With 6 months till the end of 2015, this article provides an insight on the progress of the ASEAN Economic Community (AEC). The 10 participating countries in ASEAN are Brunei Darussalam, Cambodia, Indonesia, LAO PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam.
Background: The AEC was adopted during the 13th ASEAN Summit on 20 November 2007 in Singapore. The aim of the AEC is to transform ASEAN into a region with free movement of goods, services investment, skilled labor and freer flow of capital by 2015¹.
AEC Developments Updates
One of the aims towards achieving free flow of goods is the removal of tariffs. To date, import duties for 99.20% and 90.85% of tariff lines have been eliminated by ASEAN-6 and CLMV (Cambodia, LAO PDR, Myanmar and Vietnam) respectively while the ASEAN tariff elimination across all ten ASEAN member states stands at 95.99%².
The adoption of the AEC would possibly see the following changes
- In the areas on rules of origin, there have been discussions to remove the FOB price from Certificate of Origin (CO).
- 2 Self-Certification Pilot Projects have been implemented and are currently on-going. The Self-Certification Pilot Project would allow certified exporters to self-declare goods of ASEAN origin and gain preferential access into ASEAN markets, without the hassle of applying to national Customs authorities for Certificates of Origin (CO) forms². The main differences between the First and Second Pilot Projects are the additional requirements under the Second Pilot Project6, which are:
- The need for circulation of specimen signatures of Certified Exporters (CEs) which are limited to three (3) signatories per CE;
- Only manufacturers are allowed to be appointed as CEs;
- The list of products added by the CEs are to be exchanged among participating member states;
- Back-to-back and third party invoicing are not allowed;
- The HS codes are to be indicated on the Invoice Declaration; and
- The acceptance of commercial invoice only; no other documents are allowed6
- The 1st Self-Certification Pilot Project involves 4 countries (Brunei Darussalam, Malaysia, Thailand and Singapore) and was launched on 1 November 2010. This comes after the signing of the Memorandum of Understanding (MoU) for Self-Certification Scheme on 26 August 2010 between Malaysia, Brunei Darussalam and Singapore at the ASEAN Economic Ministers (AEM) meeting. Thailand subsequently joined the Pilot project on 1 October 20117. The 2nd Self-Certification Pilot Project involving Indonesia, LAO PDR, the Philippines and Vietnam was implemented beginning 1 January 2014. Myanmar is in the final stages of joining the 1st Self-Certification Pilot Project while Cambodia is in the process of joining the 2nd Self-Certification Pilot Project².
- Following the attendance of Thomson Reuters Trade Compliance organization to PwC’s indirect tax conference on 26 May 2015, we came away with the understanding that the 2nd Self-Certification Pilot Project is focusing on manufacturing-only countries. Currently 70% of the business conducted among ASEAN countries are Multi-National Corporations. According to the ASEAN Merchandise Trade Statistics Database, ASEAN firms are more aware of the region’s FTA with China than the AEC8.
The ASEAN Single Window (ASW) Project
The ASEAN Single Window is the result of an agreement by ASEAN Member States to connect the 10 national single windows into a Single Window. Each national window will expedite border clearance of goods by providing traders a single point for submitting clearance documentation and data.9 As part of the United States’ increased engagement and cooperation with ASEAN, the United States has been providing technical assistance on standards and conformance in areas such as electrical and electronic equipment, medical devices and automotive4 for the ASW project through the ASEAN Connectivity through Trade and Investment (ACTI) program10.
Rise of the Mega Free Trade Agreements – RCEP / TPP
The introduction of Mega-FTAs such as the US-led Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) should push ASEAN’s trade to the next level. According to a study by Mitsuyo (2009) on the RCEP, trade liberalization would stimulate growth within the region with a rise in real GDP growth from 0.09% up to 2.11% for the RCEP members on average, depending on the degree of trade liberalization11. Currently there are still many companies which are not taking advantage of the current ASEAN FTAs due to the risks involved. An influential strand of literature argues that Asian FTAs have complicated ROOs (Rules of Origin), sparking concerns about what the attendant rules and administrative procedures that would imply for the cost of doing business (Manchin and Pelkmans-Balaoing 2007, Tumbarello 2007). This phenomenon is also known as the Asian Noodle Bowl12.
