AEC Blog

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

2012-02-21T21:14:00.000+08:00

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

Examining particularproducts on a cross-FTA basis helps demonstrate the difficulties for exportersclearly. For example, in the ASEAN Trade in Goods Agreement (ATIGA), most goodsqualify 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 sufficientASEAN origin content or has been processed from a basic form to a more advancedform, the good will qualify for the zero tariff rate provided by ATIGA. For thesame 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-ChinaFTA (ACFTA) – 40% RVC
ASEAN-KoreaFTA (AKFTA) – 40% RVC or CTC at 4 digitlevel
ASEAN-AustraliaFTA (AANZFTA)– 40% RVC or CTC at 6 digitlevel
ASEAN-IndiaFTA (AIFTA) -- 35% RVC
ASEAN-JapanCloser Economic Partnership (AJCEP) – 40% RVC

This becomes complicatedwhen FTAs of individual ASEAN members are considered. Under the US-SingaporeFTA (USSFTA) the paint would have to undergo CTC at the 6 digit level; the RVCis not considered.

The ROOs for cotton fabricand apparel are even more convoluted. Textilesand apparel are politically controversial goods, such that they are subjectedto product-specific ROOs instead of the general ROOs usually applicable (suchas in the case of paint). I examinedthis for the Cotton Council International,the export promotion arm of the National Cotton Council of America.

Forfabric and apparel the following criteria are applied:

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

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

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

	US-Singapore	Korea-Singapore	TSEP (Singapore, Brunei, Chile, NZ)	Japan EPAs with individual ASEAN members	Thailand-Australia
Fabric	CTC(4) - yarn forward	CTC(4)	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%
Fabric	CTC(4) - yarn forward	CTC(4)	CTC(2) and RVC > 50%		CTC(4) and RVC > 55%
Apparel	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 theFTAs, particularly if the tariff savings are not significant relative to thework and costs involved.

Although the FTAs ofindividual member states are up to those states to work out, ASEAN can help forits own bilateral FTAs by easing the administration of ROOs (throughself-certification and the ASEAN Single Window) and by allowing for ROOdocumentation to be used for multiple ASEAN FTAs (which is currently not thecase). It is important to preserve theadvantages of regional integration, but if using those advantages is too costlyor burdensome for exporters, the efforts are wasted.

Developments in ASEAN

2012-02-20T00:30:00.000+08:00

Here are some more ASEAN developments from thepast week:

SouthKorea and Vietnam are preparing to launch free trade agreement (FTA)negotiations. A feasibility study hadbeen completed last October. Korea wantsthe bilateral FTA to also include intellectual property, which is not part ofthe ASEAN-Korea FTA.
Turkey expects to conclude FTA negotiationswith Malaysia by end June. Talksstarted in May 2010 and have gone through seven rounds of negotiations.
Indonesianflour mills sued the Indonesian finance ministry for failing to impose an antidumpingduty on flour from Turkey. The suitalleges that the ministry has improperly refused to impose the duty, despite afinding of injury caused by dumping from Turkey (NB: I represented Sri Lanka inan earlier stage of this antidumping investigation).
A major ASEAN businessdelegation visited Myanmar, including members of the ASEAN Business Club. This follows a high level Australiandelegation, as well as a recent visit by Myanmar’s president to Singapore.

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

What Does “2 x ASEAN – 6” Equal?

2012-02-17T10:31:00.000+08:00

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

This would be uneventful butfor the fact that there is already anexisting ASEAN pilot program on self-certification involving Malaysia,Singapore and Brunei, which Thailandjoined in December 2011. Hence ifthe new pilot program comes into fruition, there would be two pilot programsfor 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 wouldappear to be an absurd situation. Itwould be as if the EU had decided to have two “common” currencies, one with theEuro and one with the ECU, each competing to be the common currency of theEU. Is this the “buffet” system of selectivelypicking and choosing economic policies?

The answer is no.

