As the establishment of the Association of South East Asian Nations’ (ASEAN) planned economic community draws closer to its 2015 target, it has all the capabilities of becoming one of the most powerful trading regions in the world.

A ten country-strong regional association, ASEAN has easily become one of the most intensive economies emerging today. The geo-political and economic alliance founded in 1967 now comprises of Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma, Philippines, Singapore, Thailand and Vietnam. These regions combined amass an impressive 3 per cent of the planet’s land area and total 9 per cent of the world’s population, boasting 600 million inhabitants.

30 years into the inter-country partnership, the region’s leaders unveiled ASEAN Vision 2020, their goal of cultivating ASEAN into a “stable, prosperous and highly competitive region with equitable economic development, and reduced poverty and socioeconomic disparities.”

Under the banners of security, socio-cultural and economic integration, the leaders reaffirmed their commitment to this goal during their 2007 summit, with a specific aim to establish the ASEAN Economic Community (AEC) within the next two years.

The driving force behind ASEAN’s ambitious AEC plan are its core targets of a single market and production base, the transformation of the area into a highly competitive economic region with equitable economic development and, of course, to enjoy complete integration into the world economy.

With just two years to go, this unique association looks set to transform into a dynamic community promoting the free flow of goods, services, investment, skilled labour and freer capital between its member nations.

Inter-ASEAN cooperation is most certainly the very crux of reaching this determined deadline. With that in mind, members are collaborating on the crucial development of human resources and capacity, the recognising of professional qualifications, making concerted consultations on macroeconomic and finance policies, developing trade financing measures, improving infrastructure and communications connectivity, developing electronic transactions, integrating region-wide industries in the promotion of regional sourcing, as well as improving private sector involvement for the continued growth of the AEC.

Mixed feelings
Precisely what the creation of the ASEAN means for the people of its member nations and the economies that will interact with it is the abiding question. When combined into one economic unit, ASEAN’s GDP ranks ninth in the world at US$2trillion. Its six strongest members, known as the ASEAN 6 (Singapore, Malaysia, Indonesia, Thailand, Vietnam and the Philippines) had an average GDP growth rate of 4.5 per cent between 1989 and 2009 and are poised to outperform a host of other economies throughout 2013.

Speaking at a 2011 conference, Governor of the Bank of Thailand, Dr. Prasarn Trairatvorakul, conceded that there is a palpable variety of opinion regarding the ASEAN. “If we ask any one of the ASEAN citizens what they think ASEAN will become in 2015, we are likely to get almost 600 million different answers. Some see an ASEAN Economic Community that resembles early versions of the European Economic Community. Others envisage a Euro area in the making. Plenty more view the AEC with cynicism; that life will go on, with few changes to the status quo. These divergent perceptions of what the AEC will bring, and the uncertainty surrounding it, leads to responses ranging from enthusiasm, to indifference, to apprehension.”

Such diversity of feeling regarding the plan is not at all unexpected, but should ASEAN follow their high-octane economic roadmap to the letter, as they stand to emerge as the next economic powerhouse?

The Association intends to maximise its impact by forging connections with prime external trading partners like China, Australia, Japan, India, New Zealand and South Korea via the Regional Comprehensive Economic Partnership (RCEP) – a Free Trade Agreement (FTA) between ASEAN and its FTA partners. This aim, should it be accomplished, would transform the RCEP into a force to be reckoned with. It stands to become an integrated FTA of 16 countries, which combined will contribute a third of the world’s total GDP, represent 47 per cent of the world’s population and 40 per cent of global trade.

The massive acceleration of ASEAN is enabling a wealth of opportunities across an array of industries. Demand for a broader scope of products, consumer and luxury goods, as well as the need for higher levels of services including banking, healthcare and education, are increasing in line with the general rise in ASEAN’s middle class income.

What the region is severely lacking is the physical infrastructure to support the plans. Considerable investment will be needed to better the current road, rail, port, power and water frameworks. According to ASEAN’s Secretary-General, an estimated US$60 billion will be required annually over the next decade to effectively cover these infrastructural necessities, which, in turn, will provide a platter of opportunities for foreign investors to seize.

Learning from the EU
The sheer diversity of ASEAN’s member nations is one of the most glaring challenges the economic community plan faces.

The disparity between them on cultural, political and economic fronts poses real difficulty; the stark difference between Burma and Singapore’s GDP per capita in 2011, $1,325 and $60,000 respectively, being a case in point. While the closing of the development gap is a worthy focus of the AEC, many of the members have reservations about just who will truly benefit. It’s keenly felt that the likes of Singapore, Malaysia and others in the leading bracket of the ASEAN 6, will reap greater rewards compared to that of the developing nations.

One of the key faults of the euro zone was the gaping differences in economic competitiveness among its countries. This discrepancy created a colossal trade imbalance with frontrunners such as Germany having exports that greatly outvalue their imports, while the weaker members like Portugal, Ireland, Italy, Greece and Spain (PIIGS) were in the reverse position. With PIIGS’ exports losing any competitive edge in the global market, it imposed a reliance on borrowing to finance trade deficits. Such perpetual trade imbalances cause weaker nations to accumulate debts to the point where continuing to pay is no longer an option.

