ASEAN Economic

Community: Present

& Future

Pushpanathan Sundram

Managing Director, Asia Pacific

EAS Strategies

Senior Fellow, Singapore Institute of

International Affairs

4th OECD-AMRO-ADB Asian Regional Roundtable

Tokyo, 14-15 May, 2015

1. Basic Facts & Figures about

ASEAN

2. The ASEAN Community & AEC

3. Has AEC benefitted ASEAN?

4. The Private Sector

5. The Challenges

6. The ASEAN Vision 2025

7. Conclusion

2

Agenda

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1. Basic Facts & Figures

Total FDI USD 122.4 billion Intra ASEAN USD21.8 billion

Tourism Arrivals 89.3

million Intra ASEAN 39.9 million

Total Trade USD2,511

billion Intra ASEAN USD 608 billion

Ratio to GDP 104.7%

GDP USD2,398 billion GDP growth 5.1%

Per capita USD 3,837

Population 625

million Youth 60%

ASEAN Integration Milestones

Birth of

ASEAN

ASEAN

Preferential

Trading

Arrangement

ASEAN

Free

Trade Area

ASEAN

Vision 2020 AEC

Blueprint

Vientiane

Plan of

Action

ASEAN

Framework

Agreement

on Services

1967 1992 1997 2003 1998 2009

Bali Concord II

(ASEAN

Community)

Roadmap for an

ASEAN

Community –

APSC/ASCC

Blueprint

1977 1995

ASEAN

Investment

Agreement

Hanoi

Plan of

Action

2004 2008 2007

ASEAN

Charter

2010

Bali Concord

III

(RCEP/AFE

ED)

2012

Master Plan on

ASEAN

Connectivity

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2. The ASEAN Community & AEC

The AEC Structure

•FTAs

•Global Supply Networks

•SME Development

• Initiative for ASEAN Integration

• Competition Policy

• Consumer Protection

• IPR, Taxation

• e-Commerce

• Infrastructure

•Free flow of goods

•Free flow of services

•Free flow of investment

•Freer flow of capital

•Free flow of skilled labour

•PIS & Food,Agri & Forestry Single Market & Production

Base

Competitive Economic

Region

Linkages with Global

Economy

Equitable Economic

Development

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7

Status of AEC Implementation

ASEAN-wide: Implementation rate of Phases I to III (2008-

2013) is 80.7% or 334 out of 414 ASEAN-wide measures.

For Phase IV (2014-2015), 38.7% or 82 out of 212 measures

have been implemented (As of December 2014).

Member States are targeting to complete 95% of integration

measures by end of 2015.

Rest of the measures will be implemented by 2018

AEC is work in progress

Desired Impact of AEC

AEC key objectives is to improve business environment

(desired impact):

increase ASEAN’s attractiveness as an investment

destination – jobs creation, technology

advancement

promote cross trade and investment across ASEAN

– leveraging on strengths – sharing resources, ease

of doing business

provide business opportunities including for SMEs –

inclusivity within ASEAN + wider market access

through FTAs;

foundation for strong economic base – resilient and

stable economy: legacy for future generation

ASEAN as

A Single

Production

Base

Single Market & Production Base

Key drivers to promote Single Production Base through liberalization:

elimination of import duties for intra-ASEAN trade

removal of equity restrictions on services and investments in

ASEAN

removal of other forms of impediments, such as limiting the

number of services providers, etc.

facilitation of intra-ASEAN trade and investment by removing

cumbersome procedures, rules and regulations

facilitating the mobility of skilled people

The focus is to remove, to the maximum extent possible, barriers

within the region to facilitate trade and economic activities - to allow

business to operate in a competitive environment and allow firms to

benefit from economies of scale.

Trade in Goods Liberalization

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Elimination of Duties

ASEAN-6

99.65% duties eliminated

(1 January 2010)

CLMV

93% duties eliminated

(1 January 2015; 7% by 2018)

ASEAN Trade in Goods Agreement (ATIGA)

2010

Removal of non-tariff barriers (NTBs)

Harmonization of standards to international standards, practices and guides

and harmonization of conformity assessments

ASEAN Single Window in 7 ASEAN countries - facilitate cross-border trade

by enabling electronic data exchange for cargo clearance and release

Domestic taxes

e.g. excise duty,

export tax can

be maintained.

Services Sector Liberalization

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The ASEAN Framework

Agreement on Services

(AFAS) was signed on 15

December 1995.

Liberalization of 128 sub-

sectors by 2015 covering 4

modes of supply under AFAS

with FLEXIBILITY

Sectors for services liberalization :

Business Services;

Communication Services;

Construction and Related Engineering Services;

Distribution Services;

Educational Services;

Environmental Services;

Financial Services;

Health Related and Social Services;

Tourism and Travel related Services;

Recreational, Cultural and Sporting Services;

Transport Services; and

Other Services Not Included Elsewhere.

