from Asia Unbound

The Failures of the ASEAN Economic Community

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September 12, 2014

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Next year, the long-awaited ASEAN Economic Community (AEC) will come into effect, welcomed surely by fanfare both from the organization and from all of the ten member states. Long promised by ASEAN countries but repeatedly delayed in its launch, the AEC is supposed to be a single market for all ten member states, similar in some respects to the early days of the European Union’s single market. In theory, the AEC would provide a major boost to intra-regional trade, which lags behind its potential, and also would help woo foreign investment region-wide.

But significant skepticism about the AEC is in order. The community will launch with many serious problems, and overall may do little to boost intra-Southeast Asian trade, which will continue to suffer from trade barriers and non-tariff protections, difficult permitting and customs challenges in many countries, and the region’s serious lack of physical infrastructure. As Filipino academic Eduardo Tadem has noted, about 20 percent of the AEC’s planned trade barrier reductions will not be in place by the beginning of next year, and indeed might never be put into place. Leading ASEAN nations, other than Singapore, simply never have been willing to make the most painful tariff cuts. Many of these missing trade barrier reductions are the hardest ones to get done, the ones that could prove vital to freer intra-regional trade but which could inflict some short-term pain on industries important to major countries like Indonesia and Thailand.

The most important cuts in tariff barriers might never get accomplished in part since the regional economic agreement was not approved by referendum or other public polling in member states, and so any initial challenges with the AEC are more likely to cause public anger than if ASEAN publics had voted on the agreement or had some say in the matter. In fact, many of the AEC members are not even full democracies or democracies at all, including trade heavyweights like Malaysia and Thailand. Europe has faced intense public criticism about the aloofness and undemocratic ways of Brussels, but at least all the European Union member states are democracies and the Union has a European Parliament, allowing for some degree of public input into EU decisions.

The freest nation in the region, Indonesia, is the one least likely to benefit from the AEC and the one where economic nationalism and protectionism has become a potent force. A recent joint study by the Asian Development Bank and the International Labor Organization found that, of all ten ASEAN countries, Indonesia’s economy will see the least added number of jobs from the AEC, in part because of the country’s lack of highly skilled labor, which will benefit the most from the AEC’s reductions in restrictions on labor movement.  (In the recent Indonesian presidential campaign, candidates Joko Widodo and Prabowo Subianto seemingly competed to offer the most nationalist and protectionist economic policies.) Since Indonesians are far freer than any other people in the region (except Filipinos) to express their opinions and change their government, since Indonesia may not benefit much from the AEC, and since economic nationalism is rising in Indonesia, Jakarta well could prove a major obstacle to complete implementation of the single market.

Although president-elect Joko Widodo generally took a less nationalist approach to economic policy during the campaign season, he will have to court Prabowo voters and Prabowo supporters in parliament, many of whom strongly believed in Prabowo’s vision of protectionism and Indonesian economic nationalism. And without Jakarta taking the lead in pushing for implementation of the entire AEC plans, it is hard to imagine the economic community in Southeast Asia even approaching the inter-connectedness and seamless integration in western Europe. “The success of the ASEAN Economic Community lies on decisive actions taken by its member states,” said Arjun Goswami, the ADB’s director of regional economic integration at the launch of its study of the community’s economic impact. Don’t count on such decisive action.

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