Proximity to Goals for AEC
The achievement towards the formal establishment of the AEC by the end of 2015 is well on track according to an article published on 22 May 2015 by the Oxford Business group. Citing comments made by Malaysia’s Minister of International Trade and Industry (MITI), Mr. Mustapa Mohamed stated that 457 out of the 505 measures (90.5%) that needed to be implemented under the requirements for full AEC integration have been enacted ASEAN-wide³.
The minister also stated that the remaining 9.5% which have not been implemented includes the 10th services package15, single self-certification scheme, chapters with Japan16 and the ASEAN single window³. While the ASEAN secretariat is looking at expansion; it is limited by budget to the lowest income member of ASEAN – LAO PDR
Predictions for AEC
The establishment of the AEC would see modest changes at the end of the year. With just half a year more till the deadline, it seems that there is still so much more that needs to be achieved. We need to see more activity for AEC development to meet the deadlines.
While tariff reduction has already happened, other areas such as service liberalization have not really taken off18. It was reported there are only 12 people within the ASEAN Secretariat working on various components such as the ASEAN Single Window, integrating customs procedures, harmonizing standards and conformance procedures to achieve trade facilitation across the ASEAN region. It would appear there is a direct correlation to some of the initiatives lag due to the low staffing level. Ultimately the Single Window is unlikely to happen at the end of the year while progress on non-tariff measures continues to creep slowly.
Opportunities for Thomson Reuters ONESOURCE Global Trade
ONESOURCE Global Trade FTA – With the implementation of the Self-Certification Pilot Project, the exporter would be able to self-assess whether their product meets the requisite Rules of Origin and the self-issuance of the Certificate of Origin (CO) without having the need to go through government approval. These are areas of opportunities in which the FTA module could provide a solution to companies through origin-determination of their products as well as to automate the self-issuance of CO. The FTA module would also enable companies to achieve greater compliance in the event of a post-shipment customs audit.
ONESOURCE Global Trade Classifier – As more ASEAN companies become aware of and participate in the AEC, and together with the introduction of Mega FTAs, the Classifier would see opportunities to assist companies with their product classification as well as HS conversion from one region to another (i.e. US 10 digits HS code to ASEAN 8 digits HS Code). The Classifier tool will additionally provide companies with the import tariff content for their respective countries of operation.
To learn more about FTA, visit our ONESOURCE for FTA page
 The RCEP is a proposed Free Trade Agreement between ASEAN nations and ASEAN’s FTA Partners. The agreement involves 16 countries, which makes up 45% of world population and contributes a third of the world’s GDP in total. The participating countries include the 10 members ASEAN states, Australia, China, India, Japan, Korea and New Zealand. The negotiations for the RCEP are expected to start in 2013 and be concluded by end-2015.5
 The Trans-Pacific Partnership (TPP) is a proposed regional agreement currently negotiated by Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. TPP will bring together 40% of the global economy and one third of world trade6.
15 The ASEAN Framework Agreement on Services (AFAS) was adopted at the ASEAN summit in Bangkok in December 1995. Under the AFAS, ASEAN member states enter into successive rounds of negotiations to liberalize trade in services with the aim of submitting increasingly higher levels of commitment. 13 The 10th (AFAS) package would see 28 sub-sectors being liberalize in the service sector14.
16 The ASEAN-Japan Comprehensive Economic Partnership (AJCEP) have been concluded in April 2008, however, there were several outstanding chapters within the AJCEP that needs to be ratified. While the chapters on Trade in Services and Movement of Natural Persons have been finalized, efforts have been intensified to conclude negotiations for the Chapter on Investment at the earliest opportunity17.
18 AFAS requires Member States to enter into negotiations on measures affecting trade in specific service sectors.20 Due to the broad scope of services, which can range from the impersonal (downloading a report over the internet) to the intimate (getting a haircut), issues regarding service can become very intense19.