A building with a wooden frame and ceramic tile roof has defined entry into the Chinese sphere for millennia. When a foreign import such as the Buddhist stupa entered China, it was quickly transformed into a four-sided structure with real or facsimile wooden components and actual or imitation ceramic roof eaves. In China today, a building made of reinforced concrete may be capped by a ceramic tile roof.

If ever there was a challenge to the Chinese building system, it should have occurred during the period of Mongolian rule. A premise of Chinese history is that the Yuan Dynasty is almost the singular time when a civilisation otherwise nearly impenetrable by foreign influences changed due to forces from the outside. Already in the 1250s, a captive from Belgrade named Guillaume Boucher designed a fountain for the flow of airagh in Möngke Khan's hall of audience at the first Mongol capital at Khara Khorum. Still, during Khubilai's reign (r. 1260–94), the halls of the palace city at Daidu were supported by the ubiquitous Chinese timber frame and most of them had ceramic tile roofs, and the Temple to the Northern Peak was built in 1270 according to the highest Chinese building standards in Quyang, Hebei province. Yet just a year later, Khubilai's advisor, a Nepali named Anige (1245–1306), supervised the construction of a White Pagoda in Lamaist style that soared more than 50 meters in Daidu. The brick observation tower, also begun during Khubilai's reign, in Haocheng, Dengfeng county, Henan, in the shadow of the Buddhist central peak, Songshan, has been considered an example of the infiltration of a non-Chinese architectural presence in China during the Yuan Dynasty, as well. Here we investigate the extent to which it involved non-Chinese influence on Chinese architecture.

Much is known about the Yuan observatory. Begun in 1279, its main building, known as Guanxingtai (elevated structure for observing the stars), rises 17 meters in the precinct of about 123 by 92 meters (Fig. 5.1).

I. Introduction

Small and medium enterprises (SMEs) are an important part of ASEAN economic integration. Hence, their development is prioritized in the Pillar 3 “Equitable Economic Integration” of the ASEAN Economic Community (AEC) Blueprint. As ASEAN is committed to accelerate the establishment of the AEC by 2015, the 18th ASEAN Summit, under the chairmanship of Indonesia, has reaffirmed the important role of SME development as a critical element towards narrowing the development gaps amongst and within the ASEAN member states.

SMEs are integral to the economic development and growth of the ASEAN member states, as they largely outnumber large enterprises in both quantity of establishments and share of the labour force that they employ. Within ASEAN, SMEs account for more than 96 per cent of all enterprises and 50 to 85 per cent of domestic employment. The contribution of SMEs to total GDP is between 30 and 53 per cent and the contribution of SMEs to exports is between 19 and 31 per cent. They are important in terms of income and employment generation, gender and youth empowerment through business participation, and their widespread presence in non-urban and poorer domestic regions. SMEs are the backbone of ASEAN and SME development is integral in achieving sustainable economic growth.1

The Strategic Action Plan for ASEAN SME Development 2010–15 envisions that “by 2015, ASEAN SMEs shall be world-class enterprises, capable of integration into the regional and global supply chains, able to take advantage of the benefits of ASEAN economic community building, and operating in a policy environment that is conducive to SME development, exports and innovation”.

Concrete and detailed policy measures, implementation time-frame, and indicative outputs have been identified in ASEAN Policy Blueprint on SMEs Development (APBSD). Even though the APBSD is no longer the working framework for ASEAN, its reference to AEC and the review of its implementation up to 2009 would provide some useful insights and lessons for regional efforts in SME policy development and coordination in ASEAN. The review would not entirely refer to what is in the AEC, since there are only a few priority actions with respect to SME development in the AEC.

Regional economic integration is a complex process. It requires not only the ability to implement initiatives to support the markets, but also a high level of commitment by countries to ensure that policies are supportive of integration. Effective and sustainable regional integration process can only be reached with sufficient levels of participation by relevant stakeholders and systematic monitoring of the various initiatives and measures.

It is within this context that the monitoring of the ASEAN Economic Community (AEC) should be viewed. Ever since ASEAN has envisioned building an integrated region by 2015, efforts have been strengthened to ensure that this objective can be achieved. Obviously, building an economic community is not easy, given the diversity of the region and the challenges facing the countries in the implementation of various measures. Hence, monitoring the progress of AEC implementation is crucial.

I. Monitoring the AEC: Some Fundamentals

One approach towards monitoring ASEAN economic integration is the AEC Scorecard. Developed in 2008 to support the AEC Blueprint, the Scorecard is designed to measure the implementation of the various measures under the AEC Blueprint, as well as to track the extent to which countries comply with their commitments in the Blueprint. It covers the four elements under the AEC Blueprint, namely: a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region fully integrated into the global economy.

