AEC Awakes

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160622 - b2b - article - aec awakes

Did we wake up in a different world on January 1, 2016? Indeed, that date marks the beginning of the ASEAN Economic Community (AEC) officially launched on December 31, 2015. Nearly a decade in the making, the AEC finally came into existence, and the goal is challenging: integrating Southeast Asia’s diverse economies into a single market, similar to the European Economic Community five decades ago.

The 2015 figures about this gigantic market are impressive: nearly 630 million people and a gross domestic product of US$2.5 trillion. The AEC blueprint outlines the four AEC pillars that will be achieved through “free movement of goods, services, investment, skilled labour and freer flow of capital: (i) a single market and production base, (ii) a highly competitive region, (iii) a region of equitable development, and (iv) a region fully integrated into the global economy”. Therefore, not only goods, services and investment are covered, but also non-tariff barriers, member states’ commercial standards, movement of professionals, trade and visa facilitation.

At present, all of these targets have not yet been reached, but they are intended to be eventually implemented. In particular, among the 10 ASEAN members — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — the four less developed members (i.e. Cambodia, Laos, Myanmar and Vietnam, commonly referred to as “CLMV”) benefit from flexibility (e.g. 2018 is their extended deadline for Non-Tariff Barriers (NTB) to be eliminated). Those four countries may also possibly gain the most from the AEC, through increased liberalization and competitiveness. Moreover, despite the weak institutional structure of ASEAN (e.g. light secretariat, low budget) and the lack of political unity, ASEAN as a single market is forecast to become the 4th strongest economy in the world by 2030.

Furthermore, it should be highlighted that the new AEC is going to lead to a rise in cross-border trade (thanks to the gradual reduction of trade costs between member countries) and higher levels of investment, both domestic and foreign. Consequently, the likelihood of cross-border disputes will increase, including the disputes between private investors and governments. In this regard, international law firms and arbitration centers could be fully engaged in the process. The demand for legal services will inevitably increase. Indeed, given the different legal systems in southeast Asia (e.g. common law in Singapore, Myanmar and Malaysia, traditions of civil law in Thailand, the Philippines, Cambodia, Laos and Indonesia, Soviet-influenced socialist law in Vietnam, and sharia law in Brunei), international law firms will certainly need to offer specific local advice in cooperation with local firms, whilst taking advantage of their own international legal skills and expertise highly sought within ASEAN.

Here, the role of arbitration should not be underestimated : “One of the most positive trends has been that Asian arbitral centers are no longer just viable alternatives for ‘traditional’ seats in the West, but are becoming the first choice for parties”, stated Datuk Sundra Rajoo, Director of the Kuala Lumpur Regional Centre for Arbitration (KLRCA). Companies in Asia transacting cross-border business show their reluctance and natural distrust towards litigation before “local” courts. Not only does arbitration allow for a neutral venue and choice of the neutral arbitrators, but it has also the advantage of affordability, speed and privacy. As a result, international arbitration now stands as the preferred method of dispute resolution within the scope of international commercial transactions. In particular, the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC) are the Asian destinations of choice by parties, with a number of cases steadily increasing (i.e. 260 cases (HKIAC) and 259 cases (SIAC) in 2013). With the greater possibility of conflicts and disputes since the establishment of the AEC, the strong growth of international arbitration in ASEAN will further expand. Besides, since common law forms the basis of HK and Singapore law, it thus reinforces and spreads common law in ASEAN.

This underlines the high importance of English law in this area, which is set to grow even more thanks to the AEC. English is the official language of ASEAN and English law remains the favorite choice in legal practice. Indeed, English law is regarded as a solid framework for dispute resolution, providing high regulatory standards. That is why many UK law firms, alongside foreign investors, have flourished in this area, having been lured by the high-quality infrastructures and ease of business development; and this phenomenon will not stop. Thanks to the establishment of the AEC, one can reasonably expect that foreign investments in this region will further stimulate international legal services, mainly common law based. Although ASEAN is an illustration of language diversity, English is more than ever the global language for trade dialogue. From this perspective, future Cambodian lawyers may consider doing a Master’s degree in the UK/Australia, further improving their good level in English and becoming familiar with common law, which would definitely boost their future career in the new Asian power bloc.

This article was written by Marianne Guery (Legal Intern) and Peter Mewes (English Solicitor and Senior Consultant) from HBS Asia. If you are also interested in sharing your business-related articles with B2B Cambodia, please send us a message to adolfo@cambodiapocketguide.com