Bernardo M. Villegas
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Realistic Expectations About The AEC

           The most recent Special Report of the CLSA Asia-Pacific Markets dated March 2013 entitled "ASEAN Connectivity" gives very valuable insights into what can be realistically expected of the ASEAN Economic Community once trade and investment liberalization takes off in 2015.  The Report will help both government planners and business people to assess the risks and opportunities of the AEC that they will face in exploring the markets of more than 600 million consumers of the ten member nations of the ASEAN.  Steep in the knowledge about the success stories as well as the failures of the European Economic Community (EEC) in the last century, the experts from the CLSA Asia-Pacific Markets group, led by Mr. Robert Bruce, provided some very useful norms for comparing the AEC to the EEC.

          It was clear from the experiences of the EEC that "free movement of goods and labor have delivered a virtuous economic growth cycle for the EEC."   In the process of trade, investment and labor flow liberalization, a key role was played by enabling institutions such as the following, as enumerated in the Special Report:

          -The European Council, created in 1974, defines the general political direction and priorities of the European Union.  Consisting of the heads of state or government of the member states, the council meets twice every six months with decisions taken by consensus.

          -The European Commission (EC) represents the interest of the EU as a whole.  It proposes new legislation to the European parliament and the Council of the European Union, and it ensures that EU law is correctly applied by the member countries.

          -The Council of the European Union (CEU) is the EU institution where the members states' government representatives sit.  The EU's laws are made by the CEU, together with the European parliament.  In most cases, the CEU can only legislate on the basis of proposals submitted to it by the European Commission.

          -The European parliament, founded in 1952, is one of the largest democratic assemblies in the world, with 754 members representing the EU's 500 million citizens.  They are elected every five years by voters from across the 27 member states.  The parliament acts as a co-legislator for nearly all EU law--together with the CEU, the parliament adopts or amends proposals from the EC.

          -The Court of Justice of the European Union was established in 1952 to ensure that there is a uniform interpretation and application of the treaties--this ensures that the member states of the EU comply with obligations under the treaties.

          The Special Report then proceeds to highlight the contrast between the European institutions described above and the weaker institutions and slower pace of integration among the ASEAN nations.  Among the ten ASEAN members, there exist tangible structural impediments that can slow down the process of integration.  The first has to do with the "ASEAN way" of doing things.  The ASEAN way refers to the association's emphasis on consultation consensus and non-interference which force the organization to adopt only policies that satisfy the "lowest common denominator".  Although this has supported stability, it is also a drag on the group's ability to move forward given different levels of economic development and priorities among its ten members.   It does provide, however, a positive message of progress and wealth creation for leaders to disseminate to their citizens.

          Another handicap that slows down ASEAN integration is the lack of firm enforcement mechanism.  While over 99% of ASEAN tariff lines are now under the CEPT scheme, some industries deemed "strategic" by their governments have been able to avoid a clear deadline for removal of protective taxes and levies by being put in the Sensitive List.  A prime example is the Malaysian automotive industry which remains in the Sensitive List to afford protection to the national car projects, while other nations have elaborate non-tariff protections in place for certain imports as well.  Some countries, including Indonesia, are very creative in imposing non-trade barriers.    The aspiration of having common external tariffs in the ASEAN remains a work in progress.

          There is also a very noticeable lack of pan-ASEAN institutions.  We can hardly identify equivalents to the EU institutions that have been established with pan-EU responsibilities and jurisdictions, and which have proven crucial to facilitating EU integration and connectivity.  By 2013, the only significant organization established is the ASEAN Secretariat which serves more as an intermediary between member states than a decision-making body on its own.  Set up in 1976 and based in Jakarta, its basic function is to provide for greater efficiency in the coordination of ASEAN organs and for more effective implementation of ASEAN projects and activities.  The Secretariat, however, is not equipped to handle bigger challenges such as greater monetary or political (e.g., on foreign affairs or regional defense).  To all these handicaps, however, the greatest compensating force is the continuing demographic dividend of the largest countries like Indonesia, the Philippines, Vietnam and Myanmar that will provide the expanding markets needed by investors from all over the world, especially those who come from the advanced nations that are suffering a serious depopulation and aging crisis.  For comments, my email address is bernardo.villegas@uap.asia.