Brick by Brick: The Building of an ASEAN Economic Community

10. Conclusion: Towards an ASEAN Economic Community by 2015

Conclusion: Towards an ASEAN Economic Community by 2015 209 10 Conclusion: Towards an ASEAN Economic Community by 2015 Denis Hew The vision of an ASEAN Economic Community (AEC) by 2015 is certainly bold and ambitious. Although there are already building blocks in place such as the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA) and the ASEAN Framework Agreement on Services (AFAS), ASEAN faces a number of daunting challenges in realizing this vision. From the studies presented in the preceding chapters, a number of compelling questions emerge. Among these are: (i) whether or not the roadmap to achieve the AEC is realistic given the relatively short timeline set to undertake this endeavour; (ii) whether the progress made in expediting economic integration, particularly of the fast-track integration of the priority sectors, is on track to achieve its targets and objectives; (iii) whether ASEAN has the institutional framework to support such deeper economic integration; and (iv) whether ASEAN would be able to successfully address the economic development divide among its member countries. 10 BrickByBrick Ch 10 10/30/07, 8:23 AM 209 210 Denis Hew There is also the nagging question of what is the ultimate end-goal of the AEC — is it a European-style common market or just a free trade area? To be sure, these challenges need to be seriously addressed in the short to medium term. In this concluding chapter, key issues are discussed reflecting the challenges ahead. 1. Addressing the Stumbling Blocks to Economic Integration 1.1. Tackling Barriers to Trade Although most ASEAN countries have complied with tariff reductions under AFTA, Tongzon (2005) found the utilization of the Comprehensive Effective Preferential Tariffs (CEPT) has been relatively low due to lack of clear and transparent procedures, a lack of mutual trust between preference-receiving country and preference-granting country, low margin of tariff preferences (between CEPT and most-favoured nation rates) and a lack of private sector awareness regarding AFTA concessions. Furthermore, the less developed ASEAN countries may be reluctant to fully implement AFTA given the huge losses in customs revenue due to the implementation of the CEPT (Tongzon and Khan 2005). Intra-ASEAN trade has not increased significantly since the signing of AFTA in 1992 (see Figure 10.1). Studies in this book on the priority sectors have also found that non-tariffs measures (NTMs) continue to persist and impede greater intra-ASEAN trade. Hence, effectively tackling NTMs, particularly those that are barriers to trade, would be crucial if a fully functioning AFTA is to be feasible by 2015. 1.2. Expediting Investment and Services Trade Liberalization The AIA aims to reduce or eliminate investment barriers and grant national treatment to ASEAN investors by 2010 and to all investors by 2020. ASEAN is currently considering whether to extend National Treatment to its free trade agreement (FTA) partners, namely, China, Japan, Korea, India, Australia, and New Zealand by 2010. By turning the region into an integrated investment area, the AIA would serve as a natural complement to greater trade integration under AFTA. Given that regional production networks and FDI flows into the region are driven mainly by non-ASEAN investors (e.g., the United States, Japan, and Europe), it therefore makes more sense to extend national treatment to all investors. Hence, the AIA should be open to all investors sooner rather than later. In this context, a new AIA strategy may need to be designed — one which moves away from a regional investment strategy that promotes intra-regional investments to one that creates a platform that 10 BrickByBrick Ch 10 10/30/07, 8:23 AM 210 Conclusion: Towards an ASEAN Economic Community by 2015 211 attracts global foreign investments. This new AIA strategy would be more consistent with the AEC’s objectives of creating an integrated production base that is plugged into the global supply chain. To date, progress made in services trade liberalization under AFAS has been slow. Member countries have been very cautious in committing themselves to AFAS and have made little progress in liberalizing service trade at the regional level. In fact, member countries’ commitments have not been significantly bolder and more far-reaching under the AFAS than under WTO’s General Agreement on Trade in Services (GATS). It would therefore be challenging for ASEAN to liberalize the services sector beyond GATS. Applying the “ASEAN minus X” or “2 plus X” formula may be required to expedite...