Name : Mochammad Fauzy
NIM : 1214210191
Lecture : Prof . Dr . Faisal Santiago, SH, MM
Subject : Business Law
'AEC 2015' is no longer a slogan but a reality that the region’s governments, businesses and people will have to embrace before the year is out. How ready are we?
Adopted from article by Asia Focus Team By the end of this year the 10 countries that make up the Association of Southeast Asian Nations (ASEAN) are supposed to join forces as a single economic community, the ASEAN Economic Community (AEC). The AEC was supposed to have come into being four days ago but members realized four years ago that the deadline would never be met, so they made a cosmetic change. No one believes the new deadline of Dec 31, 2015 will be met either. Even then, there will be questions about how many will be ready to cope with the impact. On paper, no one doubts the potential of a single market with a combined gross domestic product (GDP) of $2.5 trillion and intra-regional trade of $1 trillion. But reaching the full potential the AEC offers could take many years. The goal of ASEAN economic integration is to become a single production base where goods can be manufactured anywhere and distributed efficiently to anywhere within the region. ASEAN needs to work towards the goal of freer movement of labor and capital, but in reality, integration and the free flow of resources will only be gradual, step by step, sectors by sector. For now, opinions are mixed on how far ASEAN countries have come in doing everything necessary to make the big first step. Governments and the ASEAN secretariat feel that more than 80% of their goals have been achieved, but the private sector does not see evidence of much progress when it comes to making it easier to do business across borders. Then again, some businesses, especially smaller ones, have done little or nothing to prepare themselves. So far, ASEAN overall has progressed to a level of 80% in terms of eliminating tariff on goods traded within the region. Some items remain on sensitive lists in each country, for instance coffee beans, copra, potatoes and cut flowers in Thailand, but these items will have tariffs reduced to zero by the end of 2015. ASEAN in general has been on the right track to eliminate all tariffs by the end of 2015. Only 50% of businesses in ASEAN are estimated to have taken advantage of tariff reductions under the regional FTA [Free Trade Agreement] and governments have not been active enough to encourage the private sector to utilize them. Required harmonization of standards and regulations still has to be carried out and that should encourage more businesses to apply for ASEAN privileges. Even though tariffs have been largely reduced, non-tariff barriers to trade (NTBs) are still used widely in the form of quotas and licenses, although countries are required to scale down and totally remove them under the free trade agreement (FTA). An example of an NTB is inconsistent and unreasonable labelling and packaging requirements that impedes free trade across ASEAN. Objectives such as free movement of skilled labor and free movement of capital and investment are far from having been achieved. To be competitive under the free flow of labor in ASEAN, Thailand needs to improve education for eight professions: doctors, dentists, nurses, engineers, architects, accountants, surveyors and the tourism industry. In terms of investment and services, liberalization of 128 sectors was scheduled to be completed by the end of 2014 but is now delayed to this year. So far, only some sectors such as retail, wholesaling and transport have been opened while banking and insurance have not been opened. The benefits of an integrated financial services sector and capital markets should be recognized as fundamental. ASEAN leaders are trying to protect and develop their nascent financial services and capital markets sectors. A lot of time will have been wasted before these minor markets are seen to have failed to attract capital and investment because of their lack of size, liquidity and recognized standards regulations. In terms of which countries have made the most progress toward the AEC, Singapore is the most advanced. It has always been a free and open economy. Other countries are in various stages of being ready, with certain sectors, often termed strategic, still being protected. The least ready are the least developed countries (LDC) that fear being overwhelmed by more efficient neighbors. The automobile industry in Thailand is one success story. It has benefited from being a single production base with parts from other ASEAN countries able to cross borders without tariffs and other impediments. Thailand can also benefit from economic integration by increasing out bound investment. The market the region presents is huge but the flexibility of Thai businesses is still limited. Small and medium-sized enterprises (SMEs) in Thailand haven’t been exploring opportunities in the region as much as they should. They need to at least broaden their perspective and be looking for allies, partners and connections in ASEAN so they have more of a competitive advantage once integration happens.
In Indonesia itself, Indonesia has taken steps to welcome the AEC, formulating policies, programs and plans to increase national competitiveness based on input from related ministries and government agencies. Two years ago, Indonesia created an ASEAN national secretariat that consists of 93 institutions the message, however, does not always reach broader government structures.
“There’s still a misunderstanding at the national government level on AEC,” admitted Ambassador Puja, adding that the objective of the AEC to increase economic growth tends to be forgotten by people.
“AEC is a moving process. We understand it won’t be fully completed by 2015,” he said.With the AEC looming, some business players also doubt that Indonesia is ready and some economic analysts have urged Indonesia to withdraw from the game plan, fearing that the nation will lose much more than it will gain from imports flooding the market and neighboring businesses entering Indonesia.
