Realizing the ASEAN Economic Community by 2020: ISEAS and ASEAN-ISIS Approaches

ASEAN Economic Bulletin Vol. 20, No. 3 (2003), pp. 292-96 ISSN 0217-4472 Realizing the ASEAN Economic Community by 2020 ISEAS and ASEAN-ISIS Approaches Denis Hew and Hadi Soesastro At the 2003 ASEAN Summit in Bali, ASEAN leaders have agreed to establish an ASEAN Economic Community (AEC) by 2020. The idea of an AEC was first proposed by Singapore Prime Minister Goh Chok Tong in last year's ASEAN Summit in Phnom Penh. The AEC is one of three pillars (the other two being the ASEAN Security Community and the ASEAN Socio-cultural Community) that make up the ASEAN Community as declared by ASEAN leaders in the Bali Concord II. In line with the ASEAN Vision 2020, it is envisaged that the AEC will be a single market and production base with free flow of goods, services, investments, capital, and skilled labour.1 Annexed to the Bali Concord II, the High Level Task Force (HLTF) on ASEAN Economic Integration had unveiled bold and ambitious economic initiatives with clear deadlines (many within the next two years) to expedite the economic integration process and realize the AEC. These initiatives include: • Fast-track integration of eleven priority sectors.2 • Faster customs clearance and simplified customs procedures. • Elimination of barriers to trade. • Accelerated implementation of the Mutual Recognition Arrangements (MRAs) for key sectors (e.g., electrical and electronic equipment and telecommunications equipment). • Harmonization of standards and technical regulations. In the area of trade in goods, improvements in the Common Effective Preferential Tariffs (CEPT) Scheme Rules of Origin (ROO) will be finalized by end 2004. This would include making the ROO more transparent, predictable, and standardized and taking into account the best practices of other Regional Trading Arrangements (RTAs) including the World Trade Organization's (WTO) ROO. To ensure transparency on Non-Tariff Measures (NTMs) and eliminate those that are barriers to rade, the following measures will be undertaken: Establish an ASEAN Database on NTMs (by mid-2004). Set clear criteria to identify measures that are classified as barriers to trade (by mid-2005). Set a clear and definitive work programme for the removal of such barriers (by 2005). Adopt the WTO agreements on Technical Barriers to Trade and Sanitary and PhytoSanitary and Import Licensing Procedures and develop implementation guidelines appropriate for ASEAN (by end-2004). ASEAN Economic Bulletin 292 Vol.20, No. 3, December 2003 One of the most important recommendations by the HLTF was the creation of a more effective ASEAN Dispute Settlement Mechanism (DSM) with powers to make legally binding decisions in resolving trade disputes among member states. The existing DSM has yet to be used by any ASEAN member country. The number of trade disputes will likely rise significantly as the region moves towards a higher level of economic integration. Hence, a credible DSM would be absolutely critical for the AEC to succeed. By end2004 , the following measures will be undertaken to enhance the DSM: • Establish a legal unit within the ASEAN Secretariat to provide legal advice on trade disputes. • Establish the ASEAN Consultation to Solve Trade and Investment Issues in order to provide quick resolution to operations problems (similar to the EU mechanism). • Establish the ASEAN Compliance Body (modelled after the WTO Textile Monitoring Body). Besides the "ASEAN-X" formula, ASEAN may also use the "2+X" approach where two member countries that are ready to integrate certain sectors can go ahead first. In fact, the latter approach would particularly benefit Thailand and Singapore as both countries are keen to integrate their economies before 2020. All these initiatives do seem to indicate that ASEAN is committed in getting the AEC project off the ground as soon as possible. Also, many of these initiatives were formulated with the business community in mind. For example, faster customs clearance and the harmonization of product standards and technical regulations are clearly aimed at reducing the transactions cost of doing business in the region to make it attractive to multinational corporations as well as domestic enterprises that want to become regional players. Why form such an economic community? In this increasingly competitive environment, there are deep concerns that Southeast Asia will be overtaken by the emerging market economies of China and India. In...