A closer examination of thereasons for creating a second pilot program demonstrates that a competition ofideas is not necessarily a bad thing. Inmy post last year on self-certification, I explained the fundamentaldisagreement between the Malaysia-Singapore-Brunei-Thailand group and theIndonesia-Laos-Philippines-Vietnam group:

Indonesiahas publicly stated that it would participate in the pilot program only ifparticipating companies were limited to manufacturers, and if the authorizedsignatories per company were limited to three persons. This reflects a general suspicion amongcertain ASEAN customs authorities that companies, and in particular tradingcompanies, could abuse the system to obtain FTA origin wrongly. These countries also expressed skepticismabout the success of the pilot program.

Hencethe incumbent group allows trading companies to participate whereas thepotential new group would not allow for this. This issue will need to be resolved for self-certification to be applieduniversally throughout ASEAN in ATIGA.

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

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

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

Thus,the intent of ASEAN-X, to allow a pathfinder group to move ahead with a policyand letting the others catch up later at their own pace, can be appliedproperly in this case. However, doing sowill require that the pilot programs run their course and proper policy debateproceed. If the pilot programs becomeentrenched, with each group running its own way, then “buffet” stylepolicymaking will also take root in the ASEAN Economic Community. Such confusion must not be allowed tohappen. I still look forward to hearingmore good news about the pilot program(s) and the increased use ofself-certification.

NUS Class On-Site Seminar in Jakarta

2012-02-13T20:05:00.000+08:00

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.

AEC Developments Recap

2012-02-01T15:11:00.001+08:00

Last night I spoke at the National University ofSingapore Students’ Political Association 2012 forum on the ASEAN EconomicCommunity, along with former ASEAN Secretary General Rodolfo Severino and SulaimahMahmood from the Singapore Ministry of Trade and Industry. Over 250 university and junior college (highschool) students attended, which is quite good and reflects on the excellentorganization skills of the association!

My presentation riffed on my comparisonof 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 canimpose penalties on both players and teams, and the players and teams have access tobinding arbitration and judicial systems. However, the American leagues also have had 3 strikes over the past 7years whereas the EPL rarely has labor problems and is also financiallysuccessful. The point is that evenwithout strong central leadership, entities such as ASEAN or the EPL cansucceed, but that decisionmaking can be slow. The key is in providing good conditions forcompetition, which will attract both “players” and “fans” (e.g., investors andcustomers).

Here are some more updates on AEC developments:

ASEAN Secretary-General – multiplesources indicate that Vietnam has identified its proposed candidate to replaceASEAN Secretary General Surin Pitsuwan at the end of 2012. The vetting process is now being conducted bythe ASEAN member states on a confidential basis.
Chiang Mai Initiative - TheASEAN+3 Macroeconomic Research Office (AMRO) officially opened in Singapore as an independent macroeconomic surveillanceunit of the Chiang Mai Initiative Multilateralization Agreement. The Chiang Mai Initiative is a currency swapagreement among the finance ministries and central banks of ASEAN, China, Japanand Korea. AMRO will conduct financial surveillance in ASEAN+3 and provideinformational support to the ASEAN+3 central banks and finance ministries. The AMRO headsuggested doubling the size of the swap arrangement to at least US$ 240billion.
ASEAN Single Window – Laosannounced a road map to implement its national single window. The effort is funded by the USAID.
ASEAN-EU – thefirst meetings of the EU’s program to support ASEAN capabilities to negotiatefree trade agreements (FTAs) with the EU were held in Cambodia. ASEAN-EU FTA talks had stalled a few years agodue to Myanmar sanctions and perceived deficiencies in ASEAN’s negotiatinginfrastructure.
Myanmar – Singapore and Myanmar signed a memorandumof understanding for Singapore to provide technical support. Meanwhile, theEU lifted some Burma sanctions, ending visa bans on Myanmar regime officialsand allowing some development aid. TheEU and US are waiting for the results of the April by-elections before furtherlifting sanctions.

