How the Economist views the AEC: the challenges


How the Economist views the AEC: the challenges

In July this year the weekly business and current affairs magazine The Economist covered what it saw as the progress and future of the Asean Economic Community (AEC). Last issue we looked at the overall positives; this article looks at what The Economist considers the negatives.

‘Internally, much work can be done to improve the ease of doing business across Asean today, which requires navigating a complex landscape of administrative policies, regulations and rules. Although the AEC is a regional initiative, economic integration can only proceed at the behest of national governments, leaving the AEC institutions relatively weak,’ notes The Economist.

The magazine is of the belief that progress in further liberalizing and harmonizing within the member states will be a very gradual process. As well, Asean countries ‘need to increase their capital stock, upgrade infrastructure facilities and remove bottlenecks in order to boost long-term growth.’

External factors make the AEC not only one of the most open economic regions in the world, but also ‘highly vulnerable to global economic trends.’ Such things as China’s economic slowdown, snail-like recovery in Japan and weak numbers coming out of Europe are key concerns.

‘Boosting intra-Asean trade remains a challenge, as from 2009-2014 it was stuck at roughly 24 percent.’

Some other concerns highlighted by The Economist include ‘Volatile capital flows,

coupled with the region’s relatively high external debt, China’s and America’s

preference for negotiating treaties at the bilateral level, geopolitical tensions,

commodity price uncertainty and the expected interest rate hike by the Federal

Reserve add to [the] challenges and downside risks.’

The Asean secretariat claims 80 percent of their objectives have been met, including the elimination of 80 percent of all tariffs on the trade of intra-regional goods. That said, so far only about 50 percent of Asean businesses have utilized the tariff reductions set out in Asean’s regional Free Trade Agreement (FTA). ‘Non-tariff barriers in the form of licenses and quotas also targeted for reduction in the FTA remain a major obstacle to integration.’

Notably, as well addressing impediments to trade and investment, Asean needs to work harder at pursuing other structural reforms if the AEC’s economic progress is to lead to greater convergence with the advanced economies. For example, ‘upgrading labour force skills through an improved educational system’ (this is particularly acute in Thailand), spending money to close infrastructure gaps; encouraging local innovation by way of increased investment and gradually integrating the financial sector.

‘The region needs a common regulation framework to encourage business and also tackle the chronic infrastructure deficit, which is dampening growth potential. Moreover, although there has been progress toward integration, governments in the region are still more concerned with developments at home than with creating a common vision for Asean’s future.’