The document discusses expectations for the ASEAN Economic Community (AEC) from both Japanese companies and ASEAN regional businesses. Japanese companies expect simplification of customs procedures and elimination of import tariffs in Cambodia, Laos, Myanmar and Vietnam. Regional businesses note that while ASEAN frameworks support integration, implementation lags ambitions due to capacity differences between members. True integration requires binding commitments rather than optional agreements. Ownership of the integration process must increase along with financial support from developed members. Expectations for AEC 2015 need adjusting as full integration may not be achievable given the ASEAN approach.

1. Business Investment in ASEAN and Asia
11th Dec, 2014
Kazumi Nishikawa
Executive Director, JETRO Singapore
Special Advisor to Minister, METI, GOJ

2. 1. Asian economy and Japan’s Business View
2. Business response to Individual Country
3. Expectation for AEC
4. Expectation for RCEP
2

3. Asian Economy and Japan’s Business View
3

4. Flow and Stock of Wealth in the region
4
GDP, Wealth and Global Business
（Unit：US$ billion,％, Number）
Per capita
GDP（2013）
GDP
（2013）
GDP outlook
(2019)
Share of World
Wealth (2013)
Number of Fortune
Global 500 (2014)
Thailand 5,674 387 492 0.16 1
Vietnam 1,902 171 265 0.12 -
Cambodia 1,016 16 26 0.01 -
Laos 1,477 10 19 0.01 -
Myanmar 869 56 97 0.03 -
Mekong 5 - 640 899 0.33 1
- 2,406 3,608 2.00 7
6,747 9,181 14,839 9.21 95
1,505 1,871 3,096 1.50 8
Japan 38,491 4,902 5,718 9.38 57
- 45,338 59,137 79.05 368
USA 53,101 16,800 22,090 29.91 128
EU 32,152 17,372 23,433 29.05 128
- 73,982 100,847 100 500
Source: "World Economic Outlook April 2014"(IMF), Credit Swiss Global Wealth Databook 2013
ASEAN
China
India
Advanced countries
World

5. Supply Chain in East Asia
5
Many intermediary goods are traded within East Asia. They are assembled in East Asia and
exported to huge markets including East Asia itself as well as EU and NAFTA.
100.9
145.3
208.6
208.4
142.6
80.8
104.9
94.1
119.5
84.2
372.9
197.2
278.5
115.9
93.9
380.8
140.5
65.0
80.5
Japan
NAFTAEU
China
2,791.7
1,971.5
East Asia
839.1
193.8
Korea
26.7
63.4
46.6
42.5
65.8
45.5
38.2
54.4
151.2
70.4
ASEAN
428.5
（2010）
The size of an
arrow represents a
trade amount
(billion dollars)
The share of
intermediary goods
70%～
60%～
50%～
40%～
30%～
～30%
Source : RIETI-TID 2011

6. ASEAN
Australia
NZ
Japan
China
Korea
India
.
• Companies need to be integrated into the supply chain networks to increase exports to the
growing markets in the region as well as to the outside of the region.
• Companies are now troubled with different rules in various existing EPAs (ex. ROOs). Simple,
unified and business friendly rules under the RCEP will further facilitate cross-border supply
chain networks.
6
Case1. Japanese automotive
company in Thailand imports
engines and transmissions
from Japan, assembles cars in
Thailand and exports finished
cars to Australia.
Case 2.Japanese auto parts
company in Thailand imports
components from Japan,
manufactures air bag in
Thailand and exports to India.
Case 3. Japanese elevator
manufacturer in Thailand
imports hoisting machine from
China, manufactures elevator
in Thailand and exports to
India.
Japan’s Business View
1. Integrate into the supply-chain networks in the region

