ASEAN moves towards single market

By on 12/01/2016 | Updated on 13/01/2016

On 31 December, the Association of South-East Asian Nations formed a new Economic Community. Amy Chew explains the potential – and the long road ahead

At the end of December, the Association of South-East Asian Nations (ASEAN) realised its long-held aim of creating a formal community to liberalise the movement of trade, capital and skilled labour, creating the beginnings of a single market encompassing 625 million people and economies producing US$2.6 trillion annually.

The formation of the ASEAN Economic Community (AEC) was agreed by the leaders of the 10 ASEAN nations at a conference hosted by Malaysia in Kuala Lumpur on 22 November. Its creation “can be regarded as a game changer for East Asia,” says Tan Sri Rastam Mohd Isa, a former Malaysian diplomat who now chairs the country’s Institute of Strategic and International Studies. “It opens up the real possibility of a single ASEAN market allowing for the free flow of goods and services, better trade and investment opportunities, freer transfer of capital and easier flow of skilled labour.”

However, others were quick to point out that the development of the AEC will be a long process. “There’s no guarantee that come 1 January 2016, the AEC will be all implemented. It’s the start of a long process,” says Dr. Makmur Keliat, senior lecturer in international studies at the University of Indonesia in Jakarta.

All of ASEAN’s 10 members – Indonesia, Malaysia, Singapore, Brunei, Thailand, Philippines, Vietnam, Cambodia, Laos and Myanmar – have joined the AEC, which stands alongside similar communities dedicated to political and security and to socio-cultural matters. The AEC’s members have agreed to harmonise their economic strategies, recognise one another’s professional qualifications, and consult more closely on macroeconomic and financial policies.

“The commitment given by the ASEAN countries to the AEC will over time help to transform the region’s way of doing business, offering better conditions for businesses and investors to operate through coordination and application of common and uniform regulations and standards,” says Rastam. “More attention will be given to small and medium-sized enterprises – which form some 97% of businesses in ASEAN – better infrastructure facilities will be created and so on.”

Eight groups of professionals will be able to work more easily throughout the region: engineers, architects, nurses, doctors, dentists, accountants, surveyors, and tourism professionals. “The AEC blueprint has provided for the possibility of a freer flow of skilled workers among the ASEAN countries,” says Mr. Rastam, though he notes that barriers remain to a single labour market: “Much of the ability for these professionals to work in other ASEAN countries also depends on the openness of the respective professional bodies”.

Labour flows will also reflect variations in demand across the new economic community. Keliat points out that Indonesia, ASEAN’s largest economy and its biggest population, has shortages of skilled professionals. “For example, the ratio of qualified accountants to the Indonesian population is very small,” he says. “We are more likely to be a market for accountants than an exporter.” According to research conducted by the ASEAN Center at the University of Indonesia, the country only has about a third of a million engineers – far less than its estimated requirement of about two million.

Indonesia is a major exporter of unskilled workers – but its construction labourers, cleaners and nannies are unlikely to benefit directly from the AEC’s creation. “The flow of unskilled labour would still be subjected to restrictions and conditions, since it has to match market demand and conditions as well as internal laws and regulations,” says Rastam. “We are not going to see a sudden flow of [unskilled] labour among the ASEAN countries.”

Investors, on the other hand, are likely to find it easier to put money into projects overseas: “Capital is expected to flow into tourism, which is expected to benefit a lot from the changes,” says Keliat, adding that the service and “high-value” sectors are also expected to attract new investment. This will in turn create new demand for skilled staff: “You will see new hotels being built, creating a need for professionals,” he explains. “English language skills will also be needed”.

Agriculture, which once underpinned the ASEAN countries’ economies, is expected to benefit far less. “For the whole of ASEAN, agriculture only absorbed 40% of the labour market,” says Keliat, noting that this much-diminished statistic reflects the declining attractiveness of the agricultural sector.

Over the 10-year duration of the ‘Vision 2025’ framework, ASEAN nations have agreed to make progress on many fronts – for example, improving transport infrastructure and communications, better facilitating electronic transactions, integrating industries, and strengthening the private sector’s place in national economies.

Such changes will require ongoing collaboration. “Air connections could improve if the ASEAN countries can agree to adopt a full open skies policy, for instance,” says Mr Rastam. And they will also demand the mobilisation and coordination of the members’ civil services, he adds: “The civil services in ASEAN have to play a major role in facilitating change and improvement within the ten-year timeframe.”

They will start with a topic that’s seen continuing but incremental progress ever since the first Asean Free Trade Agreement in 1992: the removal of trade tariffs. And even after that, there will be much to do before ASEAN creates a genuine single market: “The next step is to tackle the non-tariff barriers and measures,” comments Rastam. “This is no small task, since each country would have its own interests to protect.”

This article was written by contributor Amy Chew

About Chris Punch

Chris is Global Government Forum's Research Director and has over 10 years of research and analysis experience. Seven of which have been focused on understanding government and global private sector suppliers to government. Chris has designed and delivered strategic and tactical research for a large number of global organisations, including: Lockheed Martin, EY; Capita; HP; IBM; techUK and BT Global Services. He has a Master’s in Intelligence and International Security from King’s College London, where he focused on post-conflict transformation and specifically the peace process in Northern Ireland.

One Comment

  1. Magali Silva says:

    Do you think there is a chance that ASEAN movement to a single market could be extended to the 21 APEC economies considering that 7 of the 10 ASEAN economies are already APEC members? This new idea could be perfectly be discussed in Lima-Peru during the APEC leaders’ meeting 19-20 November. Furthermore, 12 TPP countries out of the 21 APEC economies are seeking exactly the same objectives as ASEAN to promote labor mobility among themselves and to foster economic growth through investment flows finding new opportunities abroad.

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