1. Introduction

Association of Southeast Asian Nations (ASEAN) was established on August 1967 in Bangkok consists of five members: Indonesia, Malaysia, Philippines, Singapore, and Thailand.[1] Located in the Eastern part of Asia with the total population reached over than 560 millions (ASEAN Secretariat 2007), ASEAN has transformed into one of the strategic regional integration in the world, and it is considered as one of the most successful inter-governmental organization in the era of economic development.

Founded by five member countries, ASEAN has declared its aims and purposes such as acceleration of economic growth, promotion of regional peace and stability, collaboration and mutual assistance of common interest, promotion of Southeast Asian studies, and maintain close and beneficial cooperation with the other regional organizations in the world (ASEAN Declaration 1967). These purposes have become a basis among member countries with concerning to the synchronization and creating a synergy that will affect the prosperity within the region. Therefore, in 1976, Indonesia, Malaysia, Philippines, Singapore, and Thailand –as an organization– had also declared the first ASEAN Concord (Bali Concord I 1976) in which the cooperation among the members has established the framework in several areas such as politic, economic, social, cultural and information, security, and the improvement of ASEAN machinery. Its framework has an agenda to create one community integrated in the specific sectors. Added to that, an institutional framework –ASEAN Secretariat– was established in order to strengthening the collaboration between the member countries and to review the progress about the achievement of ASEAN.

ASEAN Declaration II (Bali Concord II 2003) had declared the vision of ASEAN 2020[2] which focused on the three pillars: political and security cooperation, economic cooperation, and socio-cultural cooperation. Those pillars are still concerning about the stability, prosperity, and mutual assistance among member countries in order to create one ASEAN community. Moreover, its declaration established new framework community that has being targeted as the vision declared such as ASEAN Security Community, ASEAN Economic Community, and ASEAN Socio-Cultural Community.

ASEAN Economic Community (AEC) holds the ideas about the economic integration among member countries where all the economic aspect shall be integrated at the end of 2015.  This framework shows the improvement of ASEAN in order to strengthen its economic region and to increase its influence in the world economy. This paper will focus on how the AEC as one of the framework will achieve the target as one economic community in the Southeast Asia with the upcoming challenges, and the possibility of ASEAN to be one single market in the future; it may shift to “Common Market” stage.

The brief history of ASEAN is explained in the first section of this paper. In the second section, it describes some of macroeconomy statistics of ASEAN. The third section gives description of the AEC related to the creation of a single market within the region. Section four discusses the prospects and challenges that might be appeared during the implementation of AEC. Some conclusions are given in section five.

2. ASEAN in Macroeconomy

Although ASEAN might have slow improvement from the first establishment in forty years ago, ASEAN, in the systematic way with certain steps, has become one of the most successful regional integration and created stabilization within the region. ASEAN is concerning about the economic integration and the creation of economic community among member countries. Furthermore, the significance of this integration is the role of economic aspects among members such as trade, investment, and labor force.

2.1 Trade in ASEAN

The benefit of the economic integration can be measured from the statistics of the ASEAN trade, both within the region and outside the region. As can be seen on Table 2.1, the trade volume of ASEAN in 2006 has significant contribution to the members, especially for the countries that joined with ASEAN in the late session such as Lao PDR and Myanmar. Although the trade volume of Extra-ASEAN is still higher than the Intra, but the Intra-ASEAN trade shares up to a quarter of all total trade volume. Added to that, Singapore becomes the member that achieved a large amount of total trade value. Hence, the trade activities among the members may improve in the future as the ASEAN Charter on the AEC to create economic integration within the region has been signed. Trade Intra-ASEAN may have benefit for the member countries such as the low cost of transportation, no tariff barriers, and in the future may develop truly free trade in all sectors.

Table 2.1 Intra and Extra – ASEAN Trade in 2006

Country Total trade
Value Share to country total Value Share to country total
Brunei Darussalam 2,633.2 28.9 6,475.1 71.1
Cambodia 1,226.5 19.1 5,210.9 80.9
Indonesia 37,862.3 23.4 124,001.8 76.6
Lao, PDR 790.5 79.8 199.7 20.2
Malaysia 73,270.2 25.7 212,272.7 74.3
Myanmar 3,324.4 59.0 2,305.9 41.0
The Philippines 18,410.5 18.6 80,773.3 81.4
Singapore 146,102.0 28.6 363,987.9 71.4
Thailand 50,484.0 20.3 198,204.3 79.7
Viet Nam 18,667.7 24.2 58,602.8 75.8
ASEAN 352,771.4 25.1 1,052,034.3 74.9

Note:   Value in US$ million; share in percent;

Major trade partner extra-ASEAN: Japan, USA, EU, China, and Republic of Korea.

