The Association of Southeast Asian Nations (ASEAN) was founded in 1967 with Indonesia, Malaysia, the Philippines, Singapore, and Thailand as the original members, and was subsequently enlarged to include Brunei and the transition economies of Vietnam, Laos, Cambodia, and Myanmar. Although political interests were important in the initiation of ASEAN, economic interests have carried the regional body over the last few decades. The launching of the ASEAN Free Trade Area (AFTA) in 1992 — which preceded the formation of the World Trade Organization in 1995 — became the initiator that subsequently led to the adoption of Vision 2020 in 1997 to turn it into a stable, prosperous, and competitive region (Mikic 2009, p. 11). It was then formalized through the signing of the Bali Concord II declaration in 2003, with the deadline subsequently brought forward to 2015. At the ASEAN 2007 summit in Singapore the ASEAN members accepted the AEC as a blueprint.

The AEC aims to become a single market and production base, and a highly competitive economic region, characterized by equitable economic development and fully integrated into the global economy by 2015. This chapter seeks to examine developments to evaluate Malaysia's preparations to meet the four objectives outlined above.

Critical Issues

While the political processes leading to the formation of the AEC appear irreversible and are not in the hands of economists such as me, it is pertinent that I revisit its arguments here before proceeding to examine Malaysia's preparations. The four objectives set out appear sound and do not invoke anything seriously controversial. However, some of the strategies that both economists and policymakers have set out to pursue appear contradictory. Hence, an attempt to review them is necessary to reconcile national and ASEAN goals against the strategies pursued to create a single economic region by 2015.

The integration of the AEC as a major market offers individual members a much larger market to appropriate economies of scale and to access labour and capital. Indeed, the catastrophic effect of a recession in the United States and other countries dragged in by its whirlpool led the Malaysian Government to review potential opportunities to reduce trade dependence on the developed countries by targeting Malaysia and the AEC markets.