Unless you’re tied into the Thailand business community, it’s easy to not have heard about the upcoming ASEAN Economic Community, or AEC. If you’re not doing business here, it likely won’t matter to you what it is, but if you are – or if you’re interested in the shifting economic and social goings-on in Southeast Asia – you should definitely do a bit of reading on it. The only reason I know about it is because I work for a business magazine, and all indications are that if Thailand wants to stay competitive when the AEC goes into effect in 2015, it’s got a lot of work to do.

From Wikipedia:

The mission of the AEC is to develop a single market and production base that is stable, prosperous, highly competitive and economically integrated with effective facilitation for trade and investment in which there is free flow of goods, services investment, skilled labours, and freer flow of capital.

Very basically, the countries belonging to the AEC – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Singapore, Thailand and Vietnam – are moving toward an EU-style trade region. The biggest change will come with the elimination of trade tarriffs, which – if you know anything about Asia – are currently so tied up in red tape, under-the-table payments and customs inneficiency that it’s a wonder anything gets moved at all. The AEC will put all of this mumb-jumbo under a single umbrella, effectively making the borders between countries almost non-existant if you have the right paperwork. Think about that for a second; think about how many people that will affect – that alone will have huge consequences.

It’s just a trade pact. What could go wrong?

Another way in which it will impact ASEAN is in the free flow of labor. From the AEC Blueprint:

Free flow of trade in services is one of the important elements in realising ASEAN Economic Community, where there will be substantially no restriction to ASEAN services suppliers in providing services and in establishing companies across national borders within the region.
These two points alone mean two things: companies will soon find it much easier to set up a business in ASEAN; and people will be able to move around in ASEAN much more easily. As an example, let’s combine this with the recent “opening up” of Burma, and two things will likely happen: First, Burma is now the golden child of ASEAN in terms of business potential. A colonial past, untapped resources, and an almost complete lack of infrastructure have factory owners and investors salivating with the possibilities. Second, many Burmese – who traditionally do low-paying manual labor-type jobs in Thailand – will move back home to find employment in their own country Even if the wages are lower, at least they’ll be at home and have a family support network. (Side note, currently Thai minimum wage for these jobs is between 159 baht and 221 baht per day, US$5.16 to $7.18, but it looks like it will get a boost soon. Maybe. For some jobs. In some areas).
You ride that arrow and you let it know it's been ridden!

You ride that arrow and you let it know it’s been ridden!

So what does that mean for Thailand? Well, we’re already seeing the effects. A story in Thailand’s NNT highlighted the fact that because so many Burmese are going back home to work, Thailand is suddenly finding a real lack of construction workers, delaying projects and denting economic growth. How do you attract more workers to a particular industry? Raise wages. But do this too often, and suddenly Thailand loses the competitive edge that its low-cost labor force provides.

Take these same examples and apply it to hotels (which house tourists, one of Thailand’s main economic drivers) or hard drive factories (Thailand is one of the world’s largest hard drive exporters) and you can see what type of snowball effect it may have.

Just for shits and giggles, let’s look at another example: One sector expected to grow when AEC is implemented is tourism – a major part of the Thai economy – due to the elimination of visa requirements for tourists from ASEAN countries. Sounds great! But hang on – other countries are hungry for tourist bucks too, so the Thai tourism sector will have to improve its quality. To do this, the Thai Department of Tourism is raising its standards so that all tour guides will need to have better second-language skills. Which means better language education. Which means more qualified teachers. Which means paying teachers well enough that they don’t bail for Singapore or Japan where teachers make more money. A good story in the Bangkok post outlines some of the problems; seems that the powers that be know things will be changing, but…you know…This Is Thailand.

teacher

Those are just two small examples. Clearly, big changes are coming that will have a very, very big effect on how Thailand develops over the coming decades. Business leaders in Thailand are well aware of this – even the Thai government is urging Thais to hurry up and invest in their neighbors before it’s too late. So what can Thailand do to ensure it doesn’t get left behind?

The American Chamber of Commerce’s ASEAN Economic Community Outlook (I got a warning the file was bad, but it was fine) from August 2011 summed it up quite nicely:
Thailand is aware that in order to improve competitveness, it has to improve its capability in human capital through improving availability and quality of education, and fostering improvements in productivity and innovation. To do this, there needs to be more partnering between the government (e.g. ministires of education, industry and labor) with industry/employers in a productive dialogue on how to improve Thailand’s competitiveness and raise standards of living at the same time. We are all stakeholders in the success of the country.
The eventual hope is that ASEAN will be like Europe in that goods and services can flow freely, efficiency is high, and the GDP is strong. Some even talk of a common ASEAN currency, but this is pure speculation. But first thing’s first – all of this will take years to fully integrate. But there’s no time like the present to get started.