AEC can learn from EU

cultural background (Greco-Roman civilization and the Christian religion), the leaders of the European nations entertained an understandable dream of arriving one day at some sort of a United States of Europe. They were not satisfied with just having a common market and a economic free trade area. They had hopes of arriving at common policies about fiscal discipline, human rights, immigration, climate change, and other non-strictly economic objectives. In fact, their deciding to have a common currency, the Euro, implied that they could agree on such issues as the prudent limit to government deficit spending and other politically charged decisions. It was obvious during the Great Recession that it was very difficult to have a common currency if, just to cite a concrete example, Germany and Greece could not agree on what level of austerity is politically acceptable to their respective constituencies. In other words, a common monetary policy can only work in the long run if there is a common fiscal policy, which in turn would depend on a common political philosophy.

The ASEAN Economic Community (AEC), which is still a work in process, need not face the same obstacles because from the very beginning the member nations have never entertained the possibility of a United States of the ASEAN. They have very different cultural and religious backgrounds. Just think of Indonesia being a predominantly Muslim country, the Philippines a predominantly Christian country, Thailand a Buddhist country, etc. From day one of the AEC, the country’s leaders have focused exclusively on the economic advantages of a free trade area, i.e. a larger consumer base and economies of scale in production. The leaders will be not be distracted with having to arrive at a common approach to thorny issues as human rights, the death penalty, how to define democracy, limits to government deficits or to military spending, etc. which had preoccupied the European leaders to a great extent. That is why in my opinion, the objective of the AEC in achieving a freer flow of goods, services, capital, investment and people can be attained sooner than in the EU.

I am not suggesting, however, that it will be smooth sailing to a veritable common market free of non-tariff barriers. Nationalism dies hard. As in the case of Indonesia, we have seen a two steps forward and one step backward scenario as far as openness to foreign direct investment. In the last Administration of President SBY, there were increasing restrictions on foreign investments in the form of larger domestic equity requirements in strategic industries like mining and public utilities. In the present Administration of President Jokowi, a realization that these protectionist measures were hurting the economy has led to a greater openness to foreign investment. As of June 22, 2016, the Indonesian government opened 35 new sectors to foreign participation by revising its Negative Investment List, especially in the services and trade sectors. With these reforms, the Widodo Administration hopes to attract some $44 billion worth of FDIs in 2016. The same turn around can be happening in the Philippines under the new Administration of President Rodrigo Duterte. Whereas the last Administration of former President Benigno Aquino III refused to remove the restrictions against FDIs contained in the Philippine Constitution, the Duterte Administration has announced that it will favor the amendment to the Constitution to allow more equity investments in public utilities, mass media, education, telecom and transport. Vietnam is also known for having liberalized its policies towards FDIs in 2015, including a more liberal approach to the foreign ownership of land.

Of course, the greater openness to FDIs will benefit not only the investors coming from the ASEAN region but also those from outside the region, especially the Japanese, the Koreans, the Taiwanese and the Chinese. One can, however, observe the trend of a more rapid rise of intraASEAN investments in the last two years, especially in such sectors as food manufacturing, banking, retailing and agribusiness. In the same way that American multinational enterprises contributed to achieving the common market of the EU by integrating their manufacturing operations across countries in the European continent, Japanese firms, among others, will also contribute to the faster integration of manufacturing operations across the ASEAN countries in such sectors as automotive and other transport vehicles, electronics, appliances, and metals manufactures. We can also expect faster integration in E-commerce, logistics and health services, including medical tourism, in which Thailand, Singapore and Malaysia have pioneered but whose examples can be emulated by the countries that are still enjoying a demographic dividend over the next thirty years, such as Indonesia, the Philippines and Vietnam. For comments, my email address is bernardo.villegas@uap.asia.