Asean Economic Community

By

Muhammad Dhafi Iskandar

On 8 August 1967, the Foreign Ministers of Indonesia,

Malaysia, the Philippines, Singapore and Thailand sat down

together in the main hall of the Department of Foreign

Affairs building in Bangkok, Thailand and signed a

document that would be known as the ASEAN

Declaration. ASEAN leaders created what was to become

the most vibrant regional grouping in the developing world

on the eye of new millennium. Since then, membership has

expanded to include Brunei, Cambodia, Laos, Myanmar

(Burma), and Vietnam.

The establishment and implementation of the ASEAN Economic Community (AEC) in 2015 is a

major milestone in the regional economic integration agenda in ASEAN. it offers opportunities in the

form of a huge market of US$2.6 trillion and over 622 million people. In 2014, AEC was collectively

the third largest economy in Asia and the seventh largest in the world.

The AEC Blueprint 2025, adopted by the ASEAN Leaders at the 27th ASEAN Summit on 22

November 2015 in Kuala Lumpur, Malaysia, provides broad directions through strategic measures

for the AEC from 2016 to 2025. Along with the ASEAN Community Vision 2025, and the ASEAN

Political-Security Community (APSC) Blueprint 2025 and the ASEAN Socio-Cultural Community (ASCC)

Blueprint 2025, the AEC Blueprint 2025 forms part of ASEAN 2025: Forging Ahead Together. It

succeeded the AEC Blueprint (2008-2015), which was adopted in 2007.

The AEC Blueprint 2025 is consisting of 5 (five) interrelated and mutually reinforcing

characteristics:

1. A Highly Integrated and Cohesive Economy;

2. A Competitive, Innovative, and Dynamic ASEAN;

3. Enhanced Connectivity and Sectoral Cooperation;

4. A Resilient, Inclusive, People-Oriented, and People-Centered ASEAN;

5. A Global ASEAN.

The AEC Blueprint 2025 sets out the strategic measures under each of the five characteristics of AEC

2025. To operationalize the Blueprint’s implementation, these strategic measures will be further

elaborated in and implemented through the work plans of various sectoral bodies in ASEAN. The

sectoral work plans will be reviewed and updated periodically to ensure their relevance and

effectiveness. Partnership arrangements with the private sector, industry associations and the wider

community at the regional and national levels will also be actively sought and fostered to ensure an

inclusive and participatory approach to the integration process. Institutions will be strengthened and

enhanced approaches to monitoring and public outreach will likewise be developed to support the

effective implementation of the Blueprint.

The AEC Blueprint 2025 will lead towards an ASEAN that is more proactive, having had in place the

structure and frameworks to operate as an economic community, cultivating its collective identity

and strength to engage with the world, responding to new developments, and seizing new

opportunities. The new Blueprint will not only ensure that the 10 ASEAN Member States are

economically integrated, but are also sustainably and gainfully integrated in the global economy,

thus contributing to the goal of shared prosperity.1

Reasons

The current trend of global economic is shifting to Asia, especially toward the two giant economies

of India and the People’s Republic of China who emerge as economic superpowers. It suggests that

“economic size” bestows significant advantage in accelerating growth and fostering development.2

ASEAN is in the process of creating a single market and

production base, called the ASEAN Economic Community (AEC),

which will allow the free flow of goods, services, investments,

and skilled labor, and the free movement of capital across the

region.3 AEC is founded on four basic initiatives: creating a single

market and production base; increasing competitiveness;

1ASEAN. “ASEAN Economic Community”. ASEAN Secretariat: 15 January 2016. Web.

2 ADBInstitute. “ASEAN 2030: Toward a Borderless Economic Community”. Asian Development Bank: July

2014. Web. 3 24th ASEAN Summit. “Nay Pyi Taw Declaration”. Myanmar: 2014.

promoting equitable economic development; and further integrating ASEAN with the global

economy.4 It requires physical infrastructure such as: Cross-border roads, power lines, railways and

maritime development that will help propel the community forward and will boost existing and new

value chains or production networks.5 AEC face challenging requirements of economic integration,

including changes to domestic laws and in some cases constitutional changes.6

In one side, it is almost like European Union; however there are several differences on both the

detailed concept and implementation. ASEAN is taking a more cautious approach to regional

economic integration than Europe. In Asia, there is currently no serious consideration of a single

currency.7

If we assume that ASEAN is in one economy, it would be the seventh largest in the world with a

combined gross domestic product of $2.4 trillion in 2013. It could be fourth largest by 2050 if growth

trends continue.8 Based on the total merchandise exports of over $1.2 trillion, which nearly 54% of

total ASEAN GDP and 7% of global exports, ASEAN is one of the most open economic regions in the

world.9

4 ASEAN. “Declaration on the ASEAN Economic Community Blueprint”. Singapore: 2007.

5 Speech by ADB President Takehiko Nakao. 19th ASEAN Finance Ministers' Meeting. Kuala Lumpur: 21 March

2015. 6 Menon, Jayant Melendez and Anna Casandra. “Realizing an ASEAN Economic Community: Progress and

Remaining Challenges”. ADBI: 2015. Web. 7 Asian Development Bank. “An Increasingly Unified Asia Is Keeping an Eye on Greece”. ADB: 19 August 2015.

