Monday, June 8, 2015

Planning for Laos as 2016 ASEAN Chair

Last month I conducted a workshop in Vientiane with the Lao government on the ASEAN Economic Community (AEC).  This was sponsored by the Asia Foundation and Ausaid in support of Laos’ upcoming term as ASEAN Chair in 2016.  Laos last served as ASEAN Chair in 2004, during which the Vientiane Action Plan for the ASEAN Communities was issued, one of the key milestones in the AEC. 

Despite its previous experience as ASEAN Chair, much has changed in the AEC over the past 11 years.  ASEAN has signed various new economic agreements which add to the complexity of economic integration in the region including the following:
  • ·      ASEAN Trade in Goods Agreement (2010)
  • ·      ASEAN Comprehensive Investment Agreement (2009)
  • ·      ASEAN Framework Agreement on Services (various packages)
  • ·      ASEAN Single Window Agreement (2005)
  • ·      ASEAN-Australia-New Zealand FTA (2008)
  • ·      ASEAN-India FTA (2009)
  • ·      ASEAN-Japan Comprehensive Economic Partnership (2008)
  • ·      ASEAN-Korea FTA (2007)

Hopefully the Regional Comprehensive Economic Partnership talks will be completed this year, as well.

The AEC aspects of being ASEAN Chair have increased significantly since 2004, as have the Political-Security and Socio-Cultural community aspects.  Such responsibilities, along with the logistical burdens that would come with having two ASEAN Summits in 2016, led Laos to propose having the two summits mandated by the ASEAN Charter on a back-to-back basis in November 2016, effectively resulting in a single meeting.  This is understandable, but I hope that this becomes the exception and not the norm (for example, if and when Timor Leste becomes an ASEAN member and holds the ASEAN Chair, it could also do the same).  We have already had many deviations from the ASEAN Charter with regard to the notional rotation of ASEAN Chair and other formal aspects of ASEAN.

Does this mean that Laos as 2016 ASEAN Chair should be viewed with trepidation?  I think not.  Vientiane has previously hosted the ASEAN Summit, ASEAN Regional Forum, and the Asia-Europe Meeting (ASEM), so it can handle the logistical matters.  Laos just did not feel comfortable handling two such meetings in 2016 in the form of both ASEAN Summits.

Furthermore unlike Myanmar in 2014, Laos had previous experience as ASEAN Chair and is willing to take on a more proactive stance on AEC matters (which in 2014 Myanmar largely left to the ASEAN Secretariat).   For example, many Lao officials told me that they want to push for a more expansive Initiative for ASEAN Integration (IAI) program to address development gaps in the region, and with the third IAI program set to be determined in 2016, Laos can do just that.  Laos has also proven to be an enthusiastic supporter of regional economic integration, as one would expect for a landlocked country.  But like Myanmar, I would expect Laos to pursue a more evenhanded approach to political-security matters like the South China Sea, due to its closer relationship to Vietnam (and in contrast with what Cambodia did in 2012 as ASEAN Chair).

Regardless of the late month of the ASEAN Summit(s) in 2016, Laos will still take over its responsibilities as ASEAN Chair after the November 2015 ASEAN Summit in Malaysia.  Thus, because of the additional responsibilities and tasks (particularly the IAI 3 program) I would recommend that Laos send its transition team to Malaysia as soon as possible so that the post-AEC 2015 agenda gets an early start and can continue through the 2016 Laos chairmanship.

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 saga 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.