20 May 2015
PROGRESS OF THE ASEAN ECONOMIC COMMUNITY 2015: OPPORTUNITIES, CHALLENGES, AND THE ROAD AHEAD
His Excellency Bapak Sofyan Djalil, Coordinating Minister for Economic Affairs, Republic of Indonesia
His Excellency Dato’ Sri Idris Jala, Minister in the Prime Minister’s Department and the Chief Executive Officer of PEMANDU, Malaysia
Mr Teo Siong Seng, Chairman of Singapore Business Federation
Dr Robert Yap, Chairman, ASEAN Business Group, Singapore Business Federation
Distinguished guests, ladies and gentlemen
Good morning. Today’s conference takes place at a critical juncture, as countries in the region work towards achieving the ASEAN Economic Community (AEC) 2015 by the end of the year.
ASEAN has come a long way. Almost twenty years ago in 1997, ASEAN leaders agreed on a common goal to transform ASEAN into a stable, prosperous, and highly competitive economic region. Then and even more so now, we recognised that each of us on our own cannot compete effectively against other larger economies. However, if we come together with a common vision, harmonise our systems and integrate our economies, we will be able to transform ASEAN into a major economic player. One that is able to compete and thrive in the global market place.
With this common vision, ASEAN members have worked hard towards establishing a single regional market. The AEC 2015 is an ambitious undertaking and will be a key milestone achievement in the long journey towards regional integration.
ASEAN’s Potential for Growth
As Robert mentioned earlier, ASEAN is a growing market of 620 million people, with the third largest combined GDP in Asia at US$2.5 trillion in 2014, with a projected average annual growth rate of over five per cent from 2014-2018[1]. Experts also estimate that ASEAN could become the fourth largest single market in the world by 2030, after the EU, US, and China. And by 2030, ASEAN’s combined GDP could rise fivefold to US$10 trillion[2]. Therefore, not only will ASEAN feature more prominently in the web of global supply chain networks, ASEAN will also become one of the largest consumer markets in the world.
The prospects for ASEAN are bright, but our future success is not guaranteed. It will require our continued joint commitment and joint effort to realise ASEAN’s potential. This will require tradeoffs to be made and compromises to be reached. For AEC to expand and deepen, each of us must continue to reform and upgrade our individual economies.
The journey thus far has been challenging but rewarding. Indeed, we have enjoyed robust GDP growth in the last five years as a result of our pursuit of further liberalisation and integration. Vietnam, Indonesia and Philippines in particular have achieved stellar growth exceeding six per cent on an annual basis, while Malaysia and Thailand have grown an average of 4-6 per cent annually over the last five years.
Looking ahead in the short to medium-term, there are several bright spots, for example the Philippines. The Philippines is projected to do well this year. It has sustained strong growth amidst its reform programmes, and successfully improved its business climate. Indeed, the Philippines moved up significantly in the 2015 World Economic Forum Global Competitiveness Report, advancing seven places to rank 52 out of 144 economies[3]. The Philippines’ economy – fuelled by a growing middle class and a resurgent manufacturing sector – is projected to expand considerably over the next ten to fifteen years.
In the American Chamber of Commerce’s ASEAN 2015 business outlook survey, two-thirds of respondents said that ASEAN markets will become more important for their companies’ worldwide revenue over the next two years[4]. The Business Times also reported that a survey of executives in six ASEAN Countries showed that the business community is largely optimistic about the prospects of ASEAN for 2015[5].
Progress of the AEC
While the overall picture is bright, I should also caution against over-optimism. As many observers have pointed out, ASEAN is unlikely to fully achieve what it had set out to do in 2007 when we signed the AEC Blueprint.
Let me be frank and share my thoughts on three key areas where progress remains slow.
First, non-tariff barriers in ASEAN are still too many. We know that many of you who operate in ASEAN face problems at and behind the borders. You grapple with customs processes, documentation requirements, and a complex regulatory environment within ASEAN. These behind-the-border issues are what we are focusing on now in ASEAN. We are addressing non-tariff barriers and will improve trade facilitation to ensure that businesses can operate in a transparent, stable, and predictable environment. Some progress has been made, particularly on the identification of these barriers for resolution on a case-by-case basis. While this is a good first step, ASEAN countries need to be more proactive to tackle these problems, expedite the resolution of outstanding cases, and move towards the elimination of non-tariff barriers.
Second, there remain significant barriers to services trade within ASEAN. We are still some ways away as compared to the liberalisation for trade in goods. Progress is not as steady as we would like. However, services barriers are more complex and liberalising the regulatory environment for services sectors often requires coordination with many stakeholders, which will take some time. While all ASEAN members remain committed to progressively lowering their services barriers, such as foreign equity limits, we should also aim to move at a faster pace. In today’s competitive environment, ASEAN must enable foreign services providers to compete on the same footing as local companies. In this way we will be able to strengthen investor confidence and attract more high-value investments into our region.
Third, the ratification of the ASEAN Open Skies agreements is still outstanding. Strong air connectivity is necessary to promote greater investment, trade and people flows within ASEAN. Therefore, we will need to ensure that the ratification of the agreements is completed by the end of 2015. This is an area that investors and analysts are following closely as a gauge of ASEAN members’ commitment to AEC 2015. It is therefore imperative that we complete the ratifications.
There are other areas where more can be done but these three areas which I have just highlighted will be key as they will move the needle in terms of its impact on the business environment. Together, they will facilitate trade, further enhance connectivity, boost investor confidence and make ASEAN more competitive and a better place to do business in.
