Wednesday, March 20, 2013

Aviation: Another Example of ASEAN Members Treating Partners Better Than Other Members

Last week my NUS law colleague Alan Khee-Jin Tan published an excellent analysis of the ASEAN aviation market.  Anyone interested in a summary of how ASEAN has dealt with its own aviation market and aviation policy with their bilateral FTA partners should go here.

One point I have discussed in previous posts is that ASEAN often gives better trading terms to its bilateral partners than it does for intra-ASEAN trade among its own members.  Alan explains that this is also the case for aviation services, comparing the ASEAN Multilateral Agreement on Air Services (MAAS) and the ASEAN Multilateral Agreement for the Full Liberalization of Passenger Air Services (MAFLPAS) with the ASEAN-China Air Transport Agreement (ACATA).  Alan notes that Indonesia, in particular, has opted out of the MAAS and the MAFALPAS:

Indonesia’s rationale for staying out is simple – unlimited third/fourth freedom access into its cities, including Jakarta, translates into unlimited sixth freedom opportunities for Singapore, Malaysian and Thai carriers (including aggressive low-cost airlines such as AirAsia, Tiger and Jetstar).  To protect themselves from such competition, Garuda and other Indonesian carriers lobby their government aggressively to steer clear of the ASEAN agreements. In turn, this restricts the other ASEAN carriers’ operations into Indonesia, subjecting them to finite capacity that remains negotiated bilaterally.  With Indonesia alone accounting for almost half the entire ASEAN population, its decision to stay out hampers the Single Market project significantly. Intra-ASEAN liberalisation is thus far from complete. In sum, if the relatively modest third/ fourth freedom relaxations do not even enjoy full acceptance from member states, prospects are bleaker still for any future relaxation to seventh freedom and cabotage restrictions.

Alan then compares this situation with that of the ACATA, in which Chinese carriers have better access to ASEAN markets than the ASEAN carriers themselves:

ASEAN airlines are only able to operate to the Chinese points from points in their own territory. The Singapore carriers, for instance, can only operate to China from Singapore, and not from other points in ASEAN. Similarly, the Malaysian carriers have unlimited access into China, but only from points in Malaysia. To connect China with other ASEAN points outside the airline’s home country would require the grant of seventh freedom rights among the ASEAN countries themselves, something that is not (yet) contemplated. On their part, the Chinese carriers can effectively connect any point in their backyard with any point in the ASEAN countries that have accepted the ASEAN-China Agreement. If all 10 ASEAN countries eventually accept the agreement, the Chinese airlines will still remain the only carriers that can connect any point in China with any point in ASEAN. 
This inconsistency has been repeated in various other ASEAN agreements.  The ASEAN FTAs with China, et al, accorded the trading partners better treatment than the ASEAN members accorded to each other, such as in investment.  Resolving this inconsistency was a reason for implementing the ASEAN Comprehensive Investment Agreement (ACIA). 

Resolving this inconsistency is, or should be, one of the goals for the Regional Comprehensive Economic Partnership (RCEP) talks between ASEAN and its FTA partners.  Much of the media analysis of RCEP has been on how RCEP will create a gigantic FTA.  However, the goals of RCEP are more modest and prosaic, with much of the efforts devoted to rationalizing trade and investment terms among the various ASEAN FTAs.  ASEAN’s harmonizing the terms of trade and investment with its various FTA partners is indeed an important goal. Yet if the RCEP help ASEAN members harmonize trade and investment terms among themselves that may be its most immediate and lasting benefit.  For perhaps only with the external pressure of the FTA partners can ASEAN actually resolve the many differences that currently exist among the members for its own internal trade and investment.  RCEP may thus provide the additional push to help establish the ASEAN Economic Community by end 2015.