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VRIENS & PARTNERS

ASEAN Economic Community

Potential, reality, and the role for business

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VRIENS & PARTNERS

Foreword

Come 31st

December 2015, the leaders of the 10 ASEAN member states intend to declare victory: the ASEAN

Economic Community (AEC) will have been successfully established – at least that is what they will claim

publicly. As validation, they will refer to the “Scorecard”, a set of measures designed to track the progress made

by member states in making AEC a reality. In reality the AEC will still be a work in progress.

The AEC is an ambitious project, promising the free movement of goods, services, investment, skilled labour and freer

movement of capital across ten member states for the 600 million people in Southeast Asia. ASEAN’s leaders clearly recognize

that Integration is the only way forward if ASEAN wants to compete successfully in an increasingly globalised world with India

and China and other destinations competing for Foreign Direct. This recognition is also reflected in the fact that ASEAN’s

leaders moved the date for complete AEC implementation forward from 2020 to 2015.

But by December 2015 the AEC will be far from fully established. That said, it would be a mistake to take lightly the importance

of the AEC. ASEAN member states would still have taken huge steps in the right direction. Full implementation will take many

years to conclude, but the AEC commitments have given member states clear objectives to work towards. It is up to the private

sector to play the critical role of making sure that governments stick to the AEC agenda.

A more important question is whether ASEAN member states will be able to continue to follow the course on which they have

embarked. Worrying developments, for example, are an increasingly nationalistic and inward looking Indonesia and Thailand’s

lack of an effective government, both of which threaten to derail the process.

On the other hand, new regional trade agreements such as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive

Economic Partnership (RCEP) are being negotiated and will pressure ASEAN to further integrate its economies. An additional

positive development has been the creation of the ASEAN Business Club, a group of influential home-grown business leaders

from ASEAN who are actively campaigning for the implementation of the AEC.

ASEAN has already successfully established a free trade zone for goods. Further integration will require the elimination of non-

tariff barriers and harmonization of rules and regulations. Such progress will be very difficult to achieve without implementing

some form of pooled sovereignty, and a very different ASEAN Secretariat than the currently underfunded, overstretched, and

overwhelmed institution in place today – one with the capacity, resources, and expertise necessary to implement and enforce

regulations.

Few matters seem more mystifying to the private sector than the ASEAN Economic Community, which is supposed to be

complete in December 31, 2015, less than two short years from now. This report attempts to answer many of the questions the

business community has—how much is real, how much is hype, its implications for business, and recommendations on how the

private sector can achieve harmonization of certain rules and regulations.

I hope you will find our analysis and recommendations enlightening.

Sincerely yours,

Hans W. Vriens

Managing Partner

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VRIENS & PARTNERS

Contents

Foreword....................................................................................................................................................................... 2

Glossary of terms .......................................................................................................................................................... 3

Map of Southeast Asia .................................................................................................................................................. 4

Executive Summary ....................................................................................................................................................... 5

Potential: What the AEC stands for .......................................................................................................................... 5

Reality: Where AEC currently stands ........................................................................................................................ 5

Getting Involved: The role of Business in AEC .......................................................................................................... 6

Road to 2015 ............................................................................................................................................................ 6

I. Introduction ......................................................................................................................................................... 8

Potential: What the AEC stands for .......................................................................................................................... 8

II. Reality: Where AEC currently stands ................................................................................................................... 9

Beyond the AEC Scorecard ....................................................................................................................................... 9

Pillar 1: A Single market production base ............................................................................................................ 9

Pillar 2: AEC as Competitive Economic Region ................................................................................................... 13

Pillar 3: Equitable Economic Development ........................................................................................................ 13

Pillar 4: Economic Integration ............................................................................................................................ 14

Outstanding Issues and Obstacles .......................................................................................................................... 16

Potential Drivers to Success ................................................................................................................................... 17

III. Getting Involved: The role of Business in AEC.................................................................................................... 19

Challenges for Business .......................................................................................................................................... 19

Key lessons for engagement ................................................................................................................................... 20

Case study 1: Global science-based company ........................................................................................................ 21

Case study 2: Southeast-Asian food and beverage association ............................................................................. 23

IV. Road to 2015 ...................................................................................................................................................... 24

Appendix A: Background to ASEAN and the AEC ........................................................................................................ 25

Association of Southeast Asian Nations (ASEAN) ................................................................................................... 25

The history of economic integration policies in ASEAN ......................................................................................... 25

Economic Integration in ASEAN versus the European Union ................................................................................. 27

Appendix B: Pillar 1 in further detail ........................................................................................................................... 29

1.1 Free flow of goods ........................................................................................................................................ 29

1.2 Trade in Services .......................................................................................................................................... 32

1.4 Freer Flow of Capital .................................................................................................................................... 35

1.5 Free Flow of Skilled Labour .......................................................................................................................... 35

About Vriens & Partners ......................................................................................................................................... 36