Monday, August 29, 2011

Modest Institutional Proposals for the AEC

Last month I participated in the initial meetings of an NUS-NYU project entitled “ASEAN Integration Through Law: The ASEAN Way in a Comparative Context Project,” a long-term project studying the role of law in the integration of ASEAN (the project co-leaders are my old Michigan law professor Joseph Weiler (now at NYU) and my old friend from NUS, Michael Ewing-Chow; Tan Hsien-Li is the executive director).  Professors Weiler and Ewing-Chow have asked the participants to examine both the problems related to ASEAN integration as well as how law can help solve them.

In particular, the participants (which include academics, government officials and practitioners) were asked to come up suggestions for ASEAN policymakers, e.g. policy “tools” that could be used to improve the administration of the AEC. These suggestions will be published next year in a series of books and articles. 

Now, I have argued here and elsewhere that the current institutional arrangements in ASEAN are not conducive to establishing an effective AEC.  A truly single market for goods, services and investments cannot operate properly when it is regulated by 10 separate ASEAN national governments, coordinated by an ASEAN Secretariat without authority other than moral suasion and peer pressure.  We will have an AEC by 2015, but to have a regional market that can even be compared with the EU and NAFTA, the ASEAN institutions will need strengthening.

On the other hand, that does not mean that ASEAN can accept a powerful supranational authority in the style of the European Commission.   Although this would appear attractive to Western observers, ASEAN governments do not want an EU-style supranational government, even if they want a single market in Southeast Asia.

Nevertheless, the ASEAN Secretariat needs augmenting because it (and the ASEAN Secretary-General who heads it) is the only ASEAN institution which can be counted upon to act on behalf of the common goals of the AEC. The ASEAN national governments will almost always act on their individual national interests.

However, there are additional powers that would give the ASEAN Secretariat more effective means of administering the AEC yet fall short of creating something like the European Commission. Member states could elect to accept  or not to accept measures originating from the ASEAN Secretariat, depending on how much delegation of sovereignty they are willing to live with.

  • Right of oversight -- The ASEAN Secretariat would be obligated to comment  in writing on all national and multinational measures affecting implementation of AEC goals and principles.   Over time, these opinions would create a body of AEC commentary that would influence administration of the AEC. Currently this happens during ASEAN meetings but the ASEAN Secretariat staff are not obligated to make comments, nor are the comments recorded or publicized.
  •  Right of inquiry -- The ASEAN Secretariat would have the right to inquire with ASEAN members on their implementation and administration of measures affecting the AEC.   The member states would be obligated to respond to these inquiries.  Currently the ASEAN Secretariat may make inquiries but the ASEAN members are not required to respond.
  • Right of proposal -- The ASEAN Secretariat would have the right to propose measures, on its own initiative, which would advance AEC goals and principles.
  • Right of sanction -- The ASEAN Secretariat would have the right to impose sanctions on member states not in compliance with AEC goals and principles (beyond publicity and peer pressure).

Obviously the last two powers would make the ASEAN Secretariat more like the European Commission, which the ASEAN members will not want.  However, I list them to demonstrate the spectrum of additional powers that could be delegated to the ASEAN Secretariat (and there may be other powers not discussed above).

Of course, some or all of the above powers could be assigned to a new ASEAN entity or institutions.  An ombudsman or public advocate is one possible solution.  More acceptable would be a permanent eminent persons group made up of former government officials, academics and other highly respected ASEAN nationals, supported by a professional staff, which would monitor and comment on AEC developments.  Such groups have been repeatedly used in ASEAN’s history, such as during the drafting of the ASEAN Charter.  Another suggestion I have heard is to solicit private funds to support economic and regulatory oversight by a private institution, due to resource and personnel constraints at the ASEAN Secretariat.  Of course, the better (but not easier) solution would be to revise the funding formula for the ASEAN institutions in the first place.

I will be addressing these issues in my contribution to the NYU-NUS project next year, along with the other participants on their own issues.  Whether or not any of our suggestions will be adopted will be up to the ASEAN member governments.  My point is that the AEC will need stronger ASEAN institutions to thrive, but those ASEAN institutions will need augmentation in a manner and by means appropriate with the cultural and governmental traditions of ASEAN.  Our role is to start a discussion on those issues sooner rather than later.

Friday, August 19, 2011

Improving Virtual Connectivity in ASEAN

The ASEAN Economic Ministers (AEM) meeting in Manado also discussed the ASEAN Single Window (ASW).  The ASW is supposed to provide companies with a single data entry point (e.g., a single “window”) for submitting customs clearance documentation and data to ASEAN government authorities.  The agreement on the ASW was signed in 2005, with full implementation within ASEAN by 2012. 