The AEC Scorecard at this juncture is only a compliance tool to ensure ASEAN and its member states are on track with the implementation of their commitments. It is not a tool to evaluate the impact of these measures. Nonetheless, the AEC Scorecard should be an evolving document that could be improved or revised and could be used in tandem with other instruments for evaluation purposes.

Both this volume and the workshop that led to it were organized and coordinated by Sanchita Basu Das, lead researcher on economic matters in the ASEAN Studies Centre at the Institute of Southeast Asian Studies. On this account alone, and on others as well, we should all be grateful to Sanchita.

As conceived and carried out, the workshop revolved around the concept of a “scorecard” tracking the progress of ASEAN's march towards the ASEAN (Association of Southeast Asian Nations) Economic Community, which ASEAN has proclaimed itself as intending to achieve by 2015, or three years from the time of the workshop.

I am certainly aware that the ASEAN Secretariat maintains its own scorecard and publishes it as an important portion of its website. However, that scorecard seems to be dominated by things like the number of related ASEAN agreements that member-governments have ratified. Moreover, most of the data are supplied by governments, and what can be published, on the website or otherwise, is determined largely by officials.

Clearly, it is extremely important to know what officials think and what their governments’ policies are. It is even more important to discern ASEAN countries’ aspirations and commitments, which are indicated by the agreements that they conclude, ratify and carry out.

However, building an ASEAN Community, including the ASEAN Economic Community (AEC), involves not just governments and officials but also non-government traders and investors and other people. Furthermore, tracking its progress requires the hard work of sorting out the situation on the ground, of determining how far ASEAN has really gone in accomplishing the many purposes that the drafters of the AEC Blueprint set for the Community.

This is what this volume seeks to do, and we hope succeeds in doing.

I. Introduction

Since the formation of ASEAN Free Trade Area (AFTA) in 1992, ASEAN has made significant strides in transforming the region into an area for free movement of capital, goods, services, and its people. In 2003, ASEAN moved a step closer towards a greater regional integration by adopting the Bali Concord II that comprises three pillars — ASEAN Economic Community (AEC), the ASEAN Political- Security Community (APSC), and the ASEAN Socio-Cultural Community (ASCC). ASEAN leaders later agreed to accelerate the establishment of the AEC from 2020 to 2015, with the belief that integration can close the development gap amongst its member states.

The AEC vision is to ensure that the ASEAN region be a single market and a production hub by 2015. One of the measures for achieving this vision is the level of regional intra-trade. The intra- ASEAN trade is stagnant at around 25 per cent, with trade between Malaysia and Singapore accounting for more than half of the total. Economists believe that to ensure self-reliance, ASEAN has to achieve at least 40 per cent of intra-regional trade. The availability of a good physical infrastructure system that connects ASEAN member states is an important and necessary factor that can increase intra-regional trade and contribute to regional integration.

According to the Asian Development Bank Institute,1 there are four reasons why infrastructure can generate a higher cycle of higher demand, productivity and growth, consistent with ASEAN's long-term development goals. These are:

1. Infrastructure plays a significant role in promoting and sustaining economic growth in the region;

2. Infrastructure development is necessary to accelerate economic integration within the region, particularly in the area of trade and investment;

3. Addressing inequalities in infrastructure development is critical to the wider objective of reducing development gaps among ASEAN countries and income inequality and poverty within each country; and

4. Infrastructure development is necessary to improve resource sharing and efficiency in the region to provide basic needs, such as water and electricity.

Realizing the importance of infrastructure, ASEAN countries initiated cooperation in the areas of transport, ICT and energy facilities even before the AEC.

The Association of Southeast Asian Nations (ASEAN) Vision 2020, adopted in December 1997, envisaged “a stable, prosperous and highly competitive ASEAN economic region in which there is a free flow of goods, services, investment and freer flow of capital, equitable economic development and reduced poverty and socioeconomic disparities” by the year 2020. It took a decade for ASEAN to translate its vision into a blueprint. The ASEAN Leaders signed the Declaration of the ASEAN (Bali) Concord II in October 2003 aiming to form an ASEAN Economic Community (AEC) as an end goal of its economic integration. In January 2007, the ASEAN Leaders agreed to accelerate the establishment of the AEC to 2015. They adopted the AEC Blueprint in November 2007.