As the 2015 target fast approaches, legislative headaches are also in abundance. With the free flow of goods element set to be a perk for the members, new laws surrounding customs rules still need to be introduced, as do laws clarifying VAT between the regions. With no apparent intention to consolidate domestic corporate income tax systems, justified worries regarding double taxation and tax competition are also on the increase.

The majority of ASEAN’s members enforce standard corporate income tax rates that are more or less consistent with the 23 per cent average rate of all Asian countries, according to KPMG. Where laborious problems may lie is with tax rates that deter foreign direct investment – the likes of the Philippines’ 30 per cent compared to Singapore’s far more attractive 17 per cent. A cursory glance at the EU model and initial issues would immeasurably benefit the AEC’s progress. The EU had its share of similar issues regarding domestic and regional interests in its internal market’s development.

At 2011’s ASEAN Economic Community 2015: Opportunities or Threats? Conference, Dr. Prasarn Trairatvorakul noted that “while I reckon that the number of ASEAN skeptics may rise as we approach 2015, this is unlikely to be too much of a concern, given that doubts about the AEC are not about the dangers of integration, but are based upon cynicism that little will change come 2015. But this in itself can lead to a more dangerous threat – that of complacency and the danger that we will wake up and find that we are already too late to catch the rising wave of ASEAN.”

ASEAN stands to avoid these pitfalls and achieve successful integration by examining the EU’s approach to matters like double taxation and tax competition. A reconsideration of domestic taxes and policies is one of the most obvious prerequisites to AEC’s success.

While the EU may not necessarily be the ideal example regarding economic development, it certainly showcases the advantages of economic integration and the substantial value of a common market to ASEAN, which holds the title of the most integrated regional organisation in the developing world.

Identifying opportunities – Thailand
While risks regarding the community are evident, the British approach to the AEC is a lucrative one. The AEC is rife with opportunity for UK businesses across a barrage of underdeveloped sectors.

As ASEAN’s second largest economy, Thailand is providing ample entry points for the British contingent. With huge gaps to be filled in the areas of education, science, technology and infrastructure; the imminent EU-Thailand Free Trade Agreement (FTA) following on from successes with Singapore and South Korea, also presents further potential for Thai markets to open up to UK companies. The FTA should enable more inward investment opportunities along with potential for UK/Thai collaboration in trade with third country markets.

The deficiencies in the Thai education system could provide a considerable boon for the UK. Improvements, with particular attention paid to English language instruction, as well as partnering with more developed nations in the areas of science and engineering, and a concerted enhancement of the country’s connectivity with its fellow ASEAN members, are all in keeping with the AEC 2015 plan.

With English as the agreed business language of the AEC, Thailand’s need to elevate their language skills is paramount to effectively compete with its ASEAN counterparts.

Thailand is only inching ahead of Cambodia, Laos, Burma, and Vietnam in terms of sufficient language skills. As a result, when the AEC comes into effect and the free labour market opens up among the nations, Thai people will be at significant risk of job losses when other ASEAN residents will be free to travel and work across the economic community. In all likelihood, the ASEAN neighbours will easily out-skill the Thai labour force.

With its geographic grounding as ASEAN’s logistics core thanks to land links to Laos, Cambodia, Vietnam, Burma and Malaysia, Thailand is likely to see a rise in interest from international companies looking to utilise its prime location. This, in turn, boosts demand for highly-skilled English language speakers.

However, the potential edge Thailand could hold over ASEAN members with more sophisticated and integrated language skills such as the Philippines, will be lost by the ‘all-in’ nature of the AEC and the country’s current lack of language competency.

The One Tablet per Child initiative was launched last year by the Thai government and saw 900,000 tablets delivered to grade 1 students (6 year olds) across the country. With plans to deliver another 1.6 million tablets in 2013, there are key opportunities for English language content on the technological devices and education in general. Long-established education body the British Council, have already eyed up these opportunities and are hoping to have their language app installed on tablets that have yet to be distributed. Aside from the educational angle, Thailand’s ailing national infrastructure, not least due to a bout of devastating flooding, leaves British firms in peak position to take their pick of projects.

The approximate equivalent of £7bn is set to fund flood and water management works, while 2 trillion Baht has been estimated as the cost for the country’s whole infrastructure development plan. This is a seven year operation consisting of railways, power plants, mass transit systems and new airport terminals.

The infrastructure overhaul is part of the promotion of Thailand’s position as a connectivity core within ASEAN. The more imminent projects to be undertaken and the most notable from a UK perspective, include water and flood prevention, airport and seaport expansion, inter-city motorways, mass transit system expansion, high speed trains and national rail network improvements.

In an effort to see how Thailand’s connectivity with ASEAN might progress, Prime Minister Yingluck Shinawatra trialled Britain’s industrial efficiency in January of this year by visiting the Thames Flood Barrier and taking the High Speed Rail Link from St. Pancras.

