THE ASSOCIATION of Southeast Asian Nations (ASEAN) marked a milestone yesterday as it declared “the formal establishment” on Dec. 31 of the ASEAN Community that will see freer cross-border movement of goods, services, capital and skilled labor in the region, but business leaders warned that micro, small and medium enterprises (MSMEs) making up bulk of Philippine businesses and sectors still protected from competition could find it difficult to survive.

The 2015 Kuala Lumpur Declaration On The Establishment of the ASEAN Community and the Kuala Lumpur Declaration on ASEAN 2025 that was signed by all 10 Southeast Asian heads of state meeting in the Malaysian capital for the 27th ASEAN Summit over the weekend cited “the formal establishment of the ASEAN Community 2015” by yearend that has socio-cultural, political security and economic dimensions. They also adopted the ASEAN Community Vision 2025 that charts the region’s path to greater integration in the next decade.

The germ of the community was planted in October 2003 with the adoption by Southeast Asian heads of state of the Bali Concord II that declared, among others, that “[a]n ASEAN Community shall be established comprising three pillars, namely: political and security cooperation, economic cooperation, and socio-cultural cooperation that are closely intertwined and mutually reinforcing for the purpose of ensuring durable peace, stability and shared prosperity in the region.”

The group then adopted the ASEAN Economic Community (AEC) Scorecard to keep track of progress of integration particularly in this field. As of October 2012, the region had accomplished 74.5% of AEC targets across four categories: single market and production base, competitive economic region, equitable economic development and integration into the global economy.

“In practice, we have virtually eliminated tariff barriers between us,” said Malaysian Prime Minister Datuk Seri Najib Razak, the summit host. “Now we have to assure freer movements and removal of barriers that hinder growth and investment.”

Business leaders in the Philippines, however, said this development only makes reforms — especially those that will help MSMEs compete — even more urgent.

Government data show MSMEs make up 99.6% of businesses in the country, account for 61.2% of total employment, but just 35.7% of total value added.

Henry J. Schumacher, executive vice-president of the European Chamber of Commerce of the Philippines, and Philippine Chamber of Commerce and Industry President Alfredo M. Yao said big companies in the Philippines are ready for the expected intensified competition.

“Some are investing in other ASEAN countries already,” Mr. Schumacher in a text message.

“But SMEs may have a tough time facing challenges as integration progresses. SMEs may have to look for joint ventures and strategic alliances to benefit from the opportunities ASEAN offers.”

Mr. Yao noted that “we could have a problem since 99% of businesses in the country are SMEs.”

John D. Forbes, senior adviser of the American Chamber of Commerce of the Philippines, shared their view, saying via separate text that agriculture and SMEs “are possibly the least prepared for competition and need intensified structural reforms.”

Such reforms include increasing agricultural productivity through competitive land policies, better support for small farmers, better infrastructure, lower inter-island shipping cost, as well as better credit and reduced red tape for SMEs.

Moreover, public utilities and other sectors still protected by constitutional restrictions on foreign ownership “may remain inefficient and more expensive than [counterparts] in more open AEC members,” Mr. Forbes said. — report fromKathryn Mae P. Tubadezawith Reuters