The AEC Blueprint is a binding declaration and stipulates that “each ASEAN Member Country shall abide by and implement the AEC by 2015.” It is organized along the lines of the AEC's four primary objectives: (a) a single market and production base; (b) a highly competitive economic region; (c) a region of equitable economic development; and (d) a region fully integrated into the global economy, with 17 “core elements” and 176 “priority actions”, to be undertaken within a Strategic Schedule of four implementation periods (2008–09, 2010–11, 2012–13 and, 2014–15). Ministers concerned from each country and the ASEAN Secretariat were tasked to implement the AEC Blueprint and report regularly on the progress of its implementation to the Council of the AEC.

In the process of its implementation, therefore, ASEAN decided to come up with an AEC scorecard, which is expected to track the implementation of measures and the achievement of milestones committed in the AEC Strategic Schedule. The AEC Scorecard was developed based on similar initiatives such as the EU Internal Market Scorecard.1 It is aimed at identifying specific actions that must be undertaken by ASEAN collectively and its Member States individually to establish AEC by 2015. It should be noted that currently the AEC Scorecard is only a compliance tool and not a mechanism for impact assessment.

Since the Blueprint was adopted, ASEAN Secretariat came out with two official scorecards, one in 2010 and the other in 2012.

This book volume is a result of the ASEAN Roundtable 2012 on “Examining the ASEAN Economic Community (AEC) Scorecard” organized by the ASEAN Studies Centre (ASC) at the Institute of Southeast Asian Studies (ISEAS), along with the Konrad Adenauer Stiftung (KAS) on 25 May 2012 at York Hotel, Singapore. The primary objective of the roundtable was to evaluate the current status of and the progress towards the milestones described in the AEC Blueprint. The policy recommendations necessary to meet the end-goals of AEC was expected to help the policy-makers in the future years.

Before elaborating on the progress of implementing the blueprint, let me first give a brief background on AEC. The ASEAN Leaders signed the Declaration of ASEAN Concord II in October 2003 aiming at AEC as an end goal of its economic integration to be achieved by 2020. The Leaders agreed to accelerate AEC establishment to 2015 during the Summit in January 2007 and adopted the AEC Blueprint in the following Summit in November 2007. The end-goal of the AEC is to create a single market and production base where there is free flow of goods, services, investments, capital and skilled labour.

The AEC Blueprint is the first of its kind for ASEAN. The Blueprint is defined by its four main characteristics, namely a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy. It is further elaborated like a grand plan, consisting of roadmaps to deliver specific outcomes (objectives of the AEC). The Blueprint identified 17 “core elements” to be carried out by 176 “priority actions”, all of which are to be undertaken within a “strategic schedule” of four implementation periods (2008–09, 2010–11, 2012–13; and 2014–15). The 17 core elements are listed in Table 1.

The implementation of the Blueprint, as indicated in the AEC Strategic Schedule, is monitored through the AEC Scorecard. The objective of the Scorecard is to follow specific actions that must be undertaken by ASEAN collectively and by its Member States individually to establish AEC by 2015. Till 2012, the ASEAN Secretariat has issued two AEC scorecards, which stipulates that ASEAN has achieved 68.2 per cent of its targets during 2008–11.

I. Introduction

ASEAN is embarking on an ambitious endeavour to — among other goals — create an ASEAN Economic Community (AEC) by 2015. To achieve this objective ASEAN has adopted the AEC Blueprint, which describes the main features of the AEC and outlines the measures that ASEAN member countries must undertake.

AEC has four pillars, and one of them is to turn ASEAN into a single market and production base. One characteristic of this pillar is free flow of goods within the region. In this context “free flow of goods” implies that “properly defined goods produced in one member country can enter other members’ markets without being subjected to import duties or other non-tariff restrictions”. This requires the ASEAN member countries to remove all tariff and non-tariff barriers.

Note, however, that the removal of all tariff and non-tariff barriers is not an end in itself. There is also a need to expedite the transfer of goods across borders between ASEAN countries. It should be noted that since ASEAN is not a custom union, border inspections remain necessary. There is therefore also a need to minimize the transit costs, i.e., costs resulting from border control/inspection. ASEAN countries have agreed to implement trade facilitation measures that aim at simplifying, harmonizing, and standardizing the trade and customs process, procedures, and related information flows. One of the related activities is to install an ASEAN Single Window (ASW).

The ultimate goal of AEC is to improve the well-being of every ASEAN “citizen”. Again, to appreciate this view, consider the following. In a fully integrated market, the price difference between any two places within ASEAN depends solely on transportation costs and other logistic costs to transfer goods between the two places. Without efficient transportation and logistics services, these costs can be significantly high.

This is, perhaps, one reason why ASEAN members have agreed to include logistics services as a priority sector. This chapter aims to review the AEC Scorecard II report issued by the ASEAN Secretariat in March 2012. It is a report about the implementation of measures listed in the AEC Blueprint for the period 2008–11. That the report needs a review may sound rather odd.

