Thursday, February 13, 2014

How a Security "Hotline" Benefits the Entire ASEAN Community

This week Brunei is hosting a workshop on establishing a direct communications link (commonly known as a “hotline”) for ASEAN and beyond. The ASEAN hotline, first proposed by the Sultan of Brunei last year, would create a dedicated communication link among the ASEAN governments to deal with maritime and other security issues.  This is intended to reduce the chances of an unintended military confrontation in the South China Sea/West Philippine Sea, but could also be used to deal with other problems in the region.

The hotline is ostensibly under the ASEAN Political-Security Community, so its details are beyond the usual scope of this blog.  However, as this excellent piece from the Rajaratnam School of International Studies on Asian “hotlines” explains, the value of such hotlines lies in (1) their utility in crisis management and/or (2) the process of their creation, e.g., as a confidence-building process.  Hopefully the ASEAN defense hotline can build ASEAN member states’ confidence in ASEAN institutions, including the ASEAN Economic Community (AEC).

The AEC, of course, does not involve the life-and-death issues related to potential military clashes and so does not usually need a crisis-management system in real-time (exceptions could be for product-recalls for safety or bans for health concerns, such as during a pandemic).  However, if the ASEAN member states are willing to invest in a dedicated security hotline, surely they could also invest in the communications infrastructure necessary to govern the AEC effectively?   As this blog has explained previously, IT issues related to authentication and reliability have adversely impacted communications among ASEAN member states on AEC issues.  The inability to bridge the IT gaps within ASEAN also hold back full development of the ASEAN Single Window for goods and the roll-out of an ASEAN common visa for foreign visitors.   Hence technical advances for the ASEAN security hotline can be applied to the other aspects of intra-ASEAN communication.

The ASEAN security hotline can also help mature ASEAN member states’ attitudes towards ASEAN itself.  Hopefully the hotline will incorporate a role for the ASEAN Secretary-General and the ASEAN Secretariat.  The ASEAN hotline should be integral to intra-ASEAN dispute resolution, and the ASEAN Secretary-General has an ex-officio role in dispute resolution under the ASEAN Charter.  Let us not forget that in this decade alone we have had military action on the Cambodia-Thailand and Malaysia-Philippines frontiers.  Having the ASEAN hotline, with ready access to the resources of the ASEAN Secretariat, could have helped address these disputes more rapidly.  Just as importantly, ASEAN member states who develop more confidence in the ASEAN institutions for political-security matters will also develop more confidence in them for economic matters.  As this blog has repeatedly recommended, stronger ASEAN institutions are necessary for the effective implementation of the single production base and single market of the AEC.

If the ASEAN security hotline can be the pathfinder for other forms of ASEAN Community development, both in technological and institutional terms, then it will be a positive development for the entire ASEAN Community, not just the political-security community.  And if it can link in other regional players, namely, China, then so much the better for security in the region.

Thursday, February 6, 2014

The Sensitivities of the ASEAN Sugar Market

Today’s newsfeed brought in a Bangkok Post report that the Thai sugar industry was complaining of non-tariff barriers (NTBs) to trade in sugar within the ASEAN Economic Community (AEC). Thailand has the largest sugar industry in ASEAN, and is the third largest sugar exporter in the world. 

According to the Bangkok Post report, a combination of tariff and non-tariff measures in the major ASEAN markets prevents Thailand from increasing its intra-ASEAN exports:

·             Thailand, Indonesia and the Philippines had placed sugar on sensitive lists, excluding the product from the 0-5% intra-ASEAN rates set by the ASEAN Trade in Goods Agreement (ATIGA).

·             "The Indonesian government imposes a rule to force consumer product producers to use only locally made sugar, while industries can use imported sugar only if they receive government permission, of which there is no guarantee,” according to Rangsit Hiangrat, director-general of the Thai Sugar Millers Corporation.

·             Rangsit complained that Malaysia allows imports of raw sugar but not refined, white sugar.

However, there are always two sides to a story.  According to the Philippine Daily Inquirer, the Philippine sugar industry is not ready for the AEC because of competition from the Thais:

Jose Maria Zabaleta, former chair of the Philippine Sugar Millers Association, meanwhile stressed the need to repeal certain laws deemed a hindrance to the sugar industry’s competitiveness. “Small farms cannot compete with bigger and better-financed firms in Thailand. [The government] needs to allow reconsolidation, and to remove the Comprehensive Agrarian Reform Program (CARP) Law for sugar, rice and most other crops,” Zabaleta said in a separate text message.

The sugar industry in Indonesia, while expanding production, fears increased competition from Thai producers according to a report last month:

[T]he future challenge for sugar factories in Indonesia will be harder with the implementation of Asean Economic Community in 2015.  Before its implementation, the presence of refined sugar in domestic market is quite bothersome and is a challenge for local sugar factories. In Batam, for example, refined sugar from Vietnam and Thailand is found and sold at IDR5,500/kg, and so is in Kupang. Regulation on imported refined sugar will not harm sugar factory and farmers if there is not any imported refined sugar sold at the market. But it is worried that the import will exceed the permitted regulation hence it will seep into the market as happened some time ago. Hence, in the future sugar factories under RNI management will face tougher rivals, not other SOE’s sugar factory but more efficient sugar companies from Vietnam and Thailand.

