ASEAN Integration: ASEAN Economic Community

Despite the ongoing grim conditions in many key developed nations, there is a major development to cheer about: The goal to integrate the economies and markets of ASEAN via the ASEAN Economic Community (AEC) by 2015

From Matthew Asia’s Tarik Jaleel, (bold emphasis added)

The establishment and prioritization of a move toward a common market by 2015 with free movement of resources comes in response to increased competition posed by China and India. A grouping of 10 countries, with a combined population of 600 million and GDP of more than US$1.7 trillion, would give its members greater influence on the world stage than they might individually attract.

Intra-ASEAN trade already represents nearly 25% of total exports by ASEAN countries and about 24% of total imports. Intra-ASEAN trade over the last 10 years has grown at a faster rate of 10.7% compound annual growth rate, compared to the total trade growth of 7.6%. The AEC, therefore, will build on an already robust trade platform and extend ASEAN to the next level to that of a single market and production base. The AEC will be comprised of five core elements which espouse the free flow of: goods, services, investment, capital and skilled labor. Industrial sectors to be included in the single market and production-base comprise 12 priority integration sectors, including food, fisheries, air transportation, automotives, health care, apparel, tourism and logistics. In an open economic region this would create a multitude of opportunities—a company in Singapore or Malaysia could easily invest in infrastructure projects in lesser developed countries such as the Philippines or Vietnam. More importantly, in increasingly service-driven economies, mobility of skilled labor would be improved, facilitated through employment passes and mutual recognition arrangements for professional services.

What is therefore surprising is the indifference, or lack of awareness, amongst the investment community and the private sector to the many opportunities and threats. In a recent investment bank survey of 60 publicly listed ASEAN companies, approximately one-third of respondents classified themselves as either “familiar” or “very familiar” with the AEC. In light of the plans, some companies are undergoing measures to strengthen their position within the community. Malaysian banks backed by the government, for example, have expanded aggressively in the region in hopes of capturing a bigger share of regional business that may result from increased trade among AEC countries.

For investors, the move toward a single market may present a period of change from the previous state of business as companies consolidate, aim to increase transparency and to adopt standardized regulations. The blueprint for the formation of the community also calls for business dynamics to be conducted under free market competition. The hope is that an open market environment would provide a broader and more attractive investment universe in Southeast Asia.

This looks like one step in the right direction. I hope that free trade won’t stop with ASEAN but spread throughout the entire world that should not only increase wealth and prosperity but likewise foster peace, cooperation and social harmony.

As the great Ludwig von Mises wrote,

What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests. For where there is division of labor, there is no longer a question of the distribution of a supply not capable of enlargement. Thanks to the higher productivity of labor performed under the division of tasks, the supply of goods multiplies. A preeminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions.