Friday, December 30, 2011

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.

Friday, December 9, 2011

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.

Friday, December 2, 2011

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 issueShe 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.