Achieving the ASEAN Economic Community 2015: Challenges for Member Countries and Businesses

14. Achieving the AEC 2015: Challenges for the Malaysian Private Sector

14 Achieving the AEC 2015: Challenges for the Malaysian Private Sector Mahani Zainal Abidin, Loh Geok Mooi, and Nor Izzatina Abdul Aziz In January 2007, heads of ASEAN governments declared their strong commitment to accelerating the establishment of the ASEAN Economic Community (AEC) to 2015 as envisioned in the ASEAN Vision 2020. The ASEAN Economic Community Blueprint which comprises four thrusts was adopted. Out of the four thrusts in the AEC Blueprint, more progress has been made in the first, third, and fourth thrusts which aim at fostering (1) a single market and production base, (3) a region of equitable economic development, and (4) a region fully integrated into the global economy, compared with the second thrust (2) on making ASEAN a highly competitive economic region. Ministers have been tasked to implement the AEC Blueprint and report to the Council of the ASEAN Economic Community on the progress of its implementation. Since then significant progress has been made on the free flow of goods under the first thrust via the removal of tariffs through the Challenges for the Malaysian Private Sector 225 ASEAN Free Trade Area (AFTA). Except for Sensitive and Highly Sensitive Unprocessed Agricultural Products, ASEAN Six, which includes Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand, have eliminated the import duties on 99.65 per cent of traded tariff lines since 1 January 2010, while Cambodia, the Lao PDR, Myanmar, and Vietnam (CLMV) have 98.86 per cent of their traded tariff lines reduced to 0–5 per cent. While AFTA has fostered intra-ASEAN trade since 1992 when it was first established, recent numbers since 2007 show little improvement in trade. This could be due to the unavoidable contraction in trade as a result of the global financial and economic crisis, especially since a significant portion of ASEAN’s trade comes from supplying to the advanced economies that were affected by the global crisis. Intra-ASEAN trade rose by 13.6 per cent to US$458 billion and comprised 26.8 per cent of total ASEAN trade in 2008. However, in 2009 the momentum slowed as intra-ASEAN trade fell back to US$376 billion (US$403 billion in 2007), comprising 25.8 per cent of total trade, which was similar to the level in 2007 (25 per cent). Apart from promoting the free flow of goods, ASEAN member nations are also committed to promoting free flow of services through the ASEAN Framework Agreement on Services (AFAS), which deals with the liberalization of services through successive rounds of negotiations with the aim of submitting increasingly higher levels of commitments for priority areas, as well as mutual recognition agreements on professional services. Priority areas for liberalization include air transport, e-ASEAN, health care, and tourism by 2010, and professions for mutual recognition agreement include architecture, accountancy, surveying, medicine, and dentistry. As for the free flow of investment, ASEAN investment cooperation is being implemented through the ASEAN Comprehensive Investment Agreement (ACIA) whereby investment liberalization will be implemented with a view towards achieving a free and open investment environment in the region. Investment liberalization will be progressive and have clear timelines. With limited exceptions, national treatment and most-favoured nation treatment will be extended to ASEAN investors during the pre- and post-establishment stages of any investment. Investment flows into ASEAN had been trending upwards before the global economic crisis and they peaked at US$74 billion in 2007. However, with the onslaught of the global crisis, ASEAN was not spared 226 Mahani Zainal Abidin, Loh Geok Mooi, and Nor Izzatina Abdul Aziz and foreign direct investment (FDI) into ASEAN fell by 36 per cent in 2008, and 21 per cent in 2009. The fall in FDI inflows into ASEAN was not as severe as that experienced by developed nations, which fell between 30 per cent and 44 per cent. Growth in intra-ASEAN investment flows was buoyant, increasing by 8.1 per cent to US$10.5 billion in 2008, but this level was not sustained as it collapsed by 57.7 per cent to US$4.4 billion in 2009. While ASEAN governments remain committed and have abided by the declaration in the blueprint, it is important that the private sector also responds strongly to the AEC. Of late, investment and trade figures have not been very encouraging due to the global economic slowdown, but it is essential that intraregional economic activities be expanded. Indeed...