The ASEAN Economic Community: Potential Benefits for Myanmar
The ASEAN Economic Community:
Potential Benefits for Myanmar
Michael G. Plummer,
Eni Professor of International Economics,
The Johns Hopkins University, SAIS-Bologna, and
Senior Fellow, East-West Center
• With the new international economic environment, including regional
economic integration initiatives, the prospects for Myanmar’s integration
with the global economy have never been better.
• ASEAN has already contributed to the economic reform program in
Myanmar—directly, via AFTA and indirectly via example—but the
ASEAN Economic Community (AEC) program is more ambitious than
any previous initiatives, particularly with respect to behind-the-border
• We estimate that the AEC should lead to a 5.3 percent increase in
regional welfare due to elimination of NTBs, lower trade costs, and
anticipated increases in FDI. Myanmar is one of the greatest
beneficiaries, with welfare expected to rise by 4.4 percent and exports
• Additional likely benefits (e.g., free movements of skilled labor,
standardization and harmonization, best practices, and greater macro
stability) will significantly increase the potential gains.
• All stakeholders will gain, but adjustment costs need to be anticipated
Myanmar in the ASEAN Context
• Myanmar has been part of ASEAN and its intraregional accords since 1997.
• It has emerged as a key, outward-oriented Member
State that has, particularly over the past year,
embarked on wide-spread economic reforms
consistent with the development stategies of its peers.
• Given its size, location (e.g., as a link between South
and Southeast Asia), and potential, it will be an
increasingly important player in ASEAN.
• However, many challenges remain:
Myanmar: GDP Growth has been strong, but from
a relatively low base (source: ADB)
In particular, gross domestic investment has been
relatively low albeit rising in recent years (source: ADB)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Opportunities and Challenges of Reform
• The external environment in which Myanmar will be
able to pursue its outward-oriented development
strategy has never been better.
• However, extensive economic reforms are necessary
in order for Myanmar to achieve its true potential.
• We argue that the AEC and other ASEAN-related
initiatives present an excellent framework within
which the government can craft these reforms.
Background: ASEAN Economic Integration
• I am certain that other speakers will be addressing the
status quo of ASEAN integration, so let me confine myself
to a few contextual points.
• Prior to the ASEAN Free-trade Area (AFTA), formal
economic cooperation was minimal, with politics being far
• In the 1990s, biggest moves forward were in terms of
Enlargement, rather than deep cooperation.
• ASEAN is a group of outward-oriented developing
countries with no real political reason to use preferential
trading arrangements to boost intra-regional trade and
• The push for a unified market was spurred by a number of
factors after the Asian Crisis:
a.The Asian Crisis itself
b.Regionalism in key
c.Emergence of China (and,
to some degree, India)
as key competitor
d.Rising import of FDI and
progress at WTO
f.Other potential benefits
of integration (e.g.,
“Open regionalism”, however,
continues to be extremely
FDI is also an essential component of success, but performances vary and
Myanmar in particular has faced challenges (though looking up 2012+!)
The AEC and Its Potential Benefits
• The AEC will improve the propects for sustainable growth and
development in ASEAN and Myanmar by:
– Reducing costly border barriers, such as remaining tariff and
– Harmonizing and improving rules and regulations, trade
facilitation (including customs), and other behind-the-border
– Liberalizing services, particularly key for production networks
– Liberalizing and facilitating FDI via ACIA
– Benefits of free flow of skilled labor
– Contribute to development of financial markets, cross-border
issuances of securities, etc.
• In a recent ASEAN Secretariat study (ISEAS Nov. 2009), we
quantified these potential economic benefits (and costs):
• I. Summary CGE Model
• We used the GEMAT CGE model based on the most up-to-date data
(GTAP Version 7, Nov. 2008).
• Model includes modern features—including heterogeneous firms—but,
of course, has the usual limitations of CGE modeling.
• We include tariffs, tariff-equivalent NTBs, services, and changes in
FDI (that we estimate separately).
• We include four main scenarios:
– Completion of AFTA by removing all remaining tariffs
– AEC Scenario (AFTA, NTBs, trade cost reduction of 5%, FDI)
– ASEAN ―hub and spoke‖ scenarios (ASEAN as hub of an
ASEAN+6 agreement; ASEAN as hub of an FTA with EU and US)
Results Summary: Aggregate
• 5.3 percent increase in national income above baseline (very large
for such a model: EU Single market much less, for example).
• All Member States gain.
• Gains in welfare to Myanmar come to 4.4% of GDP.
• In large part, this is because Myanmar has higher initial tariff and
• Myanmar exports rise by 2/3 relative to baseline, more than any
• Extending the AEC to include regional and US/EU partners leads to
doubling of gains for ASEAN overall and more than that for Myanmar
• This testifies to the logic of keeping the region open, something that
is emphasized in the AEC Blueprint.
Additional effects not included in Model
Trade-productivity spillovers excluded
MRAs, other standardization excluded
Trade costs drop (5% ) conservative; could be much larger
Best practices: the project estimates that the competition-policy
related factors alone could raise raise per capita GDP by 28-38
percent over 10 years (using EBA approach).
• Excluded reduction in cost of capital due to enhanced financial
development and cross issuances
• Greater efficiency in services should have significant spillovers
into other areas (FDI, production networks, trade facilitation)
• Effects of free movement of skilled labor difficult to estimate but no
1. AEC should stimulate attraction of production network chains
*This should enhance SME development and be particularly
advantageous to least-development economies like Myanmar
(and consistent with AEC’s ―equitable econ region‖ goal).
2. ASEAN One Voice, or «ASEAN Centrality», could hold significant
3. Important to stress that ASEAN Members States need to mitigate
effects of structural adjustment on the most vulnerable.
5. CLMV countries will in many ways be affected the most and will
need help during implementation, including training and other
forms of capacity building, infrastructure, other IAI.