Thursday, November 13, 2014

Malaysia's Vital Role as 2015 ASEAN Chair

Today in Naypyidaw Myanmar concluded its second and last ASEAN Summit as ASEAN Chair. With that, the figurative gavel associated with the ASEAN Chair was handed to the 2015 ASEAN Chair, Malaysia.  Although Malaysia does not formally take over as ASEAN Chair until the end of the year, in reality Malaysia has been acting in an ASEAN leadership role this year, and likely beyond next year, particularly with regard to the ASEAN Economic Community (AEC).  This is all for the better for the AEC.

As discussed previously, the major accomplishment of Myanmar as ASEAN Chair is that it was allowed to serve as ASEAN Chair, and that the ASEAN Summits and various associated meetings took place this year without difficulty.  The position of ASEAN Chair served as a carrot for Myanmar to undertake its economic and political reforms, and the ASEAN Summits allowed the Myanmar government to display its willingness to continue those reforms.  The real question for Myanmar is how next year’s elections will play out, e.g., whether a new Myanmar government will be established that can fully implement these reforms.

However, to use an old American aphorism, Myanmar is not (yet) able to “walk and chew gum at the same time.”  Although it should be complimented being able to “walk” (e.g., serve as ASEAN Chair), years of economic isolation left Myanmar ill-prepared to take on the AEC-related tasks, particularly in the run-up to the AEC’s December 31, 2015, implementation date. 

Fortunately ASEAN’s leadership had foreseen this possibility and allowed Laos and Malaysia to swap their terms as ASEAN Chair.  Malaysia, as a founding member of ASEAN and an active trading nation, is much more experienced and capable of handling the AEC issues.  Furthermore, in the Razak brothers, Malaysia’s public and private sectors have leadership devoted to ASEAN and the AEC.  Prime Minister Najib Razak wants to establish a diplomatic and political legacy, while Nazir Razak wants to create a fully functioning AEC in which his CIMB Bank thrives. 

Thus, we have seen Malaysia pushing for reforms of the ASEAN institutions as leader of the High Level Task Force on institutional reform, with Prime Minister Najib Razak openly calling for changes to ASEAN’s organizational and financial structures.  Meanwhile, Nazir Razak has been calling for similar changes to support the AEC as both a single market and a single production base. 

Indeed, because of the rotation of the ASEAN Chair, Malaysia could continue to have a continuing role beyond 2015.  Laos, despite being an enthusiastic supporter of the AEC, has limited resources and capabilities; hence its own role in AEC development in 2016 could and should be augmented by Malaysia serving as an unofficial holdover role (and when the Philippines, the 2017 ASEAN Chair, may be preoccupied with its own elections to take on early responsibilities).

The coming year therefore promises to see Malaysia continuing its work, only with the added formal position as ASEAN Chair.  It is vital for the AEC’s success that Malaysia fully follow through and deliver actual institutional reforms.  December 31, 2015, is only the end of the first stage of the AEC, and such reforms are necessary to deliver on the AEC’s full promise. 

Thursday, October 30, 2014

How to Get Timor Leste Into ASEAN by 2020

This week Christian Whiton, whose work I respect, wrote in on the reasons why Timor Leste should join ASEAN.  Now I would agree with the political, economic and other reasons put forth in the article. Unfortunately, I don't see how this will become reality any time soon, perhaps not in this decade.

This was discussed in one of the earliest posts of this blog.  Have things changed since 2011, when Indonesia was actively pushing for Timor Leste in its role as ASEAN Chair? 

On the ground, Timor Leste has improved its governance and infrastructure, as Christian notes in his article.  However, sources in the ASEAN Secretariat and in Dili have indicated to me that Timor Leste is still far behind in understanding and incorporating the aquis of commitments associated with full ASEAN membership.  Much of this is related to the relative lack of skills and human resources in Timor Leste’s government; however, similar issues did not hold back Cambodia from joining ASEAN, issues which were resolved through the passage of time and the influx of resources.

Just as importantly, ASEAN itself is not ready for Timor Leste to join its ranks., for reasons big and small.   In 2015, ASEAN is conducting a stocktaking of the ASEAN Community, which will include a review of the authority and functioning of the ASEAN institutions.  Implementation both of the post-2015 ASEAN Community agenda and the institutional reform will take time.   ASEAN needs to get this right with its existing members before it takes on a new member.

On the smaller reasons, Dili will need time to develop the physical infrastructure to host the two ASEAN summits that will come with becoming ASEAN Chair at some point; one of these ASEAN summits will also incorporate the East Asia Summit which the leaders of the United States, China and other countries will attend.  Furthermore, if Timor Leste joined now, the rotational ASEAN Chair position would be filled by Timor Leste in 2020 (currently scheduled to be Vietnam’s term as ASEAN Chair, as the rotation is supposed to be Malaysia, Laos, Philippines, Singapore, Thailand and Vietnam beginning in 2015; Timor Leste would fit in after Thailand).  This means that Timor Leste probably cannot join ASEAN until Vietnam’s term as ASEAN Chair in 2020, or more likely, Timor Leste will agree to a delayed term as ASEAN Chair upon joining.  Although these considerations may appear to be minor, they are given weight by the ASEAN leadership. 

Weaving all of these considerations leads to a worst-case scenario of Timor Leste joining ASEAN by 2023, when its former occupier Indonesia becomes ASEAN Chair once again.  By that year, sufficient time will have passed for Dili to have addressed the large and small concerns regarding its membership application, which should allow Indonesia to make a full court press for Timor Leste once again and succeed where it could not in 2011.   

