The economic future of Asean

While the Association of Southeast Nations (Asean) has been in existence as a mainly political group since 1967, it was only on Dec. 31, 2015, that a serious economic cooperation pact was signed among its memberstates. With the Asean Economic Community (AEC), the 10 member-states seek to create a single market and production base for the free flow of goods, services, investments and skilled labor in the region.

The economic possibilities of the AEC are enormous given that the region has a combined population—or consumer base—that is bigger than that of the European Union. It also has a total gross domestic product (GDP) valued at $2.5 trillion and economies growing at an average of 5-8 percent.

Even without the AEC agreement, the region has seen conglomerates from member-states expand to neighboring countries usually in partnership with locals, which is understandable as this gives the investing firm some sort of a guide as to the market it is entering. For the Philippines, conglomerates such as Ayala Corp., Aboitiz, San Miguel Corp., and Universal Robina Corp. have managed to expand their operations in Indonesia, Malaysia, Vietnam and Myanmar. A freer flow of investments is expected once the finer details of the AEC have been ironed out.

The main constraint to a quick realization of the objectives of the AECwill be the bloc’s philosophy, known as the “Asean Way,” in which problems are resolved through compromise and consensus. This has resulted in the very slow pace of accomplishments for Asean. For instance, as early as 2007 or 10 years ago, Asean had already developed a blueprint for the AEC and identified four “pillars”—creating a single market and production base, a competitive economic region, a region of equitable economic development, and a globally integrated regional economy. What followed were delays in the ratification of many proposed agreements and economic treaties as some member-states were slow in enacting the required legislation locally.

This expected delay in the AEC’s implementation gives the Philippine government time to address potential problems or negative effects of the economic integration on the Philippines. Foremost will be its impact on small and medium enterprises (SMEs), which risk being crushed by foreign competition due to their lack of access to capital, experience and technological know-how. The government needs to institute programs to address the vulnerabilities of local SMEs to the expected influx of foreign competitors mainly by addressing their problems on credit access and over-regulation.

Another potential problem is in the free flow of labor, and the Philippines has to prepare for the possibility of losing some of its best talent to its more affluent neighbors that can offer better salaries and standards of living. The government needs to determine how best to regulate labor flow to avoid a potential brain drain. In the same vein, it should also push for a legally binding regional agreement on the protection of migrant workers.

Another likely problem area is the agriculture sector, which will face very stiff competition once the quantitative restrictions such as quotas particularly on rice and tariffs on other products such as sugar are removed or lowered in compliance with the AEC. The government needs to shield the farm sector by improving their efficiency or diversifying their crops.

On the brighter side, the AEC will provide the more efficient Filipino conglomerates with a huge market to expand, just as what Ayala’s Manila Water Co., San Miguel Corp.’s petroleum unit Petron, and Gokongwei’s URC are already doing.

Further into the future, Filipinos can also look forward to fuller economic integration similar to the European Union’s, which has a single currency and a working trade and financial framework as if the region were one country. Also worth looking forward to is an environment where a Filipino will no longer feel like a foreigner in Singapore or Thailand, but feel like an Asean citizen with the region as his or her home.