The Effects of the ASEAN Economic Community 2015 on Industries in Kitakyushu and Shimonoseki

This paper asks how the formation of the Association of Southeast Asian Nations'(ASEAN's) Economic Community (AEC) in 2015 (AEC2015) will affect industries in Kitakyushu and Shimonoseki. First, ASEAN's rapid economic during the past five decades has made ASEAN a large market for Japanese goods, services, and firms. ASEAN has supported this growth by facilitating important economic and political dialogue in Southeast Asia and AEC2015 will likely reinforce this important role. Second, although ASEAN has made efforts to promote economic integration among member economies and AEC2015 is another step in this direction, substantial barriers to intra-ASEAN transactions remain and will persist after AEC2015. The ASEAN Free Trade Area (AFTA) was initiated in 1992 and facilitated elimination of tariffs on most intra-ASEAN trade by 2010, but the share of intra-ASEAN trade remains relatively low at about one-quarter of all ASEAN trade and has not changed much since 2005. Most importantly, like AFTA, AEC2015 is not likely to increase preferential margins for intra-ASEAN trade, largely because ASEAN retains strong comparative advantages with respect to major external trading partners and firms in ASEAN are deeply involved in region- or world-wide production networks. Third, despite proclamations that AEC2015 marks the advent of a "single" ASEAN market, progress toward achieving most of AEC2015's specific goals is likely to be slow, especially with respect to key non-tariff barriers and restrictions on trade in services. Fourth, Japan's multinational enterprises (MNEs) in ASEAN are likely to be the largest conduit through which AEC2015 affects Japan, Kitakyushu, and Shimonoseki. To the extent that AEC2015 affects Japan, Kitakyushu, and Shimonoseki, AEC2015 is likely to affect Japan's services' industries such as trading, logistics (trade, transportation, and communication), and business services, more than commonly appreciated. The proliferation of production networks in machinery industries, which are the source of most of Japan's gross exports, is a major reason for this.