For the benefits to Indonesia is already seen. What kind of benefits Indonesia get from AEC? In the past two decades, the Indonesia economic generated a significant increase in ASEAN’s total trade, from $429 billion in 1993 to $825 million in 2003, and around $2.4 trillion in 2011. The share of intra-ASEAN trade as part of the region’s total also increased from 22 percent in 2000 to 25 percent in 2011. As economic integration strengthens further, the hope is that intra-ASEAN trade will grow further. The percentage of ASEAN’s trade with the rest of the world decrease form 51 percent in 2000 to 41 percent in 2011, trade between ASEAN members and with its dialogue partners during the same period increased from 27 percent to 34 percent. Foreign direct investment inflows to ASEAN in 2011 hit a record-breaking $114 billion, a 23 percent increase from the previous year. FDI also grew in 2012 and 2013. At the same time, international tourist arrivals into ASEAN increased to 81 million in 2011, 47 percent of which were intra-ASEAN visitors.
Another benefits from AEC to Indonesia is stability in political-security and economic potential. ASEAN offers a huge market with a rapidly growing middle class and a competitive of natural resource, otherwise Indonesia also well-known as Demographical Bonus country which means the productive people is higher than unproductive people. This potential have made an ideal destination for foreign direct investment and its belief in promoting democracy, good governance, sustainable development and protecting human rights. However, ASEAN still faces difficult challenges as the result of both internal and external dynamics. Territorial disputes, overlapping sovereignty claims and significant perceived power rivalries within the region can potentially lead to tensions and ultimately conflict. Thus, ASEAN needs collective, effective and consistent responses to address these issues. Similarly, new and emerging threats such as transnational crime are critical challenges that must also be vigorously addressed to maintain security and stability. Many of its instruments and mechanisms have enabled ASEAN to consistently play an active role in maintaining regional peace and stability for decades.
Tourism is growing up and has become an important source of foreign exchange. In this regard, increased FDI inflows into Indonesia will not only create jobs but also opportunities for improving skills, technological capacity and competitiveness. The remaining 22 percent of the measures for the ASEAN Economic Community, including promoting equitable development, should be in Indonesia's own national interest. The ASEAN leaders’ decision is to accelerate the implementation of the AEC. The public understanding of the grouping, including the AEC, is indeed very low. The qualitative information gathered from interviews with selected industry associations and civil society organizations in the 10 countries indicates that 30 percent of businesses lack a basic understanding of the role and purpose of ASEAN, while only 15 percent have a good understanding. 69 percent of the businesses surveyed had never participated in any ASEAN forum, mainly because of lack of interest due to paucity of information.
The level of understanding among the general public is even lower. 66 percent of those surveyed have no basic understanding of the coming ASEAN Economic Community. Most take regional peace and stability for granted and associate ASEAN only with benefits such as less expensive tourism and travel due to the visa exemption regime and low-cost airfares. Because of the level of public awareness is low in all ASEAN countries, it’s not surprising that there is a high rate of fear that the AEC will come into existence in late 2015. Some prominent Indonesian business leaders have even suggested postponing the AEC because they feel that domestic preparations are still insufficient and the country is not competitive enough. They would prefer to see the government implement measures to improve competitiveness and level the playing field to ensure that the AEC will not risk their businesses.
Even worse, some within Indonesia fear that the AEC will only turn Indonesia into a big market for the products of other members. Because of this lack of understanding, many tend to forget that 99.9 percent of the tariff lines for the ASEAN-6 countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) have been eliminated since Jan. 1, 2010. Despite the fact that the AEC will be established at the end of 2015, the free flow of goods actually began five years ago among at least six countries.
Another issue is the anticipated free movement of skilled labor across ASEAN. What most people do not understand is that only engineers will be able to move across ASEAN beginning in 2016 among eight professions currently being deliberated under the scheme of the ASEAN Mutual Recognition Arrangements (MRA). The AEC will not open the doors for the free movement of all professionals, just those in eight fields to begin with.
In the other hand, Government can make a difference. To dispel fears that the AEC will turn Indonesia into a mere market, the government will combat the corruption, improving human resource development and expanding infrastructure. Much can still be done in the next two years if we are consistent and persistent in preparing ourselves for the advent of the ASEAN Economic Community. Thus, Indonesia should never stop working toward political stability, combating corruption, building infrastructure, increasing human resource capacity and improving competitiveness. It should always be a national priority, including for the next government. Furthermore, Indonesia's potential demographic bonus and rising middle class should be harnessed to improve its competitiveness. This will only become a lost opportunity if the talent is not appropriately harnessed. Raising awareness among government officials including through intensive training can increase their understanding and enable them to effectively contribute both in terms of the negotiations and the implementation of the AEC. At the same time, we need to increase the promotion of national awareness. This should be carried out in tandem with efforts to improve competitiveness. Promoting awareness and improving national preparedness for the AEC should be accelerated so that when the AEC is finally established; there will be no recurrence of debates such as those that followed the implementation of the ASEAN China Free Trade Agreement.
Resources:
1. http://www.sr-indonesia.com/in_the_journal/view/indonesia-must-get-ready-now-for-the-asean-economic-community?pg=all
2. http://www.amcham.or.id/nf/features/4700-is-indonesia-ready-for-aec-2015
3. http://www.bangkokpost.com/learning/work/454697/asean-economic-community-2015-ready-or-not-here-it-comes
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