Getting real with the ASEAN opportunity

At the mid-point in the year of the ASEAN Economic Community, PublicAffairsAsia takes soundings about the challenges and opportunities the new trade area offers to business and the PA professionals charged with navigating the changes

This is the year the ASEAN Economic Community (AEC) comes into being. Now it is here, it is time to make it work. But the rhetoric, the realities and the expectations still require significant alignment.

At this, the exact mid-point in the much heralded roll-out year, the leading lights in the Asia Pacific public affairs and business community remain generally optimistic that there will be benefits to accrue, but don’t project any seismic shifts of the sort seen when Europe decided to forge a fully blown single market.

Andrew Naylor, Executive Director of Singapore-based consulting firm Cicero, points out that the AEC “will not involve the creation of any new institution or decision making group”. “The group is still very much intergovernmental in nature and corporate affairs practitioners will still have to engage on a country-by-country basis. The AEC itself offers a direction of travel for the region, and engagement should be complementary to the objectives of the AEC, but – as it is currently envisaged – the AEC will not result in a single, harmonised bloc with a single point of contact or single decision making group,” he says.

Steven R Okun, who heads up public affairs in Asia for private equity giant KKR and who has also led APCAC the umbrella organisation representing US chambers of commerce in the region, says the AEC represents an opportunity to add a further dynamic in markets such as environmental-related opportunities, healthcare, manufacturing, education, energy and logistics. But he points out that “deep local experience and knowledge is necessary for each individual market, and that will always remain the case”. “From a public affairs perspective, the AEC will offer businesses one forum to address amongst all markets at once  “at the border, across the border and behind the border” issues, but as each opportunity will be different in any given country, it will not eliminate the need for localised knowledge in each core market,” adds Okun.

Expectation management

Stephen Lock, who leads Edelman’s public affairs practice in ASEAN and who is based in Jakarta, accepts that expectations about what is set to change will have to be managed. “The AEC won’t overnight create a single policy entry point: this isn’t the EU,” he explains. “The realisation of the AEC is more focused on driving regional market integration and streamlining trade regulations and common standards, the ‘official start’ of the AEC at the end of 2015 will therefore not mark a fundamental difference in terms of decision making and public affairs engagement.”

This point is echoed by Steven Liew, formerly head of PA at eBay and now leading APCO Worldwide in South East Asia. “In the immediate and short-term, we will still remain focused on individual member countries and the national decision makers. But, as part of the business community in the AEC, we will definitely be working closely with the regional governments to advance the AEC roadmap towards an integrated economic community,” he notes.

Lock is confident that business will be able to focus in on a series of opportunities. “The removal of many trade barriers, regional market integration and the alignment of many regional standards are making doing business in ASEAN a lot easier and regional business strategies easier to implement,” he says.

From a frontline business perspective, Jeffrey Hardee, Executive Director, Government and Corporate Affairs, Asia Pacific and Singapore Country Manager at Caterpillar, predicts little change in tactics. “It remains to be seen if the AEC results in one true decision making group. For the time being, Caterpillar will continue focusing on individual countries,” he says.

Hardee says the removal of tariffs will encourage cross-border trade, but he predicts that pressure will need to be kept up for the momentum to be maintained. “The AEC is on track to eliminate tariffs on almost all goods by the end of this year. However, the AEC is not fully utilizing its own single market and production base. We can see this from the share of intra-ASEAN trade which has seen a lower rate of increase than for extra-ASEAN trade. More work needs to be done on trade facilitation, customs clearances and removal of non-tariff barriers,” he warns.

Mindset changes required

Liew believes that governments in ASEAN must set about changing their own mindsets before the major benefits can be realised. “The member countries are still more used to thinking of themselves as a standalone economic entity and they are in a zero sum game to grab more of the trade and investments opportunities. But that should not be the case. Member countries must be encouraged and constantly reminded to act in the bigger interests of the entire economic community,” he says.

