Are businesses ready for the ASEAN Economic Community?

Are businesses ready for the ASEAN Economic Community?
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As the deadline for the ASEAN Economic Community (AEC) nears, large corporate companies seem ready to take advantage of the coming changes. Yet, with small and medium-sized businesses less prepared, is ASEAN ready for the AEC and who will benefit most from its implementation?

The leaders of the Association of Southeast Asian Nations (ASEAN) adopted the ASEAN Economic Blueprint on 20 November 2007 to serve as a plan to guide the establishment of the AEC, due for implementation by the end of 2015.

The Association’s goal is regional economic integration, defined by four characteristics: a single market and production base, a competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy.

The purpose of the AEC is to transform ASEAN into a region with the free movement of goods, services and skilled labour as well capital and investment. Initially forecast for 2020, the deadline was moved forward to the beginning of 2015 before being pushed back again to the end of this year.

However, some debate still exists as to whether this timeline is achievable. According to Singapore’s Minister for Trade and Industry, Lim Hng Kiang, ASEAN is unlikely to fully achieve the AEC blueprint as progress remains slow in reducing non-tariff barriers and increasing the liberalization of trade in services.

Despite slow progress, the Minister still maintains that local businesses will benefit from reduced production costs and be able to participate in previously restricted sectors. Yet, is this really the case?

SMEs are not ready for the AEC

While larger companies seem ready for the AEC, small and medium-sized enterprises (SMEs) are less prepared. According to a survey by the Asian Development Bank, less than one-fifth of ASEAN businesses are ready for the transition. This is despite the fact that small to and medium-sized businesses generate approximately 90 percent of ASEAN jobs and 30 to 50 percent of GDP.

Some commentators highlight a lack of awareness and understanding among SMEs regarding the AEC. According to a 2013 survey conducted by the ASEAN secretariat, three out of every four ASEAN citizens questioned had no real understanding of what the AEC entails.

ASEAN has taken some steps to promote awareness of the AEC for SMEs. A seminar held in Bangkok from the 15th to 16th of June 2015 aimed to promote awareness of the AEC for businesses.

Mr. Syed Nabil, Secretary-General of the ASEAN-Business Advisory Council, raised some of the issues faced by SME’s. These include limited access to finance, markets and improved technology, as well as challenges in facilitating the free movement of goods. To overcome these challenges, much more will need to be done in order for SMEs to be prepared for the AEC’s implementation.

How does the AEC affect workers? 

A recent policy brief from Ibon International, a Philippine-based think-tank, indicates that SME awareness is not the only problem the AEC faces. According to the Ibon brief, the AEC will increase corporate profits at the expense of workers’ rights.

There are continued fears that the AEC will increase barriers to social services due to privatisation and deregulation as well as worsen inequalities between and within ASEAN countries, with poorer countries experiencing distorted development as they continue to be the primary source of raw materials and cheap labour.

Further criticism of the AEC rests on the perpetuation of skewed labour mobility from poorer countries to more developed ones and increased land and other resource grabs as capital flows and investment become liberalised. The entry of cheap agricultural goods may also serve to undermine local, smallholder farmers.

According to the Ibon brief, AEC integration “must transform ASEAN into a region that is truly people-centred.” The goal of integration should not based on “becoming an economic superpower that would benefit local elites and transnational corporations at the expense of people.”

Categories: Asia Pacific, Economics

About Author

Laura Southgate

Laura Southgate is Lecturer in International Security at the Centre for International Security and Resilience, Cranfield University, located at the Defence Academy of the United Kingdom. She has a PhD in International Relations from the University of Otago, New Zealand, and an MA in International Relations and Security, and a BA in Law and Politics, from the University of Liverpool.