The Association of Southeast Asian Nation Economic Integration - Case Study Example

ASEAN Economic Integration Author Institutional Affiliation Executive Summary The report is divided into sections each having its own significance. The introduction section gives an overview of the ASEAN and the AEC highlighting on its key pillars or blueprints. The next section tackles the impact the integration will have on businesses within the ASEAN countries taking a general approach and giving a few relevant examples. The next section explores the challenges that are bound to be faced by the ASEAN Economic Community following its launch that is scheduled to be 31st December, 2015. The last section concludes the report by highlighting some points that have been touched on the report. Introduction Many countries in various regions are turning to regional integration as a result of globalization. There are integrations that have existed for a long time benefiting the member states that otherwise would be lagging behind due to poverty and slow development. One of such integrations is the Association of Southeast Asia Nations Integration (ASEAN), which has adopted an economic development strategy. With the integration there is assured free flow of goods, labor, investment opportunities and many other advantages altogether. There are also challenges that come with regional integration; this includes security, language and trade barriers among others. ASEAN community has three key pillars ASEAN Economic Community, Political-Security Community, and Socio-Cultural Community (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). The ASEAN Economic Community (AEC) is scheduled for launching in December 2015 (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). The member states include; Brunei Darussalam, Cambodia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Viet Nam, Indonesia and Timor-Leste. The main body responsible for the building of the AEC is the ASEAN that has ten member states. This paper evaluates the ASEAN integration looking into its impacts and the challenges that it has altogether. Impacts of ASEAN Integration on Businesses in ASEAN There are a number of impacts that always come up following any regional integration. These impacts can either be negative or positive depending on how they are being looked at. Most literature has delved into the investigation of the impacts of economic integration in ASEAN. Theoretically, it is well known fact that following any economic integration there is an increase in the economic welfare of the member states. This is mainly due to the facilitation of efficient environment for production factors that are usually founded on comparative advantage. The contemporary regional integrations are very complex as proved by research by different authors of different literature (Heng, 2012). This is mainly due to complex production networks that are the backbone of economic development. The scope of this paper is to look at the impacts the integration has on businesses in the ASEAN. The businesses will benefit greatly from the four blue prints of AEC. The core elements of the AEC will impact the businesses in one way or the other. The first pillar is single market and production base that will ensure free flow of goods, investments, services, capital and skilled labor in the region (Cockerham, 2010). The second pillar is the competitive economic region that entails competition policies, consumer right protection, intellectual property rights, e-commerce, and taxation (Cockerham, 2010). The next pillar is equitable economic development that includes the development of the SMEs sector as well as the basis for AEC (Cockerham, 2010). The last pillar is the integration into the global economy that will enhance the participation in international supply networks and the development of sound economic relations. All these will have different impacts on businesses in the ASEAN region being that it is made up of different countries (Cockerham, 2010). The AEC will attract foreign investments especially in the real estate business (Cheong & Plummer, 2009). The demand for real estate properties will be high thus business opportunities as well as jobs for the populations in the member states (Heng, 2012). The vision of AEC is to build a single market that will facilitate free flow of capital and goods across the borders. This will not only hasten the transfer of goods but also increase the trade between different countries in the bloc. Correspondingly, there will also be flow of services labor and businesses based overseas such as multinationals might consider setting up their headquarters in the countries mainly for expansion (Cheong & Plummer, 2009). As a result of these offices, industrial plants and residential homes will be required as well as space to accommodate the businesses (Heng, 2012). In relation to this the real estate industry will benefit a great deal. The integration will also ensure that tariffs are eliminated on goods and services. The result of this will be that disposable income will be foreseen thus equipping the consumers with more money to spend as well as more time to plan their order of demand satisfaction. All this will have a great impact on real estate especially in Philippines (Almaden, 2014).AEC has one of its blueprints as single market and production. This will institute flow of services from one country into another (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). The economies are bound to grow thus increasing the employment and the ratio of value added in the service industry. This will ensure that service related businesses will find a place to gain profits from (Heng, 2012). The services sector will also gain from other investments such as the manufacturing sector as well (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). Some of the businesses that will boom include telecommunication, logistics and finance services as well as transport services. The blueprint will also ensure that there is free flow of