Can the Asean Economic Community Get Off the Ground?

The ASEAN Economic Community, which is supposed to come into existence in just 13 days, on Dec. 31, is far from the 10-member alliance’s “EU moment,” as it was supposed to be called, or even a semblance of it. The kickoff has already been delayed for a year.

The proposed pact is supposed to move the member states towards greater economic integration, creating a common market with a combined gross domestic product of about US$2.5 trillion. The business community, unsurprisingly, is eagerly anticipating a market with reduced tariffs and freer flow of goods, services and investment across borders.

With the deadline lingering, however, the question still continues to be asked how far the AEC is from achieving its stated goals. Marked progress has been made in eliminating import duties among the member states. Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand. Cambodia, Laos, Myanmar and Vietnam have made rather less progress. Overall tariff elimination stands at 95.99 percent. But “tariff elimination alone, however, does not create an open market,” according to the AEC’s own literature.

No way, ADB says

“If you look at it as a finish line, then, yes, people are going to be skeptical or disappointed, because it’s not going to reach the targets that had been set out for the full implementation of the AEC by December this year,” said Stephen Groff, an Asian Development Bank vice president, at the recently held Southeast Asia Summit 2015 in Kuala Lumpur. “It’s simply not going to happen.”

The “non-happening” of the AEC’s so-called EU-moment is going to end up disappointing many, especially the working classes looking for cross-border employment. For instance, according to the provisions of the Agreement on the Movement of Natural Persons (MNP), the phenomenon of free flow of labor has a markedly different shape. The MNP and the other related agreement on investment, Comprehensive Investment Agreement, do not essentially envision what is typically called free flow of labor. While this might be the expectation at the ground level, at the policy-making level, the member states do not aim at facilitating a wholly unrestricted flow.

The two agreements do not apply to individuals seeking employment, citizenship, residence, or permanent residence in other ASEAN states. On the contrary, these agreements apply to those individuals only who are duly employed by a registered company in the country of origin. In other words, the AEC does not essentially envision full labor mobility as is the case in the European Union or the European Economic Area, where workers can move freely, reside, and seek employment in any member state.

Labor mobility unbalanced

This restriction on the potential “benefits” that labor might have been able to gain is further exacerbated by the fact that labor mobility across the member states is highly unbalanced as it is largely concentrated in only a few corridors. According to recent UN estimates, 97 percent of the 6.5 million intra-ASEAN migrants in 2013 travelled between just three countries: Thailand, Malaysia and Singapore. Among these three countries, Thailand hosted the majority of intra-region migrants, more than 3.5 million. Of the 57 different corridors registered in the UN study, only five represent 88 percent of intra-ASEAN migration.

Notwithstanding that considerable change has been observed over the past decade in migration patterns, the unbalanced flows continue to pose a serious problems. As against the migration trend of 1990s when almost 60 percent of migrants traveled outside the ASEAN member countries, the current trend shows a remarkable reversal. However, it is yet to take a balanced trajectory as the country-direction remains an issue that continues to exacerbate due to the lack of infrastructural as well as legal mechanisms.

Human trafficking replaces labor mobility

On the other hand, one of the potential reasons for such tighter controls over flow of labor is that migrants continue to flow, through human trafficking and other avenues, in the member states. According to the latest report by the UNHCR's Irregular Maritime Movements in Southeast Asia, 25,000 Rohingya and Bangladeshi migrants boarded smugglers' boats between January and March this year, nearly double the number over the same period in 2014.

In the first quarter of 2015, an estimated 300 people were believed to have died at sea as a result of starvation, dehydration and maltreatment by boat crews, according to the refugee agency.

As a matter of fact, nearly 2 million migrants from Myanmar alone are in Thailand, roughly one-third of the total intra-ASEAN migrant stock. Around 1 million people migrated, both legally and illegally, from Indonesia, Malaysia and Laos to other states, especially to Singapore and Thailand. A huge stock of migrants thus entering Thailand is, therefore, going to put a burden on its economy.

“The major problem would be the free movement of labor, said Jingjai Hanchanlash, Vice-Chairman of Thailand's Board of Trade during the recently held Thailand Business Insights 2015 in Bangkok. This is going to be a big problem for Thailand and other ASEAN nations. When we start the AEC next year, I don't think the problem will only be for Thailand but also the nine other countries because we're not used to this kind of free movement.”

The related problem of migrants who invariably tend to engage in all types of labor, has also become a concern. The problem can potentially be converted into a source of benefit if requisite infrastructural and legal mechanisms are provided to channelize the flow of “natural persons.”

Skill shortages could be solved

For instance, numerous reports have highlighted labor shortfalls and skill shortages in Indonesia, the Philippines, Thailand, and Vietnam, identified recently by a study by the International Labor Organization. In this context, the hitherto missing more open ASEAN-wide skill labor regime, contrary to what current agreements envisage, could help address the growing problem of restricted flow of labor, illegal migration and human trafficking.

While that seems a way out, the underlying reason behind not having such a regime is the lack of political cooperation among the member states as the relatively more developed states would certainly have to bear the brunt of increased inflows and fewer outflows. Free flow would lead to what the ASEAN Secretary General, Surin Pitsuwan, called “engulfment” of the developed states.

Although he did recognize the need for flow of “skilled labor” within ASEAN countries, Surin said, “engulfment” still could very much occur. The reason for insulating the member states against potential engulfment, he said, is the underlying political and economic competition among the member states.

States Compete for Japanese, Chinese Money

Nowhere is this competition more marked and conflicting than in the case of China and Japan. Let’s see how competition, a pre-requisite for the AEC to have its EU moment, is developing among the member states.

As mentioned earlier, infrastructural backwardness is one of ASEAN’s major problems. Implementation of the top priority infrastructure projects alone in 2012-2022 is estimated to cost US$60 billion. The question is who is going to make this investment and through which avenue?

China is planning to engage the newly established Asian Infrastructure Investment Bank and Japan, the Japan International Cooperation Agency and the Asian Development Bank, which it controls, to accomplish this mission. The two each intend to issue investment loans totaling US$10 billion within the next five years to fund infrastructure projects in Southeast Asia. Both states announced their decision in the course of forums held by ASEAN.

Debate has emerged about the way this rivalry, which does have strong geo-political underpinnings, is going to shape the AEC when it is finally established. While it does not essentially look “bad” to have competition among states, it is, however, going to affect the AEC’s overall performance.

Political tension, which is deeply rooted in geo-political matters such as disputes over the South and East China seas, is going to stay here as, unlike the EU, no political fusion and fiscal union are going to or can take place in ASEAN. Hence the question: Will the up-beat assessments about the AEC’s advantages and benefits counted ever come to fruition in the same way as in the EU?

The results of recent forums arranged by ASEAN, as well as the circumstances in which they were held, prove that such apprehensions are not ungrounded. And it is hard to predict whether the AEC will be able to pass the “pressure test” in the “tensile stress field” created by inter-state geo-political rivalry.

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Salman Rafi Sheikh ( is a Pakistan-based academic and regular contributor to Asia Sentinel