Japanese support for the AEC

The Association of Southeast Asian Nations is set to establish the ASEAN Economic Community (AEC) by the end of this year, with the goal of creating a single market and production base encompassing over 600 million people. Japan, which has built friendly relations with ASEAN members and enjoys close trade and economic ties with the region, should provide effective support for the plan to help the group achieve better economic progress.

ASEAN was established in August 1967 by Thailand, Indonesia, the Philippines, Malaysia and Singapore mainly for political and security reasons. As time went on, it turned itself into an organization for wider regional cooperation, including economic integration.

Its membership has now grown to 10 countries, including Brunei, Vietnam, Laos, Myanmar and Cambodia. The ASEAN members combined had gross domestic product reaching $2.4 trillion in 2013 — making it the world’s seventh largest economy, even larger than Russia or India — with per-capita GDP reaching $3,837. The group’s 2013 growth rate hit 5.1 percent, and it is forecast that ASEAN as a single entity could become the world’s fourth-largest economy by 2050 if its growth trend continues. Its combined area is 12 times that of Japan and its total population is the world’s third-largest, following China and India. Its combined population surpasses either the European Union or the United States as a market.

The group has the world’s third-largest labor force, and it is relatively young. These numbers graphically underscore ASEAN’s immense economic potential.

Since the 1990s, ASEAN has worked to increase the region’s economic activities through tariff cuts and the elimination of nontariff barriers to trade, and its efforts for regional economic integration have culminated in the creation of the AEC. The so-called ASEAN-6 — Singapore, Thailand, Indonesia, Malaysia, the Philippines and Brunei — has already abolished tariffs on more than 99 percent of goods traded. Cambodia and the three other members will gradually reduce their tariffs with a view toward eventually abolishing them. Such efforts turned ASEAN into an highly open economic region, with international merchandise trade reaching $2.5 trillion in 2013 — $1.3 trillion exports and $1.2 trillion imports. Trade among ASEAN members accounted for about a quarter of the total.

ASEAN adopted the AEC Blueprint when it marked the 40th anniversary of its founding in 2007, moving up the schedule for the AEC’s establishment from 2020 to 2015, and implemented 80 percent of the measures included in the blueprint by 2013. But the group’s full economic integration won’t be realized in the beginning. Although the AEC is aiming for the free flow of labor and services, progress in this field is slow. Unlike the EU, border controls between AEC member-states will remain and they will continue to use their own national currencies. ASEAN members’ political systems, religions and income levels differ greatly from each other. Promoting equitable economic development will be one of the challenges for ASEAN to tackle as it runs the AEC.

At the ASEAN foreign ministers’ meeting held in Kota Kinabalu, Malaysia, in late January, the chairman’s statement underlined the members’ strong political will to create the AEC by the end of this year as scheduled. It called on the member states to make efforts to ensure its successful launch.

A major problem that ASEAN faces is China’s attempt to increase its maritime dominance in the South China Sea. China is engaged in disputes with some ASEAN members over islets and is seeking to establish effective rule over these territories.

The chairman’s statement said that ASEAN will push for an early conclusion of the Code of Conduct with China, which will have binding power, to defuse tension in the area, but the goal remains difficult due to China’s intransigence.

China should refrain from any attempt to bring the ASEAN economic zone into its sphere of influence through the use of political and military power.

In contrast with China, there are no contentious issues between Japan and any of ASEAN’s members. Japan has for many years continued to invest in the region and provide it with economic assistance, and the high technological levels of Japanese firms and the quality of their products enjoy considerable respect in the region. Japan should deepen its relations with ASEAN by fully utilizing these advantages. It can also utilize the knowledge it has gained from its own economic growth to offer advice to ASEAN as it tries to narrow the gaps among members in social and economic development, and to improve the protection of intellectual property.

The AEC can be a stepping stone toward deeper and wider regional integration in the form of the Regional Comprehensive Economic Partnership, a free trade agreement between ASEAN and the six countries with which it has existing FTAs — Japan, China, South Korea, Australia, New Zealand and India — and possibly the establishment of an East Asian community. For the time being, Japan should help ASEAN by concentrating on providing support to solidify the AEC’s economic foundation in its initial stage.