Friday, August 29, 2014

US Companies: More Bullish on SE Asia, More Bearish on the AEC

From the sidelines of this week’s ASEAN Economic Ministers’ meeting in Naypyidaw, the Nation reports that US companies are still bullish on Southeast Asia, but bearish on the ASEAN Economic Community (AEC):

As 2015 and the Asean Economic Community approaches, US companies are keeping a close eye for opportunities offered by regional economic integration, although most respondents don't believe that the goals of the AEC will be reached until 2020 or later.

This comes from the 2015 ASEAN Business Outlook Survey published by the American Chamber of Commerce and US Chamber of Commerce, and available here. 

In the survey, 66% of respondents from the American business community expected ASEAN to be more important to their companies’ business operations within the next two years, and 89% expected to increase their investments in ASEAN during the next two years.  However, only 4% of respondents said that ASEAN would reach its AEC goals by end 2015, a drop from 23% who said this in last year’s survey.  Furthermore, 52% of respondents said that the AEC goals would not be reached until 2020 or later, an increase from 31% who said this last year.

Americans are therefore bullish on Southeast Asia, but bearish on ASEAN.  I posted on this split opinion in the American business community last year:

What this reflects is confidence in the Southeast Asian economy but less confidence in the ASEAN institutions.  But it also reflects the focus of American companies in the region on services, rather than manufacturing.  As I have written elsewhere, the AEC will create both a single market in Southeast Asia and a single production base.  The single production base is much more developed than the single market.  In fact, as I have suggested, we already have an AEC in Southeast Asia, only it is focused on the single production base and dominated by the Japanese automotive and electronics companies that have been long present in the region.  In other words, the AEC can be likened to a glass of water, and the Japanese see a half-full glass. 

American companies, on the other hand, are less involved in manufacturing and emphasize services such as legal, financial and distribution.  These are more interlinked to the development of the single market in ASEAN. Yet, as noted elsewhere, non-tariff barriers to trade in goods, services and investment are much more difficult for the ASEAN members and the ASEAN Secretariat to deal with.  Hence the relative pessimism of American companies towards the AEC, because they are looking at a half-empty AEC glass of water. 

Thus, the Amcham/US Chamber poll accurately reflects American corporate sentiments in the region, because American companies have a different outlook on Southeast Asia.  Improving that sentiment will be difficult for ASEAN members, but will result in much greater economic welfare for all of ASEAN’s citizens, not just those involved in the single production base.    In other words, if American companies become happier with the AEC, everyone will be happier with the AEC.

This year’s survey shows that this half-empty, half-full view of the AEC is more prevalent than ever in the American community.   Major reforms to the ASEAN institutions, along with concrete actions to implement AEC commitments, will be needed to improve these bellwether indicators of confidence in the AEC.

Thursday, August 28, 2014

The Real Solution to ASEAN's "Hodge Podge" of Legal Systems

Last week had a piece on how the “hodge podge” of legal systems in Southeast Asia frustrated ASEAN integration.   The author noted that the legacies of colonial and other influences from English, French, Soviet, Dutch and German legal systems retarded ASEAN economic integration (but the author omits the influence of the Spanish legal system in the Philippines).  The article also noted  the purported unprecedented formation this month of a Singapore-based alliance of law firms in the major jurisdictions in ASEAN (although it seemed to overlook a similar Malaysia-based alliance of law firms established in 2011).

Having worked as co-counsel or opposing counsel with both of the lead firms  in these Asian law firm alliances, I have no doubt that increased cooperation among law firms can work to relieve some of the inconsistencies and obstacles that result from the diversity of legal systems in ASEAN. 

However, the article neglects to discuss other ways that regional economic blocs have established to deal with divergent legal systems.  After all, the FT’s home country, the United Kingdom, is part of the European Union (EU), and the various legal systems noted in the FT article also originated in the EU (or otherwise in Europe, in the case of the Soviet legal system).  Yet somehow these differences do not seem to present the “hodge podge” of obstacles that exist in ASEAN.

The reason, of course, is that the EU has a well-developed system of regional institutions such as the Commission, Court of Justice and the like, all based on a cohesive theory of EU law that evolved since the Treaty of Rome.  NAFTA similarly has had to deal with divergent bases of law (English, French and Spanish) but being based on a very detailed treaty and having a robust dispute resolution system, that bloc also has been able to deal with its legal diversity.

In other words, diversity of legal systems need not be a barrier to economic integration, if the regional bloc determines to adopt robust institutions and/or dispute resolution.  Perhaps the article elected not to address this issue because ASEAN currently has decided to do neither, but that does not excuse this oversight. In any event, if the ASEAN Economic Community is to thrive, ASEAN’s leaders need to deal with these institutional and foundational deficiencies.   

Wednesday, August 27, 2014

More ASEAN Around the Horn

In this post I provide some ASEAN updates:

  • Sign-off of ASEAN-India FTA (AIFTA) chapters on services and investment was delayed yet again because the Indian commerce minister decided to deal with a domestic political issue rather than attend the ASEAN Economic Ministers’ meeting in Naypyidaw this week.  The Indian government claims that this delay is merely a formality and that they will sign off during Regional Comprehensive Economic Partnership (RCEP) negotiations later this year in New Delhi.  However, this represents yet another delay in the interminable efforts to add services and investment to the AIFTA.
  • Malaysia, Singapore and Thailand launched the ASEAN Collective Investment Scheme (CIS) Framework.  Under the framework, unit trust/mutual fund managers can offer their products to other participating ASEAN countries; their home countries are responsible for reviewing and regulating their operations and regulators from the other participating ASEAN countries are to recognize the approval by the home country regulator.  Hence the CIS framework is really a mutual recognition agreement. It does not provide for formalized cross-border cooperation in enforcement measures, such as to deal with fraud. A cooperative committee among the relevant regulators to deal with compliance and enforcement should be established, particularly given the potentially large investment amounts involved.
  • Malaysia announced that it would issue 5 year multiple-entry visas for investors by year end, as part of its efforts to improve the foreign investment climate in Malaysia.  Prime Minister Najib Razak also announced “My ASEAN Internship Programme,” an effort to place Malaysian students in internships in other ASEAN countries and vice versa.
  • New Zealand announced a new protocol to the ASEAN-Australia-New Zealand FTA dealing with technical issues.   Trade Minister Tim Groser said “These changes relate to product-specific rules of origin, certificate of origin requirements, and the process for transposition of tariff reduction and origin schedules when the classification documents on which they are based are revised.”

I’ll have more on the ASEAN Economic Ministers’ meeting as soon as possible.