The Asean Charter:
Crucial first step towards a single market
From an inspiration to a reality
Many a critic has wondered whether the new Asean Charter will mark a watershed in the group's history or it is just another document that bestows legal personality on Asean and makes it a more efficient struc¬ture but does little else.
Yet, to stay competitive, Asean cannot do without economic integration but build an economy of scale. That is the underlying reason behind the establishment of the Asean Charter, which was drafted and approved on schedule on November 20, 2007, in Singapore.
Despite lingering doubts over the members’ political will, there are market forces and stakeholders, driving the group’s ambitious plan to set up Asean Economic Community (AEC), whose start date has now been accelerated to 2015 from 2020. Of course the political will is necessary to turn the AEC from an aspiration to a reality.
Formed in 1967, Asean has a combined gross domestic product of over $1.03 trillion and a population of about 570 million. In comparison, China’s economy is estimated at $2.67 trillion and India’s gross domestic product is around $906 billion.
Southeast Asia’s developing economies are almost twice as reliant on exports as the rest of the world, with more than 60 percent of overseas sales ultimately destined for the US, Europe and Japan.
Trade within the 10-member group has tripled in the past decade to more than $300 billion, compared with Asean’s $1.44 trillion of annual global trade. An improvement in economic ties will boost living standards and make it easier for companies to do business in the region.
A worthy place for your investment?
At the recent World Economic Forum in Davos, Switzerland, Singapore Prime Minister Lee Hsien Loong told some 2,000 movers and shakers in the business world about the creation of a single market and production base in Asean, and the free flow of goods and services, in seven years’ time.
To accelerate the integration progress, Asean leaders have endorsed eleven priority sectors for enhanced regional integration: wood-based products, automotives, rubber-based products, textiles and apparels, agro-based products, fisheries, electronics, e-Asean, healthcare, air travel and tourism.
Recognising that member countries are constrained by resources, the selection of the 11 priority sectors is a pragmatic beginning. These sectors will serve as precedents for future integration.
The 75-page Asean Economic Community (AEC) blueprint adopted by the ten nations in Singapore last November has already identified many challenges in the years to come. The blueprint has a strategic short and medium-term plan toward 2015 through a four-phased approach with benchmarks in 2008-09, 2010-11, 2012-13 and 2014-15.
By the end of this year, Asean plans to implement one-stop customs procedures. It will also have a new comprehensive investment agreement; eliminate impediments and facilitate the private sector; enhance transport facilitation and logistics services; promote multi-modal transport infrastructure linkages and connectivity; eliminate tariff and non-tariff barriers; and secure a reliable supply of energy including bio-fuel.
Besides, Asean will fully eliminate non-tariff barriers (NTBs) by 2012 in three stages. The NTBs will be dismantled beginning 2008, 2009 and 2010 for the developed countries - Brunei, Indonesia, Malaysia, Singapore, Thailand and the Philippines - and 2010, 2011 and 2012 for the less developed countries - Cambodia, Laos, Myanmar and Vietnam.
These NTBs include non-automatic licensing requirements, quantitative restrictions, technical and control measures and inspection systems which are deemed to be trade-restrictive.
Impediments to integration particularly those related to NTBs have persisted despite Asean having a free trade area and members in a hurry to advance the timeline to create an AEC.
Some of these impediments take the form of new trade practices and regulations, quotas, licensing, product certification, standards, restrictions, health requirements, labelling, as well as import approvals.
However it is not limited to Asean only, trading partners outside Asean also resort to such measures which affects export-oriented economies that are heavily-dependent on open markets.
The Asean Free Trade Area (Afta) and AEC were not only limited to liberalisation initiatives, but also include enhancing cooperation in varied areas. They include customs, standards, agriculture, finance, transport, energy, telecommunications and other related sectors.
There have been efforts being undertaken by the respective sectoral bodies to broaden and deepen the integration. For instance, cooperation in customs includes the review of the Asean Harmonised Tariff Nomenclature (AHTN), simplification and harmonisation of customs procedures and the establishment of an Asean Single Window (ASW).
