Challenges and Opportunities Offered by the 2015 Asean Economic Community

By 2015, ASEAN member countries are supposed to have relatively open movement of goods, services, investment and labour through the ASEAN Economic Community (AEC) agreement. The 10 countries will become more of an economic powerhouse, better able to provide for each country’s demands and create wealth for their citizens.

At least that’s the narrative governments are spreading. But the details are proving to be more complicated, and that’s where people like Andrew Durieux come in, helping Thailand to transition to the terms of this agreement.

Durieux is the managing director of Coverage, which handles software distribution and business continuity planning in the kingdom for disasters, such as the flooding in 2011. He was previously president of the Australian Chamber of Commerce, and is now chairman of the AEC committee of the Joint Foreign Chambers of Commerce that consults with the Thai government about how the country should approach the treaty to best take advantage of it.

A beneficial treaty is one where every side gains, but in order to reach that point, each side also has to give something up. The JFCCT AEC Committee is trying to convince the Thai administration it has much more to gain if it takes some countries off the protected list of the Foreign Business Act and opens them open to competition.

“Many people believe the aim is to have something like the EU,” said Durieux. “You start talking about free movement of individuals. But that is clearly not the intention of this treaty. These countries want movement to be more open, but still controlled.”

The first challenge for Durieux’s committee is just knowing which agencies to consult with. The Department of Trade Negotiations is responsible for making all the changes Thailand needs to comply with its treaty obligations, but various Ministries, such as Commerce, Labour, Immigration, Revenue, Customs and Land control the actual activities the treaty addresses. Durieux’s group just hopes its message filters down.

“A lot of the news stories talk about how Thai companies need to increase their competitiveness or they’re not going to be able to survive once the AEC goes into effect, and it’s certainly true that some companies may face increased competition,” said Durieux. “But what people aren’t mentioning is that a Thai company could go from a market of 60 million to one of 600 million throughout ASEAN, and that increased competition will result in lower prices and better services and quality for the average Thai. That needs to be the focus.”

Citizens of EU countries don’t need a visa or work permit to cross EU borders, but in ASEAN countries ASEAN citizens will most likely still need both documents. But, the AEC agreements show that a company from an ASEAN country may be able town 100% of a company in another ASEAN country, something not possible now in most of the ASEAN countries. For example, a Vietnamese company could become the 100% owner of a Thai company.

Where the issue gets tricky is where there are inconsistencies today. In certain countries, such as Cambodia and Singapore, 100% foreign ownership of some companies is permitted, and this includes non-ASEAN countries such as Norway. Thailand requires 51% Thai ownership of foreign companies in most cases. But by 2015, that Cambodian company that is 100% owned by a Norwegian may be able to come into Thailand and completely own a Thai company, because at least on paper, the company is Cambodian.

This is one area where the JFCCT committee wants Thailand to reconsider its foreign ownership rules, because the country risks losing out if foreign companies decide to set up in Cambodia or Laos just for this benefit, or because of lower wage levels or better tax levels or if the sectors have not been liberalised. The loss of potential foreign direct investment also means the country loses out on opportunities for exports, tech transfer, skills know-how and significant tax revenues. In fact, there are likely to be some significant taxation issues that arise unless some sort of consistency is achieved before 2015.

Much progress has been made on movement of goods, with import and export duties reduced or eliminated in many cases for intra-ASEAN trade. A fast-track customs window is also being pushed by the US government.

The foreign business community feels the government has been lagging on the investment and services front, especially in the banking sector. But the real challenge lies in movement of labour, as some countries already have good systems in place, but all countries want to keep control of labour movement, said Durieux. Singapore, without the water and food infrastructure to support large inflows of people, is rightly concerned if it allows free movement of labour it will be flooded with jobseekers.

Right now any business that wants to set up in multiple ASEAN countries has to fill out licence and registration papers for each country where it wants to operate. A dream of the AEC would be to require a single filing and registration.
There has been no talk so far of an ASEAN-wide tourist visa nor a single currency, as those would require much more discussion before any agreement could be reached.

Durieux points to Banpu, the Thai coal miner, as an example of how Thai firms should strive for competitiveness. Realising there were limited coal reserves in Thailand, it has branched out to Indonesia, Australia and China to become the region’s major player in the sector.

“Many Thai industries are already competitive, but they remain protected under the Foreign Business Act,” said Durieux. “Thai tourism operators are clearly some of the best in the world. Thai hairdressers offer a service at a price no one else can compete with. And Thai advertisers win global awards for their work, yet the Thai government has not opened up these sectors.”

Durieux has some advice for Thais looking to prepare for the AEC. “You need to understand and practice good governance, international standards of accounting and reporting, and acquire good English skills.

“Generally speaking, Thais are not good at these things because of the education system, and the business environment doesn’t encourage it. We are trying to get the government to make changes now, because if we wait until 2015 it will be too late.”

The problem is Thailand still has a protectionist attitude in several sectors, he added. A good example is in telecommunications. Many developed countries are moving to 4G services, and even the top of Mount Everest has 3G service. Most of Thailand is only now moving to 3G, but there are still many questions and challenges about the legalities of this. The average Thai consumer gets a much worse service, and companies need the access to the improved infrastructure to allow them to compete internationally.

“Certain countries are always going to have advantages based on geography and historical expertise. Thailand has always been good at agriculture, and is much improved at manufacturing. There was much apprehension at the beginning of the Thai-Australian free trade agreement, too, as in the beginning the balance of payments tilted in Australia’s favour. But over time, this balance shifted to give Thailand a significant trade advantage.”

As for the AEC, the blueprint calls for certain steps to be taken before 2015 so it is not such a massive change. An ASEAN-owned business is already supposed to be able to have 51% ownership in Thailand and other ASEAN countries of a services company, but this is not the case in Thailand yet. At the end of 2012, this ratio should increase to 70%.

“Various Thai departments need to take the necessary steps to make this happen,” said Durieux. “In the last few months the Department of Trade Negotiations have started to address the changes that need to be made, but movement has been very slow on actual legislation and regulation changes.”