Source: ASEAN Secretariat. 2007. ASEAN Statistical Yearbook 2006. Jakarta: ASEAN Secretariat.

2.2 Investment in ASEAN

Until present, the ASEAN economic wheel has relied on the five founder nations (ASEAN-5); however, the role of the other five countries (so called as BCLMV[3]) has never been underestimated. Through the economic framework, the concept of economic integration has been spreaded to other members by using the instrument of investment.

Table 2.2 shows the change of Foreign Direct Investment (FDI) Net Inflow in ASEAN from 2004 to 2006. It reveals that, in current years, FDI Intra-ASEAN shows remarkable growth; it grew for almost double from the previous FDI growth. In addition, FDI has been improved in Thailand where the FDI Net Inflow grew for over than two-hundred percents. It means that the Thailand government has tried to maximize the advantage within the region by opening the investment from the other members. Furthermore, Indonesia, with the biggest population in ASEAN, has also taken a benefit from ASEAN by attracting more investors within ASEAN member countries. Although ASEAN achieved high growth of FDI contribution, but in term of value, it still needs to be improved.

Table 2.2 The Change of Foreign Direct Investment Net Inflow in ASEAN, 2004 – 2006

Country Year-on-year change (2004-2005)* Year-on-year change (2005-2006)*
Intra-ASEAN Extra-ASEAN Total net inflow Intra-ASEAN Extra-ASEAN Total net inflow
Brunei Darussalam (1.2) 39.9 36.1 (50.0) 57.5 50.2
Cambodia 304.8 153.4 190.2 20.4 30.0 26.8
Indonesia 332.5 340.9 340.0 72.6 (45.9) (33.3)
Lao, PDR (13.8) 129.4 63.8 58.0 740.2 575.8
Malaysia (41.6) (6.9) (14.3) (18.3) 64.9 52.8
Myanmar 311.9 (18.3) (6.1) (27.5) (41.7) (39.4)
The Philippines (82.1) 198.6 169.6 (852.7) 32.5 26.5
Singapore 114.5 (28.3) (24.3) (3.2) 65.8 60.3
Thailand 10.7 58.4 52.8 270.2 (3.2) 20.1
Viet Nam (32.2) 35.8 25.5 10.4 17.3 16.8
ASEAN 34.3 15.4 16.9 65.8 23.7 27.5
ASEAN-5 36.7 14.2 15.9 71.9 23.7 28.0
BLCMV 15.0 35.9 33.0 7.6 24.1 22.1

Note:   *) Change in percent;

Major trade partner Extra-ASEAN: Japan, USA, EU, China, and Republic of Korea.

Source: ASEAN Secretariat. 2007. ASEAN Statistical Yearbook 2006. Jakarta: ASEAN Secretariat.

2.3 Labor Force in ASEAN

ASEAN is considered as one of the potential markets of goods or products in the world because of its large population. For instance, population of Indonesia comprises almost half of total population in this region. However, it is not only potential for a market of good or product, but also has significant strength in terms of labor force. According to ASEAN Secretariat (2007) the number of labor force in ASEAN attains over than two-hundred million people. It might be opportunities and also challenges to improve their capacity in order to maximize the economic development within the region through human resource management.

Table 2.3 provides the proportion of the labor force in ASEAN from 2001 to 2005. As can be seen, ASEAN-5 dominantly contributes a significant proportion to the number of labor force in the region. Moreover, Indonesia with the biggest population shares a large potential of human resources. Some of it has become an employee within Intra-ASEAN and Extra-ASEAN from the low-level managerial to high-level managerial in many companies. On the contrary, Singapore with small number of labor force shares small contribution within the region, but most of the labors in Singapore has worked in the middle-level up to high-level managerial within the region. Therefore, ASEAN faces a big challenge related to the competency and capacity of its labor force in order to create ASEAN Economic Community 2015. One of the main reasons is because most of the labor are working in the middle-level and low-level managerial within the region or outside the region such as agricultural, animal husbandry and forestry workers, fishermen and hunters, operators, and laborers (ASEAN Secretariat 2007).

