Title: Era of the AEC: Scenarios, Stakes and StrategiesTime: Tuesday, 31st March 2015 at 09.00am – 05.00pmLocation: Plaza Athénée Bangkok, A Royal Méridien Hotel

Programme

8:30am Registration and Coffee

9:00-9:15am Introductory Remarks Mr. Ken Koyanagi Publisher, Nikkei Asian Review

9:15-10:00am Keynote and Q&A Dr. Surin Pitsuwan Former Secretary General, Association of Southeast Asian Nations (ASEAN)

10:00-10:30am Coffee Break

10:30-12:00pm Panel I: Outlook for Regional Economies in the AEC Era

Mr. Kavi ChongkittavornSenior Fellow,ISIS Thailand

Assoc. Prof. Dr. Ruth BanomyongHead, Department of International Business, Logistics and Transport, Thammasat Business School

Mrs. Kesara ManchusreePresident, The Stock Exchange of Thailand

Dr. Jayant MenonLead Economist,Asian Development Bank

Moderator: Assoc. Prof. Dr. Thitinan Pongsudhirak

Director, ISIS Thailand

12:00-01:30pm Buffet Lunch

12:30-01:00pm A Luncheon Conversation: The ASEAN Political-Security Community and the ASEAN Socio-Cultural Community H.E. Mr. Lutfi Rauf

Ambassador of the Republic of Indonesia

to the Kingdom of Thailand

H.E. Ms. Jocelyn S. Batoon-GarciaAmbassador of the Republic of the Philippinesto the Kingdom of Thailand

Moderator: Assoc. Prof. Dr. Thitinan Pongsudhirak

01:30-03:00pm Panel II: Nikkei Asian Review’s “ASEAN100” Ranking – Seeing ASEAN as AEC

Mr. Tassapon Bijleveld Chief Executive Officer,Thai AirAsia

Mr. Pipit Aneaknithi Executive Vice President,KASIKORNBANK

Mr. Surong Bulakul Chief Operating Officer of Infrastructure,PTT PCL

Dr. Sarasin VirapholExecutive Vice President,Charoen Pokphand Group

Moderator: Assoc. Prof. Dr. Pavida PananondAssociate Professor of International

Business,Thammasat Business School

03:00-03:30pm Coffee Break

03:30-05:00pm Panel III: How CEOs see Industry and Business in the AEC

Mr. Kyoichi Tanada President,Toyota Motor Thailand

Mr. Darren Buckley Country Head,Citibank Thailand

Stephen JaggsManaging Partner,Allen & Overy (Thailand)

Mr. Serge Pun Executive Chairman,Yoma Strategic Holdings,Myanmar

Moderator: Ms. Gwen RobinsonSenior Asia Editor,Nikkei Asian Review, andSenior Fellow,ISIS Thailand

The public forum will be held in English only

Introductory RemarksMr. Ken Koyanagi Nikkei, as a Japanese daily newspaper, is determined to become a major regional publication. Last year it established its business headquarters in Singapore and its editorial headquarters in Bangkok. Why did Nikkei choose these sites? It is very closely related to the ASEAN Economic Community (AEC). Nikkei chose Singapore as its business headquarters because it has fewer regulations than its neighbours, it has simpler labour laws and has a tax advantage, despite it not being the best country for a media organisation to operate. As ASEAN member countries are able to abolish tariffs and non-tariff barriers, potential business opportunities will grow.

Despite the potential, there remains much scepticism about the AEC. There is an AEC scorecard which has filled out around 60-80% in most countries, but time is running out before the December 31, 2015 deadline. The ‘to-do list’ is very long, particularly with regards to non-tariff barriers, and free flows of people and services, which are only slowly improving.

People are still debating whether it is the right time to launch the AEC at the end of this year, but the AEC will always be a work in progress. It is not a scheme that can be launched in one shot on one day, but it will take time. We are already in the Era of the AEC, but we now have to talk about how we are going to manage and organise this new community in Southeast Asia.

KeynoteDr. Surin Pitsuwan [Transcript]“For the last seven years I have been the spokesman of not only ASEAN, but also East Asian integration as a whole. Looking back at the evolution of Europe, you needed champions of the idea of the vision of Europe. Europe was able to bring in people from a cross-section of European political ideologies – the Christian Democrats, the Social Democrats, Communists, Socialists, all colours working towards one Europe. Henry Kissinger once made a statement that East Asia – as far as growth, technological advances, innovation – is equivalent to 20th Century Europe. But as far as systems, processes and institutions, to take care of the problems among them and between them, he said that East Asia is still 19th Century Europe. This means that we need to build institutions, systems and processes in order to bring us together, integrate and take advantage of all the potentials we have in the region. East Asia is now the centre of gravity, and ASEAN happens to be right in the middle. East Asia is expected to be the ‘new locomotive’ to pull the global economy out of the crisis we have had since 2008.

ASEAN has something called the ‘Convening Power.’ No other country or dialogue partner could call a meeting and everybody would want to come, because they have problems or historical baggage between and among themselves. But when ASEAN calls a meeting, everybody would want to come. Europe is still knocking on the door for entry to the East Asia Summit.

Why is AEC so important, being hyped so much and is so attractive? Because AEC is the raison d'être of the ASEAN Community. It is the reason for the

ASEAN Community. I remember in the 1980s, leaders of ASEAN were using the phrase, “The oxygen of foreign investment has been diverted out from Southeast Asia to Northeast Asia, China, and West Asia to South Asia.” Foreign Direct Investment had been the main reason for growth, industrialisation and transformation in Southeast Asia. Now without becoming one integrated, holistic market, Southeast Asia and ASEAN would not be able to compete with China or India. So, from the very beginning it was the raison d'être, the reason for the being of the ASEAN Community. Why is it so attractive? Because it is so concrete and relevant: it is about pocketbooks, income, prosperity and employment, therefore everyone is interested in the AEC.

How much have we achieved? A great deal. You could only think about Southeast Asia without ASEAN. How much more do we have to do? A lot more, but ASEAN and the AEC are here to stay. AEC comprises of companies like AirAsia, like CIMB, Bangkok Bank, ThaiBev. These are the components that make AEC a reality. They are already moving into the region. When you land at Bangkok Airport there is a big sign from Bangkok Bank saying, “Local Expertise, Regional Aspiration.” CIMB says, “ASEAN For You: 2.4 Trillion USD Combined.” UOB is all across Southeast Asia already. These companies are components that make AEC a reality.

We have a long journey ahead. The problem with ASEAN is that leaders, ministers and bureaucrats conceive these things probably with little support, awareness or participation from the private sector. The private sector is waiting for the AEC to be a finished product, wrapped in a beautiful ribbon. This will not happen. Ken Koyanagi is right, it will always be a work in progress, which is much like the European Union. The EU is now trying to improve upon the areas where it is imperfect. ASEAN is a community in search of perfection continuously into the future, much like everything else. But ASEAN has a lot to achieve and to do. Of 2.5 trillion USD that we trade, we only trade among ourselves a quarter of that. An economic community cannot be sustainable at this level. Compared to NAFTA and the EU, we are far behind in terms of intra-ASEAN trade. We have tried to increase this for a long time.

We have to focus on the opportunities and potentials on the landscape. We need to encourage and support our SMEs to cross borders. We need to encourage our young people to cross borders – ASEAN is not for the old generation, now it is for the young generation to step up to speak in the ASEAN and global market places. We need to integrate with the global trading system.

