Two Separate Calls for Stronger ASEAN Institutions

Last week there two major regional conferences on ASEAN were held in the region.  The Network ASEAN Forum (NAF) was held in Singapore and focused on business interests in the region, whereas the International Conference on International Relations and Development (ICIRD) was held in Thailand and focused on academic review of ASEAN regionalization.  The interesting aspect was that media coverage of both events highlighted the relative weakness of the ASEAN institutions as a deficiency in ASEAN integration.

From the ICIRID:

“Asean as a community has been a failure so far, as the notion of national sovereignty continues to undermine its integration while the identity of the grouping has yet to crystallise, according to Eduardo C Tadem, an associate professor of Asian Studies at the University of the Philippines Diliman. . . . The Asean Secretariat, too, is weak and understaffed compared with the EU, Tadem said.

This was echoed by Air Asia CEO Tony Fernandes at the NAF :

“I would like to see the Asean secretary-general having greater power and influence on the economic direction. This is so that we can channel our regional proposals to one body, which would then disseminate them to the different Asean governments.”

Now I have consistently supported augmenting the ASEAN institutions.  The current setup works but in a fitful, inconsistent manner that is clearly frustrating many in the region.  Some form of institutional reform will eventually be necessary for the ASEAN institutions if the ASEAN Economic Community (AEC) is going to flourish.

The question then becomes, what form of institutional reform?  The two most successful regional economic entities, the European Union (EU) and the North American Free Trade Agreement (NAFTA) offer two competing models.

The EU has developed strong regional institutions such as the European Commission, European Court of Justice and European Parliament that have assumed much of the responsibility for economic integration in the EU.  Exercise of legislative, executive and judicial authority fill in the blanks left by the Treaty of Rome and its successor agreements.  This is the model that most pundits think of when they propose reform of the ASEAN institutions.  However, this is also the model that ASEAN leaders view warily, with their reluctance to cede (relatively) new-found sovereignty to a regional institution.

NAFTA, on the other hand, was formed on the basis of a very detailed agreement.  The NAFTA Secretariat is relatively small but supports the core of NAFTA, a strong, binding system of dispute resolution.  The gaps in the NAFTA agreement are filled in by NAFTA arbitration panels and the interpretation of their decisions by the NAFTA governments, business sector and others.  Although ASEAN members have never invoked the ASEAN equivalent of a NAFTA dispute resolution panel, the Enhanced Dispute Settlement Mechanism (EDSM), they have repeatedly demonstrated a willingness to use international dispute resolution at the World Trade Organization, International Court of Justice and the International Law of the Sea Tribunal, e.g., in forums outside of ASEAN.  If ASEAN members can overcome their apparent unwillingness to air internal grievances in ASEAN dispute resolution, the normative approach offered by NAFTA may offer some lessons for ASEAN.

At the end of the day, ASEAN leaders are going to choose a regionalization model that they can accept for the region.  Hopefully they can understand that the current model is not enough, and that some aspects of both the EU and NAFTA models can be incorporated into the ASEAN way of regionalization. Either way, something needs to be done for the post-2015 development of the AEC.

American Companies Bullish on SE Asia, Bearish on ASEAN

This week the U.S. Chamber of Commerce and the American Chamber of Commerce in Singapore announced the results of their annual survey of American businesses in the region.  The major headlines are seemingly contradictory, ranging from “US Firms Doubt ASEAN 2015 Single Market Goal” to “US Firms Optimistic on Business Prospects in ASEAN.”  Were both publications (affiliated under Singapore’s Mediacorp) reading the same survey results?  (A disclaimer that I was formerly a Vice Chair of the American Chamber of Commerce in Singapore, but was not involved in this year’s survey).

A closer reading indicates that American companies are bullish on Southeast Asian countries, but bearish about the ASEAN Economic Community (AEC).  In the poll, 79% of respondents said that their company’s level of trade increased over the past two years and 91% said that it would increase over the next five years. This is where the optimism comes from.

Yet in the same poll, 52% said that they “do not think that the AEC's goals will be realised by 2015” and about 60% “think that ASEAN will not reach AEC's goals until 2020 or later".

What this reflects is confidence in the Southeast Asian economy but less confidence in the ASEAN institutions.  But it also reflects the focus of American companies in the region on services, rather than manufacturing.  As I have written elsewhere, the AEC will create both a single market in Southeast Asia and a single production base.  The single production base is much more developed than the single market.  In fact, as I have suggested, we already have an AEC in Southeast Asia, only it is focused on the single production base and dominated by the Japanese automotive and electronics companies that have been long present in the region.  In other words, the AEC can be likened to a glass of water, and the Japanese see a half-full glass. 

