One year after establishment of AEC

• Published Dec 25, 2016 7:06 PM KST
• Updated Dec 25, 2016 7:06 PM KST

ASEAN sees positive progress but no ‘Big Bang’ reform

By Kim Jae-kyoung

On the occasion of the first anniversary of the establishment of the ASEAN Economic Community (AEC) that falls on Dec. 31, The Korea Times interviewed six ASEAN diplomats and economists to evaluate the AEC’s first year and highlight its relations with South Korea. The following discussion has been reconstituted based on separate interviews conducted through phone calls and emails from Dec. 12 to Dec. 23. ― ED.

Q

:

Do you see any noticeable progress on the development of the AEC for the first year? How do you perceive the regional integration efforts over the past year?

Venkatachalam Anbumozhi

: Yes and No. With the formal establishment of the AEC, its overall business confidence has improved. Many companies, both inside and outside of ASEAN, particularly the dialogue partner countries, have shown increasing interest in investing ASEAN. Political momentum has increased from hype to reality. The ASEAN Insurance Forum was established in April.

However, not much progress has been made in harmonizing the standards and regulations in order to deliver the full potential of the united trade block. Furthermore, any attempt to unite 10 very diverse nations into one single trading block needs not only perseverance, but also persistence and diligence.

Kim Young-sun

: There has been significant progress for the past year. At the ASEAN Summit 2016 held in Vientiane, Laos, ASEAN leaders have adopted “ASEAN Connectivity 2025” and “Initiative for ASEAN Integration (IAI) Work Plan III,” which are deemed as supplementary to the completion of “ASEAN Community Vision 2025.”

Through these efforts, the 10 member states are promoting their economic potentials and benefits as a region. These efforts have paid off. Many companies across the borders are already approaching ASEAN on a regional basis. Most notably, investment inflows from six prospective partners with ASEAN ― Korea, China, Japan, Australia, India, and New Zealand ― have increased by 11 percent and recorded $40 billion in 2015 according to the ASEAN Investment Report 2016.

Suh Jeong-in

: For the first year, top priority has been placed on laying the foundation for the successful establishment of the AEC. ASEAN member states came up with implementation plans for various areas, such as small- and medium-sized firms, customs clearance, faster trade flows and intellectual property rights. They will unveil a comprehensive implementation plan encompassing all sectors at the end of 2016 or early 2017.

Also, they have established a system to monitor and evaluate the AEC for the effective implementation of AEC 2025. ASEAN has opened a tariff portal site (tariff-finder.asean.org) and a trade service portal (Assist.asean.org) to help business people realize the real benefits the AEC provides.

Kim

: Another positive aspect of progress of the AEC is tariff elimination made under the ASEAN Free Trade Area (AFTA). According to AEC 2015: Progress and Key Achievements, ASEAN Plus Six countries have virtually eliminated all import duties among themselves. Tariff elimination of CLMV countries (Cambodia, Laos, Myanmar and Vietnam) are scheduled to be finalized by 2018. This will further facilitate intra-regional trade, bringing the region closer to achieving its goal of being a seamlessly connected Community with free flow of goods.

Tim Condon

: It is difficult to recognize progress in the first year of the AEC. However, this may be due to the nature of the steps taken. There have been advances in financial sector integration such as liberalization of the insurance sector, the impact of which is difficult to see unless you are working in the insurance industry. However, I think it is fair to say that the first year of the AEC has not produced a Big Bang of reform.

Q: What are the biggest challenges for the AEC? How can ASEAN member states address such issues?

Suh

: The biggest obstacles to the economic integration of ASEAN are development gaps and lack of infrastructure in the region. The gap between advanced countries such as Singapore and developing countries such as Myanmar, Cambodia and Laos could hamper ASEAN integration. A lack of infrastructure in most member states is a major stumbling block to economic development in the region.

