Tuesday, February 28, 2012

First Public Discussion of the Next ASEAN Secretary General?

We have what appears to be the first public mention of the new ASEAN Secretary General candidate, Le Luong Minh.   This comes from a Myanmar Times interview with current ASEAN Secretary General Surin Pitsuwan conducted by Roger Mitton (I should note that Dr. Surin did not confirm the identity of his purported successor, but Mitton did in his introduction to the interview). 

Minh currently serves as Deputy Foreign Minister of Vietnam, and has had several high-level ambassadorial level postings, most notably to the United Nations in Geneva and in New York.  At the UN, he served as president of the Security Council during Vietnam’s rotation.  From all accounts, Minh is well-respected in diplomatic circles and well-spoken in English (e.g., “Bahasa ASEAN”). 

This information is consistent with what I have heard from other sources, but it remains unofficial until formally announced by Vietnam (the next ASEAN Secretary General must be from Vietnam under the rotation system maintained by the Charter).  It also remains to be seen whether Vietnam will follow Thailand’s past practice of offering multiple candidates for the post.   Nevertheless, it seems that Minh is the frontrunner and would be an excellent choice if he is indeed a candidate. 

In previous posts, I had indicated a preference for an ASEAN Secretary General with business experience or an economics background, as has been suggested by others.  However, given Vietnam’s more recent immersion into the global economy, the talent pool of ministerial-level Vietnamese officials with such experience is smaller than would be the case in the ASEAN-6. In any event, given Vietnam’s commitment to globalization, any ministerial-level Vietnamese official will be well versed in economic affairs.  Also, Minh’s diplomatic background will be very useful in potential political-security issues such as Preah Vihear or the Spratly Islands/South China Sea.

Nevertheless, if Vietnam is going to nominate an ASEAN Secretary General with a more diplomatic background, then it is even more important that the ASEAN Deputy Secretary General for the ASEAN Economic Community have deep experience in economic matters.  The incumbent, S. Pushpanathan, has been excellent and hopefully can be reappointed to another three year term.  If the ASEAN member states decide otherwise, then a candidate with previous corporate experience would be very useful and provide a useful prospective on the ASEAN Economic Community.  Either way, the AEC needs more experience, not less, particularly as we head into the critical period before 2015 with an ASEAN chair (Myanmar) who is not experienced at all in international economics.

Tuesday, February 21, 2012

Examining the ASEAN FTA “Noodle Bowl”, One Strand at a Time

Frequently commentators write about the “noodle” or “spaghetti” bowl effect of having multiple free trade agreements (FTAs) operating simultaneously but in inconsistent ways.  Usually the difficulties are presented on a macro level, rather than on a micro level.

Examining particular products on a cross-FTA basis helps demonstrate the difficulties for exporters clearly. For example, in the ASEAN Trade in Goods Agreement (ATIGA), most goods qualify for ASEAN treatment if the good has 40% ASEAN regional value content (RVC) or the good has been processed to have a change in tariff classification (CTC) at the 4-digit ASEAN Harmonized Tariff Nomenclature level.  In other words, if the good has sufficient ASEAN origin content or has been processed from a basic form to a more advanced form, the good will qualify for the zero tariff rate provided by ATIGA. For the same product in other FTAs, though, different ROOs can apply.  For example, the ROOs for paint vary by FTA:
  • ATIGA – 40% RVC or CTC at 4 digit level
  • ASEAN-China FTA (ACFTA) – 40% RVC
  • ASEAN-Korea FTA (AKFTA)  – 40% RVC or CTC at 4 digit level
  • ASEAN-Australia FTA  (AANZFTA)– 40% RVC or CTC at 6 digit level
  • ASEAN-India FTA (AIFTA) --  35% RVC
  • ASEAN-Japan Closer Economic Partnership (AJCEP) – 40% RVC

This becomes complicated when FTAs of individual ASEAN members are considered. Under the US-Singapore FTA (USSFTA) the paint would have to undergo CTC at the 6 digit level; the RVC is not considered.

