Over the past several months, I’ve received many letters from people in industry, government and the academe asking what to expect when the ASEAN Economic Community (AEC) kicks in at midnight of December 31, 2015. Many have expressed concern over government’s level of preparedness. Others are worried about how the AEC will affect local industries. The more optimistic among us wonder what opportunities are in the offing, given this new laissez faire era.
Before I get to the meat of it, let me start by saying that the AEC offers more advantages than disadvantages, and that it is to our best interest that we go down this road.
Pros and cons
The AEC offers tremendous opportunities not only for Filipino conglomerates but also for private professionals, skilled labor, and regular consumers. For service providers and those involved in manufacturing, the AEC offers immediate access to 600 million customers across 10 nations, all of whom are growing in affluence and sophistication. With import duties dropped to zero percent, our products can now compete on the same footing with their local counterparts.
The AEC also allows Filipino companies to own 100 percent equity in manufacturing companies and up to 70 percent in service-based ones across ASEAN. In addition, our companies can now tap the capital markets of fellow ASEAN states, notably the more established bourses of Singapore and Kuala Lumpur. Best of all, profit and dividends derived from the region can now be repatriated to the motherland, no questions asked.
Immigration barriers will be broken down for professionals and skilled labor in this open market paradigm. The days of copious immigration requirements will be a thing of the past—hiring talent will now be blind to race but driven by demand and supply. For Filipino firms, it will be easier to hire specialized talent otherwise unavailable in our shores.
In as far as inter-ASEAN investments are concerned, restrictions will be relaxed allowing the free flow of capital. This will be a boon towards improving the productivity of our manufacturing sector.
The AEC also calls for member states to lower transactional costs—those related to trading across borders, such as logistics and mobility costs, trade facilitation, customs and quarantine costs, etc. So for regular consumers like you and I, this opens the way for more choices of products and services that are cheaper and better.
Of course, what is true for the Philippines will be true for other ASEAN states, too. The advantages I just enumerated will be reciprocal in every sense. So inasmuch as there will be many advantages for us, there will also be collateral damage.
The most major threat is the entry of new competition who may be bigger, more efficient and who possess superior technologies. These new entrants may have had prior experience in overseas expansion and even enjoy the support of their local governments in doing so. In which case, Filipino companies run the risk of being overrun because as we all know, our companies are fairly new in international expansion and don’t receive any subsidies from the national government.
Another sector at threat is our small and medium scale industries. Generally speaking, their lack of experience, capital and technological sophistication puts them at risk of being eased out by foreign competition. Just think of the many local Filipino garment retailers elbowed out by Uniqlo and Forever 21.
And because talent will be allowed to flow freely across the region, we stand the risk of losing our best and brightest to nations that pay more and offer better standards of living. A brain drain is a risk we must face and prepare for.
Andrew is an economist, political analyst and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail andrew_rs6@yahoo.com. More of his business updates are available via his Facebook page (Andrew J. Masigan). Follow Andrew on Twitter @aj_masigan.
Disqus seems to be taking longer than usual. Reload?
Read more at http://www.mb.com.ph/implications-of-the-asean-economic-community-first-of-two-parts/#G7sG1pMITrz3H5Ub.99