole of the ASEAN Community to facilitate ease of travel, movements of goods and services. Safety standards and signaling equipments must be standardized.
Use of passports is an anachronism; they should be replaced by ASEAN “citizen” cards indicating the status of each citizen such as tourists, professionals or workers. Knowledge about ASEAN and fellow ASEAN members must be continuously taught and disseminated to increase general awareness of each other and of opportunities and challenges.
Political leaders must have the political will and sense of urgency to push ASEAN forward for the common good and respectability. Leaders should meet more often and fi nd the time to think to have a far reaching vision and the determination to forge and to drive ASEAN forward.
The private sector has an important role to play especially in the modernization of infrastructure and public utilities. The better the facilities, the better chances of business expansion and success.
There is no turning back. It is for the ASEAN Community to move forward. The AEC is the most advanced among the 3 pillars of the ASEAN Community and closest to the well being of the citizens of the ASEAN Community. All should therefore contribute to the building up of the AEC.
AEC 2025 Blueprint: Fresh Vision, Ambition and Momentum Required
Dato Steven C.M. Wong, Deputy Chief Executive, Institute of Strategic and International Studies (ISIS) Malaysia
The ASEAN Community Blueprint 2025 is, like its predecessor, the 2009-2015 ASEAN Roadmap, a statement of aims and intents. The
term ‘blueprint’ is a metaphor, an unfortunate one perhaps, but one that is too late to change at this stage. Thus, we read the ‘action
plans’ – another metaphor – that sound like the Roadmap all over again.
Words like ‘continue’, ‘promote’, ‘explore’, ‘consider’ and ‘enhance’ are found liberally interspersed in what is called a blueprint. We even fi nd sentences in the ASEAN Economic Community (AEC) Blueprint 2025 that calls for ASEAN member states to “explore alternative approaches for further liberalization.”
A new observer can easily be forgiven for being bemused at the lack of definite and concrete actions that are expected of a blueprint.
Nevertheless, in the AEC Blueprint, compared to the Political Security and Socio-Cultural ones, there are things that are closer to the bone. We still have the inane, non-specific and non-actionable but at least the prospects for tangible outcomes are better, with talk of specifics such as rules of origin, deepened preferences, single windows and sunset clauses.
These are inherent in the practical nature of the beast and reflect why the AEC is relatively so much more developed than the other two.
Still, none of the initiatives singly or collectively create an ‘oh-my-god!’ moment and send pulses racing. The great prizes of removal of non-tariff measures, services liberalization, government procurement and movement of people, all of which would add greatly to social welfare, remain very much on the backburner.
The AEC 2025 Blueprint is clearly in need of fresh vision, ambition and momentum. Progress on concluding the Regional Comprehensive Economic Partnership (RCEP) remains plodding and troubled. There is a real question mark as to whether negotiations can be concluded this year.
In the meantime, the fact that four member states (Brunei, Malaysia, Singapore and Vietnam) have concluded negotiations on the Trans Pacific Partnership (TPP) and three more have expressed some interest in joining should be cause for concern as to where this leaves the AEC.
The European Union-ASEAN Free Trade Area negotiation has devolved to separate ad hoc arrangements and can no longer be regarded as regional in nature. In the longer run, China may resuscitate the idea of the Free Trade Area for the Asia-Pacific or FTAAP and this will further complicate member states wishing to live closed-off , calm and peaceful lives. China’s 21st Century Maritime Silk Road (MSR) initiative and its backing of the Asian Infrastructure Investment Bank (AIIB) have wide regional implications, ones which the AEC has little effective role to play if any.
Perhaps the one saving grace was the statement in the AEC Blueprint that “ASEAN member states shall translate milestones and targets of the AEC Blueprint 2025 into national milestones and targets”.
However, they are not compelled to do so nor are there sanctions if they do not. By kicking the can down the road, however, they see themselves buying time before the next round of scoring and reporting needs to be done.
The AEC Blueprint 2025 does the job of keeping the proverbial pea rolling forward but just. In building the future together, however, cognizance will need to be given to the increasing competitive pressures and complexity from within and outside the region.
The ASEAN Economic Community 2015: The Fear and the Promise
George Manzano and Kristine Joy Martin, University of Asia and the Pacific, Manila
Will the ASEAN Economic Community (AEC) open the flood gates of cheap ASEAN imports and demolish Philippine producers? Not a few Filipino businessmen view the ASEAN Economic Community as a dreary scenario. How justified this fear is can be answered by having a sober look at the situation.
First, practically all the tariff s of the Philippines on ASEAN imports have already been close to zero by now. Actually, the average tariff level in the ASEAN has been zero since 2010. One implication is that the ‘big bang’ if ever there is one, has long since come and gone. Because there has been no major collapse of industries in recent memory, another implication is that for as long as tariff s are adjusted gradually, markets and producers can and do adjust.
Another reason why we do not expect an avalanche of imports when the ASEAN tariff s drop to zero or close to it, is that the tariff s applied on imports from non-ASEAN suppliers, i.e. the MFN tariffs, are unchanged. This means that some imports from non-ASEAN producers can still be competitive. For example, when it comes to Philippine’s top import – electrical and electronic equipment – 80% of the total imported value comes from non-ASEAN countries in 2012.