7. •Recent FDI are creating more employments in non-manufacturing sectors, such as
ICT, distribution, wholesale etc.
•Business environment for non-manufacturing sectors should be further improved to
make East Asia a more attractive investment destination.
Country 2004 2011
Thailand 46,135 (10%) 63,751 (11%)
Indonesia 36,530 (12%) 63,823 (17%)
Philippines 12,766 (7%) 48,015 (22%)
Malaysia 19,689 (9%) 33,109 (20%)
Singapore 24,494 (40%) 33,557 (48%)
Vietnam 3,676 (4%) 14,825 (5%)
India 5,719(9%) 16,688 (11%)
Number of employments by Japanese FDI in non-manufacturing industries in each
country (% in total employments by Japanese FDI)
Increase in ICT
industries
(846 -> 35,410)
Increase in
distribution/ service
industries
(9,235 -> 20,630)
Increase in wholesale
industries
(572 -> 3,770)
Source; METI (Basic Survey of business activities abroad) 7
2. Increase cross-border investment
Japan’s Business View

8. Business response to
individual country
8

9. Environmental change in ASEAN and Southwest Asia:
Business merits
9
• Expansion of the consumer market, economic integration by free trade agreement (FTA), progress of infrastructure
development, etc. expands business opportunities for Japanese companies in ASEAN and Southwest Asia.
• The following are the top 10 items listed as “merits of the investment environment" conducted by questionnaire survey to
overseas Japanese companies. It turns out that the "market size and growth potential" is common and the greatest merits for
the respondent companies which listed India, Indonesia and Myanmar as a high ranking country. In the following listed items,
Singapore and Malaysia are remarkable in terms of fundamental investment environment such as political and social
situation, living environment and infrastructure.
Listed items Total Manufacturing
Non-
manufacturing
Top 3 countries
(%)
1 Market scale/growth potential 56.6 50.9 63.6
India
(86.9)
Myanmar
(84.6)
Indonesia
(83.8)
2 Political/social stability 39.8 39.0 40.7
Singapore
(87.7)
Malaysia
(81.7)
Lao PDR
(68.2)
3 Good living environment for Japanese expatriates 30.6 30.0 31.2
Thailand
(56.3)
Singapore
(42.6)
Malaysia
(36.3)
4 Sufficient infrastructures (power/logistics/communications) 24.9 25.0 24.7
Malaysia
(51.5)
Singapore
(49.5)
Thailand
(39.0)
5 Fewer linguistic/communication problems 24.6 21.5 28.3
Philippines
(69.2)
Malaysia
(56.1)
Singapore
(51.6)
6 Local industrial clusters formed by client companies 22.8 23.6 21.8
Thailand
(45.6)
Indonesia
(23.0)
Singapore
(18.8)
7 Easy to hire local staff (general worker/staff/clerk) 20.1 24.9 14.2
Philippines
(58.0)
Bangladesh
(40.6)
Pakistan
(34.6)
8 Tax incentives (corporate taxes/customs duties) 18.9 22.8 14.1
Singapore
(53.4)
Philippines
(34.3)
Pakistan
(30.8)
9 Plentiful land/offices, low land price/rent 11.3 12.3 10.1
Lao PDR
(31.8)
Malaysia
(16.0)
Bangladesh
(15.6)
10 Formation of local industrial clusters, i.e. easier to procure local goods 9.8 10.9 8.4
Thailand
(22.9)
Bangladesh
(12.5)
Pakistan
(7.7)
Copyright © 2014 JETRO. All rights reserved

