The Upcoming Challenges of ASEAN & the ASEAN Economic Community
Does ASEAN run an influential and important role in the global economy? As the third largest economy in Asia and the seventh largest economy in the world, ASEAN has become the cornerstone of global production networks and supply chains with the assistance of forming of ASEAN Economic Community (AEC). With its strategic location, rich natural resources, sufficient human resource and growing economies that is full of potential and opportunities, it has successfully attracted investments and traded with all of the other economies around the world. In fact, 55 countries had assigned their envoys to the whole region and the number is only growing. ASEAN had also formed the ASEAN-led Regional Comprehensive Economic Partnership (RECP) which comprises 30% of the global GDP. Standing in the midst of giant economies such as Japan, China and India, and with active economic relations with the USA and the EU, ASEAN is the most important intergovernmental regional body in the Asia-Pacific Region that becomes a model of open and inclusive regionalism and a huge global actor.
‘One Vision, One Identity, One Community’, the ASEAN motto represents the strong determination of the respective nations to unite and work as one. However, under the same principle, ASEAN is still falling behind in achieving what the EU had accomplished in terms of achieving a common production base, strong internal connectivity and high external competitiveness. There is still much to learn and improve from EU’s approach to its integrated economic community.
ASEAN has stood firm to the test of time and challenges, surviving the Asian Financial Crisis in 1997 and the Global Financial Crisis in 2008; developing the ASEAN Economic Community (AEC): a single ASEAN market which is both stable and competitive, and where the free flow of skilled labour, goods, services and investment flourished. AEC set out to reduce poverty (Poverty Rate shown in Graph below), socioeconomic disparities and realize global economic integration.
Source: World Bank, World Development Indicators.
In order to reach the vision of being a highly integrated and cohesive economy, one of the most important goals of policy implementation in AEC now is to completely eliminate the tariff and non-tariff barrier (e.g. reducing requirements for certificates, permits and licenses to import or export) within ASEAN following the ASEAN Trade in Goods Agreements (ATIGA) that initiated since 2010. As the trade of goods Intra-ASEAN accounts for 20% of the total trade in goods in 2017 (Percentage Shown in Graph below) within the ASEAN countries, the elimination of tariff lines Intra-ASEAN helps ASEAN economies to achieve higher economic growth while reducing their reliability on foreign economies. As ASEAN has been successful in implementing key commitments stated in the blueprint of AEC 2025, particularly regarding the expulsion of intra-regional tariffs which all of the ASEAN countries had completed at least 98%, ASEAN is on its way to realising its vision.
Source: International Merchandise Trade Statistics (IMTS)
Another main goal of economic integration under the AEC is to create a free and friendly investment environment with lesser trade barriers through the establishment of transparent and predictable policies and laws. This led to the creation of ASEAN Comprehensive Investment Agreement (ACIA), which helped ASEAN score more foreign direct investments than the EU. This progressive liberalisation of unproductive restrictions across sectors empowered businesses and investors alike, raking in USD 26,974.96 million of foreign investment. As foreign investor’s confidence grew along with the amount of foreign direct investment, ASEAN can be at ease when focusing on other factors that develop AEC into an influential global economy, and this will enable them to be better prepared against another financial crisis.
Source: ASEAN Secretariat – ASEAN FDI Database
Arising Challenges and Solutions
There are many challenges that will be faced in the future pathway of AEC, especially when the economic integration proceeds deeper than before. Before one can solve a problem, one needs to know exactly what the problem is. By referencing EU which is a much more sophisticated and experienced economic union, troubling issues that might upset the whole operations of the AEC can be predicted, or even better, prevented.
The first major challenge is the public’s resistance to migrants within ASEAN countries. According to Pew Research Center Survey that was conducted in Spring 2018 in over 27 countries around the world, a median of 45% prefered fewer to no immigrants in their countries. Indonesia in particular has a median of 54% that says fewer immigrants or no immigrants at all should be allowed to move to Indonesia. As various economies in ASEAN become more integrated through the development of AEC, human capital will start to shift to a competitive sector that provides better job opportunities located in different countries within ASEAN. Other than that, political instability and livelihood difficulties in the migrant home country will also force migrants to move away. As a result, countries of origin may face losses in manpower and human capital which will reduce the national wealth of the country as the investment in raising and educating their population will be wasted. The socio-psychological factors such as fear and doubt of the locals towards the new migrants may result in open and hidden conflicts between the migrants and the local population as language barriers make migrants difficult to join in the local social life.