Improving the Use of Bahasa ASEAN

2012-01-26T11:03:00.000+08:00

The issue of “Bahasa ASEAN” came up again in Thailand,in a report on Voice TV:

A Chulalongkorn University research“Human Resources Preparation for the Opening of the ASEAN Market” has foundthat Thai will be another important language of communication and a commonlanguage in ASEAN on par withEnglish because Thailand is the center ofASEAN. Lately it’s been found that [people in] the neighboring countries suchas Lao PDR, Cambodia and Myanmar have become more interested in learning Thai.

Mr. Sompong Jitpradap, educationlecturer, Chulalongkorn University, revealed that given the research findings,preparatory steps should be made to export Thai language teachers forforeigners [to] expand Thai education system. The ASEAN free trade will be animpetus for a more systematic education reform.

At present Thailand has many teachersof Thai language and students in Thai language major. However, the number andthe quality of Thai language human resources have not yet been determined.

I previouslycommented on “Bahasa ASEAN” here, but I will leave it to Thai blogger Kaewmala toprovide her own take on whether Thai can be “Bahasa ASEAN”:

Noone can fault the Malaysian or Thai officials for desiring to see theirrespective national language gain more prominence in the region. Indeed, therewould be a lot of benefits, economically, culturally and politically. At thesame time, however, no one can deny the importance of English, which is the defactoBahasa ASEAN.

and

The reality is English will continue tobe the most important language in ASEAN for a long time to come—perhaps untilChinese manages to take over. True, not all citizens of ASEAN are proficient inEnglish but it is the only language that all ASEAN member countries have commonproficiency and this proficiency will only increase. This is actually whereThai officials and citizens alike should be very, very concerned about: Thais’dismal English proficiency.

and

The ASEAN market will have a free flowin 2015. That’s barely three years left for Thais to improve Englishproficiency, if Thais are really serious about moving ahead in ASEAN. Thaisshould also start learning the languages of our neighbors. Promote Thailanguage too, of course. All of these can be done, while learning to talkEnglish seriously. After all, it can only help.

Versions of this debate could easily be held inVietnam, Myanmar, and other ASEAN countries. The point is that we already have a “Bahasa ASEAN”, and it is English,the language of globalization. ASEAN canand should support its local languages, but continued improvement in English isa must for cohesion in all three pillars of ASEAN.

ASEAN Adopts International Negotiating Procedures

2012-01-20T13:11:00.000+08:00

Lastweek’s ASEAN Coordinating Council meeting of foreign ministers in Cambodiaadopted “The Rule of Procedures for Conclusion ofInternational Agreements by ASEAN” (ROP). As described by ASEAN DeputySecretary General Bagas Hapsoro, “The Rule prescribes the procedures forASEAN as an inter-governmental organization to enter into agreement withcountries, international, regional and sub-regional organizations andinstitutions in pursuing its external relations as provided for in Article 41.7of the ASEAN Charter.” AsASEAN has not yet published the ROP on its website, I provide a copybelow.

Isuspect that only international law aficionados will study the ROP indetail. Yet I think that the ROP doesprovide some interesting points of relevance to the study of the ASEANinstitutions and the AEC.

First, the ROP does not apply to agreementswhich are negotiated by the ASEAN member states collectively and createobligations for individual member states, namely the various free tradeagreements (FTAs). ASEAN FTAs areactually a collection of 10 bilateral FTAs which share common language andobligations, the product of collective negotiation by ASEAN member states, withthe support of the ASEAN Secretariat.

Second, the ROP illustrates, once again, thedetermination by ASEAN member states not to create strong supranationalinstitutions. Under the ROP, the ASEAN SectoralMinisterial Bodies coordinate with the Committee of Permanent Representativesto ASEAN (CPR) on proposals to commence negotiation. Finalapproval of the proposals is up to the ASEAN Foreign Ministers Meeting, or theCPR acting for the foreign ministers. The ASEAN foreign ministers directly orindirectly through the CPR appoint the ASEAN representatives to thenegotiation. The ROP requires the ASEANrepresentatives to maintain close consultations with the CPR and ASEAN SectoralMinisterial Bodies. Finally, the ASEANforeign ministers by themselves or through the CPR will specify the manner ofconcluding the agreement and by whom.