The AHTN was implemented beginning January 1, 2004 by harmonising the customs classification of products to facilitate export and import activities by member countries.
Asean has also adopted the Asean Cargo Clearance Model and Asean Customs Declaration Document with 48 information parameters to simplify and harmonise customs procedures within the region.
In the area of standards, Asean has completed the harmonisation of standards for 20 product groups, consisting 58 international standards, 72 standards for safety and 10 standards for Electromagnetic Compatibility (EMC). Additional 24 standards have been identified for harmonisation by end-2007.
Moreover, Asean has also adopted a Policy Guideline on Standards and Conformance to guide Asean related bodies in implementing measures on standards, technical regulations and conformity assessment procedures.
Asean is also working towards developing mutual recognition agreements (MRAs) in the area of pharmaceuticals, which include harmonisation of labelling requirements and establishment of an Asean Alert System for unsafe and defective products.
This, for instance, means Asean would have common standards in laboratory testing. Work is also being undertaken in the areas of prepared foodstuff, which includes harmonisation of food labelling and import-export certification and registration procedures.
Other areas where Asean is also working towards developing MRAs and harmonisation of technical requirements are health supplements, medical devices, automotive, wood-based, and rubber-based products.
Asean has to convince the business and investing community that it is a worthy place for their commercial and production activities.
The window of opportunity
Despite all that efforts Asean should not be expected to become an EU-style common market. The group, nevertheless is taking an important first step - establishing uniform customs procedures. The Asean Free Trade Area (Afta), which was conceived in 1992, will now be fully functioning, providing for easier movement of goods, services, investment, capital and people.
While Asean faces challenges such as opening up strategic sectors to foreign competition, developing consumer-led economies and the regulation of their financial markets, it cannot help speed up the integration process as India and China are increasingly attracting multinational firms away from Asean.
There are growing concerns about the regional grouping’s competitiveness and the speed at which large economies like China and India are growing.
In China and in India, they only need to pass one customs checkpoint.
But in Asean, there are ten different countries and different customs authorities and ten different borders where transactional costs have to be paid when goods are brought in or out. All these bring up the costs of transactions.
“We have a window of opportunity in the next three to five years to do this ... to compete with China and India,” said Lim Hng Kiang, Singapore's trade minister.
“The AEC blueprint is going to be our wedding certificate - the cost of not integrating is like signing the death of Cambodia," said Cham Prasidh, Cambodia’s commerce minister, at an Asean business and investment summit in Singapore.
Indonesian Trade Minister Mari Pangestu conceded there was skepticism over whether Asean could effectively implement the plan to free up trade, given the concerns by businesses that a single regional market would increase competition.
“How do we consummate this marriage? Quite frankly, it’s not going to be easy," said Pangestu. "Not all business people are gung-ho about Asean economic integration.”
She said domestic businesses would have to improve their ability to upgrade productivity and innovation and meet changing expectations of their customers for delivery of their goods.
The biggest worry was how to face up to overseas competition in protected sectors from agriculture to automobiles. Most business executives agree that the difficulties included the need for better governance, reducing corruption and more flexible labour laws.
In the financial sector, for instance, there is a need for Asean leaders to start by focusing on the nuts and bolts of market integration, such as reducing the complexity of trading across markets, promoting cross-border equity issuance and a transparent rating system.
As Asean moves toward the establishment of an economic community in 2015, it is essential that the private sector be an integral part of its efforts. There have been benefits of trade-related development and public-private partnerships. Take for instance the innovative Nam Theun 2 project in the Lao People’s Democratic Republic.
The 1,070 megawatt plant will generate revenues for poverty reduction and environmental protection, exemplifying an extremely important regional public good. The $1.45 billion project is owned by a public-private consortium with European, Thai, and Lao PDR equity.
The AEC is expected to not only accelerate Asean’s market integration process, but it will also ensure that the region can maximize its gains from its growing economic relations with major trading partners.
Asean Economic Community
Implementation date lines at a glance
- a strategic short and medium-term plan toward 2015 through a four-phased approach with benchmarks in 2008-09, 2010-11, 2012-13 and 2014-15
- to implement one-stop customs procedures by end 2008
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