Thursday, May 31, 2012

How ASEAN Protects Singaporean Investments Abroad

In today's Singapore Business Review I discuss how the ASEAN Comprehensive Investment Agreement (ACIA) helps protect Singaporean foreign investment within ASEAN.   In particular, I discuss how the ACIA's broader coverage to include portfolio investments and its streamlined process to obtain coverage make the ACIA more accessible than its predecessor agreements.

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.

Friday, May 25, 2012

Grading the ASEAN Economic Community Scorecard

Today I attended “Examining the ASEAN Economic Community Scorecard,” the 2012 ASEAN Roundtable co-hosted by the ASEAN Studies Centre at the Institute of Southeast Asian Studies (ISEAS) and the Konrad Adenauer Stiftung.  As always, ISEAS and its co-sponsors organized a great event!

The conference focused on the AEC scorecard, which is used to assess the progress made in implementing AEC-related programs by the 2015 deadline. The AEC scorecard is the (only) measure used to ensure ASEAN member states’ implementation of AEC measures.  In effect, it subjects ASEAN member states to “peer pressure” from the rest of ASEAN, as deficiencies in implementation become known.

As of the end of 2011, the ASEAN Secretariat found that 67.5% of AEC measures had been met in the first two phases of the AEC Blueprint
One positive development, discussed at the conference, is that there is some discussion of individual ASEAN member states’ performance with regard to the AEC scorecard:
This is a marked improvement from the previous AEC Scorecard, which did not mention ASEAN member states on an individual basis if at all possible. 

Hence the caveat to this discussion of the AEC Scorecard is that the private sector only has access to the public version of the document. The negative publicity associated with non-compliance is muted when ASEAN member states are not mentioned at all as in the previous ASEAN Scorecard.  Although the updated ASEAN Scorecard does provide some more analysis on an individual ASEAN member state basis, there is still not much detail.  For example, Cambodia was specifically named for not enacting double-taxation agreements with its ASEAN partners; that’s helpful to know.  However,  for the “yellow” dot measures identified above, we cannot tell which particular measures were or were not enacted. 

This lack of transparency limits the ability of the private sector to provide feedback on AEC Blueprint implementation. This was noted by a participant from the ASEAN Business Advisory Council.  If the power of negative publicity is truly going to be effective (and since it is the only major tool of the ASEAN Secretariat for AEC implementation, it needs to be), then more detail on areas of progress and lack of progress needs to be provided on an individual ASEAN member state basis.

The other major deficiency noted by almost all participants was that the current form of the AEC Scorecard is purely quantitative.  The AEC Scorecard only examines whether an ASEAN member state has performed the AEC task or not. In other words, it is a “yes or no” analysis.  The more “yes” answers, the higher the AEC Scorecard score.   

Yet the next stage of the AEC Scorecard needs to go beyond this quantitative analysis and move on to a qualitative analysis.  It is not enough that an ASEAN member state ratifies the ASEAN Comprehensive Investment Agreement (ACIA), for example. It is even more important to assess how effective the ASEAN member state has been in implementing the ACIA on the national level.  The Economic Research Institute for ASEAN and East Asia has been tasked to study how the next generation AEC Scorecard will conduct qualitative analysis, and a workshop will be held next week in Jakarta on the subject.  Hopefully the World Bank funds and expertise will also help with this effort.

Woody Allen once said that “eighty percent of success is just showing up.”  Well, in this case, ASEAN has scored 67.5% for just showing up, since the current AEC Scorecard analysis is based on “just showing up,” e.g., just passing the legislation or signing the agreement.  Given the relative lack of resources and strong domestic interests in some ASEAN member states, “just showing up” is in fact an achievement to be celebrated.

However, ASEAN needs to make progress on Woody Allen’s remaining twenty percent, e.g., to do something with the legislation and agreements that have been passed through the AEC process.  This requires both a new generation AEC Scorecard that properly evaluates progress on an qualitative basis, as well as the political will in the ASEAN member states to push forward with the AEC.

Friday, May 18, 2012

US Suspends Burma Sanctions

The U.S. announced yesterday that it will suspend Burma sanctions against the Myanmar regime, Secretary of State Hillary Clinton announced.  This will be achieved by the US Treasury Department's Office of Foreign Asset Control (OFAC) issuing a general license that will amend the Burmese Sanctions Regulations.  The amendments would enable U.S. companies to enter into contracts relating  to the "economic development of resources in Burma" and other investment activities.    In addition, the general license will also authorize financial institutions and other parties to provide financial services to Myanmar.

