Celebrating Indonesia, and Anticipating Cambodia, as ASEAN Chair

As 2011 comes to a close, Cambodian diplomats are hunkered down in Jakarta, completing the final steps in the transition from Indonesia to Cambodia as ASEAN Chair.  Hence this is an appropriate time to assess how Indonesia fared as ASEAN Chair.

The starting point for this analysis is a counterfactual premise – Brunei was originally scheduled to be ASEAN Chair in 2011, but switched places with Indonesia, which was supposed to be chair in 2013.    Indonesia wanted to switch because of other summit meetings such as the G-20 and, more importantly, its elections due in 2014 (after the switch and the Bali summit, the new order is Cambodia-2012, Brunei-2013, Myanmar-2014 and Laos-2015).  Hence did Indonesia perform better as ASEAN Chair than Brunei would have? 

The clear answer is yes.

Having the largest member, a founding member, serve as ASEAN Chair had a significant impact on developments in 2011:

Preah Vihear – the border temple dispute almost resulted in Cambodia and Thailand engaging in armed conflict.  A turn in domestic Thai politics (e.g., the election victory of Yingluck Shinawatra) defused the dispute (for now).  However, the active intervention of Indonesia as ASEAN Chair (invoking the dispute resolution clauses of the ASEAN Charter) helped calm the situation.  Acceptance of the ASEAN Chair’s role in the dispute was crucial, particularly since the other ASEAN institution that could have become involved, the ASEAN Secretary General, is currently a Thai national whose role would have been questioned by Cambodia.   With the presence of Indonesian observers, the dispute has receded.  Brunei would have had moral weight, but clearly the heavier diplomatic presence of Indonesia made a difference in this dispute.

Myanmar – the continued political and economic reforms in Myanmar were aggressively supported by Indonesia as ASEAN Chair.  A former military-backed dictatorship which successfully transitioned to a democracy, Indonesia serves as a useful role model for Myanmar.   Indonesia also actively worked to convince the United States and the West that the reforms are real.  This should not be underestimated.  If Brunei had been ASEAN Chair, there would have been a real temptation for President Obama to skip an East Asia Summit in Bandar Seri Begawan, given his domestic political problems.  Yet President Obama had emotional ties to Indonesia, plus the diplomatic burden of having cancelled previous visits to Indonesia, so he went.  This helped set up Secretary Clinton’s December visit to Myanmar and the potential lifting of economic sanctions.

Timor Leste – Indonesia failed to get Timor Leste admitted into ASEAN in 2011.  As I have written before, the burden of bringing in Timor Leste into the ASEAN Economic Community would have been another unnecessary distraction, especially with the other issues of Myanmar and Preah Vihear.  However, the fact the ASEAN membership of Timor Leste is now viewed as a likelihood can be attributed to Indonesia.   That Indonesia, the former occupying power in Timor Leste, is now its biggest supporter, is another irony of history.  If Brunei had been chair in 2011, Timor Leste’s cause would have been further delayed.

I think on other issues, such as the South China Sea/Spratly and Paracel Islands  or even the ASEAN Economic Community, Indonesia probably did as well as Brunei would have done. 

All of this is not to say that Brunei would have done worse as a hypothetical ASEAN Chair in 2011. Rather, it is that countries and their leaders meet the challenges that are presented by history, and in 2011, Indonesia met those challenges well as ASEAN Chair. 

It also does not mean that small countries will necessary have less influence over events.  Small members are even more dependent on regional integration than large countries, and countries like Cambodia and Laos more than make up for their lack of economic and political clout with an abundance of enthusiasm.  Furthermore, they and Vietnam are strong supporters of globalization, given their relatively late start in joining the international economic community.

Hence 2012 will present its own set of challenges to Cambodia as ASEAN Chair.  It will need to move closer to a definitive resolution of Preah Vihear.  It will need to work with Vietnam in selecting a new ASEAN Secretary General.  It will need to monitor developments in Myanmar.  It will need to push forward on the AEC agenda.  On these points, I think Cambodia understands what must be done.   If the potential distractions of Preah Vihear can be avoided, I am confident that Cambodia can follow up on Indonesia’s successful term as ASEAN Chair.

The ASEAN Avatar

Recently I heard a BBC report on the Canadian debate over their national animal.  Canada has had the beaver (not the Bieber) as its national animal since the 1970s, but a movement has started to replace it with the more assertive (and aggressive?) polar bear.   This report led to think what the appropriate anthropomorphic symbol for ASEAN should be.

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

Unfortunately, the rice stalks are also inanimate.  Other entities have animated symbols:  the United States has a bald eagle, Russia has a bear, China has a panda (or more frequently, a dragon), and France has a chicken.   The EU even has Europa, so a political entity 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 be represented as a plant, strong but passive, not engaging with others. 

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

As an initial matter, cultural and religious issues prevent using a human as the embodiment of ASEAN.   For example, political cartoonists in Singapore avoid drawing caricatures of Singaporean politicians due to local sensitivities. 

Thus, we are left consider animals as potential symbols of ASEAN.  They should be common in the region and represent positive traits of its peoples:

Cat – because dogs and pigs do not have a great reputation in Islam, and mice are associated with disease, these common animals are disqualified.  Cats are common throughout the region, smaller animals that can nevertheless inflict damage when acting in unison.  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 also peaceful, helpful animals.  Being edible might be a drawback, although that never stopped France from using a chicken as its symbol.

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

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

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

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

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

In the Singapore Property Market, Not All FTAs Are Equal

This week the Singapore government implemented immediate measures affecting its property market.  In an effort to prevent further appreciation in property (and thereby avoid a “bubble” and its consequent “bursting”), Singapore announced that it would increase the 3% stamp duty (tax) charged on purchases of real property, but only for purchases by foreigners (now subject to 10%) and permanent residents (now subject to 6%).  The 3% rate would continue to apply to Singaporeans.   

All foreigners are subjected to the 10% stamp duty except for nationals of the United States, Switzerland, Lichtenstein, Norway and Iceland.  These nationals continue to be subject to the 3% rate imposed on Singaporeans.  The special treatment accorded these countries, and not others, is a direct result of the interaction of the various free trade agreements (FTAs) signed by Singapore.

First, Switzerland, Lichtenstein, Norway and Iceland are members of the European Free Trade Association (EFTA).  Under Article 40.1 of the EFTA-Singapore FTA (ESFTA),  Singapore must treat EFTA nationals as if they were Singaporeans for purposes of investment, including investments in property.   This obligation is known as “national treatment.”   Article 41.2 explicitly applies this obligation to taxation. Hence the ESFTA mandates that EFTA nationals be subject to the 3% rate for Singaporeans.

Second,  Article 15.1 of the U.S.-Singapore FTA (USSFTA) provides that Singapore must treat Americans as if they were Singaporeans for investment purposes through the national treatment obligation.  Furthermore, Article 15.3 provides that any privileges provided to other countries must be extended to Americans.  This obligation is known as “most-favored nation” treatment, and it allows Americans to claim the benefits accorded EFTA nationals under the EFTA-Singapore FTA.  Finally, Article 15.4 provides that Americans must be accorded the better of national treatment or most favored nation treatment.  Thus, through both the USSFTA itself and through the interaction with the ESFTA, Americans are subject to the 3% rate for Singaporeans.

Third,  although Singapore has signed many FTAs with other countries, these FTAs do not provide for the same investor treatment that the USSFTA and ESFTA provide.  Most FTAs do not have the most-favored nation clause that would allow the trading partners access to the ESFTA (see the Korea-Singapore FTA).  Furthermore, under most FTAs, Singapore expressly reserved the right to deviate from national treatment for purposes of administering its real property laws (see Annex 3.2 of the New Zealand-Singapore CEPA).  Other FTAs, such as the Peru-Singapore FTA, expressly exclude taxation from their coverage.  Finally, some FTAs do not even cover investment at all.

The new property stamp duties thus demonstrate that FTAs have a far reaching effect beyond trade in goods and services.  They have direct and continuing effects on the application of domestic law.  

This particular episode also illustrates why countries would want to negotiate an FTA with a country which has 0% import duties and is quite open to foreign investment.  The EU, which has seen its FTA talks with Singapore continue on from an expected October 2011 completion to a first-half 2012 completion, now has another negotiation goal.  Other FTA partners of Singapore must wish that they could revisit the exclusions. 

In any event, if you’re in the property market, it’s good to be an American, Swiss, Lichtensteiner, Norwegian or Icelander in Singapore now.

Summarizing US Burma Sanctions

During US Secretary of State Hillary Clinton ‘s visit to Myanmar, a limited number of Burma sanctions were lifted by the US government, namely allowing IMF and World Bank assessment programs, and some UN development aid.  This falls short of allowing aid for ASEAN-related  regional integration projects, as I have urged, but it’s a start.

I’ve been asked a lot of questions about what US sanctions apply to Myanmar, and to what extent the Obama administration can withdraw the sanctions partially or wholly without Congressional approval.  There is a myriad of legislation and executive orders, which are explained in detail here.  Besides the now lifted ban on multilateral assistance to Myanmar, the United States imposes the following measures:

• a ban on new investment in Myanmar by U.S. persons and companies;
• a ban on the importation of goods from Myanmar;
• a freeze on U.S. assets of any designated Myanmar nationals connected with the Myanmar stat
• a ban on property investment by certain Myanmar nationals connected with the Myanmar state
• a prohibition on the provision of U.S. financial services to and from Myanmar;
• a ban on assisting investment by third country entities in Myanmar;
• a ban on purchasing shares in third country entities involved in resource extraction activities in Myanmar; and
• a ban on visas for certain Myanmar nationals connected with the Myanmar state

Most of these measures were applied via a Presidential Executive Order which was extended in 2009.   The President can waive the sanctions upon notification of Congress.   The President can also terminate sanctions “permanently.”  Most notably, the import ban and asset freeze can be terminated “upon request of a democratically elected government in Burma” and when conditions in the 2003 Burma Freedom and Democracy Act regarding progress on human rights, release of all political prisoners, freedom of speech and the press, freedom of association, peaceful exercise of religion, democratic governance, country not designated as “a country of interest” for narcotics trafficking—have been met.  The import ban would expire one year from the date of enactment unless Congress passes a resolution renewing the ban for a one-year period before the expiration of the ban; length of renewal is limited to three years.  The investment ban can be terminated by the President if sanctions are “contrary to the national security interests of the United States.”

Thus, the Obama Administration has relatively wide discretion in applying the Burma sanctions, but the need to consult with Congress to waive or terminate them is a major limitation.  The ability of Congress to extend the import ban allows Congress to override the President as well.

I note that Secretary Clinton did not address the issue of Myanmar’s name during her visit, which remains a sensitive issue.  She skirted the issue, apparently, referring to “this country”, a tactic reminiscent of a Seinfeld episode.  Hopefully, we can get the name game issue resolved soon, along with the naming of a resident U.S. ambassador (retiring Senator Jim Webb would be an excellent choice). 

NB: Based on further requests, I provide a summary of EU, Canadian and Australian sanctions below:

The EU imposes several measures including the following:

• a ban on the sale or transfer of arms and weapons expertise to Myanmar;
• visa restrictions on members of the Myanmar regime;
• a ban on visas for certain Myanmar nationals connected with the Myanmar regime; and
• a freeze on officials’ overseas assets.

These are subject to annual review, with the next review due in April 2012. However, the EU reserves the right to review and modify the sanctions at any time.

Canada imposes several measures:

• a ban on all goods exported from Canada to Myanmar, excepting only the export of humanitarian goods;
• a ban on all goods imported from Myanmar into Canada;
• a freeze on assets in Canada of any designated Myanmar nationals connected with the Myanmar State;
• a ban on new investment in Myanmar by Canadian persons and companies;
• a prohibition on the provision of Canadian financial services to and from Myanmar;
• a prohibition on the export of any technical data to Myanmar;
• a prohibition on Canadian-registered ships or aircraft from docking or landing in Myanmar; and
• a prohibition on Myanmar-registered ships or aircraft from docking or landing in Canada and passing through Canada.

Australia imposes measures more specifically against members of the Myanmar regime:

• transactions involving the transfer of funds or payments to, by the order of, or on behalf of specified Myanmar regime figures and supporters are prohibited without the specific approval of the Reserve Bank of Australia;
• restrictions on visas to travel to Australia by members of the Myanmar regime and their associates and supporters; and
• an arms embargo against the Myanmar government. 

Beyond the Bali Headlines

The major headlines of the Bali summits were of course the decision to allow Myanmar  to serve as the 2014 ASEAN chair, the announcement of US Secretary of State Hillary Clinton’s visit to Myanmar and various other items related to the U.S. “pivot” towards Asia.  From the ASEAN Economic Community viewpoint, the major announcement was the issuance of ASEAN’s framework for closer economic relations with its trading partners, an economic Treaty of Amity and Cooperation, as one observer put it. 

However, there were other significant developments during the summit season which also affect the AEC:

ASEAN Secretariat – ASEAN Secretary General Surin Pitsuwan announced that the Indonesian government had donated land with two existing buildings to the ASEAN Secretariat.  The additional space will be welcome by the ASEAN Secretariat, whose current physical plant has become very cramped and dated.  Of course, without additional funds this additional space will not be functional, with regard to personnel or resources.  This needs to be remedied by additional budget contributions from ASEAN members, including a rethink of the principle of equal contributions that limits the total amount to what the poorest member can pay.   Dr. Surin has also stressed that much of the Secretariat’s functions are supported by development aid missions from the EU, US, Australia and others. With Myanmar taking over as ASEAN chair in 2014, these donors need to relax the Burma sanctions so that funding of AEC-related activities are not hampered.  However, it looks like that may happen soon.

Timor Leste – ASEAN announced that it has formed a working group to review Timor Leste’s application to join the regional bloc. The Jakarta Post reported that Singapore opposed Timor Leste’s application as it would complicate the formation of the AEC by 2015.  Singapore later denied this report as “inaccurate and misinformed,”  stating that it welcomed the application of countries such as Timor Leste, Fiji and Papua New Guinea to join ASEAN.  Of course, the latter two countries arguably are not part of southeast Asia (whereas Timor Leste was part of Indonesia), so collapsing the three countries together does Timor Leste no favors in its application, despite the denial by Singapore.  Admitting Timor Leste before the AEC formation in 2015 would tax ASEAN’s institutions, this blog argues, particularly at a time when the smaller (but capable in economic policy) countries of Cambodia and Brunei become ASEAN chair in 2012 and 2013, and the completely inexperienced Myanmar becomes ASEAN chair in 2014 (along with all of the attendant potential for distraction over its domestic political situation).  In any event, the working group’s investigation and analysis will likely require considerable time, preventing East Timor from joining before 2015.

ASEAN FTAs – There were many technical developments in ASEAN’s bilateral FTAs.

•  ASEAN and China announced a second protocol to implement the services aspect of the ASEAN-China FTA.  The revised protocol expands the scope and depth of coverage beyond the initial 10 sectors covered by the first protocol, including commercial services, telecommunication, construction, distribution, finance, tourism and transportation, and takes effect on January 1, 2012.   

• Hong Kong (which is a separate customs territory under the WTO) applied to join the ASEAN-China FTA.  

• India set a deadline of March 2012 to conclude the services negotiations under the ASEAN-India FTA.  Talks have stalled for several months.  

•  ASEAN and Korea agreed to amend the ASEAN-Korea FTA to “clearer provisions for tariff reduction or elimination, and incorporates provisions to prevent any potential back-tracking of unilateral tariff commitments,” according to the Singapore government.   The amendment will take effect 90 days after Korea and one other member have started implementation. 

•  Indonesia announced that it had completed domestic procedures to implement the ASEAN-Australia-New Zealand FTA fully by January 10, 2012.

ASEAN Trade in Goods Agreement – Seven ASEAN members (Indonesia, Singapore, Malaysia, Thailand, the Philippines, Vietnam and Brunei) announced they would participate in a pilot program to implement the ASEAN Single Window.  This represents a major and necessary development in AEC formation, as the complexity involved in dealing with various national agencies hinders trade in goods.   Meanwhile, the Philippines tabled a proposal to implement self-certification of goods (although it is not clear how the Philippine proposal will mesh with the existing pilot program administered by Singapore, Malaysia and Brunei).  Finally, ASEAN announced that the ASEAN harmonized tariff schedule would be revised effective January 1, 2012.  There are additional tariff lines for fishery, machinery and vehicle products.

Private Sector Integration – the Philippine Stock Exchange announced it was delaying its participation in the ASEAN Trading Link (which will see Indonesia, Malaysia, Singapore, Thailand and Vietnam cooperating to allow cross-trading in their stock exchanges by mid-2012).  Meanwhile, ASEAN telecommunications ministers announced that they had reached an agreement in principle to eliminate cellphone roaming charges within ASEAN.

Whew! That was a lot.  Perhaps the most immediate impact will come from the elimination of cellphone roaming charges.  Hopefully this will apply not just to voice services, but to data roaming as well (a smartphone becomes a handheld bundle of unlimited liability when one crosses a border!).

Drawing Strength from an American Tradition

Today is Thanksgiving in America.  Rather than the usual posting on the AEC, I provide a link to an op-ed article published in the Straits Times today.  An excerpt is below:

As the "American" season in Asia, which began with the APEC summit in Honolulu, closes with the end of U.S. President Obama's visit to the region, readers are bombarded with analyses focused on the diplomatic and economic impact of America's so-called "pivot" towards the region.  Yet the end of this season also coincides with that most American of holidays, Thanksgiving, which perhaps more than any other US holiday, is an expression of American exceptionalism, the belief that America is a unique country with a special mission in the world. This week’s Thanksgiving holiday is an appropriate prism to consider how Asia interacts the other aspect of American influence in the region, that of its culture. 

Unlike other American holidays such Valentine's Day and Halloween, Thanksgiving offers no commercial opportunities to exploit overseas.  Unlike other holidays devoted to the

American state, such as Independence Day or Memorial Day, the underlying concept of Thanksgiving, of giving thanks, is not limited to America by definition. Thus, the U.S. Thanksgiving holiday remains sui generis, an American holiday that remains purely American for reasons beyond mere nationality.

In my view, Thanksgiving represents the ultimate expression of American culture’s uniqueness. The roots of Thanksgiving are in the celebratory feast of the Pilgrims in the Massachusetts colony, during the earliest days of America’s founding. They celebrated having survived the voyage across the Atlantic, the harsh winter, and the dread illnesses that befell them. These survivors had made personal choices, most for religious reasons, some to seek fortune, others for their own reasons; however, all had voluntarily chosen to make a new life in a new world, a choice made by individuals, not by the state.

The Pilgrims thus represented the core nature of America. The American people, for the most part, are a self-selected people.  There is no "typical American" now.  Based on their own choices or those of their ancestors, Americans can be of any race, religion or ethnicity.   More than any other country then, Americans are defined by the belief system they internalize within themselves, and not by any particular national attributes which have been externalized.

This sense of individualism remains the most attractive attribute of America to Americans and non-Americans alike.  Self-identification and re-invention based on individual considerations are the aspects of American culture most copied in Asia, where individualism is less favored.   Individualism seeps through American media, culture, business and politics.  This diversity can be both fascinating and frustrating, and is appealing to many.

Yet unbridled individualism is a caricature, which if adopted without limits, results in the worst abuses. Selfish disregard of greater society is what motivates factory owners to put melamine in milk or company officials to force their workers to gamble in casinos.  

Such destructive behavior comes from incorporating a superficial understanding of the American way of life without understanding its full context.  A further discussion of Thanksgiving provides such context.

More than any other American holiday, Americans spend Thanksgiving with their families.  They rush through airports and highways on Wednesday to get home. They spend Thanksgiving cooking, eating and watching football.  They spend the next day, “Black Friday,”  shopping for Christmas presents.  Americans may each have different variations of Thanksgiving – I remember my mother trying to cook soya roasted turkey, and we still cook turkey rice porridge – but the holiday remains centered around the family.

The holiday also originated as an informal, regional celebration.  Hence it is a “bottom-up” institution, adopted originally by families celebrating the fall harvest and commemorating the efforts of the early settlers.   However, it was the state, the U.S. federal government, that gave it a uniform day.  President Abraham Lincoln ended slavery, but he also created Thanksgiving as a national holiday.

Thus, Thanksgiving, like American society in general, is the product of a balancing of individual, family and the state.  That balancing is done by the people of every country.  Ultimately, each country must strike its own balance and continually struggle to maintain that balance.  In this way, America is exceptional in its weighting towards the individual, but it maintains a balance, just as Singapore has successfully managed to achieve its own balance.  Yet the struggle to maintain that balance in a constantly changing world remains a difficult but necessary proposition.

This will be my fifteenth Thanksgiving in Singapore.  When I sit down with my own family for Thanksgiving dinner,  our celebration will blend American, Singaporean, Chinese and other traditions.   I will be thankful for an America that provided educational and social opportunities unavailable elsewhere.  I will be thankful for a Singapore that provides a secure environment to raise our family and earn a living.    I will be thankful for the difficult choices made, and continue to be made that allow us to enjoy our way of life. 

Perhaps Thanksgiving will remain a uniquely American holiday.  However, as we come to the end of a difficult year, we can all take a moment to reflect and  give thanks for our personal and national condition.  Then we can gather our strength for the tasks ahead.

We’ll resume AEC comments after the holiday (there was a lot from the summits!). Happy Thanksgiving!

Coping with Myanmar as ASEAN Chair

To the disappointment of many (including this author), ASEAN leaders have decided to let Myanmar become ASEAN chair in 2014.  Most critics disagree with “rewarding” the Myanmar regime for its reform efforts since the installation of an elected government.  I share some of those concerns, but as the focus of this blog is on the ASEAN Economic Community (AEC), I am much more concerned about the ability of a government which has relatively limited experience in international trade and finance matters to serve as ASEAN chair going into the final preparation year before the AEC takes effect in 2015. 

In any event, the ASEAN leadership has spoken.  The question is how everyone else, in particular the critics of the Myanmar regime, should react. 

First, those concerned about the development of ASEAN’s three pillars of regional cooperation (political-security, economic and socio-cultural) should not allow disappointment to overwhelm their support for the regional bloc.  At some point Myanmar was going to become ASEAN chair, if not in 2014, then in 2016 as per the alphabetical rotation system (the 2014 bid arose because Myanmar invoked its having deferred its previous spot in the rotation).  The West, in particular the United States, needs a fully developed ASEAN to stabilize the region politically and economically.  By and large, the West has understood this and avoided counterproductive outbursts regarding ASEAN’s decision.

As a result of ASEAN’s decision, the West needs to adjust its Burma sanctions accordingly.  Aid intended to assist ASEAN with economic integration should be allowed to support Myanmar’s participation both in the AEC and the greater world economy.    This is important because much of the ASEAN Secretariat’s functions are supported by aid from the West; continued blocks on applying that aid to help Myanmar cope with economic integration will drag down AEC formation, particularly with Myanmar as ASEAN chair.  Furthermore, sanctions which are in some cases overbroadly written should be trimmed back to allow the business community to explore appropriate economic opportunities in Myanmar.  That doesn’t mean that all sanctions should be dropped, only that those sanctions which are counterproductive either to the regional goal of ASEAN economic integration or the national goal of improving the lot of the Burmese people should be dialed back.

ASEAN, for its part, needs to take measures to ensure that having Myanmar as ASEAN chair does not adversely impact regional integration.  Now more than ever, it is imperative that the next ASEAN Secretary-General have some economics background, for Myanmar as ASEAN chair is not going to provide economic leadership during 2014.   ASEAN countries will have to step up their leadership roles within the grouping to make up for this capacity deficit.  The ASEAN Secretariat also needs institutional strengthening to help the Secretary General and chairs.   Finally, ASEAN needs to maintain scrutiny on reforms in Myanmar and be prepared to delay Myanmar’s chairmanship term to 2016 or later if necessary; this will require having Indonesia or another member serve as mentor/backup chair.

Finally, critics of the Myanmar regime’s politics and treatment of ethnic and religious minorities will be disappointed with this decision.  However, they should also understand that the ASEAN chair decision has handed them another arena for pressuring the Myanmar regime.  For example, the debate on whether the U.S. president should attend an East Asia Summit in Naypidaw in 2014 will provide additional opportunities for discussing the plight of the Burmese people.  Furthermore, although the reform efforts in Myanmar are not optimal, they should still be met by appropriate steps; allowing aid to support Myanmar’s economic integration would be such a step.

Thus, the decision on Myanmar as ASEAN chair has closed, yet opened up another set of problems and opportunities for the region.  This requires that ASEAN redouble its efforts on regional integration, and ensure that having Myanmar as ASEAN chair does not serve as a permanent distraction or millstone around those efforts.  Similarly, ASEAN leaders need to recognize that the concerns of the West need to be met by holding Myanmar under continued scrutiny.   Finally, the Myanmar regime should continue its political and economic reforms to ensure that the country fully participates in the regional and world community.

Taking Incremental Steps Towards the AEC

In today’s post, we examine recent incremental steps taken by ASEAN to realize the ASEAN Economic Community.  Considered separately, each step may not seem like much. However, taken as a whole, they evidence active foundation-building at various levels in ASEAN.

Statistics --  ASEAN announced the formation of an ASEAN Community Statistical Committee (ACSS) composed of chief statisticians and heads of government statistical offices. This may be perhaps the most prosaic yet most important development.  Without accurate and meaningful statistical data, policymakers and economic actors in ASEAN cannot conduct proper analyses and make appropriate decisions.  Current economic data collection is difficult in certain ASEAN members and certain sectors, even for the ASEAN Secretariat.  Statistics have even been a diplomatic issue between ASEAN members in the past, such as regarding bilateral trade between Singapore and Indonesia.   Hence formation of the ACSS is a big step towards economic integration.