The ROOs for cotton fabric and apparel are even more convoluted.  Textiles and apparel are politically controversial goods, such that they are subjected to product-specific ROOs instead of the general ROOs usually applicable (such as in the case of paint).  I examined this for the Cotton Council International, the export promotion arm of the National Cotton Council of America.

For fabric and apparel the following criteria are applied:

RVC 40% or CTC (6) or processing
CTC(4) or change from fabric and dyed/printed + 2 more finishing processes
Under negotiation
CTC(4) with spun/dyed/printing or no CTC but with dyed/printing and woven in ASEAN
RVC 40% or CTC(2)
RVC 40% or CTC(6)/cut+sewn  or processing
RVC 40% provided that the good is cut or knit to shape and assembled
Under negotiation
CTC(2) and from fabric woven in ASEAN
CTC(4) if cut/sewn  or RVC 40%

Under ATIGA and ACFTA, processing for fabric means manufactured from yarn or finished fabrics, and having undergone needle punching / spin bonding / chemical bonding; weaving or knitting; crocheting or wadding or tufting; or dyeing or printing and finishing; or impregnation, coating, covering or lamination.  Also under ATIGA and ACFTA, processing means cutting and assembly of parts into a complete article (for apparel and tents) and incorporating embroidery or embellishment or printing (for madeup articles) from raw or unbleached fabric or finished fabric.

A survey of other bilateral and plurilateral FTAs indicates a similar variety of applicable ROOs.

TSEP (Singapore, Brunei, Chile, NZ)
Japan EPAs with individual ASEAN members
CTC(4) - yarn forward
CTC(2) and RVC > 50%
CTC(4) with spun/dyed/printing or no CTC but with dyed/printing and woven in individual ASEAN member
CTC(4) and RVC > 55%
CTC(6) - yarn forward and cut/sewn/assembled in party
CTC(4) and cut/sewn/assembled in party
CTC(2) and cut/sewn/assembled in party and RVC > 50%
CTC(4) and from fabric woven in individual ASEAN member
CTC(4) and RVC > 55%

Given all of this, manufacturers often throw up their hands at the whole thing and don’t use the FTAs, particularly if the tariff savings are not significant relative to the work and costs involved. 

Although the FTAs of individual member states are up to those states to work out, ASEAN can help for its own bilateral FTAs by easing the administration of ROOs (through self-certification and the ASEAN Single Window) and by allowing for ROO documentation to be used for multiple ASEAN FTAs (which is currently not the case).  It is important to preserve the advantages of regional integration, but if using those advantages is too costly or burdensome for exporters, the efforts are wasted.

Monday, February 20, 2012

Developments in ASEAN

Here are some more ASEAN developments from the past week:

Finally, I don’t cover human rights or political-security issues in this blog normally, but those who are interested in the ASEAN Human Rights Declaration may be interested in this.

Friday, February 17, 2012

What Does “2 x ASEAN – 6” Equal?

Reportedly four ASEAN members (Indonesia, Laos, the Philippines and Vietnam) are preparing a pilot program to implement self-certification for exporters to qualify their goods as originating in ASEAN for the ASEAN Trade in Goods Agreement (ATIGA).  This would represent an application of the “ASEAN – X” concept  contained in the ASEAN Charter, which allows a subset of ASEAN to proceed with an economic policy without waiting for participation by other member states.  I discussed this in a post last year.

This would be uneventful but for the fact that there is already an existing ASEAN pilot program on self-certification involving Malaysia, Singapore and Brunei, which Thailand joined in December 2011.  Hence if the new pilot program comes into fruition, there would be two pilot programs for self-certification, each with four ASEAN members.  In other words, we would have two “ASEAN-6” groups operating at the same time.   

