INTRODUCTION

ASEAN Leaders have repeatedly shown that they do wish to achieve an ASEAN Economic Community (AEC) by 2015. They adopted the ASEAN Charter and the AEC Blueprint in 2007 and approved the Master Plan on ASEAN Connectivity (MPAC) in 2010. But be that as it may, it is highly unlikely that ASEAN can refer itself as an effective “Economic Community”, i.e., a community where ASEAN businesses and citizens are able to benefit in terms of lower costs and better job opportunities. What may be a better approach is to see the AEC as an ongoing process for which all the right foundations have been laid.

This paper sees the glass as half full, and discusses ASEAN's achievements as well as the challenges the grouping has to face where achieving the AEC is concerned.

INTRODUCTION

As reaffirmed in a 2008 report from the Asian Development Bank (ADB), “Asia's economies are increasingly vital to each other and to the world. Asia's output today roughly equals that of Europe or North America, and may well be 50 per cent larger than theirs by 2020, in terms of purchasing power parity.” Moreover, with both the United States and Europe continuing to post a low GDP growth of 1–2.5 per cent annually, the centre of the recovery has decisively shifted to Asia.

These factors became very apparent during the November 2012 ASEAN summit, when two different approaches to trade liberalization became clear. One is the ASEAN-led Regional Comprehensive Economic Partnership (RCEP) and the other is the U.S.-led Trans-Pacific Partnership (TPP). It was also decided during the meetings that the United States will be able to build its trade relationship with ASEAN through the Expanded Economic Engagement (E3) initiative.

INTRODUCTION

The Asian Development Bank (ADB) in its April 2013 Economic Outlook reported that the Asia-Pacific, largely driven by the domestic factor, will continue with its strong economic growth of around 6.6 per cent in 2013 (ADB 2013) (vis-à-vis 6 per cent last year). ASEAN is expected to show a resilient growth of 5.4 per cent, while the two giant economies — China and India — are likely to grow by 8.2 and 6.0 per cent respectively. In contrast, the advanced economies (the United States, the EU and Japan) are forecasted to accelerate moderately by 1 per cent this year under conditions of uncertainty arising from fiscal tightening and period of consolidation.

Despite this positive economic projection for Asian economies, underinvestment in infrastructure, particularly in transport, energy and communication, remains a major concern.

INTRODUCTION

ASEAN member countries (AMCs) have made considerable progress towards economic integration since they decided to create an ASEAN Free Trade Area (AFTA) in 1992. Building on this base, they progressively launched other initiatives like the ASEAN Investment Area and the ASEAN Framework Agreement on Services. The process soon became wider in scope with the aim to create an ASEAN Economic Community (AEC). This is because, in its bid to make the region more globally competitive, ASEAN was no longer solely geared towards increasing intra-regional trade and investment, but was also concerned about reducing transaction costs, building soft infrastructure, lowering poverty, and pursuing economic development on a sustainable basis. At its core, AMCs have continued to maintain an outward-looking policy of “open regionalism”.

This volume is a compilation of articles written by Sanchita Basu Das, Lead Researcher for Economic Affairs in the ASEAN Studies Centre at the ISEAS–Yusof Ishak Institute, over the last three years.

Sanchita has been closely tracking developments in the region around the ASEAN Economic Community (AEC), the Regional Comprehensive Economic Partnership (RCEP), the Trans-Pacific Partnership (TPP) and other regional connectivity initiatives. That is demonstrated by the depth and breadth of topics covered in the twenty-two papers in the volume.

The year 2015 has been significant in the developments in ASEAN, particularly with the AEC deadline approaching and consensus seems to being formed around the TPP negotiations, as the U.S. Congress has finally passed the bill of Trade Promotion Authority. It is important, however, to also reflect back on the road that these various agreements travelled on over the past few years. It is also important to see if the original principles and tenets on which the ideas were conceived are actually being reflected in the final versions.

This volume helps in this regard as it has focused on three key areas — the state of the AEC, external linkages beyond the AEC, and ASEAN's perspective on regional connectivity. The papers go into some depth on the issues faced in each of these areas. Thus academicians, policymakers and just about anybody who has been following the developments would get some insight on the issues.

It is difficult to predict where the future lies for ASEAN and whether its efforts around connectivity will eventually bear fruit. But providing clarity on the underlying issues and state of the economies can help the relevant people to make informed decisions.

This is what this volume seeks to do, and we hope succeeds in doing.

INTRODUCTION

TPP, originally known as the Trans-Pacific Strategic Economic Partnership Agreement, is a nine member free trade agreement that aims to enhance economic integration in the Asia-Pacific region by further liberalizing trade and investment. The original agreement with membership of Brunei, Chile, New Zealand, and Singapore, was signed on 3 June 2005 and entered into force on 28 May 2006.

Five additional countries — Australia, Malaysia, Peru, the United States, and Vietnam — are negotiating to join the TPP, potentially taking the membership to nine. This will bring the combined GDP to US$16.7 trillion (26 per cent of the global GDP) and total trade worth US$5 trillion. In addition, Japan, Korea, Mexico and Canada have also expressed their interest in joining the negotiations. With their economies in the partnership, the TPP will represent US$26 trillion of combined GDP, or 41 per cent of the global GDP.