There are four goals for the AEC, the first being an integrated market. Second, we have to be competitive, otherwise we won’t be able to compete with China, India, Africa or Latin America. Third, we must be equitable between ourselves. This is difficult, because from Cambodia, Laos and Myanmar to Singapore is a per-capita GDP difference of 54,000 USD per year. That gap is too wide for a community to be sustained. There is also internal inequity between ourselves: a country like Thailand for the past 13 years has had deep problems between the periphery and the centre, between urban and rural areas. We couldn’t really have a stable, continuous or effective governance system that could bring the best out of this ‘Land of Smiles.’ Inequities inside is critical for every ASEAN

country. Fourth, is to be able to integrate seamlessly and effortlessly with the global trading system. You can only integrate with the global trading and production system if you improve your standards and change your legal systems to accommodate the rest. You can’t ask for access to the rest of the world’s markets if you close your own. It has to be a two-way street. That is the logic of globalisation.

So, according to the scorecards, we have achieved more than 80% of our goals, but the measurement is only at the level of agreements and ratification of those agreements at the national level. It is a long way from national ratification or legislative bodies, to the full implementation of those agreements across borders.

ASEAN has stopped short of saying there will be a free flow of people because of its wide inequities. Europe has free flow of people, but it still has problems with a general trend for people to move into Western Europe. ASEAN learned the lesson from Europe, so came up with the idea for free movement of skilled labour. And yet, economies of ASEAN need labour from each other. The fact that it is inequitable means that it can help each other with raw materials, expertise and labour. Thailand alone has about 3-5 million foreign workers, many of whom are illegal. Many of these workers are working in the jobs that Thais no longer want to work in. The fishing industry in Samut Sakorn has more foreign workers than Thai nationals. If this labour walked out tomorrow, the Thai fishery industry and food production business would flop. We have these problems, but we need to find the balance, help each other and rationalise the foreign worker market ourselves. We need to protect them, give them support, welfare and human rights.

About 140 billion USD per year comes from outside the region. Going where? Not Thailand, the second largest and most diversified country in ASEAN, nor to Indonesia, the largest economy in the region. Why? Because of the lack of transparency in these countries. Where does it go then? Singapore, because it guarantees it will be transparent. Of the 140 billion USD that comes into Southeast Asia, 70% goes to the service industry, meaning that the quality of life is becoming expected, middle class is growing, education and logistics are in demand.

We must improve our institutions, particularly tariffs and non-tariff barriers. We have reduced tariffs: this is on paper and we have done very well. The ASEAN6 countries have achieved a very good record of eliminating tariffs among us and between us. But more NTBs have emerged because of inequalities. Why NTBs? Because we would like to protect our markets. The bigger the market, the more reluctant the country is to open up. I have found that countries in the middle like Thailand, Malaysia and the Philippines are the most difficult countries when it comes to complying with regional or international trade agreements. Laos, Cambodia and Myanmar are more eager to comply, because they have a lot to gain.

Hilary Clinton came to see the ASEAN Secretariat when just had just become Secretary of State in 2009. She asked me a pointed question: “You have this

Charter. How much to you intend to practise?” She came from the perspective ASEAN a bad name; you come to the summit, you have an agreement and then you forget about it. I said, “Madam Secretary, we have to make it a ‘living document’, much like your Declaration of Independence or Constitution. Thomas Jefferson penned the phrase, ‘All men are created equal, endowed with certain unalienable rights, among them life, liberty and the pursuit of happiness.’ But he didn’t include the slaves who are human beings. He didn’t include white men without property. He didn’t include the Indians. He didn’t even include women. But every generation of American leadership have to appeal to that document in order to expand their own space of freedom to pursue their happiness, and find their own quality of life. Whether it’s Lincoln, FDR, Kennedy or Obama. ASEAN will also have to aspire to perfect our community knowing that it will take effort, that the private sector needs convincing and assistance. You can’t wait on the side-line and wait for it to benefit you. You have to take risks with us, you have to make a contribution. We have to make it a living document.” The private sector has to make a move and take risks. This requires a lot of effort from all of us. If ASEAN succeeds, the world will have one less region to worry about. Help ASEAN succeed and it will be beneficial for everyone.”

Moderator: Dr. Surin both peddles ASEAN to the world, but also prods ASEAN from within.

Question and Answer

Moderator: When the ASEAN Charter was conceived a decade ago, they didn’t know what they were getting into. It was largely a reaction to external events, but they also came up with the idea of Economic Community, Political Security and Socio-Cultural unity. Now, arguably, the Political Security pillar is a big problem, and if it is not managed then economic cooperation and integration will be irrelevant. The peoples of ASEAN also don’t know each other, they don’t speak the same languages and have not travelled widely in the region.

Public Question: Dr. Surin, what is it actually that will happen come New Year’s Eve 2015?

Surin Pitsuwan: You will most likely see a stronger commitment to overcome some of the major challenges to ASEAN. One would be the elimination of NTBs. ASEAN leaders will know that the world will not take them seriously if they don’t address this problem. That is already being felt around the region.

From ratification, which is legislative, to implementation is a long process. Do you have open borders, immigration officers 24/7, customs officers who understand the requirements and commitments? That is difficult. Malaysia knows that after three years of relatively new members holding the ASEAN Chairmanship, the time is ripe for an old member to make progress, solve issues that need to be corrected, and implementation of agreements that have already been made.

Improving the figure of 25% trade amongst ourselves will targeted, otherwise it will not be a viable economic community. Perhaps it is the nature of the landscape, but it is difficult to convince the world that you are one integrated market when the level is so low.

Moderator: Malaysia is the current Chair: it is very equipped, has a good track record and will want to do a lot this year. Next year is Laos, and in Vientiane they are already preparing to Chair ASEAN successfully. When we get to December 31st, people will be celebrating, but what will we see? When the dust settles the first week of January, what will we see, a new visionary statement about AC 2.0?

Surin Pitsuwan: We will all be recovering from the hangover, at least from the euphoria of ‘everything ASEAN!’ Laos will inherit momentum from Malaysia. Laos can also focus on the coordination and cooperation, particularly on the Mekong Basin. Japan, Australia, the United States are certainly committed to the GMS. When we talk about equity and improving ASEAN, we need to talk about the GMS. It would be logical for Laos to focus on bridging the economic and social gaps in ASEAN.

Moderator: The private sector is really the locomotive or thrust of economic integration. The ‘private’ involves not only ASEAN companies, but also multinationals. If you leave ASEAN to governments and officials, it goes very far on paper but stops short on action. So we have to rely on other drivers. What advice to you have in term of the peoples of ASEAN? How do we get them to know each other better?

Public Question: What potential impact will the Asia Infrastructure Investment Bank (AIIB) have on the AEC?

Surin: I think the Chinese plan is something that is necessary and filling up the vacuum. We have talked about infrastructure financing for a long time. ASEAN has set up its own small committee and fund which is administered by the ADB. We want to use that 400 million USD to leverage, to encourage even more money from outside or the private sector to come in. But it is not enough. The need for infrastructure and connectivity is real. The Community will never take off if we can’t ship our goods fast and effectively to each other’s markets. In fact, this has been one of the oft talked about NTBs: ships carrying perishable goods are only allowed to dock in certain ports and at a distance from the market. By the time the food items reaches the shop front, they have already perished. We need connectivity. We need infrastructure. What the Chinese are saying is that this is part of the contiguous landscape. For China, building roads and railroads in Southeast Asia is not foreign investment. It is a continuing extension of the infrastructure to serve their own economy, to bring in goods and products from outside, and to export their own goods and products. This is no different from the time that the United States was trying to build the Western Hemisphere with its Monroe Doctrine. It’s a similar mentality, but targeted to something that is needed among Asian countries. It is not foreign investment, it is investment connected with domestic need and necessity. It is very strategic, welcome and necessary.