Progressive Liberalization of Service Sector

AFAS Packages Date of signing

1st Package 15 Dec 1997, Kuala Lumpur, Malaysia

2nd Package 16 December 1998, Ha Noi, Viet Nam

3rd Package 31 December 2001 (Ad-Referendum Signing);

4th Package 3 September 2004, Jakarta, Indonesia

5th Package 8 December 2006, Cebu, the Philippines

6th Package 19 November 2007, Singapore

7th Package 26 February 2009, Cha-am, Thailand

8th Package 28 October 2010, Ha Noi, Viet Nam

9th Package 26 August 2014, Nay Pyi Taw, Myanmar

•Final AFAS Package: 2015

Facilitating Movement of Professionals

and Talents

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ASEAN Movement of Natural Persons Agreement (MNP)

Business Visitors

Intra-Corporate Transferees

Contractual Service Suppliers

Mutual Recognition Arrangements (MRA)

Engineering Services

Nursing

Architecture

Accountancy

Medical Practitioners

Dental

Surveying

Greater mobility for

skilled workers and

professionals –

Work is on-going to

operationalize the

MNP Agreement and

the various MRAs

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Mutual Recognition Arrangements (MRAs): Engineering Services,

Architecture, Accountancy, Nursing, Medical & Dental Practitioners

and Surveying.

MRAs provide for recognition of qualification, authorization, licensing

and certification to enable service providers to work in different

ASEAN Member States in a regulated manner.

For example, to date, there are:

• 794 ASEAN Chartered Professional Engineers (ACPEs) –

Indonesia (154), Malaysia (199), Myanmar (72), The Philippines

(38), Singapore (218) and Viet Nam (113).

• 203 ASEAN Architects (AAs) – Indonesia (51), Malaysia (32),

Myanmar (12), The Philippines (40), Singapore (58), Thailand (3)

and Viet Nam (7).

Facilitating Movement of Professionals

and Talents

ASEAN Comprehensive Investment Agreement

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Protection - ASEAN Comprehensive

Investment Agreement

ACIA provides for protection for investments from being appropriated.

Protection is accorded to the following:

Moveable and immoveable property and property rights.

Shares, stocks, bonds and debentures.

Intellectual property rights and goodwill.

Claims to money or to any contractual performance related to a

business.

Rights under contracts, including turnkey, construction, management,

production or revenue sharing contracts.

Business concessions required to conduct economic activities and

having financial value conferred by law or under a contract.

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Competitive Economic Region

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Intellectual Property Rights (IPR):

• strengthening domestic IP systems that deliver timely,

quality and accessible IP services through a strong IP

regime; and

• acceding to core international agreements.

Competition Policy - National competition law in all Member

States

Consumer Protection

• Focus on ensure consumer legislation in all Member

States, consumer access to information, information

exchange mechanism for recalled/banned products and

consumer redress mechanism.

Taxation - Network of bilateral agreements to address

issues on double-taxation.

Cooperation in Other Economic Sectors

(Strengthening Connectivity)

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Development of rail/road/highways/

port networks

Regional power transmission grid &

Trans-ASEAN gas pipeline

ICT – Broadband corridors

Transport Agreements/Protocols, e.g.

• ASEAN Framework Agreement

on Multimodal Transport (AFAMT)

• ASEAN Framework Agreement

on Facilitation of Goods in Transit

(AFAFGIT)

• ASEAN Framework Agreement

on the Facilitation of Inter-State

Transport (AFAFIST)

• Open Sky Policy / Single Aviation

Market

• Single Shipping Market

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ASEAN Integration into the Global

Economy

* EIF: entry into force ** Realized: Tariffs for all products in the Normal Track and Sensitive Track reaches the lowest level or totally eliminated as per

commitment in the Trade in Goods Agreement, mainly by ASEAN-6 and FTA Partner

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ASEAN Integration into the Global Economy

Besides the 5 ASEAN FTAs, ASEAN is also enhancing engagement with

other Dialogue Partners:

USA: Trade and Investment Facilitation Arrangement (TIFA) and

Enhanced Economic Engagement (E3) Initiative.

Canada: Trade and Investment Facilitation Arrangement (TIFA)

Russia: Roadmap for Trade and Investment Cooperation

Hong Kong SAR: On-going negotiations for ASEAN-HK FTA

Regional Comprehensive Economic Partnership

(RCEP)

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The scope and coverage of

RCEP goes beyond the

ASEAN+1 FTAs:

Comprehensive market access

Trade and business facilitation

Trade remedies

Economic cooperation

Trade in Goods, Trade in

Services and Investments

Economic and technical

cooperation

Competition policy and

Intellectual property rights

Dispute settlement mechanism

E-commerce

The RCEP is not an exclusive

regional grouping.

Other countries can participate

only after the existing 16

countries have completed the

negotiations.

