The ASEAN Economic Community and the European Union’s Experience – The Purpose, the Inception, the Difference, and the Issue

In November 2002, leaders of the Association of the South East Asian Nations (ASEAN) agreed on the proposed creation of an ASEAN Economic Community (AEC) by 2020. This was followed by the adoption of the AEC Blueprint in 2007 along with the affirmed and strong commitment by leaders to accelerate such economic integration by 2015. It is easy or perhaps deceiving for one to compare the AEC with the European Union (EU) with much excitement and enthusiasm for that the name ‘Economic Community’ itself is suggestive to those of the EU’s experience. However, one must realize the difference between the EU and the AEC as confirmed by the Governor of the Bank of Thailand, Dr. Prasarn Trairatvorakul’s address at Sasin Update-Reunion 2011: “The AEC is not, and has no intention of transforming ASEAN into a European style union. We should refrain from perpetuating any grand, Euro-style visions. ASEAN lacks supranational policy-making bodies like the European Central Bank or the European Commission which are required to make such an entity function properly.”

However, the question that arises is if the ‘AEC is not, and has no intention of transforming ASEAN into a European style union’, then why perhaps do we need to compare the AEC with the EU at all? The purpose of this article is to show that despite how different the AEC may be from the EU (from now on will be referred to as its pre-Treaty of Lisbon (2009) arrangements focusing on the first pillar of the European Community (EC) due to the relevance of its economic nature with the AEC), there are nevertheless still similarities in which the AEC may learn from the EU.

The Purpose

According to the EU’s experience, it is understood that the reasoning behind the institutional creation of the EU was to levitate and revitalise the socially and economically ravaged state of Europe after the Second World War and to ensure the promotion and preservation of peace. In this respect, it also rings true for the spirit of the AEC as affirmed in the ASEAN Charter (The Charter) where it is to “enhance regional resilience by promoting greater political, security, economic and socio-cultural cooperation… to create a single market and production base which is stable, prosperous, highly competitive and economically integrated… [and] to alleviate poverty and narrow the development gap within ASEAN through mutual assistance and cooperation” (Article 1 of the Charter). As a result, with the success story of the EU’s economic integration experience from its inception of the Economic Community, to the Customs Union, and to the European Internal Market, it nevertheless became a model for ASEAN’s own economic community. With this understanding, it is necessary to look to the EC as a model on what benefits and affects the AEC may have for the ASEAN Member States (AMS) in order to understand how to the AEC may work.

The Inception

The EU and its single market originated as the European Coal and Steel Community (ECSC) in 1951 and became the European Economic Community (EEC) in 1957 in which the customs union with a common external tariff was founded. This was followed by the abolition of internal tariff barriers achieved in 1968. It was not until 1986 when the Single European Act was signed that a Single European Market was established where barriers to free movement of goods, services, labour, and capital were removed. The model of this single market is nevertheless the point in which the fundamentals of AEC aspire to become. According to the AEC Blueprint, along with the Charter, ASEAN leaders intend to establish a single market and production base consisting of the free flow of goods, services, investment, skilled labour, and freer flow of capital. Noticeably, it is unlikely that the AEC will follow completely behind the EU’s footsteps as it took the EU over a half century to achieve what it has become today whereas the AEC has still yet to begin. For instance, the AEC plans to have only the free movement of skilled labour as the process of regional harmonisation of laws may take longer subjecting to various national laws – i.e. Thailand and its Alien Employment Act. Furthermore, it is not likely that the AEC will create a customs union like that of the EU, since Singapore already has an almost zero tariff policy, meaning, to have a common external policy of the AEC, either Singapore will have to increase it’s tariffs or other AMS will have to decrease their tariffs to almost zero. Most importantly, the AEC will not become a monetary union owing to the highly diverse financial status and the deep economic gaps among AMS, which, as it is known, were the precursor to the current Eurozone crisis.

The Difference

The major characteristics between the EU and the AEC lays in the fact that the EU’s integration process focused on the pooling of sovereignty for common gains whereas ASEAN’s integration process focused on the principle of non-interference and the respect of national sovereignties of each member state. It is understood that with this, the EU’s experience was one of rules-based economic integration backed by hard laws, which in essence ensured the implementation and enforcement of such economic community through a decision-making institution, a monitoring institution, and a dispute settlement institution, the EU Council and Parliament, EU Commission,1 and the Court of Justice of the EU, respectively. It is not that ASEAN lacks the institutions required to monitor the achievement of economic integration, as an ASEAN Integration Monitoring Office has already been set up by ASEAN Finance Ministers in recent years. But the extent at which this office will be effective is still yet to be known. Instead, it is the institutional structures in general and the way they function that sets the AEC apart from the EU.