Public Question: Any advice on how to materialise the AEC as a ‘Living Document?’

Let’s take Thailand as a case study. What does Thailand need to do to improve communication skills? When you come into Bangkok you don’t feel it being cosmopolitan, particularly compared to Manila, Kuala Lumpur and Singapore. Nothing wrong with that, it is our inheritance from the past. We have never been colonised. But we have used that as an excuse for a long time. We need to open up more. We need English proficiency, a new mentality and better education. We need to open up our minds. Thais are not very fond of leaving their countries to work outside. I think ThaiBev is experiencing this problem now. They are trying very hard to train a new generation of businesspeople who are prepared, equipped and willing to move outside of the Thai economic landscape. Other companies will have to do the same thing.

I have seen younger Thai technocrats and analysts working for multi-national companies analysing markets in ASEAN, assessing companies in ASEAN for extra-ASEAN companies to come in and take over. There are fewer Thais working for Thai companies trying to understand the regional landscape, trying to take over these companies in the landscape of ASEAN. We have to change that mentality.

Panel I: Outlook for Regional Economies in the AEC Era

Dr. Jayant MenonThe ASEAN Economic Community has made some important achievements to date, but there are a number of remaining challenges remaining for the next nine months, particularly in getting the region’s businesses and broader community more involved in the process.

Reform in ASEAN did not start with the announcement of the AEC. ASEAN has a long history of working towards economic reforms, and the creation of the AEC is a culmination of years of efforts starting with the decision to establish the ASEAN Free Trade Area and the ASEAN Trade in Goods Agreement. AFTA, in a sense, sets the platform for the AEC, and indeed many of the achievements of the AEC scorecards come from AFTA. While AFTA has made huge improvements in reducing tariffs, it is also worth noting that the ASEAN countries have also pressed ahead in removing the same barriers with non-ASEAN countries in a non-discriminatory basis, allowing the ASEAN countries access to the region and worldwide. This is the true sense in which ASEAN has embraced liberal capitalism. This is distinct to modern-day Europe which is considered a ‘fortress,’ which has focussed largely on reforms within the group.

Intra-ASEAN trade is stuck at about 25%. There are many good reasons for the region being stuck at this threshold. Most of the ASEAN economies are still largely competitive, rather than complimentary: they have similar endowments, they produce similar goods and compete in the same third markets. They cooperate through the regional supply chain, or “Factory ASEAN” as it’s sometimes called, which is where further growth will develop (as well as in services and consumer goods).

The real challenge in ASEAN, as it is everywhere, is Non-Tariff Barriers (NTBs). As tariffs in ASEAN have been going down, NTBs have been coming up, in a sense, to replace tariffs. Attention needs to be focussed on removing these NTBs, but every time an NTB is eliminated, another barrier crops up to replace it. This is a real challenge facing ASEAN going forward.

Investment is another good news story, especially in the ASEAN6. These are countries which have transformed their economic from largely agricultural production to manufacturing, and now services through being open to FDI. There is no need to really sell this story to the original members; they know and have benefitted from it. The AEC will allow this to continue.

Based on ASEAN’s own self-assessment Scorecard, the progress so far is around 80%. With the amount of time remaining, it seems that ASEAN will not meet all of its targets by December 31, 2015, but they have come a long way. It also doesn’t really matter that ASEAN won’t hit all of its targets, because the AEC is a journey, not a destination. Work will have to continue for years after 2015; indeed maybe it’ll never end as we try to improve the investment climate and to meet all of the objectives of the four pillars.

However, the rate of progress has been slowing as the ‘low-hanging fruit’ has already been picked. Now the more difficult or sensitive issues will have to be focussed on now.

There are a host of challenges, ranging from NTBs, labour, and development divides and inequities. Economic gaps are narrowing (new members are growing faster than old members), but they don’t seems to be narrowing fast enough. There also seems to be inter-country inequalities being replaced by intra-country inequalities. Many of the surveys done by the Business Advisory Council of ASEAN paints a bleak picture of low awareness and even lower preparedness for the AEC, particularly private business.

Ratification of regional agreements might seem simple, but the real challenge is implementation. Domestic laws might have to be changed which could attract opposition from domestic vested interests trying to protect their market share, so governments must show leadership to push through reforms. They must also ensure that enforcement and implementation is legitimate. In ASEAN, there is more ‘carrot thank stick.’ What recourse do you have if a country does not live up to its commitments? It is very limited.

The way to think about the AEC is not just meeting a set of targets, but the AEC should be seen in a broader perspective as part of the development aspirations of its members. The AEC should part of a goal to improve livelihoods, increasing sense of community in the region and ultimately increasing employment. If it is to achieve these aims, it will cost a lot of money. This money will have to come not only from regional banks, but also from ASEAN member states’ domestic budgets.

Moderator: Don’t worry about deadlines. The timeline for the AEC should be considered as ‘flexible.’ The income divides within societies but also across borders will be a thorny issue for the region. Of the 55% awareness of the AEC, probably 90% of that comes from Thailand alone. The most fundamental issue, however, is how to get regional integration without supra-nationality. There are plenty of carrots, but there are no sticks in ASEAN.

Assoc. Prof. Dr. Ruth BanomyongThe question on everyone’s lips is, “What will happen on January 1st, 2016? Will the world change?” The quick answer is, “No.” However these questions are still valid, as it is important to try to foresee the future so that we can plan ahead from government and private sector perspectives.

So, what will happen if ASEAN is able to integrate and successfully establish the AEC? If ASEAN is able to implement everything that they promise, what would happen? To determine this, a tool known as a ‘geographical simulation model’ can be utilised. The outputs of this model can point to answers to these questions.

A number of scenarios were created; first, a ‘baseline’ established on the premise that none of the goals of the AEC were achieved in the region. The second scenario was based on whether all of the ASEAN countries were able to meet all of their commitments under the AEC; that information can be found on the Master Plan of ASEAN Activity which lists all the various infrastructure projects and institutional arrangements that have to be completed.

Overall, without the AEC, ASEAN will gain 0.32% by 2030. What should be noted though is that ASEAN countries will not benefit at the same level. Based on the simulation comparing implementation or non-implementation of the AEC Master Plans on connectivity, in terms of percentage-growth the country which benefits the most is Myanmar. This is not surprising as it is starting from a low foundation. However, the country that seems to be losing out from going into regional economic integration is Cambodia, slightly. It does show that factors of production will move around; Myanmar will be able to attract more investment and develop a higher level of growth. Another way of looking at these scenarios is looking at the actual values of how much each country will get from ASEAN economic integration, and in that case the country which benefits the most is Indonesia, which contains almost half the population of ASEAN and which has an emerging middle class. The graphical map (above) is even more interesting. Red represents ‘higher than expected level growth’ while blue represents ‘lower than expected growth’ (not necessarily negative growth). Thailand says that it wants to be the Hub/Kitchen/Detroit of Asia, but looking at the map Thailand’s growth isn’t as strong as the rhetoric would suggest. In maritime Southeast Asia, it is notable that the island of Java is coloured blue, because this map does not take into account national plans for development. Because of the congestion already in Java, a lot of investment and economic activity will be pushed outside of Java Island and further into Sumatra or Kalimantan.