American companies, on the other hand, are less involved in manufacturing and emphasize services such as legal, financial and distribution.  These are more interlinked to the development of the single market in ASEAN. Yet, as noted elsewhere, non-tariff barriers to trade in goods, services and investment are much more difficult for the ASEAN members and the ASEAN Secretariat to deal with.  Hence the relative pessimism of American companies towards the AEC, because they are looking at a half-empty AEC glass of water. 

Thus, the Amcham/US Chamber poll accurately reflects American corporate sentiments in the region, because American companies have a different outlook on Southeast Asia.  Improving that sentiment will be difficult for ASEAN members, but will result in much greater economic welfare for all of ASEAN’s citizens, not just those involved in the single production base.    In other words, if American companies become happier with the AEC, everyone will be happier with the AEC.  

Update from the ASEAN Economic Ministers' Meeting

Yesterday the ASEAN Economic Ministers (AEM) held their annual meeting in Brunei.  The AEM noted the usual bright spots in ASEAN’s formation of the ASEAN Economic Community (AEC), namely that ASEAN grew by 5.7% in 2012, and the AEC Scorecard rating had improved slightly to 79.4% in 2012.  Foreign direct investment was stable in 2012 at US$ 108.2 billion.

The following is a summary of highlights:

•  Ministers from ASEAN and India finally settled on the legal text for the services section of the ASEAN-India Free Trade Agreement (AIFTA).  This had been long delayed but will reach final resolution with leaders' signing during the ASEAN summit to be held later this year in Brunei.

• ASEAN members agreed on a Protocol to Amend the ASEAN Comprehensive Investment Agreement (ACIA).  This allows ASEAN members to modify the reservations made by individual members when they signed/ratified the ACIA.

• Negotiations will start on an enhanced ASEAN Framework Agreement on Services (AFAS). This is important as the current AFAS has not been updated to reflect developments in the services trade in the ASEAN + 1 FTAs.

• The first self-certification of origin pilot program (Singapore/Malaysia/Brunei/Thailand) was extended to 31 December 2015. The second self-certification pilot program (Indonesia/Philippines/Laos) has not started yet but soon will.  The good news is that the two pilot programs are discussing how to harmonize themselves, and Thailand may join the second program. This confirms that self-certification will not be fully implemented until that date at the earliest, despite previous intentions.  But coordination of the two programs will hopefully result in a uniform program for ATIGA, which would show that “ASEAN-X” can work.

• Vietnam, Malaysia and Indonesia continued to delay their tariff reduction for alcohol and tobacco products.  Other ASEAN members complained that tariffs on those products had already been reduced/eliminated under the ASEAN bilateral FTAs with trading partners.

•  New co-equal rules of origin for 25 tariff lines involving automotive products will be introduced, pending consultations with Thailand (I worked on an ASEAN-EU study recommending co-equal rules of origin for this sector).

• FOB value will no longer be required for Form D certificates of origin when change in tariff classification or wholly originating rules are invoked. FOB value was not relevant to those approaches and had resulted in ASEAN customs authorities engaging in unnecessary queries.  Also, Form D documents issued before shipment will be accepted, ending another point of challenge for ASEAN customs authorities.

• Work is almost completed on Protocol 2 (Designation of Frontier Posts) of the ASEAN Framework Agreement on the Facilitation of Goods in Transit.  More importantly, all ASEAN members except Thailand and the Philippines had signed onto Protocol 7 (Customs Transit System).  Introduction of Protocol 7 will eliminate a lacuna in the ATIGA.

• The waiver on rice and sugar trade for Indonesia and the Philippines was continued for another year.   Cambodia and Vietnam were urged to liberalize tariffs on petroleum products consistent with their ASEAN Trade in Goods Agreement (ATIGA) commitments.

• ASEAN members will coordinate their Sanitary and Phytosanitary  (SPS) measures by establishing an SPS information management system and guidelines for consultations.

• ASEAN members are negotiating mutual recognition agreements for automotive and prepared foodstuff products.  The former will be based on the Regulations of the United Nations Economic Commission for Europe (UNECE).  Harmonization for Medical Device regulation is being finalized while discussion is on-going for the ASEAN Agreement on traditional medicines and health supplements.

• ASEAN is setting up a pilot program to identify actual non-tariff measures (NTMs) for review and resolution on a regional basis. An ASEAN Framework of Methodologies for Notifying, Identifying, Classifying, Evaluating, and Eliminating of trade barriers is in development.

• The list of superseded ASEAN economic agreements will be finalized and
the Protocol to Amend Certain ASEAN Economic Agreements Related to Trade in Goods will be ratified soon. 

That’s it for now. I will update this post when I get more details.

