The AEC – end of 2015 and beyond

22 November, 2014
As appeared in TheStar.com.my

WHEN one starts to look at the Asean Economic Community (AEC) from the end of 2015 and beyond, there are shades of Hamlet in the exercise.

The sheets will still be warm as one slips in to imagine what the AEC might be like this time next year and to consider challenges beyond 2015. There is still 2015, the year in which Malaysia is the chair of the regional grouping and hopes to make a difference. While, unlike in Hamlet, I do not expect there will be a tragedy, I sincerely hope there will not be a comedy either. When the establishment of the AEC is pronounced at the end of 2015, there must be sufficient substance such that there will be no hissing and sneering as if it is a joke.

But let’s face it. There will be a shortfall, against the ambitious economic integration blueprint. There are many private sector reports on the likelihood that not all the action plans will be fulfilled. McKinsey just last week came out with one such report which also offered some macro directions for Asean to take to achieve its true potential with full economic integration.

CIMB Asean Research Institute (CARI), of which I am chairman, has come out with studies with our research partners for the Asean Business Club which we call the Lift The Barriers (LTB) reports. These sectoral studies are essentially a gap analysis of policy pronouncement and actual business experience. However, we do come up with proposals on how to fill the gaps, a more difficult proposition than coming up with the gap analysis. I am involved in this effort to fill the gaps, what could be described as business diplomacy, which is hard work.

On Dec 1, CARI will be launching the next series of LTB reports, with additional sectoral coverage as well as proposals to help the Asean secretariat in the policy decision-making process.

As chairman of Asean-Business Advisory Council (Asean-BAC), Malaysia, which takes the chair of Asean-BAC region-wide first thing next year, has formal responsibility to make private sector submissions to officials, economic ministers and Asean leaders. The process of consultation for effective representation has to be more vigorous. At the same time, there are also various concerns which may not always get sufficient attention with Asean-BAC champions: we have working groups on SMEs (small and medium enterprises), on women entrepreneurs and on young entrepreneurs.

When Malaysia takes the chair of Asean, I understand at least four matters will be addressed:

A stocktake of where the region is with respect to the AEC;
A report and analysis of the NTMs (non-tariff measures) in place and being experienced;
A strategic action plan on Asean SMEs; and
Post-2015 Asean.
In undertaking all of them, I hope the work and experience of the private sector will be taken into account before any final report or position is taken. There has to be a reality check beyond official input. It is important the AEC process moves forward with involvement and enthusiasm of all sections of society, including the private sector. The distance between the official level and the people at the bottom has to be narrowed if the process of community building is to become real.

People-centric theme

The theme next year will be people-centric, which is a good thing, but it must not be mere rhetoric. Building a community without involvement of its constituents is meaningless. There will be no community in the true sense of the word.

Asean community-building, of course, has not proceeded with developing its essence but with piling up its content. Purists would dispute whether or not a true community is evolving. To boot, in an inter-state association, with no surrender of power to any central authority. In essential definition, Asean is at most an association, not a community, even with all the content being piled up, and even if all that is piled up fulfills the 2009-15 blueprints.

However, in the Asean construct, the definition of community is quantitative, not qualitative, certainly in respect of the AEC. The measurement of progress is against an action plan. But, even this way, there is a lack in progress. What member states say they have done – and therefore gets a tick in progress measurement – is not always what is experienced on the ground.

In reality, there are non-tariff measures (NTMs) in place where tariffs have been reduced, there have been no enabling measures to secure domestic accord with Asean commitment and there have even been disablement measures which reverse what had been agreed to at the Asean level.

This tug and pull is not unexpected or unheard of in the society of nation-states. But when a group of them is embarked on a planned convergence of intention, it would not help if, even before the magic point of community announcement, there is already backsliding and a flight from reality. The stock-take Malaysia undertakes must therefore be vigorous and not take another kind of flight – a flight of fancy. And when it comes to the NTMs and other measures, it must also be grounded in hard fact and reality to reach the point of name and shame.

