Political, legal, and organizational difficulties, regulatory burdens, and a lack of standardized trade regulations among ASEAN nations are hindering the progress of the 2007 ASEAN Economic Community (AEC) Blueprint. This plan aims to achieve regional economic integration by 2015, according to EY.

A recent EY report, “Trade Secrets: ASEAN economic community and inward investment,” examines the AEC’s development from a business standpoint, specifically focusing on obstacles to conducting business within ASEAN. The “ASEAN Economic Community Scorecard 2012” reveals that only two-thirds (67.5%) of the targets for an integrated economic region by 2015 have been achieved.

Mildred Tan, EY’s ASEAN Government & Public Sector Leader, notes that this is somewhat expected due to the economic disparities and varying levels of development among member countries. National and local priorities often overshadow regional initiatives, hindering broader objectives. However, while significant challenges remain, there are numerous areas at the micro-level where solutions can be implemented.

The business community has expressed reservations about the AEC’s overall progress for several reasons. Firstly, businesses seek greater clarity on inter-governmental cooperation. Secondly, they prefer direct engagement with each other. Thirdly, there’s a need for governments to prioritize and address issues directly impacting investment and business operations.

Tan emphasizes that businesses can be both beneficiaries and facilitators of the AEC, highlighting the importance of public-private collaboration in maximizing the value of such transformations. By understanding the business community’s perspective on the barriers to doing business in ASEAN, the aim is to propose practical policy and implementation recommendations to governments.

One major challenge for investors establishing businesses in ASEAN is the need for clear and consistent local laws, government policies, and legal frameworks. Examples include last-minute amendments to crucial legislation, inconsistent interpretation of laws or policies, and outdated regulations.

Businesses and investors in ASEAN also face issues such as complicated and time-consuming business registration processes, multiple layers of licensing approvals, document legalization requirements, regulatory burdens, foreign ownership restrictions, political factors, and bilateral relationships.

Sophia Lim, Director of Corporate Secretarial Services – Global Compliance & Reporting at EY, suggests that amending policies to simplify business establishment is the most logical and effective solution. A three-pronged approach involving regional, national, and local governments is crucial, focusing on simplification and clarity. ASEAN countries should consider standardizing regulatory processes and information requirements, implementing a one-stop registry exchange, and creating an ASEAN business portal. Continuous communication between businesses and policymakers, both within and across countries, is also essential.

Two significant obstacles to intra-regional trade within ASEAN are the various entry barriers and the uncertainty surrounding obtaining and retaining preferential tariff concessions under the ASEAN Trade in Goods Agreement (ATIGA).

Tariffs on imported goods generally hinder businesses. Under the ATIGA schedule, six ASEAN member states – Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand – have eliminated tariffs on most goods produced within the region. Newer members like Cambodia, Laos, Myanmar, and Vietnam are committed to doing so by 2015, with some flexibility to extend the deadline to 2018.

However, the free movement of goods within ASEAN remains unrealized due to existing non-tariff barriers to cross-border trade. For instance, despite ASEAN establishing a common eight-digit tariff classification system, importing customs authorities often use different product classifications, denying businesses the benefits of ATIGA preferential duties. Other issues include the time it takes for goods to clear customs, ranging from four to 26 days across ASEAN countries, leading to unnecessary expenses and inefficient, unpredictable supply chains.

Shubhendu Misra, Partner, Indirect Tax – Global Trade at EY in Singapore, emphasizes the importance of uniform and harmonized trading rules, eliminating inconsistent and often obscure administrative practices, and reducing protectionism. These factors, coupled with a lack of trust in the trading community by some customs administrations, are hindering the full potential of free trade.

Misra adds that the recent WTO Agreement on Trade Facilitation offers a valuable model for ASEAN to adopt and implement in preparation for the AEC. Many of the trade facilitation measures within the WTO Agreement address areas where ASEAN currently falls short. Early adoption by ASEAN on a unilateral basis would demonstrate a strong commitment to global trade and openness.