The ROP thus anticipates a case-by-caseauthorization by the ASEAN foreign ministers (representing the ASEAN memberstates) for international agreements. Unlikewhat the EU does in trade matters, there is no standing delegation of authorityby the member states to a central institution like the ASEAN Secretary Generalor the ASEAN Secretariat. Rather, theROP allows for the designation of the ASEAN Secretary General to act on behalfof ASEAN in specifically authorized circumstances. The ROP also limits the role of the ASEANSecretariat to that of assisting the designated ASEAN representatives. The primacy of the ASEAN foreign ministers inthe process is firmly set by the ROP.

Now, this tension between national sovereigntyand regional institutions is always present in entities such as ASEAN and theEU. The EU itself is still resolvingsuch tension in other areas of the Community, such as in monetary affairs andforeign policy. So the factors that resulted in the ROP’s approach are not new.

In any event, perhaps this is all the “ASEAN”that the member states can accept at this time. But it still marks another step in the implementation of the ASEANCharter, the further commitment to rule of law in ASEAN’s operations. Fornow, this should be celebrated.

Rules of Procedurefor Conclusion ofInternational Agreements by ASEAN

Rule 1 Scope of Application

1. These Rules specify the procedure for theconclusion of internationalagreements by ASEAN as an intergovernmentalorganisation in the conduct ofexternal relations as provided in Article41(7) of the ASEAN Charter.

2. TheseRules shall not apply to the conclusion of internationalagreements concluded by all ASEAN Member States collectively and which create obligationsupon individual ASEAN Member States.

Rule 2 Definition

For the purpose of theseRules, “international agreement by ASEAN”(hereinafter referred to as “international agreement”) meansany written agreement, regardless of its particulardesignation, governed by international law which creates rights and obligations for ASEAN as a distinct entity from its MemberStates.

Rule 3 Authorisation of the Commencement of Negotiationand Appointment of Representative(s)

The proposal to commence anegotiation of an internationalagreement shall be coordinated with the Committee of Permanent Representatives to ASEAN by therelevant ASEAN Sectoral Ministerial Bodies at the senior officials level. The ASEAN Foreign Ministers Meeting, on its own or through the Committee of PermanentRepresentatives to ASEAN, shall decide on the proposal and shall appoint the appropriate representative(s) to commence the negotiation on behalf of ASEAN.

Rule 4 ASEAN Common Position

1. ASEAN MemberStates shall coordinate and develop an ASEAN common position pursuant to Article 41(4)of the ASEAN Charter.

2. Such ASEAN common position shall be formulated by the relevant ASEAN Sectoral Ministerial Bodies at the senior officials level in coordinationwith the Committee of Permanent Representativesto ASEAN. In the formulation of an ASEAN common position, the ASEAN Foreign Ministers Meeting may be consultedif and when necessary.

3. The representative(s) as referredto in Rule 3 shalladhere to an ASEAN common position which serves as a basis for negotiation.

Rule 5 Obligation of information and consultation

1. The representative(s) shallensure that the relevant ASEAN Sectoral Ministerial Bodies at the senior officials level and the Committee of Permanent Representatives to ASEAN areconsulted and kept informed of theprogress of negotiation.

2. The relevant ASEAN Sectoral Ministerial Bodies at the senior officialslevel or the Committeeof Permanent Representatives to ASEAN may, at any time, request to be consulted or informed of theprogress of negotiation from therepresentative(s).

3. The relevant ASEAN Sectoral Ministerial Bodies at the senior officials level incoordination with the Committee of PermanentRepresentatives to ASEAN may, at any time, give further instruction to the representative(s).

4. The representative(s) may seek further instruction from the relevant ASEAN Sectoral Ministerial Bodies at the senior officials level.

