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The ASEAN Economic Community: The Force

The AEC is here, but can it deliver on its promise?

By Elodie Sellier
January 12, 2016

The agreement on the creation of an ASEAN Economic Community signed on

November 22 in Kuala Lumpur by the leading nations of Southeast Asia finally
entered into force with much fanfare on December 31, heralding the
awakening of what could be defined as a new Asian power bloc. Almost
echoing the European Unions Common Market of the 1950s, ASEAN seeks to
allow for the free movement of goods, services and skilled labor, a major
departure from what has been considered since the earliest days of its
existence as a political project for peaceful regional integration.

For outsiders, the AEC is the culmination of the massive integrationist leaps
made by ASEAN since the early 2000s, suggesting new momentum in the
integration process of this gigantic market of 600 million people. But size
matters not, and from a pragmatic perspective, the entry into force of the AEC
is reminiscent of Shakespeares Much Ado About Nothing: Given ASEANs
extremely weak institutional base, reliant on a skeleton secretariat of no more
than 400 staff sustained by an annual budget of barely $17 million, there is
much uncertainty as to whether ASEAN can deliver on its ambitious targets.

With the AEC, the 48-year-old ASEAN finds itself at a critical juncture, yet
sobriety should drive any analysis. The reasons for skepticism center on two
questions. First, can ASEAN effectively pursue coherent economic integration
on the sole basis of voluntary commitments especially given the extreme
diversity of the region? Second, if so, which objectives it should pursue next to
build on the AEC?

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Unity in Diversity?
Significant hope has accompanied the AECs formation. Many analysts have
pointed out that integrating ASEAN economies would create the worlds
seventh-largest single market, and they are certainly right. However, taking
advantage of this market requires dealing with its complexities and
contradictions, and accommodating the vast differences and national
sensibilities. The challenge of diversity is formidable enough: Politically, the
somewhat cacophonous, unstable democracies of Indonesia and the
Philippines cohabit with the Communist dictatorship of Vietnam and the
military junta of Thailand; economically, high-developed states and top
ranking economies stand along with some of the poorest countries in the
world; culturally, the plurality of religions, languages, ethnicities, and ways of
living is difficult to describe. To cite only one example, Malaysia and
Indonesias Muslim populations co-exist with peoples who are mostly
Buddhist (as in Myanmar), alongside the predominantly Roman Catholic
Philippines. Against this kaleidoscopic backdrop, it is surely reasonable to
question the ability of the AEC to deliver on its promise of a seamless
economic bloc.

What is more, the extremely pervasive and, some would say, blind adherence
to the overarching principles of consensus and non-interference, combined
with the lack of a robust and sound institutional architecture, have left intact
the problem of ensuring compliance and effective implementation of targets
by national governments and agencies. In spite of the various commitments
entered into under the AEC, ASEAN is still missing the necessary institutional
glue, which could take the form of an overarching regional mechanism that
ensures the smooth coordination of the vast array of government actors from
the different national sectors, ministries and agencies. The numbers speak for
themselves: Although 95 per cent of tariff lines are at zero, non-tariff barriers
on goods and services render cross-border trade particularly painful.
Consumer laws, intellectual property rights, land codes, and investment rules
have yet to be harmonized at the regional level, while the lack of common,
integrated banking structures, alongside the absence of an agreement on
common and acceptable currencies, are likely to hinder market access for
regional small and medium-sized enterprises. Also still unresolved is the
question of the free movement of labor, including in the so-called high-
skilled sector, with many ASEAN countries imposing heavy requirements on
firms wanting to employ foreigners. Meanwhile, in the shadow of the regional
debate on skilled labor migration, millions of marginalized migrants deemed
unskilled, from domestic workers to fishermen, illegally flit between countries.