I. Introduction

The AEC provides for market access for ASEAN skilled labour, that is, professionals and skilled manpower. “Free flow of skilled labour” affects the implementation of the ASEAN Framework Agreement on Services (AFAS) through allowing foreign service suppliers, and the ASEAN Comprehensive Investment Agreement (ACIA) through allowing employment of foreign corporate personnel to accompany FDI.

The AEC Blueprint focuses on action to implement Mutual Recognition Arrangements (MRAs) for major professional services which, as discussed in the chapter, is highly inadequate to achieve the AEC objective of “free flow of skilled labour”. The AEC Scorecard Report on skilled labour for the 2008–11 period is extremely brief:

An example of the legal hurdles to implement MRAs is given by Tilleke & Gibbins (1 March 2012) in the case of Thailand. Thailand was the second last member (after Laos) to ratify the ASEAN Framework Agreement on MRA in May 2002, which came into effect in December 2002. But Thailand has yet to ratify any of the seven MRAs signed, and in engineering services, it came short of ratification by merely sending a “notification of participation” to the ASEAN Secretary-General. Thailand has to revamp its two major legal stumbling blocs:

• The Foreign Business Act (FBA) restricts the participation of aliens in certain business activities according to three lists. List 1 principally contains agriculture and land-dealing activities. List 2 includes businesses related to national safety or security or involving art and culture, tradition, folk handicraft, or natural resources and environment. List 3 contains most services, including legal and accounting. Foreigners cannot engage in List 1 activities at all, while the activities under List 2 and List 3 may be pursued if the foreigner obtains an alien business license. Tilleke and Gibbins argue that a major overhaul of the FBA would cause delays in the implementation of Thailand's AEC commitments.

I. Myanmar before the AEC: A Brief Background

Myanmar's admission to the Association of Southeast Asian Nations (ASEAN) in July 1997 was accompanied by the country's blanket accession to the treaties and commitments of ASEAN, including measures to be implemented for participation in the ASEAN Free Trade Area (AFTA) through the Common Effective Preferential Tariff (CEPT) Scheme. Myanmar's status as a member of the World Trade Organization (WTO) had facilitated ASEAN's consideration of Myanmar's ability to meet her obligations for multilateral trade relations with other WTO and ASEAN members.1 In 1997, the other “new” members of ASEAN, i.e. Vietnam (which had joined ASEAN in 1995) and Lao PDR (which was admitted to ASEAN in 1997 together with Myanmar), were not yet WTO members. Myanmar's “potential” to participate in regional economic integration processes was thus seen by the other ASEAN members as the means by which economic development could underpin political change in the country.

However, this potential remained largely unrealized as the military junta in Myanmar hesitated to move forward on its self-styled “roadmap to democracy” and in achieving a functional market economy. ASEAN itself is facing considerable challenges in achieving its goal of regional economic integration. The Asian financial crisis of 1997–98 had set back targets for trade and investment liberalization, and since then ASEAN member states are facing difficulties in gaining the investors’ confidence back into the region. The integration challenges of the four “newer” members of ASEAN — Cambodia, Laos, Myanmar and Vietnam (CLMV) — required ASEAN to devise programmes of partnership to help build capacities in the CLMV countries that would facilitate implementation of regional integration goals. In order to move forward, ASEAN adopted an “ASEAN minus x” formula in 2002 for negotiating liberalization of services. This formula can also seen as broadly applied to the respective schedules for ASEAN member states to achieve their commitments for trade and investment liberalization. The newer members were given more time and extended “deadlines” for tariff reduction and service sector liberalization.

I. Introduction

In December 1997, after years of expansion and cooperation, the ASEAN adopted its Vision 2020, emphasizing the objective of “… transforming ASEAN into a stable, prosperous, and highly competitive region with equitable economic development, and reduced poverty and socio-economic disparities”. In October 2003, the ASEAN member states agreed on the establishment of the ASEAN Community by 2020, with the three pillars of the political-security community, economic community, and socio-cultural community. To accelerate the realization of the Vision, in 2007 the ASEAN leaders expressed their commitment to establish an ASEAN Economic Community (AEC) by 2015 as a single market and production base, and later on signed the AEC Blueprint as an action plan for advancing the AEC. Within such a context, the Initiative for ASEAN Integration (IAI) was launched in 2000, seeking to narrow intra-regional development gap by providing assistance to the CLMV in accelerating their integration and development.

