Moving the ASEAN Economic Community Forward into 2025 and Beyond:

Some Key Challenges and Opportunities

Ponciano Intal, Jr.Senior Economist

ASEAN 50th Anniversary Symposium IV: ASEAN@501 March 2018, Tokyo Prince Hotel, Tokyo

Key PointsKey Considerations for ASEAN and AEC Moving Forward

• ASEAN People’s Aspirations and Expectations• Leaders’ Perspectives• Three Key Global Developments

Moving AEC Forward into 2025 : Challenges and Opportunities

• Addressing Non-Tariff Measures• Towards Seamless Trade Facilitation• Services Development, Liberalization and Cooperation: Bringing ASEAN into Global

Services Revolution• Regulatory Improvement, Good Regulatory Practice (GRP), and International

Regulatory Cooperation• Finance, Connectivity, and Innovation• RCEP as driver• AEC and ASCC: Towards Inclusive Integration• Critical Role of M & E and Stakeholder Engagement

Findings from the Survey Results

There is strong aspiration for: an integrated and connected ASEAN a resilient, equitable and sustainable ASEAN an ASEAN of good governance an ASEAN with significant global and regional presence

and contributionGap between aspirations and expectations for 2025: Narrowest: Integrated and connected ASEAN Widest: ASEAN of good governance Large: Equitable and sustainable ASEAN Considerable: Resilient ASEAN; ASEAN’s global and

regional engagement

Insights from the Survey Results

Significant overlap between pressing regional and national concerns. Pressing concerns mirror aspirations-expectations gaps: E.g., Corruption Income disparity and social inequality Climate change, natural disasters and regional resiliency Integration and trade, investment and regulatory

coherenceRegionally concerted national actions bring synergy Synergy among AMSs Synergy among blueprints: AEC + ASCC + MPAC + APSC

Leaders’ Perspectives

• PM Abhisit Vejjajiva of Thailand:“ASEAN must strive to bring its member countries together and create a sense of shared destiny of peace and prosperity for all ASEAN peoples based on common ASEAN values with an ASEAN identity….” 2017

• Pres. Fidel Ramos of the Philippines:“If the Southeast Asian peoples are to embrace ASEAN as their “Community”…they must see it a pervading, beneficial influence on their daily lives. They, as stakeholders, must regard the ASEAN vision as their own.” 2017

Three Key Global Developments Brexit, Trump and the rise of protectionism: inclusivity and

management of adjustment are critical in an integrating world• egalitarian Japan vs non-egalitarian US experiences

India/SA-ASEAN-China growth corridor: • Fastest growing largest consumer market in the world; most

potent global growth driver• Risk: inequitable growth if integration not managed well

Digital Revolution, Possible 3rd Unbundling, and Industry 4.0• Digital revolution and e-commerce offers SME global-GVC reach• 3rd Unbundling (Baldwin): de-linking labor service and service

provider—marked services globalization• Industry 4.0 and its relevance to ASEAN• WB: “analog components” critical against adverse effects; e.g.,

over-concentration, labor-market “hollowing out”• Investing and preparing for 3rd unbundling and industry 4.0

Key PointsMoving AEC Forward into 2025 : Challenges and Opportunities

• Addressing Non-Tariff Measures• Towards Seamless Trade Facilitation• Services Development, Liberalization and Cooperation: Bringing

ASEAN into Global Services Revolution• Regulatory Improvement, Good Regulatory Practice (GRP), and

International Regulatory Cooperation• Finance, Connectivity, and Innovation• RCEP as driver• AEC and ASCC: Towards Inclusive Integration• Critical Role of M & E and Stakeholder Engagement

Non-Tariff Measures

Rising incidence of NTMs Toward Non-protective NTMs• Principles and guidelines on

NTMs– GRP and non-discriminatory– Stringent rules on import/export

quantitative measures• Effective transparency and

monitoring mechanism• AVEs, private sector, NTM

prioritization for streamlining• Address technical barriers to

trade thru effective or harmonized standards and conformance

Towards Seamless Trade Facilitation

Key Measures• National and ASEAN Single

Window (goal: more AMSs, more documents in ASW)

• National and ASEAN Trade Repositories; NTMs in NTRs

• Self-certification• 10 % reduction in trade

transactions costs by 2020• ASEAN Trade Facilitation

Indicators (ASTFI)• Paperless processes, electronic

payment, border agency coordination, ACTS, etc..

