Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(42)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

Truly speaking, as a backbone of the national economy, Indonesian SMEs have undertaken as much as 59% of the GDP and 97% of the business establishments. What will be the ASEAN like in the time of the AEC? It may be too early to predict the ASEAN in the next 10-20 years when the AEC just pulled up its anchor. 

Even short-term outlook is not an easy thing to challenge as emerging markets with high volatility take up most parts of the region. This could explain why skeptical voices concerning the future of the AEC are ceaselessly echoed. 

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(41)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

As a matter of fact, only a few countries in the region have regulated fair trades by adopting a competition law like Indonesia. On top of that, larger local firms such as traditional family businesses are also deeming the AEC as a valuable chance for their new source of growth engines. 

Nevertheless, overall perception and response of Indonesia is assessed still lagging behind those of Singapore. This could explain why governmental attention and consideration for non-major players in the business sector including SMEs would be top priority for Indonesia to pave the way to the AEC. 

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(40)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

This phenomenon may be associated with the unparalleled development history of the Singaporean economy in Southeast Asia. Actually, Singapore has been spotlighted much to reap the biggest pie of the AEC as the United States has benefited the most in the time of the NAFTA. 

Needless to say, Indonesia hasn't been sitting idle. As the largest market in the region, Indonesia has braced for this budding economic environment in its own way. The fact that Indonesia has already implemented a competition law would be an exemplary movement.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(39)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

Proactive approach of SMEs in Singapore toward the AEC may demonstrate Singapore's skyrocketed anticipation for the new generation of a common market. Most experts have been in the same boat that the AEC may serve Singaporean SMEs armed with regional competitiveness well to navigate tremendous business momentums in one single market with 650 million populations. 

Besides, awareness of the importance of the AEC is not only high in the corporate sector but also considerably widespread among the general public in Singapore.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(38)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

In addition, concerns of SMEs (Small and Medium-sized Enterprises) particularly in Indonesia that they may be isolated from the far-reaching age of the AEC are getting bigger. 

In spite of such negative voices raised, Singaporean and Indonesian governments have been regarded to take necessary steps to realize their commitments to the AEC as ambitiously set out in the AEC Blueprint. When it comes to the details of the perception of and the response to the AEC, however, Singapore is often evaluated ahead of Indonesia by and large.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(37)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

As identified above, Singapore and Indonesia may have been claimed to pour continuous efforts to cope with the era of the AEC. Both countries have concentrated on the advent of the AEC and the impacts that the new regional economic community would bring to them. 

Nevertheless, there are yet complaints especially from the private sectors in both countries that incomplete information sharing and insufficient corporate engagement on the core agendas of the AEC has been left shortages.

 

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(36)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

In addition, in general, information concerning the AEC fails to reach most members of the business community largely due to the fact that both government and the ASEAN secretariat do not have a systematic mechanism to disseminate information. 

Results of SWOT analysis on the Indonesia's perception of and response to the formation of the AEC can be diagramed as below.

 

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(35)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

Major players already have a good and comprehensive understanding about the AEC. The major players are large companies whose activities are related to export-import, foreign companies, and foreign affiliates or local companies that are involved in international production networks. 

However, the number of major players is very small and accounts for less than one percent of the total number of business establishments in Indonesia.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(34)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

Indonesia is one of the few countries in the ASEAN that has promulgated a competition law and has established an independent agency in charge of competition policy – the Commission for the Supervision of Business Competition. 

Larger firms tend to have better knowledge about the existing FTAs and, in general, are more optimistic than smaller ones. This is true also with regard to the AEC.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(33)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

In 2004 Indonesia introduced a two-phase tariff harmonization program with the main objective of moving towards low and uniform tariff rates and avoiding tariff escalation. 

As a member of the WTO and the ASEAN, Indonesia has submitted to commitments for services liberalization at the global and regional levels to the General Agreement on Trade in Services (GATS) and the ASEAN Framework Agreement on Service (AFAS). In 2007 Indonesia introduced a new investment law aimed at making Indonesia more attractive to foreign investors.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(32)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

To its credit the Indonesian Government has taken the necessary steps to incorporate its commitments to the AEC into the country's national economic development programs. With regard to its commitments to the AEC, there is, unfortunately, no simple way to verify the degree of the Indonesian Government's compliance. 

Ever since Indonesia initiated trade liberalization in the mid-1980s, it has significantly reduced tariff rates, more or less across the board.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(31)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

In this respect, Singapore has spent more than US$120 million cumulatively in various initiatives and training programs to help narrow the gaps among ASEAN economies. Results of SWOT analysis on the Singapore's perception of and response to the formation of the AEC can be diagramed. 

According to the papers by Hadi Soesastro and Raymond Atje (p. 72-77.) and Widdi Mugijayani and Pratiwi Kartika (p. 210-212.), Indonesia's major perception of and response to the formation of the AEC can be summarized.

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(30)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

A more basic reaction from businesses is tied to the process itself of drawing up the ASEAN economic agreements. An underlying concern is that the agreements are concluded without the involvement of or consultation with the private sector. 

Consequently, there is lack of familiarity or limited knowledge of the workings and details of the agreements and their impact on business. Going forward, Singapore will focus on capacity building and human resource development in the ASEAN countries to help them prepare for the 2015 deadline.

 

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia(29)

Advent of the Era of the AEC and Its Impacts on Singapore and Indonesia

It is significant that SMEs tend to be in the more optimistic category in relation to regional integration. SME leaders in Singapore have urged fellow companies to expand within the region and to seriously consider investing in ASEAN neighbors for the many benefits that an integrated ASEAN economic community can bring. 

The larger players, being more experienced, point out that whilst the ASEAN agreements are being help up as the way forward, delays or non-implementation of signed agreements are too common occurrences.