The general license would thus achieve what the EU, Australia and Canada have done - impose a suspension of sanctions.  This is because the general license can be revoked at any time should the Myanmar regime backtrack on its reforms.  

Secretary Clinton indicated that U.S. companies doing business in Myanmar will be expected to implement corporate social responsibility measures and U.S. companies will be expected, but not required to "to conduct due diligence to avoid any problems, including human rights abuses . . . create a grievance process that will be accessible to local communities; to demonstrate appropriate treatment of employees, respect for the environment; to be a good corporate citizen; and to promote equitable, sustainable development that will benefit the people."

The list of U.S. Burma sanctions includes the following:

  1. a ban on new investment in Myanmar by U.S. persons and companies;
  2. a ban on the importation of goods from Myanmar;
  3. a freeze on U.S. assets of any designated Myanmar nationals connected with the Myanmar state
  4. a ban on property investment by certain Myanmar nationals connected with the Myanmar state
  5. a prohibition on the provision of U.S. financial services to and from Myanmar;
  6. a ban on assisting investment by third country entities in Myanmar;
  7. a ban on purchasing shares in third country entities involved in resource extraction activities in Myanmar; and
  8. a ban on visas for certain Myanmar nationals connected with the Myanmar state
The OFAC general license would deal with items 1 and 5, and likely 6 and 7.  Whether other sanctions will be lifted, in particular the import ban, will need to be confirmed when the OFAC license is actually issued.

U.S. exports of commercial goods to Myanmar will remain subject to export control requirements administered by the Commerce Department's Bureau of Industry and Security (BIS). This would include exports of goods, technology and software which have dual civilian/military uses.  Myanmar has been subject to a U.S. arms embargo since 1993 and therefore no "defense articles" or "defense services" subject to the jurisdiction of the International Traffic in Arms Regulations can be exported to Burma. Secretary Clinton's announcement will not affect these sanctions.   In addition, the State Department said that it would maintain the ban on investment or dealings with the Myanmar military and certain military-linked entities (e.g., sanctions covered under items 3, 4, 8 and parts of 1 and 5).

Suffice it to say that this is much faster than I had expected, but given the bipartisan support from the U.S. Congress, particularly from those concerned about the U.S. role in the region (like Senators McCain, Kerry and Webb) and/or religious rights of Burmese minorities (like Senator McConnell) the Obama administration felt more at ease in issuing (or announcing the plan to issue) the general license.  Coupled with the naming of Derek Mitchell as the first U.S. Ambassador to Myanmar in many years, the U.S. suspension of sanctions represents a major commitment to the Myanmar regime's reform efforts.  Let's hope that those reform efforts continue.

We'll have more when the official OFAC general license is issued. 

Tuesday, May 15, 2012

Korea's Resident ASEAN Ambassador on the Way; China's Will Have to Wait

South Korea is appointing a resident ambassador to ASEAN, according to the Chosun Ilbo.  Baek Seong-taek, the ambassador for international affairs in Busan, will take his post in July. Korea will thus become the third country to appoint a resident ambassador, after the United States and Japan.

That South Korea would appoint a resident ambassador is not too much of a surprise, since the country has an FTA with ASEAN, and Korea is an active ASEAN + 3 member.   Japan, another ASEAN +3 member, already has a resident ambassador.

And the third ASEAN + 3 member? That would be China, which has announced plans to appoint a resident ambassador.  The fact that China’s resident ambassador is still a work-in-progress may be linked to the current South China Sea dispute at the Scarborough Shoals.  Perhaps China does not want to encourage an ASEAN-centric approach by appointing a resident ambassador whose initial work schedule would be dominated by the issue.  China would rather focus the agenda for its ASEAN mission on economic and development issues, which motivated appointing a resident ambassador in the first place despite the concerns about regionalizing the South China Sea dispute.

Thus, China will likely wait for the situation to become calmer, and just as importantly, for the Chinese communist party leadership succession to be completed, before appointing a resident ambassador to ASEAN. However, making that diplomatic step will mean that China must face both the economic and the political dimensions of its engagement with ASEAN on a daily basis, not just on the travel schedules of its senior diplomats.

Friday, May 11, 2012

Reflecting on Twenty Years of Singapore Free Trade Agreements

Today in Singapore Business Review, I reflect on twenty years of Singapore free trade agreements.  In particular, I discuss both the benefits and the costs of Singapore's FTA policy and how, over time, the general population of Singapore has been affected.