Rule 6 Initialling of the Draft Text of the International Agreement

When negotiation is completed, the representative(s) may initial the draft text of theinternational agreement solely for ascertaining the form and content of thenegotiated text of such agreement. For the purposeof this Rule, the initialled draft text shall not be deemed as thefinal text and shall be subject to endorsement pursuant to Rule 7.

Rule 7 Endorsement of the Draft Text of the International Agreement

1. The representative(s) shall submit the draft text ofthe international agreementto the relevant ASEAN Sectoral Ministerial Bodies at the senior officials levelfor endorsement. Such endorsement shall be made in consultation with the Committee of Permanent Representatives to ASEAN.

2. The Committee of Permanent Representativesto ASEAN shall submit the endorsed textto the ASEAN Foreign Ministers Meeting for itsconsideration pursuant to Rule 8. Thisparagraph shall not apply where the ASEAN Foreign Ministers Meeting acts through the Committee of Permanent Representatives to ASEANpursuant to Rule 8, paragraph4.

Rule 8 Signature and Act of Formal Confirmation

1. The consent of ASEAN to be bound by an international agreement shall be expressed by signature or an act of formal confirmation.

2. The consent of ASEAN to be bound may be expressed by signature of the person appointed pursuant to paragraph5 of this Rule when:

a. the international agreement providesthat signature shall have that effect;

b. the intention of ASEAN to give that effect to the signature appears from thefull powers issued pursuant to Rule 9, or was expressed during the negotiation.

3. The consent of ASEAN to be bound may be expressed by an act of formal confirmation when:

a. theinternational agreement provides forsuch consent to be expressed by anact of formal confirmation;

b. the intention of ASEAN to sign the international agreement subjectto an act of formalconfirmation appears from the full powers issued pursuant to Rule 9, or was expressed during the negotiation; or

c. the person appointed pursuant to paragraph 5 of this Rule has signed the international agreement subject to anact of formal confirmation.

4. The ASEAN Foreign Ministers Meeting, on its own or through the Committee of Permanent Representatives to ASEAN, may decide on the signing of, and/or an act of formal confirmation of an international agreement.

5. The ASEAN Foreign MinistersMeeting, on its own or through the Committee of Permanent Representatives to ASEAN, may appoint theSecretary-General of ASEAN or any other person to sign the international agreement on behalf of ASEAN.

6. Where a decision on formal confirmation has been taken pursuant toparagraph 4 of this Rule, the instrument of formal confirmation shall be issuedby the Secretary-General of ASEAN.

Rule 9 Full Powers

Where full powers is required, the Secretary-Generalof ASEAN shall, upon instruction ofthe ASEAN Foreign MinistersMeeting on its own or through the Committee of Permanent Representatives to ASEAN,issue full powers for negotiating and/or signing an internationalagreement.

Rule 10 Procedure for Amendment, Suspension and Termination

The procedure set forth in these Rules shall apply, mutatis mutandis,to the amendment, suspensionand termination of internationalagreements to which ASEAN is a party.

Rule 11 Role of the ASEAN Secretariat

The ASEANSecretariat shall assist the representative(s) and relevant ASEAN organs throughout the process of conclusion of international agreements.

Do FTAs Mean Free Trade Agreements or Fear and Trepidation in ASEAN (The Sequel)?

2012-01-12T21:41:00.000+08:00

This week the Jakarta Post reported that after finallyimplementing the ASEAN-Australia-New Zealand (AANZFTA), Indonesianagricultural interests fear the worst from increased competition from Australiaand New Zealand. The Postquoted Indonesian Agriculture Minister Suswono as saying ““We’ll still protectour products so that they will remain competitive in the local market . . . . Ourcodex standards, halal labeling, and sanitary and phytosanitary standards [SPS]are still feasible as instruments for protection, especially for food itemsthat will enter Indonesia.”

If this sounds familiar, it’s because it is. Two years ago I wrote in thelate OpinionAsia website about the fear and trepidation among ASEAN industriesfacing the implementation of the ASEAN-China FTA (ACFTA), and it is repostedbelow. Substitute “China” with “Australia and New Zealand” and the analysiswould be mostly applicable to Indonesia’s predicament as well.

