AEC in 2015 ‘highly improbable’–ADB

Business Mirror24 October 2013  Written by Cai U. Ordinario

AT this point, realizing the Asean Economic Community (AEC) in two years is “highly improbable,” according to the latest report of the Asian Development Bank (ADB). 

In the October 2013 Asian Economic Integration Monitor, the Manila-based multilateral development bank said recent economic and financial challenges may further slow efforts of the Association of Southeast Asian Nations (Asean) member-countries to meet their commitments to realize the AEC by December 2015. 

Some of these factors include the US Federal Reserve’s tapering of its quantitative-easing scheme, which could affect the progress made in Asean countries. Indonesia, for one, has already seen a severe depreciation in its currency and decline in stock-market prices. 

The ADB added that other Asean countries have also not been immune to the Fed. Like Indonesia, Thailand and Malaysia have also seen significant declines in their current account surplus.

“The deadline for realizing the AEC is December 2015. Merely two years away—and given all the remaining obstacles and challenges—fully achieving the AEC by the end of 2015 seems highly improbable. On top of this, a new challenge has appeared as a result of recent events,” ADB said. 

“The financial turmoil that affected several Asean countries [and beyond]—following capital outflows in anticipation of the US Federal Reserve’s tapering of quantitative easing—poses a new challenge to meeting the AEC timetable,” it added. 

Further, the ADB said efforts to meet the AEC is uneven and the specific measures needed to be implemented are not efficiently recorded and explained by the Asean scorecard.  

The scorecard is a tool that monitors 13 measures needed in attaining the AEC—free flow of goods, services, investments, capital and skilled labor; priority integration sectors; food, agriculture and forestry; competition policy; consumer protection; intellectual property rights; transport; energy; and minerals.

The ADB said that based on the scorecard, all 10 Asean countries are still struggling to implement all 13 measures identified in the scorecard. Only four of the 13 measures - free flow of capital and skilled labor as well as priority integration sectors and competition policy - have been completed and implemented by all the countries. 

Further, only four countries—the Philippines, Thailand, Singapore and Vietnam—have been able to implement the measures on intellectual property rights. These were also the four countries which have implemented the most measures indicated in the scorecard. 

Other measures in the scorecard, including intellectual property rights that have yet to be fully implemented by all countries, all indicate that only “more than half of measures targeted in this area are implemented.”

However, the ADB warned that while the scorecard was a good indication of where countries are in terms of complying with AEC requirements, the scorecard is a self-assessment tool that can be overestimated by countries.

“Scorecard results, however, need to be taken with a grain of salt for several reasons. First, one must bear in mind that the AEC Scorecard is a compliance tool that relies on self-assessment. While Asean member-states may be willing to give a fair and balanced view of their progress, the need to meet the 2015 deadline could understandably lead countries to overestimate compliance and achievement,” ADB said. 

Further, the ADB said the scorecard glosses over particular challenges that plague individual countries. For one, the ADB said, Asean members agreed to liberalize goods, capital and skilled labor flows according to a member’s readiness. 

This makes efforts to implement all measures flexible and having no sense of urgency in terms of meeting them. Some studies, ADB said, have pointed out that there were many words like “strategic schedule,” “minimal,” “where appropriate and possible,” “establish good practices,” and “possibly” are commonly used in implementing these measures. 

“The Scorecard, however, fails to fully capture these differences. Although Annex 2 of the 2012 AEC Scorecard differentiates implementation of AEC targets by country, the information provided is still too general to give a country-specific picture of where the true bottlenecks lie,” ADB said. 

The ADB also pointed out that the scorecard also fails to explain the level of accomplishment of each country. It said there could also be some double-counting of efforts made to achieve the desired results in the scorecard. 

The Manila-based multilateral development bank explained that this could happen in the case of reforms that are recorded but were implemented even before the AEC proposal was launched or were undertaken under different initiatives.  

“The third and perhaps biggest shortcoming of the AEC Scorecard is that it does not try to analyze or explain the results,” ADB said. “In the case of shortfalls or delays in implementation, the Scorecard falls short of examining the reasons for these delays and suggesting ways to improve implementation.”

To ensure that the timelines and targets of AEC are met, the AEC Blueprint is monitored in four phases: 2008-2009; 2010-11; 2012-13; and 2014-2015. The ADB said around 67.5 percent of AEC blueprint targets were achieved under Phase I and II. 

The Asian Economic Integration Monitor is a semiannual review of Asia’s regional economic cooperation and integration. It covers the 48 regional members of the ADB.   source