ASEAN ECONOMIC COMMUNITY: ASSESSING THE READINESS OF THE PHILIPPINES

Submitted to: Ms. Erlinda G. Bialno, CPA

Submitted by: Mark John M. Rivera

ASEAN ECONOMIC COMMUNITY: ASSESSING THE READINESS OF THE PHILIPPINES

Imagine the Philippines transformed into a stable, prosperous, and highly competitive country with equitable economic development, and reduced poverty and socio-economic disparities. This maybe a dream come true, especially for an ordinary Juan Dela Cruz who is experiencing financial distress in the current situation of his country, the Philippines. Regarded as a third world country , the Philippines have so much potential as to achieving that vision. Imbued with its rich natural resources and skilful human resources, the Philippines can compete in the world economy. But in the countrys current state, it is still in the process of making reforms politically and economically. Currently, it is a widely talked-about topic that by 2015, Association of Southeast Asian Nations (ASEAN) would implement an economic integration between its member states which will result into a single economy/market as a region. Many arguments whether the Philippines is prepared or not for the economic integration sprung. Despite the countrys growing economy, the Philippines is not yet ready for the economic integration of the ASEAN. As a member state of ASEAN, the Philippines is taking part of realizing the vision of a regional community in the Southeast Asia. This regional community is termed as ASEAN Economic Community (AEC) which is based on a convergence of interests of ASEAN Member Countries to deepen and broaden economic integration through existing and new initiatives with clear timelines. In establishing the AEC, ASEAN shall act in accordance to the principles of an open, outward-looking, inclusive, and market-driven economy consistent with multilateral rules as well as adherence to rules-based systems for effective compliance and implementation of economic commitments. (ASEAN Secretariat. 2008. ASEAN Economic Community Blueprint, p. 5) The AEC has the following key characteristics which were examined and compared to the Philippines current economic situation to assess its readiness: (a) A single market and production base According to AEC Fact Book, A single market for goods and services will facilitate the development of production networks in the region and enhance ASEANs capacity to serve as a global production centre and as a part of the global supply chain. Tariffs will be eliminated and non-tariff barriers will be gradually phased out. Simple, harmonised and standardised trade and customs are expected to reduce transaction costs. There will be a free movement of professionals. ASEAN investors will be free to invest in sectors and the services sectors will be opened up. (ASEAN Secretariat. 2011. ASEAN Economic Community Fact Book, p. xiii)

The private sector argued that this economic integration is a threat to the industries. They insist that Philippine companies are not yet ready to compete with other ASEAN companies noting that the Philippines is a very attractive market and not all of these companies are ready to protect their market share. Industries still need to strengthen their business to be able to compete. (http://www.abscbnnews.com/business/07/23/13/ph-not-ready-asean-economicintegration) The Agriculture Secretary of the Philippines also agrees with the view above. With the free movement of goods, services, investment, labor and capital among the member countries, there is also a growing fear that Philippines own products will not compete because of the advanced farming technology and generous government support of the neighboring ASEAN countries. As the economy opens up in 2015, it may disadvantage Filipino farmers because they might lower prices in order to compete against other ASEAN nations products. (http://www.rappler.com/ nation/38601-alcala-asean-economic-community-agriculture) Infrastructure development facilitates the free flow of goods and investments between ASEAN member counties because it reduces transportation and logistics cost. The delays in the construction of badly needed infrastructure projects in the Philippines and Indonesia are primarily due to bureaucratic bottleneck, red tape and misplaced costly priorities such as subsidies. (Trajano. April 30, 2013. Achieving the ASEAN Economic Community: Are the Philippines and Indonesia Ready for 2015?) The development of Philippine infrastructures is yet to be completed by the time the deadline for AEC is reached so as of now, the countrys readiness is still questionable despite the current efforts of its Public Works and Highways Department. Also to ensure the fast flow of goods from other ASEAN countries, it is required for a member country to eliminate barriers to free flow of goods. These barriers include tariff and non-tariff barriers. It is emphasized that not only tariff barrier be eliminated but also non-tariff barriers because elimination of tariff only reduces the cost to transport goods but not the time which the goods are to be checked by the government through its customs. Non-tariff barriers include laws and policies that delay the fast movement of goods to the country. The Philippines have already eliminated almost all of the tariff barriers but as of the moment, the government is still in the process of eliminating those non-tariff barriers through its legislations. (b) A highly competitive economic region In this characteristic, ASEAN Member States have committed themselves to introduce nation-wide competition policies and laws (CPL) to ensure a level playing field and incubate a culture of fair business competition for enhanced regional economic performance in the long run. (http://www.abs-