In order to address these issues, ASEAN announced IAI Work Plan III and Master Plan on ASEAN Connectivity (MPAC) 2025 as the core task in the first year of the AEC. The IAI Work Plan III (2016-2020), consisting of an implementation plan and a monitoring and evaluation framework, is focused on supporting poor countries, including Cambodia, Myanmar, Laos and Vietnam.

Anbumozhi

: Removing the barriers to financial market integration will be a challenge. Removing non-tariff measures in health and safety regulations, licenses and quotas need to be addressed.

Free flow of skilled labor from Cambodia, Laos and Myanmar, financial inclusion for SME development, greening of the supply chain will also remain challenges. In order to tackle these challenges, ASEAN must address regulatory and institutional issues, build up independent monitoring mechanisms and strengthen the capacity of the ASEAN secretariat.

Alicia Garcia Herrero

: The biggest challenge is that China will push for a Regional Comprehensive Economic Partnership (RCEP) rather than work with the AEC and ASEAN. The reason is that China has learned from the U.S. and Trans-Pacific Partnership (TPP) negotiations and wants something more China-centered with more negotiating power for China

: The external uncertainty due to the changing global economic landscape can be considered a challenge for the AEC. The Brexit has put a damper on regional integration. The election of Donald Trump to the U.S. presidency has diminished the chances of America ratifying TPP. The uncertainties rising from recent economic protectionism may hinder the progress of the AEC going forward. The ASEAN must therefore realize and promote the size and potential of its combined economy. It should address issues of NTBs, infrastructure gaps among the member states, as well as a transparent and efficient regulatory framework in order to integrate more fully into the global system of free trade and investment.

Q: What do you think of Korea’s ASEAN strategy? Can you make some recommendations for Korea to gain a stronger foothold in ASEAN?

Su Sian Lim

: As for Korea and ASEAN ties specifically, I would say some progress has been made if we look at the numbers. The ASEAN-6 economies ― excluding Cambodia, Myanmar, Laos and Brunei ― accounted for 12.9 percent of Korea’s total trade in the year to October, which is an improvement from the 12.1 to 12.2 percent share witnessed since 2013. If we look at Korean exports, there has naturally been a decline in the year-to-date, but nowhere as sharp as Korea's overall exports.

: First of all, Korean firms need to take a comprehensive approach by considering ASEAN as one market and production base. In other words, Korean firms should try to see both the forest and the trees and take a ‘think regional, act local' strategy to find optimal places for regional production bases to cover the entire ASEAN market.

Also, Korean firms should consider ASEAN as a friend not an export destination. The best business person is the one who pursues co-prosperity with business partners and local communities. In that regard, Korean companies need to create many examples of co-prosperity with ASEAN partners through trade and investment.

: The Korean Embassy to ASEAN is very active in expanding its sphere of action from economy to society and culture or soft power, which has been an appreciable effort in the past year. It gives more deepened understanding of Korea within ASEAN.

Korea needs to proactively invigorate the negotiations toward successful completion of the RCEP and ASEAN plus 6 arrangements ― a game changer for the region and for the world. Also, Korea should promote more exchanges of students and young leaders through educational and professional development scholarship, between ASEAN and Korea.

Lim (HSBC):

I think in recent years Korea's approach has been constructive, with the government pushing things such as the ASEAN-Korea Business Council and setting up ASEAN cultural centers in Korea and so on.

The relationship will also naturally become stronger over time on both push and pull factors - when Korean businesses feel a greater hunger to look for opportunities further afield perhaps due to slowing growth at home, and when ASEAN economies are able to offer more attractive conditions for doing business in the region.

: In order for Korean business to gain a stronger foothold in ASEAN, Korean companies should carefully consider corporate strategy, home-country measures and competition, as well as location advantages of ASEAN in the context of value chain activities. There should be stronger linkages among Korean multi-national enterprises (MNEs), micro, small, and medium-sized enterprises (MSMEs) and ASEAN suppliers. This will result in win-win outcomes, through which both sides can further enhance economic cooperation.