Apart from having to follow the ASEAN Master Plans on Connectivity, ASEAN member states also have their own national master plans. In another scenario (below i. and ii.), it is assumed that all of the countries have been able to implement the AEC, but either i. they have not been able to implement their national plans, development plans and trade agreements, or ii. they have implemented all of their national plans and trade agreements. It is interesting,

that scenario ii. the country that seems to benefit the most is Cambodia. So what does this tell us? We have ASEAN and the AEC, but the results and benefits from the regional plans need to be moderated with countries’ respective national plans. Looking at the case of Thailand, it is coloured slightly pink or white on the map, which suggests that with its delayed or underdeveloped projects, benefits not be as forthcoming as expected.

These data present important implications for government and private business. First, while they’re simulations based on assumptions, they give some foresight on what could occur. From a governmental perspective, if a country is not happy with these simulations, they will have to work harder to ensure they benefit from regional and their national plans to attract further investment, improve infrastructure and increase trade. From a private sector perspective, it gives insight into areas for growth.

Mrs. Kesara ManchusreeThe Stock Exchange of Thailand as well as other Stock Exchanges in ASEAN countries, have been discussing integration for at least five years. There is growing dialogue between the ASEAN Exchanges, occurring now at least twice per year. From the capital markets point of view, money can flow anywhere. The market capitalisation of the SET is now at about 120% of GDP. What can be seen is that Thailand and the Thai market has moved from low-income country to an upper-middle-income country. For 2014, the net profit growth (excluding the energy sector), the SET grew about 5% compared with the economy which grew at only 0.7%. However, we cannot just depend on the local market. 40 years ago Thailand was able to grow because of developments on the Eastern Seaboard and the energy sector, but in this current period investors must look abroad. 45% of the revenue of the 600 companies listed on the SET comes from offshore, 25% of which is from ASEAN alone. Among these 600 companies, about one-fifth operate offshore run offshore businesses, more than double that of 10 years ago. As a result of many top-tier Thai firms already expanding into Cambodia, Laos, Myanmar and Vietnam (CLMV), consumers in the region love using Thai products. Looking into the capital markets among ASEAN markets, in Thailand, Malaysia and Philippines the stock markets are much larger than

the banking and lending sectors (in Singapore this is reversed, as it is a regional banking hub.) The capital markets in ASEAN have grown very strongly.

In capital markets, it must be remembered that despite growing linkages and exchanges, every country is still competing against its neighbours and that there are still huge development discrepancies within the region. Although we are moving towards integration, there remains ‘competitive cooperation’ which will endure longer than many expect. It should also be noted that competition from non-Southeast Asian sources will increase as ASEAN becomes a more attractive proposition. Competition from the global market may thus drive cooperation between ASEAN stock exchanges.

Moderator: It seems that some ASEAN economies are still bank-based rather than capital market-based. The Thai listed companies investing abroad, it seems that they follow geography as it seems as if their investment strategies are focussed on mainland Southeast Asia.

Mr. Kavi ChongkittavornThere are 265 days until the AEC deadline. Can all of the 667 action plans be met before January 1, 2016? So far, 80% have been completed, but these are the ‘low-hanging fruits’ ripe for the picking. The remaining 20% will be the most difficult, and the future of the AEC will hinge on whether these can be completed.

The simulations provided by Dr. Ruth will be impossible in the case of Thailand. The connectivity plans of the region are extremely ambitious, but so far all of these good plans haven’t been properly implemented (although China’s AIIB may come to the rescue on this front). Surin was one of the most active Secretary Generals of ASEAN, but he had no real power or ability to distribute funding. ASEAN is an organisation which has survived for nearly 50 years by being neither too weak nor too strong. ASEAN has a convening power and had become central to the regional architecture because it is not too threatening.

People are so interested in the AEC because it is about dollars and cents. But the AEC will go nowhere without the success of the ASEAN Politico-Security Community or the most important ASEAN Socio-Cultural Community plans. So far, after the ASEAN Charter and ASEAN flag, the only semblance of ASEAN Identity is the ASEAN Lane at airports in the region. Thailand sees the ASEAN Lane as a temporary measure to promote tourism, they miss the fact that it is part of the ASEAN Charter as a permanent measure to build identity and connectivity.

There is slow progress on implementation of its Community plans. ASEAN, and Malaysia as its current Chair, would like to push hard on this issues. When Malaysia Chairs, big things happen (although this time it seems some domestic turmoil might dilute its Chairmanship.) Surin mentioned that ASEAN needs a ‘Champion,’ and this year Malaysia will try to promote the AEC so that the implementation figure gets up to 95-97%.

Thailand has a lot of problems, and it appears that it won’t be ready for the AEC. One of the biggest problems facing ASEAN is implementation at the national level. In the case of Thailand, there are around 106 pieces of legislation that the National Legislative Assembly need to amend or pass. Thailand is the first country to make the AEC campaign an industry. Nearly 9 billion baht has been used to promote the AEC in every city and village in Thailand, however there is little recognition of what it actually represents. The Thai government has targeted this campaign towards the private sector, but it is the private sector which has been most problematic. Small and Medium Enterprises, in particular, are not ready, they are scared of foreign companies and worried that they will not be able to compete. Compared to SMEs, large companies are much better positioned and prepared. Thailand does have academic ASEAN experts, but they tend to think in silos. They do not see the AEC in a holistic manner. Since 1975, Thailand has put ASEAN at the cornerstone of its foreign policy. AEC, therefore, should be the heartbeat of Thailand.

Panel I: Question and Answer Session

Moderator: Very sobering, but realistic. The great frustration and attraction of ASEAN is that once you start to talk it down, it’s not as bad as you make it sound. But once you talk it up, it’s worse than you think. The reality is somewhere in between. Public Question: A few weeks ago the Central Bank governors met and announced an ASEAN Banking Integration Framework. What are their intentions, and how will it shape financial integration going forward?

Jay Menon: This should be considered the broader context of what is going on with ASEAN+3. A key initiative associated with this is the Asian Bonds Market Initiative which aims to deepen local currency bond markets in the region and increase their role in financing. This comes out of the ‘double-mismatch’ problem which sparked the Asian Financial Crisis in 1997, when currencies and durations were not in line resulting in huge exposures when the exchange rates adjusted. All of these initiatives feed into the broader development of regional markets for banking, capital and other forms of finance.

Moderator: On the subject of the Asian Bonds Market Initiative, how do you view the Asia Infrastructure Investment Bank initiated by China? Now pretty much everyone has joined, except for the United States. This will be a daunting challenge to the ADB.

Jay Menon: This is a personal view: I think the AIIB is a welcome development. We have heard about the tremendous financing gap that exists in this region for infrastructure. ADB, the World Bank and bilateral agencies cannot come up with the necessary money required for construction. China has the world’s savings, so they’re looking to use it productively. The only concern, which has been widely voiced, has been about governance. Will this be a race to the bottom in terms of regulations, protections and safeguards? The approach taken

by the AIIB is to adopt the national rules and laws that exist in each country, the ADB and World Bank have standards that usually exceed domestic regulations.

Moderator: This is a case where the US is out, but Japan is ambivalent.

Public Question: Not all SMEs are fit for more regional integration and cooperation, but what are the key elements that are preventing SMEs from entering the market? Is it access to information, more structural issues, technology gaps, or role in the regional value chain – what is holding them back?

Ruth Banomyong: The biggest challenge for SMEs is that daily life is a constant struggle just to survive. They don’t really have much time to reflect or think about what the future holds because they have to survive the present. Of course, they hear about the AEC frequently, but they have no idea what it means. SMEs must be given the skills to allow them to move within the AEC. They are also often concerned with the challenges, rather than the potentials, of the AEC, particularly with regards to a potential flood of foreign competition coming into Thailand (despite the reality being that foreigners are all already here). The initial impression for SMEs, before thinking of investing abroad, is to think of how to protect their domestic business.

