Introduction

At the ASEAN Summit Meeting in Singapore in November 2007, the ASEAN leaders adopted the ASEAN Economic Community (AEC) Blueprint. AEC is one of the three pillars of the ASEAN Community to be established by 2020. The other two pillars are ASEAN Political and Security Community, and ASEAN Social and Cultural Community. In a declaration which marked the launching of the AEC Blueprint, the ASEAN leaders stated that the AEC “will transform ASEAN into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy”. AEC is the ultimate goal of ASEAN's deliberate push toward a greater regional economic integration which was started in 1992 when the ASEAN Free Trade Area (AFTA) was launched. There were two other initiatives introduced during the subsequent period, namely, the ASEAN Framework Agreement on Services (AFAS) in 1995, and the ASEAN Investment Area (AIA) in 1998. The three initiatives form the basis for the AEC.

Initially, the full implementation of AEC was scheduled for 2020 but was subsequently moved forward to 2015. The same factors that led to the institutionalization of AEC seem to be behind the decision to expedite its implementation. Firstly, the rapid rise of China not only as a regional but increasingly as a global manufacturing powerhouse. This development raises a concern among ASEAN leaders that, unless the member states agree to deepen and widen the region's economic integration, it will be difficult for ASEAN to compete with China in the global market. It is one reason as why the AEC Blueprint envisions the region as a single production base. Secondly, more recently, India also began to emerge as a regional economic power. Unlike China, India's main strength is in the services sector, most notably the IT sector. In particular, the country's IT sector received a boost from the emergence of global outsourcing mode of production. Finally, there is a concern that ASEAN economies or, more precisely, some member economies seem to get stuck in the so called middle-income trap. On the one hand, their technology is not sophisticated enough to compete with rich countries. On the other hand, their costs of production are not cheap enough to compete with low income countries such as China.