Malaysia steers ASEAN towards economic union

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A summit of the ASEAN group of countries in April, hosted in Malaysia, brought the bloc one step closer to realising plans to launch the ASEAN Economic Community (AEC) by the start of 2016.

Media headlines focused on an unexpectedly strong position against China’s reclamation activities in the Spratly Islands, with a concluding statement from the summit noting that these activities have “eroded trust and confidence and may undermine peace, security and stability in the South China Sea”. Leaders called for the implementation of a code of conduct with China to better manage the dispute. 

Assuming the chair of ASEAN for 2015, Malaysia laid out eight priorities it said would be acted upon during its term. These include formally establishing the AEC; developing the bloc’s post-2015 vision; expanding intra-ASEAN trade and investments; promoting regional peace and security through moderation; and enhancing ASEAN’s role as a global player.

Proximity to goals

While the success of Malaysia’s chairmanship will not become apparent until after January 1st, the groundwork for a positive outcome appears to have been laid, with many of the targets likely to be met within the timeframe set out by Kuala Lumpur.

According to Mustapa Mohamed, Malaysia’s minister of international trade and industry, the achievement of the first objective, that of formally establishing the AEC by the end of the year, is well on track. Of the 505 measures that need to be implemented under the requirements set out for full AEC integration, 457 – or 90.5% of the total – had already been enacted ASEAN-wide, he said.

“The remaining 9.5% which have not been implemented include the 10th services package, single self-certification scheme, chapters with Japan and ASEAN single window,” Mustapa told delegates attending the opening session of an investment conference in Kuala Lumpur on April 24th. The final 10th AFAS Package negotiation is targeted for completion and signing by end of 2015, and forms part of a wider process to open up the services sector to foreign participation in a bid to accelerate growth.

One of the key trade measures is the elimination of tariffs. The ASEAN Six – Malaysia, Thailand, Indonesia, Philippines, Brunei and Singapore – have to date eliminated tariffs on 99.65% of all lines, with the final tariffs to be lifted by year’s end.

The remaining four member states – Cambodia, Laos, Myanmar and Vietnam – also intend to achieve full compliance by the launch date of the AEC on January 1st, having so far reduced tariffs to the 0-5% range on 98.6% of all tariff lines.

However, some regional businesses have criticised the pace of implementation of the AEC. Nazir Razak, the chairman of Asian investment bank CIMB Group, said the movement of people within the bloc was still restricted despite the notion of free labour flows. He suggested a series of measures and initiatives to drive forward the regional economic integration agenda, including more funding for the ASEAN secretariat.

Flow on effects from economic union

An economically successful AEC would help to develop broader acceptance of the bloc among the peoples of its constituent member states, while the ASEAN Strategic Action Plan for SME Development (2016-25) – also due for release mid-year – is supposed to lay down a strategy to strengthen SMEs, the largest source of employment in the region.

A series of free trade agreements with third parties are also being negotiated by the bloc, including with Hong Kong, Japan and India, with the latter likely to come into force by July. These pacts should help to boost trade volumes and further cement the bloc’s status globally.

The summit also adopted the Kuala Lumpur Declaration on a People Oriented, People Centred ASEAN, a document that commits the bloc to implement policies which will tackle poverty and inequality. Closing the two-day summit, Prime Minister Najib Razak said the vision of an expanding ASEAN had to be seized wholeheartedly. “We must together share our conviction and ASEAN’s time is right here, right now,” Najib said.

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