Full integration unlikely by 2015
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Asean economies are unlikely to achieve full integration as envisioned under the Asean Economic Community (AEC) by the target date of 2015, despite having made some real progress towards creating a single market and production base, according to McKinsey
An assessment by the internationally acclaimed management consultancy firm reveals that as of today, no sector in the region has yet to be fully integrated across all the dimensions that matter for cross-border operations.
“This aspiration (economic integration) is not yet a working reality on the ground,” MGI wrote in its report titled “South-East Asia At The Crossroads: Three Paths To Prosperity”.
Nevertheless, MGI acknowledged that tangible progress had been made in certain areas, the most notable of which was the near elimination of tariffs.
“Average tariff rates in the original five member states (Malaysia, Indonesia, Singapore, Thailand and the Philippines) have been virtually zero since 2010. But other types of barriers are falling more slowly,” MGI said.
The AEC, which will come into effect next year, is a vision to unite all the 10 Asean countries – Malaysia, Brunei, Cambodia, Indonesia, Laos, Myanmar, Singapore, Thailand, Vietnam and the Philippines – to facilitate free flow of goods, services, capital and skilled labour within the region.
As it stands, MGI said, “Integration is proceeding faster for traded goods (particularly automotive, textiles and wood) than for services (such as finance and healthcare)”.
According to MGI’s survey of regional businesses, though, restrictions on foreign investment and ownership remained the biggest barriers to trade, followed by standards and regulations that vary between countries and inefficient customs procedures.
“If the region’s leaders succeed in dismantling other types of barriers that hinder the movement of goods, services, capital and skilled workers across its borders, Asean stands to reap the benefits of increased trade, production and investment,” MGI stressed.
As a single entity, it noted, Asean would rank as the seventh-largest economy in the world, given the region’s combined gross domestic product of US$2.4 trillion. And with a market of 600 million people, Asean’s population has a larger population than the European Union (EU) and North America.
The region also has the third-largest labour force in the world, behind China and India.
“As a regional grouping, Asean does not have the deep institutional ties and infrastructure links that bind together the EU, nor has it built the kind of seamless supply chains that funnel massive trade flows through North America,” MGI said.
But, it added, the region has strong momentum and enormous potential.
“If it can build the right underpinnings and make integration work on the ground, Asean could accelerate productivity growth by overcoming some of the fragmentation that has prevented companies, technologies, and services from achieving scale in the past,” MGI said.
