globalEDGE Blog: gE Blog Series: ASEAN Economic Community Part 2 - Comparing and Contrasting the AEC and EU

gE Blog Series: ASEAN Economic Community Part 2 - Comparing and Contrasting the AEC and EU

The main focus of the recently launched ASEAN Economic Community (AEC) is to create a single market and production base, support member nations in a world of increasing competitiveness, and to close economic disparities. Overall, the underlying aim is to further integrate Asian economies with the global economy. Germany has expressed interest in the AEC, according to a survey conducted by Germany Invest. The survey found that German firms currently operating within ASEAN are excited by the new opportunities that the AEC might bring for their businesses. In the past, hesitance has prevented German firms from leading against competitors such as Japan, who has successfully been leveraging tariff removals and other benefits found in the region. The AEC will bring exciting new benefits and business opportunities to members in its region. However, despite the AEC appearing to be the next European Union, it has a long way to go in terms of integration.

This is not to say that the AEC and European Union don’t have a great deal in common. Both are heavily focused on building a strong regional organization that is based on cooperation. Although member nations in both regions tend to be geographically smaller, together they have increased ability to withstand threats posed by larger countries. Both the AEC and EU seek a regional space for peace, stability, and security in order to eventually abolish the variety of disparities and inequalities between their member states. The EU is slightly more advanced in this area, as they currently allocate special central funds to be distributed to member countries in need, while ASEAN does not have a large regulatory body established to provide this type of aid. Finally, both regions possess outward looking trade and development policies, which can be seen by the many recently signed free trade agreements. At times, this has even led to cooperation between regional bodies such as the signing of the EU-Vietnam free trade agreement last year.

Despite these many similarities, quite a few more differences exist between the members of the AEC and EU. In regards to regulatory strength, the AEC possesses a much smaller budget than the EU to support its central regulatory institutions. This can be largely attributed to current mandates that require each member state to contribute the same amount to the secretariat budget. Consequently, smaller states such as Singapore are then prevented from taking on a larger spending support burden in order to support collective goals. Some also believe that the AEC and ASEAN were never meant to grant members the “right” to participate in domestic politics of another country, and instead were founded on the basis of a strict no interference charter. The charter makes it more difficult to arrive at harmonized regulatory standards in technical fields, and can also prolong decisive action when disagreements come up between the various governance styles of regional trading blocs. Intraregional trade levels within the AEC and the EU are evidence of the differences between the two, with the EU possessing 64% of intraregional trade and the AEC only 25%.

Despite lower levels of integration within ASEAN Economic Community, it can be increased and achieved without substantial changes to the structure of the body itself. A recent poll found that the lack of involvement in ASEAN is largely to do with the lack of understanding regarding the incentives offered within the region. Hopefully, as regional manufacturers and investors become increasingly aware of the potential benefits offered by the region, trade between ASEAN members will increase, and this will lead to the success of their recently established economic community. ASEAN is still an attractive investment market, especially for those who wish to produce their goods locally. The regional outlook appears to be positive, especially for investors considering long-term opportunities in smaller countries such as Myanmar