ASEAN Connectivity: Impact on ASEAN Economic Community

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem QGD140006

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD 140006 INTRODUCTION 2015 is not just another year for ASEAN Member States. It’s set to be one of the important years to be written in ASEAN history. In 2003 at the Bali Summit, ASEAN Leaders came together and agreed on ASEAN Economic Community (AEC) to be the embodiment of ASEAN economic integration by 2020. Later on in 2006, the AEC is advanced to 2015 with various considerations (ASEAN Secretariat, 2008). Although there are considerably big parts of the society who are not aware and informed about it, but since then, numerous people and institutions –especially the business sectors- all over ASEAN are particularly excited to enter 2015 to see what the community would offer to improve their economic condition. According to the AEC Blueprint (ASEAN Secretariat, 2008), AEC 2015 is expected to integrate ASEAN into 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. But how does it impact the economy of the region? It’s estimated in 2011 by Lee and Plummer that the welfare gains for the year 2015 can be ranging from 1.1% for Indonesia to 9.4% for Thailand. Uramoto (2014) also explained that ILO in collaboration with ADB finds that AEC could boost ASEAN’s economies by 7.1 per cent by 2025 and create 14 million additional jobs if it’s managed well. ASEAN is a very big region, both in terms of its size and population. In 2011, Lim and Narjoko observed that ASEAN is built by 32,000 islands whose collective size is equivalent to 4 million square kilometers, which serves as a home for around 600 million people. A big area with plenty natural and human resources, ASEAN definitely has the comparative advantage in the eyes of investors, making it easier for ASEAN to achieve the AEC 2015. However, this situation also requires the ASEAN Leaders to think of how to integrate countries and to facilitate movement of goods, people, and information through policy and infrastructure in a way that it accelerates the ASEAN Community and also benefits the country participating in it. This is where ASEAN Connectivity plays an important part. According to Purisima (2014), doing business in ASEAN Countries can be eased by simplifying rules, investing in infrastructure and increasing connectivity. Purisima explained that connectivity in this case is not just about physical connectivity, but also about standards and regulatory environment harmonization.

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

It can be concluded that ASEAN Connectivity intuitively plays a vital part in ASEAN Economic Community. But what are exactly the direct impact of ASEAN Connectivity toward ASEAN Economic Community? This paper is going to discuss the ASEAN Connectivity in detail, its current progress, challenges, and contribution toward the ASEAN Economic Community.

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

ISSUE As an attempt to foster integration, in Thailand, 2009, ASEAN Leaders decided to issue ASEAN Connectivity and create its guideline, which is called Master Plan on ASEAN Connectivity (ASEAN, 2010). ASEAN Connectivity was created based on the belief that a well connected ASEAN, from its transportation networks to its people, will contribute towards a more competitive and resilient ASEAN as it will bring people, goods, services and capital closer together in accordance with the ASEAN Charter (ASEAN, 2010). Pushpanathan (2010) explained that connectivity in ASEAN context basically refers to physical, institutional, and people-to-people linkages that is expected to provide the underpinning and lubricant to achieve the goals and objectives of the economic, politicalsecurity and socio-cultural pillars of the ASEAN Community by 2015. According to Master Plan on ASEAN Connectivity, the physical connectivity includes transport, information communications technology, and energy. Institutional connectivity consists of trade and investment liberalisation and facilitation, investment, mutual recognition arrangements and capacity building programmes. Lastly, people-to-people connectivity covers tourism, education and culture.

1. Physical connectivity As stated in the Master Plan on ASEAN Connectivity (ASEAN, 2010), the physical connectivity of ASEAN encompasses the development of hard infrastructure in transport, ICT, and energy, as well as their regulatory framework. Bhattacharyay (2010) explained that physical connectivity serves as an essential element for smooth and cost-effective flow of goods and services. 1.1 Transport Infrastructure Development Transport infrastructure development can be divided into three sections, which are land, air, and maritime infrastructure development (ASEAN, 2010). 1.1.1 Land Transport Development Pushpanathan (2010) explained that ASEAN cooperation in land transport that covers roads and rail area aims to establish efficient, integrated, safe and environmentally sustainable regional land transport corridors linking all ASEAN member states and countries beyond. It’s stated in the Master Plan on ASEAN Connectivity (2010) that there are three important parts in land transport area to look at which are, which are the 3