• ATF-JCC

GDP Impact of 20% Reduction in trading costs (Itakura based on 2007 data);

ASEAN and Services Globalization

• Services support participation in GVCs. Producer services productivity affects goods firms’ participation in GVCs

• Service value chains and webs, with ICT revolution• “Servification” accelerating in manufacturing• 3rd Unbundling and industry 4.0

Services and productivity growth; services globalization

• Confidence in contracting out and service market contestability and productivity shaped by policy and regulatory regime

• Services sector contestability contributes directly to better services export and indirectly to manufacturing exports

Capturing the benefits

• Change mindsets: “Exporters are importers”• Services sector contestability and liberalization• Shift to negative list from positive list• Regional cooperation in certification systems and training• Quality infrastructure, digital connectivity, and better

regulations to benefit from digital revolution• Source: Findlay (2016) for first 2 sections

Reframing services regulatory reform and facilitation

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20

40

60

80

100

120

140

160

180

200

5 7 8 5 7 8 5 7 8 5 7 8 5 7 8 5 7 8 5 7 8 5 7 8 5 7 8 5 7 8

Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam

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Progress of ASEAN Framework Agreement on Services

Source: Intal and Chen (2017)

Importance of Good Regulatory Practice/Well Performing Regulatory Management

System to AMSs & ASEANWell performing institutions add to (AMSs) attractiveness to FDI (ceteris paribus); see B. Anghel, 2005, “Do institutions affect FDI?”

•Regulatory quality: one index point increase raises FDI inflow by 4.6 percent•Government effectiveness: one index point increase raises FDI inflow by 3.0 percent•Control of corruption: one index point improvement raises FDI inflow by 2.6 percent

Domestic competition and government efficiency leads to greater intra-ASEAN trade than pure customs facilitation per se (ERIA study)

•Domestic competition + government efficiency: 1 % rise leads to 2.4 percent increase in intra-ASEAN trade

•Customs clearance + logistics competence: 1% rise leads to 1.5 percent in intra-ASEAN trade

Huge gap in ratings in WB governance indicators among AMSs, from one of the world’s best to one of the world’s lowest

Learning from good cases and well performing institutions in AMSs; e.g., Malaysia’s PEMUDAH; Viet Nam’s Project 30 and Resolution 19, Singapore

Other Key Investment and Growth Drivers Financial development, integration, stability and inclusion

• Extensive set of initiatives and measures under ASEAN Financial Integration Framework

• Management of macro risk from financial integration (East Asia wide, not just ASEAN)

Connectivity• Production networks, agglomeration, and new model of development (i.e.,

tiering; role of industrial agglomeration and infra)• Master Plan on ASEAN Connectivity (MPAC) complementing AEC Blueprint• “Connecting the Connectivities: e.g., MPAC/BRI/ Japan’s Quality

Infrastructure/AIIB/ADB, Plus Transport and Trade Facilitation Innovation, Digital Revolution

• Greater focus on productivity growth• Aggressive FDI, technology transfer, and innovation friendly policies• Investment in R & D plus institutions and human capital ; training• Regional cooperation in S & T and IPR• Empowering SMEs and worker upgrading for inclusive growth under digital

revolution and industry 4.0

RCEP for Development, Peace and East Asia’s Global Leadership

(Reference: Peter Drysdale, 2016)

RCEP for Development

• ASEAN, China, India, etc. all require supply side structural reforms to move up the development ladder and raise competitiveness

• RCEP can be concerted integration-cum-supply side reform agenda facilitated by technical and economic cooperation

• RCEP can start modestly but needs to have ambitious end goal

RCEP , Peace and Collective Leadership

• Big Powers and middle powers in East Asia plus India working together for peace and prosperity• ASEAN and East Asia peace underpinned by economic progress• RCEP and collective leadership to overcome border issues (e.g., South China Sea)

RCEP for Global Leadership• RCEP benefits ASEAN and world better than TPP (Itakura, 2016)

• TPP: 0.7 % (ASEAN); 0.1 % (World)• RCEP (H) + TPP: 3.1 % (ASEAN); 0.46 % (World)

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ASEAN Coexistence of Five ASEAN+1 FTAsCoexistence of Five ASEAN+1 FTAs and CJK FTAsASEAN+6 FTA

East Asia Integration Matters:Potential Economic Impacts of Development of ASEAN++ FTA

(Regional Comprehensive Economic Partnership)Source: Computed by Itakura for MTR Project

Notes: Brunei is proxied by “Rest of South East Asia” in the simulation, excluding Myanmar.Cumulative Percentage Point, deviation from baseline, 2011 to 2015.