Common Visa -- ASEAN announced that it was studying a common tourist visa for the region.  A common tourist visa essentially amounts to an ASEAN Single Window for tourists (just as freedom of movement for ASEAN nationals would require a similar effort).  This will require significant upgrades to the intergovernmental operating system in ASEAN.   As I’ve discussed before, operational linkages for the region, such as the ASEAN Single Window for goods, are inconsistently implemented. Yet improving the intra-ASEAN flow of people and goods will bring major benefits to the region, particularly as it eyes a soccer World Cup bid.     Perhaps the region’s latent soccer-mania is the necessary motivation for improvements.

Education --  the ASEAN University Network has started discussing the harmonization of academic calendars; Thailand, the Philippines and Myanmar start their academic years in June while most ASEAN universities start their years in September.  An academic credit transfer system and increased use of English should also help students move around the region and learn more about their fellow ASEAN citizens.   This level of cooperation is noteworthy, particularly given the great disparity among academic institutions that would normally cause jealousies and resentments. 

Legal – ASEAN law ministers met and signed off on the Terms of Reference and the Rules of Procedure of the Advisory Panel to advise ASEAN Member States on matters relating to the adoption and implementation of the UNCITRAL Model Law on International Commercial Arbitration.  Harmonization of commercial arbitration will encourage further trade with ASEAN members with less-developed judicial systems and reduce the costs and burdens of dispute resolution.   Progress on a Treaty on the Abolishment of the requirement for Legalisation of Foreign Public Documents among ASEAN Member States, examining modalities for harmonization of ASEAN trade laws, the progressive liberalization of trade in legal services in ASEAN, and proposals for a model law on maritime security and uniform laws on legalization of documents were also discussed by the ASEAN law ministers.  Progress on all of these issues would be welcomed by the business community.

All in all, ASEAN took many incremental steps in forwarding the AEC, particularly during the run-up to the APEC Hawaii meeting and the East Asia Summit in Bali. Continued scrutiny and advocacy will be required to ensure that they lead to real progress.  

Patience Required for America's Positive Outreach to ASEAN

Last week the U.S.  moved forward with two steps for engaging with ASEAN, with the U.S. Congress finally passing legislation to implement the Asia Pacific Economic Cooperation (APEC) Business Travel Card, and U.S. business and policy leaders issuing a framework for future U.S. relations with ASEAN.   Both developments should be welcomed, even though the former required more than a decade to get passed and the latter may take even longer.

The APEC business travel card was first implemented in 1997, with 18 APEC members  now fully applying the card.  The card allows businesspeople access to expedited travel lanes, without the need for country-specific visas. The card represents more than just shorter immigration lines for businesspeople. Rather, it represents a basic commitment to reduce regulatory barriers to trade and investment, in this case, immigration.    That’s positive.   What’s negative is that it required more than a decade to get the travel card adopted and implemented by the U.S.

Unfortunately, the card is only the latest example of the slow motion of U.S. trade and investment policy at the moment.  This was also demonstrated by the 4+ years needed to get the Korea-U.S. free trade agreement through Congress earlier this year. 

It was with that sanguine view of domestic U.S. politics that the U.S.-ASEAN Strategy Commission at the Center for Strategic and International Studies (CSIS) issued a set of proposals for advancing U.S. policy in southeast Asia.  The Commission recommended several measures, including the negotiation of a U.S.-ASEAN free trade agreement (FTA) and a presidential or vice-presidential level business promotion campaign through the region.  The report acknowledged that the current U.S. Burma sanctions prevented any immediate start to FTA talks, but that a U.S.-ASEAN FTA should be established as a long-term goal.

Given the state of U.S. trade politics, “long-term” is an understatement.  Besides Burma policy, divisions between the Democrats and Republicans mean that any trade initiative will not make any meaningful progress until after the 2012 elections, and perhaps only with one party taking over both the White House and Congress.  That’s possible, particularly if President Obama’s re-election campaign fails and the Republicans re-take the Senate as expected (when the Democrats had both Congress and the White House in 2009-2011, TPA and other trade issues were not a priority).  In all likelihood only then would Congress delegate “trade promotion authority” (TPA) to the President to negotiate a comprehensive FTA; the lack of TPA affects the Trans Pacific Partnership (TPP) negotiations, although the Obama administration states that it can overcome this legislative hurdle. 

Nevertheless, the CSIS recommendations correctly postulate that the TPP is an imperfect substitute for a U.S.-ASEAN FTA.  The TPP is the potential basis for a Free Trade Area of the Asia Pacific, but as a result, the TPP talks are being conducted with one eye towards China, complicating matters.  U.S.-ASEAN FTA talks, on the other hand, can focus exclusively on issues related directly to southeast Asia and the United States.

That does not mean that U.S.-ASEAN FTA talks would be uneventful. Besides Burma sanctions, the broad agenda for any U.S. FTA negotiations (going beyond the scope of FTAs that ASEAN has with China, Japan, Korea, Australia, India and New Zealand) would be controversial within ASEAN.  Thailand and Malaysia would have to revisit issues that derailed their own bilateral FTA talks with the U.S., and Indonesia and the Philippines would have to face serious market access issues in their own countries.  These issues, along with the less-developed nature of the ASEAN institutions, stalled the EU-ASEAN FTA talks, forcing the EU into bilateral FTA negotiations while maintaining the eventual goal of an ASEAN-level FTA.  In all likelihood, the U.S. may have to pursue a similar approach.