For economic integration to succeed, minimum levels of uniformity in

political, economic and cultural standing among countries are essential. Given
the wide development gaps between countries, combined with the lack of solid
and inclusive institutional structures and agencies to govern the newly formed
markets under the AEC, ASEAN as an economic project is likely to emerge as a
chain of disparate markets, divided between fast-growing modern economies
(ASEAN-6) and inward-looking poor countries (Cambodia, Laos, Myanmar
and Vietnam, CLMV). The fact that Myanmars total trade was worth $23
billion in 2013, compared with Singapores $783 billion, underscores the gulf.
Against this mixed backdrop, the ASEAN Civil Society Conference and ASEAN
Peoples Forum recently warned of the dangers of unequal and unsustainable
economic growth, which may lead to the negative externalities of worsening
poverty, inequalities of wealth, resources, power and opportunities between
countries, between the rich and the poor and between men and women. One
could argue that the Economic Community project has sought to address the
line of fracture between the ASEAN-6 and the CLMV through its stated goal of
narrowing the development gaps, bolstering inter alia the development of
intra-regional infrastructure, and reducing the administrative burdens of
national regulations on the creation of new businesses and foreign
investment. However praiseworthy, these objectives will take decades to
achieve if ASEAN does not provide the adequate institutional means and
material resources to give the final impetus to economic integration.

The China Factor

With the AEC, ASEAN seeks to position itself as a competitive alternative to

the rising economic and military powers of China and India, maintain its
central position at the very core of the Asian noodle bowl of agreements and
multilateral frameworks, and boost its global clout as a common bloc to
counter Beijings aggressive policy in the South China Sea. That said,
economic influence goes hand in hand with political influence, and economic
integration will be of little significance if it is not backed by sound political
reforms. It is somewhat ironic that ASEAN as a regional entity, whose
very raison dtre was born out of its leaders burning desire to avoid the
recurrence of war and establish a durable and peaceful regional equilibrium,
has to date remained focused on the integration of its economic pillar.
Unfortunately, in the latter realm of political and security integration, there is
no shortage of problems. The evolution of the security landscape in the Asia-
Pacific region, together with the speed and scale of Chinas construction
activities in the Spratly Islands, are likely to determine the future path of the
Association. In many aspects of ASEAN inter-state relations, it is still Beijing
that calls the tune, the latter capitalizing on the groupings divides and
confusion. Meanwhile, Chinas massive military modernization program,
which is equipping the Peoples Liberation Army Navy with the ability to
operate in areas far beyond its waters, has fuelled unrest in the disputed
region, hinting at the emergence of an old-fashioned arms race among Asia-
Pacific nations. In a similar trend, the power struggle between China and
Japan is driving a fierce naval competition in the East China Sea, while the
progressive involvement of the United States in the dispute through its
historical alliances with Vietnam, the Philippines and Japan has exacerbated
feelings of distrust, and widely polarized the already bitterly divided member
states. The U.S. rebalance, illustrated by the presence of military vessels in the
South China Sea, has been regarded by China as an act of provocation,
symbolizing a U.S. shift from constructive engagement to containment.

But the simple, brutal truth of the matter is that the wait and see posture
idiosyncratic to the so-called ASEAN way of conducting business has failed to
live up to its original promise to promote perpetual peace, everlasting amity
and cooperation among their peoples which would contribute to their
strength, solidarity and closer relationship. The spectacular failure of the 10
ASEAN defense ministers to issue a joint declaration on the SCS at the
biannual ASEAN Defense Ministers Plus meeting held last November is
somehow reminiscent of the fiasco of the ASEAN Regional Forums summit of
2012 under the (China-friendly) Cambodian chairmanship. Incidents such as
these make a case for a firm, resolute approach to the much divisive and
contentious issue of China. Today, much of the hope rests with South Korean
President Park Geun-hyes attempts at a Northeast Asian trustpolitik, a
strategy that aims at lumping together the three regional powers of China,
Japan and South Korea in a pragmatic and functional cooperation framework,
the so-called Northeast Asian Peace and Cooperation Initiative (NAPCI), to
deal with matters of common concern, spanning nuclear safety, cyber security,
climate change and disaster response, to name but a few. The non-
participation of ASEAN in this new, innovative trilateral dialogue, perhaps
best attests of the obsolescence of the organizations hands-off approach and
informal modus operandi as a response to Chinas assertive divide et
impera strategy.