Another report from Vietnam indicates similar difficulties for its sugar industry caused by Thai competitors:

A report of the Vietnam Sugar and Sugar Cane Association showed that by the end of August 2013, the companies still had had 288,000 unsold tons of sugar. The sugar smuggling through the border gates has made it more difficult to clear the inventories.  Nguyen Thanh Long, Chair of the Sugar and Sugar Cane Association, said though Thai imports bear the 5 percent tax rate, they are still VND2,000-3,000 per kilo lower than Vietnam made products.  If the import tariff is cut to zero percent by 2015 as committed for AEC, Thai sugar would flood the Vietnamese market.

Sugar thus is a controversial issue in the AEC. However, as a primary agricultural product, that is to be expected.  Sugar remains a politically sensitive industry in all parts of the world, even in more fully developed regional blocs such as the EU and NAFTA.  Both have massive subsidies for their sugar industries which are supported by various import restrictions to maintain higher domestic prices. For example, I once heard that an American company could make money purchasing imported candy (which was not restricted), boiling it down into white sugar and selling that sugar on the U.S. market at the higher, subsidized price.  Prices have since come down in the U.S., but this informs the reader of the distortions caused by government sugar policies.

Thus, given the political and social sensitivities involved, is the Thai sugar industry’s effort hopeless?  

Absolutely not.  

The identification of NTBs to intra-ASEAN trade is necessary for the next stage of the AEC’s implementation, after 2015.  Only after NTBs are identified can they then be eliminated.  Furthermore, as the ASEAN Secretariat is not given sufficient resources to conduct its own investigations into NTBs, and more importantly, do something about them, then the private sector will need to step up its own efforts.  Interaction between the various national sugar industries, and just as importantly, the consumer interests in ASEAN, will also be necessary to make rational policy choices that improve consumer welfare (in the form of lower sugar prices) while balancing against the need to protect important rural constituencies such as the sugar industry.    We therefore will need more such “naming and shaming” efforts from the Thai sugar industry and other private industry actors if the AEC is going to succeed.

Monday, February 3, 2014

US Names New Resident Ambassador to ASEAN/Thoughts on the Role of the CPR

Happy Year of the Horse! January was a relatively quiet time for this blog, as I was teaching my NUS Law School seminar on the law and policy of the ASEAN Economic Community.  This involved 36 hours of lecturing and discussion over a 12 day period, as well as covering my trade litigation work in Malaysia and Thailand, so I was very tired.  Thanks to Simon Tay, my NUS faculty colleague and head of the Singapore Institute of International Affairs, who helped with the class and will be co-teaching the course with me in future editions.  Also thanks to the ASEAN Secretariat for again hosting my class for another on-site seminar in Jakarta.

One January development I didn't comment on was the Obama Administration nominating Nina Hachigan as the new US resident ambassador to ASEAN.  She is a senior fellow at the Center for American Progress, with a focus on US-China relations and international institutions.  Thus, unlike current US ambassador David Carden, Ms. Hachigan will come to the position with more experience in foreign policy. Ambassador Carden did perform very well, drawing upon his legal experience to develop the job (it should be noted that Hachigan also has legal training).  Hopefully he will remain engaged in the region after his term ends.

I also hope that Ambassador-designate Hachigan can help the ASEAN institutions continue to mature and share the US experience with institution-building with ASEAN.  During our on-site visit to the ASEAN Secretariat, the NUS Law class learned that the Committee on Permanent Representatives (CPR) or its subcommittees meet on virtually every working day at ASEAN headquarters, with most meetings focusing on oversight of the Secretariat’s activities.  That is akin to having US congressional oversight hearings being conducted every day inside the White House, with Obama administration officials being called to testify  (or available to testify) at a moment’s notice.

This is not what was intended when the CPR was created by the ASEAN Charter, of course.  The CPR was supposed to take over the work of the hundreds of ASEAN regional meetings that are held each year in support of the ASEAN Communities.  Yet those meetings still take place, and in some policy areas have actually increased in number.   Hence one could view the CPR’s current focus on oversight as bureaucracy filling a vacuum, particularly as the ASEAN member states continue to send senior foreign ministry types as permanent representatives to Jakarta, and not fully staff the delegations with experts from other ministries, as is done in the EU.

On the other hand, if the CPR oversight process gives the ASEAN member states more confidence in both the capabilities of the ASEAN Secretariat, as well as their own capacity to oversee the activities of the ASEAN Secretariat, then perhaps the ASEAN member states will become more accepting of a stronger role for the Secretariat and the ASEAN institutions.  This also happened in the EU.   

Thus, unlike others, I do not think that the CPR’s role necessarily is detrimental to ASEAN’s continued development.  However, this will depend on whether the CPR’s oversight focuses purely on administrative oversight or expands into a collaborative policy role that works with a stronger ASEAN Secretariat.