cbnnews.com/business/07/23/13/ph-not-ready-asean-economicintegration) The Philippines is assigned as the jurisdiction and it established an Office for Competition under its Justice Department to implement competition policies and laws. As the deadline 2015 gets nearer, the Philippines is still in the process of drafting its competition legislation. This shows that the country is not yet prepared in terms of its competition laws to provide guidance for fair business practices. (http://www.asean.org/communities/asean-economic-community/ category/competition-policy) (c) A region of equitable economic development An important factor in this characteristic is SME Development. Its objectives are to enhance the competitiveness and dynamism of ASEAN SMEs by facilitating their access to information, market, human resource development and skills, finance as well as technology; strengthen the resilience of ASEAN SMEs to better withstand adverse macroeconomic and financial difficulties, as well as the challenges of a more liberalised trading environment; and increase the contribution of SMEs to the overall economic growth and development of ASEAN as a region. (ASEAN Secretariat. 2008. ASEAN Economic Community Blueprint, p. 24) In the evaluation of the implementation of this characteristic, Adalba concluded in her paper that the Philippines manufacturing SMEs were not able to significantly generate value added and employment to improve the countrys overall manufacturing growth for the past decade. She explained that this weak performance of SMEs has been largely attributed to barriers particularly access to finance, technology, and skills as well as information gaps and difficulties with product quality and marketing. (Adalba. January 2013. ASEAN Economic Community 2015 SME Development: Narrowing Development Gap Measure) This suggests that the Philippines still need to improve its support and development of the SMEs across the country in order to achieve equitable economic development characteristic of the AEC. (d) A region fully integrated into the global economy In this characteristic, ASEAN must look beyond the borders of AEC to enable businesses to compete internationally, to make ASEAN a more dynamic and stronger segment of the global supply chain and to ensure that the internal market remains attractive for foreign investment. (ASEAN Secretariat. 2008. ASEAN Economic Community Blueprint, p. 25) It is strengthen country is investment mentioned earlier that the private sector in the Philippines still needs to their institutions in order for them to compete internationally. The also unappealing for the foreign investors because of its foreign cap in its Constitution which limit foreign ownership of companies up to

40% only that protects its local businesses from competition. Thus the Philippines must help and support the local businesses to be more competitive especially in the international market, and protectionism has to be abandoned for the country to be really ready for the AEC implementation. In summary and in connection with the current status of the Philippines, the country has enough indications to believe that it is not yet ready for the economic integration of the ASEAN or the ASEAN Economic Community by the time 2015. As assessed through the following characteristics of AEC, the Philippines in terms of: (a) A single market and production base is still in the process of developing measures to ensure the free flow of goods and investments through its legal and economic reforms, and its industries are not yet ready for the entrance and to compete with other ASEAN countries businesses because they are still in the process of strengthening their businesses. (b) A highly competitive economic region is at the moment legislating competition laws to ensure the fair business practices and protect consumers and its Justice Department has just recently created an Office for Competition that is not that effective in implementing (competition) laws because there still no law to implement. (c) A region of equitable economic development has not yet fully developed a support system for SMEs to withstand adverse macroeconomic and financial difficulties, and SMEs are not that yet significant contributor to economic growth and development of the Philippines which is proven by their economic performance. (d) A region fully integrated into the global economy still has boarders which prevent the country to be global because of its restrictions with regards to foreign investments that can only be resolved with changing the countrys constitution. The Philippines is currently putting much effort in preparation for ASEAN Economic Community. The countrys assessment gives us a clearer picture as to its readiness. Despite of the presented data that persuade us to believe that the Philippines is not yet ready, it does not mean that the country would be forever not ready but it would be ready to integrate its economy with other ASEAN countries in the right and perfect time.

REFERENCES

Books/Writings/Journals/Studies: ASEAN Secretariat. 2008. ASEAN Economic Community Blueprint, pp. 5, 24, 25 ASEAN Secretariat. 2011. ASEAN Economic Community Fact Book, p. xiii Trajano. April 30, 2013. Achieving the ASEAN Economic Community: Are the Philippines and Indonesia Ready for 2015? Adalba. January 2013. ASEAN Economic Community 2015 SME Development: Narrowing Development Gap Measure

Electronic Sources: http://www.abs-cbnnews.com/business/07/23/13/ph-not-ready-aseaneconomic-integration http://www.rappler.com/nation/38601-alcala-asean-economic-communityagriculture http://www.abs-cbnnews.com/business/07/23/13/ph-not-ready-aseaneconomic-integration