At the time of going to press, the TPP negotiations among the twelve participating countries were completed on 4 October 2015, subject to approval by the member countries’ governments and parliaments before taking effect. Since this publication includes analytical articles written till June 2015, a summary of the TPP Agreement as published on the United States Trade Representatives (USTR) website is provided for readers’ knowledge. It does not contain specifics of what has been agreed during the negotiations as technical details still need to be ironed out before the agreement can be made public.

Summary of the Trans-Pacific Partnership Agreement

Source: <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/october/summary-trans-pacific-partnership>.

On October 4, 2015, Ministers of the 12 Trans-Pacific Partnership (TPP) countries — Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam — announced conclusion of their negotiations. The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections. We envision conclusion of this agreement, with its new and high standards for trade and investment in the Asia Pacific, as an important step toward our ultimate goal of open trade and regional integration across the region.

KEY FEATURES

Five defining features make the Trans-Pacific Partnership a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues. These features include:

1. • Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.

2. • Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting our goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.

3. • Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state-owned enterprises in the global economy.

The ten countries of Southeast Asia — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — are achieving a major milestone of an ASEAN Community (AC) by the end-2015. The ASEAN Community comprises of three pillars — ASEAN Political Security Community, ASEAN Economic Community (AEC) and ASEAN Socio-cultural Community. While the ASEAN Political-Security Community calls for a “rules-based community of shared values and norms”, good governance, human rights, and adherence to the principles of democracy; the ASEAN Socio-cultural pillar covers a wide range of areas — education, information and communication technology, poverty alleviation, migration, natural disasters, entrepreneurship, social safety nets and the environment. The ASEAN Economic Community aims to deliver on an integrated production space with free movement of goods, services, and skilled labour.

According to the April 2015 Summit, there has been positive progress in building an ASEAN Community since 2009. In particular, the AEC, because of its quantitative nature and expected tangible benefits, has attracted relatively more attention and is said to have achieved 90.5 per cent of its targeted 506 priority measures. This volume focuses on the ASEAN Economic Community and other economic initiatives arising out of it.

It should be noted that the ASEAN countries combined constitute a population of about 625 million, spanning a total area of 4.5 million square kilometres. In 2013, the ASEAN countries together generated a combined gross domestic product (GDP) of US$2.4 trillion and total trade of US$2.5 trillion, accounting for almost a quarter of Asia's total exports and imports.

THE ASEAN ECONOMIC COMMUNITY (AEC)

The ASEAN Vision 2020, adopted in December 1997, envisaged “a stable, prosperous and highly competitive ASEAN economic region in which there is a free flow of goods, services, investment and freer flow of capital, equitable economic development and reduced poverty and socioeconomic disparities” by the year 2020. To realize this vision, the ASEAN leaders signed the Declaration of ASEAN Concord II at the ASEAN Summit in October 2003, aiming for an AEC as an end goal of its economic integration. Later, the deadline was brought forward to 2015.

ASEAN achieved a major milestone at the November 2007 ASEAN Summit when its leaders adopted the AEC Blueprint, which laid out a road map to achieve the economic integration, and included action plans, targets and timelines to facilitate the process.

INTRODUCTION

The Regional Comprehensive Economic Partnership (RCEP) is an ambitious initiative to enhance economic integration and cooperation amongst the ten ASEAN member states and the group's Free Trade Agreement (FTA) partners of Australia, China, India, Japan, South Korea and New Zealand. If successfully concluded, RCEP as a grouping has the potential to generate a GDP of US$26.2 trillion (representing 32 per cent of global GDP) by 2015. It would also create the world's largest trading bloc and have major implications for Asian countries and the world economy as a whole. In particular, the partnership is expected be a powerful vehicle for widening global production networks and reducing the inefficiencies of heterogeneous Asian trade agreements.

Negotiations among the sixteen parties began in early 2013 and are scheduled to conclude by the end of 2015. Led by Indonesia, negotiations are based on principles aimed at achieving a comprehensive trade agreement among members. The core of the negotiating agenda covers trade in goods and services, investment, economic and technical cooperation and dispute settlement. It aims for significant improvements over the existing ASEAN+1 FTAs and is expected to give due consideration to the different levels of development among the members.

INTRODUCTION

In November 2012, during the 21st ASEAN Summit in Phnom Penh, the United States and ASEAN agreed on a new framework for economic cooperation. The initiative, named as the U.S.-ASEAN E3 is said to be creating new business opportunities and jobs in all the eleven countries involved. It identifies specific ways to facilitate U.S.-ASEAN trade and investment, increase efficiency and competitiveness of trade flows and supply chains throughout ASEAN, and build greater awareness of the commercial opportunities that the growing U.S.-ASEAN economic relationship presents. It is expected that by working together on the E3 initiatives, the United States can work with ASEAN countries to prepare to join high-standard trade agreements, like the Trans-Pacific Partnership (TPP), which currently include only four ASEAN countries — Brunei, Malaysia, Singapore and Vietnam.