investments, capital and skilled labor (ILO, 2014). As of 2010 the ASEAN-6 Member states including Malaysia, Philippines, Indonesia, Darussalam, Brunei, Viet Nam and Myanmar) has 99.2% tariff lines eliminated while the rest five had 97.52 percent tariff lines reduced (Heng, 2012). For export businesses there is a pilot self certification system that allows exporters to certify their products themselves as long as they meet the export standards (Cheong & Plummer, 2009). This will reduce the barriers to movement of goods as well as trade costs that were initially in place prior to the integration. The integration will also reduce the custom clearance time and costs (Heng, 2012). This will be facilitated by the Asian Single Window Gateway (ASW) which is the first regional single window after its implementation in December 2015. There will also be flow of capital. Currently, the stock exchanges from ASEAN-6 have been fused to form an ASEAN Exchange that will promote ASEAN capital markets and lure investors by offering them opportunities across the whole region combined. With this various stakeholders are able to decide and make investments without boundaries. The most important step in ASEAN is the liberalization of financial services thus making it possible to allocate capital for development in the AEC member states. Through the integration, the flow of labor will be enhanced (ILO, 2014). The recent agreement on movement of natural persons has a legal framework that facilitates the process of cross border movement of people temporarily in the conduct of services, investments, and goods. There is also the agreement on mutual recognition arrangements (MRAs) that included 8 professions (ILO, 2014). The latter facilitates the free movement of professionals across ASEAN through recognition of their professional inclinations. This will increase the chances of businesses expanding since they can easily move their personnel to new regions within the ASEAN (ILO, 2014). The AEC will also ensure competitive economic region that will ensure fair competition among businesses in the regional integration. This will not only create a level ground for all businesses but also encourage innovation, productivity and efficiency such that the consumers’ rights as well as intellectual property rights will be taken care of (Heng, 2012). Additionally, this will also be created through the development of infrastructure to support a variety of goods. All the barriers in the transportation of goods will also be removed (Almaden, 2014).The AEC through its flagship program of ASEAN SME development has set up 30 business innovation and incubation centers that will ensure that there is equitable development in the ASEAN. Businesses in the ASEAN are therefore likely to be beneficiaries of such innovations and funding so that they perform better than they are. Challenges of ASEAN integration The road of integration is not always so smooth; there are challenges that come alongside the integration as well (Chia, 2013). ASEAN just like any other integration comprises of many countries that have different languages. The coining of a single language for transactions may be an uphill task. The other challenge is over dominance by the regional powers (Das, 2012). Managing these regional powers such as Singapore and China which has close proximity to the ASEAN countries will increase the chances of the integration being rendered irrelevant (Chia, 2013). This is because the countries themselves will be economic powerhouses investing in the countries under AEC (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). The opening of trade barrier means that some member states may take the chance to drive unsculprous businesses. For example, the tariffs that are lowered would mean that goods are free to flow, which of course is a good move (Das, 2012). However, only countries that are productively efficient will be able to produce goods for export. The other challenge is security within the bloc. This simply lies with the communication networks such as roads and airports that shall be interconnected. As a result of this terrorists may propagate their activities easily without being easily noticed (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). Trade wise the ASEAN member states will lose import revenues when the tariffs are eliminated completely or reduce s it has been planned to a maximum of five percent (Guan, 2007). Additionally, goods that are produced in different countries such as Cambodia and Laos will have to meet international standards (Das, 2012). The need for businesses to self certify their products in relation to international standards will increase the chances of unethical practices yet at the same time reducing fair competition among the member states (Guan, 2007). On the other hand, goods that fail to meet international standards will not have a better price and thus the economy that is dependent on their trade will surge greatly (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). The regional integration is made up of countries which are poor (Chia, 2013). Eradication of poverty in areas such as Viet Nam will be an uphill task since it means investing highly in the region (Guan, 2007). Myanmar, on the other hand has been forced to lag behind development wise due to the sanctions that were placed on it. Some of the countries also may not be willing to comply with the standards of transparency and cost reduction so as to guard their domestic companies over multinationals (Guan, 2007). The integration means that there must be financial resources to sustain all the activities. Some countries may be unwilling to contribute to such due to low income compared to the other countries. There is also the challenge of creating awareness about the AEC 2015 and all its agendas (Guan, 2007). This will promote understanding about the community and aid the whole population in the region to make a positive contribution towards its development agendas. This might take a lot of time and is very costly