The problem is that 2023 is 8 long years away and much could happen in the interim.  Furthermore, ASEAN membership can, in and of itself, be used as a carrot and a stick to encourage Timor Leste to continue with its economic and political reforms.  Better then, to give Timor Leste a fixed date of membership, say by 2020 (which was the original date for the ASEAN Community), but take efforts to ensure that Timor Leste can be a fully functioning member by then.  That means letting Timor Leste participate as an observer to ASEAN meetings (something promised by then-ASEAN Chair Indonesia in 2011 but not really implemented) and increasing support for its accession efforts (both to ASEAN and the WTO; full accession to the WTO will greatly help Timor Leste deal with its AEC commitments).  That also means making accession conditional on achieving set goals during the process, so that ASEAN does not lock itself into taking on an unprepared Timor Leste.

By doing this, ASEAN can avoid the mistakes of the European Union. The EU has arguably taken on new members who were unprepared and required years to catch up.  The EU also started accession talks with Turkey which became interminable due to domestic European politics and ultimately alienated that country. 

Timor Leste, by comparison, carries no such political risks for the ASEAN leaders but comes with regional risks which can be alleviated by the proper use of time and resources. The bigger risk would be to put off Timor Leste indefinitely and create a underperforming, or worse, failed state at the southeastern edge of southeast Asia. 

Saturday, October 18, 2014

EU Fails to Get Same Treatment as US and EFTA on Singaporean Stamp Duty

Yesterday, when I heard that the EU and Singapore announced that they had concluded the investment chapter of their bilateral free trade agreement (FTA), the first thing that came to my mind was “how will this impact the Singapore property market?” 

Confused?  Let me explain.

In Singapore most foreign nationals are required to pay an additional 10 percent stamp duty (called Additional Buyers’ Stamp Duty or ABSD) on their real estate purchases. Singaporeans do not pay ABSD.  However, nationals of the United States and members of the European Free Trade Association (EFTA, made up of Switzerland, Norway, Liechtenstein and Iceland) are exempt from paying the ABSD because of the specific terms of their FTAs with Singapore that require Singapore to treat them the same as Singaporeans.  This is known as “national treatment” in FTA terminology, e.g., the right for foreigners to be treated the same as the locals. 

Would the EU be able to achieve similar treatment for its nationals? 

The answer is no, according to the final text (subject to “legal scrubbing”) available here. 

In an “understanding” making up part of the agreement, the EU and Singapore agreed as follows:

1. Article 9.3 [National Treatment] shall not apply to any measure relating to:

(a) the supply of potable water in Singapore;

(b) the ownership, purchase, development, management, maintenance, use, enjoyment, sale or other disposal of residential property or to any public housing scheme in Singapore.

Hence this means that national treatment for EU nationals will not include equal treatment regarding the ABSD or other laws regarding residential property in Singapore. The EU didn’t get what the US and EFTA achieved in their FTAs.  This is because the EU was relatively late in seeking an FTA with Singapore (the EFTA-Singapore FTA was among the first FTAs of Singapore) and not as powerful as the United States (whose preferential treatment is also rooted in the most-favored-nation clause of its FTA, which grants it the same treatment as the EFTA members under their Singapore FTA).

However, the EU did obtain some hope in the form of a future review of the ABSD:

2. Three years after the entry into force of this agreement and every two years thereafter, should ABSD still be in force, the Trade Committee will review to see if the maintenance of the ABSD is necessary for addressing the stability of the residential property market. In these consultations, Singapore will provide statistics and information relevant to the state of the residential property market.

Thus Singapore has committed itself to scrutiny by the Trade Committee of Singaporean and EU government representatives to confirm whether the ABSD is still necessary to control Singapore property prices.  This is not the same as the US and EFTA FTAs, but it does mark a commitment by the Singaporean government to joint review of its property policies, a very rare occurrence.  Perhaps the ABSD will be terminated three years from now and this will become a moot point, perhaps not.  Either way, it is another example of how FTAs can set policy – or restrain policy options – for a government.

The EU-Singapore FTA investment chapter also contains an investor-state dispute resolution chapter that allows for international arbitration.  This has become controversial in other FTA negotiations such as the Trans Pacific Partnership talks, but evidently not so for the EU-Singapore FTA.  But its inclusion will only embolden ASEAN members such as Indonesia who believe that terminating their bilateral investment treaties with the EU (and their associated arbitration clauses) will encourage the EU to conclude their own bilateral FTAs with them.

Other items of note are exemptions for government policies necessary to protect general welfare, as follows:

 (a) necessary to protect public security, public morals or to maintain public order;

(b) necessary to protect human, animal or plant life or health;

(c) relating to the conservation of exhaustible natural resources if such measures are applied in conjunction with restrictions on domestic investors or investments;

(d) necessary for the protection of national treasures of artistic, historic or archaeological value;

(e) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Chapter including those relating to:

(i) the prevention of deceptive or fraudulent practices or to deal with the effects of a default on a contract;

(ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidential of individual records and accounts;

(iii) safety.

(f) aimed at ensuring the effective or equitable imposition or collection of direct taxes in respect of investors or investments of the other Party.

In any event, the impact (or lack thereof) on the Singaporean property market is the immediate news from this development.  Given that this is a major concern of many Singaporeans, that is not surprising, as reflected by this issue being the most popular topic on this blog.  Again, however, the ABSD issue shows how FTAs can affect areas of governance far beyond trade in goods.