ASEAN Economic Community
What is ASEAN Economic Community (AEC)?
ASEAN signifies continuous economic growth among members. After the attempts to establish ASEAN Free Trade Area (AFTA) have been achieved in 2003, the 8 th ASEAN Summit in November 2002 agreed to set ASEAN direction towards ASEAN Economic Community (AEC), similar to that of the European Economic Community (EEC). At the same time, ASEAN members were encouraged to improve their internal performance towards a more efficient manner.
During the ASEAN Summit 2003, ASEAN Heads of States announced a statement called Bali Concord II, agreeing to move towards ASEAN Economic Community (AEC) by 2020. At the same time, it urged members to move towards free trade on 11 priority sectors of goods and services, including tourism, air travel, automotives, wood based products, rubber-based products, textiles and apparels, electronics, agro-based products, fisheries, IT technology (e-ASEAN) and healthcare.
ASEAN will move towards ASEAN Economic Community (AEC) by 2020 under the concept of being a single market and production base, indicating free moves of production materials and products to be manufactured elsewhere utilising resources of each country, including raw materials and joint labour forces under the same single standards of products, criteria, rules and regulations.
Directions towards becoming AEC
The establishment of AEC is a key challenge for Thailand for the next eight years. Thailand will need to prepare and get ready in a number of areas. The previous 15 years of experience in AFTA have been, to a certain level, successful, as far as the expanding volume of trades in ASEAN is concerned. However, investment has not been well achieved due to low level of investment both within and outside ASEAN.
Additionally, China and India are playing a key role in the region. They are considered quite a significant economic and investment attraction especially when compared with a small economy of each individual member of ASEAN. Therefore, it deems necessary for ASEAN to expedite the move towards becoming ASEAN Economic Community, following the EU pattern, where plans will have to be prepared with strong enforcement and different criteria among individual member.
ASEAN needs to get together under ASEAN Economic Community (AEC) in order to increase its competitiveness and to prepare ASEAN as a regional centre against powerful nations like China and India. In this regards, ASEAN decides to move towards free trade on 11 priority sectors of goods and services, earlier than originally planned, for demonstration purposes and promotion of outsourcing or manufacturing products that utilise raw materials and parts produced within ASEAN member countries. This is consistent with the plan to move towards AEC. To achieve this, each member country has been assigned as a Country Coordinator as follows: Myanmar for agro-based products and fisheries; Malaysia for rubber-based products and textiles and apparels; Indonesia for automotives and wood-based products; Philippines for electronics; Singapore for e-ASEAN and healthcare; and Thailand for tourism and air travel.
The ASEAN Economic Ministers Meeting agreed and assigned the Senior Officials Meeting (SEOM) to prepare an ABC Blueprint as an overall plan, identifying economic activities to cover all goods/services, investments, labours and capitals under the future free trades. The reason ASEAN has to prepare for the ABC Blueprint is to set up a clear direction and economic programme in consistent with the agreed time frame until the goal is achieved. At the same time, it is to establish a “commitment” among country members to jointly move towards the same goal. This takes into account the fact that a large regional economic association has become a major obstacle for ASEAN's adjustment, which normally could refer to differences in a number of areas leading to potential conflicts at the end.
Thailand and AEC in the Era of Asia
During the past several years, Asia has played an increasing significant role in the world economy, as seen in the ratio of Asian GDP (excluding Japan's) to that of the world, a rapid increase of GDP from 9.7 % in 1998 to 16.3 % in 2009. The same phenomenon was also reflected in a rapid increase of Asian export and import values in 2009, accounting for one fourth of the world's. This has brought about frog-leap wealth among countries in Asia. Additionally, the international reserved finance of Asian countries combined, has increased from USD 1.8 billion in 2003 to over USD 4.9 billion currently. With the global economic crisis significantly affecting major economies in such a way that economic recovery might not be possible in the near future, Asia is therefore seen to step in as a new major drive to the world economy. All roads lead to Asia now, including trades, investments and capitals. These are pushing the world economy into the real Era of Asia. Thailand therefore needs to take the opportunities of the Era of Asia since only the market in Thailand alone, with its 0.9% of the world population and its GDP of 4.6% of the world's, is not sufficient to fully expand its economic growth. Consequently, the strategy to move towards ASEAN Economic Community (AEC) prior to expanding to ASEAN+3 and ASEAN+6 will enable Thailand to benefit more from the larger market.
The main goal of ASEAN Economic Community (AEC) is to move ASEAN towards a joint single market and production base, significantly liberalised or free trades in five priority sectors, including goods, services, investments, skilled labours and capitals. Such liberalisation would certainly bring advantages and disadvantages to those involved depending upon the capacity of operators in each member country. Potential consequences of each sector can be summarised as follows.
Trade liberalisation is rather a familiar term under what is so called ASEAN Free Trade Area (AFTA). It started in 1992 with gradual custom tax reduction among ASEAN members. In 2010, the six former ASEAN members comprising Thailand, Malaysia, Singapore, Philippines, Indonesia and Brunei were to achieve 0% custom tax reduction among one another; while the new members –Cambodia, Lao PDR, Myanmar and Vietnam-- would start to reduce the custom tax towards 0% by the year 2015.
