Last updated September 14th, 2018.
The ASEAN Economic Community (AEC 2015) arrived recently. But the difficulty of creating a single market of over 600 million people makes investors concerned about its future.
Here’s a quick overview if you don’t know about the ASEAN Economic Community.
AEC officially began in late December of 2015. The community’s stated goal is enabling a freer flow of trade, capital, and labor among the ten member nations of ASEAN.
Details of the bloc are similar to the Eurozone. However, AEC doesn’t include some of the arguably less successful measures, such as a shared currency and central bank.
Comparisons to the European Union were a positive thing ten years ago. Yet recent developments like Brexit and the Migrant Crisis make some worry if similar unions are a good idea.
Regardless, the union was preceded with much hype at the time. Banners across Southeast Asia proclaimed “AEC is coming!” several years in advance leading up to 2015.
Nothing really happened once it finally launched though. It’s now 2018 and barely anyone talks about the ASEAN Economic Community.
AEC 2015? More Like 2025
Some goals are seeing more progress than others. Specifically, moving products and money is easier than moving workers and companies.
This is shown by the types of laws being implemented, along with the large focus on infrastructure projects throughout the region.
For example, Laos recently adopted “one-stop service” procedures in their customs department. This cut the processing time for cross-border shipments by half.
At the same time, several high speed rail developments are either in the planning or construction phases. That’s despite a recent delay of a link between Singapore and Kuala Lumpur.
Many countries still need to improve their investment and immigration laws to meet AEC goals though. While members have met about 80% of the community’s standards, the remaining 20% will be the most difficult.
Every AEC member must follow its requirements without exception. One is that businesses in most sectors must be able to have majority foreign ownership. Yet only a handful of nations allow foreign corporate ownership at all.
Cambodia and Singapore are the least restrictive for global businesses. Thailand is the most, allowing foreign ownership of only 49% in all types of companies.
The AEC’s Free Flow of Labor – Easier Said Than Done
Similarly, AEC 2015’s plans for a free flow of labor are challenging to realize for lots of countries in ASEAN.
Places like Thailand, Malaysia and Singapore have laws which demand foreigners can only work if a suitable local cannot be found for the position.
There are also fears of unrest if foreigners take too many jobs. Singapore had rare protests back in 2014 because of what they saw as foreign talent taking jobs away from locals.
Some nations, like the Philippines, have a large pool of English-speaking laborers who are willing to work cheaply.
The AEC’s optimism could quickly turn to anger if Southeast Asia is overrun by workers who are more talented, speak better English, and will accept less pay.
What’s the AEC’s Future?
AEC didn’t arrive on a single day. Instead, the community will be phased in over time.
Some measures which sound good in theory may not be popular in practice. Full implementation will require small, gradual steps.
It won’t happen immediately. Perhaps not even within the next decade. But given time, the ASEAN Economic Community will transform Asia’s business, investment, labor, and trade environments forever.
Long-term investors should take note. As always, early movers gain most.
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