The AEC, or ASEAN Economic Community, is coming in December of 2015. At least, this is what is being announced all throughout Southeast Asia. The program aims to turn the region into a unified market similar to the European Union, but without the same degree of monetary and political integration that many say has caused turmoil.

Some of the things that the AEC seeks to bring to its member states include a free flow of skilled labor, a removal of protectionist barriers to investment in all industries, free travel throughout the region, and an ability for ASEAN passport-holders to hold up to 70% of a company incorporated in any member state.

Governments throughout Southeast Asia are asking medium and large businesses to prepare for the increased competition and opportunities that the AEC will bring. At the same time, more schools are teaching children regional geography and history, as well as the English language. Large banners and billboards are hung up from Bangkok to Jakarta reminding all to see that AEC is coming.

But it won’t come. At least, not in the same way as planned. Government policies from all ASEAN members would need to change far more than they will by next year.


Cross Border Integration Unlikely

A rare anti-immigration protest in Singapore drew 4,000 people in February: one of the largest in the country’s history. This comes along with mounting concern that foreign workers from developing nations are taking jobs from locals and depressing wages. Starting this August, the government will require most job vacancies to be advertised toward locals for 14 days before a foreigner can be considered.

The Vietnamese Ministry of Foreign Affairs recently petitioned the Thai Ambassador in Hanoi to stop a practice requiring Vietnamese tourists to take a picture of their face next to 20,000 Thai Baht (US$700), to prove sufficient funds and enter Thailand.

In Malaysia, the government passed a new law banning foreign workers from working in the fast-food industry, adding it to a list of industries foreigners cannot work in that is already long. Around every one in six workers in restaurants were previously non-Malaysian.

These examples show that it can be hard for ASEAN citizens to even enter a fellow member country, let alone work permanently in one. There are arguments for and against a unified labor market but in creating one, each employee must compete with foreign workers who are often skilled, competent, speak fluent English, and are willing to work for comparatively cheap. The fact is: most countries in Southeast Asia are either not competitive enough, or too protectionist to handle this.


Protectionism Won’t Disappear

One of the requirements that must be met by all members is letting any company be at least 70% owned by ASEAN nationals. Approximately one and a half years before the AEC’s implementation, Singapore and Malaysia are the only countries which meet this obligation for even some industries. The rest do not even allow foreigners to hold a majority stake.

Protectionism of certain industries is rampant throughout Southeast Asia as well and with AEC launched as anticipated, foreign investment and competition in almost all sectors would be possible. This could mean an encroachment on Indonesia’s palm oil industry, a buyout of Malaysia’s sole car manufacturer, or a foreign hotel operator opening a major resort on a Thai island. All of these scenarios seem very unlikely to be permitted.


What Will Happen with the ASEAN Economic Community?

The community will come in 2015, but only in name. Agreements will be made and there will probably be some benefits gained in trade liberalization. There may even be progress made toward the type of integration that is currently planned. But mostly, it will be a political show with no real fundamental changes.

Change will be difficult. Not only is public opinion towards these issues a problem, but many of the laws and regulations that must be overcome are deeply embedded in each country’s economic and business environment. The Philippine Constitution, for example, states that foreigners can only own 40% of a company and in order to comply with AEC obligations, a constitutional amendment would be needed.

EDITOR’S UPDATE FOR 2017:  The AEC did arrive in 2015. But just as expected, it didn’t come in full force. There’s still tons of work to do and ASEAN won’t fully integrate overnight. But steps are being made in the right direction.


About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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