Wanted: One Brave Step - ASEAN reluctance to share affluence and wealth

2015 will be an important landmark year for ASEAN, with two key regional integration agreements due to become reality. Ostensibly, they will make the environment for doing business in Asia much more stream lined — and less costly. But while ASEAN’s FTAs may be harmonised, ambitions for an ASEAN Economic Community are proving harder to realise . . .

THE long-anticipated ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP) have the same deadline — to complete negotiations by  the end of 2015.
The AEC embodies the ambition of the more developed members of the Association of Southeast Asian Nations (ASEAN) to have a borderless market of 600 million people, in a region with a collective economy of US$2.3 trillion. RCEP, however, has a low level of ambition — its basic aim is to harmonise all existing free trade agreements (FTAs) signed by the participating nations.
Often described as China’s answer to the US-sponsored Trans-Pacific Partnership (TPP), RCEP will, ironically, turn out to be an agreement that delivers the most practical benefits to those doing business in the region.
Jayant Menon, Lead Economist with the Asian Development Bank’s Office of Regional Integration, says RCEP is the one to watch because it involves the larger economies of China, Japan, South Korea and India. (Collectively, RCEP represents an economy of US$21.3 trillion and a market of 3.4 billion people). “AEC is not the only game in town,” Menon says.
He told ATI that it makes good sense for RCEP to pull together all of the overlapping free trade agreements which ASEAN and its trading partners have signed with their main trading partners.
In all, ASEAN has five FTAs — with China, Japan, India, South Korea, and Australia and New Zealand. As they stand, says Menon, there are just too many sets of rules, which are cumbersome and costly to implement — including the much-mocked “spaghetti bowl” of conflicting rules of orgin.
Participants in RCEP met in Delhi in December for their sixth round of negotiations.  The concern is India’s attitude.  As a protectionist country, India has been a laggard in regional and multilateral trade negotiations. And, as has happened in the past, the weakest member will be allowed to set the pace for a key trade treaty.
Still, Menon says that if RCEP can harmonise all the rules and standardise regulations, that alone will be a huge achievement. RCEP was only launched in 2012.
ASEAN’s bilateral FTAs cover 80 per cent of its trade.  Menon believes ASEAN should offer to everyone else preferential treatment — unilaterally — on the remaining 20 per cent of trade not covered by FTAs.
Menon senses negotiation fatigue setting in. The myriad of trade negotiations has been particularly taxing on the poor, smaller members of ASEAN — some of which are yet to establish a proper tariff system.
He is one of many regional economists to have followed the development of regional integration in ASEAN. And, like his peers, he does not believe that ASEAN will be able to meet its deadline of December 2015 to launch the AEC, first mooted 22 years ago.
The original AEC commencement date was pushed back in 2012 from January 1, 2015 to December 31, 2015 to give member countries more breathing space.
AEC was born out of the ASEAN Vision 2020 paper adopted at the 30th anniversary of ASEAN in 1997 (see interview with former Thai Prime Minister Anand Panyarachun, who designed the AEC blueprint, ATI October 2013).
As a single market, with a collective economy of US$2.3 trillion, ASEAN will be larger than any of the BRIC countries.
But there is a question on many people’s lips. Is ASEAN truly ready to take the bold step forward to form a single market?
Sceptics abound. Not many believe that the 10 member nations are ready to put aside national interests and rivalries to allow greater mutual good to prevail — and to share affluence and wealth.
As an example, just four per cent of those who took part in a 2015 ASEAN Business Outlook Survey, conducted by the US Chamber of Commerce, believe the goals of AEC will be reached by the end-of-2015 deadline.
Curiously, the percentage of respondents who believed that ASEAN could reach its goal was considerably higher in 2013, when 23 per cent of American executives responded positively. Similarly, those who believed that the goals would not be reached until 2020 or later rose to 52 per cent — up 21 per cent on 2013.
While AEC will be a boost to foreign investors in that part of the world, US companies say they are in ASEAN in the first instance to participate in a strong economic growth story.
