The week long ASEAN economic ministers meeting in Danang, Viet Nam ended on Aug. 27, 2010 with one key message: Implement fully and timely commitments under the ASEAN Economic Community (AEC).
The ministers emphasized implementation as the “do or be done” mission for ASEAN especially due
to intensifying competition in Asia as the global engine for growth shifts to Asia as well as increasing competition from emerging economies.
Their concerns are justified. Under the 2008-2009 AEC Scorecard managed by the ASEAN Secretariat, ASEAN has only achieved 80 percent implementation.
The remaining 20 percent comprise some of the key measures that need immediate implementation to see through the next window period (2010-2011) for the building of the AEC.
ASEAN cannot afford the backlog if it wants progress in economic integration. The measures include ratification of several legal protocols in transport and customs areas that will help facilitate seamless movement of goods; physical connectivity; and harmonization of standards and conformity assessment.
These key concerns were underscored too when the private sector met the economic ministers for consultations during their meetings. The business community identified customs, standards and conformity, complicated regulations and procedures for trade and investment facilitation and the general lack of physical connectivity as choke points for regional economic integration.
However, the business community appreciated the work being done so far under the AEC but more must be done to build a competitive ASEAN Single Market and Production Base under the AEC.
The ministers also agreed on the importance of engaging the private sector more intensively not only in the implementation of economic integration initiatives and measures, but also in the formulation and design of ASEAN economic policies. They agreed to the proposal of the ASEAN Secretary-General Surin Pitsuwan to set up a business register to elicit feedback on regional economic policies.
Likewise, the trade and economic ministers from dialogue partner countries (China, Japan, South Korea, Australia, New Zealand, India and Russia) were pleased with the trade and investment relations with ASEAN despite the crisis that brought the figures down.
ASEAN’s trade with the world fell from US$1.897 trillion in 2008 to $1.537 trillion in 2009 while foreign direct investments (FDIs) declined from $49.5 billion to $39.6 billion in the same period.
Despite the financial crisis, ASEAN’s share of global FDIs increased from 2.8 percent in 2008 to 3.6 percent in 2009. This bodes well for ASEAN in attracting more investments into the region in the coming years if global economic recovery picks up.
Interestingly, 68 percent of the FDIs into ASEAN went to the services sector making a compelling case for more liberalization and facilitation by ASEAN in this sector.
One key area that was highlighted as a concern by ASEAN and FTA partners is the low utilization of the FTAs. Several reasons accounted for this, which include lack of awareness of the business sector about utilizing the FTAs; cumbersome procedures and processes of implementing agencies for the FTAs; and lack of capacity of some ASEAN countries in fully implementing the provisions in the FTAs.
In ASEAN’s trade and investment relations with its major trading partners, there were some crucial developments worth mentioning. One, China has now replaced Japan as the top trading partner of ASEAN recording a trade of $178 billion compared to $161 billion by Japan in 2009. Total trade between ASEAN and Japan fell by 25 percent mainly due to the crisis.
But Japan, EU and the US continue to be top five trading partners of ASEAN and if recovery picks up, the number one spot may change as the margin differentiating the top five ASEAN trading partners is small.
Two, EU and Japan are the top investment sources while China continues to be the fifth largest source.
Interestingly, intra-ASEAN investment has become a key investment source moving up to the third spot above the US and contributing $4.4 billion after Japan and EU.
Going forward, I see three areas that ASEAN will have to address if it wants to continue the forward movement in its economic community building. First and foremost, it must implement the remaining 20 percent of the measures in its first AEC scorecard (2008-2009). Greater push is needed in the transport services, customs and standard areas for this to happen.
There is also a need to address contradictions between regional commitments, which may conflict with national laws, and find ways to resolve them to ensure transposition of regional commitments into national obligations and laws for swift implementation.
Second, ASEAN’s competitiveness needs to be ratcheted to allow the region to compete with the economic players in our region and emerging economies. There is also a need to look at reforms commencing probably with administrative reforms to promote trade and investment facilitation, which is easier to be accomplished, and will have substantial positive impact on the AEC.
In this regard, the ASEAN economic ministers have agreed to an “ASEAN Regulatory Reform Dialogue” at the senior economic officials’ level early next year to address some of the issues starting with trade facilitation, services liberalization and investment facilitation.
They have also supported the ongoing work in the area of competition with the launching of the Handbook on Competition Policy and Law for Business and the Regional Guidelines on Competition Policy, which could be used as a basis for developing competition laws in ASEAN countries.
Besides, the ministers agreed that they will continue to refrain from protectionist measures to keep their economies open and to track all non-tariff measures introduced by ASEAN member states.
Third, addressing the low utilization of the ASEAN FTAs with its partners must be given priority so that the full benefits of the FTAs can be realized. At the same time, ASEAN countries must make the necessary adjustments if they intend to take advantage of these FTAs, which have opened up new opportunities for trade, investment and business ventures.
Simplification and harmonization of procedures, creating better awareness among the businesses of the FTAs and a public sector environment that will support the implementation of the FTAs will be important if we want to overcome the current problem of low utilization of the FTAs.
Overall, the ASEAN economic ministers’ meetings last week have given the AEC their thumbs up but a little short of a clean bill of health particularly with regard to the implementation of the AEC commitments. The meetings, nevertheless, gave a strong endorsement for ASEAN’s centrality in the dynamic and evolving regional architecture.
The writer is deputy secretary-general of ASEAN for ASEAN Economic Community. The views expressed are personal.