Established in late 2015 by the Association of Southeast Asian Nations (ASEAN), the AEC has been seen as a way to promote economic, political, social and cultural cooperation across the region. The idea was to move South-East Asia towards a globally competitive single market and production base, with a free flow of goods, services, labor, investments and capital across the 10 member states.
The AEC’s vision for the next nine years, laid out in the AEC Blueprint 2025, includes the following:
1. A highly integrated and cohesive economy
2. A competitive, innovative, and dynamic ASEAN
3. Enhanced connectivity and sector cooperation
4. A resilient, inclusive, people-oriented and people-centered region
5. A global ASEAN
Although working within the confines of the AEC integration timetable has been a struggle for member states, their efforts have paid off: many companies have already approached ASEAN as one region. This has been helped by the ASEAN Single Window (ASW), a regional initiative to allow free movement of goods across borders. But progress is slow: the region can only proceed at the behest of national governments, and with every ASEAN country so different, a common vision can be hard to arrive at.
What has it achieved?
ASEAN is one of the success stories of modern economics becoming the seventh largest economic power in the world. It was also the third-largest economy in Asia, with a combined GDP of US$2.6 trillion – higher than in India.
Between 2007 and 2015 ASEAN trade increased by morev than $1 trillion. Most of that (24%) was trade within the region, followed by trade with China (14%), Europe (10%), Japan (9%) and the United States (8%). During the same period, foreign direct investment (FDI) rose from $85 billion to $136 billion.
What’s the next steps for AEC?
The launch of the AEC needs to mark not the end but the beginning of another dynamic process. ASEAN has to boost intra-regional trade to reduce the vulnerability to external shocks. This requires a common regulatory framework to address infrastructure gaps and the simplification of administrative policies, regulations and rules. Only 50% of ASEAN businesses have utilized tariff reductions set out in the ASEAN’s regional free trade agreement (FTA). And although tariffs are in decline, non-tariff measures, health and safety regulations, licenses and quotas – are on the rise and need to be addressed.
Provided the agreement is well managed over the next decade, the AEC could boost the region’s economies by 7.1% between now and 2025 and could also generate 14 million additional jobs.
What’s the future of the AEC?
The situation is not without complexities and uncertainties. Nevertheless, through the entry routes to different blocs, the AEC might eventually unleash significant unforeseen potential for the ASEAN countries – especially once the TPP and RCEP, with approximately 40% and 30% of global GDP respectively, come into force.
Content from World Economic Forum, Asian Development Bank and Council on Foreign Relations