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ENTERING THE ASEAN ERA South East Asia is changing, but what to and why? Eon’s Junie Del Mundo assesses the options for the ASEAN economic community ASEAN integration is upon us. With less than two years before the ASEAN Economic Community comes into being, the winds of change can already be felt across the region, ready to transform not just the norms of doing business, but the way people think and act.

What we are expecting in the near future The AEC, envisioned to become the most dynamic marketplace in the world, will definitely continue to grow in scale and in influence in the years to come. By bringing down tariff barriers and opening the gates of commerce wider, we can expect to find more of each other’s products and services in other parts of the region – possibly translating to bigger opportunities for enterprises big and small. Hand in hand with these, of course, will be the challenges that come with economic integration. These challenges will likely present themselves at all levels – regionally, nationally, locally, affecting individual businesses and people. One only has to look at how the European Union is dealing with multifaceted issues to anticipate the challenges that the ASEAN Economic Community will face – pricing disparities, supply disruptions, momentary market distortions, the list goes on and on. There are, of course, fundamental differences in the way the EU and the ASEAN are structured – differences that will definitely have an impact on the way economic integration will drive business in ASEAN. For one, the EU was built on similar cultures engaging in the free movement of people and trade across the region. In fact, EU was built on a post –WWII vision that saw economic prosperity as a means to maintaining peace. As such, EU required the establishment of legislative and economic infrastructure among prospective members who wanted to be part of the union. In contrast, ASEAN started out as a political entity and was structured as a multilateral organization seeking the promotion of cooperation, cultural exchange and free trade within the region. As such, ASEAN reaches decisions through consensus and rejects the concept of a supranational body (like the EU) due the colonial past of most ASEAN members. 20 PublicAffairsAsia – June 2013

H.E. Mr. Lim Chin Beng said it best, “where economic consideration was the initial driving force behind Europe’s political integration, it was political necessity that initially bound ASEAN together and led it towards closer economic cooperation…maturing from political necessity to economic prosperity.” In the absence of such legal infrastructure to bind its members, ASEAN is therefore a very different entity than the EU, though no less potent.

ASEAN vision of creating an Asian economic union The ASEAN Economic Community (AEC), of course, was created in response to the redirection of FDIs from ASEAN to China. ASEAN members realized that by working among themselves, they could replicate the production networks that have made China so attractive to foreign investors in the first place. At the same time, they could harness these networks to benefit their own members if they organized themselves as such. Since ASEAN does not have the common legal infrastructure found in the EU , the promise of economic integration can only be realized if ASEAN is able to find a creative way to attain it. This creativity is especially critical since ASEAN’s members are in different stages of economic development, implying far more and deeper political and economic considerations that could impede the collective decision making process.

ASEAN Ways to achieve Economic Integration How, then, can ASEAN start to attain economic integration in the absence of legislation and the legal software that have made the EU a reality? Simple – the ASEAN way of consultation and consensus. Consultation and consensus are very much a part of the ASEAN psyche. We never impose structures upon others and always give one another the space to arrive at individual decisions. All these are rooted in the ASEAN values of respect and harmony. In fact, the AEC was built largely on consensus, unlike the EU, which followed strict guidelines and directives to achieve a single market. The consultative process leads to mutual recognition agreements, instead of pieces of legislation that anchor other free trade zones. Reciprocity agreements, instead of sanctions and penalties, characterize the AEC free trade framework. Of course, AEC’s foundation was based on lessons from EU which had four pillars for integration.The AEC Blueprint, on which the AEC is anchored, cited the mandatory and priority programs, measures, and activities, as contained in three frameworks, the ASEAN Trade in Goods Agreement (ATIGA), ASEAN Framework Agreement on Services (AFAS) , and the ASEAN Comprehensive Investment Agreement (ACIA). Also reflecting ASEAN’s sensitivity to its members’ needs is the timeframe for economic integration. The varying Asian concept of time is reflected in the strategic schedule and scorecard exercise as ASEAN, underscoring how ASEAN recognizes that members do not complete targets the same way and at the same time. Necessarily, AEC brings unique challenges to ASEAN’s member nations, challenges which will influence the manner by which business will be done across the region. Underpinning these challenges are two major factors – the

