World Economy

SE Asia Creates New Economic Community

SE Asia Creates New  Economic CommunitySE Asia Creates New  Economic Community

Thirteen years after the idea was mooted, Southeast Asian leaders on Sunday formally created a unified economic community in a region more populous and diverse than the European Union or North America, and with hopes of competing with China and India.

The 10 leaders in the Association of Southeast Asian Nations signed a EU-style declaration during their summit establishing the ASEAN Economic Community, as part of a larger ASEAN Community that aims for political, security, cultural and social integration, AP reported.

The move to set up the ASEAN Community at the group's summit in Malaysia's capital Kuala Lumpur takes ASEAN a step closer to being a free trade area.

Summit host, Malaysia's Prime Minister Najib Razak, called the declaration a landmark achievement in an area of 625 million people with a combined economic output of $2.6 trillion.

He said the ASEAN Community, to which Australia is a party, has the potential to become the fourth largest economy in the world by 2030.

"Our task it is to bind ourselves further together in friendship and cooperation, and through joint efforts and sacrifices, secure for our peoples and for posterity the blessings of peace, freedom and prosperity," he said.

The ASEAN Community includes a political, security and socio-cultural dimension in a region with governments ranging from communist in Vietnam and quasi-military in Myanmar, to the kingdom of Brunei and the boisterous democracy of the Philippines.

But it is the economic community that offers the most concrete opportunities for integration in a region whose combined gross domestic product would make it the world's seventh-largest economy.

"In practice, we have virtually eliminated tariff barriers between us," Najib said.

"Now we have to assure freer movements and removal of barriers that hinder growth and investment."

Broader Cooperation

The countries aim to harmonize economic strategies, recognize each other's professional qualifications, and consult more closely on macroeconomic and financial policies.

They have also agreed to enhance the connectivity of their transportation infrastructure and communications, better facilitate electronic transactions, integrate industries to promote regional sourcing, and enhance private-sector involvement in the economy.

Eight groups of professionals will be able to work more easily throughout the region: engineers, architects, nurses, doctors, dentists, accountants, surveyors and tourism professionals.

Stronger Economic Muscle

The community, known by its acronym AEC, is already a reality and many of its fundamentals have been applied in the region such as removal of tariff barriers and visa restrictions among others. It has also led to greater political and cultural cooperation.

AEC will bolster income and employment, and provide the region with stronger economic muscle in facing the other giants, said Michael G. Plummer, a professor of international economics at the Europe Center of Johns Hopkins University, based in Bologna, Italy.

“ASEAN integration will help balance the economic power of China and India. Individually, ASEAN countries are, perhaps, too small to be important players in the economic and security game, but as an integrated group of more than half a billion people, they would be in the major league,” Plummer said.

But there is a long way to go before the AEC becomes fully functional after becoming a legal entity on Dec 31. The region’s diversity can be a hindrance sometimes. ASEAN has 630 million people, speaking different languages, following various faiths and governed by various systems, including rambunctious democracies, a military dictatorship, quasi-civilian, authoritarian, monarchy and communism.

Challenges Remain

“The AEC is arguably the most ambitious economic integration program in the developing world. But implementation of the AEC is increasingly uphill. Much remains to be done and the region faces many challenges in finishing. The AEC is a process,” Plummer said.

Intra-regional trade has remained at around 24% of ASEAN’s total global trade for the last decade, far lower than 60% in the European Union.

ASEAN members also struggle to resolve diplomatic flare-ups among each other such as border disputes between Cambodia and Vietnam, or Indonesia’s inability to fight annual forest fires that spew noxious haze for months over Malaysia, Singapore and Thailand.

Although the four poorer economies—Cambodia, Laos, Myanmar and Vietnam—have until 2018 to bring down tariffs, economic integration could further reinforce income equalities in the region, he said.