Getting ready and prepared for AEC 2015
Despite the challenges, much has been achieved under the AEC. Businesses have a good sense of what AEC holds for them, but some are more prepared than others – typically the larger companies are better prepared than the smaller ones. It is critical that all of us are prepared so that we can harness the potential benefits.
For instance under the AEC, our manufacturers and traders are now exporting to ASEAN without having to pay tariffs for ASEAN-originating products. The improved access to ASEAN’s markets allows Singapore manufacturers and traders to tap on the rapidly growing demand in ASEAN. Companies also benefit from lower production costs due to lower costs for regionally-sourced raw materials or inputs, which will in turn increase the competitiveness of their products. Our businesses must therefore be nimble and make use of these opportunities to expand their markets and lower their costs. Companies should also seriously consider whether and how they can extend their supply and production chain to take advantage of ASEAN’s single market.
Another development which will facilitate our companies’ regionalisation is ASEAN’s work towards harmonising standards, technical regulations, and conformity assessment procedures, aligning them with international practices. This holds significant benefit to manufacturers and traders. By minimising duplicative testing, it will improve efficiency and enhance cost effectiveness of the goods traded in the region. As Singapore companies are often at the forefront in adopting international standards, this continued harmonisation of rules and regulations will benefit us.
With continued liberalisation of investment in ASEAN, Singapore companies will also gain from more opportunities to participate in sectors which were previously restricted. In a few ASEAN countries, significant liberalisation has already been achieved in selected sectors. Our healthcare providers, for example, can now have the assurance that they can fully own investments in medical and dental services in Vietnam. In Indonesia, when the next round of services liberalisation enters into force, our consultancy services providers in the engineering sector can also enjoy full ownership of their investment.
In welcoming foreign investment, ASEAN has also established stronger and pro-business rules to enhance protection for foreign investments in ASEAN. The ASEAN Comprehensive Investment Agreement will generate opportunities for investors through liberalisation of the various sectors, provide greater transparency on investment rules in ASEAN, and offer recourse to investors in times of conflict. This will enhance the confidence of Singaporean investors as they expand regionally.
On the people front, there are arrangements to facilitate the recognition of qualifications in eight professions. These include engineers, architects, and healthcare professionals. Singaporean skilled professionals will be able to tap on regional opportunities to gain international exposure. However, it will not be unfettered movement of persons as such mobility will still have to conform to the domestic regulations of the host countries.
Government will help our businesses
The opportunities that AEC 2015 will bring are significant and hence the government will be providing resources to help our companies become more ready for AEC. My Ministry and agencies under MTI will continue to work with trade associations and chambers to find ways to help our companies take advantage of the benefits of the AEC.
IE Singapore and SPRING are working together to build our SMEs’ capabilities and help them internationalise. There is a wide range of assistance schemes and programmes for SMEs to tap on. For instance, SMEs looking to build up capabilities and strengthen their value proposition can tap on SPRING’s Capability Development Grant. Similarly, IE Singapore provides Singapore companies with in-market support and knowledge.
In parallel, we will continue to clarify and address issues regarding the AEC through seminars and workshops. Today’s conference is one such effort. Through these platforms and initiatives, we hope that more of our companies will be ready to capitalise on AEC to expand and grow their businesses.
Our work does not stop here. The AEC is not limited to internal integration within ASEAN, but also involves ASEAN’s integration efforts with the wider region.
Post-2015 Vision
We have indeed come a long way since 1997. Does the AEC 2015 mark the end of ASEAN’s economic integration efforts? The answer is obviously no. It is but a significant milestone. While the AEC has brought ASEAN moving in the right direction towards greater openness, we cannot be satisfied with what we have achieved.
ASEAN has to stay firm in its vision to remain open, inclusive and competitive as a region. We will capitalise on the growth opportunities in our region. We must continue to build stronger economic connections, both within and beyond our region.
In this regard, ASEAN’s continued success will depend on how it delivers on its post-2015 regional economic initiatives. We are already working to develop the AEC’s post-2015 agenda, which will be guided by the need to be bold, to be ahead of the curve, and to improve prospects for our countries and our people. The post-2015 vision for the AEC will comprise not only the enhancement of the current ASEAN platforms and initiatives, but will also aim to allow ASEAN countries to move up the development ladder in an inclusive and sustainable manner. It will also enhance ASEAN’s centrality in the regional and global architectures.
Governments and businesses need to work in tandem. As businesses with networks around the region, we welcome your input to shape the next phase of integration within the ASEAN region.
Conclusion
As a small country, Singapore has limited resources and relies heavily on trade with our partners, especially within the region. It is naturally in our interest to see ASEAN prosper, and to position ASEAN as a global player in the international market. With its rising middle class, ASEAN will also become an increasingly key final demand market for Singapore.
Singapore remains committed to the ASEAN vision of deepening regional integration. We believe that a free and open regional and global economy is important, and we are confident that ASEAN will be able to fulfil most of the 2015 targets and beyond. On this note, I wish you a productive conference ahead. Thank you.
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[1] Source: OECD Development Centre’s Publication on “Economic Outlook for Southeast Asia, China and India 2014’.
[2] Source: ASEAN-US Business Council.
[3] 2013/2014 World Economic Forum (WEF) Global Competitiveness Report ranked the Philippines 59 overall out of 148 economies.
[4] Source: ASEAN Business Outlook Survey 2015, American Chamber of Commerce (Singapore).
[5] Source: Business times, 24 Apr 2015 “ASEAN’s business community cautiously optimistic about AEC”. 64-66% of respondents in Thailand, Vietnam, and the Philippines claimed that their regional senior staff were either “very familiar”, or “somewhat familiar” with the benefits of the AEC. The survey was performed by Ipsos, a French research company.