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

road infrastructure through ASEAN Highway Network (AHN), rail infrastructure through Singapore Kunming Rail Link (SKRL), and inland waterways infrastructure. The ASEAN Highway Network (AHN) is the expansion of Trans-Asian Highway in ASEAN which will connect all the 10 Member States and consist of 23 routes covering 38,400 kilometers (ASEAN, 2010), as shown in figure 1. However the building of AHN is not totally free from challenge. The first challenge, mentioned by Pushpanathan (2010), is the missing link and road quality. He explained that AHN has achieved its 97.4% progress in 2008 but about half of its length is still in the lowest standard (Class-III and below) and the entire 14% of the AHN itself is in the Class-III and below. This means that it’s not the quantity that the AHN project still struggles at, but the quality of the current product of AHN that really needs to be addressed. Although it’s still important to address, the progress of AHN as per now is still within the AHN work timeframe set by ASEAN, because the goal to improve all the roads to the Class I standard is to be fulfilled by 2020. The second challenge for AHN is the different law and standard each Member State impose in regards to land transport (Dao, 1999). The different law and standard is very important to be addressed, because even if the countries are already connected physically, without standardized law, the free movement between countries can’t be fully realized. The situation is getting more complicated when Natahadibrata (2014) reported that funding becomes the next major challenge for AHN. Some Member States, she explained, are in the difficult situation to further the regional connectivity cooperation because with the limited cash in hand, they also need to be concerned about their domestic connectivity which also consumes big portion of their state budget. It was reported that there is a fear that countries may lose out the regional competition if the ASEAN Connectivity outspaces the domestic connectivity after the establishment of AEC. Even Indonesia, one of the founding members of ASEAN, is reportedly having problem with funding of infrastructure, because the estimated total cost of infrastructure is US$550 billion while the state budget can only covers US$99.7 billion (Natahadibrata, 2014).

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

Figure 1 ASEAN Highway Network (AHN) Map Source: ERIA Study Team. (2010). ‘Current Status of ASEAN Transport Sector’ in ASEAN Strategic Transport Plan 2011-2015, Jakarta: ASEAN Secretariat and ERIA, pp.3-1—3-95.

The Singapore Kunming Rail Link (SKRL) is the flagship project for rail infrastructure that will connect Singapore-Malaysia-Thailand-Cambodia5

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

Vietnam-China (Kunming) and spur lines in Thailand-Myanmar and Thailand-Lao PDR (ASEAN, 2010). SKRL project is built upon the existing national rail network among seven ASEAN Member States and it targets the building of missing link between them that exist between ThailandCambodia, Thailand-Myamar, and Cambodia-Vietnam (Pushpanathan, 2010). The SKRL Route Network can be seen in Figure 2.

Figure 2 Singapore Kunming Rail Link (SKRL) Route Network Source: ERIA Study Team. (2010). ‘Current Status of ASEAN Transport Sector’ in ASEAN Strategic Transport Plan 2011-2015, Jakarta: ASEAN Secretariat and ERIA, pp.3-1—3-95.

Inland Waterways Transport Infrastructure issue revolves around its utilisation, while in fact ASEAN region is enriched with 51,000 kilometres of 6

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

navigable inland waterways which have large potential in the reducement of freight transport cost (ASEAN, 2010). ERIA Study Team (2010) explained that aside from mobilization of goods, inland waterways in the region also has a significant role in improving the welfare and economic development of the remote rural areas around the inland waterland part, such as Mekong Basin. The economic development and welfare improvement are allowed to happen, firstly because when inland waterways are utilized to transfer goods, the society living in that area are able to buy the goods in cheaper price as a result of the physical proximity unlike previously where the people don’t have the accessibility to the goods and thus need to buy goods in higher price than the regular price in more urban areas. Second reason is because the society can open small business as there will be growing demand for certain logistic services such as food and motel by the people who transfer goods using the inland waterways, which at the end allows the society living there to be more economically independent. The Master Plan on ASEAN Connectivity (2010) addresses the reasons for low utilization which are the underdevelopment of waterways network, poor river ports and facilities, and poor intermodal connectivity. It’s important to address because the inland waterways are mostly found in the less developed Member States of ASEAN, which in this case are Cambodia, Laos, Vietnam, and Myanmar. With the more effective utilization of inland waterways, the less developed members can advance themselves in domestic connectivity which will help them later on in the regional connectivity.

