Khwaish Oct 2015

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other member states. MRAs have been concluded to facilitate recognition of professionals, including accountants, architects, surveyors, engineers, dental practitioners, medical practitioners, nurses and tourism professionals. In November 2012, the ASEAN Agreement on Movement of Natural Persons was signed to facilitate the temporary movement of natural persons including skilled labor across the region in the areas of trade in goods and services, and investments. On the investment front, the ACIA aims to improve the investment environment and make it more conducive for the private sector. The ACIA reservations lists would be reduced as more sectors are opened up for investments by 2015. These measures are aimed at ensuring transparency, stability and predictability for businesses. One of the major pillars of the ACIA is investment protection, which ensures that investors and their investments not only enjoy the benefits of non-discriminatory treatment but also of investment protection relating to treatment, compensation against strife, transfers of funds, unlawful expropriation, and investor-state dispute, among others. ASEAN is enhancing investment facilitation and promotion too. Initiatives are being undertaken through regional projects that would help member states address bottlenecks and red tape to investing in the region, thereby reducing the cost of doing business. Infrastructure development also figures prominently in the pillar to create a competitive economic region. Transport and IT infrastructure are essential for movement of goods, capital, labour, people and ideas across ASEAN member states. The signing of the ASEAN Multilateral Agreement on the Full Liberalisation of Passenger Air Services and its protocol provided a framework for the realisation of the ASEAN open skies. To facilitate ASEAN shipping services, a strategy towards the integration of an ASEAN Single Shipping Market was developed. Other infrastructure 10 Khwaish plans involving the rail, road, energy and information technology are being implemented. This includes the transport facilitation agreements involving multimodal transport and inter-state transport as well as the Master Plan on ASEAN Connectivity. ASEAN infrastructure requires an annual investment of about US$60 billion up to 2020 but actual investment by ASEAN members has been much lesser. The ASEAN Infrastructure Fund is now in place and it is expected to lend up to US$4 billion and leverage up to US$13 billion for the region’s infrastructure needs until 2020 based on figures released by the ADB. More needs to be done in the connectivity area and ASEAN is looking at public-private partnership models to accomplish part of this. People to people connectivity should also be vigorously promoted and tourism will be one aspect of this which should be supported by a visa free regime and easy travel for businessmen through an ASEAN business travelers’ card. ASEAN had in place five free trade areas (FTAs) with China, Japan, South Korea, India and Australia and New Zealand by 2010. The FTAs are now in full operations and amendments are being made periodically to upgrade them. The FTAs are assisting in boosting trade and investment with these partners. In November 2012, ASEAN initiated the Regional Comprehensive Economic Partnership (RCEP) with its FTA partners. Negotiations began in 2013, and are expected to be concluded in 2015. The RCEP will create the largest free trade area in East Asia with the biggest economic space for businesses to operate in. It will have a population size of three billion and global trade share of 27 per cent with a GDP of US$21 trillion, which is about a third of the world’s current annual GDP. Diversity, Innovation and SMEs Southeast Asia is the most diverse region in the world in terms of geography; natural resources endowments; type of government; economic systems; and stage of economic development. ASEAN is considered the most diverse regional grouping in the world. Does this mean diversity is an impediment for economic growth and development and for integration? Certainly not! In fact, ASEAN’s more developed economies are powered by their technologies, research and innovation while the rest leverage on the abundance of their natural resources and competitive labour cost. Because wages and skills vary across the ASEAN region, companies have taken their operations from manufacturing to legal to accounting, break them into chunks and put these chunks where they can be done best and at a competitive price. Some of the multinational companies are just doing that in building their supply chains with call centres in the Philippines, IT services in Kuala Lumpur and financial operations in Singapore. Besides, the diversity will grow creativity and innovation as it brings about different perspectives and ways of thinking. This is the plus factor of diversity, which we often underestimate. Innovation is a core element of robust productivity growth. While ASEAN falls short of this to China, South Korea and Taiwan in East Asia, the good news is that most ASEAN member states included in the Global Innovation Index are among the top ranking in their income groupings, best exemplified by Malaysia leading the upper
