Catching opportunities from ASEAN economic community – Part 1

 Part 1: The open door

ASEAN economic community (AEC) will officially take effect from Jan 1, 2016. This is one important event in politics, economy, culture ... helping not only Vietnam but also all members of Association of Southeast Asian Nations (ASEAN) to open the integration door, enhance capacity, credibility, and role to countries, regions in the world.

Opening to elevate ASEAN

AEC is an intergovernmental organization that will officially take effect from Jan 1, 2016. This is one of three important pillars of the ASEAN Community to fulfill targets of ASEAN Vision 2020" for the purpose of: Creating a stable, prosperous and highly competitive ASEAN economic zone, where goods, services, investments, and capital flows could move freely; economic development is uniform, poverty alleviation is enhanced, socio- economic gaps are narrowed. AEC has the mission to create a common market and unified production standards; a competitive, uniformly developing area to integrate into the global economy.

The AEC will bring many benefits to ASEAN businesses in general and Vietnamese enterprises in particular. Image: Vietnam – Singapore industrial park, an effective cooperative project between a major Singaporean corporation and Becamex IDC of Binh Duong

After 47 years of existence and development, through many ups and downs, ASEAN gained many significant achievements, has become a regional cooperation organization in all fields, in which economic sector has been focused and put on top. After its establishment, AEC is a common large-scale market with more than 600 million people and total annual GDP of $2,000 billion through the economic links with unified production standards, like: free trade in investment, capital flows, labor, services...

The foundation of AEC also has another important mission is to leverage the role and the center position of ASEAN in East Asian and even global economic cooperation. Firstly, AEC will accelerate economic growth of the ASEAN countries. Since 2005, economic growth of member countries has been above 5%; trade volume increased from $430 billion in 1993 to $2,500 billion in 2013, and ASEAN bloc’s volume increased from $82 billion to $609 billion (more than 7 times). In addition, from 2000 to 2013, ASEAN countries achieved investment attraction rate of 25%, investments outside the bloc increased 13%. Therefore, the establishment of AEC will accelerate economic development of all countries in the bloc.

With the center role in economic cooperation in the region and the world, AEC will enhance ASEAN's position in regional and global economic cooperation. This is particularly advantageous in the competitive context among major large economies.

With the aim to promote equitable economic development in the region, AEC will create a highly competitive economic region that fully integrates into the global economy. Therefore, members’ benefits from the AEC formation would be rapid economic growth, stronger FDI attraction, better resource allocation, stronger production capacity and competitiveness. In particular, AEC pays attention to narrowing the development gap between countries, which is also concerned by Vietnam.

Paving the way for economic development

Since the financial crisis in 1998, except for economic slump in 2009, the ASEAN countries have achieved stable growth. In 2010, average GDP growth rate of members was 7.8%; in 2011 and 2012 was 4.7% and 5.7%. In 2011, per capita income of ASEAN was $ 5,581, doubling the amount of 2000. In addition, intra- and extra-trade volume increased significantly, investment attraction changed positively.

According to a new study, based on computable general equilibrium (CGE) models, the elimination of tariff and non-tariff barriers, the implementation of trade liberalization will reduce the cost by 5%. In addition, AEC would bring enormous changes to intra- and extra-investment, economic welfare of the region would also increase 5.3% in 2016. The same study showed, with the complete elimination of tariff barriers, the reduction in time and costs for import and export procedures…, AEC would really become a powerful lever for the ASEAN countries to develop strongly together. Meanwhile, the impact of these taxation and tariff exemptions would be very small. Conversely, the services trade liberalization would boost the GDP of Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. The eduction in time and costs for import and export procedures would also significantly increase intra-regional GDP, especially emerging countries such as Laos, Myanmar and Vietnam.

AEC will not only have good influences on members but also be an important chance for ASEAN. AEC will boost GDP growth of members, enhance trades, labor mobility, facilitating a balanced development between countries in the area.

Generally, the AEC would bring many benefits to ASEAN businesses in general and Vietnamese enterprises in particular. This will be a stable, prosperous, highly competitive business environment.

Luong Hoang Thai, Director of Multilateral Trade Policy Department under Ministry of Industry and Trade, Deputy Chief of Vietnamese AEC negotiation’s delegation, said the removal of tariff, non-tariff barriers, favorable business environment would help enterprises to boost exports, cut import duties, and lower product price. In addition, countries will also have the opportunity to reach a broader market with many large partners, such as: China, Japan, Korea, India, Australia, New Zealand, thanks to free trade agreements between ASEAN and major partners as well as efforts to build up Regional Comprehensive Economic Partnership (RCEP).

(To be continued)

Reported by Khanh Vinh – Translated by Ngoc Huynh