In addition, it has been observed that the trade of the Philippines with its ASEAN partners takes place generally within the same industry, i.e. intra-industry. For instance, Philippine industries import electronic or automotive parts and components from Malaysia, add value to such goods, and export them consequently. In 2011, more than 60% of Philippine imports from ASEAN are intermediate goods while fi nal goods only account for only 22%. One implication of the intra-industry trade pattern is that the trade is more complementary than competitive. Imports do not mean that local industries are displaced. On the contrary, to be able to export electronic products, the Philippines has to import the parts and components. The low or duty free tariff regime of the ASEAN makes possible the creation of international production networks or global value chains in the region.
The advent of the free trade area in the ASEAN, however, made it possible for multinationals to exploit scale economies. For instance, multinationals fragment production by assigning a certain intermediate product to a country which produces it in great quantities, i.e. exploiting scale economies, and shipping the intermediate product to another ASEAN country for further processing.
Regional production networks such as these are made possible by the relatively free movement of goods across ASEAN partners. Of course, low tariff s among ASEAN partners are not a suffi cient condition for regional production networks to fl ourish. Connectivity is a critical factor for countries to take advantage of the market opportunities that these aforementioned networks off er. To this end, facilitation initiatives in the AEC are useful for transforming the ASEAN into a truly strong production hub.
Free Flows of Skilled Labor: Mobility of an Important Production Factor in ASEAN
Assoc. Prof. Dr. Nguyen Hong Son, Rector of University of Economics and Business, Vietnam National University, Hanoi
The long-lasting efforts of all ASEAN member states are eventually rewarded by the launch of the AEAN economic community (AEC)
on 31st December 2015. Together with other measures, a freer flow of skilled labor has contributed to envisage the pillar ‘A Single Market and Production Base’ of the AEC and enables the region to facilitate skill mobility for labor quality improvement and more efficient integration in the future.
The approach to make labor movement free in the AEC is different from that of the European Union (EU). Instead of aiming to remove barriers for labor movement, ASEAN at first seeks to create a freer flow of only skilled labor primarily through three channels: (i) facilitate the issuance of visas and work permits for professionals and skilled workers engaged in cross-border trade and investment activities; (ii) sign and implement Mutual Recognition Agreements (MRAs) and (iii) promote cooperation between universities in ASEAN. Among these channels, the ASEAN member nations have achieved significant outcomes in signing and implement-ting the ASEAN Agreement on Movement of Natural Persons (MNP) and 8 MRAs to create an effective framework for skill mobility within the region. In addition, the educational cooperation between ASEAN universities has been conducted through the ASEAN University Network (AUN) in knowledge sharing, student and lecture exchange, accreditation, and labor exchange.
However, skilled labor movement has fallen behind other measures in Pillar 1 because of the existence of barriers impeding professionals from moving within the region and utilizing their skills. The onerous and complex recognition process for licensed occupation, different domestic regulations for working permit and residence, low interests of professional in moving within the region, and shortage of high-skilled labor are among the biggest barriers in facilitating skill mobility in ASEAN. Therefore, on the way to achieve the pillar ‘A highly Integrated and Cohesive Economy’ specified in the AEC Blueprint 2025, a lot of activities must be put on the agenda to promote skill mobility in ASEAN.
Member countries should firstly put more efforts on the implementation of MRAs, especially remove national barriers caused by domestic regulations. ASEAN can also expand MRAs to other professions to fully achieve the objective of “free flows of skilled labor”. One important idea that ASEAN can further put on its agenda is the freer flow of unskilled or semi-skilled labor, whose movement accounts for a large portion in ASEAN and thus needs the cooperation of the member countries for a better management mechanism.
The present situation and possible future development of the ASEAN Economic Community (AEC)
Taing Ratana, Faculty of Law, Pannasastra University of Cambodia (PUC)
The establishment of the ASEAN Economic Community (AEC) in late 2015 has been seen as a crucial mechanism for pushing the development speed of the third largest economy in Asia which the AEC represents. The ‘Single Market and Production Base’, the creation of a ‘Competitive Economic Region’, ‘Equitable Economic Development’, and the ‘Integration into the Global Economy’ are the four pillars of the ASEAN Economy Integration.
However, the current situation of the AEC is just a few steps into a long road made up of hundreds of milestones that could result in both success and failure. On this journey it remains to be seen which parts of the populations of the AEC are going to become winners or losers. Whether there is a large number of winners or of losers will depend on the AEC’s development plan and its implementation on the national level.
In achieving successful future development, the ASEAN Leaders need to have more of the right confidence, right commitment, right vision, right flexibility, and right action in both their internal and external relations in order to provide an equal distribution of benefit among the AEC’s Member States. The socio-political stability and harmony play very crucial parts in implementing the AEC’s development plan; hence all Member States must guarantee this approach in their relations. It is a way of building the right confidence for the AEC’ s involved stakeholders.
