What does an ASEAN Economic Community mean for our people?

October 27, 2014

Privilege Speech of Senator Loren Legarda

What does an ASEAN Economic Community mean for our people?

October 27, 2014 – Senate Session Hall


Mr. President,

Distinguished colleagues

Ladies and Gentlemen,


I speak before you today, against the backdrop of an emerging ASEAN Economic Community or AEC by December 2015.


ASEAN is one of the most diverse regions in the world.  It is a region of 32,000 islands spanning over 4 million square kilometers and hosting more than 600 million people who speak more than 900 different languages and dialects.


It is a region that seeks to create a community, anchored on the strength of its diversity.


ASEAN, in pursuit of an ASEAN Economic Community, operates on the assumption that with open borders and free intra-ASEAN trade, more investments will come in and therefore improve the region’s competitiveness.  The AEC, it is believed, will allow the region to gain greater influence in the global economic and political stage.


This optimism is fueled by ASEAN’s resilient economic performance over the past two years.


The AEC, as the experts claim, will set the stage for ASEAN as a single market and production base that would create opportunities for business complementation, thereby transforming ASEAN into a vital segment of the global supply chain.


A look at basic facts would seem to support these assumptions.


ASEAN, as a regional group, has the third largest market in Asia, after China and Japan.  It has a huge and young market, with a rising middle class.


In terms of trade, it is the fourth largest in the world, trailing only the European Union, North America, and China. And if ASEAN were a single entity, it would rank as the eighth largest economy in the world.


ASEAN is rich in natural and human resources.  Its GDP has grown over 170% over the past decade, amounting to USD1.8 trillion by 2011.


As we pursue the pathway that will bring the economies and people of ASEAN under a single economic community, we also have to be mindful of the following glaring facts that hound the people of the region:


§  The agenda of poverty eradication is one of the goals of ASEAN, and yet, nearly 50 years after its creation, almost 13% or 76 million of the region’s people continue to live below the World Bank’s international poverty line ofUS$1.25 a day.

§  About 415 infants die each day in the region.

§  More than one third of the region’s people have no access to improved drinking water sources.

§  Income distribution and equality concerns abound asevidenced by the fact that GDP per capita across ASEAN countries can be as low as 800 US Dollars to a high of 49,000 US Dollars.


The ASEAN region is dominated by Micro, Small and Medium Enterprises (MSMEs), accounting for 98% of all enterprises and about 85% of total employment in the region.  Many of these continue to operate as subsistence-based enterprises, which, if left unprepared or if they remain uncompetitive, will find little benefit from an AEC.


The Department of Foreign Affairs reports that as of 2010, duties have been eliminated on 99.2% of tariff lines for the ASEAN-6 Member States, including Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand.  In the case of Cambodia, Lao PDR, Myanmar and Vietnam, tariff has been reduced to 0 to 5 percent on 97.52%  of  tariff  lines.


This is partly the reason why we see a significant level of goods from other ASEAN countries in our market today.  For the consumers, this can mean wider choices, lower product costs, and exposure to ASEAN brands. For Philippine MSMEs that are not able to bring their production costs down and compete against well-supported MSMEs of other countries, this development can spell the end.


Is it the fault of small businesses that many of them have remained uncompetitive? While this may be so in certain respects, let us not forget that MSMEs do not operate in a vacuum. They operate in an ecosystem, part of which relates to infrastructure support, sustainable and affordable power, government support to innovation efforts, among others.


It is often said by officials from the DFA and the Department of Trade and Industry that December 2015 is not the culmination of the economic integration for ASEAN. They say that “based on the latest scorecard as compiled by the ASEAN Secretariat, the Philippines has a score of 87.2 percent.” The scorecard, they say, is used to facilitate benchmarking in ASEAN and for monitoring progress.


They also say that we should regard December 2015 as a milestone given that integration is an on-going process.  It is an evolution, much like what ASEAN itself has been.  But where, I ask, is this pathway leading to insofar as our MSMEs are concerned?


I have nothing against an ASEAN Economic Community.  In fact, we should collectively strive that it should not fail. Let me explain why.


