A long process
The negotiation for the formation of AEC is on the way to the destination in late 2015. The process of economic integration has passed a quarter of the century, with the starting point of the CEPT/AFTA signed in 1992. In 2010, CEPT was upgraded to ASEAN Trade in Goods Agreement (ATIGA). This is the first comprehensive agreement by the whole ASEAN which adjusting merchandise intra-regional trade, on the basis of general tariff commitments already agreed in CEPT and other related agreements and protocols.
ATIGA aims to achieve free flow of goods in the region resulting to less trade barriers and deeper economic linkages among Member States, lower business costs, increased trade, and a larger market and economies of scale for businesses. Through ATIGA, ASEAN 6 including Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand have eliminated intra-ASEAN import duties on 99.65 percent of their tariff lines. Cambodia, Lao PDR, Myanmar, and Viet Nam have reduced their import duties to 0-5 percent on 98.86 percent of their tariff lines.
Three agreement on goods, services and investment (ATIGA, AFAS, ACIA) have helped intra- trade to increase from 8% in 1999 to 26% in 2015, contributing to the average economic growth of ASEAN of 5% in the period of 1990-2014, double than the global economic growth (2% per year).
The year of 2015 was an important period for the Association of Southeast Asian Nations (ASEAN) to complete the goal of building the AEC by 2015. ASEAN is facing the prospect of further strengthening its position, becoming a competitive region in the international arena. This is also a good opportunity for Vietnamese enterprises to boost exports and integrate further into the AEC.
… narrowing development gap
In 2000, the ASEAN Heads of State at their Summit launched the Initiative for ASEAN Integration (IAI) with the objectives of Narrowing the Development Gap (NDG) and accelerating economic integration of the newer members of ASEAN. The efforts to narrow the development gap will be driven mainly by the IAI Work Plan (IAI-WP). The six-year IAI-Work Plans have been developed to assist the CLMV countries as well as ASEAN's other sub-regions to ensure that the economic wheels of their economies move at an accelerated pace. The first phase of the Work Plan covered the years 2002 to 2008. The second Work Plan called IAI-WP II (2009-2015) is based on key programme areas in the three Blueprints for the ASEAN Community: ASEAN Political-Security Community Blueprint, ASEAN Economic Community Blueprint and ASEAN Socio-Cultural Community Blueprint, focusing on human and infrastructure development.
Narrowing the Development Gap in ASEAN refers to reducing various forms of disparities among and within Member States where some pockets of underdevelopment persist.
Measures in the ASEAN Political Security, Socio-Cultural and Economic Community Blueprints are targeted at policy reforms for narrowing the development divide to foster regional cooperation, greater social and economic integration, consistent with the objective of building an ASEAN Community in 2015.
Future of Vietnam: factory or market?
In the flow of AEC, what role will Vietnam play?
Up to now, Vietnam is among most active member in the regional integration. ASEAN is the third largest export market and the second largest import market of Vietnam. In recent 5 years, export to ASEAN market has doubled, from USD 10.4 billion to USD 19.04 billion in 2014, with the average growth of 19.6%/year.
The AEC would create a larger market for Vietnamese businesses to take advantage of, as well as presenting a range of other opportunities and challenges.
Local businesses would face fiercer competition from goods, services and investments from other AEC member countries. Export have benefited almost tariff reduction from other members while domestic sector have to suffer more from the open of Vietnam’s market since 2015, with the tariffs reduction to 0-5% of 7% tariff lines by 2018, including automobiles and spare parts, steel, machinery appliances and parts, bicycles and spare parts, alcohol, plastic products, paper.
As higher standards for exports would pose a big challenge for Vietnamese enterprises, particularly in the context of an increase in trade protection measures, local enterprises should raise the competitiveness of their exports through quality improvement, especially following C/O regulations if they want to fully utilize the opportunities the AEC will provide. Vietnamese businesses should set up their development strategies to enlarge the production scale to meet larger orders in the near future.
Once the AEC is formed, the removal of tariffs would act as an immediate stimulus for export, investment and economic growth in the member countries. However, C/O regulations can act as an obstacle for businesses since they must prove the origin of their products to benefit from preferences. This would force enterprises to make suitable changes and adapt to roadmaps accordingly.
In addition, Vietnam has to deal with higher pressure in service and investment sector. From late 2015, the AEC would pave the way for the free flow of skilled labor in eight professions including doctors, dentists, nurses, engineers, architects, accountants, surveyors and the tourism industry. This means that when Thailand and Singapore invest in Vietnam, they could employ higher skilled labor in other countries of ASEAN, creating fierce competition on the market labor of Vietnam.
In conclusion, “living environment” of business in AEC will be larger, but with higher competition pressure. Becoming big factory or accepting to be an importing market of other countries depends on Vietnamese enterprises ‘capacity to adapt with AEC environment.
