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US Companies Eager to Reap Benefits of Asean Integration

A sweeper cleans a road in the foreground of a billboard promoting Association of Southeast Asian Nations (ASEAN) summit in Naypyitaw, Myanmar, Tuesday, Nov 11, 2014. Myanmar hosts the ASEAN summit and related meetings on Nov. 12 and 13. (AP Photo)

The rollout of the Asean Economic Community (AEC), beginning on December 31st this year, could propel significant growth for American companies in the Asia-Pacific region, according to experts.

In an article for the Hawaii-based East-West Center, academic Asad Latif said last month that the 10 members of the Association of Southeast Asian Nations together represent the fourth-largest export market for the United States. In 2013, US goods and services exports to ASEAN nations reached $241.7 billion.

American businesses are taking note as the AEC takes shape, and Asia is one of regions in the world with the highest opportunity for growth, according to a 2014 trade forecast by the bank HSBC. This favorable forecast for Asian investment has led business owners to react—the majority of respondents to the US Chamber of Commerce’s 2015 Asean Business Outlook Survey said their company’s strategy is rooted in the projected success of the AEC.

“This means that companies are properly looking at the AEC as a long term project, not something that will result in immediate gains,” said Edmund Sim, an Asean expert and international economics lawyer. “As the AEC continues to develop, this figure should increase over time.”

As AEC measures already in place have effectively removed many tariffs on trade within the region, the project shifts its attention to other efforts, such as creating a single market and production base among the Asean member states.

The effort to create a single regional market within which to distribute goods has been named the Asean Single Window initiative, and is expected to increase efficiency and costs for US businesses, according to Latif, who is an associate fellow at the Institute of Southeast Asian Studies in Singapore.

“Importantly, a more integrated market could lower transaction costs,” he wrote. “In particular, it could bring down inventory costs by reducing the number of specialized products that companies need to keep in stock and by minimizing the chances of goods arriving after customers need them.”

Sim agreed that integration would help to simplify operations for US firms exporting to the region.

“Instead of setting up warehousing and logistics operations in multiple Asean countries, they can better operate from a single location,” he said.

However, experts say that streamlining the movement of goods across national borders will not be automatic.

Regional cooperation on merging markets will take time, proving difficult but not impossible to achieve, said Anthony Nelson, director of the Washington, D.C., office of the US-Asean Business Council. “The AEC is not the end of the process, but the beginning of the process.”

Despite progress being made, many argue that there is still a long way to go, especially in poorer countries like Cambodia, which have less capacity to adapt to standardized regulations.

Just over a year ago, a Cambodian official admitted doubts regarding Cambodia’s readiness for AEC’s launch at the end of 2015.

Furthermore, a lack of popularity of US products among ordinary Cambodian citizens could point to challenges for companies hoping to expand their presence in the region.

“I do not know of any American products. I have never used any because my monthly wage is very low. I can afford only the locally made products or goods exported from Vietnam and Thailand,” said Prak Phany, a 29-year-old Cambodian garment worker. “American products are good quality and also very expensive.”

However, Nelson said that further liberalization will create a ripple effect of stronger investment, beginning in the more developed countries in the bloc and spreading throughout the region.

“What I expect you’ll see is Malaysia taking up the duty to say these are really the priority areas for us to close the gaps between the reality of what we have achieved so far and the vision of where we want to go,” he said.

Additional reporting by Sun Sokhen