The launch of the AEC is set to unleash the region’s potential

There was a surprising lack of pomp and ceremony as the ASEAN Economic Community (AEC) was launched on January 1, 2015. But AEC has the potential to unleash its members’ trading and logistics potential if its hugely ambitious aims can be achieved.

The ten ASEAN member states – Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam – are seeking to create Asia’s equivalent of the European Union: a cohesive single market for labour, goods and services. Getting there will be a lengthy and tortuous process and the speed by which member states undertake the necessary reforms is expected to be hugely divergent, reflecting the different economic models and wealth of the ASEAN countries. Yet if South East Asia’s political leaders follow through on their commitments then their countries and global trade have much to gain.

With a combined population of more than 620m, opening borders, aligning customs duties and procedures, and creating a single aviation market (the latter is scheduled for 2016) will draw huge amounts of investment to the ASEAN bloc from manufacturers and their logistics partners.

Numerous intra-ASEAN tariffs have already been reduced or cut and cross-border bottlenecks have been improved. But most of the latter logistics-linked reforms have so far focused on those countries which had already embraced trade facilitation measures – Singapore, Malaysia and Thailand are already highly ranked on global ease of doing business indexes, for example, while Vietnam and the Philippines perform well on ‘trading across borders’ sub-indexes despite their lowly overall rankings. By contrast, after decades all but cut off from world trade, Myanmar, ranked 177th in the World Bank’s ‘Doing Business’ index, is in urgent need of political, legal and economic reform and requires huge investment in infrastructure if it is to reap the full benefits of participation in AEC.

Indonesia, the subject of a major new report by Ti next month (for more information about ‘Indonesia Transport & Logistics 2015 – A New Dawn?’ contact Sophie Brady, Head of Sales, Telephone: +61 (0)2 8003 7208), could have most to gain from a surge in regional trade. With South East Asia’s largest population and economy, it already offers OEMs a growing domestic market, abundant natural resources as well as cheap labour and land. Easier access from Indonesia to the established transport, service and industrial hubs located in neighbouring ASEAN countries – and to their wealthy consumer markets – would be a major pull factor for all sorts of businesses looking to boost output in Asia, as well as a huge driver of logistics demand.

But investing in Indonesia, as Foxconn has found, is often fraught with difficulty. Indonesia also suffers from huge capacity crunches at its ports and airports. Its main trunk roads are often hopelessly overburdened and, except for those privately owned by miners, its railways are hardly used for freight.

Under the new leadership of President Joko ‘Jokowi’ Widodo, Indonesia is determined to tackle its many logistics bottlenecks and turn its back on protectionism in a bid to boost investment and economic growth. If Jokowi proves successful, not only could this unleash Indonesia’s vast economic potential, it would also go a long way to ensuring AEC achieves its hugely ambitious aims.

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