To be more specific, with the EU adopting the supranational entity, it works under a legal framework in which all agreements in such economic integration is implemented and enforced by both the European executive and judiciary branches, the Commission and the Court of Justice, respectively. This is to ensure that the rights established in this internal market serve to benefit all participating members – from the level of European member states to their respective citizens (See Van Gend en Loos v Neder-Landse Tariefcommissie [1963] Case 26/62 for doctrine of ‘direct effect’2). Nevertheless, there are bodies existing under the ASEAN framework to ensure the implementation of the economic integration, for instance, the ASEAN Summit, ASEAN Coordinating Council, ASEAN Economic Committee Council, etc., but as affirmed by the Charter, the basic principle of decision-making in ASEAN will be based on consultation and consensus. In the instance that consensus cannot be achieved, the case will be referred to the ASEAN Summit to decide on how a specific decision can be made (Article 20 of the Charter), which again brings it back to the basic principle of consultation and consensus. It is clear that this so-called “ASEAN Way,” though less prone to inflicting quarrels between AMS, is a decision-making process that tends to be slow and at times could be counterproductive. In contrast, the EU’s way is less likely to avoid conflicts, but decisions are made and implemented surely in a timely and effective manner.

The Issue

It is important to realize that despite how ideal or perfect any type of regional integrations or free trade agreements may be, depending on the views of various parties, disputes will always arise. The real question is thus how would these disputes be settled in a timely and effective manner. As understood, there has been cooperation between ASEAN and EU on issues of enforcements as “ASEAN also recognises the need for a rules-based integration process” for AEC (see APRIS II). However, the dispute settlement mechanisms differ greatly. The existing ASEAN legal instruments for dispute resolution, particularly for disputes that concern the interpretation or application of ASEAN economic agreements, consist of the Protocol on Enhanced Dispute Settlement Mechanisms (EDSM). The model of EDSM nevertheless follows the dispute settlement procedure of the World Trade Organisation (WTO). However, to this date, the protocol has rarely ever been invoked. Apart from this, referring back to the Charter, disputes may also be resolved bilaterally via informal means through ‘good offices, consultations, and mediations.’ In any case, if there are any unresolved disputes or non-compliances to disputes that have already been resolved, the decisions to undertake these matters shall be referred to the ASEAN Summit for a decision. Yet again, these decisions require consensus between all ASEAN members, which makes it difficult to reach as disputing parties participate together in such process. As a result, this discourages parties from invoking formal dispute resolutions under ASEAN, to which the parties would seek another forum such as the WTO or the International Court of Justice (ICJ). However, for affected companies or individuals, seeking dispute resolutions at these forums becomes complicated since they have no right to bring a case without representation from their respective home ASEAN governments. Nonetheless, this causes a further problem to individuals, particularly with the issue of free movement of labour that often raises emotional concerns toward suspicions relating to immigration and cultural impacts. This is because till this day, there are no known legal instruments for individuals that could enforce their rights under AEC rules on the national level as compared to the EU’s experience in case of infringements by governments other than of their own.

Concluding Remark

Between the two economic communities, it is not possible to compare whether one system is better than the other, since regional cultural factors also play a major role in molding the character of each integration process. For the AEC, it is the “ASEAN Way” of non-interference and conflict avoidance that governs the economic integration process. Moreover, what matters most in regional integration is the political will of each national actor. This is rather evident in today’s EU as the financial crisis is hampering regional unity owing to political discords and the lack of solidarity among national members. It is clear that there exists the political will in the ASEAN economic integration, but in order to properly administer the implementation of the AEC there must be the political will to push forward into sensitive territories, even if it means that certain sovereignties may be given up – particularly in the area of dispute resolution. Nevertheless, it is important to notice that despite the dissimilarities from the EU, the AEC will still occur as a phenomenon that will transform the regional society of ASEAN within the next two or three years starting from today. Thus, it is necessary to be prepared to reap the benefits of such integration for that the indifference and complacency before such opportunity would mean an unfortunate loss to the potential of what this economic community may bring to the region and to the world.

Mr. Rawat Chomsri, Partner

Mr. Satta Chairasmisak, Associate


1 The EU’s usual method of decision-making, also known as the ‘community method,’ “in which the Commission makes a proposal to the Council and Parliament who then debate it, propose amendments and eventually adopt it as EU law.” See “EUROPA – The EU at a glance – Eurojargon” EUROPA – EU Website. Web. 22 Oct. 2012.
2 The doctrine of ‘direct effect’ was interpreted by the European Court of Justice in the case of Van Gend en Loos that allowed for individuals of each member state to enforce Community law. This enforcement was bestowed upon the individuals of each signatory member state to the European Treaties where they can take an action to their national courts when a right or rights are infringed.