In theory, the ASW should improve intra-ASEAN operations by enabling for electronic data submission, thereby avoiding the need to go to several government agencies to obtain approval for customs clearance.  However, the ASW itself depends on the establishment of national single windows (NSW) at the ASEAN member state level, which, given the diverse state of economic development and infrastructure, is problematic for some countries.

Thus, although the overall parameters for full administration of the ASW have been established, actual implementation of the ASW will be initially limited to the submission of ASEAN Common Declaration Documents and Form D origin documentation.  Furthermore, the initial implementation will be limited to a pilot program involving the seven ASEAN members who have already established NSWs (or soon will): Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The pilot program is supposed to be in place by September 2012.

Even this limited application of the ASW will help companies, especially if the data interchange on a regional basis ends some of the continuing confusion over Form D documentation.  However, I hope that the lessons learned from establishing the ASW will be brought forward to other, fundamental aspects of connectivity among the ASEAN institutions, as they really need improvement. 

For example, most ASEAN members’ national ministries impose firewalls that prevent the use of official e-mail addresses for communications outside their country or even outside the government ministries.  Officials in these jurisdictions usually use Gmail or other web-based e-mail accounts established under their personal capacity to communicate with officials in other ASEAN governments.  Yet on several occasions, such e-mail communications have not been recognized by these officials’ own governments as having any binding effect or even recognized as coming from their own ministries because they came from a webmail account.  ASEAN connectivity, a priority item for the AEC, could thus be assisted just by adjusting or improving firewalls, or adopting a common IT solution such as a central server or cloud computing.

Not all problems with improving ASEAN connectivity, whether physical, virtual or personal, can be addressed so easily.  As noted by the ASEAN connectivity master plan, correcting these problems will require significant investment in time, funds and resources.  Nevertheless, establishing the AEC requires better connectivity; improving virtual connectivity would be a good first step.

Wednesday, August 17, 2011

Fixing Form D Flaws

If the ASEAN Trade in Goods Agreement (ATIGA) is the heart of the AEC, then the Form D can be said to be its aorta.  The “Form D” certificate of origin is the documentary foundation of ATIGA and its predecessor agreement, the ASEAN Free Trade Area agreement.  Companies wishing to claim the zero tariff rate applicable under ATIGA must demonstrate that their goods qualify as ASEAN-origin either by achieving 40% value-added from ASEAN inputs and processing, or by a change in tariff classification (CTC) at the 4-digit harmonized tariff system level through processing in ASEAN (there are some special rules for automotive, steel, chemical and other products). 

Unfortunately, there are recurring “blockage” problems in the Form D aorta.  The AEM meeting in Manado (and the Senior Economic Officials Meeting (SEOM) as well) laid the first steps to addressing these problems.

Foremost are the recurring documentary problems that have plagued Form D processing in ASEAN since its inception.  Form D documents have been rejected for being 1-2 millimeters too big or too small, for having the wrong shade of color for the paper, for having a signature without a proper dot over the “I” , etc.  One ASEAN member is well known for not accepting appendices to Form D, forcing companies to fit the often voluminous information needed to support the Form D claim in multiple copies of the standard one-page Form D document.    

In the future, a fully implemented ASEAN Single Window will alleviate these concerns, as well as full implementation of self certification (which allows companies to self-declare their Form Ds rather than process them through governmental or government-approved bodies; even under the current process, the list of approved persons in the authorized bodies and their signatures are not updated, resulting in Form D rejections as well).   However, self-certification remains only at the pilot stage, with full implementation only at the end of 2012, and faces some opposition from countries such as Indonesia who are afraid of fraudulent documents (Indonesia has proposed that only a limited number of signatories from pre-certified exporters qualify for self-certification, measures which would limit the availability of self-certification, and thereby undermine its raison d'ĂȘtre). In any event, alleviating the documentary problems will require modernization in attitudes and processes in the ASEAN customs authorities.  That can be achieved over time, such as by better circulation of authorized signatures and relaxing documentary requirements when CTC is used (since the nature of processing, rather than the value-added is considered).

Other problems relate to the interaction between ATIGA and ASEAN’s bilateral FTAs with China, India, Japan, Korea, and Australia-New Zealand. Although the ASEAN bilateral FTAs have their own rules of origin to determine whether goods qualify for preferential treatment, these rules are mostly consistent with ATIGA. Thus, 40% value added in ASEAN should qualify a product as ASEAN-origin in most ASEAN FTAs and ATIGA itself, regardless of how that is documented, whether under Form D or its equivalent under the ASEAN bilateral FTAs.  Yet the current setup of ATIGA only allows for cumulation of ASEAN value-added which is reported in Form D itself.  In other words, a product could have ASEAN value-added which helps it qualify for the ASEAN-China FTA but because no Form D has been issued for the product, the ASEAN value-added cannot be used to qualify that product for ATIGA!  Recognizing the absurdity and inconsistency of this situation, SEOM recommended that this problem be solved by the 2012 AEM meeting. 