1.1.2 Maritime Transport Development Maritime transport is the most important transportation mode in international trade as measured by traffic volume (ASEAN, 2010). The reason behind this is because maritime transport is the most efficient way to mobilize goods in terms of fuel usage; it can carry more goods with less fuel to compare with land and air transport. Maritime transport is also specifically vital in the context of ASEAN intra-trade as ASEAN consists of many archipelagic islands. Maritime transport connectivity improvement is important in order to prepare for the increase of trade volume in ASEAN due to the establishmentof ASEAN Economic Community. The development of maritime transport in the context of ASEAN Connectivity revolves around maximizing the efficiency of shipping network (ASEAN, 2010). In regards to this issue, ASEAN has designated 47 ports as the 7

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

main ports in trans-ASEAN transport network (ASEAN, 2010). The number of ports have been increased from only 33 (Eria Study Team, 2010) in the past 25 years, as the other ports start to have an emerging role in the region’s maritime. Proposed by President Arroyo in 2009 from The Philippines and supported by the next (and current) President Benigno Aquino in 2010, ASEAN has incorporated the Roll-on Roll-off (RO-RO) System in the Master Plan on ASEAN Connectivity (The Asia Foundation, 2010). According to The Asia Foundation (2010), the RO-RO System was originally only implemented by The Philippines and the result shows that the system has cut off significant shipping cost in the nation by 30 to 40 percent thus encourage shipping to the smaller markets. The concept is simple, explained by The Asia Foundation. It explained that the conventional containerized “load-on load off” shipping requires goods to be delivered to the port by truck, unloaded, and loaded to the ship, carried to the next port, unloaded again, and loaded to the other truck and carried to the next part of journey. This conventional system is not efficient as in each repeated step shipping will be imposed another layer of bureaurcracy and cost which discourages the shipping to rural remote areas, the paper argued. It explained that RO-RO System is more efficient as it allows cars, trucks, and buses to roll on and roll off the ship without unloading which maximizes time and cost and also minimizes the regulatory procedure. The comparison between conventional method and RO-RO system can be seen in the next figure.

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

Figure 3 Containerized and RO-RO System Comparison Source: The Asia Foundation. (2010). Roll-on Roll-off Transport: Connecting Maritime Southeast Asia. California: Author.

But the challenges remain exist. There are three key challenges as explained in the Master Plan on ASEAN Connectivity (2010), which are the issues of port infrastructure, maritimeservices, and port performance. While the overall improvement of the former areas has to be taken care of, ASEAN also has to work on its internal infrastructure gap between Member States. It’s recorded in Master Plan on ASEAN Connectivity that aside from Singapore and Malaysia, other ASEAN Member States ranked poorly in the UNCTAD Liner Shipping Connectivity Index. There are also other issues pertaining to Maritime Transport, which are safety and security. It’s reported by the World Casualty Statistics 2008 as cited in Eria Study Team (2010) that East Asian waters are the most unsafe water areas among all as it has been recorded that 28 incidents and 943 lives 9

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

lost were identified in 2008 which accounts to 22% and 86% of total proportion respectively. In response to this issue, Eria Study Team (2010) reported that ASEAN has to improve its navigational system, enhance the education of seafarer, and establish the adequate maintenance system for vessel. It also reported that currently some ASEAN Member States have already implemented Long-Range Identification and Tracking System (LRIT) and Automatic Identification System (AIS) in response to the issue. It also argued that ASEAN has to further activate the ASEA Search and Rescue Exercise (SAREX) in attempt to reduce mortality in the water area. As for the security issue revolves around piracy and armed robbery on the sea, ERIA Study Team (2010) stated that such incidents have been decreasing in Southeast Asia water year by year. However, the prevention effort has to be done concerning the potential piracy and armed robbery. That’s why it was reported by Eria Study Team (2010) that eight ASEAN Member States aside from Malaysia and Indonesia have already signed and ratified Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP). It’s also stated that Malaysia and Indonesia had already prepared to sign and ratify ReCAAP. In addition to ReCAAP, it’s also stated that Information Sharing Center was also established in Singapore on November 2006.

