ASEAN's Steel Industry Strikes Back

In a move described as “unprecedented” by the Malaysia Star, the national steel associations of Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, e.g., the ASEAN countries with steel manufacturing, made a joint appeal to the ASEAN Secretariat and ASEAN member states to revisit the ASEAN-China FTA.  Under the rubric of the ASEAN Iron & Steel Council (AISC), the steel associations complained about a surge in steel imports from China, now at 9.1 million MT for Jan-Sept 2012, up 47.3% when compared with the same period in 2011.

This move represents the continuing frustration of ASEAN manufacturers with ASEAN’s FTAs, which I described in an earlier post.  During the FTA negotiations, steel and other industries felt that they had limited opportunities to present their case to ASEAN negotiators.   From their point of view, the resulting FTAs shortchanged their interests.  On the other hand, the ASEAN governments can also respond that the ASEAN steel industry did not comprehend what the FTAs would entail and did not adequately prepare themselves for increased competition from China and other trading partners.

Both are correct.  The political-economic dynamic during the ASEAN FTA negotiations was relatively undeveloped.  The sort of government-business interaction seen in FTA negotiations conducted by the US and other countries was missing in ASEAN during the ASEAN FTA negotiations.  This arose both because of a lack of opportunity and a lack of awareness. 

In any event, the ASEAN manufacturing industries now face heightened regional competition from Chinese industries who have had to divert shipments from a weakened Europe and relatively slow domestic market.  The Chinese government’s VAT rebate policy further encourages exports.

The AISC move also reflects the continuing development of the ASEAN-level political economy.   The national steel associations are seeking relief through trade remedies and non-tariff barriers from individual ASEAN member states. That is nothing new and has been going on in ASEAN for years.  In fact, as the ASEAN-China FTA is actually a collection of 10 FTA agreements (e.g., Brunei-China, Cambodia-China, etc.), any legal action actually undertaken will necessarily be at the national level, whether through a renegotiated ASEAN-China FTA (unlikely), antidumping/antisubsidy cases (more likely) or under the safeguard provisions of the ASEAN-China FTA (quite possible).

Collective action by ASEAN industry associations is also not new. For example, the ASEAN Federation of Textile Industries (AFTEX) coordinated textile and apparel policy in the days of the Multilateral Fiber Agreement.

What is new is that the AISC went to the ASEAN Secretariat.  By working together at the ASEAN-level to deal directly with the ASEAN institutions, the AISC correctly understands that it is not enough in the ASEAN Economic Community to work at the national level.  The ASEAN institutions must also be involved, not only to bolster confidence among the ASEAN member states to tack action, but to coordinate policy on a regional level.

The AISC is a long ways from becoming as powerful as Eurofer in Europe.  But the AISC’s policy approach at the ASEAN-level will be adopted by other ASEAN industries, as they cope with the continuing development of the ASEAN Economic Community. Expect similar initiatives to come as the AEC matures.

In the Singapore Property Market, Not All FTAs Are Equal (Part II)

Yesterday the Singapore government announced further measures to cool the city-state’s property market.  Among the measures are a 5 percent stamp duty for permanent residents on their first purchase of property (up from 0 percent), and a 10 percent stamp duty for their second or subsequent purchases of property (up from 3 percent).  Stamp duty on foreigners was increased from 10 percent to 15 percent.  Singapore nationals are not subject to these measures (but they are subject to other property market cooling measures). 

However, as I wrote in 2011, the US-Singapore FTA and EFTA-Singapore FTA should give American, Swiss, Lichtenstein, Norwegian and Icelandic nationals the same treatment as Singapore nationals.  This is because of the national treatment and most-favored nation clauses in those FTAs, even if the nationals are permanent residents. 