A survey done by the Asian Development Bank in 2013 suggests that 55% of businesses in ASEAN are not aware of the ASEAN Economic Community. The conclusion suggests that “there is a general lack of awareness of ASEAN Economic Community 2015.” More alarming is the result of a survey done by ASEAN and the Japan-ASEAN Integration Fund which says that 76% of the people in ASEAN Member States lacks a basic understanding about ASEAN.  There is huge familiarity in the ASEAN name but the people’s knowledge of ASEAN stops there.


This brings me to my question, “How is ASEAN integration possible given the reality that its people barely understand what an ASEAN Economic Community is all about?  How can the impacts of AEC redound to the benefits of an uninformed and unengaged ASEAN public?”


MSMEs are the backbone of the ASEAN economies. Their contribution to GDP is about 30% to 50% and they account for 19% to 31% of their economies’ exports.  They also account for the largest source of domestic employment across all economic sectors in both rural and urban areas.


Clearly, the MSMEs are vital in supporting regional integration through the ASEAN Economic Community.  If big businesses, as the survey shows, are not aware of the AEC, how can we expect the MSMEs to be informed of what is in store for them?


MSMEs are clearly susceptible to greater competition given that they have limited access to finance and technologies, as well as markets. They have limited capacities for compliance with standards and certification. Under this scenario, micro, small and medium enterprises are likely to lose out in deeper competition that will be ushered by AEC.


We also have to understand what is happening in the regional market. Asian companies are into mergers and acquisitions. Just to name a few, Thai billionaire Charoen Sirivadhanabhakdi undertook Southeast Asia’s biggest takeover, acquiring Fraser and Neave Limited, the leader of Singapore and Malaysia’s soft drinks market for USD11.2billion. Another Thai firm, Charoen Pokphand Group, an agriculture conglomerate, paid USD9.4 billion for HSBC Holdings PLC’s entire stake in Chinese life insurer Ping An Insurance (Group) Co. of China Ltd. Philippine conglomerate San Miguel Corp. sold a majority stake in Bank of Commerce to CIMB Group Holdings in May 2012 for USD288.3 million.


Given these developments, the Wall Street Journal observed that 2012 was the year when Southeast Asia stole the limelight from China, playing host to some of Asia’s biggest and most contested mergers and acquisitions.


How can MSMEs, which account for 98% of all enterprises in the region, compete with the giants?


It therefore behooves me to ask, “What has been done or is being done to prepare our micro, small and medium enterprises for the 2015 scenario?”


These realities bring to light the question:  “Does free trade, free flow of goods and services, mobility of people across economies in the region, single market and production base, investment liberalization, among other things that an ASEAN Economic Community seeks to realize, matter for the region’s poor?”


On another front, North America and Western Europe are not expected to be the same robust destination markets for manufacturing exports as they were in the past as they seek to recover from the impacts of the financial and economic crisis of 2008. This compels developing economies, including the Philippines, to rely more on south-south regional trade. Productivity needs to be enhanced and diversified into high-end manufacturing and services.


If played out wisely, ASEAN’s bold vision of achieving the free flow of goods, services, investment, and skilled labor in the region may help us achieve higher productivity and economic diversification; but we have to play our cards well.


Clearly, innovation and creativity play a significant role in transforming small businesses into competitive components of the ASEAN value chain.  We need to develop industries that will be innovators, rather than consumers, of technology. Many studies have shown that ASEAN SMEs are users rather than creators of technology.  Research is weak and there is very little collaboration with industries on research projects.  We need to build internal innovation competencies given the nascent stage of research in ASEAN.


Mr. President,


ASEAN is no longer business as usual. We cannot pursue development based on borrowed technologies. Inertia needs to be replaced by the innovation.  All of these start with education.


In 2004, the Bologna Process was launched to create a European Higher Education Area (EHEA) by 2010. The process aims to make degrees comparable across European borders, and includes features such as a common study cycle of Bachelors, Masters and Doctorates, a European wide quality assurance registrar, and a transferrable credits system.  Is there a parallel effort on the part of ASEAN? How is ASEAN addressing this area?


Mr. President,


The words ASEAN Economic Community invite optimism, but they also evoke a sense of uncertainty and even fear for some.


Much work obviously needs to be done in order that this community that we all seek to build will be relevant and will help usher in a higher quality of life for our people.


The attributes of an economic community began to unfold decades ago.  The road for an AEC has been paved.  We just need to make sure that the path we take will indeed bring us to the goal of a better life for all the people in the region.


Thank you, Mr. President.