The right commitment must come with a positive impact on the common value and prosperity of the AEC as a whole. It means commitment of producing the right vision in reaching sustainable development and good collaboration. This vision will only be strong if it is shared and driven by the ASEAN Leaders. The gap of economic growth among the AEC’s Member States shall be another central point to be considered. Thus, the AEC’s Member States and involved stakeholders should avoid extremism and discrimination. The AEC also has to build optimism in establishing the AEC’s common value, hence proactive behavior and the right action shall be applied in all forms of the AEC’s operation.
As a result, the success of AEC in the future will depend on the AEC’s taking the right action in shortening the gap between the winners and losers, who are involved in implementing the AEC’s development plan. Furthermore, the peace keeping in ASEAN is another notable point to be guaranteed. Common values in social, political, economic, and cultural perspectives should be in an acceptable standard. Hopefully, the development of the post-2015 vision for the AEC will push ASEAN to be the world’s part of success and value, where everybody can enjoy happiness, prosperity, and peace.
Ways Forward: Can the ASEAN Economic Community Help Address the Middle Income Trap Problem?
Dr. Kaewkamol Karen Pitakdumrongkit, Assistant Professor at the Centre for Multilateralism Studies, S. Rajaratnam School of International Studies (RSIS) of Nanyang Technological University, Singapore
In today’s world economy, globalization has not only deepened economic interdependency but also made several issues transnational.
This raises the importance of international cooperation. Collaboration can enhance economic ties, create mutual gains, and help states manage cross-border matters more effectively. As a result, the Association of Southeast Asian Nations (ASEAN) has actively fostered economic cooperation among its members. The ASEAN Economic Community (AEC) was officially launched on 31st December 2015, and the recent AEC Blueprint 2025 outlines measures to be undertaken to further advance regional integration from 2016 to 2025.
Despite good effort, some matters seem to be left out of the AEC agenda. For one thing, the ASEAN Member States (AMS) have been struggling to address the middle-income trap (MIT) issue. For example, Thailand and Malaysia have experienced it since the mid-1990s while Vietnam may now be at risk of facing the problem. Moreover, in the future with the less advanced ASEAN economies developing, they themselves may get stuck in the middle-income bracket.
Consequently, even though the MIT is not mentioned in the AEC Blueprint 2025, it has raised concerns among ASEAN policymakers because it affects the region’s long-term economic development and future competitiveness in a global economy.
It should be noted that most actions to overcome the MIT are carried out by individual AMS. This is understandable as the causes of MIT vary across nations. For some states the problem is rooted in insufficient business innovation while other countries’ real cause is low labour productivity. Therefore, practical solutions must be tailored to deal with different local situations.
Can regional-level initiatives, namely the AEC, help governments address the MIT? The answer is yes. Although the Blueprint 2025 does not identify tackling the MIT as one of the AEC’s core objectives, signs are showing that the scheme can somehow help. ASEAN has rolled out several projects and programmes which can indirectly deal with the problem. For example, the Krabi Initiative aims at boosting cooperation among the ASEAN participants regarding science and technology and innovation – the elements necessary for industrial upgrading and sustainable development.
Moving forward, to further help ASEAN members address the MIT in a more effective and timely fashion, the following needs to be done. First, ASEAN must accelerate the implementation of regional initiatives. Progress has been very slow in several areas such as services liberalization. Such sluggishness can ultimately undermine individual AMS’ effort to cope with the MIT. Illustratively, due to foreign equity restrictions, businesses face difficulty in investing in the ASEAN economies. This reduces the latter’s opportunities to attract foreign investment to finance their industrial upgrading or start a new high valued production. In short, having good plans is not enough, ASEAN must speed up their implementation to fully realize the AEC.
Second, regional cooperation must be further expanded to include more stakeholders. For instance, the Mutual Recognition Agreements (MRAs) should be granted to other professionals than those in the existing fields. For example, biologists and chemists should be able to work across the region. A free movement of these skilled workers can encourage the growth of several sectors such as pharmaceuticals and petrochemicals. Such labour mobility not only helps develop high-end specialty products but also generate more income to the ASEAN states.
Carrying out the aforementioned actions requires stronger regional institutions as they are among key players helping to execute projects. ASEAN institutions are relatively weak when compared to those in other groupings such as the European Union. For example, the ASEAN Secretariat houses merely 300 international staff and its budget figures approximately US$ 16 million. This partly explains the entity’s difficulty in driving the AEC progress. Hence, it is crucial to boost institutional capacity. The Secretariat as well as other AEC agencies must be entrenched in terms of budget and manpower, enabling them to carry out their tasks more effectively and efficiently.
In conclusion, the AEC can help address the MIT. Going forward, additional joint effort must be garnered to speed up the AEC implementation, broaden its scope to incorporate additional stakeholders, and empower regional institutions. Doing so, helps propel the AEC tackle the MIT in some states and prevent the MIT from happening in other countries in the future. At the end, it will also help ASEAN achieve sustainable long-term development and enhance the region’s competitiveness in a global economy.