Now to the SMEs and numerous concerns on their future with the onset of the AEC. There is a paradox here given what we have observed about the gaps in its fulfillment. Surely there must be demonstrable progress towards the AEC if there is fear of its full arrival. Actually, this is so. We just have to observe what has been taking place, for example companies setting up operations in one or other Asean countries and sourcing parts in the supply chain from others – thus setting up an Asean production base and taking advantage of the removal of intra-Asean tariffs.

AEC objectives

Indeed, surveys have shown that the big companies, foreign and Asean, have business plans which cover the whole region and project sales and turnover with full or partial achievement of the AEC objectives. The AEC, in other words, is already taken into account in business planning. Asean’s actual market size and future prospects are enticing, and the AEC propelling. In the globalised and already liberalised world, market potential and competition for it are a reality.

SMEs have to up their game and become more competitive while also trying to take advantage of that potential. They are not helpless but some want help. But they must be ready to help themselves even when they get help. In regard to the often-mentioned access to finance, while this could in some ways be addressed, important point is how the SMEs use available finance to become more competitive.

They are the backbone of the Asean economy on various measures but their productivity is generally low. Restructuring of economies and movement up the value chain are constant facts of economic and business life.

Rise to the challenge

Nevertheless the socio-political consequences of the failure of the SMEs are serious. They must be a concern of governments. But they must also be a concern of the SMEs themselves. Closing shop and being thrown out of work must be a concern of those directly involved. Being taken over, or merging, should not be negotiated from a position of abject weakness. SMEs must rise to the challenge.

The Asean SME strategic plan of action should therefore not just be helpful but robust in its requirement of better performance.

Finally, post-2015. Clearly, the action plans under the blueprints have to continue. Even as we talk about a shortfall in getting the Full Monty AEC, the shortfalls in the APSC (Asean Political-Security Community) and ASCC (Asean Socio-Cultural Community) are greater. Indeed, for post-2015 Asean, the latter two have to be given stronger emphasis. There are two reasons for this.

Firstly the geo-political environment and the development of civil society in all member states require a concentration of thought on how to maintain stability which is not sustained by economic growth alone. Second, as we have observed, individuals and constituent units of Asean must be brought into the community-building process, however a community is defined.

Asean also needs to think more strategically post-2015. It has up to now not sufficiently taken into account the shifting geo-political and geo-economic regional environment, and keeps harping on about Asean centrality. This is dangerous wishful thinking. There are serious issues about the changing balance of power which Asean must address to remain a credible actor which, it often asserts, is possible because the Asean whole is greater than its parts. But, before Asean can even act together, it has to think together.

Even in respect of economic regional groupings, there needs to be a reflection of where the AEC falls in between the larger TPP states and the far larger FTAAP (Free Trade Area of the Asia Pacific). Does Asean negotiate as the AEC or hang separately? Interestingly, on the RCEP (Regional Comprehensive Economic Partnership), Asean is negotiating separately although, of course, it could be argued the AEC is not yet established. Nevertheless the big question remains in all these larger contexts: How are Asean obligations incorporated or absorbed in wider regional arrangements?

On top of all this, in the post-2015 AEC world, it should be remembered there are other ways and concerns in building a community for the future than strict adherence to blueprint action plans. Specific projects should be pursued, even on a bilateral basis, whose success would have a demonstration effect, which would inculcate and expand the habit of cooperation. This is called functional integration, which was the foundation of much of international integration in the early years, with the establishment of organisations such as the International Telegraphic Union and the International Postal Union.

They served a purpose from which everyone benefited by being a member. It was only later that the world, Europe particularly because of two mother of all wars, moved to a principles and rules-based integration process.

At the same time, in the plunge for economic goodies, there must be a handle on sustainable growth and the quality of life. There must be greater reflection on where we are headed beyond the pull or drive of action plans contained in fastidious blueprints based on an economic growth paradigm.

Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.