Reluctance, ignorance of SMEs a major challenge facing formation of ASEAN Economic Community
A man buys a sandwich from a vendor along railway tracks in Phnom Penh, Cambodia. The 10 countries that comprise ASEAN are of different economic sizes and have different political systems, posing a great challenge to the grouping's plan of the ASEAN Economic Community. / PHOTO COURTESY OF BLOOMBERG
The easy part is done, and the difficult part will take some doing over the next two and half years to realize the goal of an ASEAN Economic Community (AEC), ASEAN Secretary General Le Luong Minh told the Thoi bao Kinh te Sai Gon (The Saigon Times) recently.
Since the plan to establish AEC, which will unify ASEAN's 10-member economies into a single market and production base, was adopted in November 2007, most of the preparatory work have been completed, according to Minh. The remaining part, however, is "very big" and "very difficult," Minh said
Member states will have to make "much more effort" and show "much higher commitment" to complete it, Minh said.
Last month, the CIMB ASEAN Research Institute (CARI), which works to promote the region's economic integration, released a study pointing out challenges that ASEAN faces at this juncture.
It said although the member states have eliminated tariffs on most tariff lines, there is still a significant list of exceptions.
ASEAN negotiators have put a lot of effort into discussing the list of goods that are exempt from the tax exemption policy, and this has shown that the member states still want to protect some of their industries, the Malaysia-based institute said.
Moreover, while SMEs account for 98 percent of ASEAN businesses, many of them are yet to be fully aware of opportunities that the single market can bring them.
They still want to be protected from foreign competition, as the AEC's establishment will encourage regional businesses to enter each other's markets, said CARI.
It said governments have undertaken the integration project without much consideration for businesses' opinions.
Governments, therefore, need to issue suitable policies to encourage businesses to take part in the process, said CARI.
Philippine President Benigno Aquino was quoted by the AFP as saying that they have finished "the easy parts," and they are now in "the hardest phase."
He attributed the difficult situation to protectionist measures taken by each economy on sensitive sectors.
According to the ASEAN Secretariat, the works that have been completed in preparation for the AEC's establishment include the ASEAN Single Window initiative that allows import and export documents among member states to be processed faster. It has been piloted in most member countries.
Since January 2010, six countries Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand have reduced tariffs to as much as zero percent, on 99.65 percent of traded tariff lines imported from ASEAN countries.
For the rest, including Vietnam, the tax reduction is effective for 98.86 percent of tariff lines.
Subash Bose Pillai, director of the ASEAN Secretariat's Market Integration Directorate, said while every agreement or decree needs to be ratified by all the 10 members, each has a different mechanism of operation, thus it takes time for an agreements to be approved by all.
Another "bottle-neck" of the process is delays in implementing regional initiatives due to differences between them and each country's domestic laws, he said.
The 10 countries that comprise ASEAN are of different economic sizes and have different political systems, posing another integration challenge.
For instance, Indonesia's GDP was about US$878 billion last year, while Laos' was $9.2 billion, according to the World Bank.
Despite these differences, leaders still want to integrate the economies that are home to around 600 million consumers and generate a total GDP of over $1.85 trillion.
The target of establishing the AEC, which will allow free flow of goods, services, investment, capital and skilled laborers among the member states, was set following the success of the ASEAN Free Trade Area (AFTA) that has been adopted since 1992.
According to official figures, AFTA has increased trade value among regional countries from $430 billion in 1993 to more than $2.3 trillion in 2011.
At the 10th ASEAN Leadership Forum organized in Kula Lumpur on July 18, many participants expressed their optimism about the target being achieved as planned.
Mustapa Mohamed, International Trade and Industry Minister of Malaysia, said at the event that regional governments are all committed to ensuring that the core economic integration initiatives are implemented.
"We recognize that we must deliver on our promises," Mustapa was quoted as saying by The Star, a Malaysian newspaper.
On the sidelines of the meeting, Prof. Hidetoshi Nishimura, director of the Economic Research Institute for ASEAN and East Asia, said that "Without a successful roll-out of the AEC in 2015, stakeholders all over the world will find it hard to trust the real power and potential of ASEAN."
Businesses have responded cautiously to the upcoming integration process.
Dang Chi Hung, sales director of Vietnamese cookware manufacturer Kim Hang, said the field of cookware production will see "harsh competition."
He said local businesses are now competing with Chinese imports which are cheaper, but not as good as Vietnamese products.
In a single market, local businesses will have to compete with big producers from neighboring countries who can sell good quality products at competitive prices.
Although Kim Hang has established an extensive distribution network in Vietnam over more than 10 years, the company still has to prepare for tough times ahead, he said.
Over the past year the company has studied regional markets and will soon export the first batch of goods to Malaysia, which is almost similar to Vietnam's market with "not too high demands," said Hung.
Le Phuoc Vu, chairman of the Hoa Sen Group, which produces iron roofs, sees the AEC's establishment as an opportunity that will definitely profit member nations.
But, he also said that "if we do not know how to catch it, that opportunity will become a threat."
Vu said his group was preparing for the integration with several measures. He said they are increasing investment to double it output in the next one-two years, opening factories in Indonesia and Thailand, extending retail channels in the domestic market, and promoting their brand in foreign countries.
Many Thai businesses have already taken action to take advantage of the upcoming market integration.
SCG, a producer of cylinder valves, regulators and brass fittings, is recruiting students in Indonesia, the Philippines, and Vietnam for training and working in Thailand.
Kiti Madiloggovit, HR director of the group, said the recruitment is part of their plan to expand in ASEAN countries in the future.
Also in preparation for the AEC's establishment, the Berli Jucker Public Co (BJC) last year opened two factories in Vietnam, said chairman Aswin Techajareonvikul.
One factory producing glass bottles has been set up in collaboration with Saigon Beer Alcohol and Beverage Corporation, and another one, to can alcohol and other beverages, with the US-owned Ball Corporation to.
Techajareonvikul said the two factories will not only help the company increase its share in Vietnam, which is a potential market, but also extend its market to other countries.
BJC has recently extended its activities in Vietnam to the trading sector by bringing Thai products into the country through Thai Corp International Vietnam. It has also taken over the stores of Japanese-owned convenience store chain FamilyMart.
Charoen Pokphand (CP), Thailand's leading agriculture produce manufacturer, has announced that it will increase investment in Vietnam next year with 10 factories.
CP general director Jittisart J. Sakulchai, said the expansion will enable the company to access raw material sources and customers more effectively across Vietnam, as well as reduce transportation costs.
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