Saturday, July 28, 2012

Thai Anxiety/China’s Resident ASEAN Ambassador Arrives

This week I was in Chiang Mai for the 2012 International Conference on International Relations and Development, jointly organized by Chiang Mai, Thammasat, Chualongkorn and Mahidol universities.  The subject this year is “Towards an ASEAN Economic Community (AEC): Prospects, Challenges and Paradoxes in Development, Governance and Human Security.”  I spoke on “Developing an Indigenous ASEAN Economic Community Law and Policy,” which I have written about before

It was interesting to speak directly with Thai academics about the AEC. The daily Google news summary I get in my e-mailbox is routinely filled with articles expressing dread and anxiety about the AEC, mainly from the English language media based in Thailand.  Having written for them before and being somewhat familiar with their core readership, O had thought that these media outlets were somewhat overreacting to the AEC.  Indeed, Khun Nipon Poapongsakorn of the Thailand Development Research Institute did a very good job in his opening address at the conference, explaining away many of the myths perpetuated about the AEC, particularly that the fear of a flood of goods, labor and capital in 2015 is overblown.  Those who regularly read this blog know that the AEC is already in effect for goods, and will not lead to massive waves of labor movement or capital flows by 2015, so they will already know that Khun Nipon is mostly correct.

Yet there is a palpable fear of the AEC in Thailand, a fear which I have not sensed in other parts of ASEAN.  This insecurity, I think, comes from Thai fears that they will not be able to compete with the CLMV (Cambodia, Laos, Myanmar and Vietnam) countries in goods due to their higher cost structure, and that they will not be able to compete with the other ASEAN-5 countries in services due to inefficiencies in Thailand.  A recent study showing that Thailand ranked below Malaysia, Indonesia and Vietnam in English language proficiency may have something to do with this.  Without doing better in Bahasa ASEAN, e.g., English, the medium of delivering services in ASEAN, Thai companies will not be able to compete.    In that regard, Thailand does have some grounds to worry, and Thais should take steps to improve English proficiency and service standards. But these concerns are not unique to Thailand and apply to every ASEAN member.  The AEC should be viewed as an opportunity to improve ASEAN economies, not just an eventuality to be feared.

Also happening this week was the arrival of China’s resident Ambassador to ASEAN, Yang Xiuping in Jakarta. This makes China the fourth country to have a resident ambassador solely accredited to ASEAN, after Japan, the US, and South Korea.    This reflects the importance of ASEAN to China in economic and diplomatic terms.  Yet it also elevates ASEAN-China relations to a more formalized level, establishing another means for ASEAN to raise the South China Sea territorial dispute directly with China, and on an ASEAN-China basis rather than on a bilateral basis.  Perhaps after the events of the past month – the ASEAN foreign ministers’ impasse in Cambodia, Indonesia’s shuttle diplomacy to patch things up, China putting up South China Sea drilling rights up for bidding, and China’s establishment of a municipal government for the South China Sea – China may feel more confident about dealing with ASEAN.  Whether this will lead to China continuing to overplay its hand, as some have argued, will remain to be seen.  Again, ASEAN needs to address the South China Sea dispute as an opportunity its value as a regional organization, not just an eventuality to be feared.

Wednesday, July 25, 2012

Indonesia's ASEAN Shuttle Diplomacy

It looks like Indonesian foreign minister Marty Natalegawa has put together a face-saving ASEAN joint statement on the South China Sea issue.  Although it is impossible to “unring the bell” of the missed ASEAN foreign ministers’ joint communiqué in Cambodia, the statement should serve as a marker for the ASEAN Summit to be held in November in Cambodia.  It would be extremely humiliating for Cambodian prime minister Hun Sen to allow a similar episode to occur during the summit, particularly in the presence of his peers among the ASEAN national leaders as well as the ASEAN Regional Forum leaders who will also attend the summit.  At least that is the intention behind the new joint statement.  I hope that is the case.

Thus Indonesia comes through again to provide leadership in ASEAN, like in last year’s Preah Vihear dispute between Cambodia and Thailand. But unlike last year, Indonesia had no formal ASEAN role, as Cambodia is now ASEAN chair, and not Indonesia.  Should this be a cause of concern?  Not necessarily.  Regardless of any formal role in ASEAN, the relative size and historical legacy of Indonesia will make the country a natural leader in Southeast Asia.  After all, Germany does not currently hold any formal leadership role in the EU, yet its leadership in the current Eurozone crisis is not lessened in any way by the lack of a formal institutional role.

Nevertheless, the impasse following the ASEAN foreign ministers’ meeting does highlight the need to improve the ASEAN institutions.  Again, Kavi Chongvittakorn in the Nation eloquently makes the case for improving the resources for the ASEAN Secretariat.    

Of course, I would agree.  The ASEAN Secretariat does need more funding, not just to hire more staff and expand its physical plant, but to improve its institutional memory.  Currently, there are only one or two archivists in the ASEAN Secretariat who are dealing with mounds of uncatalogued paper records.  Getting to grips with this internal institutional legacy is necessary for ASEAN to cope with the challenges of the future.  Perhaps one of the ASEAN aid dialogue partners could fund an archival project, if ASEAN is not willing to fund it.

