The ASEAN Economic

Community: what you

need to know
Established in late 2015 by the Association of Southeast Asian Nations (itself
founded in 1967), the AEC has been seen as a way to promote economic,
political, social and cultural cooperation across the region. The idea was to
move South-East Asia towards a globally competitive single market and
production base, with a free flow of goods, services, labour, investments and
capital across the 10 member states.

The AECs vision for the next nine years, laid out in the AEC Blueprint 2025,
includes the following:

1. A highly integrated and cohesive economy

2. A competitive, innovative, and dynamic ASEAN

3. Enhanced connectivity and sectoral cooperation

4. A resilient, inclusive, people-oriented and people-centred region

5. A global ASEAN.

Although working within the confines of the AEC integration timetable has
been a struggle for member states, their efforts have paid off: many
companies have already approached ASEAN as one region. This has been
helped by the ASEAN Single Window (ASW), a regional initiative to allow free
movement of goods across borders. But progress is slow: the region can only
proceed at the behest of national governments, and with every ASEAN
country so different, a common vision can be hard to arrive at.

What has it achieved?

ASEAN is one of the success stories of modern economics. In 2014, the

region was the seventh-largest economic power in the world. It was also the
third-largest economy in Asia, with a combined GDP of US$2.6 trillion higher
than in India.

Between 2007 and 2014, ASEAN trade increased by a value of nearly $1

trillion. Most of that (24%) was trade within the region, followed by trade with
China (14%), Europe (10%), Japan (9%) and the United States (8%). During
the same period, foreign direct investment (FDI) rose from $85 billion to $136
billion, and in share to the world from 5% to 11%. With 622 million
people ASEAN is the worlds third largest market, which behind China and
India has the third largest labour force.

Whats the next steps for AEC?

The launch of the AEC needs to mark not the end but the beginning of
another dynamic process. ASEAN has to boost intra-regional trade to reduce
the vulnerability to external shocks. This requires a common regulatory
framework to address infrastructure gaps and the simplification of
administrative policies, regulations and rules. Only 50% of ASEAN businesses
have utilized tariff reductions set out in the ASEANs regional free trade
agreement (FTA). And although tariffs are in decline, non-tariff measures
health and safety regulations, licences and quotas are on the rise and need
to be addressed.

Provided the agreement is well managed over the next decade, the AEC
could boost the regions economies by 7.1% between now and 2025 which
is more than ASEANs growth of 5.4% of from 2004 to 2014. It could also
generate 14 million additional jobs, according to a study by the International
Labour Organization and Asian Development Bank.

How does it affect other trade deals?

The AEC is not the regions only agreement. Three months before the kick-off
of the ASEAN Community, four ASEAN countries (Brunei, Malaysia,
Singapore and Vietnam) signed up to the Trans-Pacific Partnership (TPP).
Five other countries (Cambodia, Indonesia, Laos, the Philippines and
Thailand) are interested in joining.

The TPP is a binding agreement, connecting Asian countries to North

American and Latin American economies. While countries with high export
potential, such as Malaysia and Vietnam, are expected to benefit significantly
from TPP, countries that did not sign the agreement risk losing out. This could
have a disruptive effect on the region due to trade and investment diversion.
Once all agreements are in action, Singapore and Vietnam would be the only
two ASEAN countries with access to Europe (via a free trade agreement), the
US (through TPP) and Asia (through the AEC and the Regional
Comprehensive Economic Partnership).

But its not all bad news: ASEAN economies not currently included in the TPP
might appreciate a supply chain that reaches beyond their own region through
the ASEAN TPP signatories. However, the high standards required by the
TPP pose challenges, pressuring members to enhance practices, the quality
of production, rules and regulations.

Adding to the network of economic regions is China, the worlds second-

largest economy and also not part of the TPP, which is in the process of
forming its own economic bloc: the Regional Comprehensive Economic
Partnership (RCEP). This will comprise ASEAN, Australia, China, India,
Japan, South Korea and New Zealand.

Whats the future of the AEC?

The situation is not without complexities and uncertainties. Nevertheless,

through the entry routes to different blocs, the AEC might eventually unleash
significant unforeseen potential for the ASEAN countries especially once the
TPP and RCEP, with approximately 40% and 30% of global GDP respectively,
come into force.