Tuesday, May 29, 2012

Jakarta Expands ASEAN Diplomatic Zone/Malaysia Signs FTA with Australia

Today I discuss a couple of topics related to the ASEAN Economic Community.

First, the Jakarta Post reported that the Jakarta city government announced that it would develop Kebayoran Baru in south Jakarta as a special diplomatic zone devoted to ASEAN:

“So far, the diplomatic zone we have [in Jakarta] is in Kuningan. We realize that a specific area for diplomatic matters is needed, thus, with the presence of the ASEAN Secretariat here [in Kebayoran Baru], we think that this area should be developed,” Izhar Chaidir, the head of spatial planning for the Jakarta Development Planning Agency, said on Monday.

Implicit in the new plan is acknowledgment that the current infrastructure is insufficient:

Bernardus Djonoputro, a city planning expert from the Indonesian Association of Urban and Regional Planners (IAP), said that the plan was necessary not only to improve the stature of Jakarta as ASEAN’s “capital”, but also to boost the image of Indonesia on the world stage.

“A specific zone designated for diplomatic affairs in Jakarta is an urgent matter. As Indonesia’s profile and influence grow on the international stage, its capital will see a surge in the number of diplomatic events,” Bernardus told The Jakarta Post in an interview on Monday.

Compared to other cities, such as Singapore or Kuala Lumpur, Bernardus said that Jakarta was less appealing to foreign diplomats due to its poor spatial planning, poor infrastructure and poor public transportation.

“As a consequence, we cannot deny the fact that many diplomatic affairs in Jakarta are carried out inefficiently,” Bernardus said, claiming that the Jakarta administration frequently overlooked the importance of diplomatic affairs and prioritized the interests of business instead.

Finally, the article compares ASEAN with the EU and notes that more human resources are also needed:

In 2010, ASEAN deputy-secretary-general Bagas Hapsoro previously urged the government to accommodate the needs of ASEAN to develop a stronger presence in Jakarta, saying that it would benefit Indonesia economically and diplomatically.  According to Bagas, the ASEAN Secretariat employed more than 270 employees who served 10 countries with a combined population of 585 million people.  The number, he argued, was relatively small compared the European Union (EU), which employed 14,000 people serving 27 members with a smaller combined population.

I couldn’t agree more.  ASEAN needs physical, financial, virtual and human infrastructure improvements.  The new diplomatic zone will help.

Second, last week Malaysia and Australia signed a bilateral FTA, to take effect on January 1, 2013.  The Malaysia-Australia FTA (MAFTA) goes beyond the scope of the ASEAN-Australia-New Zealand FTA (AANZFTA) as follows:

  • All Malaysian goods will have duty-free status by 2013 under MAFTA, whereas the AANZFTA only provided for this by 2020.   Among the  liberalized items are glass and glassware, iron and steel, automotive parts and components, fruit, milk and tariff-rate quota products which have not been given to other FTA partners.
  •  Under MAFTA, 97.6% of Australian goods would have duty-free status by 2013, to increase to 99% by 2020.
  • Malaysia’s MAFTA services commitments include the following:
    • Education and Private higher education - up to 100% equity holdings allowed
    • Telecommunication - up to 100% equity holdings allowed
    • Financial:
      • Equity holdings up to 70% in insurance companies and investment banks;
      • Equity holdings up to 100% in investment advisory companies and up to 70% in both corporate finance advisory and financial planning companies; and
      • A higher number of Australian expatriates with senior managerial and specialist skills is offered for the banking, insurance and capital market sub-sectors.
  •  Australia’s MAFTA services commitments include the following:
    • Allowing Malaysian participation in private hospital services.
    • Facilitating Malaysia's participation in providing traditional and complementary medicine services.
  • MAFTA also provides a framework to further facilitate cross-border investments between Malaysia and Australia through commitments on non-discrimination as well as protection of investors and investments.  These are somewhat stronger than those contained in AANZFTA.
  • Both countries agreed to undertake economic and technical cooperation with particular attention given to the following areas:
    • automotive;
    • agriculture
    • tourism;
    • clean coal technology; and
    • e-commerce.

Will this be followed up soon by the Malaysia-EU FTA that is currently under negotiation?  We’ll see.