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Economy

Giant market still takes baby steps on freer services, migration

Malaysian Prime Minister Najib Razak, left, shakes hands with ASEAN Secretary-General Le Luong Minh.

KUALA LUMPUR -- Southeast Asia, whose economic community becomes official later next month, already has achieved a high degree of free trade in goods, but liberalization in services and other areas continues to lag.

     The "most important moment" has arrived for the 48-year-old Association of Southeast Asian Nations, Malaysian Prime Minister Najib Razak told leaders here Sunday at the signing ceremony for the ASEAN Economic Community, home to some 600 million people.

     Thailand, Singapore and four other members in the union's vanguard eliminated tariffs on 99% of the goods they trade with each other. The remaining four countries are to catch up by 2018.

     Multinationals have benefited greatly from the freer flow of goods. Should the region continue to industrialize, taking advantage of its members' differing levels of development, it could become the next factory of the world.

     But nontariff barriers persist. The AEC is meant to break these down, yet new ones are being erected, such as an Indonesian anti-dumping levy on steel products.

     A similar gap between ideals and reality exists in the lack of progress on freeing up the movement of people and liberalizing the service sector. Though eight types of skilled workers, including architects and doctors, have been designated for easier migration, no such movements have occurred. As for opening the service sector to outside investment, several members have yet to approve letting foreigners own company stakes of 70% or more.

     Unlike the European Union, the AEC will lack power to force members to implement agreed-on policies. The wide economic disparities within the group -- Singapore's per-capita gross domestic product is over 50 times larger than that of bottom-ranked Cambodia -- also explain the uneven efforts on integration.

     The 1997 Asian financial crisis and the rise of China and India inspired the AEC. ASEAN has touted the project's economies of scale as a single market and production base to attract foreign investment. But because investors have focused on individual members' economic growth, an undercurrent of protectionism within the group has strengthened.

     With more ambitious agreements such as the Trans-Pacific Partnership waiting in the wings, the AEC cannot afford to fall behind.

     "The advance of TPP and other regional free trade initiatives will push the AEC to evolve," predicts Seiya Sukegawa, Southeast Asia projects chief at the Japan External Trade Organization.

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