ASEAN Economic Community: Challenges ahead

ASEAN economic cooperation has come a long way from ASEAN Free Trade Area (AFTA) of the 1990s to the more recent ASEAN Economic Community (AEC) 2025. It evolved from a trade liberalisation initiative to become a more comprehensive form of cooperation.

AEC came into being in 2003 to match the national interests of 10 South-east Asian countries to remain competitive in an increasingly globalised world.

The objective was to bring economic coherence in areas of common interest and establish a single market over time. This will provide economies of scale to attract Foreign Direct Investment (FDI) and support production activities at a lower cost.

AEC also connected ASEAN to bigger markets of the Asia-Pacific. The 1997 Asian Financial Crisis, China's accession to WTO and India's emergence as a service-dominant economy convinced the members that their economic future lies beyond their national or regional borders.

Moreover, as the manufacturing supply-chains operated in the broader Asian region, it became necessary to extend AEC to ASEAN+1 FTAs.

Now the ASEAN economic cooperation is at a crossroads. AEC has been established at the end of 2015. While some of the commitments have been met, many remain work-in-progress.

A new blueprint has been designed articulating the pathway till 2025. Infrastructure or connectivity has been identified as a key determinant for economic integration, attracting FDI and distributing benefits more uniformly across people and small businesses. However, there are many challenges.

CHALLENGES

Trade protectionism is on the rise since the 2008 crisis. The number of anti-dumping measures in G-20 economies has gone up to 360 in 2017, double the level of 2011.

The Trump administration's 'America first' policy injected ambiguity in economic activities.

The risk intensified as the trade war between the US and several countries - China, India, Russia, Mexico, Canada, the European Union - became effective. These have long-term implications in terms of reconfiguration of manufacturing supply-chains and confidence in the multilateral trading framework of the WTO.

Simultaneously, the world economy is witnessing the process of Brexit, an outcome of a referendum when Britain decided to leave the European Union.

While it marked the rise of populist policies, it also criticised globalisation, particularly trade and immigration, for income inequality and economic insecurity.

The ASEAN countries are not aloof from these adverse global developments. There are concerns over how AEC 2015 has benefitted individual ASEAN members and its businesses and people.

Low awareness of AEC often lead to debates of uneven benefit of economic integration and conflicts of interest between the 'winners' and 'losers'.

These are limiting the governments from committing to bold measures and compelling them to undertake populist policies to raise their future political prospects.

As a result, the pace of ASEAN economic integration may be slowed. Implementation could be uneven and attention might be paid to more inclusive and people-centric trade and investment measures.

However, trade will remain at the core of AEC. Although tariffs have been almost eliminated for flow of goods in the region, facilitation initiatives, such as the ASEAN Single Window and Self-Certification Scheme, will gain importance.

DIGITAL COMMERCE

The use of digital commerce in business activities will emerge as an important agenda for cooperation. As such, drafting of a framework document on e-commerce is already underway and is likely to cover issues like customs regulations, logistics, online security, data flows and payment solutions.

Services sector cooperation will gain traction. Earlier in 2018, ASEAN members adopted a joint declaration on ASEAN Cruise Tourism to gain from more than 25,000 islands and numerous attractions in the region.

Improved efficiency of logistics services is imminent given the growth of the e-commerce sector in the region.

ASEAN is currently working on an enhanced services sector document, called the ASEAN Trade in Services Agreement, to improve the overall competitiveness of the sector.

Finally, ASEAN will continue to engage its external partners through its plus one FTAs. It will strive to operationalise the Regional Comprehensive Economic Partnership (RCEP) agreement to help businesses operate seamlessly in the region and to instil confidence in multilateralism going forward.

That said, as the ASEAN countries believe in open rules-based trading system for their economic prosperity, AEC will continue to be relevant to deepen regional connectivity.

AEC will remain the main vehicle to entrench the regional supply-chains and to ensure countries' growth prospects. While there could be phases of uncertainty in the global economy, a more integrated ASEAN is inevitable to address vulnerabilities going into the future.