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Obstacles remain to ASEAN trade integration

From left: the ADB's Jayant Menon, the BDO's Nestor Tan and Kirin Holdings' Keisuke Nishimura   © Photo by Keiichiro Asahara

MANILA -- Much work remains to be done by Southeast Asian companies and governments to prepare for the ASEAN Economic Community, set to launch at year-end.

     With 11 months to go, some 80% of the targets spelled out in the bloc's economic blueprint have so far been met, Asian Development Bank lead economist Jayant Menon said at the Nikkei Asian Review Forum in Manila on Jan. 30.

     "We won't meet all our targets by the end of the year; it's just impossible," he said. "[But] we should not be obsessed with the deadline. It should not be an endpoint. It should be a journey toward reform."

Removing the barriers

Much of the remaining work involves nontariff barriers, including labor movement and red tape.

     "There are a lot of [nontariff] measures that are there for good reason," Menon said, noting the challenge in differentiating measures designed to protect domestic companies from those serving a wider public purpose.

     These issues are also a concern of investors who have made large bets on the Association of Southeast Asian Nations.

     Keisuke Nishimura, managing director at Japanese brewer Kirin Holdings, said more reforms are needed to ease business processes in the region.

     "Right now, when we export a product from Vietnam to Indonesia, we need to wait six months for approval from Indonesia," Nishimura said. "We need to pass quality checks and clearances by the Indonesian government. The flow of goods ... is not satisfactory."

     Kirin acquired some 48% of San Miguel Brewery, the Philippines' largest beer maker, in 2009. The Japanese company has used the acquisition to widen its presence in Southeast Asia.

     Philippine Finance Secretary Cesar Purisima, in his keynote speech at the forum, said the Philippine government and others are working to address investors' concerns.

     The Philippines, he said, would implement a "single window" system to simplify and speed up processing of exports and imports by the end of the year.

     Philippine trade has long been dogged by delays and corruption, with a World Bank study finding that the average export shipment took 10 days to clear customs in 2009. By contrast, Customs Commissioner John Sevilla told fellow Asia-Pacific Economic Cooperation group members last month that planned reforms this year would cut clearance times even for imports to an average of four hours.

     Purisima noted that 14 of the 21 APEC members have already implemented a "single window." Under an APEC initiative launched in 2007, all members aim to make it possible for companies to address all of their individual paperwork requirements for each shipment in one filing by 2020.

Building up strength

Nestor Tan, president and CEO of Philippine-based BDO Unibank, said that while the general prospects for ASEAN integration may be rosy, governments need to make sure domestic sectors are ready.

     "In an integrated region, the stronger industries in certain countries tend to win out [and] the weaker industries tend to be marginalized," he pointed out.

     The Philippines last year allowed full foreign ownership of domestic banks. The local players lack the scale seen among many other banks in the region. Though BDO is the largest lender in the Philippines, it is only the 16th largest in ASEAN. Even a combination of the nation's three biggest banks would rank only sixth in the bloc.

     "The only way to make sectors competitive is to have competition, to have access to not only the very best we have locally, but also globally," Purisima said.

     But Tan said private companies should be consulted in crafting policy on liberalization and other matters. "I can only speak personally, [but] I don't think we have had enough consultation, and that is one of the challenges we face," he said.

Alfredo Yao, president of the Philippine Chamber of Commerce and Industry   © Photo by Keiichiro Asahara

     Philippine Chamber of Commerce and Industry President Alfredo Yao told the forum that Southeast Asia is primed for economic expansion.

     "Just as the growth stories in other countries have become less rosy, that of ASEAN seems to be on the rise," said Yao, who controls beverage company Zest-O as well as businesses in banking and other sectors. "Many ASEAN countries are seeing healthy, if not robust, growth rates based on sound fundamentals, and [have] decent midterm prospects."

"Red warnings"

But ASEAN members should not be complacent given the "red warnings" of slowing growth in China, a slumping Russian economy and financial troubles in the eurozone.

     "In this scenario, developing countries face significant policy challenges in an environment of weak global growth and considerable uncertainty," Yao said.

     It is thus important, he said, that developing countries like those in ASEAN rebuild fiscal buffers, that structural reforms continue to be implemented and that central banks balance monetary policy to support growth while stabilizing inflation and their currencies.

     Despite their concerns, all of the speakers were optimistic about Southeast Asia's future as a unified economy.

     "I expect [ASEAN] can build a strong and resilient economic community that can respond to changes in the economic environment," Nishimura said.

     The ADB's Menon was also upbeat, saying, "A lot has been achieved, and the challenge is to keep the momentum going."

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