considering the language barrier that is also a challenge in itself. There is also need to improve education in the region (Cheong & Plummer, 2009). Quality education is a vital ingredient in any region and the world in general (Das, 2012). It is the source of skilled labor and professionals that will run the economy (Chia, 2013). Another impeding challenge could be the disparities in good governance in the member states that will be spread now to the integration itself (Chia, 2013). It would be an uphill task to ensure that good governance is practiced by all the members. Being that the governments keep changing, decision making process will be a challenge (Jones, 2004). The implementation of AEC commitments and action plans will also be impeded. The secretariat could also be weak as a result of poverty among member states meaning that there will not be adequate human resource. The mother of all challenges which of course is a threat is vulnerability of economies that solely depend on export to external factors such as Europe and USA (Jones, 2004). Lastly, the member states may not be willing to cooperate on climate change in the region, and water, energy and food safety of the integration as well as emergencies in case of disasters (Chia, 2013). ASEAN countries have been shown to have some countries having poor populations. According to Kavi (2014), by 2010 there were almost 100 million people living in dire poverty and an additional 200 million below the two dollar a day threshold income (Balboa et al, 2010). This is a challenge for the integration to improve the living standards. The only way to do this is to allow the foreign multinationals to invest in the country so as to create jobs (Balboa et al, 2010). However, the multinationals could also dominate the regional market outdoing the domestic companies in the member states. Kavi (2014) further notes that some countries are reluctant to implement the single window despite its benefits. Additionally, the same member states are reluctant to allow investment liberalization, services and free flow of good as per the agreement of the regional integration. This lack of cooperation could lead to internal and external rivalry and to its wars catapult wars (ASEAN Roundtable, Basu, & Institute of Southeast Asian Studies, 2012). It is majorly attributed to different political regimes that come in with new rules (Balboa et al, 2010). The laws of different countries who are member states should also be amended so as to fit in with the AEC action plans stipulated in the blueprint (Kavi, 2014). Kavi (2014) also notes that other member states such as Thailand, Indonesia and Philippines have had the dilemma of fulfilling the AEC blueprints due to different political systems that come with different regimes. Lastly, the AEC should ensure that there is a monitoring mechanism within the region so that the members’ commitment is evaluated and qualities as well as standards set. Conclusion Despite the aforementioned challenges the positive impacts of the regional integration still hold more water than can ever be imagined. The integration ranked among the best performing regional integration should just iron out on the spotted challenges so that it becomes a benchmark for other aspiring countries. Regional integrations play an important role especially in the development of their member states. Some of the advantages that come with such integrations include free flow of goods, capital, human resources, mobility of laws and regulations, promotion of fairness and equal economic development among others. The ASEAN Economic community yet to be launched in 2015, just like any other regional integration faces the challenges of political insecurity, lack of cooperation among member states, regional conflicts, poverty, education, awareness creation and unfavorable laws as well as terrorism among others. However, all these have measures that can be instituted to mitigate them whatsoever. References Almaden, J. (2014, November 19). The ASEAN Integration and its Impact to the Philippine Real Estate Industry - PhilPropertyExpert.com. Retrieved from http://philpropertyexpert.com/the-asean-integration-and-its-impact-to-the-philippine-real-estate-industry/ ASEAN Roundtable, Basu, D. S., & Institute of Southeast Asian Studies. (2012). Achieving the ASEAN economic community 2015: Challenges for member countries & business. Singapore: Institute of Southeast Asian Studies. Balboa, J. D., Prado, F. L., & Yap, J. T. (2010). Achieving the ASEAN Economic Community 2015: Challenges for the Philippines. Manila: PIDS. Cheong, D., & Plummer, M. (2009). FDI Effects of ASEAN Integration. Chia, S. Y. (2013, October). The ASEAN Economic Community: Progress, Challenges, and Prospects. Retrieved from http://www.adbi.org/files/2013.10.25.wp440.asean.economic.community.progress.challenges.pdf Cockerham, G. B. (2010). Regional integration in ASEAN: institutional design and the ASEAN way. East Asia, 27(2), 165-185. Das, S. B. (2012). Achieving the ASEAN Economic Community 2015: Challenges for Member Countries and Businesses. Singapore: Institute of Southeast Asian Studies. Guan, B. T. (2007). ASEAN's Regional Integration Challenge: The ASEAN Process. The Copenhagen Journal of Asian Studies, 20(10), 70-94. Heng, P. K. (2012, July). ASEAN Integration in 2030:United States Perspectives. Retrieved from http://www.adbi.org/files/2012.07.05.wp367.asean.integration.2030.us.perspectives.pdf ILO. (2014). ASEAN Community 2015:Managing integration for better jobs and shared prosperity. Retrieved from http://www.adb.org/sites/default/files/publication/42818/asean-community-2015-managing-integration.pdf Jones, M. E. (2004). Forging an ASEAN identity: The challenge to construct a shared destiny. Contemporary Southeast Asia: A Journal of International and Strategic Affairs, 26(1), 140-154. Kayi, C. (2014, December 29). Challenges of Asean integration 2015 - The Nation. Retrieved from http://www.nationmultimedia.com/opinion/Challenges-of-Asean-integration-2015-30250851.html Read More