Web. 8 Speech by ADB Vice-President Stephen Groff. “ASEAN Integration and the Private Sector”. Berlin: 2014.

9 “ASEAN 2030: Toward a Borderless Economic Community”. ADBI: 2014.

Having population of more than 600 million people, ASEAN's potential market is larger than the

European Union or North America. Next to the People's Republic of China and India, ASEAN has the

world's third largest labor force that remains relatively young.10

One of the challenges to the ASEAN Economic Community is bridging the perceived "development

divide" between the older and economically more advanced members, such as: Brunei, Indonesia,

Malaysia, Philippines, Singapore, and

Thailand, known as the ASEAN-6, and the

four newer members, such as: Cambodia,

Lao People's Democratic Republic,

Myanmar, and Vietnam.11

The flexibility that characterizes ASEAN

cooperation, the celebrated "ASEAN way,"

may hand member states a convenient

pretext for noncompliance, according to ADB

report. How to enforce the accords remains an issue. Currently, the economic integration

commitments lack sufficient mechanisms to ensure compliance.12

ASEAN needs a plan beyond the ASEAN Economic Community to achieve the long-term development

aspirations of its 10 member countries, according to an ADB study. This includes introducing

structural reforms nationally and taking bold actions regionally to further deepen the economic

integration.13

10

Speech by ADB Vice-President Stephen Groff. Berlin: 2014. 11

Asian Development Bank. “The ASEAN Economic Community: A Work in Progress”. ADB: December 2013. Web. 12

“The ASEAN Economic Community: Progress and Remaining Challenges”. ADB: 2015. 13

“ASEAN 2030: Toward a Borderless Economic Community”. ADBI: 2014.

The Vision of ASEAN Economic Community in 2025

Create a deeply integrated and highly cohesive ASEAN economy that would support

sustained high economic growth and resilience even in the face of global economic

shocks and volatilities;

Engender a more equitable and inclusive economic growth in ASEAN that narrows the

development gap, eliminates if not reduces poverty significantly, sustains high growth

rates of per capita income, and maintains a rising middle class;

Foster robust productivity growth through innovation, technology and human resource

development, and intensified regional research and development that is designed for

commercial application to increase ASEAN’s competitive edge in moving the region up

the global value chains (GVCs) into higher technology and knowledge-intensive

manufacturing and services industries;

Promote the principles of good governance, transparency, and responsive regulatory

regimes through active engagement with the private sector, community-based

organizations, and other stakeholders of ASEAN;

Widen ASEAN people-to-people, institutional, and infrastructure connectivity through

ASEAN and sub-regional cooperation projects that facilitate movement of capital as well

as skilled labor and talents;

Create a more dynamic and resilient ASEAN, capable of responding and adjusting to

emerging challenges through robust national and regional mechanisms that address

food and energy security issues, natural disasters, economic shocks, and other emerging

trade-related issues as well as global mega trends;

Incorporate a sustainable growth agenda that promotes a science-based use of, and

support for, green technology and energy;

Promote the use of the ASEAN Protocol on Enhanced Dispute Settlement Mechanism

(EDSM) and develop other approaches to speed up economic dispute resolution;

Reinforce ASEAN centrality in the emerging regional economic architecture by

maintaining ASEAN’s role as the centre and facilitator of economic integration in the

East Asian region; and

Work towards a common position and enhance ASEAN’s role and voice in global

economic forum. 14

14

The ASEAN Secretariat. “ASEAN Economic Community Blueprint 2025”. ASEAN: November 2015. Web. 2.

Facilitate the Movement of Skilled Labor and Business Visitors

The objective of facilitating the movement of

skilled labor in ASEAN began with MRAs that

would allow practitioners in eight professions

to practice in other ASEAN Member States

through mutual recognition of their

qualifications and, where appropriate,

through the implementation of the ASEAN

Qualifications Reference Framework (AQRF),

for which referencing by the ASEAN Member

States is voluntary, to support lifelong

learning and enhance recognition and the ASEAN Agreement on Movement of Natural Persons

(MNP). These arrangements aim to facilitate the temporary cross-border movement of natural

persons and AEC Blueprint 2025 business visitors engaged in the conduct of trade in goods, trade in

services, and investment.