The positive lesson of 2010 was that the ASEAN members largely avoidedusing trade remedies and other protection measures as a result of the ACFTA. Indonesia proposed delays to the ACFTA, whichwere acknowledged and then rejected by China and the other ASEAN members. Proposalsto impose blanket tariffs on Chinese goods also were non-starters.

Will these lessons be applied in the Indonesian agricultural sector? Hopefully,but agriculture is always sui generis.Although the AANZFTA contains provisions against using SPS and other measuresas non-tariff barriers, Minister Suswono can point to the restrictive SPSmeasures imposed by Australia on citrus and tropical fruit as the inspirationfor his comments. Plus, last year Indonesia faced aban on cattle exports from Australia, which was later followed by an Indonesianban on cattle imports from Australia.

SPS-based non-tariff measures may be the last refuge of protectionists,but they remain alive and well in today’s world. If Australia is indeed worriedthat Indonesia will implement such measures to protect its agriculturalindustry, then the first place it should start is at home, by reforming its ownSPS measures.

Finally, the other ASEAN trading partner that should take note of thisdispute is the EU. A few years ago, I worked on a feasibility study on theproposed ASEAN-EU FTA that indicated that EUprocessed agricultural exports would benefit tremendously from the FTA. Thispotential row shows that fear of increased competition from those exports willbe a major issue as the EU negotiates its bilateral FTAs with the ASEANcountries.

Anyway, here is the original post on “Do FTAs Mean Free Trade Agreements or Fear and Trepidation in ASEAN”, posted on January 10, 2010:

The start of 2010 was celebrated by some, but many Association of Southeast AsianNations (ASEAN) industrial interests viewed the new year with great apprehension. Forthem, January 1 markedthefull implementation of the ASEAN Free Trade Area (AFTA)agreement and ASEAN China Free Trade Agreement (ACFTA). The resulting greatermarket access for goodstraded within ASEANandbetween ASEAN and China has generated an outcry throughout the regional grouping among those who fear increased competition. How ASEAN copes with this growing mini-crisis of confidence will affect both regional development within ASEAN and the evolution of ASEAN institutions.

Under AFTA and ACFTA, import duties on most goods have now been set to zeropercent in thefounding ASEAN membersof Brunei, Indonesia, Malaysia,the Philippines, Singapore and Thailand (similar reductions will take effect in 2015 for the other ASEAN members). The lists of items subject to trade liberalization, the revised rates and the implementation dates were agreed upon within ASEAN and betweenASEAN and China years ago.

The industrial sectors in Indonesia and the Philippines, and to a lesser extent, Malaysia, vehemently object to greater market access and greater competition - not when theagreements were being negotiated but duringthewaning days of 2009. The Indonesian governmentreacted toindustry pressureby proposing last weekto renegotiate theACFTAand may seekdelaysin implementingAFTAprovisions. OtherASEAN members may be tempted to use this opportunity to follow suit.

That Indonesia and the Philippines, with active business lobbies and media, reacted sostronglywas somewhat predictable.Nevertheless, that business interests inthosecountries and elsewhere in ASEAN waited until the last minute, months and years afterthenegotiation, ratification and implementation of the FTAs, reflects fundamentaldeficiencies within the region’s operating system. Clearly ASEAN governments andinstitutions such as the ASEAN Secretariat did not adequately prepare the business sectorfortrade liberalization. The corporate sector shouldhave been more involvedinthe process from the earliest stages.

Not that the ASEAN business sector is without blame. Some companies in ASEANbenefited from protection at the national level through tariff and non-tariff barriers yettookno action when threatened with their impendingphase-out. Despite having advancewarning, both the private and public sectors in manyASEAN countries failed to prepare themselves for the impending trade liberalization.