And this is a role, in part, which falls to the ASEAN Secretariat, a small agency of committed civil servants who have to punch way beyond their collective weight if the AEC is to power ahead. Lock believes industry also has to adopt a change in mindset – otherwise the mechanisms of the fledgling AEC could quickly become log-jammed. Says Lock: “Industry and business can best serve its interests by engaging with ASEAN and supporting the work that it does – be this through supporting ASEAN industry and working groups and getting involved in ASEAN industry and business associations like the ASEAN Business Advisory Council. ASEAN is open and willing work with business to help solve collective challenges, but the approach taken needs to be constructive: don’t come armed with a laundry list of problems, complaints and challenges – engage through the proper channels and offer genuine constrictive recommendations, practical solutions and support.”

Bev Postma, who is Executive Director of the industry group Food Industry Asia (see full interview), says ASEAN already “has a clear hierarchy and structure in place for Public Affairs professionals to target”. These range from working groups to committees and all the way up to ministerial level. “Given the large volume of interactions and the limited capacity of the ASEAN Secretariat, companies have been encouraged to streamline their engagement through one of the many regional industry associations,” she says.

Postma points out that in 2013, Food Industry Asia (FIA) worked with leading industry associations in ASEAN to launch the ASEAN Food & Beverage Alliance (AFBA).  This semi-autonomous body was designed to engage directly with the AEC Committees and to represent the united voices of the food industry in all ten member states. “FIA and AFBA were designed to engage with governments at a regional level in ASEAN but we also work with national governments through strategic partnerships with the national industry associations and chambers of commerce in each of the ASEAN member states” says Postma. “Its membership spans a broad cross-section of businesses in ASEAN, including both large and small enterprises who share a common interest in accelerating the removal of technical barriers to trade.”

Keeping the pressure up

From his Singapore HQ, Jeff Hardee expresses confidence that business can apply the requisite pressure on government to encourage fuller and more free trade. “If the AEC develops to its full potential with barrier free trade and investment in goods and services, we could see a lot of synergies within the region that will stimulate strong economic growth and attract more business to the region,” he says. “The AEC has tremendous potential if it is fully implemented by all member economies. Industry can play an important role in encouraging ASEAN governments individually and collectively to implement AEC, point out deficiencies when necessary, urge refinements as needs change and help to educate the public on the benefits of free trade and investment.”

However few believe that the AEC will meet all its targets before the end of this year. Says Postma: “Much progress has already been made but there is general consensus that the AEC is unlikely to achieve all its goals by December 2015. The agri-food sector has proved particularly problematic, especially in the removal of non-tariff barriers. Harmonisation of standards for the processed-food sector has barely started and will require a significant investment by member states in both capacity building and private-sector engagement to achieve its post-2015 targets.”

This view is supported by Lock who adds: “The start of the AEC at the end of 2015 is not the end but the beginning of a greater focus on regional economic integration and alignment. It is best to think of the start of the AEC as the start of a continued journey and process rather than a set date where everything will change overnight. In fact, a lot of AEC targets have been realised and are already in place, like the removal of the majority of trade tariff barriers for example, but of course there will still be areas where work will need to be done and reforms will be ongoing beyond 2015.”

This point is supported by Cicero’s Naylor, who previously worked in Europe, where the common market took decades to forge. “The AEC has been delayed many times and the December 31st launch will be the start of a much longer process of regional integration. Not much will change with the launch of the AEC – its objectives are vague, there are no supranational enforcement mechanisms, there are in-built flexibilities on much of its provisions, and significant barriers to trade within ASEAN will remain,” he predicts.

APCO’s Liew, however, is upbeat: pointing to ASEAN’s single biggest asset –  it’s people. “The AEC really represents more than just a common market. I think the real potential will be the freer movement of talents and capital across this emerging economic powerhouse. The demographics are really in its favor. We will now have an integrated pool of talent and capital which should flow easily across national borders. This will transform ASEAN as a combination of 10 disparate economies into one single economic community. When companies are looking at ASEAN as a source or target for investment, it will have a scale which can rival China or India.”

The big question now is whether the individual countries of ASEAN can find that single determination to forge the combined effort required to truly rival China or India.