Both developments are positive and should cheer U.S. supporters of the region.  They are reminders that the United States remains committed to Asia Pacific and ASEAN in particular, even if one must be very, very patient. 

Injecting Business Acumen into ASEAN's Leadership

Yesterday CIMB Bank head Nazir Razak, the chief organizer of the ASEAN Business Club (ABC) and supporter of the CIMB Asean Research Institute (CARI),* proposed that the next ASEAN Secretary-General come from the corporate sector in order to support development of the ASEAN Economic Community.  According to the Bernama news service, ASEAN needs “someone who can really shake things up.”   Although Datuk Seri Nazir’s proposal has almost no chance of being adopted in its entirety, it is exactly the kind of input that the business community needs to contribute to ASEAN and it needs to be adopted in some form. 

ASEAN Secretary-General Surin Pitsuwan’s term ends at the end of next year.  Being a former Thai Deputy Prime Minister and Foreign Minister, Dr. Surin has instilled greater political and diplomatic prestige to the position, and by extension, to the ASEAN Secretariat.  Dr. Surin has succeeded in his immediate and primary task, the full implementation of the ASEAN Charter.

The current crucial task is to implement the AEC fully within the region by 2015. Datuk Seri Nazir correctly identifies the need to have the next ASEAN Secretary-General be someone who understands the corporate community.   A Secretary-General with direct corporate experience will have greater appreciation of the aspirations and frustrations of the ASEAN business community, especially the lack of development in ASEAN’s institutions.  There is no shortage of ministers and former ministers with business experience in Indonesia, Malaysia, the Philippines, Singapore and Thailand who are well-qualified to serve as ASEAN Secretary-General.

Unfortunately, Article 11.1 of the Charter requires that the next ASEAN Secretary-General must come from Vietnam, the country next in alphabetical order after Thailand.  Because Vietnam is relatively new to international commerce, it has not developed the pool of ministerial level candidates who also have business experience.  Fortunately, Vietnam is both an eager supporter of globalization and of ASEAN, so I remain confident that it will put forward a suitable candidate experienced from Vietnam’s WTO accession negotiations and implementation, if Vietnam correctly understands that ASEAN’s current great task is economic integration, and not necessarily resolving the South China Sea/Spratly Islands dispute.    Such a candidate will be able to appreciate the business community’s needs, even if she or he does not have first-hand corporate experience.

Nevertheless, ASEAN can still follow through on Datuk Seri Nazir’s proposal by selecting one of the Deputy Secretary Generals from the corporate community.  There are 4 Deputy Secretary Generals, 2 of which are chosen competitively and 2 of which are chosen through the alphabetical rotation system.   The current Deputy Secretary General for the AEC,  S. Pushpanathan, is a veteran of the ASEAN Secretariat and has done admirably.  However, he and the ASEAN Secretariat would benefit from the input of corporate experience.

In any event, Datuk Seri Nazir’s proposal is exactly the type of provocative proposal that the ABC and CARI should put forth.  Full development of the AEC requires active and constructive input from the ASEAN business community, and I hope that the ABC and CARI will continue to provide such input.

*CARI has republished some of my AEC blog articles. This article, as is the case for all of my articles, represents my personal opinion and not that of CARI or any other direct or indirect affiliation of mine.

ASEAN Economic Ministers Lay Down a Marker for FTA Negotiations

ASEAN Economic Ministers at their informal retreat in Kuala Lumpur last weekend prepared a draft framework of general principles regarding ASEAN’s future participation in free trade agreement (FTA) talks, including a broader free trade agreement of the Asia-Pacific.  According to Kyodo News, the “ASEAN Framework for a Comprehensive Regional Economic Partnership” commits ASEAN to pursuing FTAs that include general principles such as differential treatment for Cambodia, Laos, Myanmar and Vietnam (CLMV countries), transparency, economic and technical cooperation, trade and investment facilitation, and consistency with the group’s plans for the ASEAN Economic Community (AEC).  The full text is available here.

The importance of this draft framework lies more in its timing rather than its substance, other than the requirement of differential treatment for CLMV countries (which is embodied throughout ASEAN’s economic agreements).  The other general principles are positive and should be incorporated as best practices in any FTA. 

Rather, the announcement of the draft framework represents a marker thrown down by ASEAN to remind its trading partners of the regional bloc’s importance.

For the United States, the draft framework indicates that ASEAN does not view the Trans Pacific Partnership (TPP) as a substitute for a broader US-ASEAN FTA.  Progress in the TPP talks, perhaps even the announcement of an agreement in principle, is quite possible by the November 2011 APEC summit in Hawaii.  Yet the TPP only involves four ASEAN members (Brunei, Malaysia, Singapore and Vietnam) and issues particularly relevant to Vietnam (state-owned enterprises, textiles) have been quite difficult.  The draft ASEAN framework serves to remind the United States that ASEAN has alternatives, and that the grouping wants to be considered as a whole (even if US Burma sanctions would prevent this).

