AEC: Its potential must be part of every business plan
Business Mirror
May 5, 2016

As a reminder: The Asean Economic Community (AEC) is one of the three pillars of Asean as outlined in the Asean Vision 2020. Its goal is to implement economic integration measures for the creation of a single market, in which there is a free flow of goods, services, investment and capital. The establishment of the single market kicked in at the beginning of this year, and the basic idea is to eventually move closer to a European Union (EU)-style community of 600 million people, turning Asean into a rules-based organization, with harmonized trade and investment laws and rules, with hopefully a harmonized competition/antitrust policy, and anticorruption standards.

Of course, we have to realize that the AEC will remain a work in progress for years to come. Government meetings to implement the AEC are basically happening every month, and are showing that the governments of the Asean member-states are taking the integration seriously. But business cannot leave the integration process to governments and relax; the private sector has the global expertise and the resources to provide its part to make the AEC a reality. Why should the private sector do it? It will benefit most from the integration of a 600 million people market if they play their cards right. Let me add that the EU integration was driven by the private sector; in contrast, the Asean integration is still driven by politicians; that?s another reason the private sector should get more deeply involved in driving AEC forward in such a ?way that win-win situations are created for all stakeholders.

What does business have to take into consideration?

Trade in goods?Before being updated and replaced in 2010 by Asean Trade in Goods Agreement (Atiga), the Asean Free-Trade Area (Afta) had successfully implemented, ahead of schedule, the liberalization of trade and the reduction/elimination of tariffs applied to goods traded among Asean countries. Atiga brings more transparency and flexibility to regional trade liberalization; it focuses not only on tariff liberalization and nontariff measures, but it also includes matters related to simplification of rules of origin. In terms of free-trade agreements (FTAs) between Asean and external partners, the progress has been generally good. FTAs have been signed by Asean with China, India, South Korea, Australia and New Zealand. Discussions with the United States regarding joining the Trans-Pacific Partnership and the EU regarding an FTA are being accelerated.

Asean single window?A cornerstone of creating a single market is the creation of the Asean single window for cross-border trade in goods. This will fulfill all import, export and transit-related regulatory requirements. If information is entered electronically, then individual data elements need only be submitted once. Each Asean member had agreed to establish a National Single Window (NSW) by the end of 2012; unfortunately, in some countries, including the Philippines, the NSW is also work in progress. Business in the Philippines badly needs the single window that should combine the BIR, DOF, BOC, BOI, DTI, FDA, FPA, SEC, so that business transactions are online available to all at the same time, and imports and exports can be monitored and approved without delays.

Trade in services?In contrast to free trade in goods, which has calculable economic net benefits, the liberalization of trade in services often involves value-added or high-technology ?intangible? products, requiring the import of nonindigenous people and skills. Careful adjustment is needed with regard to benefits and disadvantages. The 1995 Asean Framework Agreement for Trade in Services (Afas) provides the broad guidelines for Asean members to progressively improve market access and ensure equal national treatment for cross-border services suppliers. Afas was updated in 2003.

Foreign direct investment?Foreign direct investment (FDI) is a key component of resource flows to Asean countries. Since 2000, FDI flows into Asean members grew at an annual average rate of 19 percent; unfortunately, the Philippines remains well below this average FDI growth. The common framework for encouraging FDI into Asean is found in the Asean Comprehensive Investment Area (ACIA). The main principles of the ACIA include:

Immediate opening up of all industries for investment, with some exceptions specified in the Temporary Exclusion List (TEL) and the Sensitive List (SL), to Asean investors by 2010 and all other investors by 2020.

Granting immediate national treatment, with some exceptions as specified in the TEL and the SL, to all Asean investors by 2010 and to all investors by 2020.

Full realization of the ACIA for the Asean-4, with the removal of TEL in manufacturing, agriculture, fisheries, forestry and mining, was subsequently re-scheduled for 2015.

Asean remains an attractive FDI destination, with impressive growth rates and huge potential. Asean can transform itself and improve the prosperity of its citizens, as well as becoming a key player in the international economy. As mentioned above, part of this harmonization process will also have to focus on competition/antitrust policy and the fight against corruption. And, the potential of the AEC must be part of every business plan. The business in the Philippines is looking forward to the full implementation of the Philippine Competition Act, under the leadership of Philippine Competition Commission. Regarding anticorruption, the European Chamber of Commerce and the Makati Business Club have created an integrity/anticorruption process, implemented by the Integrity Initiative Inc., that is also being adopted by other Asean member-states. It is, therefore, essential that companies that have Asean expansion in their business plan, have integrity and anticorruption processes and monitoring in their business plan also. ?

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