Moderator: This sounds like a Public Goods problem, so perhaps the ASEAN governments could step in to help, facilitate or finance some of the connections.

Kesara Manchusree: In terms of the SET, over the past few years there have been small companies coming to list on the exchange, but we have found out that those new companies have plans to expand into the CLMV (not ASEAN as a whole).

Public Question: When I go to these seminars, I get a feeling that there is some hesitancy or even reluctance from Industry on the AEC. Is there any sector, in any ASEAN country, that is pushing for the AEC?

Public Question: Prof. Ruth has argued that Indonesia will greatly benefit from the AEC. Could you elaborate a little more where the benefits will be seen?

Moderator: Any sector in ASEAN that really wants the AEC? The geopolitics of the logistical ambitions of China: the ADB has been a prime mover of the GMS, but is China stealing its thunder now?

Jay Menon: China is a member of the ADB. They would like to be a bigger shareholder in the ADB, World Bank and IMF, which so far they haven’t been able to achieve, so the advent of the AIIB is probably a response to that. The world is changing, and the institutions don’t yet reflect those changes, which is what is frustrating new emerging countries like China. In the GMS, China is playing an important role in terms of developing infrastructure. There are some very unusual projects such as rapid rail links between Laos and China (which

will likely be a disastrous project for Laos), but by-and-large, China’s role has been very positive.

There appear to be more sectors rallying against the AEC than calling for its acceleration, there is still a protectionist sentiment in ASEAN, especially in the new member countries. We also have to distinguish between national interests and vested interests. There are a lot of vested interests standing in the way of realisation of the AEC, because quite understandably they’re worried about losing market share to foreign entries of firms. Reforms must take place, consumers should benefit by having more access to products and services at a competitive price, and that incumbents do not convince governments to limit entry.

Kavi Chongkittavorn: The areas that the AEC is pushing are tourism and education. Many countries are trying to make sure that travel within ASEAN is visa-free. Implementation of this agreement is long overdue.

Panel II: Nikkei Asian Review’s ‘ASEAN100’ Ranking – Seeing ASEAN as AECModerator: The media and Thai government have focused a great deal on regional integration and the AEC, particularly the potential it will bring for firms to expand overseas. Thai firms are a part of this wave of regional expansion. But when a region expands, not only firms within the region see the opportunities, but also multinationals outside ASEAN and Asia. How will intensified regional integration, which allows multinationals to enter, affect your industry? How competitive they would be and would they post threats to regional players?

Mr. Tassapon Bijleveld: People are the key drivers for every business. Within the ASEAN region, there is great diversity and gaps among people in terms of languages, education, and culture. However, Thailand would continue to fall behind further if the education system remains below other ASEAN countries’ standards. In addition to human resources, the physical and network infrastructure would be a hurdle to foreign investment into Thailand, particularly in the next 15 years. Currently, Thailand has lost many opportunities due to its insufficient infrastructure. At this stage to be regionally competitive, Thailand should aim to enhance these key drivers same level as other ASEAN countries within the next 5-15 years.

Mr. Pipit Aneaknithi: Banks play important roles in facilitating the movement of trade, investment and funds. Competition within the region for local banks has intensified as foreign multinationals have established themselves in the past several years. The regional integration in 2016 will post opportunities especially in terms of intra-regional trade and investment. From historical data, the Free Trade Agreement (AFTA) between ASEAN members boosted financial flow not only in ASEAN but also from ASEAN to China. During 2007-2008 Financial Crisis, stable regional trade shielded ASEAN from global financial crisis. In the same line with what Tassapon has mentioned, soft infrastructure, quality of workforce and legal infrastructure to facilitate borderless banking will benefit the region enormously, not only to the banking industry but the overall business and economics of the country. In addition, Thai firms will also need to start learning to adapt to others’ business practices in order to learn and create international business platforms and business models to counter upcoming competition. Mr. Surong Bulakul: ASEAN is a unique region with a combination of high growth, low GDP versus low growth, and high GDP countries. The opening up of borders will let the free flow of goods, capital and labour. Beside positive perspectives, it is also important to realize that vast differences between countries still exist. The laws and regulations of each individual country play a significant role in facilitating or impeding free flows of goods.

In term of energy, countries such as Indonesia, Malaysia and Brunei are the region’s main energy exporters while Thailand, Singapore, and The Philippines are facing energy deficiency problems. PTT has been investing in the region for more than 20 years as suppliers and traders, and thus local knowledge is

essential for domestic business. For example, foreign energy retailers such as Q8, Petronas and BP have tried to penetrate Thai markets in the past 20 years but could not grasp market share from domestic players. However, when the business landscape changes in the coming future, the larger economies of scale and scope will allow local players, as well as foreign multinationals, to gain more competitive advantages. Consequently, winning local markets through services will be more important than ever.

In addition to market success, the other crucial determinant on energy firms’ success is the access to natural resources. The major barrier of this industry is the protective regulations to their national resources, as seen in the case of Thailand and Cambodia. Both countries share the same resources under South China Sea, however, political sensitivity between them impedes oil and gas exploration within the region. The regional integration will need to eliminate these non-tariff barrier issues and promote collaboration between member countries. There may seem to be opportunities for big business, but on the contrary, this may raise concerns among small and medium enterprises who are less competitive and might suffer from the greater competition.

Dr. Sarasin Viraphol: Although there may be more competition under the AEC, the market will also grow enormously and thus businesses will benefit from greater economies of scale and scope. CP and its competitors will benefit from access to larger markets, capital and qualified people. CP welcomes competition because competition means access to more market opportunities and potential customers, corporate clients, and stakeholders. What makes CP standout from other competitors is the strategy it has employed. CP has developed effective business models not in only Asia, but also Europe where it can enjoy a long-term benefits.

Moderator: Business in general tends to feel good about the expanding pie that allows them to benefit from economies of scale and economies of scope. I just have one follow up question before a specific question to each firm. We have heard so much about how regional integration would facilitate business, but in your industry, do you think that business have taken enough advantages of all these regionalization schemes that are out there?

Mr. Tassapon BijleveldThe aviation industry is one of the most protected industries in the region. Thai AirAsia has been in the industry for more than 11 years. When it began, low cost carriers (LCC) were not very well known. At the moment, major airports in Singapore, Indonesia, and Vietnam are fully filled up during the 2 am – 5 am period. The turnover of both domestic and international airlines operators is at 3-5 minutes at Don Muang Airport. As a consequence, it is a natural barrier from existing competitors and the limitations of airport capacities that impedes new comers to enter the industry. To answer the question, although rules and regulations are open for free competition, there are still hidden barriers in the competition, meaning that newcomers will need to look for opportunities elsewhere to grow. At the same time, new infrastructure to serve the market is also needed.

Mr. Pipit Aneaknithi: Within ASEAN region, the financial services sector can function very well. However, as competition rises in the near future, local players will be forced to differentiate their segmentation from personal banking, corporate banking, and international trade service or even to micro-finance. Regulators will need to work together to promote true liberalization for the future sustainability of the flow of finance and to facilitate trade within the region. Further, full liberalization would allow financial access to rural areas across the region. Mr. Surong Bulakul: Thailand is fortunate that as a net importer, it does not suffer from oil price falls. The main objective for PTT is to explore and secure energy for the whole country. ASEAN integration would allow more access to energy for those facing energy deficits. There are different energy business environments in every country in the region. For example, Laos has a very clear environmental friendly policy. The country does not welcome heavy and dirty industry, but rather pushes forward renewable energy. Therefore, PTT invested in the Xayaburi Damn in Northern Laos to provide hydro-electric energy for Thailand, particularly in the north and north-eastern part of the country. On the other hand, Myanmar, which has one of the richest resource endowments in the region, allows PTT to exploit natural gases, hydro-electronics and coal. In the southern part of the country which connects to Malaysia, there are coal production sites to supply coal for electricity generators. Regional integration will lower energy prices as there will be more internal supply from exporting countries. Once integration is implemented, it can be ensured that the competition is healthy.

