The rules of engagement for the Asean economic community

From  a fledgling organization of five member-states in 1967, the Association of Southeast Asian Nations (Asean) has evolved into a dynamic force in the global arena. The Asean “solar system” now has 10 countries revolving around its axis. The analogy is quite apt considering that each of these countries has different stages of growth and their position relative to the Asean integration initiatives is determined by their level of preparedness to engage in the envisioned one economic community.

A regional economic integration is the goal of the Asean Economic Community (AEC). This is expected to be fueled through a single market and production base. However, the gap between the wealthiest and poorest member continues to pose real challenges especially in the areas of standards harmonization, tariff reductions and the implementation of free trade agreements.

The difficulties notwithstanding, Asean continues on its path toward full integration—economic, political-security and socio-cultural—recognizing the value of a strong, united region in achieving stability and prosperity for its member-states.

The effects of the various integration initiatives are already being felt through an increased intra-Asean trade. It is fueling individual country initiatives to boost productivity and competitiveness and strengthening capabilities to take advantage of the expanded market.

In the Philippines, the business community is all too aware that the countdown for the 2015 integration looms large in the horizon. The potential to grow is certainly there but taking advantage of these opportunities requires hard work, preparation and even organizational transformations. With just 21 months left for the projected AEC-integration by December 2015, preparations must now move from information to action.

The AEC will be a game-changer that requires new rules for engagement and the issues that must be addressed:

Know the rules

Asean member-countries have made significant progress in the lowering of intra-regional tariffs through the Common Effective Preferential Tariff (CEPT) Scheme for Asean Free Trade Area (Afta). In the 2013 Joint Meeting in Singapore, key achievements were highlighted, among which were the implementation of the Asean Harmonized Tariff Nomenclature (AHTN) 2012/1 by all 10 Asean member-states, completion of the Asean Single Window Pilot Project Component 2 and the commencement of the Asean Customs Transit System component under the Asean Regional Integration Support by the EU Programme.

With the customs integration and standards harmonization on track, it is expected that the trade barriers (both tariff and non-tariff) will be eased. How will Philippine businesses take advantage of the open region? What are these trade agreements and how will they impact on business decisions to engage in the Asean market? What industries will most likely thrive in these developments… and what happens to the rest?

Know the risks

The Asean Comprehensive Investment Agreement (Acia) is a mechanism that is expected to create a free and open investment regime/environment in the context of an integrated economic community. It is Asean’s response to increase global competition and to enhance the attractiveness of Asean as a single investment destination.

There are never guarantees for engaging in global and regional business initiatives but having a mechanism such as Acia lessens the uncertainties and provides more confidence that when investments are made, there are rules that can both enable and protect the investors and the countries they will put their money into.

What are the provisions of the Acia and how can businesses take advantage of the opportunities? How can the government make the Philippines a sound investment proposition? How can the local businesses expand their market reach through linkages with potential business partners in the region? How will such investments and partnerships be enabled, protected and strengthened?

Know the region

A combined population of approximately 600 million, with an aggregate GDP of at least $2.2 trillion and trading at over $2.4 trillion—this is the combined might of the Asean countries. This is what its trading partners are excited about—and this is the opportunity that businesses can look forward to when they engage in this market. The time to look for prospects is now—2015 is just around the corner and companies need to work double time to be prepared for this new wave.

Where do we start? Which among these Asean member-states provide the most attractive environment for business to develop and thrive? How do companies take advantage of this expanded playing field?

Know the resources

With the Asean integration and the promise of a robust economy in the region, it is expected that retention of skilled human resource will pose a major challenge for the countries. People will go where the compensation is better, where their competencies can be put to good use and where their career growth will be accelerated.

How will the free movement of people in the region impact on productivity and competitiveness of each member-country? Will the more progressive member-state have the distinct advantage of securing their needed human resource and unwittingly creating problems for the less-developed economies? What human resource strategy should be adopted to mitigate the negative effects?

Know the rewards

There are many challenges in the integration but there are also stories of successful voyagers who rode the waves of change and continue to take advantage of the oceans of opportunity. Bigger market, economies of scale, better profits—these are part of the gains that can be achieved in the integration but only if the business ships sail.

Change is coming. Asean integration is happening. There is no turning back and staying put is no longer an option.  We must learn to adapt to the new order, identify opportunities, improve our capacities and capabilities,  reconstruct our competencies and get ready to swim from a small pond to the big ocean. This journey will not be for the faint-hearted so let’s be brave and take intelligent risks.

The Management Association of the Philippines (MAP) is doing its share to promote awareness of the Asean integration and how business can get ready to engage. We invite you to attend MAP’s forum series on the AEC Rules of Engagement to be held on April 29, June 24, Aug. 26 and Oct.  28. Please contact the MAP Secretariat via 751-1149 to 52 or <[email protected]> for more details.

(The author is the Chair of the MAP Asean Integration Committee and the MAP CEO Conference Committee.  She is the President and CEO of Health Solutions Corporation. Feedback at <[email protected]> and <[email protected] >.  For previous articles, please visit <map.org.ph>)