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Impact of the ASEAN Economic Community (AEC)

 3 min read / 

The recent establishment of the ASEAN Economic Community (AEC) could potentially have a significantly positive impact on the global economy.

While relatively unheard of on the world stage, one should not discount the role and influence of ASEAN as a region. Since its initial formation in 1967 with just 5 member states – namely Indonesia, Malaysia, Philippines, Singapore and Thailand, the organisation has since expanded to include Brunei, Vietnam, Laos, Burma and Cambodia. If seen as a single economic entity, ASEAN would be the world’s 7th largest economy with about 625 million inhabitants, accounting for almost 10% of the world’s population. The region has also seen economic growth average a healthy 4-5% per annum since its formation.

Slated to come into effect on 31st December 2015, the AEC envisages the following key characteristics:

  1. A single market and production base
  2. A highly competitive economic region
  3. A region of equitable economic development
  4. A region fully integrated into the global economy

By creating a more integrated economic community, the AEC would encourage high-cost production countries such as Singapore and Malaysia to move its production to lower-cost ones such as Laos, Cambodia and Burma. This would allow ASEAN nations to leverage on each other’s competitive advantage and ensure that efficiency is being optimised as much as possible. With the current trade volumes at a low point, the AEC could potentially salvage and mitigate the situation by ensuring that production costs are kept to its lowest possible in the region.

In addition, the AEC would bring about the standardisation of procedures with regard to the importing and exporting of goods and services. This is important because it grants certainty to world economies looking to invest or import goods from the region. Arbitrary laws governing the importing and exporting of goods would only serve to hinder growth for the region and discourage other countries from tapping on several key resources the region might be able to offer. This would encourage more cross-border international commercial activity.

Nevertheless, AEC is not without its disadvantages. Some have likened the AEC to the EU trade bloc. For now, that seems to be an unattainable and unrealistic comparison. Many of the ASEAN member states are still developing, whether politically or economically. Burma’s military junta has been in governance for half of the past century, with Aung San Suu Ky’s National League for Democracy (NLD) only recently achieving a majority to end the military’s governance in the nation. Despite talks of reform for the past few decades, economic growth in nations such as Laos and Cambodia remain unimpressive and sluggish. Even the region’s beacon of light, Singapore, has been struggling to maintain the growth that propelled it to global economic stardom. It can thus be argued that the effect of the AEC may be muted because the nations involved are unprepared for rapid economic expansion in terms of infrastructure.

In conclusion, the establishment of the AEC would undeniably have its pros outweigh its cons and is indeed an exciting time for the region and the world economy. Integrated economic blocs ensure certainty in procedures and given ASEAN’s consolidated influence on the world economy, the AEC is likely to be a huge success.

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