News Analysis: Constant evolution key to ASEAN's economic community

A single economic community comprising the world's seventh biggest economy is likely to be a reality for 10-nation Association of South East Asian Nations (ASEAN) by the end of this year-but analysts say the big challenges are yet to come.

ASEAN has grown in size and influence since its founding as a political and security bloc 1967, and now boasts a combined GDP of 2.5 trillion U.S. dollars, with 1.2 trillion U.S. dollars in total merchandise exports.

Seeing the potential for further growth and economic leverage, ASEAN leaders in 2007 adopted the blueprint to guide the establishment of the ASEAN Economic Community (AEC).

With more than 600 million people, the potential AEC market would eclipse both the EU and North America.

When the leaders gather for their 27th summit meeting in Kuala Lumpur this month, they'll be assessing a huge range of targets set as the basis for a fully integrated regional economy.

The AEC is defined by four ambiguous pillars: creating a single market and production base; increasing competitiveness; promoting equitable economic development; and further integrating ASEAN with the global economy.

In detail, these cover areas like recognition of professional qualifications, convergence of macroeconomic and financial policies, trade financing measures, enhancing infrastructure and communications connectivity, development of electronic transactions, and integrating industries across the region to promote regional sourcing.

The stated aim: a region with free movement of goods, services, investment, skilled labor, and freer flow of capital.

CLEAR INTENTIONS

A meeting of economic ministers in August welcomed progress in the implementation of the AEC blueprint, acknowledging that 91.5 percent or 463 of the 506 prioritized measures had been implemented.

Analysts are confident that the AEC is on target, although ordinary people and businesses will likely be slower to feel the significance of the breakthrough.

Gary Hawke, Emeritus Professor at New Zealand's Victoria University and a member of the Academic Advisory Council of the Jakarta-based Economic Research Institute for ASEAN and East Asia, reckons the implementation rate of the priority measures is probably closer to 75 percent to 80 percent.

"It varies from country to country -not always as you might expect. Some of the less developed countries -Laos, Cambodia, Vietnam - have actually done more to provide for the implementation of some of the investment intentions of AEC than some of the other larger countries like Thailand," Hawke told Xinhua in a phone interview.

"The way to see it is that the intentions are clear - there'll be some backsliding; there'll be compromises, but the path is being set towards a really good economic community among all the ASEAN members."

Sanchita Basu Das, lead researcher on economic affairs at the ASEAN Studies Center of Singapore's Institute of South East Asian Studies, said most business people are still facing non-tariff barriers, including dissimilar customs rules and regulations and lack of infrastructure.

"Many countries impose standards on products that act as a protectionist policy for its indigenous business groups," Das told Xinhua in an e-mail interview.

"For ASEAN people, they are yet to find more job opportunities from ASEAN integration, though much has been achieved in terms of travel and tourism."

STAYING RELEVANT

While individual ASEAN countries are expanding international links through free trade agreements and the controversial 12-nation Trans-Pacific Partnership (TPP), ASEAN is testing its emergent combined strength in driving the Regional Comprehensive Economic Partnership(RCEP).

RCEP-involving the ASEAN members and existing ASEAN FTA partners (China, India, Japan, the Republic of Korea, Australia and New Zealand) - could also be the first big test of the AEC.

"If ASEAN members can integrate within themselves, they can take leadership role in RCEP negotiation and hence can maintain its centrality in regional trading architecture," said Das.

RCEP is essentially a development of the AEC, said Hawke.

"It takes what's likely to emerge out of the AEC and thinks through the implications for that in ASEAN's relations for the region. It's driven by ASEAN and it draws on all the existing ASEAN-plus-one FTAs and thinks about how these could be further developed."

The AEC and RCEP also offer a testing ground for economic cooperation among ASEAN countries - particularly the less developed members - that are not ready for a more stringent agreement like the TPP, say analysts.

Only four ASEAN members - Singapore, Malaysia, Brunei and Vietnam - are participants in the TPP, which is touted as the world's biggest agreed trade agreement, so the AEC is also seen as a way for ASEAN to hold its international relevance.

"There's clearly some concern that TPP might divert trade and investment away from non-members," said Hawke, "so there'll be an impetus to make sure the RCEP keeps on track and is really comparable with TPP and its effects."