This unease with the FTAs could even threaten ASEANinstitutions. The ASEANEconomic Community,which the FTAs and other agreements on trade and investment underpin, is supposed to be the most developed of the three pillars of ASEAN– with thepolitical-security and socio-cultural communities being the others. A breakdown over the FTAs would thus undermine the credibility of the ASEAN integration process.

Fortunately, the ASEAN Charter appears to be influencing the controversyina positive manner. The ASEAN Charter provides the foundation for a rules-based operatingsystemforthe regional grouping. Thus, despite domestic calls for individual ASEAN membersto abrogate their FTA commitmentsunilaterally, none have done so. Although Indonesia has called for a renegotiation of the ACFTA, it has respected the structures and practices of ASEAN by making its request through the ASEAN Economic Community Council, a new body established by the ASEAN Charter. Thus it will be up to ASEAN as whole todetermine how to address Indonesia’sconcerns, and how to deal with China should thegrouping decide to act accordingly.

It must be rememberedthatthe FTAswill benefit manyASEAN industries withincreased market access in China, as well as in India, Australia,Korea and Japan - whichhave also signed FTAs with ASEAN. TheFTAs also mean increased investment inASEAN by these trading partners. The ASEAN Secretariat and national governmentsneed to explain these benefits both to the business elite and to the masses.

The aforementionedFTAs provide ASEAN members with remedies to protect their industries from unfair and/or increased competition in the form of antidumpingand safeguard laws. These laws take time to invoke and administer, but trade and investment policies based on the rule of law will benefit all sectors of ASEAN society in the long run.

The current acrimony overthe FTAsrepresents a failureof government-business outreach that needs to be avoided in the future if ASEAN economic integration is tosucceed. If ASEAN institutions and member states can also continue to adhere to therules-basedapproachsetforth bythe ASEAN Charter, then indeedthe ASEAN Economic Community will succeed as well.

How the AEC Supports Improved Singapore-Malaysia Relations

2012-01-08T15:37:00.000+08:00

Lastweek the Malaysian and Singaporean prime ministers met in Putrajaya for anannual bilateral summit meeting. Several economic initiatives were announced, including linkingSingapore’s subway system to Johor, the sale of electricity by Malaysia to Singapore,alignment of radio frequency spectrum plans for digital broadcast and mobilebroadband services, a proposed ferry service, a new work group on industrialcooperation, and cooperation in aviation and airport services between SenaiInternational Airport in Johor and Changi in Singapore as well as educationservices. These initiatives follow up onthe Malaysia-Singapore deal last year resolving land and water issues.

Allthis represents a great improvement. Although Malaysia and Singapore have beenclose economically, domestic political conditions (particularly in Malaysia)made it difficult to resolve long-standing disputes. Every so often a dispute would arise (thecauseway bridge, sand for Singapore land reclamation, Pedra Branca, airspacefor defense training, railway land, water, etc.) and sour relations between theneighbors.

Sowhat happened to change this? To someextent, increased reliance on legal mechanisms and agreements to resolvedisputes helped. The International Court of Justice resolved the Pedra Brancaterritorial dispute without acrimony, and the ASEAN regional agreements imposeobligations and minimum standards on both Singapore and Malaysia.

The majorimpetus for better relations comes from domestic politics on both sides of the causeway.

Afterthe last Malaysian general election, the ruling Barisan National coalition ismore dependent than ever on Johor for its parliamentary majority. In addition, the major plausible threat toPrime Minister Najib Razak comes from Deputy Prime Minister Muhyiddin Yassin,whose political base is Johor. These andother factors motivate the increased efforts to develop Johor state through theIskandar Malaysia development project.

Theadditional factors come from the Singapore side. Its own general election last yearhighlighted social and economic pressures in the city-state. Singapore strives to be an internationalcenter in finance and other services, attracting high net-worth globalinvestors and talent like in London. Unlike London, Singapore does not have a hinterland to provide a largermarket or reduce land and wage costs. Asa result, many Singaporeans perceive increased losses of opportunity inemployment and education, along with increased living costs. Hence some portions of the Singaporeelectorate vented their frustrations by voting against the government. Economic development and integration withJohor will thus provide Singapore with the hinterland it lost in 1965, and helpSingapore alleviate these social and economic pressures.