10. Analysis by item on business challenges
10
For the purpose of exploring "business challenges" concerning Japanese companies in each country, this survey was encouraged to
respond to the selected 16 subject items with multiple answers allowed.
Listed are the 10 subject items which received the highest rate of responses. The most recognized item is “wage increase" which is
common among the Japanese companies in each country, and in which Indonesia's reply rate is highest with 82%. The items which
ranked 2nd, 3rd, 4th, 5th and in the margin of 15th “lack of protection of intellectual property rights” can be classified into “soft
infrastructure”, while 6th falls into “hard infrastructure." It turns out that India, Bangladesh and Myanmar are highest ranking in almost
all of these items. Analysis and description is made in the following pages of features, tendencies and countermeasures for every
subject item along with a country-by-country comparison.
Responded items Total Manufacturing
Non-
manufacturing
Top 3 countries
(%)
1 Wage increase 62.6 69.9 53.7
Indonesia
(82.0)
Singapore
(68.8)
Thailand
(68.7)
2 Time-consuming administrative procedures 42.5 41.3 44.0
India
(74.4)
Myanmar
(69.2)
Vietnam
(66.1)
3
Unclear policy management by local
government
39.7 40.6 38.7
Myanmar
(76.9)
Bangladesh
(67.6)
India
(58.7)
4 Time-consuming tax procedures 38.9 38.6 39.4
Myanmar
(76.9)
India
(76.2)
Vietnam
(65.0)
5
Underdeveloped legal institutions and unclear
legal institution operation
38.1 38.4 37.8
Myanmar
(76.9)
Lao PDR
(73.9)
Cambodia
(72.4)
6
Insufficient infrastructure (power, logistics,
communications)
37.1 38.1 35.9
Myanmar
(92.3)
Bangladesh
(88.2)
India
(77.7)
7 Labor shortage and difficulty in recruitment 33.3 34.5 31.9
Lao PDR
(60.9)
Malaysia
(52.7)
Cambodia
(48.3)
8 Currency volatility 31.2 33.4 28.5
Pakistan
(70.4)
India
(66.9)
Indonesia
(54.4)
9 Unstable politics and social conditions 31.1 30.3 32.0
Pakistan
(96.3)
Bangladesh
(88.2)
Myanmar
(69.2)
10 Labor disputes/lawsuits 21.0 27.4 13.1
Indonesia
(49.6)
India
(34.0)
Sri Lanka
(30.3)
Copyright © 2014 JETRO. All rights reserved

11. Expectation for AEC
11

12. Expectation for AEC (Japanese Companies)
12
As for the expectation for implementation of the AEC items, the predominant response
was “Simplified customs clearance” (63%), followed by “Elimination of import tariffs in
CLMV (Cambodia, Laos, Myanmar, and Vietnam)” (39 %), “Free movement of skilled
labor” (32 %) and “Infrastructure development in CLMV” (23%).
No. of firms and (%)
Ranking The expectation for implementation of the AEC items
1 Simplified customs clearance 145 (69) 72 (55) 217 (63)
2 Mutual duty exemption among CLMV 84 (40) 50 (38) 134 (39)
3 Free movement of skilled labor 73 (35) 38 (29) 111 (32)
4 Infrastructure development in CLMV 42 (20) 35 (27) 77 (23)
5
Introduction of standardization, certification and making system
standardized in ASEAN nations
48 (23) 24 (18) 72 (21)
6 Relaxation of capital control in the service sector 16 (8) 51 (39) 67 (20)
7 Further deregulation of capital transfer 26 (12) 29 (22) 55 (16)
8
Deregulation of investment in manufacturing, mining, agriculture and
forestry industries
33 (16) 10 (8) 43 (13)
9 Improvement of intellectual property rights-related system 23 (11) 15 (11) 38 (11)
10
Introduction of self-verification system in relation to ASEAN Free
Trade Agreement(AFTA)
28 (13) 7 (5) 35 (10)
11
Harmonized policy within the region (e.g. fair competition, consumer
protection)
10 (5) 7 (5) 17 (5)
12 Others 1 (0) 0 (0) 1 (0)
Total 529 338 867
No. of firms 211 131 342 (100)
Manufacture Non-manufacture Total
Source: JCC Bangkok Survey 2013