ASEAN as a developing economy needs the migrants to sustain its high demand for labour force to maintain the massive economic engine to improve the productivity of the whole AEC. According to the International Labour Migration Statistics Database in ASEAN, almost 8 million migrants imigrated into ASEAN in 2015, and Malaysia alone contributed almost 3 million to that figure. As migrants are most likely to increase in the near future, ASEAN may face problems of culture shock, race discrimination and even conflicts that may result in violence which may bring detrimental effects to the development of the AEC.
EU has gone through different challenges regarding the issues with migrants and has had its success and failure in solving it since the formation of the European Economic Community (EEC) in 1957. When the Treaty of Amsterdam was forced in action in 1999, the EU had the authorization to require its members to legislate and enforce laws that address racial and religious discrimination issues in business and non-business sectors. In June 2003, the European Commission which functions as the EU’s executive body had presented a Communication which reviews the immigration, employment and integration policy of migrants on a national and organizational level.
Social cohesion, immigration, and economic growth are all intertwined when needed to solve the problem of integration. The EU successfully addressed a range of problems vital to the integration through both pre-entry and post-entry rules on immigrants (e.g. policy on family reunification) and targeted efforts for migrants through the “EQUAL” program that fights discrimination and inequality in the labour market under its five main pillars which are increasing employability, encouraging inclusive entrepreneurship, facilitating adaptability, promoting gender equality, and integrating asylum seekers. As a result, EQUAL had promoted the actualization of diversity at work. In addition to that, member countries with no experience and narrow conceptions of diversity could rely on EQUAL to help demonstrate the mutual benefits from education or learning – be it for individuals, employers, and the local economic community. EQUAL provided cost-efficient and innovative ways to demonstrate that diversity in the workplace could be achieved. When ASEAN progresses and becomes an effective supranational institution that is able to enforce legislation, the EQUAL program can be imitated by setting similar goals and regulations that forbids discrimination in the workforce through the modernizing and strengthening of labour market institutions and this will increase the employment of migrants which will allow them to secure their rights in the workforce.
As the global climate has changed to demand for talent (skilled and highly educated candidates) instead of pure labour, most countries have adopted policies such as providing work permits to the talented and capable international students to retain them in their countries’ labour market. For example, the UK had adopted the point based immigration system which had succeeded the previous policy that aims to attract the highly qualified which is the Highly Skilled Migrant Programme (HSMP). Under the new system, students could apply for permission to work in the UK for two years without needing a work permit if they have successfully completed a degree at an institution in the country. Other than that, many of the member countries in the EU had set up courses that enables migrants to acquire language skills and social knowledge needed to begin employment in the respective country. In 2003, France had endorsed a policy which considered one’s language skills and education background more crucial than one’s incorporation into a labour market. If a migrant is able to communicate freely and possesses relevant professional skills, incorporation into the labour market will soon follow quickly.
The European Union had adopted the EU Blue Card Scheme which renews the groundwork for new residence and works permit of migrants in December 2011. The scheme requires applicants to have a work contract offering a minimum salary and documents to prove their qualifications and skills. Holders of the Blue Card will gain free movement within the Schengen Area and are entitled to a series of rights, including family reunification and permanent residence. Within the European Union, unrestricted labour market mobility dominates and citizens of the EU are free to locate anywhere as they please. EU also had spent many efforts toward the harmonization of university education which one of them is the Bologna process that is aimed at increasing the internal mobility of students. The Bologna process is an intergovernmental cooperation of 48 European countries through the setting of unified three cycles of high-education qualifications (bachelor, master, doctorate) which eases the recognition of qualifications within the EU. This should lead to better grasps of the languages of other member countries, with better knowledge of other countries’ cultures and familiariaty with the labour market institutions. This would bring a positive spillover effect that leads to higher intra-EU labour mobility.
