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

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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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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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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, political-

security 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


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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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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-Cambodia-


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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 Thailand-

Cambodia, 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


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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


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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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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


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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


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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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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


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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


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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 socio-

economic 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


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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


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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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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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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


19

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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REFERENCES

ASEAN. (2008). ASEAN Economic Community Blueprint. Jakarta: ASEAN Secretariat.

ASEAN. (2010). Master Plan on ASEAN Connectivity. Jakarta: ASEAN Secretariat.

ASEAN Studies Centre. (2014). Enhancing ASEAN Connectivity. Institute of Southeast Asian Studies.

Retrieved from: http://asc.iseas.edu.sg/about-us/home/item/4-enhancing-asean-connectivity

Bhattacharyay, B. N. (2010). Institutions for Asian Connectivity (ADBI Working Paper 220). Tokyo:

Asian Development Bank Institute.

Chia, S. Y. (2013). The ASEAN Economic Community: Progress, Challenges, and Prospects (ADBI

Working Paper 440). Tokyo: Asian Development Bank Institute.

Dao, N. X. (1999). Towards an ASEAN Road Networkds: Vietnam Study Results. Proceedings of the

Eastern Asia Society for Transportation Studies, Vol. 2.

ERIA Study Team. (2010). ‘Current Status of ASEAN Transport Sector’ in ASEAN Strategic Transport

Plan 2011-2015 (pp.3-1—3-95). Jakarta: ASEAN Secretariat and ERIA

Kaur, K. (2014, February 28). ASEAN’s Open Skies Dream. The Jakarta Post. Retrieved from:

http://www.thejakartapost.com/news/2014/02/28/aseans-open-skies-dream.html

Lee, H. & Plummer, M. G. (2011). Assessing the Impact of the ASEAN Economic Community (OSIPP

Discussion Paper: DP-2011-E-002). Osaka: Osaka School of International Public Policy.

Natahadibrata, N. (2014, April 28). ASEAN Connectivity Challenged by Domestic Blocks. The Jakarta

Post. Retrieved from: http://www.thejakartapost.com/news/2014/04/28/asean-connectivity-

challenged-domestic-blocks.html

Navarro, A. M. & Sambodo, M. T. (2013). The Pathway to ASEAN Energy Market Integration. Manila:

Philippine Institute for Development Studies.

OECD. (2001). Understanding the Digital Divide. France: OECD Publications.

Pushpanathan, S. (2010). ASEAN Connectivity and the ASEAN Economic Community. Retrieved from:

http://www.asean.org/news/item/asean-connectivity-and-the-asean-economic-community-by-s-

pushpanathan-deputy-secretary-general-of-asean-for-asean-economic-community

Susantono, B. (2011). Connecting Southeast Asia: A Blueprint for ASEAN Connectivity. Jurnal

Transportasi Vol. 11 No. 2 Agustus 2011: 77-86. Jakarta.

The Asia Foundation. (2010). Roll-on Roll-off Transport: Connecting Maritime Southeast Asia.

California: Author.

http://asc.iseas.edu.sg/about-us/home/item/4-enhancing-asean-connectivity

http://www.thejakartapost.com/news/2014/02/28/aseans-open-skies-dream.html

http://www.thejakartapost.com/news/2014/04/28/asean-connectivity-challenged-domestic-blocks.html

http://www.thejakartapost.com/news/2014/04/28/asean-connectivity-challenged-domestic-blocks.html

http://www.asean.org/news/item/asean-connectivity-and-the-asean-economic-community-by-s-pushpanathan-deputy-secretary-general-of-asean-for-asean-economic-community

http://www.asean.org/news/item/asean-connectivity-and-the-asean-economic-community-by-s-pushpanathan-deputy-secretary-general-of-asean-for-asean-economic-community


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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].

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e91c/fullerton-lecture-purisima-3d1d

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asean connectivity: impact on asean economic community

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