Dr. Sarasin Viraphol: Many of the concerns at the moment are only at the government/political level which beyond corporate control. The issue for the moment for every manufacturer is to encourage growth and consumption in the region without fear of inflation, or fear of possible impact on creating an income gap. These concerns should be addressed by the governments of the country, and its people as it will reap the subsequent benefits. Thailand wants to be a smart economy, but by looking around, there is still no evidence to show the potential growth. Eastern seaboard project in the past 30 years has not been fully implemented. Thailand may need to be reinvented in order to create growth which will attract foreign investment. Currently, Thailand is not ready for AEC yet and if the country only relies on its existing inheritance, it will not benefit but rather suffer from AEC integration.

Moderator: One of the key issues market integration is that firms would have to adjust their overall strategy in terms of regional operations. What is your strategy plan for regional integration?

Mr. Tassapon Bijleveld: ASEAN is not one community as Europe where a business can be set up under a single law, using a single currency. Before EU reaches that point, they experienced many difficulties. ASEAN has just started AEC Blueprint, and the markets are still separated. For AirAsia, there are AirAsia hubs in Malaysia, Thailand, the Philippines, Singapore, India, China, and Japan, which although the planes hold different nationalities, they operate under a single platform. Therefore, people can easily connect from place to

place which allows AirAsia, as a group, to grow borderless under a single brand. In addition, Thai AirAsia has established connections from spoke to spoke in small cities to encourage more passenger and cargo traffic within the region. For example, Thai AirAsia started Undonthani – Phuket route to allow passengers from Laos to fly directly without having to connect via Bangkok. In addition, it also set strong cargo routes near major industrial zones to prepare for more flows of goods in the future. For the coming regional integration, other than road and rail, airlines will play important roles in connecting the region together.

Mr. Pipit Aneaknithi: By considering financial flows in the region and between ASEAN and China/Japan, it is very challenging for the banking industry to capture the growing market. For Kasikorn Bank’s strategic direction, the preparation for people to serve foreign clients is an essential part of the service industry as it will facilitate trade and investment flows not only at the regional level but also at the global level. Currently Kasikorn Bank is collaborating with different international banks to exchange knowledge through human resources. For example, Kasikorn Bank is currently working in collaboration with Japanese banks by sending KBANK staff to Japan and invite Japanese officers to work in Bangkok in order to learn and to facilitate international clients. For the next step, KBANK will continue to promote this collaborative business model between ASEAN regional banks to improve cross-border financial sector cooperation and to assist corporate client expansion.

Moderator: As PTT is a state-owned enterprise, how does PTT act as a private company to serve government interest as well as shareholders’ interest at the same time?

Mr. Surong Bulakul: Basically, the roles of PTT are to ensure the sufficiency of energy and to maximise shareholders’ value. PTT has had leverage outside Thailand particularly within ASEAN (except Brunei) for more than 20 years and has gained experience and local knowledge very well. For PTT businesses, ASEAN can be divided into 2 parts; Mainland ASEAN and Maritime ASEAN. The motive for PTT to go outside Thailand is mainly for resource seeking in Myanmar (coal production sites), Laos (hydro-electronics power plants) and in the gulf of Thailand (oil exploration sites). However, PTT is also expanding into other related business such as gas stations and retailers (in a Joint-Venture agreement with CP) to strengthen its business and to provide greater value to its customers. In the near future, PTT is expected to have gas stations in every regional road and highway to support road transportation including northern highways that link from China to Rayong and from India through Phisanulok to Vietnam. In addition to road transportation, PTT also serves the aviation industry in the region, in which will allow mutual benefit if both industries are going in the same direction.

In order to prepare for the integration, PTT realised the importance of adapting to local customers so that foreign players cannot grasp market share in Thailand. Therefore, when PTT invests abroad, it also adapts its strategies to fit local cultures and business environments. In addition, PTT, together with its

partners will need to establish strong cooperation to support each other’s growth within region.

Dr. Sarasin Viraphol: CP is known in the region and elsewhere as a company that is successful everywhere, but particularly in China. CP’s overseas operations are most diversified in China. Besides China, India is also an important economy, as well as the future expansion of ASEAN. Just like PTT, CP is practically in every country in ASEAN except Brunei. CP businesses actually has no boundary. In the value chain, CP can select and choose which part of the value chain it wants to emphasize. So today, CP is in every part of the value chain from upstream to downstream. CP produces animal feed and food for people and has businesses in logistics, retail, and coffee (not only TRUE coffee but also another brand call ‘Community Coffee’.) CP thinks beyond ASEAN’s 600 million people, focusing also on the 3 billion people in China and India. In the past, CP has received support from not only the Chinese government but also Indian government. Therefore, if ASEAN government creates a single standard for every country, it will allow CP to enable every part of the society to benefit. It might sound crony but in Asian business, all sectors including the state will need to rise together to ensure the sustainability. CP is very confident and very optimistic about its business model. The rest of growth will depend on the government’s vision and strategy of how the country will position itself in the global marketplace.

Panel III: How CEOs see Industry and Business in the AEC

Moderator: We are here today with a very distinguished panel to hear about how CEOs in industry and business view the AEC. Since we are looking at the CEO view of AEC and ASEAN as a whole, I’d like to turn to each of our panellists to tell us about their businesses and its positioning in the region.

Kyoichi Tanada: The Asian market has continued growing since the currency crisis in 1997. However, in 3 countries, India, Indonesia and Thailand, the growth has been dramatic. Thai automobile market dramatically surged since the early 2000s. In 2012-2013 the number were boosted due to the baht order arising from the flood in 2011. And the first car policy buyer policy is reaching 1.4 million units.

In 2014, the market has dropped sharply due to domestic factors, the political situation, and increased household debt. Last year the market was 31 per cent. In 2013, the total production was close to 2.5 million units, which was the highest ever. In 2014, this dropped to 1.9 million due to decreases in domestic demand. However, Thailand still has the highest production volume in ASEAN. 40% of automobiles manufactured in Thailand came from Toyota. In 2014, the export unit reach 1.1 million units. Exports account for 781 billion baht, which broke the previous year record high. Cleary, the automobile industry is the key industry contributing to the Thai economy. Many countries now import cars from Thailand. It can be said that Thailand is one of the biggest car export houses in the world.

The history of Thai automobile industry can be broken down into 5 main stages; in the 1960s, the Thai government began to attract foreign investors with privileges such as tax exemptions. In the 1970s, after the government had attracted foreign investment to Thailand, the government then increased import tax aiming to protect domestic industry. The purpose of this policy was to also increase the local plants in Thailand. Then, in 1980s, the Thai government focusing on the parts supply industry and more Japanese suppliers came to Thailand. In 1990s, the market policy in ASEAN region seized upon this opportunity and encouraged the Thai government to promote exports. Since 2000, Thailand has come to be widely known as the Detroit of Asia.

Since Toyota Motor Thailand’s (TMT) establishment in 1962, TMT has grown alongside Thai government policies and the Thai automobile industry. We have established 3 assembly plants and 1 engine plant since commencing operation here. Toyota’s main products are the Vigo pick-up truck and Yaris eco-car.