With good standing as a leading EU investor in Thailand, the UK had combined investments of approximately £1.5bn at the close of 2010. Investments from dominant UK chains such as Tesco and Boots amount to more than £640m for the ASEAN member.

Knowledge Partnership
Collaborative efforts regarding education are already underway as part of the UK ASEAN Knowledge Partnership. The partnership facilitates a cementing of relations between the countries through an exchange of knowledge in the fields of education, research and development and innovation.

Visits of Thai educators to UK universities have taken place in addition to the British Council’s planned expansion of UK training for Thai Ministry of Education officials and science teachers.

In an effort to identify more science and engineering based opportunities in the country, Thailand has been working with Singapore’s South East Asia Science and Innovation team. A host of high ranking Thai universities have also demonstrated a particular interest in collaborating with their UK peers.

Another member of the strident ASEAN 6 understanding the ongoing educational inconsistencies is Malaysia. In March 2013, senior ASEAN officials and UK educators participated in a joint Prosperity and UKTI Study Tour of the UK transnational education (TNE) in the country.

Second only to Indonesia and Thailand in terms of ASEAN economy size, Malaysia also ranks as the top country worldwide for TNE provision of UK qualifications. With five of the UK’s 25 overseas university campuses already based there, more UK institutions are planning on following suit in establishing a Malaysian base.

The tour sought to demonstrate the advantages of UK TNE and helped foster genuine relations with other ASEAN countries in the hope of encouraging their markets to open to more UK educational hubs and push the market opportunities across Malaysia.

As another beneficiary of the Knowledge Partnership, Vietnam signed a strategic agreement with the UK in 2010 placing education as a major factor in its foundation. At 2012’s Education for Prosperity drive, Foreign Secretary William Hague confirmed some £300,000 of education funding for the ASEAN member in a bid to strengthen its learning and research capacities, in addition to assigning UK academics to ASEAN educational institutions.

British trade relations regarding the prime targets of Indonesia and Singapore have also gained significant momentum following an All-Party Parliamentary Group trade mission to the countries in March.

UK goods/services exports to Singapore amassed over £7bn in 2011, ranking the country as the UK’s largest Southeast Asian trading partner. A wealth of opportunities exist for the UK in Singapore’s AEC improvements in the realms of machinery and transport.

As Indonesia’s 20th largest exporter, the possibilities for British business there lie in power generation equipment, industrial machinery, road vehicles, pulp and waste paper, as well as specialised machinery.

15 British companies encompassing the education and infrastructure sectors have already made the trip to identify opportunities in the fast-growing regions. Meetings were held between figures from the public and private sector education and business fields in Singapore, and potential commercial partners came together in Indonesia. Margot James MP, underlining the visit’s promising outcome, described it as “a fantastic opportunity to give British companies access to the exciting and growing markets of Singapore and Indonesia, which are vital to delivering the UK’s economic growth agenda.”

Realising the goal
The practicality that ASEAN’s leaders have shown in their approach to the complex issue of economic integration has evidently set them in good stead. The more progressive and advanced members have taken on the ‘prosper thy neighbour’ mantle to combat the considerable development voids that exist among the regions – each of which has notably different political and economic systems in addition to varying degrees of actual economic development.

This attitude is clearly proving fruitful with economic growth and industrial development on the up and intra-trade steadily growing at 25 per cent of the Association’s global trade of $2 trillion.

With a collective GDP measuring about the same size as Brazil and a 5 per cent real annual GDP increase over the past decade, ASEAN only falls behind the juggernauts of China and India in terms of robust, burgeoning market growth. What’s more, ASEAN’s economy is forecast to get a boost of an extra $735bn by 2020, gaining the region access to more than just its slice of the multinational pie as it continues to reveal itself as an in-demand destination of business.

The predominantly young and monied demographic of the region could also prove another string to ASEAN’s advantageous bow. With the under-30 age group set to account for half of the population by 2020, the scope of the consumer market ASEAN will offer businesses should be nothing short of sizeable.

Inevitable advances in urbanisation will see ASEAN’s city based population boom to approximately 81 million by the end of this decade and will doubtless pique the interests of a host of multinationals. With increased purchase power, the consumer demand for goods, services, education and communication will rise in a market that already consumes technology and social media with voracity.

Owing to increasing connectivity, particularly in the ASEAN 6’s cities, a tech-savvy population has emerged with high rates of social media adoption. With an online relevance that is in rapid progression, giants Google are to set up a Bangkok base in addition to their recent Singapore office, demonstrating the digital stratosphere ASEAN is positioned to enter.

With a keen eye, ASEAN can cherry pick the EU examples they wish to follow, seize the considerable opportunities that abound, attract lucrative foreign investment and ideally mitigate issues before they occur.

Now in its third stage of a four part implementation plan, what remains to be seen is whether ASEAN can manage it all in the two short years left.

Image: UK Trade & Investment