Beyond improving funding and staff for the ASEAN Secretariat, ASEAN also needs to address the very limited nature of the ASEAN Secretariat’s powers, at least in ASEAN Economic Community matters.  I have written about this issue before, and I think this should be reconsidered during next year’s ASEAN Charter review, which is mandated by Article 50 of the Charter.

Finally, the impasse in Cambodia may have validated Vietnam’s choice of foreign affairs vice-minister Le Luong Minh as ASEAN Secretary-General-designate, at least from its point of view. Although the ASEAN Secretary General is supposed to represent all of the ASEAN membership, Vietnam should be assured that he will more than account for its views on the South China Sea dispute, given both his background and UN experience. 

Wednesday, July 18, 2012

Impasse at the ASEAN Foreign Ministers' Meeting (Updated)

I have been asked to comment on last week’s ASEAN foreign ministers’ meeting in Cambodia and its failure to issue a joint communiqué, due to differences on how to address the South China Sea/Spratly Islands issue. 

First, this blog’s focus is on the economic pillar of the ASEAN community, so I won’t comment directly on the impasse, other than on how this reflects on ASEAN institutions (see next point).  For an excellent political analysis, see Kavi Chongkittavorn’s take here

Second, despite some breathless reporting, the impasse does not represent the end of ASEAN.  Yes, it was quite unfortunate that an ASEAN foreign ministers’ meeting ended without a joint communiqué for the first time ever.  Apparently this represents a clash between the role of the ASEAN chair and ASEAN way of consensus.  From an institutional point of view, perhaps what happened was the best possible outcome, given the extreme differences involved.  In other words, a failure to reach consensus – publicly explained by the participants in the transparent manner that has happened since the meeting – could be viewed as preferable to a watered-down communiqué, e.g., an agreement to do nothing.   The controversy may even force all sides to come together by the time of the ASEAN Summit in November.   Other areas of ASEAN decisionmaking would have been improved by publicly acknowledging disagreement rather than issuing a weak agreement that addresses nothing.

Third, diplomatic disputes in Southeast Asia usually do not spill over into economic integration matters on a permanent basis.   Philippine bananas may be a victim of the South China Sea dispute, but overall economic forces should still foster cooperation.  After all, at the same time China, Korea and Japan are discussing a tri-lateral free trade agreement, the China-Japan dispute over islands in the East China Sea.  In fact, the AEC has been cited by Thailand as contributing to the withdrawal of troops from the Preah Vihear temple area this week:


It's all too easy to forget how close Cambodia and Thailand were to armed conflict last year, and how Indonesia, empowered as ASEAN Chair by the ASEAN Charter, mediated a cease-fire.  

If anything then, ASEAN diplomats will busy over the next four months trying to avoid a similar impasse at the ASEAN Summit in Cambodia. Indonesia is again moving in to bridge the differences.  With no one wanting a repeat performance with national leaders in attendance, I think they’ll get the job done.

Friday, July 13, 2012

Tobacco Tussles Reach the AEC

According to the Malaysian Star, last week the ASEAN Health Ministers meeting in Phuket (held every two years) had agreed to “withdraw tobacco from AFTA”:
            Malaysia and Asean member nations have agreed to withdraw tobacco from the Asean Free Trade Area (AFTA) list for implementation by 2015. Health Minister Datuk Seri Liow Tiong Lai said a consensus was reached at the 11th Asean Health Ministers Meeting at Phuket, Thailand last Thursday. He said Asean Health Ministers discussed how to reduce consumption of tobacco as well as the ways to control the item from becoming widespread in the region. “We agreed that tobacco needs to be withdrawn from the list of AFTA products as it could reduce the number of smokers and create a tobacco-free environment,” he said.
(note that the official ASEAN Health Ministers' joint statement makes no reference to removing tobacco)  Regardless of one’s views on tobacco regulation, the author feels compelled to address several aspects of this report.

First, the governing agreement for trade in goods in the ASEAN Economic Community (AEC) is the ASEAN Trade in Goods Agreement (ATIGA).  Administration of ATIGA falls under the purview of the ASEAN Economic Ministers, not the ASEAN Health Ministers.  The ASEAN Health Ministers can only recommend action to the ASEAN Economic Ministers, and cannot “withdraw” products from ATIGA on their own.

Second, under ATIGA’s tariff reduction schedules, ASEAN member states have already agreed to 0-5 percent duty treatment for ASEAN-origin tobacco products.  Raising the ATIGA import duty rates for tobacco products to MFN levels (e.g. the non-preferential rates applied to goods that do not qualify as ASEAN-origin or for preferential treatment under ASEAN’s free trade agreements (FTAs)) would require consensus to renegotiate ATIGA, which would be difficult given the presence of strong tobacco industries in some ASEAN member states.  Furthermore, increasing the ATIGA rates for tobacco would simply divert the tobacco trade to China, Korea, India, Japan and Australia-New Zealand, which have FTAs with ASEAN which also have reduced preferential tariff rates for tobacco products.  These countries would benefit at the expense of ASEAN domestic producers unless they also agreed to renegotiate the tobacco duty rate provisions of their FTAs with ASEAN. That also appears to be difficult.

