1. Realizing the ASEAN Economic
Community in the Asia-Pacific Context
by:
Michael G. Plummer,
Director, SAIS Europe and Eni Professor of Economics
, The Johns Hopkins University
Presentation to:
ASEAN-Norway Business Conference: Introducing the
ASEAN Economic Community, 15 June, 2015, Oslo

2. Overview
• Ambitious ASEAN economic cooperation initiatives are
being implemented in a rapidly-changing regional and
global commercial environment
• The ASEAN Economic Community (AEC) is the most
ambitious scheme in the developing world
• It should yield widespread benefits to ASEAN countries by
removing bottlenecks and enhancing trade
• As ASEAN leaders are vigorously implementing the AEC in
view of the end-of-year deadline, other initiatives in the
Asia-Pacific region are of great relevance to ASEAN and
its member-states
• As internal integration is key to an effective approach to
«ASEAN Centrality,» completing the AEC is of the
essence. Slide 2

3. Toward Deeper ASEAN Integration
• ASEAN was originally created with the goals of establishing
greater diplomatic and political stability during the turbulent
years of the late 1960s and 1970s.
• Economic cooperation was essentially insignificant.
• With the end of the Cold War, ASEAN began to focus more
on economic cooperation (AFTA in 1992).
• It also launched its «constructive engagement» approach to
bring on board transitional economies in SE Asia (CLMV).
• Constructive engagement was controversial at the time, but
seems to have been productive in the medium-term (e.g.,
Myanmar).
• ASEAN then became more ambitious in terms of deepening
economic cooperation, including the AEC (internal) and
ASEAN+ agreements (external).

4. The AEC: What is It?...1
 The AEC was conceived in 2003 and launched in 2007 with the
following objectives and goals:
 Single market and production base: with free flow of goods,
services, investments and skilled labour, freer flow of capital,
priority integration sectors.
 Competitive economic region: with competition policy, consumer
protection, IPR, infrastructure development, taxation, and e-
commerce
 Equitable economic development: with SME development and
Initiative for ASEAN Integration
 Integration into the global economy: with coherent approach
towards external economic relations, and enhanced participation in
global supply networks.

5. The AEC: What is It? …2
 The name ASEAN Economic Community led to a confused
comparison with the European Economic Community as an
integration model.
 The AEC is not a common market. It is not even a customs union
with common commercial policy and external tariffs. It does not
have free flow of factors of production ---- only free flow of skilled
labour (not all labour) and freer (not free) flow of capital. It does
not have macro-economic policy coordination.
 The AEC does not have supra-national institutions like the
European Commission among others. The ASEAN Secretariat is
small in comparison, as Sec Gen Le Luong Minh can attest!
 The AEC does not have EU-like structural and cohesive funds to
narrow the development divide among ASEAN’s diverse
economies and areas.

6. Benefits of the AEC…1
 Benefits from liberalisation of trade in goods and services
 A single market and production base enables economies of scale
and efficiency in production network processes, hence boosting
ASEAN competitiveness.
 Elimination of intra-ASEAN tariffs and NTBs boost intra-
ASEAN trade, contributing to economic growth and employment,
improve productivity performance, encourage inflows of FDI,
lower business costs, lower consumer prices and widen consumer
choice
 Removal of trade barriers and improved trade facilitation and
transport and communications connectivity encourage the growth
of production networks and plug ASEAN countries into global
supply chains
 Liberalisation of services promote their growth and
competitiveness. Efficient service inputs improve competitiveness
of goods production. Services liberalisation also lowers costs and
improves quality of consumer services such as education,
healthcare, public sector services

7. Benefits of the AEC…2
 Behind-the-border competition policy, IPR, infrastructure and
spatial connectivity improve competitiveness and inclusiveness,
reduce business costs and uncertainties
 Benefits from liberalisation of investment and skilled labour flows
 FDI brings benefits of financial resources, technological and
managerial knowhow, participation in regional production
networks and global supply chains, resulting in improved
efficiency in production and marketing
 Skilled labour mobility is essential for effective implementation of
services liberalisation and FDI liberalisation as well as for deeper
economic integration
 Benefits of financial and capital market development
 More efficient markets to finance trade, investment and corporate
development. ASEAN+3 financial initiatives such as CMIM, ABD
and AMRO improves regional financial resilience

8. Welfare Gains of the AEC in 2015
(Plummer and China, 2009)
US$billion (2004
prices)
% of baseline (2004)
GDP
Brunei 0.5 7.0
Indonesia 27.6 6.2
Malaysia 5.7 3.0
Philippines 4.5 3.2
Singapore 15.1 9.7
Thailand 12.2 4.9
Cambodia 0.6 6.3
Laos 0.2 3.6
Myanmar 0.6 4.4
Vietnam 2.4 2.8
ASEAN10 69.4 5.3
Source: Plummer-Chia
2009

9. Progress: AEC Scorecard 2008-2011
2008-2009 2010-2011 2008-2011
Single market and production
base
93.8% 49.1% 65.9%
Competitive economic region 68.7% 67.4% 67.9%
Equitable economic
development
100.0% 55.5% 66.7%
Integration into global
economy
100.0% 77.8% 85.7%
AEC, all 4 pillars 67.5%
Source: ASEAN Secretariat
AEC Scorecard