Table 2.3 The Labor Force in ASEAN, 2001-2005

Country Labor Force (000)
2001 2002 2003 2004 2005
Brunei Darussalam 154.2 158.8 158.9 164.4 169.2
Cambodia 5,409.0 7,743.0 8,015.0 8,290.0 8,562.0
Indonesia 98,812.0 100,779.3 102,630.8 103,973.4 105,802.4
Lao, PDR
Malaysia 9,750.0 9,886.0 10,239.8 10,353.5 10,398.3
The Philippines 33,361.0 33,674.0 35,120.0 35,619.0 35,623.4
Singapore 2,330.5 2,320.6 2,312.3 2,341.9 2,367.3
Thailand 34,059.9 34,593.8 35,483.6 36,247.0 36,600.5
Viet Nam 38,600.0 39,500.0 40,600.0 41,600.0

Source: ASEAN Secretariat. 2007. ASEAN Statistical Yearbook 2006. Jakarta: ASEAN Secretariat.

3. AEC: One Economic Community in 2015

According to Bela Balassa (1961), there are five stages of economic integration; there are Free Trade Area, Custom Union, Common Market, Economic Union, and Economic and Political Integration. So far, ASEAN has been on the first stage of economic integration, Free Trade Area with several aspects can be classified as Custom Union since ASEAN has removed some of the Rules of Origin (ROO) of certain goods within the region.

At the end of 2007, ASEAN had officially declared the ASEAN Charter that contains of all further activities in ASEAN that focuses into one direction.[4] Its direction is pointed to be one identity through politic, economic, and socio-cultural as a constitutional framework. Furthermore, this identity has being targeted to be achieved in 2015. Indeed, AEC blueprint and strategy has been signed and agreed at the same time of the declaration of ASEAN Charter.

AEC is a framework in order to create economic integration among the member countries. This improvement has being created in regards to the divergence of ASEAN member countries. This framework will be based on each economic policy among member countries that will be synchronized to create one coherence economic policy for all. Furthermore, it also makes the regional integration may get deepen and widen in 2015. However, since the economy of ASEAN member countries is still need to be developed at the same speed, AEC is hopefully to be a framework that will be able to enhance the speed of economic growth for all member countries, especially for BCLMV through the ASEAN initiatives and other regional initiatives.

According to the ASEAN Secretariat (2008), AEC will emphasis the ASEAN member countries by acting in accordance with the principles of an open, outward-looking, inclusive, and market-driven economy where keep on the progress related to the multilateral economic trend from the rest of the world.

One of the five AEC characteristics of ASEAN Economic Community is related to the creation of single market. This single market for production base consists of free movement of production factors such as goods, services, investments, capitals, and skilled labors. As can be seen, it seems that ASEAN 2015 can be classified as common market integration. However, the implementation of those free movements of production factor needs consistency and coherency from the ASEAN member countries.

3.1 Free Movement of Goods

One of the critical factors that still need to be enhanced is free movement of goods. This free movement is not only by removing the tariff barriers, but also considering the removal of non-tariff barriers among the member countries. Moreover, the synchronization of the regulation among the member countries also has become the key factor of this free movement of goods.

In order to respond the progressive growth of ASEAN, it needs to enhance the Common Effective Preferential Tariffs (CEPTs) for ASEAN Free Trade Area (AFTA) to accelerate the economic integration in 2015. This enhancement also requires member countries to produce policy that can facilitate trade among member countries with promotion of regional goods network, encourage Small and Medium Enterprises (SMEs), and the high flexibility of goods’ movement.

Economic integration through trade requires coherent policy that will accelerate and simplify trade facilitation. Furthermore, trade facilitations that will have impacts on the improvement of integration are customs integration and the implementation of ASEAN Single Window. In order to create ASEAN Single Window within the region in 2015, member countries should implement National Single Window (NSW) in the earlier time, and afterwards its system will be integrated through all members. According to the AEC Blueprint, NSW should be implemented in 2008 (for ASEAN-6), and 2012 (for CLMV). Moreover, with the creation of ASEAN Single Window, it has being expected that all mechanism, including procedures and processes, can be simplified, harmonized, and standardized; moreover, it may reduce the transportation cost, increase the efficiency, and improve the effectiveness. Hence, it will also be integrated based on the Information and Communication Technologies (ICT) with synchronization of submission, data, and information.

3.2 Free Movement of Services

Free movement of services covers the financial and air transport services. With AEC framework, it will also establish the liberalization of services. This free movement will be implemented as progressively, and will be maintained by the member countries continuously.

AEC framework on services also encompasses the other services such as healthcare, tourism, e-ASEAN, and logistic services by removing all the substantial restrictions. In sequence, the progress of implementation of this framework will be scheduled until 2015. Furthermore, the professionalism of the services which provided by the ASEAN member countries should also be required in order to create full integration in services sector. Another important thing is the competency and standard of the services itself which requires the high qualification of human resources, and by strengthening the capacity of the people related to the services sector.