1.1.3 Air Transport Development In order to compete with today’s world globalization where time is number one priority, ASEAN definitely can’t just rely on land and maritime transport. Land and maritime transports are obviously cheaper options in people mobilization and goods transfer as they can carry more weight with less usage of fuel to compare with air transport. However, land and maritime transport can’t accommodate the needs for quick mobilization which is required in today’s world. The quick mobilization can be supported by air transport, thus the reason why air transport is not less important to be addressed. Eria Study Team (2010) argued that in regards to air transport infrastructure development, ASEAN Member States have already done a good job in making sure that their airports have sufficient runway length that can accommodate the landing of even the biggest airplanes that are currently operating. However, the airport in ASEAN Member States did not mitigate the increasing number of flights transitting and going to their airport as a result 10

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

of increasing mobilization through aircraft, thus they need improvement in some service and facilities area. According to Eria Study Team (2010), those areas include terminal building, parking apron, and number of runways. They also mentioned that improvement has already been implemented for those areas in order to meet the traffic demand. Another equally important issue to look at in regards of air transport development is to standardize the air navigation system and procedure in ASEAN to prevent the future problem arises from the growing air traffic (ASEAN 2010). The more economic and business activities conducted in the region, the more passengers are flying in, around, and out of ASEAN region on more regular basis. It’s undeniable that air traffic is going to increase by then. If ASEAN Member States are serious in becoming AEC in 2015, then they have to deal with the issue on air traffic as soon as possible. If ASEAN procrastinates any longer in this issue, they may lose the interest of business sectors that were primarily eager to invest in ASEAN as ASEAN will be seen indifferent and not serious in promoting their region for Foreign Direct Investments. Another ambitious goal ASEAN planned in regards to air transport liberalization is ASEAN Open Skies. Kaur (2014) stated that the ASEAN Open Skies basically has the goal to transform ASEAN into Single Aviation Market. However, the ASEAN Open Skies is currently ratified only by 8 Member States of ASEAN, while ThePhilippines is expected to ratify soon, but no one knows whether Indonesia would ratify the agreement in any immediate upcoming period or not (Kaur, 2010). Kaur (2010) argued that the ASEAN Open Skies will be deemed weak without Indonesia’s participation as Indonesia alone holds half of the population of ASEAN. With such population, Indonesia holds the biggest market quantity in ASEAN. Questions arised: Why Indonesia is hesitant to sign the agreement? How to get Indonesia to ratify the agreement? The answer to the first question is because Indonesia has the necessity to protect their own local airlines, such as Garuda and Lion Air, from aggressive competition coming from countries like Singapore and Malaysia who are well-known with their low cost carrier airlines, such as JetStar, Airasia, and Tiger Airways (Kaur, 2014).So to answer the second question, to make Indonesia giving in to the agreement is not an easy task. Unlike EU, with the non-interference principle that ASEAN holds, it’s impossible for ASEAN to “force” Indonesia to ratify without showing what’s in it for them if they ratify such agreement.

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

Bhattacharyay (2010) explained that transport connectivity in general allows countries to benefit from a more optimal allocation of resources. He argued that transportation network linking neighboring countries increases market size and helps national economies to grow through higher trade and production. More optimal allocation of resources is needed to meet the economic complementarity in manufacturing industry to make a more integrated regional production network in ASEAN. Basically, the concept of production network is to make use of other country’s advantage to boost productivity and cut costs, while bolstering investment and technological transfer (Chia, 2013). By having a more integrated regional production network, ASEAN is one step ahead to be Single Market and Production Base and to solidify its position as participant in global supply network. Despite all the challenges pertaining to transport infrastructure development, it can be conluded that transport infrastructure development does contribute to the ASEAN Economic Community in several ways: i.