Since 2013, SEVEN rounds of

negotiations have been held.

Substantial conclusion of

negotiations by 2015.

Regional Economic Architecture

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3. Has AEC Benefitted ASEAN?

The regional integration has benefitted ASEAN:

Expansion in trade and investments, including intra-ASEAN trade

and investment.

Sustained FDI flows to the region and technology transfer.

Job creation and sustained economic growth.

Economic development of newer members of ASEAN.

ASEAN is well positioned in the center of global supply chain

activities.

Developed strong trade links with major regional economies opening

new business opportunities.

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ASEAN: Trade in Goods

Source: AEC Chart book 2013

3,000

Total Trade

Extra-ASEAN

Intra-ASEAN

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

2,500

2,000

1,500

1,000

500

0

(USD Billion)

25

USD Million

30,000

28,000

26,000

24,000

22,000

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

EU

Japan

ASEAN

USA

China

2000 2005 2008 2009 2010 2011 2012

Total

Extra-ASEAN

Intra-ASEAN

20,000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

120,000

100,000

80,000

60,000

40,000

Source: AEC Chart book 2013

USD Million

ASEAN: Foreign Direct Investments

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Collectively, ASEAN represents:

7th largest economy in the world, with combined GDP of US$2.5

trillion.

A major trading bloc with total trade of US$2.51 trillion. Intra-ASEAN

trade contributing 24% of ASEAN total trade (2013).

Total FDI inflows to ASEAN US$122 billion (2013), Intra-ASEAN

investments (17%).

Dynamic production base and business for global companies.

620 million people, with rising per capita income US$3,800 (2013),

rising demand for consumer goods and services.

3rd largest labor market in the world.

AEC Gains

4. The Private Sector

Collaboration with the private sector is crucial in identifying

problem and areas of concerns towards the establishment of

AEC.

Discussion and dialogues have taken place through different

private sector entities such as the ASEAN Business Advisory

Council (ASEAN-BAC).

ASEAN-BAC has played a strategic role in facilitating

engagement with the private sector, particularly with the

ASEAN Economic Ministers.

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Private Sector Perception of ASEAN

The AEC has created conducive environment for local ASEAN companies to

increase sales, open operations outside their domestic market, and

sourcing on a region wide basis.

MNCs will only invest if there is a large consumer market and efficient

production networks.

Integration is still weak and barriers to trade remain, especially NTBs.

Financial integration is not moving fast to complement trade liberalization.

Compliance to international standards and practices are still falling short,

and resulting in companies having to bear additional costs to meet the

requirements of the individual ASEAN Member States.

Policies on intellectual property rights and competition need to be further

upgraded and streamlined within the region.

Need for further enhancement of regional infrastructure – expansion of

transportation, telecommunications and energy linkages.

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5. Challenges in ASEAN Integration

Availability of skilled workforce. Inflow of FDIs to the region has

placed tremendous pressure on countries in the region.

ASEAN has been very cautious on adopting the EU-style free

movement of labor, whereby, regardless of skills and

qualifications, the EU citizens can be freely employed in any

other EU countries.

What ASEAN has done via the MRAs is to enable ASEAN

professionals/talents/service providers to work in different

Member States in a regulated manner. Compliance to domestic

regulations is one of the main challenges in the mobility of

skilled workforce and professionals.

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Challenges in ASEAN Integration

Strengthening and developing necessary infrastructure facilities to

support the AEC. This involves both hard and soft infrastructures.

Building physical connectivity requires huge funding, for example,

upgrading ports, roads, rails, and airports.

Promoting Public Private Sector Partnership as one possible

approach to develop hard infrastructures in the region.

Balancing competing interests with internal integration and integration

with FTA partners.

6. Vision 2025

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Financial Services Liberalisation and Capital Market Development and Integration;

Towards Facilitative Standards and Conformance;

Trade Facilitation;

Enhancing Participation in Global Value Chains (GVCs);

Competition Policy;

Productivity-Driven Growth, Innovation, Research and Development and Technology Commercialisation;

Taxation Issues;

Sustainable Development;

Strengthening the Role of the Private Sector;

Public Private Partnership (PPP);

Narrowing the Development Gaps;

Financial Inclusion [Access to Financing for Individuals and MSMEs];

Engagement with Civil Society;

Finance;

Energy, Power and Utilities;

Tourism;

Minerals;

Science and Technology; and

Healthcare.

Elements incorporated under the Framework include:

7. Conclusion

The AEC has created a conducive environment for local

ASEAN companies to increase sales, open operations outside

their domestic market, and sourcing on a region-wide basis.

Fully cognizant of the remaining impediments to optimal

realization of commitments under AEC Blueprint, ASEAN is

making efforts to effectively address these.

Engagement with private sectors is key in improving the

“coherence”, transparency and synergies of government

policies and business across actions across industries and

sectors in the ASEAN region”

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Thank you

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