AEC could progress more

Alifah ZainuddinMonday, January 23, 2017

The establishment of Asean Economic Community (AEC) in 2015 has shown commendable progress in eliminating region-wide tariffs but experts remain sceptical of its capacity to create a single integrated market in the region.

Institute of Strategic and International Studies fellow Firdaos Rosli said the overall outlook of the effectiveness of the AEC is still debatable as it has only been a year since its establishment.

In a recent email response, Firdaos told The Malaysian Reserve (TMR) that Asean has done well in terms of bringing down tariffs, as 96% of trade within the regional bloc is transacting at 0% tariff rate.

However, he noted that the progress has not been converted into greater economic engagement between its member states as 72% of intra-Asean trade were confined to its three biggest trading nations, namely Malaysia, Singapore and Thailand.

“Behind-the-border trade barriers continue to be a hot-button topic, because there is very little that Asean or its 10 member countries can do, since the bloc is not a customs union,” Firdaos said, adding that Asean’s diverse political, economic and social structures meant that the group will continue to progress in a multi-track format.

The AEC integration plan, which aims to allow freer movement of goods, services, skilled labour and capital across the region, has been widely criticised as progress on liberalisation of services and investment has been slow due to non-tariff barriers.

According to official statistics, intra-Asean trade in 2015 stood at US$543.75 billion (RM2.42 trillion), which accounted for 24% of total Asean trade of US$2.27 trillion over the period. Meanwhile, ex-Asean trade posted a dominant percentage with 76% or US$1.72 trillion.

In addition to the development gaps and lack of integration, Asian Strategy and Leadership Institute senior policy analyst Jordan Heng-Con- taxis said external political events may further impede the progress of the AEC going forward.

“Asean’s consensus model of decision making can erect more hurdles in the way of getting things done as we’ve seen a clear example of this throughout last year when Asean was unable to come up with a coherent and united stance on territorial disputes in the South China Sea,” Heng-Contaxis told TMR when contacted recently.

He also pointed out that the uncertainties surrounding President Donald Trump’s governance and the abandonment of the Trans-Pacific Partnership Agreement (TPPA) could result in more insular and protectionist relations within the Asia Pacific.

“Without strengthening the capacity of its secretariat, domestic political agendas will continue to prevent Asean from acting in what is in its collective good,” Heng-Contaxis said.

Firdaos further noted that Asean needs to take charge in leading change within the region in order to capitalise on its economic size and potential.

“The fact remains that Asean is only reacting to and anticipating challenges that have happened or would happen instead of leading change in the region. The “last mile” process of economic integration processes such as the TPPA or the Regional Comprehensive Economic Partnership is presently dependent on its trading partners (when it is an Asean-led initiative),” Firdaos explained.

On whether the Philippines’ chairmanship would fill the leadership void that Asean desperately needs, Firdaos said President Rodrigo Duterte is expected to focus more on security cooperation rather than trade.

“As far as regional economic integration is concerned, Asean has already laid out specific plans up until 2025. I don’t think this year’s Asean chair will do anything magically different than what has been outlined,” he said.

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