The ASEAN Economic Community (AEC) has a plan to create a single market for business, trade and labor among the ten nations in Southeast Asia by the end of 2015. However, some are far more ready than others and full integration is unlikely to come for several more years.

Myanmar requires the most liberalization to meet the standards of the ASEAN Economic Community. Other countries that still have much work to do include Vietnam, Laos, and Cambodia, according to a study done by The University of Pennsylvania.

The study, which was done by the university’s Wharton Business School, also mentioned political instability as a major risk in Thailand and Myanmar.

Perhaps the most challenging tasks for all countries in ASEAN will be to break down immigration barriers enough to enable a free flow of labor.

All countries in Southeast Asia, including the more prepared ones such as Malaysia and Singapore, have tough immigration rules and limitations on the type of work foreigners can do.

In addition, observers say that while a free movement of labor in ASEAN sounds like a good idea in theory, protectionism would win out in the end.

There are concerns about skilled, but low paid workers from countries such as the Philippines immigrating to the richer areas of Southeast Asia and taking jobs from locals.

Thaland Protests

Thailand had large protests in early 2014 which resulted in a military coup. The country is still under martial law as a result.

 

Another obstacle that Southeast Asia must overcome to prepare for the AEC is to relax foreign ownership rules on businesses.

There are only a handful of countries, such as Singapore, that do not either limit the percentage of a company that can be foreign owned, severely restrict the industries that may be entered, or both.

Businesses in Thailand and Vietnam can only be 49% owned by foreigners. In Myanmar and Laos, all investments must be approved by different government agencies which leads to a large amount of paperwork.

Most others limit foreign involvement in “strategic industries”, such as Indonesia’s automobile sector, and Malaysia’s fast food industry.

Murray Hiebert, a prominent figure at the Center for Strategic and International Studies (CSIS) in Washington D.C., told the Wharton study that liberalizing ASEAN’s financial sector will also be difficult and will take time.

“Some ASEAN countries are anxious about opening up financial services and capital markets out of fear of financial contagion and exchange rate volatility, even though integration would provide opportunities for risk-sharing,” he said.

Hugo Brennan, Asia Analyst at Verisk Maplecroft, says that national interest will influence countries in ASEAN than deeper economic integration, giving a speech by Indonesian Prime Minister Joko Widodo as an example.

“Indeed, President Jokowi [Joko Widodo] of Indonesia said this explicitly at a recent ASEAN summit when he told member states that he would not allow economic integration to harm his country’s national interest.”

“What ASEAN needs more than anything is a powerful supranational body, something akin to the Commission in the European Union, which could compel its disparate and self-interested members to comply with their promises.” suggested Brennan.

 

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