It is observed that AFTA has made several Thai export items more competitive than any other ASEAN members; while some have to adjust themselves to effectively respond to high competition. Particular exports expected to gain advantages from AFTA include corns, rubber-based products and furniture in Indonesian market; while apparels, furniture and automotives in Malaysian market. Some exports that need to adjust themselves include agricultural and industrial based products e.g. tapioca products, textile, plastic in Indonesian market, while para rubber and textiles in the Philippines market. Adjustment in the agro-based products include an increased yield per rai through improvement of plant species, development of irrigation system, technological advancement in planting and harvesting and primary raw materials processing in order to create value added to agro-based products, etc. As for adjustment of industrial based products, competitiveness will be on quality rather than price. This can be done through creativity and innovation to produce products that meet the changing needs of consumers and society.
However, it is also noted that some Thai exports have been faced with difficulties in competing with others' due partly to the limitation of AFTA exploitation, including rules and regulations on product origins, Non Tariff Measures (NTMs), protectionism over manufacturers in some member countries, and the lack of knowledge and understanding among Thai operators on AFTA, etc. All these need to be solved so that benefits of AFTA can be optimised.
As for the free trade on services, Singapore is seen with highest potentials and can benefit the most, particularly on telecommunications and computers, air travel and logistics due to the more advanced basic infrastructures and modern technologies than any other member countries, including Thailand. However, Thailand has its strengths in some services especially tourism/hospitality, in terms of location, diversity of tourist attractions as well as friendly and service minded characteristics of the Thais that have impressed overseas tourists. Additionally, Thailand has been highly competitive on medical and healthcare services that are not only with international standard and reasonable price (much cheaper than Singapore's) but also with diversified services including medical care, healthcare, aging care and beauty care. All these will enable Thailand to gain benefits from the free trade.
The free trade on investments will fully operate in 2015 and will enhance increased direct investments from ASEAN members, providing great opportunities for Thai operators to expand or relocate production bases to other member countries where fertile resources are recognised, particularly those involved in agricultural and agro-processing sectors, construction subcontracts, mining as well as other manufacturing sectors where Thai investors are specialised.
Furthermore, the free trade on skilled labour movement is considerably noted due to the fact that it might encourage skilled labours to move from countries with low wage returns (countries in Indochina region, Philippines, Indonesia, including Thailand) to where higher wages are offered and English is widely spoken like Singapore and Malaysia. There have been great concerns that the free trade will facilitate some Thai skilled labours to move and work in Malaysia and Singapore, especially those in medical and engineering sectors, leading to a lack of major skilled labours in Thailand in pursuing further development of the country. Additionally, in the long run when collaboration moves towards ASEAN+3 or ASEAN+6, it is therefore highly likely that skilled labours in some sectors e.g. finance, banking and IT will compete with Thais.
The free trade on capitals has remained unclear. However, it has been agreed primarily that member countries are urged to develop joint capital markets that would finally move to ASEAN capital market where liberalised capital movement is accepted. This will require more time before any concrete actions can be materialised.
ASEAN Economic Community (AEC) will become fully functional by 2015. It is the key turning point of Thai economy in all aspects –trades on goods, services, investment flows, skilled labours and capitals. Under AEC agreement, it is likely that Thailand will turn to trade more with countries in the region, reducing the role of current major markets. The free trade will enhance strong competition on services, enabling an increasing role of service sector to gear Thai economy. As far as industrial development is concerned, as Thailand starts to lose its competitiveness, it is therefore necessary for the sector to relocate the production base to other neighbouring countries in order to maintain its competitiveness through exploring and employing the opportunities offered by the free trade on investments under the AEC agreement. The free trade on skilled labours will intensify the labour competition. Therefore, Thai professionals in each sector will need to expedite the development of skills to respond to needs in the market, especially on language which remains the disadvantage of the Thais. Additionally, Thai labours will need to adapt themselves to international working standards. With regards to the free trade on capital flows where monetary values can become more fluctuated, Thai operators need to manage costs and eliminate risks of exchange rates.
The Export and Import Bank of Thailand (EXIM Bank), a public institution with key missions to encourage trades and investments and, as a new role, to engage in development purposes, is ready to facilitate Thai business expansion under the investment atmosphere of ASEAN Economic Community. Its role will proactively support Thai exports to potential markets and foreign investments. For this purpose, the EXIM Bank provides information related to Thai industrial advantages over other ASEAN member countries and financial supports, including loans for exports, loans for international projects, loans for improving production efficiency and supports for risks management e.g. export insurance services, investment risk insurance services, and exchange rate services. At the same time, the EXIM Bank is ready to play a role in supporting economic sectors that will contribute to the increased competitiveness of Thailand, including projects on infrastructure system development, logistic development and energy and renewable sources of energy. Furthermore, the EXIM Bank increases its roles in supporting and strengthening industrial competitiveness, including industries with high value through the support for industrial restructuring to enhance more production efficiency, the promotion of energy saving among industries, the use of creativity and innovation and the production of products that meet social changes and global trend, etc. At the same time, the EXIM Bank has established more networks in targeted countries in order to promote trades and investments. These include the Buyer's Bank Credit where the EXIM Bank will provide loans to overseas buyer's banks so that they provide loans to the buyers purchasing Thai products overseas. Moreover, the EXIM Bank has set up different forms of networks with financial institution alliances in potential markets in order to respond to trades and investments in the region under the ASEAN Economic Community which will significantly increase its roles on Thai economy.