Saturday, January 17, 2015

EIU Survey Says Regulations Most Important Barrier to AEC Integration

This week the Economist Intelligence Unit (EIU) published “Redrawing the ASEAN Map,” a survey of the business environment in ASEAN, sponsored by CIMB Bank and Baker & McKenzie.   The EIU survey focuses on how companies view the ASEAN Economic Community as a market and a production base. 

I recommend the EIU survey as a pretty good overview of corporate opinion of ASEAN, although it is probably a tad optimistic.  This optimism reflects the survey participants, as 85.8% of the participating companies were headquartered outside of ASEAN, and 77.6% had a capitalization of over US$ 1 billion.  Hence the participants were primarily large multinationals with operations in ASEAN, and as I have noted earlier, these business segments are indeed more optimistic about the AEC. The SME sector and the indigenous ASEAN sector were not significant segments of the survey, and they have not been as involved in regional economic integration.

Nevertheless, from the law and policy point of view, the EIU survey does indicate how ASEAN government policies are negatively impacting private sector sentiment towards the AEC.  “Different laws & business regulations” were listed as the most important barrier to to adopting a consistent approach to sales and marketing across different ASEAN countries.  The EIU survey takes this in a positive light, noting as follows:

For the ASEAN organisation this must be encouraging news. The results suggest that the greatest barriers preventing companies from treating ASEAN as a single market are institutional barriers that can be addressed. Language, religion  and culture cannot be changed. But disjointed regulations and unharmonised standards are more easily fixed.

That’s true. Regulatory issues are indeed easier to address than non-regulatory structural impediments.  The more difficult question is how the ASEAN institutions will deal with the regulatory barriers.  The EIU survey does recognize this:

Not that anybody is suggesting the process of integration at this level will be simple. Certainly many companies express concern at the slow pace of change. . . . Nonetheless, as these results show, if governments really want to link ASEAN markets into one, and thereby reap the benefits of creating regional scale, then addressing these institutional barriers will go a long way towards achieving their goal.

There’s the rub. The EIU report was limited to a survey, and so it did not mention how ASEAN should address these regulatory barriers.  However, regular readers of this blog know what I would recommend: strengthening ASEAN by further empowering the ASEAN institutions and/or providing for a robust ASEAN dispute resolution system.  Without some sort of reform of the ASEAN institutions, the institutional barriers will continue hinder the AEC from benefitting all ASEAN citizens.