13. Expectation for AEC (ASEAN Regional Business)
13
The ASEAN Economic Community: The Status of Implementation, Challenges and Bottlenecks
Summary Findings:
• Sound political, legal, institutional, and technical frameworks
A clear finding is that ASEAN scores high on the political, legal, institutional, and technical frameworks that govern regional economic integration. The AEC, and a multitude of
related agreements in facilitation of the free flow of goods and services, intra-regional investments, customs harmonisation, SME support standards and non-tariff barriers to trade
and other fields, if implemented, would indeed lead to an economic community. However, there is ample evidence to suggest that actual implementation lags significantly behind
the timelines of stated objectives.
• Mismatch between political ambitions and reality
The main hurdle is the mismatch between political ambitions and the capacities, capabilities and, often, political will of several member states to walk the talk. The basic conditions
for creating common regimes or even for harmonizing national legislative frameworks and enforcement practices among ASEAN countries are not yet in place, owing to considerate
disparities in technical and institutional capacities, economic development and political priorities. The reasons for the slow and insufficient process towards AEC implementation can
be broadly divided into economic and political arguments.
• Lack of binding commitment
Economic Integration cannot work on the basis of non-binding agreements. If member states are allowed to opt-out at any time or choose not to implement agreed actions,
integration is hardly achievable. However, this is exactly what happens under the ASEAN-Minus-X-formula which guides almost every aspect of liberalisation and integration.
Essentially, the principal allows AMS to join the bandwagon in their own time. The member states of ASEAN are trying to achieve far-reaching visions of economic community-
building, which are not that much dissimilar to European integration, without the necessary modifications to the traditional ASEAN Way of cooperation. Yet, AMS have made a
commitment to establishing the AEC with all of its detailed and explicitly spelled out targets and action plans. Hence, the argument that “binding decision-making and supra-
nationality are alien concepts in the Southeast Asian context” is no longer a convincing excuse for the delay in the implementation process.
Recommendations:
• ASEAN should take more ownership of the integration process
International donors, mainly the EU, USAID, AusAID and JICA, have invested millions of USD in support of all areas in regional economic integration. While many bottlenecks have
been effectively addressed as a result, the massive presence of donors has also created a dependence of ASEAN as a whole and the AMS on external funding for the
implementation of AEC. Regardless of whether one wants to see donor involvement as a blessing, a necessity or a curse, there is no way around the requirement that AMS will
have to show more responsibility and commitment in the shaping of the economic community and develop a stronger sense of ownership. Sooner or later, this will have to include
larger financial contributions from the more developed AMS.
• Rethinking the ASEAN Way
It would not be realistic to recommend – as has been done in other studies – that AMS should accept the idea of supra-nationality and transfer autonomous decision-making
authority to the ASEC, enabling it to steer the process of economic integration. This is unachievable in the presence of young nation states which – for legitimate reasons – are
eagerly protecting their national sovereignty.
ASEAN has worked well as an inter-governmental organization based on the core norms and principals of the ASEAN Way. However, this approach to regional cooperation does
not and cannot facilitate deep, European-style integration as envisioned by the AEC. The decisive issue is that ASEAN will not be able to deliver on the expectations that have been
created.
• Expectation of AEC 2015 needs to be corrected
Many extra-regional and ASEAN stakeholders, and, above all, large parts of the private sector stakeholders take the AEC 2015 at face value. These expectations need to be
corrected. ASEAN needs to concentrate on those areas in which closer economic interaction and an increase in transactions can be achieved, on the basis of the proven structures
and institutions of inter-governmental interaction.
Source: CARI (CIMB ASEAN RESEARCH INSTITUTE) Dedicated to ASEAN Integration, The ASEAN Economic Community: The Status of Implementation, Challenges
and Bottlenecks

14. Expectation for AEC (World Bank report)
• ASEAN integration has progressed in parallel with global integration
• Broadly defined, the ASEAN agenda of regional integration has been implemented concurrently with the opening of market
access to non-ASEAN traders
• Looking forward, ASEAN should continue as a facilitator of better integration of its members’ economies into the global
trading system and pursue an open regionalism agenda
• The high trade complementarity of some ASEAN countries to the region – indicating that exports of those ASEAN member
countries are in high demand in other countries of the region- points to significant gains from further trade within ASEAN
• Supply chains are only as strong as their weakest links: complementarities among member countries should be developed
through the help of the ASEAN integration agenda
• A key finding of this report is the areas of commonality that arise in the four trade integration pillars examined: goods,
services, trade facilitation, and investment
• As this report also shows, while there remain several areas (non-tariff measures, services, investment) where progress must
still be achieved to meet and expand existing liberalization commitments, the overall integration agenda should also now
include regulatory measures that remain largely unaddressed
• Regulatory barriers impeding trade are different from traditional trade barriers such as tariffs and are potentially numerous
and pervasive
• The across-the-board regulatory challenge has implications in terms of how to move forward in pursuing the ASEAN
integration objective
• A second dimension of the regulatory agenda is setting up processes that help address the unnecessary costs that
regulatory barriers may create
• Given that regulatory issues pervade goods, services and investment integration policies, and affect regional supply chains
in more than one way, it would be advisable for the ASEAN membership to also think holistically in terms of supply-chain
policy strategies
• Going beyond commitments, the ASEAN membership must now focus on implementation and the institutions supporting it
• It is now widely agreed that a key task for ASEAN will be to prioritize the actions and targets set out in the highly
comprehensive AEC Blueprint
Source: ASEAN Integration Monitoring Report, A Joint Report by the ASEAN Secretariat and World Bank 14

