GuruSpeak: Will there be free flow of goods across the AEC in 2015?

This article appeared in the June 29, 2012 issue of the The Nation .

Source: The Nation Website (Eng)

By  Nu To Van


The Asean Economic Community (AEC) is currently a hot topic of seminars and newspaper articles in Thailand. And not without reason. The launch of the AEC in 2015 is only two and a half years away. There are high expectations that the new economic community will have a major impact on companies in Thailand and Asean-wide. One of the AEC's key objectives is to create a single market within Asean and the free flow of goods, services, investments and skilled labour, and freer flow of capital. But will the AEC create the same free flow of goods we see in Europe's economic community, the EU single market?

The AEC blueprint along with the goals, timeline and implementation schedules was outlined in the Asean Concord II, signed in Bali in 2003. At the end of 2011, the Asean Secretariat released figures showing that approximately 67 per cent of its goals under phase 1 and 2 were achieved between 2008 and 2011. However, little detail was published on what the actual achievements were at member state level, other than that in relation to "free flow of goods" objectives, all member states had implemented more than half of the measures targeted.

On the "free flow of goods" objective, one can see that steady progress has been made to reduce or eliminate the tariffs between Asean members under the Asean Trade in Goods Agreement (ATIGA). Tariff rates for most products have been eliminated or substantially reduced to 5 per cent and by 2015 these tariff rates should have disappeared. However, a closer look at the fine print shows that tariff rates could still apply for certain sensitive products such as rice and coffee, and that for the so-called CLMV countries of Cambodia, Laos, Myanmar and Vietnam, different reduction schedules apply up to 2018.

Unfortunately, there's a general misconception that the AEC will be similar to the EU single market model where goods can move freely within Asean without having to clear customs, lodge import declarations or use Certificates of Origin (CO). Under the AEC, this will not be the case. Companies will still need to submit import declarations or a CO to claim the lower duty rates. And we shouldn't forget that certain duties may still apply to goods within Asean even after 2015. So there doesn't seem to be a real free flow of goods in this respect.

According to the AEC blueprint, all non-tariff barriers such as import licences, standards etc, should be gradually eliminated and regional rules and regulations should be implemented by 2015. However, not much progress has been made in this regard and it's difficult to imagine how this can be achieved before 2015. This would require Asean-wide harmonisation of the myriad of country-specific rules and regulations with respect to import/export licences. Moreover, there is no single regulator within Asean and the Asean Secretariat does not have the authority to establish and/or impose such regulations.

Besides all of the above, progress has been made in other areas regarding the free flow of goods. These include the continuous reduction or elimination of tariffs, reform of the "rules of origin" under ATIGA (the rules to determine whether goods qualify as being of Asean origin), the introduction of a self-certification pilot programme to allow exporters to issue declarations of origin rather than have the authorities do it, and the setting up of a National Single Windows system to harmonise customs processes and procedures by most Asean countries. Moreover, there are some promising Asean-wide initiatives to further enhance trade within Asean as well as with other countries in this region such as the consolidation of Asean-wide FTAs with its dialogue partners of China, Japan, South Korea, India, Australia and New Zealand and the possible introduction of an Asean Customs Declaration Document.

There is still a lot of work to be done. The 2015 deadline is very tight for all the goals and objectives of the AEC blueprint to be met. And even though there's not going to be a "big bang" in trade, once implemented the AEC should have a positive effect on the movement of goods within Asean. However, whether this leads to a real free-flow of goods still remains to be seen.

Nu To Van is a senior manager of Worldtrade Management Services at PwC Thailand.