Friday, September 19, 2014

The Broader Effects of ASEAN Rules of Origin

Followers of this blog will notice the link to the right that allows for pre-ordering of Rules of Origin in ASEAN: A Way Forward, an analysis of the rules of origin applied by ASEAN in its free trade agreements, co-authored with Stefano Inama.  Rules of origin are of course important for customs purposes, because goods qualify for duty exemptions or reductions based on where the goods originate.  Only ASEAN-origin goods, for example, qualify for the preferential tariff rates of the ASEAN Trade in Goods Agreement (ATIGA).

However, rules of origin also affect other aspects of trade in ASEAN, particularly because the ASEAN Economic Community is not based on a customs union, but is instead a preferential trade agreement.  As such, the ASEAN member states retain the right to impose trade remedies such as anti-dumping measures, countervailing duties and safeguards, both under their national laws and under the terms of the ATIGA, whereas in a customs union such as the EU, the member states have no such authority.

For example, in one of my recent anti-dumping cases involving two ASEAN member states, the exporting country had only one producer (my client) of the product under investigation.  According to its records, and confirmed by its home government,  the exporting country’s exports would account for less than 3% of total imports in the importing country.  Under the WTO anti-dumping agreement, such exports would be considered too negligible to have caused material injury to the importing country’s local industry – no anti-dumping duties should be imposed under such circumstances.

However, the importing government’s country, based on what was declared by the importers, found that the exports were purportedly double of what was reported by the exporter.   Hence the exports exceeded the 3% negligibility level and the importing government imposed anti-dumping duties.

Now, to qualify as ASEAN-origin, Form D documents would have to have been submitted by the importers.   The difference between the exporting country’s data and the importing country’s data thus most likely results from discrepancies in the filing of those Form D documents, e.g., importers filing Form D documents for which origin was not justified. 

Import and export statistics have also been controversial in ASEAN in other contexts.  For example, for a long time, the exact quantity and value of bilateral trade between Singapore and Indonesia was not publicly discussed, because certain goods (e.g., petroleum and its related products) were politically controversial (as Indonesia shipped much of its petroleum to Singapore for refining).  Singapore routinely shows up as a major exporter of goods to other ASEAN countries which it does not produce (e.g., flat-rolled steel), which frequently results in trade remedy complaints against Singapore.   And for several years, imports declared under the personal duty-free allowance (e.g. duty-free purchases at the airport) accounted for about 10% of annual Indonesian imports.

The foregoing shows that rules of origin have importance beyond preferential import tariffs.  Applying these rules correctly will require greater education of the private sector as well as improved cross-border cooperation by ASEAN customs and trade authorities. 

Wednesday, September 17, 2014

Indonesia Finally Ratifies ASEAN Haze Agreement

More than a year after I wrote this post, Indonesia's parliament has finally ratified the 2002 ASEAN Agreement on Transboundary Haze Pollution.   My earlier post explains why this is a positive development, but not a panacea for the haze problems in Southeast Asia: 

Given the difficulty of obtaining ratification and the lack of strong authority and enforcement powers in the Haze Agreement, why should ASEAN members care strongly about its ratification?  Because at this point, more than 10 years after its signing, ratification by Indonesia would send a strong political message to the rest of ASEAN that it takes the issue seriously.  After ratification, continued haze problems will become that much more embarrassing for the Indonesian government.  In other words, at this point the act of ratifying the Haze Agreement has more meaning than the Haze Agreement itself.   

Indonesia's ratification this week is particularly timely as Singapore faces the unfortunate return of the haze during its marquee sporting event, the F1 Singapore Grand Prix, being held this weekend.  Even if  this year's race  is affected by the haze, hopefully Indonesia will take more actions so that next year's race isn't.

Sunday, September 7, 2014

ADB Institute Says Reform of the ASEAN Institutions Necessary for AEC Success

The Asian Development Bank Institute (ADBI) recently published a study on the ASEAN Economic Community (AEC), “ASEAN 2030: Toward a Borderless Economic Community,” which is available here.  According to the Jakarta Post, the dean of the ADBI predicted that the AEC could surpass the EU by 2030:

“I think ASEAN has a very high growth potential. If growth continues [at this rate], ASEAN countries will catch up with the EU by the end of 2030. It is important to maintain this growth in the region,” dean of the ADB Institute, Naoyuki Yoshino, said during a presentation of the study in Jakarta on Friday.

However, the ADBI stressed that institutional reforms at the national and regional level needed to be adopted for the AEC to reach its fullest potential.  I’ve read through the ADBI study’s proposed ASEAN-level institutional reforms, and many overlap with ideas presented in this blog and in my forthcoming book with Stefano Inama, “The Foundation of the ASEAN Economic Community: An Institutional and Legal Profile”:
  • Increasing flexibility in ASEAN decisionmaking by moving away from requiring  consensus and adopting majority or supermajority decisionmaking, perhaps with a form of weighted voting based on economic development or geographical size.
  • Revising the funding formula for the ASEAN member states to contribute to the ASEAN institutions, based on ability to pay and benefits received and possibly using the ASEAN Development Fund as a mechanism.
  • Delegating more authority to the ASEAN institutions, and creating sanctions, feedback and compensating mechanisms that would be operated by the ASEAN institutions.
  • Increasing staffing numbers and salary levels for the ASEAN Secretariat and developing an ASEAN civil service. This would include establishment of an ASEAN Academy for training.
  • Creating new ASEAN functional institutions to deal with specific issues, including a monetary fund, financial stability dialogue, convergence fund, competitiveness institute, rice, standards, tourism, governance, and competition policy.   
  • Distributing institutions and functions (e.g., the proposed ASEAN functional institutions) among various member states, not just Indonesia (as ASEAN Secretariat host country).
  • Sharing ASEAN responsibilities with the Committee of Permanent Representatives and the national ASEAN secretariats established at the national level.
  • Authorizing the ASEAN Secretary General and ASEAN Chair to present an official ASEAN position at the G-20 and other international meetings and organizations.
These are all commendable ideas.  The concept of distributing ASEAN institutions to other member states, in particular, could help convince ASEAN member state governments to accept giving more powers to ASEAN institutions.   Hopefully, this would be used sparingly to avoid the situation in the EU where  EU institutions were spread out in Brussels, Luxembourg, Strasbourg and elsewhere for similar purposes.

What I would add is that the AEC also requires greater buy-in by the private sector, and not just by the ASEAN member state governments.   Augmenting ASEAN institutions, whether through increasing authority or creating more institutions, will mean greater interaction between the regulated (the private sector) and the regulators (the ASEAN institutions).  Such an increase in authority in the ASEAN institutions should be balanced with greater legal safeguards to protect the expectations and rights of the private sector. Without such safeguards, whether in the form of improved dispute resolution or formalized processes for notice and comment on policies, the private sector will remain skeptical of the AEC process, resulting in reduced trade and investment. This does not mean that ASEAN needs to adopt EU-style institutions on a wholesale basis, but it does mean greater development of the rule of law and the role of law, such as establishing a hierarchy of norms for ASEAN agreements and agreeing on how ASEAN-level law affects domestic legislation at the national level. 

In any event, the ADBI report represents a worthy contribution to the study and analysis of ASEAN, explaining why the status quo in ASEAN cannot continue if the AEC is to reach its full potential.  How to address this situation is currently under discussion in this blog and elsewhere, and hopefully this discussion will result in corrective action.