Myanmar prepares to join ASEAN Economic Community

While Myanmar has been a member of the ASEAN bloc since 1997, its capacity within that organisation – and indeed, within regional and international politics as a whole – was severely limited by the military regime of the time. Indeed, international sanctions and condemnation led to the country skipping its turn as ASEAN chair in 2006, under the organisation’s rotating leadership system.

Moving Forward

Back then, the government announced that it was missing its turn in order to focus on “national reconciliation” and the transition to democracy. Fast forward a decade, and the new, National League for Democracy government of President U Htin Kyaw and State Counsellor Daw Ang San Suu Kyi is now in power, with the result that Myanmar’s international role has now been significantly enhanced. Indeed, the progress of Myanmar’s ASEAN membership has been something of a litmus test of its progress in that transition. That the country was moving forward was recognised in late 2011, after a string of political and economic reforms had been enacted and direct talks with Daw Ang San Suu Kyi on transition had begun. After careful consideration, and with many governments tying approval to continued progress with democratisation, the 10-member bloc then allowed Myanmar to swap places with Laos and finally become ASEAN’s 2014 annual chair.

This gave the country a place in the spotlight at a key time in the association’s development. Founded in 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand, with Brunei Darussalam joining in 1984, post-Cold War ASEAN expanded to include Vietnam in 1995, Laos and Myanmar in 1997, and Cambodia in 1999.

Over the years, the organisation has also begun to grow more integrated. Recent times have seen an initiative gain momentum that is aimed at creating a much more economically unified entity, the ASEAN Economic Community (AEC). The AEC officially came into being at the end of 2015, with Myanmar – along with Cambodia and Laos – due to join in 2018, given the disparities between their economies and those of the more long-standing members of the group.

Integration

When Myanmar took the helm, it set the theme for its chairmanship as “Moving forward in unity to a peaceful and prosperous community”, a sentiment in keeping with the association’s overall trajectory. The AEC promises to create a bloc that will be the world’s sixth-largest economy and third-largest population group, responsible in 2015 for $2.3trn of global trade. Between 2007 and 2015 ASEAN experienced an annual average GDP growth rate of 5.2%, while in 2015 alone, the bloc attracted some $120bn in investment.

All these numbers add up to a powerful economic force already, but under the AEC, a potential jump in the significance of the region is widely expected. The community will see an integrated economic space come into being, based on four pillars: a single market and production base; a highly competitive economic region; equitable economic development; and integration into the global economy. The first of these pillars involves the free flow of goods, services, investment, labour and capital, the second a standardised framework for agriculture, finance, competition policy, intellectual property and consumer protection. The third pillar advocates for sustainable and balanced growth throughout the ASEAN geography, with the fourth, placing all of this within the context of openness to the global economy and global competition.

Myanmar’s 2014 chairmanship of the ASEAN saw this agenda move forward. Many were impressed by the country’s ability to coordinate and manage the complexity of bringing all 10 member states together and running some 1000 different meetings and conferences over the course of the year. On the diplomatic front, the country also won praise for its handling of ongoing controversies. Although there was no progress on the South China Sea dispute – in which several ASEAN states have competing maritime claims, both with each other and China – there was no deterioration in relations, either, between the association and its most important trading partner, the People’s Republic.

Now the question still being asked is whether Myanmar is at an appropriate stage of readiness for 2018 – and its membership of the inner core of the AEC. Opinions on this vary, particularly as some of those core countries are still finding the AEC’s goals tough challenges to meet. Myanmar’s policy makers and economists are keenly aware of the difficult road ahead, though, with plans already in motion to clear the way forward.

Key Areas

One of the main areas in need of addressing is the transport and logistics infrastructure, identified as a key barrier to overall growth and to the implementation of the four pillars in a poll of economists conducted by the had ranked 145th out of 160 countries in the World Bank’s 2014 Logistics Performance Index (LPI). This measures a range of criteria, from ease of Customs to timeliness and tracking of shipments.

Yet clearly, on this score, progress has been made. The 2016 update to the LPI put Myanmar 113th, which while still the lowest of the ASEAN member-states, represented a considerable climb. Japan, in particular, has been assisting with infrastructure development, with a national single window system – a necessity if tariffs are to be eventually lifted – due to begin operations in late 2016. Indeed, Customs duties are due to be cut by some 90% by year-end 2016, according to the Customs Ministry’s ASEAN single window department.

Meanwhile, another area the country is working hard on is its data, collection of which has in the past often been hampered by inefficient methods and a general lack of transparency. In addition, this lack of accuracy in statistics is also an obstacle to further AEC integration, with Myanmar’s border control agencies recently beginning a programme of development and training to enhance collection and communications, in coordination with the UN Office on Drugs and Crime.

The 2014 chairmanship also saw Myanmar sign a number of agreements and protocols on bilateral trade and the practical implementation of AEC regulations. One area in which these may have profound implications is that of small and medium-sized enterprises (SMEs). The SME Development Law of 2015 was a first step with this, as are other initiatives to boost data collection and ease access to finance for this vital pillar of the country’s economy.

An area closely related to this is that of human resources development. A field widely identified as key to Myanmar maintaining its competitiveness, once borders are more open, the production and retention of a more highly skilled workforce will be vital. Changes to the education law bear this in mind, with a greater emphasis on training likely to be seen in future (see Health & Education chapter).

At the same time, the legal and regulatory structure for AEC is also being worked on, with recent new laws on investment, companies and financial institutions all aimed at bringing Myanmar’s legislative framework more into alignment with ASEAN targets. The country has also been working hard on a new intellectual property (IP) rights law. A new trademark law is now due for enactment in 2017, based on a first-to-file principle, with a Myanmar IP Office also set to be created.

One other area of concern is that of the third pillar – equitable development. Around a quarter of Myanmar’s population live below the poverty line, with approximately half of the population living only just above it. The government has adopted the ASEAN Framework for Equitable Economic Development, but the kind of far-reaching reforms of sectors such as agriculture that will likely be pre-requisites for a substantial decline in this level of poverty remain elusive.

Multiple Benefits

Despite these challenges, the AEC presents Myanmar and its businesses with enormous opportunities. Access to customers as well as suppliers will be given a major boost as other ASEAN markets open up. The government’s strategy for development through special economic zones (SEZs), meanwhile, should also boost Myanmar’s competitiveness and business and logistical efficiency (see Trade & Investment chapter). Many companies not currently involved in overseas markets may also be able to take advantage of Myanmar’s greater openness, as overseas businesses seek to source suppliers within the country.

The AEC blueprint also includes putting in place rules of origin, further boosting the attractiveness of Myanmar products, as they become further integrated in regional production networks.

The increasing uniformity and standard of regulation across the AEC is also likely to be a major boost for companies, enhancing the overall ease of doing business. Increasing investment in certain trades will also be a likely outcome. The tourism sector, for example, could benefit considerably from major inflows of foreign capital, with these flows made all the easier by the adoption of the ASEAN Comprehensive Investment Agreement under the AEC. There is thus much to play for as Myanmar gears up for 2018. While some may consider this still too close for comfort, it is also the journey, as well as the destination that counts.

An improvement in the quality and implementation of best practices and a further opening of markets will all stand the country in good stead, even if – like other AEC member states – Myanmar does not reach 100% of its goals right on time.