The blueprint for the ASEAN Economic Community (AEC) was signed on the 22nd of November. Leaders of the 10 Southeast Asian countries inked the document at an ASEAN Summit held in Malaysia.

It’s been more than 13 years since Southeast Asia’s leaders imagined a trade zone to match the US and Europe. The region’s future depends on its ability to keep pace with the mainland Asian giants of India and China.

Malaysian Prime Minister Najib Razak described the event as a “milestone” in the integration process. He voiced his belief that ASEAN held immeasurable potential for growth. Najid urged all nations to gave their best efforts to hasten the region’s integration.

The AEC has progressed with many of its goals even before now. Improvements such a removal of tax barriers and visa restrictions have helped a lot. Many experts expect a rise in employment and cultural integration in the near future.

However, the community’s met endless challenges up until this point too. A John Hopkins University economics professor commented that AEC is “one of the most ambitious economic integration programs in the developing world”.

 

The ASEAN Economic Community Will Take Time

The AEC will face many uphill battles. Members are making progress toward slashing tariffs and taxes, but there are still lots of non-tariff barriers.

Most believe that it will be several years until the AEC will be fully functional. Diplomats of ASEAN countries even admit it will take awhile for the region to achieve its goal of becoming a single market.

Perhaps the most important obstacle is Southeast Asia’s sheer diversity. There are major differences in each of the countries’ economies, politics, and languages.

Southeast Asia has countries of different economic tiers. Two of the world’s richest countries are at the top: Singapore and Brunei. Emerging economies such as Malaysia, Indonesia, and Thailand follow them. Frontier markets like Cambodia, Laos, and Myanmar are at the bottom.

The political systems also range from democracy to an absolute Islamic Monarchy. Brunei, for example, has a plan to implement Sharia Law.

 

Harsh Restrictions in Southeast Asia

The AEC’s goal is having a single market for production and labor. There are still considerable barriers before that happens though.

For example, governments have yet to open many sectors up to foreign investment. Commonly protected sectors include agriculture, steel, and auto-production.

Professions which other ASEAN citizens qualify for in the other 9 countries will be limited to only 8 sectors. These including engineering, accountancy, and tourism.

But jobs in these industries only make up 1.5% of the total workforce. Host countries also still hold the right to introduce laws which could cap the inflow of talent.

Furthermore. countries themselves are hesitant to change. Southeast Asian nations aren’t very involved in interregional trade compared their European counterparts (24% versus 60%).

The opposite is true, in fact. They’re often engaged in hostile activities against each other. Border disputes between Cambodia and Vietnam, along with the Indonesian forest fires, have both caused tensions in the region.

There are other factors such as poor infrastructure, corruption, and unequal cost of logistics.

However, even with the challenges faced today, ASEAN Council Chairman Mohamed Munir Abdul Majid said that AEC “is not the finished article. There’s still much work to do.”

The declaration will still help change ASEAN countries’ attitude and mindset. A diplomat added this will help nations prioritize the progress of the region as a whole.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an accomplished stock trader and property investor in Thailand, Cambodia, and many other places. 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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