Single Market and Production Base – Transport infrastructure development facilitates mobilization of goods, services, and people among ASEAN Member States, which are all the necessary elements to enhance the production network among ASEAN Member States, promote cooperation in various industries and particularly in food, forestry, agriculture, and improve intra-ASEAN trade volume. ii. Competitive Economic Region – Developed transport infrastructure in ASEAN can turn business environment in ASEAN to be more conducive, as business sectors are able to mobilize their products to and import raw and supporting materials from other ASEAN Member States more comfortably with the sufficient transport infrastructure. The conducive business environment can invite foreign companies to invest and develop their business in ASEAN Member States, which later on is not only expected to increase GDP of respective countries, but also provide job opportunities and learning platforms for employees. iii. Equitable Economic Development – Better transport infrastructures encourage businesses to transfer their goods and services to the remote areas they never wanted to touch at first, as transferring goods and services to those area can be less costly. It helps the local community to consume the goods and services at cheaper price. Especially in the case of inland waterways that are mostly located in CLMV Countries, aside from the cheaper price of goods that the people who live there can enjoy due to closer proximity, they also can start to be more economically independent 12

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

by opening small business in that area as the demand for certain logistic needs (e.g. resting area, foods, drinks, etc.) is increasing, which at the end contributes to the movement of capital from more urban areas to such rural areas, thus reducing the urban-rural gap inside the nation. Reduced wealth disparity inside the nations (CLMV) can also help reducing the gap between the respective country and the other more developed countries in ASEAN. iv. Integration into Global Economy – Facilitation of goods mobilization through transport infrastructure is one necessary step in enhancing ASEAN’s participation in global supply network as it provides the platform for ASEAN Member States to make use of each other’s complementarity, referring back to the production network analysis.

1.2 ICT Infrastructure Development ASEAN (2010) defined ICT infrastructure to include fixed, mobile, and satellite communication networks and the internet as well as the software supporting the development and operation of these communication networks. Why ICT development is important? Susantono (2011) explained that the virtual connectivity through ICT plays important part in domestic connectivity. He argued that domestic connectivity is an important element to improve national economy and to reduce national poverty, which in the bigger picture is expected to lessen the economic disparity inside the country. Better national economy is also important for ASEAN as a region in its agenda to Narrow Development Gap between Member States. Susantono further argued that domestic connectivity is important for the ASEAN Member States, because some countries might have areas enriched with natural resources but are isolated thus its potential is not fully maximized. Virtual connectivity through ICT as explained by Susantono (2011) can eliminate the geographic, economic, and institutional boundaries and change the way people do business. He further argued that better virtual connectivity will encourage small businesses (especially in the remote areas) as it creates better business opportunity. He explained the importance of encouraging local business which is to mobilize labors and capital which in the bigger picture will help reducing the disparity between the lagging and more advanced regions in the country. Better business opportunity, especially e-commerce, in remote area is made happen because by having strong virtual connectivity, the target market can be 13

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

expanded. Without virtual connectivity, the market share of local business sector is only limited to the consumers who live inside a particular area where the business operates. That means that in the context of remote area, the business suffers serious challenge in regards to sales because only small numbers of population live in the area. It can be concluded that ICT infrastructure development fosters AEC by promoting e-commerce and also narrowing development gap inside and between Member States. Mobilization of information as promised by enhanced virtual connectivity is an integral part in facilitating people in micro level to make better decision for their life and to expose them to bigger pool of network aside from book. In macro level, enhanced virtual connectivity for mobilization of information is an important tool for government to quickly educate society and socialize their new programs. That means, ICT development indirectly helps the ASEAN Economic Community by promoting a more resourceful and knowledgeable society that can compete in digital era, which is one of the important elements to create pool of human resources. But what are the challenges in regards to ICT development? There are three issues challenging the ICT development in ASEAN, which are the extent of digital divide, insufficient NII coordination, and the need to nurture technological innovation (ASEAN, 2010). OECD (2001) explained that the term “digital divide” refers to the gap between individuals, households, businesses and geographic areas at different socioeconomic levels with regard both to their opportunities to access information and communication technologies (ICTs) and to their use of the Internet for a wide variety of activities. It stated that the digital divide reflects various differences among and within countries. To what extent is the digital divide among ASEAN Member States? ASEAN Studies Centre (2014) explains that the current internet penetration varies greatly among ASEAN Member States. It stated that Singapore and Malaysia for example gain more than 50 percent penetration rate, while Laos and Cambodia are below two percent. Not only between nations, it also stated that the gap can be seen between “youth” and “official” ASEAN, where youth are the forefront of the global social network revolution, but the officals are still struggling with ICT. However, it also explains that ICT development is not put on the same level of concern as the other infrastructures by ASEAN. Understanding the importance of virtual connectivity in terms of improving domestic connectivity and narrowing development gap, ICT development has to be put on the same priority with the other infrastructure development in ASEAN. It has 14

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

to be started by educating society especially in the rural area so that they can be computer and internet literate. Not only that, the building of ICT infrastructures in the rural areas must be fostered. ASEAN Member States must cooperate with computer and telecommunication industry and encourage them to develop their network system in the rural areas.

1.3 Energy Infrastructure Development ASEAN (2010) stated that energy plays a crucial role in economic development and will remain critical to the continued economic growth of the ASEAN region. According to Navarro and Sambodo (2013), countries choosing to join a regional integrated energy market can enjoy regional public goods produced in the integration process, such as knowledge related services (e.g. best practicess in regulating the energy market), infrastructure (e.g. electricity transmission network), and security services (e.g. emergency energy reserve sharing system). They also explain that positive spill-over effects for the countries created by the regional public goods are greater than what could be achieved if the countries produce the goods on their own. Having said that, integrating and synchronizing energy infrastructure as part of connectivity has to be enhanced in order to gain potential economic benefits out of it. ASEAN Studies Center (2014) explains that there are two flagship energy infrastructure projects for the current Plan of Action: ASEAN Power Grid (APG) and Trans-ASEAN Gas Pipeline (TAGP). Master Plan on ASEAN Connectivity (2010) explains that APG is a flagship programme mandated in 1997 by ASEAN Leaders, which aims to help ASEAN Member States to meet increasing demand for electricity and improve access to energy services by enhancing trade in electricity across borders, optimising energy generation and development and encouraging possible reserve sharing schemes. It can be summarized from the Master Plan on ASEAN Connectivity (2010) that the challenges in regards to AGP are the economic viability in building the grid interconnection projects, such as the inland and undersea interconnection projects involving grid in CLMV countries, and also the introduction of regulatory framework and mechanism to raise country’s capital. ASEAN Studies Center (2010) also argued that the challenge that ASEAN Member States face in regards to APG is that they are at different stages in the reform of their respective power markets, for example, there is the vertically integrated power market with monopoly utility model (Brunei, Cambodia, Laos, Myanmar), there is also the privatised/market friendly model (Singapore, The Philippines). They also explained that there is a tremendous 15

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

spread across electricity tariffs with Laos very cheap (US 4.5 cents/kWh) and Cambodia very expensive (US 14.4 cents/kWh). ASEAN (2010) explained that TAGP on the other hand aims to develop a reginal gas grid by 2020, by intercnnecting existing and planned gas pipelines of Member States and enabling gas to be transported across borders. They explained that the challenges are in obtaining adequate supply of piped natural gas due to the absence of large gas field discovery in recent years, increasing investment costs, synchronising national technical and securtiy regulation requirements, and differences in the processes of supply, distribution, and management for natural gas across the countries. Energy infrastructure contributes to AEC by securing the supply of energy for the future economic activities and also provides opportunities for private sector involvement in terms of investment, including financing, and technology transfer (ASEAN, 2008).

2. Institutional Connectivity According to ASEAN (2010), institutional connectivity refers to linking various international or regional agreements and protocols to facilitate international transactions of goods and services as well as the movement of natural persons across borders. There are six categories of iniative under institutional connectivity: transport facilitation, free flow of goods, free flow of services, free flow of investments, free flow of skilled labour and human development, and cross-border procedure. Basically the concept of institutional connectivity is to facilitate the physical connectivity that has been explained in the previous point, through agreements between ASEAN Member States that liberate movement, harmonize legal standards, and lessen bureaucracy, so that the free mobilization can be achieved, such as elimination of tariff, elimination of non-tariff barriers, etc. For example, in order to achieve the Single Market and Production Base, a clause under AEC, ASEAN has to enhance its production networks. The production networks can be enhanced if the goods are transferred without hassle from one Member State to another, thus there is a need for transport infrastructure development which is managed under physical connectivity. But even if the hard infrastructure has been built, if the business sectors still find hassle because of layers of different bureaucracy that they need to deal with every time they transit in

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

different Member States, the business sectors might be discouraged to continue such business, thus the Single Market and Production Base can’t be achieved. Physical connectivity provides the facility for mobilization of people, goods, services, investment, and information. Institutional connectivity ensures the ease for stakeholders to fully utilize the physical connectivity. Institutional Connectivity helps ASEAN to become AEC by transforming ASEAN into Single Market and Production Base, as it allows freer movement of goods, services, and people through transport facilitation agreement (e.g. AFAFGIT, AFAMT, AFAFIST, RIATS, RICMT). Freer flow of goods is particularly achievable by removal of tariffs and non tariffs barrier through Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area (CEPT-AFTA) and now embodied in the ASEAN Trade in Goods Agreement (ATIGA). Freer flow of service can be achieved through AFAS, freer flow of investment through ACIA, and freer flow of skilled labour through MRA (ASEAN, 2010). With CEPT-AFTA, ASEAN can also maintain its “centrality” which is an effort for coherent approach towards external economic relations and also an effort to enhance its participation into global supply networks as CEPT-AFTA remove barrier in integrating the regional production networks. Thus it can be concluded that institutional connectivity also helps ASEAN transforming into AEC by integrating it into the global economy. 3. People-to-people Connectivity The idea of people-to-people connectivity is to provide education infrastructure, develop human resources, and improve tourism and cultural sector (ASEAN, 2010). Even if people-to-people connectivity is more related to Asean Socio-Cultural Community (ASCC) in general, but taking a good look at it, people-to-people connectivity actually serves as a fundamental element in AEC by providing the basic requirement for each ASEAN Member States, especially the less developed ones, to be ready in welcoming AEC. The said basic requirement is the education for the people. All the efforts in AEC will be a waste if the people can’t utilize the benefits to their maximum capacity. At the end, ASEAN is people-oriented. The reason why Member States join ASEAN is to provide accessible welfare for their society.

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

CONCLUSION It can be concluded that ASEAN Connectivity has a significant impact toward ASEAN Economic Community (AEC) for each and every criteria of AEC: i.

Single Market and Production Base: a. Transport infrastructure development facilitates mobilization of goods, services, and people. b. Institutional connectivity enhances free flow of goods, services, investment, and skilled labours; provides platform for ASEAN Free Trade Agreements.

ii.

Competitive Economic Region: a. Transport infrastructure provides more conducive business environment. b. ICT infrastructure encourages E-commerce c. Energy infrastructure provides sustainable energy supply for future economic activities and opportunities for investment.

iii. Equitable Economic Development a. Transport infrastructure encourages private sectors to penetrate and migrate products in rural areas, providing cheaper and more accessible products, thus narrow development gap inside nations and between ASEAN Member States b. Small Medium Business are encouraged by more effective inland waterways network and ICT infrastructure development iv. Integration into Global Economy a. Transport infrastructure enhances ASEAN’s participaton in Global Supply Network by facilitation of regional production network b. Institutional connectivity maintains ASEAN Centrality and contributes in enhancing ASEAN’s participation in Global Supply Network by CEPT-AFTA agreement. Another equally important contribution to AEC is done by ASEAN Connectivity through ICT infrastructure development and people-to-people connectivity in education and human development sector. It’s an essential element to prepare the people for AEC and to make sure that the welfare promised by ASEAN is accessible by the people. Despite all the benefits that ASEAN Connectivity provides, challenges remain exist. Aside from sector-specific challenges, the general challenges mostly lay on funding and ASEAN Member States cooperation in regional connectivity. With the limited funding, ASEAN has to start making priority on which sectors that are urgent to be addressed as the deadline for AEC is now less than one and a half year. ASEAN also has to work more in 18

ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

persuading its Member States to cooperate in ratifying important key agreements so that the agreements can be executed in timely manner.

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006

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ASEAN Connectivity: Impact on ASEAN Economic Community Cassandra Etania Liem, QGD140006 Uramoto, Y. (2014, August 19). Can the AEC 2015 Deliver for ASEAN’S People?. International Labour Organization. Retrieved from: http://www.ilo.org/asia/info/public/features/WCMS_300671/lang-en/index.htm Purisima, C. (2014). The Philippines and ASEAN: The Road to 2015 and Beyond [PDF document]. Retrieved from: http://www.iiss.org/en/events/events/archive/2014-0f13/februarye91c/fullerton-lecture-purisima-3d1d

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