With the official launch of the long-awaited ASEAN Economic Community (AEC), ASEAN has integrated its 10 different nation members’ markets into a single trading bloc which presents immense opportunities for investors.
But while the move is regarded by most as the beginning of a new era, the effects of establishing AEC will still take some time to materialize.
AEC is part of a bigger goal of establishing greater regional integration among the 10 member nations. Partly inspired by the European Union, ASEAN looks to integrate not only its economic activities, but also its political and cultural. This is aimed at helping to handle regional challenges while increasing Southeast Asia’s global standing and bargaining power.
It has been a long and difficult journey for ASEAN to get to where it is today. Since it was founded in 1967, it took close to 50 years to bring about real changes to the region, the establishment of AEC being one of many milestones. Some may say that it has been a highly inefficient process of integration, but considering the region’s great diversity and turbulent history of warfare, making it this far is a major achievement.
ASEAN Economic Community: A Catalyst for Liberalization
The launch of the ASEAN Economic Community signals the start of a region with free trade of goods and services, a free movement of labor, and the liberalization of investment. Movement of skilled labor is undoubtedly one of the more significant implementations as manpower is the root of all businesses. This alone aims to lift the region’s GDP by 5% by 2030.
That’s not to say that ASEAN isn’t a formidable region now. Home to over 600 million people, the region, if counted as a single nation, would be the third most populous and seventh largest economy in the world at a GDP of US$2.6 trillion.. Some experts argue that this makes the region the most attractive in the world spreading confidence into its long term prospects.
In order to promote the region as a more powerful trading bloc, ASEAN will be stepping up both its interregional and intraregional trade.
The AEC Will Boost Trade Immensely
Steps to ensure a free flow of trade are almost complete. 6 countries that have been a part of ASEAN the longest – Brunei, Indonesia, Malaysia, The Philippines, Singapore, Thailand – have implemented tariff free cross-border trading for 99.2% of all products save for a few “sensitive” products that plays an inimitable role in a country’s economy such as rice, sugar, certain types of vegetable and meat. The rest of ASEAN – Cambodia, Laos, Myanmar, and Vietnam – are planning to catch up from their current 90.9%.
As for interregional trade, plans have been laid out for increased cooperation with ASEAN’s largest trade partner, China, at the 2015 November Summit in Kuala Lumpur. The ASEAN-China Free Trade Agreement (ACFTA) outlines several key issues regarding the trading of goods, services, and investment as well as economic and technical cooperation.
Both sides promised to open up more sectors for investment including tourism, telecom, construction, and finance. ASEAN’s bilateral trade with China now stands at US$480 billion, ASEAN’s highest and China’s third highest number. With much more active cooperation from both sides, they plan to more than double the trade volume to US$1 trillion by 2020.
In addition, China’s plans for a New Silk Road will arguably benefit ASEAN more than any other region, compounding the effects of the ASEAN Economic Community.
Effects Will Not be Immediate
Despite the hype around the launch of AEC, there are still critics that are skeptical about its implementation. Feeling that this is just the start of something new and not an inflection point, some think expectations are too high and will fuel disappointment when they are not met.
According to HSBC Global Research, most of the effects will be felt over the next decade as changes will be implemented.
2016 marks the start of something new with the launch of AEC, bringing ASEAN a step closer to the dream of becoming an integrated bloc economically, politically, and culturally. Rome wasn’t built in one day and will ASEAN.