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06
DEC
2015

A Clarion Call for ASEAN to Drive AEC forward by Surin Pitsuwan

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ASEAN needs to embrace the rules and norms it set up for market liberalisation via the ASEAN Economic Community (AEC), resisting the urge to retrench to protectionist practices, says secretary-general of ASEAN.

“We have to make sure our efforts don’t just stop at ratification if we want to keep our regional economies moving,” said Dr Surin. “Foreign investment is dependent on the trust that this region will be robust and dynamic in opening up our industries, particularly the services.”

Speaking at the annual symposium of the Department of Trade Negotiations of the Ministry of Commerce, Dr Surin painted a clear picture of what Thais have to look forward to as the AEC comes to pass.

“All of a sudden Asia and especially Southeast Asia has been declared the new global growth engine,” he said. “We started from humble beginnings, mostly small businesses, but ASEAN GDP was US$2 trillion in 2010 and trade among the region accounted for 50% of that in NAFTA and 60% of that in the EU.”

In 2010, $78 billion in foreign direct investment flowed into Asean, with 70% of that in the burgeoning services sector the association is trying to bolster.

“More investment is coming in for telecom and logistics and less for manufacturing, so that is a move in the right direction.

“Take a look at what happened with Korea. The GDP portion contributed from outside the country is increasing. Japan shows the same pattern and it has for a long time.

“This can happen in Thailand too. Thais should not feel restrained to the 65-million Thai market. You can sell almost 10 times that much if you open up to ASEAN.”

But Dr Surin admitted the first few steps could be painful.

“Of course, in the initial phase, multinational corporations will have an advantage because of their readiness and budget,” he said. “The journey to an equitable AEC will not be smooth. Thai workers will need skills to compete. But we don’t want to be trapped in the middle-income bracket forever.”

Mathew Verghis, the World Bank’s lead economist for Thailand, Cambodia, Laos and Myanmar, agreed there was a middle-income trap but wasn’t so sure Thailand could escape it.

“Taiwan and Korea have reached European living standards for GNP, but Thailand and Malaysia need to change their mind-set if they want to make that jump,” he said. “They have reached the limits of what they can achieve with low-wage manufacturing. These countries need to consider new markets and products in a global environment that’s unfavourable and is more environmentally attuned. What is needed is a new development strategy.

“For example, Thailand is the world’s leading hard-disk-drive manufacturer. But it exports many of these to countries who use them to build more complicated, expensive machines. Thailand needs to shift to exporting more finalised and value-added goods.”

The kingdom can accomplish this by following a few steps, said Dr Verghis. First, both Thailand and ASESAN need to increase their skill development, which is a lifelong process, he added.

“Thai basic education testing is quite poor,” he said. “And the gap is not shrinking. But the good news is in Bangkok, the scores are the same as the US, which means it can be done. The gap just needs to be closed out of Bangkok in the provinces.”
Second, Taiwan and Korea have grasped that the service sector is the new engine of growth, but Thailand has recently had that sector make up a falling share of its GDP, partly because manufacturing has been so successful here. ASEAN still has a high level of restrictions on most services, so this needs to be addressed before the AEC, said Dr Verghis.
Finally, the growth has to be sustainable, he said.

“If you can educate the poor, this is the biggest change you can make. Services release less carbon emissions than manufacturing, but its important Thai companies realise they can’t simply move polluting factories to Myanmar because they don’t have stringent environmental laws.”

Dr Surin points to more emphasis on research and development to break out of the middle-income trap. “We are behind where Korea and Japan were at a similar stage of development in terms of investment in R&D. We need to advance from the mind-set of 40 years ago when all of Thailand’s investment, technology and management came from Japan and Taiwan.”
He called on small and medium-sized enterprises to take the plunge and invest across the border in ASEAN, as the Chiang Mai

Initiative provides $120 billion in security that the economy in East Asia will be stable by deterring speculators.
This was a different tone altogether than the mood Kittiratt Na-Ranong, the deputy prime minister and finance minister, struck in his opening remarks. While repeating his plea for Thai companies to accept and adjust to liberalisation, Mr Kittiratt told the crowd at a seminar that would compare Asian countries with one another not to compare Thailand to anyone else. Thailand only needs to compare itself to itself, he said.

But maybe Dr Surin provided the most cogent warning to companies who would prefer to stick their head in the sand than face the onset of globalisation.

“You can’t expect protection forever,” said Dr Surin. “Even if Asean doesn’t open up your industry, the World Trade Organization will. If it doesn’t, globalisation will. Globalisation means commerce flows, you can’t stop it. And if you erect walls against all this pressure from outside, you will be weakened, and when the wall is brought down you are going to be overwhelmed because of lack of preparation.”