The US Chamber of Commerce survey found the overwhelming majority (89%) of respondents expect their companies’ levels of trade and investment in ASEAN to increase over the next five years.  The reason is that there are limited growth opportunities in other regions.
US companies are already making use of the bloc’s bilateral or regional trade agreements with major trading partners, including Australia and New Zealand, China, India, Japan, and South Korea.
ASEAN’s economic blueprint outlines a wide-ranging series of goals for economic integration, including the reduction and elimination of barriers to trade in goods, services, and investment, all of which are intended to develop the region as a single market and production base.
Commenting on the Philippines’ state of preparedness for AEC, Secretary of Foreign Affairs, Alberto del Rosario, said recently:  “We are 87.5 per cent ready.”
He said that from his personal observations, the most difficult reforms to undertake are often the last to be adopted.  
“I see that the main reforms we have to deal with (for instance, revisions of Constitutional economic provisions, labour market reforms, and investments in critical infrastructure) are stuck in Congress, in our own resistance, within the impasse of bureaucratic processes and in the politics of wait and see.”
ADB’s Menon says ASEAN’s self-assessment AEC Scorecard shows that the pace of reform has been slipping. In Phase One (2008-09), member States reached 89.5 per cent of their target. By 2012-13, the figure had slipped to 71.9 per cent. The figure for 2014 has not been released.
Memon points out that these figures have not been audited independently. ASEAN’s latest scorecard could reveal further slippage.
But he says the pace of reform seems to have slowed, partly due to having to move on to more difficult parts of the reform agenda.  He says the low-hanging fruit has already been harvested.
Even if the pace were to pick up now, the real test for the ASEAN Economic Community will lie in the years beyond 2015.
Apart from hitting the remaining targets, the bigger challenge of implementing the accords legitimately lies beyond the deadline, he says.This is no easy task when considering that domestic laws, or even Constitutions, may have to be amended to accommodate ASEAN Economic Community accords.
Economists and commentators often say that the flexibility that characterises ASEAN co-operation and institutional arrangements — the so-called ASEAN Way — could give member States a pretext for non-compliance — and there are enforcement issues. Giving commitments more teeth is the key challenge to be overcome in realising the AEC if it is to be more than a political exercise in solidarity.
Commenting on the state of AEC in an article published in the Jakarta Post, Benny Hutabarat, Executive Director of the ASEAN Consulting Group, said the largest concern is ASEAN’s lack of structure to pull the AEC along. “Think of the AEC as if it were a train. That makes the ASEAN Secretariat the locomotive. But even the ASEAN Secretariat does not have enough intellectual and financial resources to act like it should,” he wrote.
“Even more shocking is that the resources it does possess have not changed in 15 years, despite the area’s quadrupled gross domestic product (GDP).” The total budget for the
ASEAN Secretariat for 2013 was US$16 million — a small amount for an ever-growing institution with more activities and mandates. By comparison, the European Commission had a budget of around US$4.3 billion in 2012.
According to Hutabarat, the ASEAN Secretariat is less than fully staffed. In 2012, there were just 300 people employed by the Secretariat; the European Commission employs nearly 34,000 people. Hutabarat said an entry-level professional in the ASEAN Secretariat is paid around US$3,000 per month — and this is after recent significant improvements were made to remuneration packages. This means that the Secretariat is unable to find highly qualified and experienced staff.

He also spoke of a lack of awareness of AEC among the citizens of ASEAN member countries. Pointing to a 2013 ASEAN Secretariat survey, he said three of every four ASEAN citizens have no real understanding about the grouping. There is little doubt that the European experience – in helping to promote public awareness regarding the EU — is something ASEAN can learn from.
Hutabarat says that for every piece of EU legislation, Brussels has 24 official translations available. All EU citizens can assess the legislation and understand its impact.
He adds that national authorities in Europe must make their people aware of new laws before they can be implemented. English is the working language in ASEAN in a region where many languages are spoken. It is not a surprise, then, that there is little understanding of what ASEAN or AEC is all about.