middle income countries; Singapore being the 8th best globally; and even Cambodia ranking fifth among the low income economies as the Conference Board (2013) estimates of total factor productivity growth shows. The challenge will be to push the process further towards a more innovative ASEAN in terms of investments in research and development, investments in human capital, and the strengthening of the policy and institutional environment for quality assurance, technology diffusion and innovation, which should figure prominently in the future plans for post- 2015 community building. Innovation does not exist by itself. It tends to happen in industries which are plugged to regional and global production networks. Innovation will also need financing, availability of specialised skills and services, and large integrated markets, which the AEC is creating. Technology diffusion and innovation benefit from investments and from trade-investmenttechnology nexus of production networks, which will be facilitated by FDI into ASEAN. ASEAN attracted about US$128 billion in FDI in 2013 alone, which is the highest in the history of ASEAN. Here, the small and medium enterprises (SMES) play an important role. They constitute 95 to 99 per cent of firms in the ASEAN economies. Together, they provide between 43 to 97 per cent of the employment; contribute between 23 to 58 per cent to the GDP; and 10 to 30 per cent in total exports of ASEAN. Since the SMEs have a direct impact on the ASEAN economies, their competitiveness and robustness are key to building a resilient ASEAN single market. In this regard, more have to be done in strengthening SMEs, which will include improvement in human resources, provision of access to finance, technology and innovation, amongst others. Opportunities and Challenges for AEC So what are the opportunities and challenges for AEC? Recent surveys conducted by the Economist Corporate Network and the ASEAN Business Advisory Council indicate that most companies are confident that the AEC would have significant impact on their businesses and they plan to invest more in ASEAN. The multinational companies surveyed by the Economist see opportunities for short-term and long-term potentials supported by the economic growth and increasing middle income and young population. ASEAN is becoming a manufacturing hub and the region’s pent-up demand for infrastructure and other fixed assets like housing and factories is expected to spur further growth in the region. However, building the AEC is not a bed of roses. Southeast Asia is one of the most diverse regions in the world. Forging a community is, therefore, a daunting task but ASEAN has been doing this quite admirably. What will be needed would be for ASEAN to focus on implementing the remaining measures expeditiously and to focus on specific priorities such as trade integration and liberalisation; removal of non-tariff barriers to trade as well as barriers to investments; building up regional connectivity in terms of roads, railways, air and maritime links; trade facilitation especially customs, standards harmonisation and regulatory convergence; freer movement of skill labor and professionals through the implementation of existing mutual recognition arrangements and new ones; and completing the RCEP negotiations on time . Importantly too, ASEAN member states will have to transpose the regional commitments they have made in ASEAN into national obligations through their respective domestic processes and at a quicker pace. The domestic legal enactments relating to ASEAN commitments should be monitored as part of the ASEAN Scorecard process. This will help to boost the implementation of the AEC measures and bring ASEAN closer to achieving its AEC in 2015. In building the AEC, the role of the private sector in ASEAN should not be underestimated. It needs to be better engaged as it is the principal driver of regional economic integration. There should be regular sector-specific dialogue with the business community so that ASEAN can address the private sector’s concerns and create a more facilitative environment for doing business in the region. More technical meetings of ASEAN in the economic arena could also be opened up to the participation of the private sector. The SMEs must be an integral of the private sector participation in the AEC and they should benefit from the progress of the AEC. ASEAN must exert more effort in narrowing the development gaps, which will significantly impact the quality and pace of ASEAN’s economic integration initiatives. While work is ongoing in this area, ASEAN is experiencing tremendous resource constraints. There has been considerable difficulty in the less developed ASEAN economies in transposing regional commitments, both intra-ASEAN and extra- ASEAN commitments, into domestic laws and regulations due to lack of capacity and financial resources. There is also a need to intensify communication efforts to the business community, especially the SMEs to keep them updated on AEC’s progress and initiatives. At the same time, ASEAN will have to work together as one single unit in addressing external challenges. In an inter-connected and interdependent world, ASEAN will not be spared from economic uncertainties from other parts of the world that could be transmitted to the region. The Chiang Mai Multilateralisation Initiative, the ASEAN+3 Emergency Rice Reserve and the Regional Comprehensive Economic Partnership are some examples of how ASEAN has reacted to the external challenges. This has also helped to reinforce ASEAN’s relevance and strengthened its ability to maintain ASEAN’s centrality in the evolving and dynamic regional architecture. Conclusion ASEAN should start looking at building a people-oriented community so that community building will be sustainable as without the involvement of all stakeholders of the single market. Here, the role of the private sector must be further strengthened and new important issues like environment, food security, and energy security must be addressed. The potentials of the youth in contributing towards the ASEAN community building process must be recognised and ASEAN awareness must be encouraged through different platforms to promote sharing of perspectives and ideas as wells promoting people-to-people exchanges. In short, community building is the best option for ASEAN to be more integrated and connected so that diversity could become a real asset for the region and creativity, innovation and entrepreneurship could thrive. This is help in reinforcing ASEAN’s centrality in the evolving and dynamic economic architecture in East Asia. The best for the ASEAN single market is yet to come and it will germinate, develop and flourish in the minds and hands of our future leaders, the youth of today. Mr S Pushpanathan is the Managing Director Asia-Pacific of a global strategic consultancy, EAS Strategic Advice. He was formerly the Deputy Secretary General of ASEAN for ASEAN Economic Community. The views presented in this article are personal and do not necessarily reflect those of YSA. Khwaish 11
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