Thisconfluence of factors, from both Malaysia and Singapore, thus ensure thatIskandar, unlike previous projects in Johor, will be eventually successful. The “pull” factors in Malaysia are matchingup with “push” factors in Singapore. What the ASEAN Economic Community does is provide the legal and economicframework for cross-causeway cooperation without bumping up against oldstrictures of sovereignty. No doubtthere will be bumps along the way, but the AEC will allow Malaysia andSingapore to cooperate on mutually acceptable terms.

The ASEAN Avatar

2011-12-30T10:11:00.000+08:00

Recently I heard a BBCreport on the Canadiandebate over their national animal. Canada has had the beaver(not the Bieber) asits national animal since the 1970s, but a movement has started to replace itwith the more assertive (and aggressive?) polar bear. Thisreport led to think what the appropriate anthropomorphic symbol for ASEANshould be.

ASEAN already has an emblem,ten rice stalks bound together inunity. This is a very appropriatesymbol, as the united strength of the rice padi stalks is much stronger than thatof any one stalk, symbolizing ASEAN consensus. Rice is also common to all ofthe ASEAN nations.

Unfortunately, the ricestalks are also inanimate. Otherentities have animated symbols: theUnited States has a baldeagle, Russia has a bear,China has apanda (or more frequently, a dragon), and France has a chicken. The EU even has Europa, so a politicalentity does not have to be a nation to have an avatar. Hence in political cartoons and other media,other countries and entities have animated avatars, but ASEAN can only berepresented as a plant, strong but passive, not engaging with others.

Obviously this reflectsseveral historical factors, mostly driven by the relative recent nature ofASEAN’s formation and the great diversity of its membership. Thus, it is harder – but not impossible-- to formulate “ASEAN” traits thatshould be embodied in a symbol. So we’lltry.

As an initial matter,cultural and religious issues prevent using a human as the embodiment ofASEAN. For example, politicalcartoonists in Singapore avoid drawing caricatures of Singaporean politiciansdue to local sensitivities.

Thus, we are left consideranimals as potential symbols of ASEAN. They should be common in the region and represent positive traits of itspeoples:

Cat –because dogs and pigs do not have a great reputation in Islam, and mice areassociated with disease, these common animals are disqualified. Cats are common throughout the region,smaller animals that can nevertheless inflict damage when acting inunison. However, the “herding cats”metaphor would be an inappropriate way to describe the ASEAN way of consensus.

Duck –another popular cartoon animal, ducks are common in ASEAN and are alsopeaceful, helpful animals. Being ediblemight be a drawback, although that never stopped France from using a chicken asits symbol.

Lizard– these small animals are also common in ASEAN, and usefully eat insects. However, they are also (wrongly) associatedwith being slimy, not a positive image.

Monkey– also common through ASEAN (even in urbanized Singapore), monkeys areintelligent and work well in groups. However,the fact that monkeys are closely related to humans yet sub-human may make thisanimal an uncomfortable choice.

Frog –frogs commonly live in rice paddies and also eat insects. They are quite vocal and numerous; whetherthese are positive or negative traits depends on your point of view.

Water Buffalo – this would be my choice. Thewater buffalo is a peaceful animal, although with the ability to defend itselfwith its horns. It is common to ASEAN, laboring in the rice paddies andproviding milk and ultimately meat to its owners (the old Far Eastern EconomicReview used to have a tiny water buffalo commentator in its politicalcartoons). The downside is that thewater buffalo is a large and slow animal.

At the end of the day,emblematic symbols and animals are the result of popular sentiments aboutcountries and entities. These sentiments (and perhaps the exhaustion ofpolitical cartoonists who don’t want draw 10x anything to depict the ASEANcountries as a group) will determine what is used to depict ASEAN. Although seemingly trivial, these things arethe stuff of creating an ASEAN Community.