For the EU, the draft framework is a reminder that ASEAN does not consider EU-ASEAN FTA talks to be ended, merely suspended.  The EU suspended talks in favor of bilateral FTA negotiations with Singapore, Malaysia and Indonesia, with the EU claiming that a lack of institutional development in ASEAN and the EU’s own Burma sanctions prevented negotiations on a bloc-to-bloc basis.  With the EU and Singapore expected to announce successful FTA talks any time, the ASEAN framework reminds the EU that the other ASEAN members still want a broader agreement, but perhaps with a scope narrower than the EU would like but which would be more consistent with ASEAN’s existing FTAs with Australia, New Zealand, China, India, Japan and Korea.

For those other Asia-Pacific partners, the draft framework indicates that ASEAN wants to remain at the center of any discussions of a FTA of the Asia Pacific.  ASEAN sources indicated that the framework would be the group’s preferred initial focus of future FTA discussions in the Asia Pacific, rather than the joint China-Japan FTA study program presented to the ASEAN Economic Ministers meeting in Manado in August 2011.

For India, the draft framework demonstrates that ASEAN is not satisfied with the status quo in the ASEAN-India FTA (AIFTA). AIFTA currently only covers trade in goods (and even then in an incomplete way, as there remain gaps such as on product-specific rules of origin).  Last week ASEAN and India engaged in another round of AIFTA talks regarding trade in services, which has proven difficult to resolve, despite the fact that the other ASEAN-level FTAs have included at least goods and services and in some cases, investment.

Thus, the ASEAN Economic Ministers are using the draft framework as indicator of how the group will address future developments in its FTA efforts with trading partners.  The framework expresses a willingness to negotiate but on terms that are acceptable to the entire grouping, and in a manner consistent with ASEAN’s current program to implement the AEC.   Whether ASEAN’s trading partners will heed the different messages conveyed by the FTA framework remains to be seen in the weeks to come.

Helping Myanmar/Burma Participate in the AEC

Many observers have become excited by recent moves by the Myanmar (aka Burma) government.  The release of some political prisoners gives hope that the regime is genuine in its efforts to move beyond its junta past.  Diplomatic moves such as suspension of a Chinese dam project and the visit of Myanmar’s president to India, may evidence a desire for broader relations with the world beyond China.  Others are skeptical, feeling that such moves are cosmetic only, intended to help Myanmar become ASEAN chair in 2014 (to be effected by a swap with currently scheduled Laos).

Both groups are probably correct.  There appears to be a window of opportunity for reform as the regime attempts to achieve its goal of ASEAN chair.   Ignoring these internal and diplomatic developments risks undermining supporters of liberalization, and would allow the hardliners in the Myanmar regime to resume overt control over the country.

Yet, as I argued in the first post of this blog, Myanmar is not capable of serving as ASEAN chair in 2014.  ASEAN should not allow a closed economy largely controlled by the military and its supporters to oversee the last, crucial year before the full implementation of the ASEAN Economic Community in 2015. 

Laos and its officials have demonstrated enthusiasm for the AEC, motivated by the economic progress of its neighbors in Vietnam and Cambodia, but perhaps more so by its geographic position as a landlocked state dependent on freer trade and investment.  Plus, the AEC will benefit from the dynamism and enthusiasm of the smaller members who will become ASEAN chair in 2012-2014: Cambodia, Brunei and Laos.   Malaysia as ASEAN chair in 2015 can consolidate the progress.

Nevertheless, if the appeal of the ASEAN chair is indeed motivating change in Myanmar,  then why not give that appeal more time to work? Myanmar is due to become ASEAN chair in 2016 anyway, and by that time much of the major work for the AEC should have already taken place.  The country would also benefit from additional two years of political and economic liberalization, if it continues.  Current ASEAN chair Indonesia could offer to serve as a “mentor” to Myanmar during the next 5 years. In this role, Indonesia could serve as a useful role model (former military-controlled government-turned democracy with a globalized economy) and as a fail-safe (should Myanmar backtrack, experienced Indonesia could easily step in as ASEAN chair again). 

The West can help the reform efforts in Myanmar by allowing technical  economic assistance from multilateral and regional institutions.  For example, a Burmese person I met at an AANZFTA workshop in Bali last week lamented that Myanmar would like to participate in a pilot program on the ASEAN Single Window, but could not because aid funding was blocked by U.S. sanctions.   The West should be encouraging such assistance, which will open up the country and lessen the influence of the regime’s military supporters.   Any more lifting of sanctions beyond technical assistance should depend on further progress in the country, which will take some time.

The release of political prisoners and diplomatic moves are positive first steps by the Myanmar regime.  However, the country still has problems with its economy, religious and ethnic discrimination, and other issues.  It should not be “rewarded” with the ASEAN chair in 2014, particularly when ASEAN can ill-afford the time and resources to deal with the inevitable distractions should Myanmar become chair prematurely.  Rather, ASEAN members should protect their own collective interests by not giving Myanmar the chair in 2014, but to encourage greater economic openness in the country by allowing Myanmar to become chair in 2016, with Indonesia providing useful oversight.  For its part, the West should take advantage of this window of opportunity to foster development of a Burmese middle class, and to accept that Myanmar will become ASEAN chair at some point. The cumulative effects of such efforts will help the Burmese people overcome the years of misrule by the military regime.