Friday, May 22, 2015

Testing the Institutional Limits of ASEAN

This week events in ASEAN illustrated the current limits of the ASEAN Economic Community in dealing with regional issues.

First is the continuing sage of the Rohingya migrants who have fled Myanmar and are now in Malaysian and Indonesian waters seeking refuge.  As a humanitarian issue, of course, ASEAN faces a major task in dealing with both the causes of the migration and immediate help for the refugees.  That is an ASEAN Political Security Community matter. 

However, this blog has posited repeatedly that the movement of natural persons in the AEC will remain the most contentious issue in economic integration, and the  Rohingya issue illustrates this point.  Assuming that the AEC guaranteed full freedom of movement for unskilled workers, would those protections apply to the Rohingya (some in Myanmar dispute that they are Myanmar nationals)?  Are they moving within ASEAN for economic reasons or political reasons?  Who would ensure the fair application of an ASEAN movement of natural persons agreement by the countries involved – the other ASEAN members?  A special ASEAN institution?  And, if there are rights that re affected, who would ensure that they are upheld and provide relief?  This intersection of human rights issues with the AEC is why I have termed it as the “third rail of the AEC.”

Second, at a public forum, Singapore trade and industry minister Lim Hng Kiang called for the removal of non-tariff measures (NTMs) on trade in goods and barriers to services trade:

"We know that many of you who operate in ASEAN face problems at and behind the borders. You grapple with Customs processes, documentation requirements and a complex regulatory framework.

"ASEAN countries need to be more proactive to tackle the problems… and move towards the elimination of non-tariff barriers."

See the Straits Times here for more.  The question for ASEAN is how should ASEAN members be proactive?  Currently ASEAN members are under no obligation to report NTMs to each other or the ASEAN Secretariat.   ASEAN members report on their NTMs on a voluntary basis, without the threat of sanction other than possibly being publicly named in the AEC Scorecard – which does not happen at the moment. And, even if NTMs are identified, there is currently no effective way to compel an offending ASEAN member to bring itself into compliance, because the ASEAN Secretariat has no coercive powers and the ASEAN dispute resolution process is unused and ineffectual.

Both examples are linked to a fundamental problem in ASEAN: without obligations that can be enforced by authority exercised by an ASEAN institution,  or effective dispute resolution that can be implemented, ASEAN members cannot be reasonably expected to follow ASEAN measures in the breach.  This blog has repeatedly called for additional powers and/or improvements in the ASEAN processes to remedy these deficiencies.  What additional powers and/or improvements will be adopted is up to the ASEAN leaders.  In any event, without some fundamental reforms for the ASEAN institutions and processes, ASEAN will soon exceed, if it has not already, its inherent limits in dealing with regional problems and issues.

Sunday, May 17, 2015

Creating the ASEAN Single Aviation Market

Air Asia boss Tony Fernandes has been repeatedly calling for a comprehensive ASEAN approach to aviation issues. Most reports, particularly after the tragic crash on the Surabaya-Singapore route last December, portray Fernandes’ efforts as an appeal for a regional aviation safety regulator in Southeast Asia.  A recent study just published for the CIMB Asean Research Institute (CARI) and the ASEAN Business Club prepared by a team led by my NUS Law colleague Alan Tan goes beyond this relatively simplistic analysis and explains how a regional approach can help all airlines do better in the ASEAN Economic Community.

The report first provides an overview of the huge growth in the ASEAN aviation market:

With such huge growth rates, ASEAN aviation now faces real concerns over congestion. These concerns affect all facilities ranging from terminal and runway capacity to airspace management. From the human capital angle, the challenge relates to the supply of pilots, maintenance crew, air traffic controllers and other technical experts. The airline industry projects that the Asia-Pacific region alone will require 185,000 more pilots and 243,500 maintenance personnel for the next 20 years. These pressures on infrastructure and human capital have been largely caused by the huge spike in flights made possible by the increasing economic liberalisation of ASEAN skies.

However, the report notes that ASEAN governments have not kept up with regulatory and infrastructure improvements to support this growth:

In short, investments in infrastructure and human capital have not kept up with the economic liberalization that has fuelled the aviation boom in ASEAN. Neither has there been convergence in national laws and standards to create a more integrated and cost-efficient regulatory regime. There must thus be greater investments in infrastructure and human capital to keep up with the additional planes entering the ASEAN market in the coming years. At the same time, technical or regulatory integration must take place in the subsequent phase of ASAM [ASEAN Single Aviation Market] to complement economic liberalisation. Only then can there be true regional integration.

Thus the report proposes that ASEAN establish a new coordinating body of national civil aviation regulators that would meet regularly and allow for the mutual recognition of standards in the aviation industry.  In this approach, national standards would be recognized by other ASEAN national regulators, leading to eventual harmonization.  Although the creation of an EU-style single regional aviation regulator is envisioned as an ultimate goal, the report recognizes that this would be an evolutionary process that will take time to develop.

In the ASEAN context, the paper queries whether the mutual recognition approach should be done first on an ASEAN-X approach, with a subgroup of more advanced ASEAN member states proceeding first and the rest catching up later, which has the advantage of moving faster, or whether a region-wide approach is to be preferred, even though this would require more time and effort to implement.  Either way, the paper posits that some form of best practices in aviation recognition must be put forward to establish sufficient confidence among the ASEAN national regulators in each other.