Given these constraints, it will certainly be no easy task for the impoverished,
tiny state of Laos to assume the ASEAN chairmanship in 2016. There is great
uncertainty as to whether Laos will be able to provide ASEAN with the much-
needed leadership and diplomatic acumen to find a common denominator
among the widely diverging national views, and further the momentum of
integration generated by the AEC. Strategically located at the heart of
continental ASEAN and wedged between the fast-emerging states of Thailand
and Vietnam, Laos has attracted considerable attention from China in recent
years. In 2014, China became Laoss leading investor with funds totaling more
than $5 billion, while the Sino-Laos agreement on the building of a $6 billion
high-speed railway project as part of the PRCs One Belt, One Road project
offers a telling glimpse into how Laos has become a frontier for Chinese
investment. An unwanted corollary of this increasingly dyadic relationship
would imply a situation in which Laos faces a major political dilemma,
emerging out of the discord between declared loyalty to ASEAN and actual
economic dependence on Chinese investment. In this scenario, whereby the
rotating chair, supposedly bound by an imperative of independence and
neutrality, favors one party over another and/or accedes to external demands,
would deal a serious blow to ASEAN credibility. Malaysias leadership and
principled attitude during the 2015 chairmanship turned out to be a
particularly well-suited approach in these years of crucial change and
uncertainty, yet Kuala Lumpur has set the bar particularly high for the small,
landlocked Republic of Laos.

Connecting the Dots, Closing the Chasms

These mounting challenges demonstrate that a certain relaxation of the

principles of consensus and non-interference, alongside greater emphasis on
regional institution-building, are currently needed to accommodate the ever-
evolving economic and security landscape in the Asia-Pacific region. This is
not to suggest that an integration process along the lines of the EU,
underpinned by deep institutionalization through robust governance
structures and complex legal frameworks, is the remedy par excellence to
ASEANs problems. However, if ASEAN is to realize what it purports to be
politically cohesive, economically integrated, socially responsible and truly
people-oriented, people-centered rules-based concert of Southeast Asian
nations, it will need more than just empty statements to overcome the say-
do chasm and address the pervasive issues of worsening poverty and
inequalities of wealth, resources, power and opportunities, let alone the
questions of human rights and democracy.

Inevitably, a clear core message requires a certain amount of consistency

between words and deeds, between the official rhetoric and actual behavior.
Over the past few years, the language of ASEAN official documents, marked
with strong commitments to fundamental rights and the rule of law, has
proven a hard sell for ASEAN people at a time when Thailands military junta,
led by General Prayuth Chan-o-cha, is making draconian efforts to curb
freedom of expression, while Vietnamese independent writers, bloggers, and
rights activists continue to face ruthless persecution by the Communist Party,
regardless of the outcry generated within the international community.

Ultimately, it is clear that the workings and developments of the AEC should
not be seen independently from, but rather as complementary to, the crafting
of the political and security and socio-cultural communities. As member states
slowly absorb the externalities generated by the AEC, ASEAN leaders may
want to consider preparing the groundwork to build more stable, secure
societies, deepen ties with geographical neighbors and, eventually, develop a
shared sense of regional community and purpose. Otherwise, any attempt at
more integration is likely to ring hollow, and all the hard work that brought
about the AEC will have served only to paper over the cracks of ASEAN
community-building, thereby consciously hiding the divisive tendencies and
disagreements underneath the surface, and inevitably falling short of the goal
of an ASEAN identity.

Elodie Sellier has conducted extensive research on Europe-Asia relations and

has worked for various international organizations, including the European
Union Delegation to Hong Kong and Macao, the Brussels-based think-tank
Centre for European Policy Studies (CEPS) and the International Crisis
Group (ICG).