Labour, financial structures 2 key issues in Asean integration

Singapore

ECONOMIC and legal observers point towards labour and financial structures as two key issues companies and policy makers should look into to help the Association of South-east Asian Nations (Asean) work towards closer economic integration.

Leaders of the 10-nation regional bloc put pen to paper on Sunday in Kuala Lumpur, Malaysia, to formalise plans to create an Asean Community. It will come into being on Dec 31 this year.

This will include the official creation of the Asean Economic Community (AEC), which aims to create a single market that allows free flow of goods and services, capital and labour in the region.

Said UOB economist Francis Tan: "If you look at the factors of production for Asean members, it is the traditional ones like labour and capital that are uneven in terms of quality. How infrastructure is laid out for these is important."

Mr Tan said that if barriers to the flow of labour are lowered, companies will stand to gain from lower labour costs.

For one, Singaporean companies which manufacture out of China can consider reorientating themselves to Asean, as wages in some Asean countries are now lower than those in China.

Also, when labour movement is freed, there can be tangible benefits for the region as a whole, noted Paul Tan, partner at law firm Rajah & Tann, who advises companies investing in South-east Asia.

He referred to an International Labor Organisation report that with the AEC established, and the freedom of labour movement as proposed by it, Asean can have an additional 14 million jobs by 2025.

An HSBC report published last week also highlighted financial integration as a core issue for Asean in economic integration. "Facilitating these investments is particularly important between countries with surpluses and deficiencies in savings (as measured by current account balances) as well as the variations in liquidity conditions as measured by loan-to-deposit ratios," it wrote.

Achieving this would in turn help Asean countries that require more capital to build infrastructure to get more funds. It would also increase banking penetration rates in certain countries, helping more firms and individuals gain access to funds.

Referring to information published in a book by the Institute of Southeast Asian Studies, HSBC wrote in its report that the creation of the Asean Community will bring about a 5 per cent increase in the region's aggregate gross domestic product by 2030. Singapore will gain the most at about 9.5 per cent (see chart).

But even as Asean fetes a crucial step taken to foster strong regional ties, there have been missed targets as it was working towards laying the groundwork for closer economic ties.

Of the 611 measures that Asean has laid out to check the progress of developing the AEC, to be completed by end of this year, the grouping had implemented 79.5 per cent of them as at Oct 31, it said in a report. Asean said that its "immediate priority is to complete the implementation of measures unfinished under the AEC Blueprint 2015 by end-2016".

This had led to some observers exhorting the regional grouping to also work on building stronger political ties. This will be instrumental in ensuring that the AEC unleashes its full potential.

Partner at Baker & McKenzie Eugene Lim, who has been driving the law firm's initiatives relating to the AEC, is cautiously optimistic. While he thinks Asean will not achieve its objectives for the AEC as quickly as it plans to, he noted that the grouping has come a long way.

"Consensus has been achieved, we saw that over the weekend in Malaysia. The question is how we can bring this forward to the next stage," he said.