Junie del Mundo is Chairman of the ASEAN Integration Committee of the Management Association of the Philippines and Chairman & CEO of EON, The Stakeholder Relations Firm fact that each AEC member country is at a different stage of development, and that each country has its own unique culture and political structure. In the days ahead, as these challenges come to surface, the region needs to find some common grounds, especially for those countries that are competing in the same space. Certainly, integration will not be palatable for them. For example, textile producing countries such as Vietnam, Cambodia, Philippines will encounter difficulty in a free trade regime, not least because they are competing for the same markets. New questions then arise – will these countries allow free movement of labor that will likely skew wages? What about local rules and standards? And what about the displacement that is likely to happen in some sectors in some countries? In other words, the birth of the AEC will lead to more demands on its members that they will have to tackle domestically and regionally. Political rumblings are sure to ensue in each country, as enterprises keep up with the changing business terrain. In all this, one thing is clear: the implementation of free trade will require more soft pieces of infrastructure that will shape business--policy making, the creation of common laws, and the creation and implementation of monetary policy to address the disruptive nature that free trade brings. Definitely, the changes that AEC will bring will be sweeping, and businesses and enterprises will have to prepare for a new way of doing things. Just as each one will have to think locally, it will also be crucial to have a regional perspective and recognize each one as an integral part of the AEC, knowing that AEC’s collective strength is derived from the vigor and dynamism that each individual, enterprise, and country brings. Each of us is a part of a huge jigsaw puzzle that is the AEC – its promise as a marketplace can only realized of all these pieces live up to their fullest potential.

Businesses in the Philippines should therefore take this into consideration as they engage foreign investors. They have to see themselves as part of the AEC and share in its strengths and brand identity, yet at the same time, they should be able to distinguish themselves among the rest. The AEC, after all, is far from homogenous, a blaze of colors from which Filipino enterprises should strive to stand out. Filipino enterprises might ask: how can this be done? I daresay, by embracing the tenets of excellence and globalization while at the same time, retaining the traits that have made Filipino businesses unique in the first place – the Pinoy touch, as captured in the caring nature of its people. This is especially important considering that business in Asia is personal, and mutual trust is the currency that moves businesses. Indeed, the success of a business enterprise in the region depends on the capacity of its leaders to build and nurture solid relationships. Whether these are nations or small enterprises dealing with their stakeholders, the weight given to trust is absolute.

Conclusion As the AEC becomes a reality, the role of trust in business grows larger than ever. It is therefore imperative for governments and businesses alike to invest in engendering and growing trust. Against the headwinds of economic integration, trust in one’s institutions and brand name will catapult one to the next level of the game. In the days ahead, trust will certainly be important asASEAN members move into this new, economically integrated arena. It will help ASEAN to become nimble in responding to the ever changing realities of the global marketplace and geopolitics. Most importantly, trust will keep nations aligned with the AEC’s objectives and cement the relationships that have made ASEAN dynamic and promising, today and in the years to come. ENDS

“Forging the ASEAN Brand and Identity” This therefore calls on each member of the ASEAN to see beyond themselves and embrace their new identity as members of the AEC. That means they should, from the outset, embrace the ASEAN brand and identity – a dynamic and exciting amalgamation of the unique traits, diversity, and colorful heritage of its members; a study in contrasts; and a promise of great possibilities. For those countries that would engage the AEC, they would be dealing with an entity that represents the heritage, practices and promises of each of the ASEAN countries; a region with a distinct character. 21 PublicAffairsAsia – June 2013

Entering the ASEAN era by Junie del Mundo  

(Appearing in PublicAffairsAsia June 2013) Southeast Asia is changing, but to what and why? EON's Junie del Mundo assesses the options for t...