At first glance, this would appear to be an absurd situation.  It would be as if the EU had decided to have two “common” currencies, one with the Euro and one with the ECU, each competing to be the common currency of the EU.    Is this the “buffet” system of selectively picking and choosing economic policies?

The answer is no. 

A closer examination of the reasons for creating a second pilot program demonstrates that a competition of ideas is not necessarily a bad thing.  In my post last year on self-certification, I explained the fundamental disagreement between the Malaysia-Singapore-Brunei-Thailand group and the Indonesia-Laos-Philippines-Vietnam group:

Indonesia has publicly stated that it would participate in the pilot program only if participating companies were limited to manufacturers, and if the authorized signatories per company were limited to three persons.  This reflects a general suspicion among certain ASEAN customs authorities that companies, and in particular trading companies, could abuse the system to obtain FTA origin wrongly.   These countries also expressed skepticism about the success of the pilot program.

Hence the incumbent group allows trading companies to participate whereas the potential new group would not allow for this.   This issue will need to be resolved for self-certification to be applied universally throughout ASEAN in ATIGA.

However, I think having two pilot programs would allow for that.  So long as the pilot programs remain just that – temporary programs to test the merits of a policy -- they will be useful. 

The potential new group is very skeptical of self-certification.  Having a pilot program that they can administer on their own terms will give them confidence that self-certification can work.  They can administer the program in their own way (e.g. for manufacturers only) and review their own data. 

Meanwhile, the incumbent group will have data for comparison purposes, based on both quantitative and qualitative approaches.  After the pilot programs have generated sufficient data, a proper debate can be held on which approach is best, given the various policy priorities and administration issues that will have arisen.

Thus, the intent of ASEAN-X, to allow a pathfinder group to move ahead with a policy and letting the others catch up later at their own pace, can be applied properly in this case.  However, doing so will require that the pilot programs run their course and proper policy debate proceed.  If the pilot programs become entrenched, with each group running its own way, then “buffet” style policymaking will also take root in the ASEAN Economic Community.  Such confusion must not be allowed to happen.  I still look forward to hearing more good news about the pilot program(s) and the increased use of self-certification.

Monday, February 13, 2012

NUS Class On-Site Seminar in Jakarta

Today I led my National University of Singapore law school class on an on-site seminar at the ASEAN Secretariat and US MIssion to ASEAN.  Despite delayed flights and heavy Jakarta traffic, I think this was a success!  The students got great insight from the Secretariat and the Mission. Many thanks to ASEAN Deputy Secretary General Pushpanathan and US Ambassador David Carden. I hope that we can repeat this again in next year's course, which will be in August 2012.

 Ed and ASEAN DSG Pushpanathan

The class at the ASEAN Secretariat

Ed and the class with Ambassador Carden

The class at the US Mission to ASEAN

The ASEAN Secretariat has a more detailed write up on the on-site seminar here, and NUS has some more here.

Wednesday, February 1, 2012

AEC Developments Recap

Last night I spoke at the National University of Singapore Students’ Political Association 2012 forum on the ASEAN Economic Community, along with former ASEAN Secretary General Rodolfo Severino and Sulaimah Mahmood from the Singapore Ministry of Trade and Industry.  Over 250 university and junior college (high school) students attended, which is quite good and reflects on the excellent organization skills of the association!

My presentation riffed on my comparison of ASEAN to the English Premier League.  I did add that not all sports leagues have weak central offices; notably, the American professional leagues have strong central offices that can impose penalties on both players and teams,  and the players and teams have access to binding arbitration and judicial systems.  However, the American leagues also have had 3 strikes over the past 7 years whereas the EPL rarely has labor problems and is also financially successful.  The point is that even without strong central leadership, entities such as ASEAN or the EPL can succeed, but that decisionmaking can be slow.  The key is in providing good conditions for competition, which will attract both “players” and “fans” (e.g., investors and customers).

Here are some more updates on AEC developments: