Non-tariff barriers remain biggest impediment for AEC - Nazir

CIMB Group's Group Chief Executive Officer Datuk Seri Nazir Razak has lambasted Asean member states for continuing to place obstacles to trade, such as Non-Tariff Barriers (NTB) which are a clear impediment to the realisation of the Asean Economic Community (AEC).

He said while Asean has spawned a number of excellent initiatives, the more serious concern about the regional grouping is, the national rules and regulations designed to protect domestic industries and interests.

"Although, we stand 18 months away from the AEC and tariffs have been going down sharply intra-Asean trade has stagnated at about 25 per cent of total Asean trade since 2003.

"This would suggest that tariffs may not be the huge driver of trade and economic activities as one assumes, and clearly tariffs can be quite easily reduced, if there are other applicable barriers that protect those who want to be protected," Nazir said at the recent Chevening Alumni of Malaysia's inaugural Corporate Dialogue Series.

He said perhaps the Asean Way just makes it difficult to impose domestic policies, unlike the European Union where the European Commission has broad powers to investigate NTBs, and there is also an European Court to resolve related disputes.

In fact, until today the Asean process is such that the NTBs are self-reported by Asean member states.

"At the Asean Business Club, we try to understand the extent of NTBs and what can be done by looking at the key issues by sectors. We held our Lifting-the-Barriers conference in Singapore last year where roundtables of industry practitioners produced various reports which are now publicly available for those interested," Nazir said.

He said what was clear from the reports is that NTBs are serious inhibitors to economic integration.

For example, in the healthcare sector, only five out 10 member states have allowed full foreign ownership in their healthcare sectors.

Asean does not provide any preferential treatment for medical travellers and they are yet to adopt the Mutual Recognition Arrangements for employment of medical professionals.

Meanwhile, the aviation team highlighted that whilst there is talk of a single Asean aviation market, there is plenty of ownership and other control restrictions.

"Another major sector we looked at was financial services, which is of course my area. In the banking sector we are still kept in suspense about a forthcoming framework for Asean banking which continues to be delayed," Nazir said.

He also said apart from licensing and ownership rules, there are also huge impediments to the movement of people, information and centralisation of operations.

"At the same time, Asean banking remains highly fragmented.

"At the capital markets level, we can also see various examples of surprising hesitancy on the part of governments," he added.

The Asean CIS Framework was initiated in October 2013 following a memorandum of understanding signed by the capital market authorities of Malaysia, Singapore and Thailand to enable fund managers to offer their investment products directly to retail investors via a streamlined process.

Whilst it is a milestone to celebrate, only three countries opted in.

Another example is the much touted Asean Trading Link (ATL).

Launched in September 2012, the ATL integrates equities markets across Malaysia, Singapore and Thailand to allow investors a single platform for trading Asean equities.

"The ATL is still stuck in first gear. Two big markets, the Indonesian and the Philippines exchanges have postponed their involvement with the ATL and one wonders why, as the reality is investors can already easily access multiple Asean markets via regional brokerage houses like CIMB.

"So, even when there is not much downside, there is still reluctance," Nazir said.

He explained as a bank, CIMB went Asean early, even before 2007.

CIMB has witnessed up close the politics of regionalising a business and found that being Asean has not helped much at all at the regulatory level.

"Despite having been in Indonesia since 2002, in Singapore from 2005, Thailand from 2008 and entered Cambodia in 2010 and having loudly expressed our alignment to Asean, not once have we felt recognised as an Asean entity by any regulation - you are either foreign or local," Nazir said.

There remains a lack of conviction about the AEC and economic nationalism remains very strong.

Notwithstanding these challenges, he added, the private sector does not have to be only a silent actor of integration initiatives.

"You are seeing a proliferation of Asean supranational companies such as Axiata, Air Asia, Siam Cement, Straits Trading, Petron, Salim and Rajawali.

"Why? Because of cross border synergies and the prospect of the AEC," he said.

The economies of scale are compelling, especially coming from smaller economies like Malaysia.

Given our limitations, there is much to be gained from cross-border synergies. Plus Asean is so diverse that businesses can be tested to the whole range of consumers and competitors.

"It is a rich and fulfilling place to do business. I think if companies succeed in Asean they will not fear competing anywhere in the world. But none of us will truly fulfill our potential unless the region properly integrates," he stressed.

Nazir said with Malaysia assuming the chairmanship of Asean next year, all eyes would be on the country to unveil the AEC.

"Despite all the obstacles, I am excited about 2015. I just hope that with Malaysia's leadership, we will project manage the AEC well," he added.

This, Nazir explained, can be done by setting realistic but ambitious targets for AEC in January 2015, list the action plan and make them happen by December 31, 2015, empower the Asean Secretariat and legal framework for compliance so that businesses can anticipate and plan.