The potential solutions for the ASEAN challenge on issues on migrants can be ASEAN forcibly requires its member countries to implement laws that protect and guarantee the safety and rights of the migrants no matter the races and religions of the migrants by referencing the ‘EQUAL’ program of EU. Construction of integration steps and goals for ASEAN members to follow will also be a great way to address the problems as not every country is open to the mindset of inclusive in diversity. By setting steps to follow and giving time to adapt, the success rate of the implementation of the law will rise. On top of that, public education and talks also are essential to come along with the policy to inform ASEAN citizen about the reason and the outcome of the policy implemented. As the enormous economic potential that the whole AEC can bring when the migrants are able to focus on produce goods and services without worrying the threat of their rights and safety, AEC will develop even in a faster pace which will undoubtedly bring higher economic growth for ASEAN member countries.
However, the guarantee of migrants’ rights will not be enough to solve the issue. Without conquering the socio-psychological factors of ASEAN local residents, it would still be a hard task to request them to accept and welcome the migrants with open arms. The requirement of language and cultural tests on migrants according to their countries of residence is a great policy not to only resolve the issue of language barriers, it would also fasten the pace of migrant to blend in with the locals. Also by demanding migrants to make efforts, the locals will have a better incentive to receive the migrants as part of their community. When migrants start to blend in, the productivity of them working as labour force of the country of residence would also increase. By looking after both the migrants and the locals with policies, the issue on migrants can be resolved slowly and steadily in the future.
2) Lack of Supranational Institution
The second major challenge for ASEAN as an intergovernmental organization and the development of AEC is the implementation and enforcement of stringent rules for the organization as a whole. A country or organization that cannot enforce its rules and regulations is not a country that can gain the trust and confidence of investors because their capitals are less likely to be fully protected. As ASEAN compromises of 10 countries that have different official languages, governing system and cultures (shown in Table 1), it is not an easy task to draft up a policy that is able to tackle all of the problems that will arise and it is even harder to enforce it without a supranational institution that has the authority to enforce it.
Table 1 – ASEAN Ruling System and Official Language
There are many differences between the structure of the EU and ASEAN in terms of legislative and executive institution. EU has a parliament that is able to legislate and the authority to approve or deny budget proposals and appointments. In contrast to that, ASEAN only has the ASEAN Inter-Parliamentary Assembly which only has the power of performing moral suasion. In order to ensure that moral suasion would be an effective economic policy, the cost of reaching consent between two parties has to be lower than the expected cost of non-compliance which is harder to reach in practice when compared to having the power to just legislate rules and regulations. The EU also has the European Commission which is a powerful secretariat compared to the ASEAN Secretariat as it is able to act as a government and is entitled to enter into treaties. However, the function of the ASEAN Secretariat is unable make a decision and can only monitor and coordinate the decisions reached by consensus by ASEAN’s political leaders.
Although the ASEAN charter had been implemented in 2008 to provide ASEAN with new and improved institutional frameworks, it has only given ASEAN more hierarchical structures for the institution. The decision-making process of ASEAN is still guided by the principle of consent. The new institutions introduced by the Charters still have no clear functions and roles within the system. Besides, the enhanced role of the ASEAN Secretariat is still constrained by ASEAN itself due to the unwillingness to sacrifice resources for the principle of equal contribution by ASEAN members.
In order to solve any arising problems, the ASEAN members will first need to give up part of their sovereignty which will make them lose their autonomous right to exchange for a more unified and powerful decision-making supranational institution. This can be done via discussions as to how to obtain a greater institutional role with the balance of preference to retain the national autonomy of each member states. In addition to that, ASEAN can learn by following the steps of how the EU gave up their autonomous right to reach the state of a unified supranational body. If ASEAN members continue to focus only on their own benefits and intend to maintain itself as a state-driven organization, the path to forming a supranational institution will be much harder than expected.
Secondly, ASEAN desperately needs more connectivity between the AEC and the Socio-Cultural Community and Political-Security Community of ASEAN. As AEC Blueprint 2025 had been established, AEC cannot be solely sustained on itself in the long term without a strong political and security framework together with a powerful socio-cultural base. If the AEC has to rise to the challenge, it needs the ASEAN decision making institution to reform desperately. Not only that, ASEAN will need to focus on the integration of the policies of Socio-Cultural community and Political-Security Community with the AEC to help AEC focus more on economic aspects without the threat of other issues. With the help of the establishment of an authorized and efficient decision making institution in ASEAN like the EU’s European Commission, AEC can be developed easily.
