Khwaish Oct 2015

Realising the
ASEAN Economic Community
Prospects and Challenges Mr S Pushpanathan
Introduction
The year 2015
is indeed
going to be
a watershed
year for the
Association
of Southeast
Asian Nations
(ASEAN). It is
also the year
of Malaysia’s
Chairmanship
of ASEAN
as ASEAN
makes the
final lap to the
ASEAN community by December 2015.
The Prime Minister of Malaysia, Dato Sri
Mohd Najib Razak, in his message to the
11th ASEAN Leadership Forum in May
2014 in Myanmar, said that, as the ASEAN
Chair in 2015, Malaysia would strengthen
people connectivity and make ASEAN a
more people-centred community. He also
said that, the ASEAN community should
evolve to become more people-friendly
and enable the younger generation to have
a better sense of ASEAN consciousness.
ASEAN Economies Today
The growth story of the ASEAN economies
remains strong. ASEAN has a population of
617 million, which is growing at a faster rate
than China and India at an annual average
rate of 1.45 per cent. ASEAN is expected to
achieve an economic growth rate of five to
six per cent from now till 2017. Its combined
gross domestic product (GDP) was about
US$2.4 trillion and total trade stood at
US$2.5 trillion in 2014. ASEAN accounts
for seven per cent of global exports
and its members have developed more
sophisticated manufacturing capabilities
and their exports have diversified. Going
forward, ASEAN is likely to surpass Japan
to be the fourth largest economy by 2030
after the European Union, United States
and China.
In terms of investment, ASEAN is pulling in
about US$128 billion, which is seven times
more than the flow to India and slightly
more than the flow of US$117 billion to
China in 2013. ASEAN also has a higher
rate of return on foreign direct investment
(FDI) at 11 per cent for the period 2005 to
2010 compared to the world’s average of
6.9 per cent and of developing countries at
nine per cent for the same period. ASEAN
is home to 227 of the world’s biggest
companies with more than US$1 billion in
revenue or three per cent of the world’s
total.
In terms of macroeconomic stability, the
region has proven to be resilient in the
aftermath of the 2008 global financial crisis
and has a stronger fiscal position now. It has
certainly learned its lessons from the 1997
Asian financial crisis. Government debt is
under 50 per cent of GDP and savings has
remained steady since 2000 at about a
third of the GDP.
Based on the statistics from the Asian
Development Bank (ADB), the size of the
middle class in ASEAN will rise from 24 per
cent in 2010 to 65 per cent in 2030. By 2017,
the number of middle class households in
ASEAN is expected to reach 85 million, up
from the 40 million registered in 2010. The
number could reach 125 million middleincome
households by 2025 making ASEAN
a key consumer market of the future.
Most strikingly, the region’s under-30
population will account for nearly half of
the total population. As their purchasing
power increases, consumer demand for
educational services, household goods and
services, communications, infrastructure
and energy will also increase.
Besides, extreme poverty is rapidly
declining. In 2000, 14 per cent of the
region’s population was below the
international poverty line of US$1.25 but by
2013, the share has fallen to three per cent.
Urbanisation is another phenomenon
impacting consumer growth and ASEAN
cities are leading this march. Almost 22
per cent of ASEAN’s population now
lives in cities and they account for 54 per
cent of the region’s GDP. An additional
54 million people is expected to move to
cities by 2025. Interestingly, midsize cities
are outpacing the megacities of ASEAN in
leading economic growth. About 40 per
cent of ASEAN’s GDP growth through 2025
is expected to come from 142 cities with a
population of just 200,000 to 5 million.
Progress of AEC Implementation
Thus far, ASEAN has achieved steady
progress under the four pillars of a single
market and production base; a highly
competitive economic region; a region
of equitable economic development; and
a region fully integrated into the global
economy. Based on ASEAN statistics,
ASEAN has achieved about 82.1 per cent
implementation of its priority measures
under the ASEAN Economic Community
(AEC).
The ASEAN Free Trade Area was realised on
1 January 2010. The average intra-ASEAN
preferential tariffs have been reduced to
almost zero with 0.04 per cent remaining
for the more developed ASEAN-6
countries. For CLMV countries (Cambodia,
Laos, Myanmar and Vietnam), the share
of tariff lines at zero per cent preferential
duty has significantly increased to 67.6 per
cent in 2012, with efforts to expedite the
reduction of the remaining tariffs based on
the timelines agreed upon.
A Regional Work Programme on
addressing Non-Tariff Measures has been
adopted and a ASEAN Trade Repository
is to be established to provide detailed
trade related information of all 10 member
countries, which will facilitate not only
intra-ASEAN trade but would also support
ASEAN’s trade with its partners.
ASEAN is in the final stages of implementing
a region-wide self-certification, which will
allow selected registered exporters to
certify export documents on their own.
This will assist the business community to
move goods across the region swiftly and
at reduced costs. It has also completed
the scaled down version of the pilot
stage of the ASEAN Single Window that
seeks to promote a seamless exchange
of electronically transmitted trade related
documents among ASEAN members.
ASEAN is also drafting a legal protocol
to provide the needed assurance for the
businesses to engage in the electronic
exchange of trade documents.
As an integral requirement for making
ASEAN function as a single production base,
the region is now working on harmonisation
of standards and conformance procedures
and discussing or implementing Mutual
Recognition Arrangements (MRAs) in the
priority integration sectors identified by
ASEAN to accelerate the establishment of
the AEC. The sectors include electronics,
automotive, agro-based product,
cosmetics, and traditional medicine and
health supplements.
ASEAN also aims to realise free flow of
services and investment within the region
under the AEC. ASEAN is improving the
environment for ASEAN investors and
service suppliers alike to secure greater
market access and national treatment.
This is being achieved through progressive
or further liberalisation under the ASEAN
Framework Agreement on Services and
the ASEAN Comprehensive Investment
Agreement (ACIA).
Under the ASEAN Framework Agreement
on Services, to date, eight packages
of commitments have been concluded
and the region is now in the process of
finalising the ninth package. Under each
package, the ASEAN member states are
opening up their services sectors for
Khwaish
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