The ASEAN Economic

Community: Progress
and Challenges
Jayant Menon
Lead Economist (Trade and Regional Cooperation)
Office of Regional Economic Integration
Asian Development Bank
jmenon@adb.org
The views expressed in this presentation are those of the author and do not
necessarily reflect the views and policies of the Asian Development Bank, or its Board
of Governors or the governments they represent.

Presentation Outline
Achievements to date
Remaining challenges
Getting ASEAN businesses and the
broader community ready for the AEC
Critical next steps

The Background
Main vehicle prior to AEC has been AFTA.
Ambitious liberalization program - Completed for the original
ASEAN members
Some increase in intra-ASEAN trade, but still low
The original ASEAN members reduced their external tariffs in
conjunction with reductions on intra-ASEAN trade.
Because of rapid preferential reductions, AFTA has accelerated
the pace of multilateral trade liberalization in the ASEAN-6
Thus, AFTAs greatest achievement may have less to do with
what it mandates, but what it promotes indirectly through the
long-standing commitment of ASEAN-6 to openness.

Achievements to Date
Tariffs
Common Effective Preferential Tariff (CEPT) rates are virtually zero for
ASEAN-6
More than 70% of intra-ASEAN trade are now tariff-free, and less
than 5% subject to tariffs above 10%
Trade Facilitation
Live implementation of NSW in Indonesia, Malaysia, the Philippines,
Singapore and Thailand
Brunei Darussalam and Viet Nam in advanced stages of development
towards live implementation by 2015
Investment Liberalization and Facilitation
ASEAN-6 are near achieving international best practices
Newer member states and Brunei have more room for improvement
Services Liberalization
Agreement on mutual recognition agreements (MRAs) or their
equivalent for three types of goods and seven professions

The Bottomline
December 31, 2015 will not see ASEAN achieving all of its
AEC targets
Per ASEANs latest AEC Scorecard, only around 77.5% of
the AEC targets have been reached between 2008-March
2013
The AEC Scorecard also suggests a slowdown in the level
of achievement over time
Phase 1 (2008-2009): 89.5%
Phase 2 (2010-2011): 72.1%
Phase 3 (2012-2013): 71.9%
Source: Milo, Melanie. 2013. Linkage between Greater Mekong Subregion Economic Cooperation and ASEAN Economic Community. Presentation at the Mekong Forum 2013
- Towards More Inclusive and Equitable Growth in the Greater Mekong Subregion, 11-12 July 2013, Khon Kaen.

Remaining Challenges
Removing barriers to trade in sensitive areas like agriculture,
steel and the increasingly important areas of services.
Removing behind-the-border constraints related to logistics,
transport, infrastructure problems, and weak institutions.
Adopting harmonized standards on competition policy and
intellectual property rights.
Promoting greater labor mobility, to include unskilled, not just
skilled labor.
Narrowing the development divide and ensure that the lessdeveloped economies like Cambodia, Lao PDR and Myanmar
are on a par with other economies in the region.
Addressing risks such as contagion, and accepting that there
will be both winners and losers from greater integration, at
least in the short term.

Is ASEAN ready for the AEC?

The three waves of the ASEAN-BAC Survey on ASEAN
Competitiveness has consistently revealed consultation with
businesses and dissemination of information on AEC initiatives as
the least satisfactory areas rated by businesses.
In the ASEAN-BAC survey, only 7% of respondents reported having
detailed knowledge of AEC initiatives.
In the ADB-ISEAS study, 55% of respondents to a business survey
reported being unaware of the AEC.
There are estimates that less than 1/5 of ASEAN businesses have
made any plans for the end of 2015.
Enfranchisement mechanisms to promote greater civil society
involvement, through NGOs and civil society organizations, are even
more limited.

Critical Next Steps

Given that the 31 December 2015 is likely to be missed, it is critical
to ensure that reforms continue beyond 2015. Efforts must be
intensified to plug remaining gaps in implementation.
The flexibility that characterizes ASEAN cooperation and institutional
arrangements could give member states a pretext for noncomplianceand there are enforcement issues. Giving AEC
commitments more teeth is a key challenge.
ASEAN must also face the reality that liberalization thus far has been
driven more by market forces than by regional agreements.
Unilateral liberalization of trade and FDI should continue to be
given priority.
Multilateral approaches may offer more feasible solutions than
regional ones in addressing issues such as competition policy and
IPR.

Critical Next Steps

Although the AEC is a government-led agenda, the AEC cannot
succeed without engaging the private sector and the public at large.
ASEAN needs to encourage greater and more regular private
sector and stakeholder feedback, through initiatives such as the
ASEAN-BAC survey, to assess the impact and effectiveness of AEC
measures.
ASEAN could invite businesses to contribute to regular reviews of
ASEAN achievements on integration, such as the AEC Scorecard,
which is currently a government-produced evaluation.
Innovative financing and public-private partnerships will be
necessary to achieve broader reforms like investing in both hard
and social infrastructure, like education and health
Reducing spillovers and trade-offs from greater integration creates a
need for stronger regional policy cooperation and regional safety
nets

Thank You!
For inquiry or comments, please contact:
Jayant Menon
Lead Economist, OREI
Telephone: (63-2) 632-6205
Email: jmenon@adb.org
Asian Development Bank
Office of Regional Economic Integration 6
ADB Avenue, Mandaluyong City
1550 Metro Manila, Philippines