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Can the AEC be a success?

By Murray Hunter - posted Thursday, 31 December 2015


After almost two decades of discussion, the ASEAN Economic Community (AEC) will be proclaimed today. The AEC is a potentially significant and competitive economic region, should it be allowed to develop according to the aspiration of being a  “single market and production base, with free flow of services, investments, and labour, by the year 2020”.

The ASEAN region as a compositetrading block has the third highest population at 634 million, after China and India. GDP per capita is rapidly rising. The AEC would be the 4th largest exporter after China, the EU, and the United States, with still very much scope for growth from Cambodia, Myanmar, the Philippines, and Vietnam from a diverse range of activities ranging from agriculture, food, minerals and commodities, electronics, and services. The coming AEC is already the 4th largest importer of goods after the United States, EU, and China, making it one of the biggest markets in the world.

Unlike the other trade regions, the AEC still has so much potential for growth with rising population, rising incomes, growing consumer sophistication, and improving infrastructure.

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Perhaps the biggest benefit of the upcoming AEC is the expected boost this will give to intra-ASEAN trade. Most ASEAN nations have previously put their efforts into developing external relationships with the major trading nations like the EU, Japan and the US through bilateral and free trade agreements. To some extent, the potential of intra-ASEAN trade was neglected, perhaps with the exception of the entrepot of Singapore. 

The AEC is an opportunity to refocus trade efforts within the region, especially when Vietnam, Cambodia, Indonesia are rapidly developing, and Myanmar is opening up for business with the rest of the region.

The social, cultural, political and business interchange within the region had traditionally been low, until the rapid increase of intra-ASEAN travel, due to the low-cost airline explosion within the region.

Today intra-ASEAN trade is approximately 25% of total trade, growing around 10.5% per annum, and expected to reach 30% of total ASEAN tradeby the year 2020.  

However the necessary infrastructure to support intra-ASEAN trade growth is lagging behind with a delay in the completion of the Trans-Asia Highway in Cambodia, and vastly inadequate border checkpoints between Malaysia and Thailand in Sadao and Kelantan.

Some infrastructure development projects have been severely hit by finance shortfalls within member states.

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There are a number of outstanding issues concerning the growth and development of the AEC.

The ASEAN Secretariat based in Jakarta has a small staff, where the best talent is lacking due to the small salaries paid. The Secretariat unlike the EU bureaucratic apparatus in Brussels relies on cooperation between the member state governments for policy direction, funding and implementation of the AEC.

Thus the frontline of AEC implementation are the individual country ministries, which presents many problems, as some issues require multi-ministry cooperation and coordination, which is not always easy to achieve as particular ministries have their own visions and agendas. Getting cooperation of these ministries isn’t easy.

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About the Author

Murray Hunter is an associate professor at the University Malaysia Perlis.

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