ASEAN has come a long way to reach what it had achieved now. ASEAN’s path to be an influential international organization is bright and clear and it would be best for the organization to prioritize and focus on fulfilling its goals that it sets for the AEC. By slowly achieving all targets and goals for the AEC, ASEAN is able to attract more investors, and as confidence of investors grows, this will attract more capital for the ASEAN countries to develop the community at a faster rate. With only 52 years of history, and with the establishment of AEC in 2014, ASEAN still is a merely developed and integrated inter-governmental organization when compared with the long matured EU. ASEAN still has much to learn as a young rising economy and the potential of ASEAN, alongside its three pillars which are the ASEAN Political-Security Community (APSC), the ASEAN Economic Community (AEC) and the ASEAN Socio-Cultural Community (ASCC), is endless. In order to continue to strive for ASEAN regional prosperity and peace, ASEAN needs to take precaution for the upcoming challenges and even better, solve it.
The Asean Declaration (Bangkok Declaration) Bangkok, 8 August 1967 – ASEAN | ONE VISION ONE IDENTITY ONE COMMUNITY. (2016).
Understanding the ASEAN Economic Community. (2014).
ASEAN ECONOMIC INTEGRATION BRIEF. (2018).
ASEAN Economic community blueprint 2025. (2019).
ASEAN Trade in Goods Agreement.
Yan Ing, L., & Cadot, O. (2016). Facilitating ASEAN Trade in Goods. ERIA Discussion Paper Series, 1.
Retrieved from http://www.eria.org/ERIA-DP-2016-20.pdf
ASEAN COMPREHENSIVE INVESTMENT AGREEMENT.
Xianbai, J. (2014). Why the ASEAN Economic Community Will Struggle.
The Bologna Process and the European Higher Education Area – Education and Training – European Commission.
Schoenhofer, H. (2019). EQUAL strengthened the local dimension of the EES (p. 158). Metis GmbH.
Andrea, & Broughton. (2003). Commission issues Communication on immigration, integration and employment.
Entzinger, H., & Biezeveld, R. (2003). Benchmarking in Immigrant Integration (p. 47). Rotterdam: European Research Centre on Migration and Ethnic Relations (ERCOMER).
Spencer. (2003). The Challenges of Integration for the EU.
KOH, T. (2017). Asean and the EU: Differences and challenges.
Retrieved from https://www.straitstimes.com/opinion/asean-and-the-eu-differences-and-challenges
SATHIRATHAI, S. (2015). Eight challenges ASEAN must overcome.
Rattanasevee, P. (2014). Towards institutionalised regionalism: the role of institutions and prospects for institutionalisation in ASEAN.
Springerplus, 3(1). doi: 10.1186/2193-1801-3-556
SUKMA, R. (2014). ASEAN Beyond 2015: The Imperatives for Further Institutional Changes. Retrieved from http://www.eria.org/ERIA-DP-2014-01.pdf
Jovanovic, M. (2005). The Economics of European Integration. Cheltenham: Edward Elgar Pub.
XueGuang, Z. (2015). ASEAN Is Not Another EU.
Chheang, V. (2017). The US Needs ASEAN in Its New Asia Strategy.
Prakash, A., & Isono, I. (2012). ASEAN in the Global Economy– An Enhanced Economic and Political Role. ERIA.
Retrieved from http://www.eria.org/ERIA-PB-2012-01.pdf
Heng Keng, C. (2009). The Three Pillars of the ASEAN COMMUNITY: Commitment to the Human Rights Process.
CONNOR, P., & KROGSTAD, J. (2018). Many worldwide oppose more migration – both into and out of their countries.
Retrieved from https://www.pewresearch.org/fact-tank/2018/12/10/many-worldwide-oppose-more-migration-both-into-and-out-of-their-countries/
Source: International Labour Migration Statistics Database in ASEAN, International Labour Organization
Writers: Piong Chyi Wei
Reviewers: Lee Yang Ler, Vikky Beh
Editor: Vikky Beh