The paper then goes on to identify specific areas for mutual recognition of standards:

A legal agreement [should] be adopted to lay out the formal procedures for mutual recognition of certifications licences, permits, approvals and other documentations that are aligned with the relevant “base” standards. Annexes to the agreement can lay out the specific categories/disciplines of regulation, including crew/personnel licensing and training organisations, safety and maintenance programmes, flight operations and air traffic management.

Mutual recognition in these areas would allow for the creation of an ASEAN-wide labor market for flight crew, and eliminate duplication or inconsistent safety measures.  Both would help reduce operating costs for operators and improve safety.

Just as importantly, the paper calls for an effective regional monitoring and sanctioning system to give full effect to the mutual recognition process. This follows what this blog has been calling for in other aspects of the AEC, as the current institutional structure of ASEAN is insufficient.  This is even more important for the aviation sector, where prudential concerns are paramount, and the sector is critical for the proper functioning of the single production base and single market.

The paper also calls for full implementation of existing ASEAN market access agreements for aviation:

19. In addition, even if all the ASEAN member states were to accept all the above agreements, their airlines will still have to begin and end their flights in the home state’s points. For instance, a Thai carrier will not be able to station planes in Indonesia to connect Jakarta and Manila. At best, it can only connect Jakarta and Manila with operations beginning and ending in Bangkok, one of its home points. For instance, it can operate a Bangkok – Jakarta – Manila – Jakarta – Bangkok route, which is a fifth freedom operation that enjoys traffic pick-up rights in Jakarta both ways.

20. Even then, such fifth freedom operations are controversial in ASEAN because the Thai carrier in this example would be servicing a “V”-shaped geographical route, as opposed to a linear or straight line route. The practical effect of this is that all the passengers getting on board in Bangkok will likely be bound for Jakarta (and will disembark there). At Jakarta, a full new load of passengers will be taken on for Manila. This effectively turns the operation into a “seventh freedom” operation, i.e. the right of a carrier to carry traffic between two international points outside its home base. Yet, such operations are permitted by the ASEAN agreements which specify that there are no directionality or capacity conditions on fifth freedom flights. As they are wholly consistent with ASAM’s liberalising spirit, all member states should give approval when any ASEAN airline requests authorisation for such operations.

21. The “seventh freedom” must be addressed explicitly in the post-2015 period and allowed to flourish. To begin with, all fifth freedom routes, as illustrated above, must be permitted without restriction and regardless of their route “shape”. In time, pure “seventh freedom” routes should also be allowed – this would allow the Thai carrier to station planes in Jakarta to operate stand-alone flights between Jakarta and Manila. Just as in the E.U. common market, it is essential for a single aviation market project like ASAM to include the “seventh freedom” (though for now, domestic “cabotage” flights for foreign airlines remain controversial in ASEAN and should best be left for future discussion). In other words, the ASAM cannot stop at third, fourth and fifth freedom rights only. If it does, the ASAM will remain restricted and “single” in name only.

Finally, the paper calls for simplication of ownership structures to allow for true regional carriers, and for ASEAN to deal with other countries as a bloc in aviation negotiations and relations. 

Again, I am not an aviation expert, and I would refer more detailed questions about this topic to Alan. My point in discussing the aviation industry here is to provide yet another example of a sector in which the ASEAN national governments have not yet caught up with an industry sector which is much further developed in regional integration.

Saturday, May 16, 2015

ASEAN and the University of Michigan

This weekend I spoke on the ASEAN Economic Community at the University of Michigan Pan-Asia Alumni Reunion.  I graduated from the university’s law school in 1991 and much of how I teach my AEC courses is based on how I learned EU law and policy from Eric Stein and Joseph Weiler at Michigan Law. 

What is not widely known is the linkage between Michigan and the formation of ASEAN.  University Professor Russell Fifield, in 1963, proposed the formation of an “Association of Southeast Asian Nations,” or “ASEAN” in his book Southeast Asia in United States Policy (Council on Foreign Relations), as part of a collective security pact for the region:

To implement the treaty a Southeast Asian Council, consisting of all the participants, should be established, meeting periodically but being organized in such a manner that it could convene at short notice. Further organizational steps could be taken as the needs develop. The treaty should be indefinite in duration although any signatory could cease to be a party upon a year's notice. In view of national sensitivities, the alliance might be termed an Association of Southeast Asian Nations (ASEAN).

See page 426.  This is believed to be the first time the term “ASEAN” was posited in print.  Professor Fifield goes on to suggest that India and Japan could be associated with the new regional bloc.  However, the United States should not be a formal part of ASEAN, so that the organization’s independence would not be undermined (as happened with the Southeast Asia Treaty Organization, or SEATO). 

Those present at the creation of the Bangkok Declaration claim not to have read Professor Fifield’s book, according to Dewi Fortuna Anwar in her book, Indonesia in ASEAN: Foreign Policy and Regionalism (ISEAS, 1994), at page 55.   That would be consistent with the idea that ASEAN was created by Southeast Asians on their own. 

On the other hand, the influence of the United States among the five original ASEAN signatories was very strong.  Indeed, the major factor in the creation of ASEAN was the rise of Suharto in Indonesia, who replaced the less pro-Western Sukarno (who in another link with Michigan, actually received an honorary degree in 1956 from the University).  Hence the U.S. influence on ASEAN’s formation (and Professor Fifield’s influence), even if perhaps indirect, cannot be denied.

In any event, ASEAN has progressed far beyond what Professor Fifield suggested in 1963 and what was actually established in the 1967 Bangkok Declaration.  What is more important are the continuing links between ASEAN and its peoples with institutions like the University of Michigan. These living connections will help the AEC grow and thrive.

Go Blue!