TMT employs nearly 170,000 individuals, including those in factories and marketing. TMT is the headquarters of Asia Pacific region. In Thailand, nearly 2,400 companies are related to the automobile industry employing around 540,000 employees.

There are 2 factors with the potential to enhance the automobile industry within AEC. The first is economic expansion. The second is the infrastructure, logistics and customs processes enhancement. It will further benefit Thailand as a production hub and create supplies and operation chains within the ASEAN

region. So, as for the potential of the growth in this region, TMT sees a large population with low rates of car ownership. Now the population of the Mekong Region which includes Thailand, Vietnam, Myanmar, Laos and Cambodia is 230 million, this is equivalent to Indonesia. Compare to Thailand, GDP of other Mekong Countries are still low and car ownership is limited. TMT expected huge market growth once the economy expansion will increase people’s salary in this region.

The Mekong is widely connected by land and one economic zone with Bangkok at the very centre. The AEC aims to have a single window which means to simplify custom procedures at borders. Travel between Bangkok and Hanoi will be shorten to just 2-3 days from the current 5-15 days. Enhanced the inter trade transaction within the Mekong Area will also changing logistics and procurement strategies. TMT aims to consolidate Thailand’s position as a business operational hub with this in mind

Thailand has played a long-standing role as an important export centre in automobile industry. Second, we believe that AEC will increase opportunities for all industries in terms of market and supply chain in the region. Third, TMT aims to position Thailand not only as a production and R&D hub, but as a business knowledge hub in the Mekong region to be ready for market expansion. In the near future, business expansion will take place in the Mekong and ASEAN region through the AEC. And TMT hopes that it can grow together in this new era of opportunity.

Darren Buckley: Citigroup has been around for 200 years and it has been in Asia since 1902. It operates across 17 countries in Asia-Pacific. In 2014, income from the Asia-Pacific alone was 36% of Citigroups’s global net income. Within ASEAN, we have operated since 1902 and now have operations in 7 of the 10 ASEAN member states. So far, Citigroup has not entered Myanmar, Laos and Cambodia, however ASEAN remains a very significant part its overall Asian business. The group serves around 4 million clients in the Asian region with 37,000 employees. Citi also provide a wide range of services through, for example through a technology hub in Singapore, a trade processing hub in Malaysia, and an anti-money laundering hub in the Philippines. Citigroup has also tried to look at ASEAN in many different ways to support not just ASEAN, but also global businesses around the world.

Stephen Jaggs: Allen & Overy has been in Asia for 25 years. It is different to other law firms and other services companies. Law firms usually locate themselves near financial centres, thus most firms are in Singapore and Hong Kong. However, Allen & Overy’s strategy has been different. The anticipated opportunities in ASEAN encouraged the company to spread throughout countries in the region, such as in Indonesia, Vietnam and Myanmar, and since became the best law firm clients can find in the country. It is a different strategy compared to competitors, although it it still debatable whether the firm should establish a central hub for all its resources. Allen & Overy has a team of people which can travel within the region to deal with international projects.

The reasons that drive Allen & Overy to employ this strategy into ASEAN are because, first, Japan is still the biggest investor in ASEAN region by far. Connectivity between offices in Tokyo is very important. Although we are

seeking competition from China and Korea as well as in countries such as Indonesia, Myanmar and Laos, the company tries to offer the best service to its clients by planning ahead around clients’ demands. Recently, Allen & Overy started to think more about ASEAN in the long term because they perceive customer base as becoming more homogenous. Allen & Overy’s clients are now organising to serve middle-class demands, and the company tries to replicate how they implement those strategies. Another big driver is the amount of infrastructure investment that will be required across ASEAN over the next 5 years. ADB has estimated around 60 billion dollars of infrastructure investment is required in each year for 5 years. Most of them will be invested in power, transport, and port and water services.

In the past 5 years, Allen & Overy saw the trend of large ASEAN corporates investing in other ASEAN markets, partly because their local markets are saturated so they need to find growth elsewhere. Also, they become more comfortable with the risk and see investment opportunities more clearly than they were previously. In addition, the number of European and international banks have withdrawn from the banking space and regional banks and new banks are expanding to fill that gap.

There is a lot of risk within the region as its individual markets are very different. Some of them are very domestic and inbound such as Indonesia and Myanmar. Others are more outbound such as Malaysia and, to some degree, Thailand. Some markets like Laos and Cambodia are very small and very niche. Therefore, the firm tries to set up investments to mirror individual markets, and what clients will eventually need when they enter the markets.

Moderator: Given the size of your incredible group, perhaps you could give some insight into the inner workings of Yoma?

Serge Pun: As far as the business community is concerned, the AEC is something that is compulsory. The opposite is not an option. In today’s globalisation and where the world is divided into various groups of interest, economies and groups of the region must work together otherwise they will be far too weak to compete. The establishment of the AEC is not something that has been conceived by dreamy, visionary leaders, but it is very much a necessity.

Surin Pitsuwan believes that the business community in ASEAN has not caught up, and he called on the business community to be more active and join the AEC bandwagon. However, the business community really do not need much cajoling or rhetoric, business will discern the first opportunity there is on their own and will run to capitalise on it. The trouble is that AEC until very recently, has not enabled businesses to see any concrete advantages or opportunities, and therefore were aloof and non-vocal. Businesses cannot lead the realisation of AEC, government have to lead. It is beyond the ability of any business, no matter how big, global or regional they are to actually make any dent or effect on the AEC. Only the 10 governments of ASEAN can make this happen. Businesses will be firmly behind it if the strategies are good and practical.

Moderator: One of the major issues facing the region is Non-Tariff Barriers. There have been a number of agreements to tackles these, but how much of an issue have these non-formal barrier been to physical trade as well as legal, finance or manufacturing industries?

Darren Buckley: By 2025 it is estimated that 50% of the world’s consumer class will be within a 5 hour flight from Myanmar. Take the opportunities now.

From the perspective of multinational companies within ASEAN, the NTBs have become much more of a hindrance than the traditional tariff barriers which have almost been eliminated. NTBs come in many different forms, in the banking sector there are all sorts of restrictions for foreign players, from number of branches and ATMs, certain rules for where deposits can be invested, and limiting access to electronic or instantaneous banking. These are all barriers that impede the services for foreign players. More broadly, issues around customs and property rights cause various problems for multinational companies looking to expand into ASEAN. Also, as ASEAN companies increasingly look outwards beyond their national borders into ASEAN countries some of these barriers will be a hindrance for themselves.

In the banking sector, however, there have been a number of positive achievements. The ASEAN Bond Market Initiative has been terrific for capital markets in ASEAN which have grown from about 2.5 billion to 1 trillion USD between 2000 and 2014. Developments in the various stock exchanges have led to greater coordination, which have also seen fivefold increases in market capitalisation up to 2.5 trillion USD, which is about 100% of the GDP of the entire ASEAN region. The recent adoption of the Banking Integration Framework will mean that any ASEAN bank will be able to operate in any ASEAN market as a local bank. That is terrific, but hopefully there will also be some relaxation for the multinationals operating in Southeast Asia, particularly those that have a long, embedded history in the region.

Certainly, NTBs get in the way of doing business, raise the costs of doing businesses and make it more difficult.

Moderator: Could you say how much of an issue is it within, say, the American Chamber of Commerce, and what more can companies do help eliminate them?

Darren Buckley: The AEC is not something that will happen on the 31st of December. ASEAN has been a concept for nearly 60 years. To that extent, businesses understand the regulatory environment and tariff barriers, and we have to find ways to work with them. Many large companies, both multinational and regional companies, have been able to work through some of these barriers and have been extremely successful.

