Wednesday, October 7, 2015

The TPP's Impact on ASEAN

On Monday trade ministers from 12 countries announced that they had completed negotiations for the Trans Pacific Partnership agreement (TPP), which had taken several years.  The TPP text will not be officially released for some time, but we can already make some immediate assessments of TPP’s impact, particularly on the ASEAN countries (my comments on TPP made to Channel News Asia are available here).

Of the ASEAN countries in the TPP, Brunei, Malaysia, Singapore and Vietnam, Vietnam was the big winner.  Vietnam had already just concluded a free trade agreement (FTA) with the EU, which would make it the only ASEAN country (other than Singapore) to have an FTA with Europe, the US (through the TPP) and of course in Asia through the ASEAN Economic Community (AEC) agreements and the Regional Comprehensive Economic Partnership (RCEP) talks.  This will give major competitive advantages to Vietnamese exports. Vietnam had to sign off on a “side letter” on labor rights, as did Malaysia, which offer the possibility that a TPP partner (e.g., the US) could withdraw the tariff privileges, but the history of such side letters indicates that this is not likely. Side letters are usually used to placate domestic legislative concerns during the ratification process (e.g., the US).  Although Vietnam and other TPP partners will have new state-owned enterprise (SOE) commitments under the TPP, Vietnam’s SOEs are not as dominant in the Vietnamese export markets as is the case with China’s SOEs, and so are not as affected as China would be under the TPP.

Malaysian exports also benefit, as they had lost Generalized System of Preference (GSP) trade preferences in the US quite some time ago (which is another incentive for Malaysia to resume its own FTA talks with the EU, which had also withdrawn GSP preferences for Malaysian exports).  Malaysia did have to put some limits on its bumiputra preferences for government procurement, but the TPP final agreement will likely have very long phase out periods and numerous exemptions. Nevertheless, this is a major precedent for the bumiputra preference program and could prove controversial in Malaysia.

Brunei gets added protections for its foreign investments, which have attracted more negative attention after Brunei announced the imposition of sharia law and human rights activists started targeting Bruneian investments.

Singapore already had FTAs with almost all of the TPP partners, but had heretofore failed to achieve FTAs with Canada and Mexico, despite initiatives several years ago.  With TPP, Singaporean exports and investments will benefit from market access to these North American countries. Singapore also gets credit for being the father of the TPP, as its Trans-Pacific Strategic Economic Partnership (P4) Agreement with Chile, New Zealand and Brunei, was the foundation for the TPP talks.

However, the TPP’s impact is just as significant for the ASEAN countries not in the agreement.  Indonesia, Thailand and the Philippines in particular will feel the competitive disadvantages for their exports (Myanmar, Cambodia and Laos still being able to use GSP privileges).  This will definitely put more pressure on the countries to complete the RCEP talks, which in turn will mean convincing India and Indonesia to be more flexible on their bargaining positions.  The three large ASEAN countries might also try to reinvigorate their FTA talks with the EU.  Strengthening the AEC in the post-2015 era will also become more important, particularly as market access issues in these three countries have presented the most serious challenges for the AEC. 

The three countries may even think about trying to join the TPP, now that the exact contours of the agreement are known.  Given the strong domestic interests lined up against further trade and investment liberalization, that may prove difficult, particularly in Indonesia.  The domestic political situation in Thailand may also be an obstacle, as some in the US may want to use the TPP as a carrot to entice the Thai military regime to withdraw in favor of civilian rule again.  The Philippines might bite the bullet and make the effort to join TPP as part of the price of getting further US support for its South China Sea/West Philippine Sea dispute.

The TPP still has several ratification hurdles to clear, particularly in the United States, Canada, Japan and possibly Malaysia. I do think given the intense political commitments made by the TPP partners, TPP will get through.  It is a game-changer, establishing the rules for competition in the Asia-Pacific region and demonstrating that the US commitment to the region extends beyond security matters.  It will also force ASEAN members to up their game, both those who are in the TPP already and those who on the outside looking in.

