THREE decades from today, the Asean region will become a borderless economic community.
Its steady rise as an economic powerhouse in Asia has been helped by economic giants China and India while its other choice trade partners namely Japan, South Korea, Australia and New Zealand have breathed into it a strong economic force.
Once the Asean Economic Community (AEC) or single market is realised by the end of this year, the growth momentum will increase further, says International Trade and Industry Minister Datuk Seri Mustapa Mohamed.
Ambitious as it sounds, the AEC agenda, especially stacked against global and regional uncertainties, says “there will be no rolling back”.
“We’ve been building up the momentum since we took the chair this year and the pace has continued as commitments remain steady,” Mustapa said in an interview ahead of the 47th Asean Economic Ministers’ Meeting which he will host from today till Tuesday.
Malaysia, as the chair of Asean in 2015, will have the privilege of seeing that the single market entity takes off when the leaders meet in Kuala Lumpur in November.
Asean, recognised as the vibrant growth region this century, is the seventh largest economy in the world.
“There is a good story to tell for this region — one which has been enjoying strong growth numbers and has the potential to grow by 5.1 per cent annually for the next few years,” Mustapa adds.
Foreign direct investments have been a game-changer to the region’s robustness after the Asian Financial Crisis, and inflows rose to US$136.2 billion in 2014.
The European Union (EU-28) is the top source of FDI to Asean, accounting for approximately 22 per cent, followed by Japan (9.8 per cent), the United States (9.6 per cent) and China (6.5 per cent).
“Bilaterally, Malaysia continues to strive for progress with the latest being the prime minister’s visit to Brunei, while I’ve been working closely with my counterparts in Vietnam and Thailand in recent months,” he says.
To the veteran minister, the regional economic train, which began its journey 23 years ago, is still on its planned route.
But in all this, Asean economic ministers are aware of the disgruntlement of the business community and have been carefully noting their comments and criticisms, especially by the Asean Business Council, to improve the workings of the single market.
“We recognise their scepticism towards the realisation of the AEC as they continue to share their unhappiness about border trade and the numerous Non-Tariff Barriers (NTBs) in their business plans.”
The region’s competitiveness has been a strong catalyst to attract multinational companies to set up operations in the region.
The removal of trade and investment barriers through the various economic agreements has led Asean to be entrenched in the regional production networks — within Asean as well as with other major trading partners.
The Regional Comprehensive Economic Partnership (RCEP) agreement is one and “we’ve made a lot of progress during the last negotiations in Kuala Lumpur.”
But even if it does not meet the targeted deadline, Mustapa said it can be concluded next year in view of the challenges between the 16 countries at the table — especially those who do not already have bilateral FTAs in place like China with India or China with Japan.
Nevertheless the AEC Blueprint will create a large integrated market to allow for a seamless flow of goods, services, investment and freer flow of capital and skilled workers.
Mustapa believes in a realistic outlook to achieving the goals of AEC.
“We believe in a modest level of ambition as we recognise the sensitive issues among all 10 of us in the grouping, even for Malaysia.”
The implementation rate of 91 per cent of the 506 high priority measures is “doable”.
“It is unlikely that the 45 remaining measures will be implemented by the end of this year, as some of these measures will have to be taken on a priority basis in early 2016.”
So what has been achieved under the AEC, apart from the 88.96 per cent duty elimination of tariff lines? In services, almost all the liberalisation commitments are completed and suppliers can enjoy cross border supply for a wide range of sub-sectors with equity participation of 70 per cent or more in most sectors.
Issues remain in terms of transporting goods across borders, for which Asean has sought European Union support which will enable goods to move faster with “reduced procedural complexity” which will in turn raise the level of intra-regional trade.
The Asean Open Skies policy to be realised this year will also lead to an Asean Single Aviation Market, an important tool to boost tourism activities. Already Asean is talking about strengthening collaboration with China, Japan, South Korea, US and the EU in terms of safety, security and air traffic management.
On the finance front, work is underway to develop and integrate the capital markets in both debt and equity.
Seven stock exchanges from Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam formed an alliance called the Asean Exchanges, with a combined market capitalisation of around US$2.4 trillion and more than 3,000 companies listed in the exchanges.
The stock exchanges of Malaysia, Singapore and Thailand are already electronically linked through the Asean Trading Link.
With so much ambition on the agenda, there remains disappointments.
“Intra-Asean trade (which reached US$608.3 billion in 2014) is not growing at a faster pace, while NTBs are still a challenge apart from the harmonisation of standards across the region and mutual recognition agreements (MRAs),” says Mustapa.
The writer is a Business Times
journalist