15. Expectation for RCEP
15

16. Unit: No. of firms and (%)
Ranking Issues expected for discussion by the RCEP
1
Improvement of various systems (transparency of Customs procedures, relaxation of issuance of work
visas)
78 (38) 69 (36) 147 (37)
2 Common certificate of origin among the 16 countries 94 (46) 52 (27) 146 (37)
3 Simple and accessible rules of origin (Custom Tariff Change or Regional Value Content) 91 (44) 53 (28) 144 (36)
4 Participation of 16 countries i.e. ASEAN, Japan, China, Korea, India, Australia, and New Zealand 68 (33) 46 (24) 114 (29)
4 Relaxation or elimination of non-tariff barriers 73 (35) 41 (21) 114 (29)
6 Relaxation or elimination of the barriers for foreign ownership 39 (19) 62 (32) 101 (25)
7 Wider liberalization (elimination of tariffs) in product categories and trade volume 65 (32) 25 (13) 90 (23)
8 Improvement in protection of intellectual property rights 24 (12) 20 (10) 44 (11)
9 Relaxation or elimination of service trade barriers 14 (7) 25 (13) 39 (10)
10 Cumulative effect of added value according to the rules of origin 18 (9) 9 (5) 27 (7)
11
Economic and technical cooperation among the participating countries for a reduction in development
disparity
6 (3) 5 (3) 11 (3)
－ Other 1 (0) 3 (2) 4 (1)
Total 571 410 981
No. of firms 206 192 398 (100)
Manufacturing
Non-
manufacturing
Total
Expectation for implementation of the items under consideration by RCEP
16
 Regarding issues expected for discussion by the RCEP (check all that apply), the predominant
response was “Improvement of various systems (transparency of Customs procedures,
relaxation of issuance of work visas)” (37%), followed by “Common certificate of origin among
the 16 countries” (37%), “Simple and accessible rules of origin (Custom Tariff Change or
Regional Value Content)” (36%).
Source: JCC Bangkok Survey 2013

17. The countries with which Japanese business desire to expand
business under RCEP
17
 The predominant response was “Indonesia” (40%), followed by “Myanmar” (39%), “Vietnam”
(39%) and “India” (30%).
 In the manufacturing sector, the predominant response was ““Indonesia” (40%), followed by
“Vietnam”(39%).
 In the non-manufacturing sector, the predominant response was “Myanmar” (55%), followed by
“Indonesia” (38%) and “Vietnam” (38%).
No. of firms and (%)
Ranking
The countries with which firms desire to
expand business under RCEP
1 Indonesia 87 (40) 50 (38) 137 (40)
2 Myanmar 64 (30) 71 (55) 135 (39)
3 Vietnam 85 (39) 50 (38) 135 (39)
4 India 79 (37) 24 (18) 103 (30)
5 Japan 57 (26) 37 (28) 94 (27)
6 Cambodia 43 (20) 44 (34) 87 (25)
7 Malaysia 45 (21) 27 (21) 72 (21)
8 Laos 30 (14) 41 (32) 71 (21)
9 China 51 (24) 20 (15) 71 (21)
10 Philippines 28 (13) 18 (14) 46 (13)
11 Singapore 15 (7) 13 (10) 28 (8)
12 Australia 22 (10) 2 (2) 24 (7)
13 Korea 12 (6) 7 (5) 19 (5)
14 New Zealand 8 (4) 1 (1) 9 (3)
- None 22 (10) 7 (5) 29 (8)
Total 648 412 1,060
No. of firms 216 130 346 (100)
Manufacture Non-manufacture Total
Source: JCC Bangkok Survey 2013

18. Further Reference
• JBIC Survey: Report on Overseas Business
Operations by Japanese Manufacturing
Companies (the 26th)
http://www.jbic.go.jp/en/information/press/press-2014/1128-32994
• JETRO Asian Business Survey
http://www.jetro.go.jp/en/reports/survey/pdf/2013_12_27_biz.pdf
18