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ASEAN works to overcome challenges

by Minoru Matsutani

Staff Writer

The Association of Southeast Asian Nations will continue to accelerate integration while it works to overcome challenges such as disparities in the levels of development among member countries, academic experts of some ASEAN countries said at a symposium in Tokyo.

The specialists from Singapore, Malaysia, Thailand, Indonesia and Vietnam discussed ASEAN’s current situation, its future and their countries’ roles.

The five were guest speakers at the symposium “Member countries’ positions on ASEAN economic integration and the surrounding environment,” organized by the Keizai Koho Center in Tokyo on Feb. 27.

ASEAN Economic Community

The first speaker, Shandre Thangavelu, an associate professor in the Department of Economics, Faculty of Arts & Social Sciences at the National University of Singapore, delivered a presentation titled “The Establishment of ASEAN Economic Community — Toward 2015 and Beyond.”

In his talk, he touched on ASEAN’s future and challenges as well as other regional economic partnership frameworks such as the Regional Comprehensive Economic Partnership (RCEP), which covers ASEAN members and their free trade agreement partners, including Japan, Australia, China, India and South Korea.

Since its founding in August 1967, ASEAN has been expanding and accelerating integration mainly through a reduction of trade barriers. The founding members are Indonesia, Malaysia, the Philippines, Singapore and Thailand. Brunei joined in 1984.

The regional group continued expanding between 1995 and 1999, adding the Southeast Asian countries of Cambodia, Myanmar, Laos and Vietnam, or CMLV as these less-developed ASEAN latecomers are known.

One of ASEAN’s immediate goals is to form the ASEAN Economic Community, or AEC, in 2015.

The AEC envisages the following key characteristics: 1) a single market and production base; 2) a highly competitive economic region; 3) a region of equitable economic development; and 4) a region fully integrated into the global economy. In short, the AEC will transform ASEAN into a region with free movement of goods, services, investment, skilled labor and a freer flow of capital.

“Market integration is the top priority for us,” Thangavelu said.

But in order for ASEAN to thrive, it needs to address some challenges. One of the difficulties facing ASEAN is inequality in the region, he said.

Liberalization has released vast amounts of economic resources in the region and ASEAN will see greater movement of unskilled labor from poor to rich countries. Keeping such movement under control presents a major challenge.

ASEAN can also expect to see a shortage of highly skilled workers as innovation increases demand for high-tech consumer products.

Thangavelu also discussed the RCEP, comparing it with the TPP, or Trans-Pacific Partnership, which includes the U.S. and other countries around the Pacific and does not include all ASEAN countries. The TPP is a smaller group, but the partnership within the group is tighter, while the RCEP is a larger group with fewer restrictions.

Malaysia

Tham Siew Yean, a principal fellow at the Institute of Malaysian and International Studies, made the second presentation “Malaysia’s Position on the AEC and Reasons Behind it.”

“Malaysia has a small domestic market, meaning the regional market is very important for the country,” Tham said, stressing the significance of ASEAN. “Malaysia also places importance on peace and stability in the region.”

Malaysia is well prepared for the launch of the AEC, he said, adding that several liberalization measures are already underway.

Under the ASEAN Trade in Goods Agreement, or ATIGA, which Malaysia ratified in June 2009, Malaysia has eliminated duties on 98.74 percent of its tariff lines. Products with tariffs include tropical fruit, tobacco, rice and other highly sensitive products. Some products on the General Exclusion List subject to tariffs include alcoholic beverage and weapons.

Tham also said Malaysia is accelerating liberalization of services. The country deregulated the Foreign Investment Committee in June 2009, making it easier for foreign companies to enter the Malaysian market.

The AEC can also bring benefits to companies in the ASEAN region. Currently, Singapore is by far the largest investor in Malaysia among ASEAN member states because of historical and geographical connections, but “hopefully other countries will invest more,” he said.

The AEC can also provide opportunities for Malaysian companies to expand into the region. There are currently 604 Malaysian companies operating in ASEAN member states.

The challenge is the auto sector, in which two Malaysian makers are heavily protected by the government. Excise duties now range between 65 and 105 percent. Also, the service industry is domestically oriented and there has been criticism over a lack of transparency in procedures to approve foreign investments.

Thailand

Prapat Thepchatree, the director of the Center for ASEAN Studies at Thammasat University, made a presentation titled “Thailand and AEC.”

Prapat discussed so-called ASEAN connectivity, or connecting ASEAN’s inland countries with roads, as Thailand lies in the center of them.

Thailand plays a central role in the two key corridors in inland ASEAN: the East-West Corridor that connects Myanmar, Thailand, Laos and Vietnam, and the North-South Corridor connecting Thailand, Laos and Myanmar. The latter also stretches to southern China.

Prapat further stressed Thailand’s significance in connecting ASEAN inland countries as many gas pipelines and power lines go through Thailand.

In discussing the future of the AEC, Prapat, like the other speakers, noted that income disparity in member countries will be one of the challenges to tackle. The AEC needs a common identity and common policies to unite and Thailand can take a leadership role, he said.