Strategic measures include expand and deepen commitments under the ASEAN Agreement on MNP

where appropriate and reduce, if not standardize, the documentation requirements.

If necessary, ASEAN will consider further improvements to existing MRAs and consider the feasibility

of additional new MRAs to facilitate the mobility of professionals and skilled labor in the region.15

15

“ASEAN Economic Community Blueprint 2025”. ASEAN: November 2015. 10.

Taxation Cooperation

Tax cooperation serves as one of the key elements

to support regional competitiveness in ASEAN by

addressing the issue of fiscal barriers. Several

ongoing and future measures have been committed

to be undertaken, including:

1. Concerted efforts to support the completion and improvement of network of bilateral

tax agreements to address the issues of double taxation, and work towards the

enhancement of withholding tax structure, where possible, to promote the broadening

of investor base in ASEAN debt issuance;

2. Improve the implementation of exchange of information in accordance with

international standards;

3. Discuss measures to address the issue of base erosion and profit shifting to ensure fiscal

health;

4. Explore the possibility of global taxpayers’ identification number to improve tax

collection and enhance monitoring of transactions;

5. Explore the possibility of collaboration in excise taxation and information sharing among

ASEAN Member States on common excisable products.16

16

“ASEAN Economic Community Blueprint 2025”. ASEAN: November 2015. 17-18.

Implementation Mechanism

The ASEAN Economic Community

Council (AECC) shall be the principal

body accountable for the overall

implementation of the strategic

measures in the AEC Blueprint 2025.

To ensure effective implementation of the AEC Blueprint 2025, the following strategic measures will

be undertaken:

1. AECC shall monitor and enforce compliance of all measures agreed in this document. It

also need to establish special task forces/committees to assist the Council in facilitating

resolution of non-compliance related to the implementation of measures agreed upon.

The composition and terms of reference (TOR) of special task forces/committees will be

determined by the Council, taking into consideration the usefulness of independent

views, in the monitoring and implementation of the resolution of non-compliance;

2. A strategic action plan will be developed comprising of key action lines that will

operationalize the strategic measures in the AEC Blueprint 2025. The strategic action

plan will take into account the relevant sectoral work plans, and will be reviewed

periodically to account for developments in each sector;

3. Relevant ASEAN sectoral bodies will coordinate the implementation of their work plans,

while relevant government agencies will be responsible for following up on, and

overseeing, the implementation and preparation of more detailed action plans at the

national level;

4. ASEAN Member States may also access other mechanisms such as the ASEAN Solutions

for Investments, Services, and Trade (ASSIST). Notwithstanding the above, ASEAN

Member States retain the option to utilize the ASEAN Protocol on Enhanced Dispute

Settlement Mechanism (EDSM) to promote a rules-based community;

5. ASEAN Member States shall translate milestones and targets of the AEC Blueprint 2025

into national milestones and targets;

6. The monitoring/tracking of the implementation and compliance of strategic

measures/action lines agreed upon in the document will be conducted by the ASEAN

Secretariat through an enhanced monitoring framework using appropriate approaches

and robust methodology. The impact and outcomes of the AEC Blueprint 2025 will be

monitored, including with the support of the ASEAN Community Statistical System

(ACSS);

7. As may be appropriate, the implementation of AEC Blueprint 2025 will allow for both a

consensus and flexibility approach in the decision-making process by economic bodies in

certain sensitive aspects. Where there is no consensus or when the need for expedited

decisions arises, ASEAN will apply Article 21.2 of the ASEAN Charter;

8. AEC Blueprint 2025 will promote transparency and improve the operation of notification

procedures under all ASEAN economic agreements through the Protocol on Notification

Procedures;

9. The ratification of ASEAN legal instruments after signing will be accelerated, with best

endeavors, within 6 months, subject to domestic processes of ASEAN Member States;

10. Partnership arrangements with the private sector, industry associations, and the wider

community at the regional and national levels will also be actively sought and fostered

to ensure sustained participation of all stakeholders in the integration process.

The next phase of integration will require strong institutional support, further strengthening of

ASEAN Secretariat and strategic collaboration with other institutions.17

17

“ASEAN Economic Community Blueprint 2025”. ASEAN: November 2015. 36-37.

For further assistance & consultation, kindly contact:

Muhammad Ikhlas Modjo

E: mim@mimconsulting.co.id

P: +62 815 8200 890

Doddy Oktavianus Iskandar

E: doddy.oktavianus@mimconsulting.co.id

P: +62 813 1835 9197

Dian Oktaviani

E: dian.okta@mimconsulting.co.id

P: +62 816 184 7683

Disclaimer: this content is for general information purposes only, and should not be used as a

substitute for consultation with professional advisors

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