Mr Sam

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  • Topic: International trade, Free trade, ASEAN
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  • Published : February 27, 2013
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Title - Service Sector
Insight
Business opportunities for services sector under the AEC

Contributors
Dr. Sutapa Amornvivat Vithan Charoenphon Dr. Chinnawut Techanuvat Tubkwan Homchampa Teerin Ratanapinyowong Pranida Syamananda Dr. Sivalai Vararuth Witchuda Chummee

Business opportunities for services sector under the AEC
Progress towards the ASEAN Economic Community (AEC) thus far has been rather slow with few tangible results, which may have helped explain a correspondingly slow adjustment by the business sector. Even the reduction in import duties to 0% in accordance with the ASEAN Free Trade Area (AFTA) took 17 years to materialize, while the liberalization in trade and services which started in 1996 is still behind schedule. In particular, the endeavor to allow up to 70% equity participation by ASEAN investors in 4 priority services sectors by 2010 has not met with much success as there remain member countries who ask for extension. Such type of delay can pose a risk for the businesses to adjust to major leap of changes should all the commitments have to be met within 2015 as targeted. As a result, the business sector should make a head start in making necessary adjustments. …because waiting until the full integration of AEC would result in business opportunity loss. The European Union (EU), despite its countries sharing borders and a supranational governing entity, still took 25 years to fully implement a free trade agreement that allows for trade to occur within the EU without customs. However, waiting for the full implementation of the AEC will be too long a wait, and the current progress has already allowed enough opportunities for businesses to utilize in order to expand into the ASEAN market, such as the 0% import tariffs and the free movement of labor in 7 professions which have previously been agreed upon, or the raise of the maximum equity participation allowed in services sectors which, whilst yet to reach the intended 70%, have created attractive investment opportunities. Business opportunities from now until 2015 will include agricultural business opportunities arising from both growing demand for agricultural outputs and potential growth from new forms of agricultural businesses such as contract farming. Moreover, AEC also offers greater prospects for further liberalization of the CLMV economies, which will put greater importance on trade and investment, as well as opportunities from the ongoing liberalization of the services sector in these countries. Besides the relevant short-term risks, the liberalization of the services sector also brings along stronger competition, as more countries are considering the services sector as one of the key economic drivers. This can be seen in the higher percentage of the services sector as part of economic contribution and foreign investment. Especially in Singapore, the services sector accounts for 72% of its GDP and has the highest amount of foreign investment among ASEAN countries. By 2015, the services sector as percentage of GDP in the Philippines, Malaysia, Indonesia and Thailand is expected to increase to 56%, 50%, 45% and 44%, respectively. The services sector, therefore, can implement various strategies depending on different factors that arise. Some should expand business into countries with a high market potential, while some can grow from expanding domestic markets as a result of the AEC. Others will have to anticipate and handle opportunities and threats from the inevitable increase in competition. Retail business that focus on product differentiation and penetration into middle-to-high income customers will have better opportunities in Malaysia, Indonesia, and Vietnam. The urbanization, coupled with a higher share of middle-to-high income consumers has led to a change in spending behavior. For example, in the past 10 years, consumers have spent less on fresh food and more on packaged food. They also have a higher demand for more variety of goods...
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