10. Challenges in Implementing the AEC
 Much has been accomplished but much remains to be done.
 Tariffs on track; NTBs: far to go; ASEAN Single Window
 Difficulties with services liberalisation include carve-outs of
sensitive sectors and limited commitments on Mode 3 (right of
establishment)
 Difficulties with investment liberalisation include large exclusion
lists and caps on foreign ownership
 Difficulties with free flow of skilled labour --- MRAs of
professionals; host countries have constitutional and regulatory
restrictions on inflow of foreign professionals and skilled workers
 Measures listed in the Blueprint cover competition policy,
consumer protection, IPR, infrastructure development, taxation
and e-commerce
 Government procurement and curbing monopolies by state-owned-
enterprises are not included as they are highly sensitive. But some
ASEAN countries have agreed to these measures in bilateral FTAs
and in the TPP negotiations
 Effective implementation of IPR is also an uphill task.
 Infrastructure development is a long-term process; the ASEAN
Infrastructure Fund is in its infancy. AIIB?

11. ASEAN Centrality and the AEC
• The more integrated ASEAN is in terms of economic cooperation,
the easier it is for the region to play a leadership role.
• The AEC is serving a dual role: ensuring the integrity of ASEAN via
«deep» integration and creating the opportunity to launch ASEAN-
centric initiatives.
• ASEAN Centrality is frequently cited as a goal, including in the
ASEAN Blueprint; RCEP is a concrete example
• Nevertheless, the TPP also includes at present four ASEAN
economies and three more (Phil, Thai, Indo) have expressed
interest in the possibility of joining. TPP is key to mega-RTAs.
• Indeed, mega-regionalism is extremely important to ASEAN, given
economic and strategic relationships.
• Peter Petri and I argue in our book on ASEAN Centrality that it
makes sense for member countries to follow a two-track approach:
for the more advanced economies, TPP track; for those that need
more time, RCEP. Eventually: FTAAP.

12. Asian and TPP tracks
Slide 12
India
Cambodia
China
Laos
Myanmar
Australia
Brunei
Japan
Malaysia
New Zealand
Singapore
Vietnam
Canada
Chile
Mexico
Peru
United States
Indonesia
Korea
Philippines
Thailand
TPP 12
TPP 16
FTAAPRCEP Russia
Taiwan

13. Key results of Estimation of the Effects of Mega-
Regionalism
GENERAL:
• TPP and Asian tracks generate large gains
• The deeper the template, the larger the gains
(TPP template nearly doubles FTAAP gains, for example)
• The larger the area, the larger the gains
• Gains are mainly from trade and investment creation
• Country gains depend on size, trade and investment patterns,
prior FTAs, initial barriers
ASEAN:
• Greater gains with TPP 16 than RCEP (almost 3X)
• Greater gains with TPP 16 than even FTAAP Slide 13

14. Income Gains (Petri, Plummer, Zhai, 2014)
GDP 2025
(bill. 2007
dollars)
Percent change from baseline
Economy TPP12 TPP16 RCEP FTAAPX
Americas 24,867 0.41 0.65 0.01 1.66
United States 20,273 0.38 0.53 0.00 1.46
Asia 34,901 0.36 0.86 1.80 4.75
China 17,249 ‐0.20 ‐0.48 1.45 4.06
India 5,233 ‐0.05 ‐0.13 1.74 4.32
Indonesia 1,549 ‐0.14 4.02 1.14 2.67
Japan 5,338 1.96 2.41 1.79 4.27
Korea 2,117 ‐0.13 2.37 3.87 6.23
Malaysia 431 5.61 6.98 3.29 10.09
Philippines 322 ‐0.24 6.88 2.35 5.42
Singapore 415 1.90 2.97 0.58 4.37
Thailand 558 ‐0.44 7.61 2.79 5.38
Vietnam 340 10.52 14.34 5.10 22.15
Other ASEAN 83 ‐0.42 ‐0.58 1.88 4.19
Oceania 1,634 0.65 0.89 1.33 2.23
Others 41,820 ‐0.03 ‐0.06 ‐0.02 0.41
WORLD 103,223 0.22 0.44 0.62 2.21
Memorandum
ASEAN 3,718 1.67 5.86 2.08 6.20

15. Conclusion
• ASEAN economic cooperation has achieved a great deal particularly since
AFTA; it has contributed even more to the ASEAN success story than
generally believed by providing stability and a model for development.
• The AEC is an ambitious effort; it will lead to significant gains, even greater
than those estimated for the EU Single Market.
• It has a long way to go for completion but it should be seen as a PROCESS;
the EU Single Market wasn’t completed on time either, but no matter.
• Completing the AEC is also essential in the context of mega-regionalism, with
different member-economies following different tracks.
• TPP, RCEP and eventually the FTAAP should create significant gains for
member-economies; but ASEAN Centrality is needed to keep the region
together and eventually promoting more effectively regional interests.

16. Additioinal Slide
Slide 16