The AEC, or ASEAN Economic Community, arrived in December of 2015. At least, everyone said it did.

The community aims to turn the region into a unified market similar to the European Union. However, it won’t the same degree of monetary and political integration which many say causes turmoil.

Some improvements the AEC will give its member states include a free flow of skilled labor and removal of protectionist barriers to investment. Free travel throughout the region and letting ASEAN passport-holders hold up to 70% of any business in the region will help.

Governments throughout Southeast Asia are asking medium and large businesses to prepare for the increased competition and opportunities the AEC will bring.

At the same time, more schools are teaching children regional geography and history, in addition to English. Large banners and billboards hung from Bangkok to Jakarta remind everyone that the AEC is here.

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

 

Cross Border Integration Unlikely

A rare anti-immigration protest in Singapore drew 4,000 people in February: one of the largest in the nation’s history.

This comes along with mounting concern that foreign workers are taking jobs from locals and depressing wages. Starting in August 2015, the government required job vacancies to be advertised toward locals for 14 days before foreigners are considered.

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

In Malaysia, the government passed a law banning foreigners from working in the fast-food industry. This adds the sector to an already long list of those foreigners cannot work in. About one in six restaurant workers were previously non-Malaysian.

Such examples show that it’s 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. These laborers are often skilled, competent, can speak fluent English, and are able to work cheaper.

Because of this fact, most countries in Southeast Asia are just not competitive enough and too protectionist to handle more integration.

     

Protectionism Won’t Disappear

One requirement which all members must meet is that ASEAN nationals must be able to own at least 70% of any company in the region.

Approximately one and a half years before the AEC’s implementation, Singapore, Malaysia, and Cambodia were the only nations which met this obligation. The rest do not even allow foreigners to hold a majority stake.

Protectionism of certain industries is rampant throughout Southeast Asia. The AEC 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. It’s unlikely that governments will allow any of these scenarios.

 

What Will Happen with the ASEAN Economic Community?

The community will come in 2015, but only in name. Agreements will form and there will probably be more trade liberalization. Progress might even be made toward the degree of integration which 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 laws and regulations are deeply embedded in each nation’s economic and business environment.

The Philippine Constitution, for example, states that foreigners can only own 40% of a company. They’ll need a constitutional amendment to comply with AEC obligations.

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. Countries are taking steps in the right direction though.

 

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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