At their meeting in Bali yesterday, the leaders of the Association of Southeast Asian Nations launched the process toward establishing an Asean Economic Community (AEC).

The AEC will be a single market and production base, characterized by the free movement of goods, services, investment, and capital by the year 2020. A roadmap for the integration of the financial sector forms part of the AEC process, which include financial services and capital account liberalization, capital market development, and currency cooperation. The AEC will also facilitate the movement of businessmen, skilled labor, and talents within the region.

The AEC is a bold economic initiative aimed at reinforcing the position of Southeast Asia as a competitive place to do business at a time when its larger neighbors are becoming increasingly attractive to foreign investors. It marks the beginning of a change of mindset toward broadening and deepening the liberalization of trade in goods, services and investment and the orderly liberalization of other factors of production, such as capital and skilled labor.

The AEC is the latest chapter in the evolution of Asean economic integration that began with the Preferential Trading Arrangement to promote intra-regional trade, which amounted to just over 10% of the member countries’ overall trade when Asean was established. Today, intra-regional trade is almost 25% of total Asean trade.

It has been conceived in anticipation of the full completion of the Asean Free Trade Area (AFTA) this year. Aimed at enhancing Asean’s competitive edge as a single production base geared for the world market, AFTA is now virtually in place. The current average tariff rate among the original signatories of the scheme has been brought down to 2.3%, from 12.7% when AFTA began 10 years ago. Efforts to reduce this to zero are on track.

The elimination of tariff and nontariff barriers among the member countries will enhance economic efficiency, productivity, and competitiveness in the region. AFTA is also expected to benefit consumers when a broader range of better quality and competitively priced products become available.

The AEC carries strategic significance in several ways. Firstly, the AEC represents an alternative option for developing economies to move ahead with creating a wider economic space for them while remaining committed to the multilateral trading system. It signals Southeast Asia’s commitment to remain open and outward looking in the midst of some domestic pressure, protectionist tendencies, and other transnational issues, such as international terrorism and the recent outbreak of Severe Acute Respiratory Syndrome.

Secondly, the AEC will ensure that Asean’s economic engagements with its major trading partners, including bilateral and collective free-trade arrangements, will permeate and benefit all Southeast Asian economies provided that they carry out their part of the deal. It will facilitate Asean’s current efforts in entering into closer economic partnership with such neighbors as China, Japan, South Korea, and India. Similar efforts are also being discussed with the United States and the European Union.

Thirdly, there is more to AEC than economics. It is an important gesture of political will to promote community and regional identity building among the peoples of Southeast Asia. The AEC is expected to contribute to cementing the member countries’ common stake in the maintenance of regional stability. It is Asean’s contribution to the promotion of peace and security in the broader Asia Pacific region.

AEC is only one of three pillars of the Asean Community. The other two are the Asean Security Community (ASC) and the Asean Socio-Cultural Community (ASCC). The ASC envisages bringing Asean’s political and security cooperation to a higher plane to ensure that countries in the region live at peace with one another and with the world in a just, democratic and harmonious environment. The ASCC aims to promote human development and establish a community of caring societies.

Finally, the AEC signifies the continued relevance of Asean as a viable intergovernmental and cooperative mechanism of 10 countries with a combined population of more than 520 million and gross domestic product of about $700 billion.

Despite the constant challenges to its relevance, Asean continues to enable member states to remain engaged as friendly neighbors in a world full of uncertainty and insecurity. Asean facilitates a predictable pattern of state behavior and mutual reassurance, which enable its member states to focus on productive and positive endeavors on a long-term basis.


Mr. Ong is secretary-general of the Association of Southeast Asian Nations.

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