The signing on Sunday by the leaders of the 10 Southeast Asian countries of the Kuala Lumpur Declaration on the formation of the ASEAN Community by Dec
he signing on Sunday by the leaders of the 10 Southeast Asian countries of the Kuala Lumpur Declaration on the formation of the ASEAN Community by Dec. 31 should not be misconstrued as the culmination of the process of economic integration in the region. It is only the beginning and remains a work in progress.
The ASEAN Economic Community (AEC), one of the three pillars of the ASEAN Community, has been designed to be a single market and the production base of a US$2.5 trillion economy with a population of over 600 million, thereby deepening and expanding intra-region economic ties. Yet no less important is that the AEC will make the region more attractive to foreign investors and traders.
What we have now is simply a free trade area, and even this has yet to reach a fully fledged operation, as member countries have still to implement a lot of tasks to harmonize production standards, customs and transhipment procedures and many other factors classified as non-tariff barriers.
Many other policy measures needed to accelerate economic integration and closer cooperation in the political, security and socio-cultural fields are elaborated in another declaration signed by the ASEAN leaders titled 'Forging Ahead Together', which spells out the way forward for the community in the next 10 years.
ASEAN countries still have to improve their physical and institutional connectivity to create a single market that is vital to wooing investors to build production bases in the region.
The removal of non-tariff barriers to enable the free-trade area to run fully fledged operations and speed up the creation of a single market toward deeper economic integration is quite an uphill task in itself. It is certainly impossible to implement this task without stronger institutions. This means that the ASEAN Secretariat General in Jakarta will have to be strengthened and be vested with a stronger mandate to investigate internal markets and identify non-tariff barriers.
Without strong institutions and dispute-settlement mechanisms, the enforcement of AEC rules might be difficult. Without legal certainty on the implementation of AEC rules, businesses will look on the trade and investment climate of each member country, rather than the prospects of ASEAN as a united group.
Despite the most challenging tasks ahead, economic integration under the AEC could be the most beneficial aspect of the ASEAN Community for the peoples in the region. In fact, it is still the only regional economic integration process under way in Asia.
The rationale of a single market and deeper economic integration is that foreign investors will have advantages in establishing regional production networks in ASEAN countries only if the region has become a reliable part of the global supply chain.
Different investment and trade regimes and regulations on business operations in ASEAN countries as they are now make them less attractive compared with such potentially giant economies as India and China, which offer economies of scale.
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