APEC 2015: To be a player in one big economy

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Saturday, February 22, 2014

TO MANY, 2015 is just another year. But those who are doing business and specialized services are getting antsy. The reason: The Asean Economic Community (AEC), one of the last steps to full integration of the Asean economy.

This was the main concern in last week’s Asean Economic Community 2015 forum spearheaded by Sun.Star with SGV & Co. at the Marco Polo in Cebu.
The seating capacity crowd in the hotel ballroom gave a hint on the concern of the business sector, most especially the export-driven Cebu business sector, on this eventuality.

Is AEC 2015 something to fear?

Like all other unknowns, the fear is because of the unknown. Getting to know AEC gives light on what is really going to happen by next year. And by the way the guest speakers discussed it? It’s almost like it’s business as usual, but the Philippines might just continue its lackadaisical growth compared to other Asean members if public infrastructure are given the same lack of attention.

Background of the AEC

The resolution that an Asean Community will be established by 2020 was made by Asean leaders in 2003.

The Asean Community will have three pillars: The Asean Political-Security Community, the Asean Economic Community, and the Asean Socio-Cultural Community.

Of the three pillars, the leaders agreed to speed up the AEC to 2015, that is next year, to transform Asean into a region with free movement of goods, services, investment, skilled labor, and freer flow of capital.

The blueprint for AEC was adopted in 2007, which set out timelines and targets.

Meaning, the thrust to transform the Asean economy into one integrated community had already been set in motion and is only targeted to reach its completion by December 2015.

This was the pint stressed by Trade and industry Secretary Gregory L. Domingo, who was the keynote speaker in the Sun.Star Cebu forum.

“Since June 2010, 99.65 percent of goods traded within Asean have been traded with zero tariff except for Cambodia, Laos, Vietname, and Myanmar,” he said. But the exceptions are because these countries were just recent members of Asean.

“Only a few products are protected – rice, sugar, swine and chicken,” he added. “as of today, as far as trade of goods are concerned, all of you are already competing with products with zero tariffs.”

A standout among the benefits of the move to integrate the Asean Community, said former Economic and Development Secretary Cielito Habito, who is now the Chief of Party of the US Assistance for International Development (USAID)’s Trade-Related Assistance for Development (Trade), is the “borrowed political will”, wherein even as government is regarded as lacking in political will to do what has to be done, it has to keep pace with the targets and commitments it has given to the Asean Community.

“Asean economics are gaining momentum, it is more about cooperation than competition and the overall benefits of integration had long been established,” he said, admitting that some may benefit more than the others, but the benefits are there for all.

But most of all, Habito said, “The AEC is pushing us in the Philippines to finally do the right things.”

It also pushed the Philippines to appreciate the Asean economy as a partner such that, since the idea of an integrated economy has been agreed on, export of import of intermediate goods among member countries have been among the top imports and exports.

The Philippines for one, has a predominantly intra-industry trade with the rest of the Asean as, contrary to earlier fears that the Asean members will just be competing with each other since their products are similar, they have instead moved towards cooperation where in countries are trading products within the same industries.

“The Philippines’ top exports to its major Asean trading partners are petroleum products, electronics, and chemicals, the same products that we import in the region,” he said. This is because, throughout Asean has been established a chain of production components.

By sharing production processes and looking at the whole economic community as an integrated production line, greater efficiency and higher productivity are encouraged. It’s no longer about each country building its own factories to produce one electronic product or even vehicles, but each country building industries around the parts or each electronic product or vehicle.

But, like any cooperation, there are downsides, Habito pointed out. This was most apparent during the Bangkok floods where the supply chain of electronics was disrupted Asean-wide and worldwide.

There will also be those who will gain more, but this will all depend on how resilient and forward-looking an industry is, rather than really losing out on competition within the Asean since the system had already been set in motion since 2010.

“December 31, 2015 is not a day of reckoning, it’s really a reference date on the commitments we have made,” Habito said.

The commitment: To fully cooperate in Asean as a single market and production base.

The greater concern may be in the free flow of skilled labor and services, which still has to be fully operational. But within this set-up itself, mutual recognition arrangements (MRAs) has already been implemented to facilitate flow of professional services providers within the region that should be in accordance to relevant domestic rules and regulations.

The Asean Framework Agreement on Services (Afas), has been signed since 1995, recognizes the importance of MRA in over-all services integration in Asean as each member country recognizes the value of their skilled labor and services.

As defined in Afas, “Each Member State may recognize the education or experience obtained, requirements met, or licenses or certifications granted in another Member State, for the purpose of licensing or certification of service suppliers. Such recognition may be based upon an agreement or arrangement with the Member State concerned or may be accorded autonomously.”

Meaning, again, there is nothing to fear in the short-term but the real benchmark in whether one service sector will truly rise above the rest is in how these service sectors gear themselves up for a wider market base and bigger market players.

The key here too, lies in cooperation.

By individual companies and industries, when pitted against the more formidable and focused sectors of the neighbors like Thailand, Malaysia, Indonesia, and even the fast-growing Vietnam, it will be a losing game.

But as Philippine Representative for Small and Medium Enterprises of the Asean Business Advisory Council Jay U. Yuvallos said, “We have to create that ecosystem for our industries to strive.”

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