Third, ATIGA covers not only tariff measures but also non-tariff measures and other regulations related to trade in goods.  Hence what the ASEAN Health Ministers may have meant by “withdrawing” tobacco from ATIGA would be differential treatment of tobacco products under such measures. This could be justified under ATIGA Article 8(c), which allows for discriminatory measures if “necessary to protect human, animal or plant life or health.”  Other jurisdictions have imposed plain packaging and other special rules applicable to tobacco products, claiming authority, inter alia, under GATT Article XX(c), which ATIGA Article 8(c) is based on.  However, such measures have to be drafted carefully, as they have been subject to much litigation both at the domestic level and before the WTO.

Which brings me to my fourth and final point, which is that any measures aimed at tobacco would be subject to immediate and aggressive dispute resolution procedures. The tobacco industry has actively defended its interests in litigation and arbitration elsewhere, and ASEAN would be no different. 

Hence media reports that ASEAN has decided to “withdraw” tobacco from ATIGA are premature. The ASEAN Health Ministers’ declaration is merely a recommendation to the ASEAN Economic Ministers. Furthermore, modification of tobacco duty rates under ATIGA and other ASEAN FTAs is not realistic.   Whether ASEAN intends to follow the lead of other jurisdictions in imposing non-tariff measures will also remain to be seen, and even then such measures would be subjected to much scrutiny and possible litigation within ASEAN and perhaps at the WTO.  But the ASEAN Health Ministers’ declaration does mean that the tobacco regulatory debates have reached the AEC and will test both the ASEAN institutions and their regulation of the ASEAN single market.

Thursday, July 12, 2012

US Relaxes Burma Sanctions, With A Twist

As expected, the US suspended its Burma sanctions yesterday.  The move took place as US Secretary of State Hillary Clinton attended the ASEAN Regional Forum meeting in Cambodia, and a few days after the new US Ambassador to Myanmar Derek Mitchell arrived in the country.  A delegation of business executives from the US-ASEAN Business Council arrives this Saturday (another delegation from various American Chambers of Commerce in Asia will go in mid-August; I am participating in that mission).

First, the US Treasury Department issued a new general license authorizing the exportation of U.S. financial services to Myanmar, subject to certain limitations.   The license excludes, in connection with the provision of security services, the exportation of financial services to the Myanmar Ministry of Defense, state or non-state armed groups (which includes the military), or entities owned by the foregoing (hence the US business missions will continue to drive from Yangon to Naypyidaw instead of flying on military-owned Air Bagan).  The general license also does not authorize the exportation of financial services to any person blocked under the Burma sanctions program.  Transfers of funds to or from an account of a financial institution that is blocked under the Burma sanctions program are authorized, however, provided that the account is not on the books of a U.S. financial institution.

Second, the US State Department has waived the ban on new U.S. investment in Burma. Hence the US Treasury Department issued a new general license authorizing new investment in Myanmar, subject to certain limitations and requirements.  The general license does not authorize new investment in projects with the Myanmar Ministry of Defense, state or non-state armed groups (which includes the military), or entities owned by the foregoing, or any person blocked under the Burma sanctions program.  Furthermore, any U.S. person (both individuals and entities) engaging in new investment in Myanmar whose aggregate new investment exceeds $500,000 must provide to the State Department the information set forth in the State Department’s “Reporting Requirements on Responsible Investment in Burma,” available at  The reports must be filed on an annual basis and will be made publicly available.  In addition, investments made with the Myanma Oil and Gas Enterprise (MOGE) must be notified with the State Department within 60 days of the new investment.

Third, President Obama signed a new Executive Order providing new authority to impose blocking sanctions on persons determined by the Secretary of the Treasury, in consultation with or at the recommendation of the Secretary of State:  to have engaged in acts that directly or indirectly threaten the peace, security, or stability of Myanmar, such as actions that have the purpose or effect of undermining or obstructing the political reform process or the peace process with ethnic minorities in Myanmar; to be responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, or to have participated in, the commission of human rights abuses in Myanmar; to have, directly or indirectly, imported, exported, reexported, sold or supplied arms or related materiel from North Korea or the Government of North Korea to Myanmar or the Government of Myanmar; to be a senior official of an entity that has engaged in the foregoing acts; to have materially assisted any of the foregoing acts, or a person whose property and interests in property are blocked pursuant to the order; or to be owned or controlled by, or to have acted for or on behalf of, such a person.

The foregoing represents a guarded show of support for the Myanmar government’s reform efforts, but also allow the Obama administration to re-impose sanctions should those efforts be jeopardized, and to impose those sanctions on a targeted basis. Furthermore, although the reporting requirements are unique to the US Burma sanctions (the US does not require this in other jurisdictions, and the other Western countries did not require this), it perhaps will provide American companies with a unique opportunity to distinguish themselves from their competitors.  The ban on importing goods from Myanmar is not affected, but that can be addressed another day. For now, it is enough to say that the United States has finally allowed its business community to start re-engaging with Myanmar.