To reap the full benefits of the ASEAN Economic Community (AEC), countries in the region must go beyond liberalising the goods trade and further open up the trade in services, experts said.
This is especially since services are becoming more important relative to manufacturing in many parts of the world, including China which is shifting towards a more consumption and services- driven economy.
The AEC, due to come into force by year-end, aims to create a single market and production base across the region, with minimal barriers to trade and investment.
HSBC economist Joseph Incalcaterra said integration will be a boon to growth in the region, given that commodity prices are in the doldrums and global trade is slowing.
While there are generally few barriers to the regional trade in goods, non-tariff rules and regulations are preventing the services trade from taking off, Mr Incalcaterra said during a conference call yesterday.
"Trade in services and investment is difficult to liberalise... The (AEC) framework has to be continuously improved in the coming years (to remove non-tariff barriers)," he added.
Bank of America Merrill Lynch economist Chua Hak Bin said demographic shifts, digitisation and China's growing affluence are driving a structural shift towards services in global economies.
Services growth in Indonesia, Malaysia, the Philippines, Singapore and Thailand - South-east Asia's biggest economies - averaged 5.2 per cent year-on-year in the first three quarters this year, against 2.7 per cent growth in manufacturing.
While the services sector generates a lot of jobs and income, it accounts for a lower proportion of trade and sees lower productivity gains, noted Dr Chua in a research note yesterday.
"Old growth models (in ASEAN), based on manufacturing and goods exports, may have to be re-examined in the wake of the global shift towards services and China's rebalancing."
The 10 AEC countries would benefit from even deeper integration in the long term, said Mr Incalcaterra.
The 10 countries are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, The economic grouping presents an attractive proposition to foreign investors since it offers the potential of a single production base and large market.
"It's important for ASEAN to improve competitiveness by lowering trade costs to compete against China and India," he said.
"ASEAN has the potential to reach the level of economic integration that the European Union has. There's a lot of room to build on what's been done."
This article was first published on December 12, 2015.
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