ASEAN all set for an Economic Union sans central agencies

KUALA LUMPUR: Bolstering its regional economic integration, the Association of South East Asian Nations (ASEAN) is all set to become an Economic Union by the end of 2015. The ASEAN Economic Community (AEC) aims to set up a single market and production base in the region.

ASEAN is one of the most successful integrated economic regions. It has made remarkable progress in the area of trade and foreign direct investment. ASEAN had a combined gross domestic product (GDP) of USD 2.6 trillion in 2014, making it the world’s seventh largest economy and third largest in Asia. The region has also steadily grown as a preferred destination for foreign investors, attracting USD 136 billion.

ASEAN also has a favourable demographic dividend. With the under 30 age group making up more than half of its current combined population of 622 million people, the region’s economy is set to grow and remain sustainable.

Economic Union

Unlike the European Union, the 10 members will maintain their economic and financial independence. There will be no central agencies such as a common central bank, Parliament or court as in Europe and no common currency either. The AEC will focus more on a consensus based approach than creating institutions that take on some of the powers of member governments.

Many of the targets have been implemented gradually over the last five years and the changes will not be abrupt. Despite tariff on most goods traded in the region largely being eliminated, ASEAN falls short on more politically sensitive areas of reform such as opening up protected sectors like agriculture, steel and motor vehicles. However, intra-regional trade has remained at around 24 percent for the last decade, which is far lower when compared to 60 per cent in the EU.

According to the member countries, the formation of AEC is not a destination but a journey to deeper integration. The members say more work is required on domestic reforms, infrastructure and strengthening skills. Stressing on creating a conducive environment for investments, the members say that efforts must also be made to address trade and investment impediments, non-tariff barriers and other regulatory hindrances that are increasingly replacing tariffs as protective measures for some industries. Other issues such as government corruption and unreliable courts in the region also create roadblocks to trade because they make contracts hard to enforce.

Ease for financing of SMEs

The small and medium enterprises which are crucial for generating employment need a better financing system. Availability of finance has hindered growth in this segment. The SMEs which comprise 96 per cent of registered enterprises in ASEAN and form the backbone of the region’s economy are still facing the issue of limited access to financing.

To address the SMEs’ issue of limited financing, ASEAN Business Advisory Council (ASEAN-BAC) has launched the ASEAN Growth Accelerator Exchange (GAX) to provide a platform for better financing access to SMEs. The GAX solution will further spur regional economic activity by SMEs, which already contribute between 50 per cent to 80 per cent of the GDP of the 10 member countries.

Fourth largest economy

South East Asia is working towards becoming the fourth largest economy in the world. It is presently the seventh largest. Malaysia’s Prime Minister Najib Razak says, “As a single market, ASEAN will be the fourth largest in the world by 2050, at the latest.”

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