3.3 Free movement of Investment

Foreign Direct Investment (FDI) is an important thing to be developed as well as investment within the member countries. AEC will also cover the free movement of investment in certain sectors such as industrial, manufacture, agriculture, fishery, and so on. The development of ASEAN region needs the contribution of essential investment. Therefore, several regulations and policies have been created within the AEC blueprint such as implementation of framework that implements a good treatment for foreign investor, both from Extra-ASEAN and Intra-ASEAN.

ASEAN Economic Blueprint also states about the enhancement of regional integration by maintaining the competitive area within the region under the framework of ASEAN Investment Area (AIA). Furthermore, under AIA, member countries shall respect the agreement to create the investment facilities, transparent and consistent regulations, harmonization of procedures and policies, and promote ASEAN as a competitive region for investment.

3.4 Free Movement of Capital

AEC Blueprint also mentioned in the area on which the capital movement has to be strengthened. By strengthening capital market development and integration, ASEAN has been predicted to achieve greater harmonization in the capital market. Furthermore, the liberalization of capital movements should be standardized to ensure macroeconomic stability.

Several actions will be taken by ASEAN in order to facilitate the flows of payments and transfers, to support FDI, and promote capital market development. Moreover, those actions will be created in order to allow greater capital mobility.

3.5 Free Movement of Skilled Labor

Free movement of labor has also being the crucial discussion among the member countries because this is related to the free mobility of labors and also related to the classification of the stages of economic integration. For instance, if ASEAN has achieved this free movement, it may be predicted that ASEAN will shift into the “Common Market” stage by allowing the movement of labor. Moreover, this will be related to the freedom of the custom issuance of employment visas that engage across the border of each member countries.

4. AEC: Prospects and Challenges

The implementation of AEC in order to create one ASEAN economic community that integrates economy as one aspect is an improvement example showed by the ASEAN member countries. Obviously, the progress of AEC still basically supported by five countries ASEAN founders. However, the prospect of ASEAN in the future is getting brighter, especially by the creation of AEC concept.

By implementing AEC 2015, consequently, ASEAN will strengthen their economic power. Through the establishment of economic community, it will help ASEAN to increase their economic growth and develop Southeast Asia as a whole. At the end of 2015, if it is succeed, the free movement in all production factors will make ASEAN goes into the “Common Market” stage where there are no barriers among the production factors.

However, the challenges are also standing behind the lines. There are many obstacles that might be faced by ASEAN such as weak economic fundamental, education problem, language barriers, and different scale of development. For example, there are huge differences between the economic development in Singapore and Cambodia, or between Malaysia and Lao PDR; overall, only Singapore that has a strong economic fundamental. Moreover, the challenges also come from the outside region such as uncertain global economic situation, free and market, other strong economic region, and high competition from the outside market.

5. Conclusion

ASEAN was established in forty years ago, and its economic has gone up and down. In the end of 2007, all member countries had agreed to establish a framework that will unite the people within the ASEAN in terms of security, economic, and socio-cultural. Furthermore, ASEAN has agreed to create a framework that will integrate economic in the region with the establishment of ASEAN Economic Community (AEC). AEC roadmap has been prepared in order to boosting the member countries to achieve single economic integration. This roadmap has characteristics that inter-related and mutually reinforcing. Furthermore, one of the important content is the creation of single market for production base. In order to create single market, AEC framework will encompass the free movement of goods, services, investments, capitals and labor force.

Apparently, to create a kind of integration is not an easy matter. It may have many benefits for ASEAN by implementing AEC. One economically integrated could improve the efficiency, enhance the effectiveness, and also may strengthen the economic fundamental within the region. However, it needs an impressive effort from the member countries, especially to integrate in the same speed between those countries that economically not strong enough compare to those who are more developed. Added to that, the government from the member countries should synchronize and implement coherence and commit policies.

[1] Brunei Darussalam was joined on 8 January 1984, Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999 (ASEAN Secretariat).


[2] According to the 12th ASEAN Summit (the Philippines, January 2007) ASEAN has changed the vision into the vision of ASEAN 2015; all frameworks will follow its changes.

[3] BCLMV is recognized as Brunei Darussalam, Cambodia, Lao PDR, Myanmar, and Viet Nam (ASEAN Secretariat).

[4] In the 13th ASEAN Summit (Singapore, November 2007) ASEAN Charter has been signed with the new Vision of ASEAN 2015.