DRIVEN BY ELITES

The AEC inevitably draws comparisons with the European Economic Community - now the European Union - but the differences are profound.

The European common market was established by developed states on a single land mass in 1958, while the AEC is a bid to align countries with widely divergent political systems and levels of development.

Another major difference is that the European project, which was born out of Franco-German rivalry and the tensions of the Cold War, opted for a supra-national structure with a powerful European Commission, which has contributed to some of the EU's current difficulties, said Hawke.

In contrast, the ASEAN Secretariat, based in Jakarta, has been quite deliberately made an executive rather than a decision-making body.

"They always work on the basis that ASEAN member states have got to be treated as though they are equal," said Hawke.

Das said this could also be seen as a disadvantage in the development of the AEC.

"The ASEAN Secretariat is an example of a weak institution," said Das. "The secretariat is an inter-governmental body which doesn't have any authority of its own. The secretariat doesn't have any monitoring function too. It behaves as the member states tell it to do."

Analysts agree that political and business elites within the ASEAN member states are the driving force behind the AEC, but opinion differs as to how much support the AEC has on the street.

"If an initiative is a top down approach, the private sector is not fully aware of the initiatives and hence they may not be advocating for it with the national governments. If there is lack of demand of AEC policy, it may slow down the implementation process," said Das.

Hawke believed the AEC is actually driven much more by the business community than was the case in Europe.

"Here the driving force actually is businesses with governments keeping the agenda of 'How do we remove the latest barriers which people have encountered in doing business across the borders of ASEAN, and indeed between ASEAN and its regional partners'," said Hawke.

LABOR PAINS

In 2007, ASEAN leaders also approved the Initiative for ASEAN Integration Strategic Framework and Work Plan (2009-15), aimed at bridging the "development divide" between the older and more economically advanced ASEAN-6 members - Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand - and the four newer ones - Cambodia, Laos, Myanmar and Vietnam.

Hawke said he personally thought too much was made of the different levels of development.

"They are different, but you get differences within countries as well as between countries," he said.

"Starting from differences and making use of the differences is a way of generating growth and consumer satisfaction as part of the economic process."

However, analysts agree that migration is set to be one of the major issues facing the AEC, as the member states have yet to agree on an open labor market.

"At the moment the point in ASEAN is that they're in general agreement on the desirability of working out ways in which skilled migrants can easily move between member states, but there is no agreement whatsoever on movement of labor in general," said Hawke.

The integration process on labor has gone further than integration processes elsewhere with the exception of the European Union, "and you can see the problems that are emerging there," he added.

"We know enough about relations between Indonesia, Malaysia, Singapore and indeed the Philippines to know that those issues are going to remain contentious."

EVOLVING AGREEMENT

The labor issue must also be seen in the context of an ever-evolving AEC, which will have to constantly adapt and deal with new challenges.

"The process of integration is a continuing one and if we did solve that problem of labor there will be others, and there are others anyway - e-commerce, ICT, the way in which the Internet is managed," said Hawke.

"What you want is not a complete solution in an advance but a process in which you can be confident that issues will be dealt with as they arise."

These issues could be managed more easily as the people and governments of the AEC develop a binding regional identity - a process that is likely to take decades, and could still be a source of friction, as the EU has shown.

Das believed the AEC could help develop a regional identity in conjunction with ASEAN's Political-Security Community and Socio-Cultural Community.

"This is a long-term phenomenon and will happen if ASEAN promises deeper integration and implementation is also effective in domestic economies," said Das.

Given the huge variations in cultures, political systems, religions and other factors, member states must be constantly aware of the delicate nature of some issues.

"It needs a good deal of sensitivity, but that's all," said Hawke. "What you're looking for is commitment to a common goal and that's the essence of the ASEAN Economic Community.

"It's being built around the gradual evolution of agreement on where we want to get to and then a continual reporting among each other of how we're getting towards it.

"Most of those key issues are in fact talked about among ASEAN people, but with considerable care so you don't try to impose things on Thailand, you don't try to impose things on Brunei, you know that there are issues in Indonesia between regions, between religions and so on," he said.

"The key to it all is sensitivity and a common commitment to certain things - not everything." Endit