AEC and ASCC for Community Building and Inclusive Growth

Trump and Brexit Lessons: Inclusive Integration/Globalization Critical

ASCC as Important Complement to AEC

• ASEAN : engages and benefits people• ASCC: “integrative glue” for an inclusive, resilient and sustainable ASEAN

Community • Health, education and skills training, labor, social protection, etc.: important

complement to AEC for inclusive growth-biased integration

ASCC as “integrative glue” and “unifying glue”

• Most ASCC key concerns involve cross-sectoral and/or cross-Community measures, related to global commitments (e.g., SDGs, Sendai Framework), and their success depends on stakeholder participation and voice

• ASCC as basis for ASEAN identity (PM Abhisit Vejjajiva)

Leaders’ Perspectives

Pres. Soeharto, Indonesia

“We have just put our signatures on very important documents…They are the manifestation of our determination to promote peace, progress, stability, and welfare of our peoples through closer cooperation in all aspects.” 1976

Pres. Gloria Arroyo, Philippines

“ More than just a regional community, [ASEAN] must be a dynamic force in Asia towards maximizing the benefits of globalization… uplifting the poor in our region.” 2017

Implementation! Implementation!

PHILIPPINE 4 Cs:

COMPLIANCECOLLABORATION

COMMUNICATION For

COMPETITIVENESS

AEC much more than integration: AEC is about concerted domestic reform and improved governance.

•Business, and all, benefit from well performing AEC

ASCC is at the heart of ASEAN community

building and builds foundations for an inclusive, resilient

and sustainable ASEAN Community

Seize the Moment:ASEAN a hot investment destination. Make it even hotter for longer with a well performing AEC.

•4 AMSs in top 15 global investment destinations of MNCs in 2017-2019 (Indonesia, Thailand, Philippines, Vietnam)

THANK YOU VERY MUCH

Integrated and Connected ASEAN

82%76%

81% 84%

74%

61%68%

77%

0%

20%

40%

60%

80%

100%

Consumers have easyaccess to goods and

services from any ASEANcountry.

It is easy for skilledworkers and

professionals to findwork in other countries

in ASEAN.

ASEAN countries are wellconnected through

roads, railways, air, andshipping.

People and businessescan communicate easily

with one anotherthrough ICT.

Aspirations and Hopes by 2025 Expectations by 2025

ASEAN Governance, Resilience, Equity

74% 73% 73%78%

39%

49%44%

58%

0%

20%

40%

60%

80%

100%

There is goodgovernance and verymuch less corruption.

There is equitable accessto opportunities for

ASEAN peoples.

ASEAN major cities areless polluted and more

livable than they aretoday.

ASEAN is able toanticipate, respond andrecover faster togetherfrom natural disasters.

Aspirations and Hopes by 2025 Expectations by 2025

Pressing Problems

29%

31%

29%

18%

27%

33%

22%

39%

29%

47%

23%

24%

27%

28%

30%

32%

35%

36%

46%

47%

0% 20% 40% 60% 80% 100%

Quality education provision and access

Unemployment

Infrastructure availability and quality

Human rights

Poverty

Agriculture and food security

Trade, investment, and regulatory coherence

Income disparity and social inequality

Climate change and natural disasters

Corruption

Faced by ASEAN Faced by Country

GDP Per Capita in 2011

GDP Per Capita (US$, 2011 Prices)Growth of GDP Capita (2011 = 100)

in 2025 in 2035 in 2025 in 2035

ASEAN 3,668 6,294 9,812 172 268

Brunei 41,060 52,141 80,710 127 197

Cambodia878 1,788 2,972 204 338

Indonesia 3,470 6,225 9,928 179 286

LaoPDR 1,266 2,656 4,531 210 358

Malaysia 10,058 16,354 23,875 163 237

Philippines2,358 4,844 8,502 205 361

Singapore52,871 65,199 80,428 123 152

Thailand 5,192 7,862 10,791 151 208

VietNam 1,543 3,106 5,372 201 348

RoSEAsia 1,056 2,579 5,038 244 477

Low Income GroupLow Middle Income GroupUpper Middle Income GroupHigh Income Group

Per Capita GDP (in USD at 2011 Prices), 2025 and 2035: ASEAN and AMSsSource: Data from Itakura (2017); Sta, Maria, Urata and Intal (2017)