The continuing adjustments to the property stamp duty once again demonstrate that FTAs function both to expand market access and to protect market access.  In this case, the US and EFTA FTAs with Singapore insure against potential government policy changes adverse to these countries' interests (which is a major rationale for the US to negotiate a double taxation treaty with Singapore, something I’ve heard about since I moved here in 1997).  I will be very interested to see whether the EU managed to secure similar national treatment and most-favored nation obligations in its FTA with Singapore. That is something that China, Korea, Japan, India, Australia-New Zealand and other countries did not manage to get from Singapore in their FTAs, but the US and EFTA countries did.

This development is another reminder that FTAs are about more than just trade, but also encompass all forms of economic regulation, including investment.   The initial benefits may come from increased trade, but the continuing benefits (and corresponding obligations) in other parts of the economy will apply for years to come.

Start Preparing for Myanmar as 2014 ASEAN Chair

The title of this post may seem a bit premature, particularly as the previous post discussed Brunei as ASEAN Chair in 2013.  However, Myanmar’s role as ASEAN Chair in 2014 is unprecedented, and indeed had been something to be avoided until quite recently.  The country has had very little recent experience in international affairs due to the military regime’s isolation (and notwithstanding the country’s previous rich diplomatic history – e.g., U Thant).  How will the country fare as ASEAN Chair a year from now and what will this mean for the ASEAN institutions?

Barring events which remove either or both President Thein Sein and opposition leader Aung San Suu Kyi from the scene, which would seriously jeopardize the brisk pace of reforms and cause major domestic distractions, I think ASEAN could do well in 2014.  Counterintuitively, this is not because Myanmar’s government is prepared for the ASEAN Chair; it is not.  Rather, external factors should work in Myanmar and ASEAN’s favor.

This is particularly the case for politico-security matters.  Myanmar has been especially nimble in convincing the Western countries to lift economic sanctions.  The government did not want to be dominated completely by China, politically and economically, and has successfully begun re-engaging with the West.  If Myanmar can maintain this level of diplomatic aptitude, it should be able to lead on politico-security matters, especially the South China Sea dispute (to which it is not a claimant).

The bigger problem will be whether how Myanmar will cope as ASEAN Chair with ASEAN Economic Community matters.  I have much greater skepticism about this, and indeed this was a reason why I had originally hoped that Myanmar would delay its turn as ASEAN Chair.

The years of economic isolation have not fostered the necessary level of economic expertise necessary for Myanmar’s government to provide leadership on AEC matters.   The same military culture that allows for a consistent message by the Myanmar government on politico-security matters does not lend itself to economic matters because most officials have had very limited economic training.  There are a few academics who have been brought in at vice-minister levels  who are capable, and President Thein Sein has been advised by a group of former exiles who were educated in the West.  But the rank and file of most Myanmar government agencies have limited understanding of their country’s ASEAN economic commitments. To them, ASEAN is something that the Ministry of Foreign Affairs deals with, and no one else.  Many have no idea what Myanmar committed itself to in the ASEAN Comprehensive Investment Agreement, ASEAN Trade in Goods Agreement or other key foundational agreements of the AEC.

The counterintuitive part is that the government’s lack of economic sophistication should not hurt the AEC process if the Myanmar government understands its limitations.  From discussions with various Myanmar government officials (who are more knowledgeable about the AEC), I think that their leadership understands the situation.  As such, the ASEAN Secretariat should have more influence over AEC policymaking during the Myanmar chairmanship, because the ASEAN Chair will not be able to do so.

Nevertheless, Myanmar will still need much help in economic policy, both for its own sake and for its term as ASEAN Chair.  That assistance needs to come in during 2013, and in copious quantities.   Fortunately the change in US sanctions policy means that all of the major aid donors can now support ASEAN efforts in Myanmar; the USAID is rapidly ramping up its presence in the country.

In any event, the increased interaction of Myanmar with the outside world, and its continued (and somewhat surprising) success in doing so makes me more optimistic about its turn as ASEAN Chair in 2014.  Let’s hope that both Thein Sein and Aung San Suu Kyi can continue to lead the country’s reform efforts in 2014 and beyond.