SEOM also noted some inconsistencies with regard to roll-up and cumulation.  It noted that ATIGA allowed roll-up of ASEAN value-added, e.g., if a sub-component has sufficient ASEAN value-added to qualify under the 40% rule, then the entire sub-component should be considered as ASEAN-origin, or “rolling-up” the ASEAN value-added to 100% of the sub-component for purposes of determining the origin of products incorporating that sub-component.   Yet SEOM also noted the objection of several ASEAN members to the use of cumulation (a similar mechanism) in the ASEAN bilateral FTAs, a stance which would appear to be inconsistent with the acceptance of roll-up in ATIGA, as well as the stated intent to eliminate the documentary barrier to using origin documentation to qualify for the 40% ASEAN value-added rule (although the ASEAN members in question would consider this too much liberalization of the rules of origin). SEOM will study this issue and report for next year’s AEM meeting.

In the end, the best outcome from this year’s AEM meeting with regard to these Form D issues is that ASEAN recognizes that these problems exist.  Now the next step is to take corrective action and ensure that ATIGA and the ASEAN bilateral FTAs are implemented in full.

Monday, August 15, 2011

How ASEAN's Dialogue Partners Fared in Manado

Today’s post takes a look at how ASEAN’s external trading partners fared after last week’s ASEAN Economic Ministers (AEM) meeting and subsequent ASEAN meeting with dialogue partners held in Manado, Indonesia.  Several partners came in with proposals for expanded free trade agreements, while others proposed greater economic cooperation.

China had a pretty successful meeting, mainly due to the economic traumas experienced by the EU and US.  By not facing roiling markets, China looked like a more stable economic partner by comparison, adding heft to its joint proposal with Japan for an East Asia FTA and East Asia Comprehensive Partnership.    ASEAN members also agreed to study the increased use of the Chinese yuan in regional trade.  Finally, any ASEAN meeting with China where the South China Sea/Spratly Island dispute did not take center stage will be considered a good meeting by Beijing.

Japan had a good meeting just by remaining relevant.  Of course, in economic matters, Japan will always have a key role in ASEAN, because of the heavy Japanese industrial investment in the region.  But at this meeting, staying relevant also required teaming up with China, something unthinkable years ago.  

The US had an overall positive experience.  The US sponsored the first official AEM-private sector meeting, with discussion of major policy objectives of trade facilitation, standards and conformance, and customs procedures.  On the other hand, the joint China-Japan FTA proposal both puts pressure on the US to deliver on the Trans Pacific Partnership, which will be difficult given domestic US politics, even though the China-Japan proposal will take years to even get started. 

India pushed for completion of its FTA agreements on investment and services, whose negotiations have been ongoing due to complexities in those sectors.   If those FTA talks get resolved soon, then India will have had a good meeting.  If not, then it will be more of the same.

Australia, New Zealand and Korea did not have much at stake, so not having as much to propose or announce did not affect them much at the AEM meeting. 

The EU did not participate, as it is not an ASEAN dialogue partner, and so by that reason alone, could be said to have lost out on what happened in Manado.  On the other hand, unlike the US, the EU is pursuing FTA talks with Malaysia and Indonesia, and will soon complete FTA talks with Singapore.   After its detour in direct FTA talks with ASEAN as a group, perhaps the EU’s bilateral approach will pay off.  Watch for the EU to announce FTA talks with the new Thai government soon.

Saturday, August 13, 2011

2011 ASEAN Economic Ministers (AEM) Meeting

This week, the ASEAN Economic Ministers met in Manado, Indonesia, for their annual review of economic matters in ASEAN, and in particular the progress with the AEC.  They were joined by senior economic officials from ASEAN, as well as ministerial level officials from ASEAN dialogue partners such as the United States and China.

Although there were many developments from the AEM meeting, a few key developments were related to the AEC:

  • The AEM conducted its first formal dialogue with the ASEAN business community, focusing on trade facilitation, standards and conformance, as well as customs procedures. The AEM endorsed the Rules of Procedures for Private Sector Engagement.
  • ASEAN Trade in Goods Agreement (ATIGA) tariff reduction schedules have been completed.
  •  Outreach to the private sector will intensify on non-tariff barriers (NTBs) in the priority areas of electronics, textiles and automotive, in an effort to understand and overcome NTBs.
  • The ASEAN Comprehensive Investment Agreement (ACIA) reservation lists will be completed soon, allowing the ACIA to enter into force by the end of 2011. 
  • Self-certification (e.g., the right of companies to submit their own Form D certificates of origin documentation instead of going to a governmental agency or designee to have such documentation issued) is currently undergoing a pilot program involving Malaysia, Brunei and Singapore, with Thailand joining in October 2011.   Indonesia will join the program if the companies are pre-certified before joining up (although some complain that this requirement would be inconsistent with the intent behind self-certification). 
  • The self-certification pilot program, and the ASEAN Single Window pilot project involving Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam are notable examples of the ASEAN-X formula for partial implementation of ASEAN measures by a sub-group of ASEAN members, as contemplated by Article 21.2 of the ASEAN Charter. 
  • A formal ASEAN Community Statistical System Committee was established to coordinate collection and reporting of ASEAN-wide economic statistics.
  • The ASEAN Industrial Cooperation Scheme (AICO) was terminated.  For more, see my eulogy to AICO
I’ll have more detailed analysis in future blog entries.  

Monday, August 8, 2011

Happy 44th ASEAN Day!

Today is ASEAN Day, the 44th anniversary of the founding of ASEAN on August 8, 1967 with the signing of the Bangkok Declaration by Indonesia, Malaysia, the Philippines, Singapore and Thailand.  These founding members were later joined by Brunei (1984), Vietnam (1995), Laos (1997), Myanmar (1997) and Cambodia (1999).

In celebration of ASEAN Day, today’s AEC Blog entry forgoes the usual commentary and instead provides the lyrics and tune of the ASEAN Anthem:

Raise our flag high, sky high
Embrace the pride in our heart
ASEAN we are bonded as one
Look-in out to the world.
For peace, our goal from the very start
And prosperity to last.
We dare to dream we care to share.
Together for ASEAN
we dare to dream,
we care to share for it's the way of ASEAN.

Audio is available here.  Happy ASEAN Day!

Monday, August 1, 2011

The Next ASEAN Secretary General

This week ASEAN Secretary General Surin Pitsuwan denied reports that he would return to Thailand to take over as secretary-general of the Democratic Party of Thailand, which was defeated in this month’s parliamentary election.   Dr. Surin noted that he had another 18 months left in his term and he preferred to serve out the rest of that term.

Having the ASEAN Secretary General be subject to such speculation is not necessarily bad. It demonstrates the high political esteem Dr. Surin has in his native country, as he did serve as deputy prime minister and foreign minister. Returning to domestic politics from a regional or multilateral leadership post is also relatively common in Europe.  Dominique Strauss-Kahn’s attempted return to French politics from the IMF is the most recent example, but there have been successful transitions, such as Romano Prodi’s return as Italian prime minister after serving as President of the European Commission. 

Hypothetically if Dr. Surin were to return to Thai politics, the ASEAN Charter sets forth the replacement procedures.  Article 11 states that the term is for five years, with Dr. Surin’s current term expiring at the end of 2012.  Before the Charter, there was an instance of where an ASEAN Secretary General was replaced by another person of the same nationality (Umarjadi Notowijono replacing H.R. Dharsono, a fellow Indonesian) to serve out the remainder of the term.   Based on this precedent, Dr. Surin could be replaced by another Thai national to serve out the remainder of his term. 

A last-minute selection process to choose a Thai national for the remnant term would be disruptive to ASEAN.  Given the upcoming 2015 AEC inception date, ASEAN would probably be better served by not adhering to this precedent and instead giving a full term to the next Secretary General. Article 11 states that the next nationality of the ASEAN Secretary General is determined based on alphabetical rotation, hence a Vietnamese would take over.    A full term beginning in August 2011 would thus carry forward until July 2016. 

In all likelihood then, the next Secretary General will be a Vietnamese national.  Vietnam has a large talent pool of current and former officials of sufficient rank, English capability, and diplomatic experience.  This week’s report should motivate Vietnam to accelerate contingency plans to have its candidate in place earlier rather than later.  The Secretary General-designate may even have to start work on a full or limited basis even if Dr. Surin remains in place. For example, if the 2012 ASEAN chair Cambodia finds that it cannot work with Dr. Surin on the Preah Vihear dispute, a Vietnamese Secretary General-designate could take over his role.

I would recommend that Vietnam designate a candidate with strong experience in economic affairs, such as from negotiating Vietnam’s WTO accession, the ASEAN FTAs or the Trans Pacific Partnership.  There will be strong desires in some quarters to pick a candidate with more security experience, given ASEAN and Vietnam’s central roles in the South China Sea/Spratly Islands dispute with China.  However, I would pro-offer that simply having a Vietnamese national as ASEAN Secretary General will be sufficient to signify Vietnam’s importance to the dispute.  The next ASEAN Secretary General will have to coordinate the final steps towards inception of the AEC in 2015, and that will require someone experienced in economic affairs.  The good thing is that Vietnam has no shortage of qualified candidates.  But the vetting process should start now.