“Thailand should play an important role in dealing with these (common identity and common policy) challenges,” he said.

On Thailand’s benefits from the AEC, he said the sectors with regional competitiveness will thrive. Companies dealing in agriculture products, auto products, electronics, rubber and textiles will see benefits, he said. In the services sector, tourism, hospitals and education are competitive.

On the contrary, less competitive products and services include coffee, tea, chemical products, telecommunications and finance. Thailand is also susceptible to political instability, Prapat said.

“In conclusion, Thailand has played and will continue to play an important role. If Thailand adjusts its role in the community, the country can enjoy growth and the whole region will be prosperous,” he said.

Indonesia

Titik Anas, an economist at the Department of Economics at the Centre for Strategic and International Studies, delivered a presentation titled, “Indonesia’s position on ASEAN Economic Community.”

Indonesia is very well liberalized from a trade standpoint. As much as 98.66 percent of total tariff lines are already zero, he said. The remaining 1.34 percent applies only to very sensitive products such as rice and alcohol.

Indonesia is still restrictive in the service sector, but is working toward liberalizing this area, he said.

“Some sectors were easy to liberalize, but the difficult ones are not yet open,” Anas said. For example, Indonesia will not open the transport sector anytime soon as laws need to change for that and it takes about a year for the government to change laws, he added.

Liberalization in Indonesia has progressed since the International Monetary Fund forced the country to liberalize after the late 90s Southeast Asian crisis. However, there have recently been some inward-looking policies implemented, making it difficult for radical change to happen, he said.

One such example is the mining law of 2009, which bans the export of most raw materials. Minerals can only be exported after certain level of purification, and export taxes of 25 percent to 60 percent are applied on some minerals.

Another inward-looking policy is the new industrial law enacted in December 2013, which aims at developing the competitiveness of domestic industries and maintaining their stability in the event of global financial difficulties.

Under the law, the government may take protective measures for national industries if there is a threat or loss to those industries stemming from government policies, regulations or business circumstances resulting from global competition, he said.

Vietnam

Nguyen Anh Thu, the associate dean of Faculty of International Business and Economics, VNU University of Economics and Business, was the fifth speaker and she made a presentation titled “Vietnam’s participation in AEC.” She was the only representative from the CMLV countries.

The presentation focused on Vietnam’s openness to foreign direct investment, or FDI.

Vietnam has gradually opened some sectors for foreign investment through mergers and acquisitions. Foreign investors are currently allowed to buy unlimited shares in some domestic companies, she said, adding there are strict foreign ownership limitations on certain listed companies and service sectors.

She also stressed the point that procedures to approve foreign investment are easy and abbreviated because local authorities in Vietnam’s 58 provinces and five municipalities generally have the authority to issue investment licenses. Decentralization of such licensing authority has streamlined licensing and reduced processing time.

Japan is by far the largest FDI investor in Vietnam, investing $5.14 billion in 2012, followed by Singapore with $1.73 billion and South Korea with $1.18 billion.

With the launch of AEC, FDI from ASEAN member states is expected to increase. The majority of ASEAN FDI in Vietnam has been concentrated in the fields of transportation services, postal services, tourism and hotels, banking and finance and culture and education.

Although large-scale, modernization projects are still mainly monopolized by investors from Europe and Japan, ASEAN investors have been playing increasingly more important roles in Vietnam investment, she said in her presentation.

Vietnam’s challenge is, among others, that it has high comparative advantage in mainly low value-added products and Vietnamese companies with low competitiveness will face more competition if ASEAN accelerates integrations with AEC.

AEC and beyond

In the Q&A session following the speeches, moderator Takashi Terada, professor of international relations, Department of Political Science, Faculty of Law at Doshisha University, asked if the AEC is a goal or a method to achieve a goal. He followed that question another, saying, “What comes after AEC?”

In response, Tham said, “The AEC is the goal, but a process to achieve that goal is a journey.”

“And the goal may not be seen in 2015 as the journey will probably take time,” he added.

Prapat followed Tham, saying: “ASEAN is looking beyond 2015. We will increase ASEAN cooperation, which will be not only economic but also political and social.”

Addressing the wealth gap among ASEAN members, the speakers unanimously said CLMVs will eventually catch up and ASEAN will continue to work toward integration.

Vietnam’s Nguyen said: “Integration is a way to narrow development gaps. CMLVs do not want to be isolated.”

Regarding the TPP, for which Vietnam has joined negotiations, Nguyen said, “The most important thing about the TPP is to use this opportunity for domestic reform.”

The moderator also pointed out that free trade agreements are meaningless unless companies use them, and asked the speakers to encourage companies to take advantage of free trade agreements.

“You’re right about that. It may be more expensive and difficult for some small and mid-size companies to use free trade agreements,” said Anas, who also mentioned in her presentation that some Indonesian parliament members do not know what AEC is.

The other speakers basically agreed that getting small and mid-size companies to use free trade agreements is a challenge.

  • Steve Stoffers

    You left out the fastest growing member, and growing so in spite of having a responsible and increasingly sustainable and improving fiscal picture, at the same time. The Philippines.