Thursday, August 27, 2015

Common ASEAN Driving License vs. Mutual Recognition of Driving Licenses

Today's Jakarta Post reports on an ASEAN initiative to create an ASEAN driver's license:

The Transportation Ministry's director general for land transportation, Santosa Eddy Wibowo, said the common driving license was aimed at facilitating cross border transport between ASEAN member countries. "[The license] will be for all citizens of ASEAN countries. It will be an international standard license at the ASEAN level," Santosa said as quoted by
He further said that in Indonesia, the document will be bilingual, in Bahasa Indonesia and English. "It is our obligation now to translate [the existing Indonesian driving license forms] into English," he said, adding that the same would go for the KIR (vehicle road worthiness test) certificate. "But we should first consult the police."
I have noted earlier that ASEAN already has a mutual recognition agreement on driving licenses. It just doesn't seem to be implemented properly.  Hence creating a common driving license is a reasonable approach to what should be a mundane, yet important issue in cross-border movement of vehicles.

The real question is the infrastructure that ASEAN will establish to verify and keep track of driving licenses.  Sharing information among the ASEAN countries, particularly electronically, has proven difficult over the years, whether dealing with the ASEAN Single Window, self-certification of origin, common visas or even e-mail.  Full connectivity is dependent on improving both the physical and virtual infrastructures of ASEAN.

Wednesday, August 26, 2015

American Companies Upbeat on SE Asia and TPP, Not So Much on RCEP and AEC

Today the American Chamber of Commerce in Singapore and the US Chamber of Commerce released their annual ASEAN Business Outlook, a survey of top-level executives in American companies in the region.  Although the survey respondents were generally optimistic, the level of optimism has fallen in recent years, according to a Singapore Business Times article:

In a poll of 471 senior executives representing US companies in all 10 Asean countries, 72 per cent reported that their companies' level of trade and investment in the region has increased over the past two years, and 86 per cent of respondents expect it to increase over the next five years.

"The Asean region continues its solid growth despite regional and global economic headwinds, and this survey demonstrates that US businesses remain confident about prospects in Asean," said Tami Overby, US Chamber of Commerce senior vice-president, Asia, who added that this confidence cannot be taken for granted. "We have also seen a modest, but clear, downward drift over the past several years, in terms of some of overall indicators of optimism."

More than half of those surveyed said that Asean markets have become more important in terms of their companies' worldwide revenues over the past two years - this is 10 percentage points lower than reported two years earlier.  Two-thirds (66 per cent) of respondents this year expect Asean to become more important in terms of worldwide revenues over the next two years. While still high, this is seven percentage points lower than two years earlier.

For me, the survey continues to confirm the mixed sentiment of the US business community regarding the AEC.  Although 75% of respondents said that the AEC was important to their operations, 51% of all respondents indicated that they had not developed an AEC-specific strategy.  Moreover, when asked to cite a specific AEC agreement that was important to their companies’ operations, a much higher percentage of respondents cited AEC agreements dealing with investments and services than agreements dealing with goods:

            ASEAN Framework Agreement on Services                             70%
            ASEAN Comprehensive Investment Agreement                       63%
            Trade Facilitation Workplan and Customs Agreement              66%
            ASEAN Trade in Goods Agreement                                          58%

Again this reflects the American business community in Southeast Asia’s focus on services and distribution/marketing of goods, rather than the production of goods, as I have commented in earlier posts.  In other words, the American business community has much more at stake in the single market to be created by the AEC, rather than the single production base; with the single market taking that much more time and effort to develop, American companies are understandably more reserved about the AEC’s prospects.

For similar reasons, American companies are more optimistic about the Trans Pacific Partnership (TPP) than the Regional Comprehensive Economic Partnership (RCEP).   According to the survey, 46% of ASEAN respondents said that the TPP would have a positive impact on their operations (including 56% of respondents from ASEAN members who are part of the TPP talks).  On the other hand, only 34% of ASEAN respondents said that RCEP would benefit their operations.  These results are understandable, since the TPP will have much wider and deeper regulatory effects on services, investment and market access than the RCEP, which is focused mainly on harmonizing existing obligations under the ASEAN FTAs.

In any event, improving American business sentiments regarding the AEC will require improving governance at the national and regional levels in ASEAN.  That in turn will require improving the legal and institutional foundations of the ASEAN Economic Community.