With such a big move, ASEAN member countries certainly have a sizeable workload. There remain challenges and impediments to each country and the region as a whole, the most pressing of which lies in whether the less developed members can catch up with more advanced ones. Yet the progress of ASEAN so far, particularly in amalgamating themselves as a single block in negotiating and implementing free trade agreements (FTAs) with other major trading partners, brought about hopes for in-time realization of the AEC goal.

There are several notes regarding the implementation of IAI. First, the scope of priority areas to be addressed by the IAI has been expanded. In the IAI Work Plan for the first phase (2002–08), priority is given initially to only four areas, namely infrastructure, human resources development, information and communication technology (ICT), and capacity building for regional economic integration. In 2005, this Work Plan was extended to cover seven areas, with the three additional areas being tourism, poverty and quality of life, and general coverage projects. The Work Plan for the second phase (i.e. 2009–15) retains all the seven priority areas. Both phases have emphasized the focus on public sector capacity building. However, the first Work Plan also contributed significantly in the area of ICT, while the second one currently supports projects in infrastructure development, regional economic integration, and tourism.

I. Introduction

ASEAN has made a remarkable achievement in liberalizing trade in goods through the ASEAN Free Trade Agreement (AFTA), where tariffs on virtually all imports have been reduced to zero within ASEAN 6 since 2010, bar a few sensitive items for six original members. The progress made in liberalizing trade in services, however, has not been as impressive. Liberalization efforts in services in the past have been focused on two areas: the promotion of trade services by using the GATS approach of request and offer of liberalization by services sector and the promotion of flows of skilled labour through the establishment of Mutual Recognition Arrangements (MRAs) of professional services. After several rounds of negotiations and eight commitment packages since the ASEAN Framework Agreement on Trade in Services (AFAS) was established in 1995, the region has failed to liberalize services trade between member economies. Commitments made thus far are marginal to those already made in the WTO. As for MRAs, although several have been signed since 2005, their actual impact on promoting greater flows of professional services within the region is at best negligible.

At its 9th Summit in October 2003, ASEAN announced its intention to create an ASEAN Community based upon three pillars: ASEAN Political-Security Community, ASEAN Economic Community, and an ASEAN Socio-Cultural Community. The ASEAN Economic Community (AEC) envisions regional economic integration by 2015. In 2007, at the 13th ASEAN Summit, the ASEAN Economic Community Blueprint (AEC Blueprint), a coherent master plan guiding the establishment of the ASEAN Economic Community 2015, was adopted. The AEC Blueprint will establish ASEAN not only as a single market, but also a single production base which requires free flow factors of production, namely capital and skilled labour.

This chapter seeks to assess the progress ASEAN has made thus far in liberalizing services trade within the region according to the milestones and targets stipulated in the AEC Blueprint. The first section provides an overview of the relative importance of the service sector to ASEAN economies. The second section describes service trade negotiation modality and liberalization commitments made thus far under the AFAS as well as those prescribed in the AEC Blueprint.

I. Introduction

This chapter focuses on the investment dimension of the ASEAN Economic Community (AEC). The first section studies recent patterns and trends in foreign and domestic investment in the region. The key finding is that these trends have been largely disappointing. The second section examines the underlying factors that might explain the disappointing performance. There appears to be a disjuncture between the relatively good fundamentals for investment in the region and the actual outcome, a disjuncture mainly related to country-specific weaknesses in the investment climate. The third section assesses the progress in implementation of the AEC and finds that despite progress, implementation leaves much to be achieved before the 2015 target. The final section presents some recommendations as to what could be done to improve the situation. I believe that a key thrust must be to create economies of scale so as to boost ASEAN's competitiveness in attracting investment relative to the large dynamic economies of China and India.

II. Weakening FDI and Domestic Investment in ASEAN

Attracting foreign investment has been an important component of the growth strategies of most ASEAN countries. In assessing the overall investment climate in ASEAN, we begin with an analysis of FDI trends before studying domestic investment.

ASEAN's Share of FDI Flows has Declined

Despite numerous attempts and initiatives to foster the appropriate investment climate for foreign investors, ASEAN as a whole continues to struggle in raising inward FDI beyond levels achieved prior to the Asian financial crisis of 1997–98. Figure 5.1 shows ASEAN's share of the stock of global FDI over the past three decades; this share rose to a peak of more than 5 per cent just before the financial crisis of 1997, and although it has been rising over the past few years, ASEAN's stock of world FDI has not reached its 1996 level. In terms of the annual flow of FDI, ASEAN's share has ebbed significantly in the 2000s from an average of 8 per cent in the mid-1990s before recovering to about 6 per cent in 2010.

An area of concern is ASEAN's declining proportion of both stock and flow of FDI within developing countries.