Japan welcomes the formation of the ASEAN Economic Community, or AEC, as the prosperity of the Association of South East Asian Nations is expected to also benefit Japan, the world’s third-largest economy.
“Japan and ASEAN should be in a win-win relationship,” said Secretary-General of the ASEAN-Japan Centre Masataka Fujita, who assumed the post in September.
The AEC, formed at the end of last year, basically means that ASEAN became a more cohesive organization and consolidated regional economic integration. ASEAN member states had already eliminated many tariffs and other barriers among ASEAN member states prior to the creation of the AEC, but will accelerate activities to further ease doing business.
“Multinational companies, including those from Japan, optimize their operations in various production stages such as research and development, manufacturing, marketing and sales within the region, and ASEAN has been assisting them by promoting liberalization. The AEC will work to ensure this trend continues,” Fujita said.
Reducing trade barriers
ASEAN is already quite far along in terms of reducing trade barriers. For trade within the region, 96 percent of goods are already tariff free. Therefore, the formation of the AEC will not change much in terms of trading goods.
Fujita said ASEAN could be proud of its commitment to economic unity, referring to the high percentage of tariff-free goods, considering how diverse the level of economic development is among the 10 member countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Cambodia, Laos and Myanmar are designated as least-developed countries by the U.N. and receive different treatment under various international agreements including those at the World Trade Organization. Even for those countries, as well as Vietnam, 90 percent of their trade is via tariff-free goods within ASEAN.
Services, personal mobility
Although trade barriers have been reduced, liberalization of services and personal mobility have not reached satisfactory levels, he said.
“Services can be a sensitive area and each country may have some areas they do not want to liberalize. For example, if large foreign retailers enter domestic markets, it could threaten small local businesses,” he said. Under the philosophy of the AEC, regulations that protect local businesses from the entry of larger foreign rivals will gradually be eliminated.
Liberalization of services will also entail the elimination of tedious administrative processes for foreign companies to acquire various certifications from local governments, something each member state is currently working on.
Regarding the liberalization of personal mobility, each member state has reached a basic mutual understanding that engineers, medical doctors, architects and other highly skilled people should be able to move to other member states more freely, but they are slow in implementing concrete measures to realize this, he said.
One of the reasons ASEAN member states find it difficult to reach consensus on some issues is that they require getting the approval of all 10 member states on each issue.
Additionally, in principle they do not intervene in each other’s issues. This implies that a member state exerts less pressure on others to prevent it from objecting to issues that most of the member states agree on, he said. This contrasts with the European Union, where peer pressure is more prevalent.
Japan and ASEAN members enjoy amicable relationships and will likely continue to do so. But the relationship was not necessarily smooth during the 1970s due to Japan’s overreaching presence in Southeast Asia, Fujita said. During that time, Japan was overrepresented through investing in, and exporting heavily to, Southeast Asia.
“Japan was not necessarily welcome then. When Japanese prime ministers went to Southeast Asia, they were often booed and experienced some bashing,” he said. “Southeast Asia was generally weaker than Japan and the people felt Japan was taking advantage.”
For example, Japanese chemical companies that were criticized at home for the negative environmental impact of their factories built factories in Southeast Asian countries with looser environmental standards, drawing heavy criticism.
“Both Japan and ASEAN suffered heartache. To fix the situation, then-Prime Minister Takeo Fukuda made a speech in 1977 that become known as the Fukuda Doctrine,” he said.
Fukuda made the speech in Manila in 1977, saying, in essence, that Japan and ASEAN are equal partners and both parties will pursue “heart-to-heart” relationships of mutual trust in various fields and seek solidarity with ASEAN on the basis of equal partnership.
“Since then, Japan-ASEAN relations have been moving in a positive direction,” Fujita said, adding that the foundation of the ASEAN-Japan Centre in 1981 was based on the Fukuda Doctrine. “Japanese companies became more responsible within ASEAN,” he said.
Also since that time, Japan and ASEAN have moved closer toward economic equality.
In the 1980s, Japan’s gross domestic product was roughly 10 times as much as ASEAN’s 10 member states combined, while today the ratio is 2:1.
This is more a result of ASEAN’s economic position becoming relatively stronger, rather than that of Japan’s becoming weaker.
ASEAN imports from Japan fell to 8.8 percent of total imports in 2014 from 24.7 percent in 1995. Over the same period, Japan’s imports from ASEAN were almost unchanged at 14.3 percent versus 14.4 percent.
Fujita said it is hard to measure the economic impact of the formation of the AEC on Japan, but it will probably not affect Japan immediately because no drastic change was implemented at the time of formation. The creation of the AEC is a part of the process toward ASEAN’s comprehensive integration.
Nonetheless, “the AEC will guarantee predictability and transparency of the market, which should have a positive impact on Japan,” he said.
ASEAN-Japan Centre role
Amid improving economic unity between ASEAN member states, the ASEAN-Japan Centre will continue to promote the parties’ relationships in four categories: trade with Japan; ASEAN investment; tourism; and exchange.
“Right now, there is an economic rebalancing going on. Amid such global conditions, we will conduct various activities with a view to achieving sustainable development,” Fujita said, referring to the U.N. Sustainable Development Goals. These are intergovernmental agreements made at the U.N. in September 2015 to tackle various global issues, including eradicating poverty and ensuring healthy lives and education.
For example, one of the activities of the ASEAN-Japan Centre is to hold business-matching events in which Japanese companies meet Southeast Asian craft makers and other manufacturers to discuss business opportunities.
In another project, the ASEAN-Japan Centre arranged for students from the Tokyo-based Bunka Fashion College, a prestigious fashion school, to visit ASEAN member states to seek out fashion materials that are not yet widely known in the Japanese market. The young Japanese designers used the materials to create and develop new clothing, accessories and shoes.
Various other events see the center inviting business executives and high-level government officials from Southeast Asia to hold seminars for Japanese companies on investment opportunities in their countries.
The center plans these activities to optimize relationships as Fujita said he wants to conduct results-based management of the center.
“We are not only responsible, but also accountable for our activities because we operate with taxpayer money,” he said.
“We should ask ourselves, ‘what benefit does what we are doing achieve?’ If there is no clear benefit, we shouldn’t be doing it,” he said.
Before taking his current position in September 2015, Fujita worked as an economist for the U.N. for more than 30 years. He was involved mainly in economic research and policy analysis, and was a lead author of the World Investment Report and other publications on foreign direct investment.
He wants to stress that the ASEAN economy has strong growth potential.
Fujita pointed out that ASEAN accounts for 9 percent of the global population and 7 percent of global trade, but only 3 percent global GDP. This occurs because local demand and companies are weak, he said.
“This means that there is definitely growth potential there,” he said.