In terms of the AEC and delivering on its vision, private companies do not actually seem to be lagging. They have been well ahead of the game in driving their business models to be more multinational. The American Chamber of Commerce would like to see governments doing more to eliminate some of the

existing barriers across the different markets, but also some of the impediments to doing business overall. Across ASEAN, except Singapore, perform badly on a number of different indices which are measured around the world, such as transparency and ease of doing business. It is difficult when you have ten different governments with different agendas (particularly having a more domestic the pan-ASEAN mandate) for them to find ways to tackle these common challenges across the region.

Moderator: What improvements, if any, will the AEC bring for the regulatory environment for corporate activity? Who would stand to benefit the most from the AEC and the reforms it promises to bring?

Stephen Jaggs: The AEC has certain aims, and if it is to achieve some of those, particularly reducing NTBs and customs barriers, then it will be very positive. There may not be a level field in terms of general regulations in the 10 different ASEAN countries for a very long time. Most of them have very different legal systems and many of them are at different levels of development in terms of their regulatory framework. For example in the banking system, you have well developed frameworks in Singapore but more rudimentary in developing places like Myanmar. The focus of the ASEAN Finance Ministers is not on trying to harmonise regulation is the banking sector, but rather managing systemic risk and controlling their own individual economies. But progress will happen over time.

Moderator: As one of the most international domestic banking operations in Myanmar, Yoma sits astride both foreign and domestic interests and sensibilities. The recent entry of foreign banks into Myanmar on a limited basis has led to some of your colleagues to complain about competition and warning that Myanmar’s banking sector is not yet ready for ‘big’ competitors. Using that as an illustration, how to balance the need in a developing country to allow industries onto their feet before a rush of foreign investors to flood the market, while also keeping foreign investors happy?

Serge Pun: It is reasonable to expect that in any country that is opening up to foreign investors, there is bound to be domestic resistance. That is historical, everybody would be at least a little protective. Don’t worry too much about those in Myanmar who have been vocal about ensuring protection in the banking sector, their objections are more founded in lack of information or ignorance than fact.

When the foreign banks applied to come to Myanmar, the most important aspect that was pressed to the Central Bank of Myanmar was to secure assurances that the local banks would not be marginalised. It is not about prohibiting outsiders in, but it is about not marginalising or eliminating existing banks. Every time we discuss the AEC, the subject of, ‘who is going to benefit the most’ always features heavily in the discussions. The AEC is supposed to benefit everybody, but there is no way it will benefit everybody the same. There are bound to be countries that get more, others less. There will be certain

sectors that benefit more, others less. But as long as the AEC does not marginalise any member country, it is good.

The foreign banks into Myanmar has been welcomed as a positive step in the liberalisation of the financial sector. It is something that our government was very adamant about doing despite strong winds against it. The extent of liberalisation or the extent of activities allowed to foreign banks is another matter, but what has been allowed in Myanmar has been the right measure for the first wave of opening up.

Darren Buckley: In the context of Myanmar which is at a very different level of development to the rest of ASEAN, the banking sector requires a little bit more protection than some of the other markets in the region. Whether or not the licencing and regulations for foreign banks makes full sense at the moment is open to question. Citibank’s view was that it really did not make sense to apply for a licence in Myanmar because had it done so, Citibank as a brand would set expectations for clients which would not be able to be met under the current regulations.

Should banking in Myanmar be opened up a little more? Yes. The foreign banks going into the Myanmar have a very different target market than domestic banks, which are there to provide banking services to the mass market and try to promote financial inclusion in the country, as well as SME growth and development. In contrast, foreign banks are there to support multinational companies looking to invest in the country and to undertake more globally minded retail consumers. You see this reflected across the region.

Kyoichi Tanada: For Japanese enterprises, there has been a long history with this region, and are always interested in investing in Southeast Asia. The population of the region is 600 million and in terms of the automotive industry it is not yet matured. There is great potential for expansion of the automobile industry. In the near future, through Thailand as a central hub, Japanese and Thai enterprises will have a chance to expand into other Asian companies. This will be driven by the AEC.

Moderator: Is politics a concern for investors coming into the region?

Darren Buckley: Politics and economics are often inextricably linked. Looking at Singapore, they have managed their politics very well and the economy has been kept in good shape, but free and fair elections are not necessarily a top priority. In the Philippines’ recent history the economy has performed well and President Aquino has done a pretty good job. In Indonesia, there is a lot of responsibility resting on the shoulders of Jokowi, but he will have his worked cut out trying to keep his political situation in check. Whether he is successful will affect the economy. Thailand has had a long cycle of coups but the economy has continued to grow.

What effect to free and fair elections have on international investors? The stock of United States’ investment into Southeast Asia is 204 billion USD, which is around the same amount of the total US investment into Japan, South Korea and

China combined. The United States, as they have repeatedly indicated, prizes free and fair democracy. Yet, it hasn’t deterred US investment in the region and it certainly hasn’t deterred their engagement in the region.

Public Question: In 2025, more than 50% of the world consumer market is going to be located within a 5 hours flight of Myanmar – Thailand also as it’s close to Myanmar. So you can imagine; China, India, all of ASEAN (almost 900 million people). The potential is immense. ASEAN is at the right place geographically.

Are you experiencing more growth in the Mainland of Southeast Asia? I wonder if we will see in ten years a growing a divergence between the Mainland and Maritime economies of the region.

Now you are talking about companies establishing ASEAN markets. I think that ASEAN markets are ‘coming into their own.’ ASEAN is becoming an identity and entity among multinational firms. Will this trend continue?

Darren Buckley: In the mindset of ASEAN companies, we are certainly looking at ASEAN as a whole more than we are looking at individual markets within it. We are also looking at the three overriding trends of our generation; globalisation, urbanisation and digitisation, and how ASEAN is fitting into that. 36% of ASEAN’s population lives in cities which is quite low (compared to the United States at 77% or Europe at 63%). We expect to see much more migration from the agricultural sector into larger cities that will develop across ASEAN. We already see 110% penetration of mobile phones across ASEAN.

Today, there may be some divergence between Mainland and Maritime ASEAN, but it is less driven by geography and more determined by the cycle of where each country is, and its governance and political framework. The Philippines, a maritime country, is doing a little better than Thailand, but that is due to political rather than geographical reasons at this point in time. Thailand was once the darling of investors, but now it is certainly not the case.

Stephen Jaggs: I don’t think the fact that whether a country is mainland or maritime will make much of a difference, except perhaps between land and seas based shipping costs. But if you look at the Philippines and Indonesia, it doesn’t seem to make too much of a difference. Where there could be winners and losers could be that most countries in the region are becoming or already are Middle-Income Countries.

The concern, particularly for Thailand, is that they could get stuck there. 10 years ago there was about 35 billion USD of hard-disk investment in Thailand from the electronics industry, and about 2-3 billion USD investment into Vietnam. Today, that figure has not changed in Thailand, but there is now 37 billion USD in Vietnam. There has been a big change there where Thailand has stayed the same, but due to the lower labour costs and opening borders there has been a big migration to Vietnam. Perhaps most importantly, manufacturers in Vietnam are already moving to Solid State Drives (SSD) which are a major advancement in the technology, whereas in Thailand there is no SSD

investment. Picking the winners and losers based on whether they are poor or rich, maritime or mainland will be difficult. It will be due to the ebb and flow of investment based on a number of different factors.

Rapporteurs: Jacob Hogan and Kannapa Chartiyanon