September 12, 2012 / 8:52 AM / in 7 years

UPDATE 2-Southeast Asia bloc seen delayed by integration challenges

* ASEAN Sec-Gen says not all countries will be ready

* Start date now seen as Dec. 31, 2015, not Jan. 1

* Delay won’t have much trade impact-economist (Adds details; comments from economist, official)

By Prak Chan Thul

PHNOM PENH, Sept 12 (Reuters) - Southeast Asia’s planned economic union may be delayed until the end of 2015 as some countries are not ready, a senior official said on Wednesday, in a fresh potential setback for the group after its unity was frayed by a territorial dispute.

Surin Pitsuwan, secretary-general of the Association of Southeast Asian Nations, said economic ministers from the 10 countries had asked him for the delay at a meeting in late August and he would put the idea to heads of government at a summit in November.

ASEAN has never been very clear on when the ASEAN Economic Community (AEC) would start, but foreign ministers decided in April that it should be Jan. 1, 2015, Surin told a meeting of energy ministers in Phnom Penh.

“Your economic colleagues looked around the landscape and realised that they need one more year, so they have asked me to communicate with all sectoral bodies up to the leaders that we should speak with one voice,” he said.

In a separate statement released later, Surin said there had been no formally agreed date for the AEC and that it “remains on track and top priority”.

“There have been numerous activities leading up to ‘2015’. There will continue to be activities throughout ‘2015’. And there will surely be continued progress and improvements after ‘2015’,” the statement said.

News of the possible delay comes two months after an ASEAN summit in Phnom Penh ended in acrimony over China’s territorial claims in the South China Sea, failing to agree on a joint statement for the first time in its 45-year history.

The ASEAN Economic Community would allow free movement of goods, capital and skilled labour across a region with a combined economy of $2 trillion and 600 million people.

But the diverse group, ranging from wealthy Singapore to impoverished Myanmar and Laos, is struggling to make uniform progress toward an economic union that investors and business are eager to see completed.

CHALLENGE OF DIVERSITY

Completion of measures towards a single market in its 2010-2011 phase was only 49 percent overall, according to ASEAN’s latest scorecard, with reform lagging in food and agriculture. A lack of capacity among some of ASEAN’s members is making it hard to implement economic agreements.

A senior ASEAN official said the delay had been discussed by economic ministers last month.

“We’re still talking of the same 2015 timeline, but with a realistic interpretation, ie 31 Dec 2015,” said the official, who asked not to be identified.

The official added: “The ministers recognized that despite the AEC progress there are still challenges, hence it’s not realistic that all AEC measures can be achieved by Jan. 1 2015.”

Gundy Cahyadi, an economist at OCBC Bank in Singapore, said a delay would not necessarily be seen as negative by markets.

“I personally don’t think that it is a significant setback and in fact, it is perhaps better to give more time for the countries that are not ready for it as yet,” he said.

“I don’t see it as a major threat to intra-regional trade, which is likely to remain increasingly important to the regional countries, despite delays in the AEC.”

Some analysts have suggested the community might not start as a fully formed bloc, and that its more developed members might have to push on with integration in a two-tier model, leaving the others at risk of missing out on regional investment.

Surin said a number of challenges needed to be addressed, including bridging development gaps between member countries, but he suggested the community would lose credibility if it did not include all 10 ASEAN members.

“The world is expecting us to get there all together,” he said. (Addtional reporting by Orathai Sriring in Bangkok and Neil Chatterjee in Jakarta; Writing by Alan Raybould and Stuart Grudgings; Editing by Nick Macfie)

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