A Much Different ASEAN Foreign Ministers' Meeting in 2013

This week ASEAN foreign ministers concluded an informal retreat in Thailand with a joint call for a unified ASEAN position on a code of conduct for the South China Sea.  The consensus contrasts with last year’s formal ASEAN foreign ministers meeting in Cambodia which failed to issue a joint declaration because of Cambodia’s (then ASEAN Chair) opposition. 

Now, perhaps one can attribute Cambodia’s relative change of heart due to Hun Sen’s narrow parliamentary election victory (and thus his need for his ASEAN neighbors to give the results legitimacy) or simply that Cambodia’s commitment to China had lasted only for its term as ASEAN Chair (which I think is more likely).  Either way, the affirmation of ASEAN consensus on this issue is a positive development for the regional grouping.

Indeed, the resurrection of ASEAN consensus on the South China Sea is most likely the result of China’s own policy initiatives in the region.  Chinese verbal and maritime activity in the region, including creating a municipal Chinese government for the island in the South China Sea, reduce ASEAN’s confidence that China wants a peaceful, cooperative solution to the territorial disputes.  The recent Chinese leadership transition (e.g., the need to emphasize nationalistic tones) may have instigated these moves, but in any event, China has been responsible for most of the provocative moves in the region.

As a result, the other major power in Asia, the United States, has not had to do much to improve its diplomatic position in southeast Asia.  America’s “pivot” or refocusing on Asia has been aided to a great extent by China, making it relatively easy for America to maintain its leadership role in the region.

The problem will be what the United States will do if and when China changes tack and follows a charm offensive with ASEAN. There are some signs that with President Xi Jinping and his team consolidating their power in China, China will dial back its approach to southeast Asia.  If that happens, America will need to offer ASEAN members more than simply being the default global power in the region.  The Obama Administration has taken some measures to do this by asking the U.S. Congress for Trade Promotion Authority so that the Trans Pacific Partnership (TPP) FTA talks can be concluded and implemented.  This will reassure those ASEAN members who are in the TPP talks, e.g., Brunei,  Malaysia, Singapore and Vietnam. 

The greater difficulty will be how to help those ASEAN members who are not in the TPP talks, e.g., Indonesia and the Philippines. As I noted in the WSJ.com, the frustrating thing is that Indonesia and the Philippines are the most supportive of a U.S. role in the region yet they are the most unprepared of the major ASEAN countries to join the TPP.   Squaring the circle will require both countries (and Thailand as well) to face their internal opposition and join the TPP talks.  The example of Japan is helpful; if Japan can face down its internal opposition, why not these countries?   America will have to help those countries do so.

Thus, the United States in southeast Asia has a situation similar to that of Apple in the electronics market.  Both offer products and solutions which are currently popular, but continued success will require continued innovation.  

Happy 46th ASEAN Day!

Today is ASEAN Day, the 46^h anniversary of the founding of ASEAN on August 8, 1967 with the signing of the Bangkok Declaration by Indonesia, Malaysia, the Philippines, Singapore and Thailand.  These founding members were later joined by Brunei (1984), Vietnam (1995), Laos (1997), Myanmar (1997) and Cambodia (1999).

In celebration of ASEAN Day, today’s AEC Blog entry forgoes the usual commentary and instead provides the lyrics and tune of the ASEAN Anthem:

Raise our flag high, sky high 
Embrace the pride in our heart 
ASEAN we are bonded as one 
Look-in out to the world. 
For peace, our goal from the very start 
And prosperity to last. 
We dare to dream we care to share. 
Together for ASEAN 
we dare to dream, 
we care to share for it's the way of ASEAN.

Audio is available here.  Happy ASEAN Day!

US Ends Import Ban on Most Goods from Myanmar

Today, the Obama Administration ended the Burma sanctions import ban on most goods from Myanmar.  This resulted from the expiration of the Burmese Freedom and Democracy Act's import ban provisions on July 28.  However, the import ban on jade and rubies resulting from the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008  was reinstated.  The ban on "dealing" with Specially Designated Nationals (SDNs) and their companies also remains in place.

This is a significant relaxation of the U.S. Burma sanctions, allowing Myanmar to export cash-generating goods such as seafood, textiles and wood products to America.  Hopefully this will encourage development of a broader Myanmar economy, which would help the reform process the country.

The major US Burma sanction remains the ban on SDNs, which continues to frustrate American businesses looking to invest in Myanmar.  For example, the head of Myanmar's major business federation is on the SDN list, yet he and others on the SDN list are the major movers and shakers in the Myanmar business world.  Continued pruning of the SDN list to limit it only to law enforcement issues (e.g., narcotics smuggling) will go a long way to eliminating a competitive disadvantage to American investors.