Monday, June 23, 2014

ASEAN Around the Horn

Last week I taught at Universitas Pelita Harapan in Jakarta, with a good bunch of students and the opportunity to meet up with old friends at the ASEAN Secretariat.  This week’s post thus provides an update on ASEAN developments that occurred over the past week:

  • AEC becomes political issue in Indonesian presidential race – the AEC became a political issue in the Indonesian presidential race as Jakarta mayor Joko Widodo suggested erecting non-tariff barriers to imported goods and limiting access to foreign investors.  Of course, such proposals go against Indonesia’s AEC commitments to open market access for goods and investment.  However, it is better to discuss such issues now, before the election, rather than be surprised after the election.  This episode also underlines the need for strengthening the ASEAN institutions --  a stronger ASEAN Secretariat could both serve as the bulwark against such new trade and investment barriers and as a useful foil for domestic politicians who want to blame “ASEAN” when, inevitably, such proposed barriers are not taken up. 

  • ASEAN to decide on World Cup bid by end of year --   Malaysia’s youth and sports minister announced that ASEAN ministers would decide on whether to go forward with a joint ASEAN bid to host the 2034 football World Cup.  The minister explained that the football governing body only allows a maximum of 3-4 countries to host jointly, so the ASEAN member states need to agree on which countries will formally serve as joint hosts.  Again, I hope this proceeds because a joint World Cup bid would be a major deliverable for ASEAN, one which the general population in this football-mad region would appreciate.

Monday, June 9, 2014

Low Awareness of AEC in Singapore

A survey by the Institute of Southeast Asian Studies found that 55 per cent of some 380 firms polled across the region were not aware of the AEC. And Singapore companies had the highest level of ignorance - at 86 per cent.

The numbers in a separate survey by the Singapore Business Federation were less staggering. About 38 per cent out of some 1,000 of its members polled were ignorant - with a higher percentage for small- and medium-sized enterprises than bigger firms.

Singapore Business Federation chief executive Ho Meng Kit said: "When you ask the small companies what it (AEC) is, even asking them to identify the 10 ASEAN countries, they may have difficulty (doing it). "So you need to educate (them). You need to put it in layman terms (such as) 'what does it mean for you if you are a manufacturer of goods?' 'What does it mean for you in terms of your market access in specific country?'"

The main reasons for the relatively low awareness of the AEC in Singapore (as per the two surveys) are related to the AEC’s initial focus on creating a single production base first rather than the single market.  Most small and medium sized businesses in Singapore are either involved in trading/distribution or services.  When the AEC more fully develops the single market for consumers, these companies will benefit from greater access in other ASEAN countries.  Until then, the AEC’s more developed integration in trade in goods is of lesser relevance.

That is not to say that companies in Singapore are not already participating in the AEC.  Larger companies involved in global supply chains, and those Singaporean companies still manufacturing in the city-state are well aware of the AEC and participating in the formation of the single production base.  However, given their smaller numbers (numerically), they are going to show up in lower percentages in these surveys.

Irregardless, efforts to increase awareness of the AEC in Singapore and other ASEAN members are vital to spreading the benefits of the ASEAN Community to all aspects of society in Southeast Asia.  But what will be even more important is actually forming the single market, a task that will require strengthening the ASEAN institutions beyond their current state.  Hopefully progress will be made on this issue as Malaysia prepares to take over as ASEAN Chair.

Monday, June 2, 2014

US-ASEAN Congressional Caucus Proposed

Last week Indonesia proposed establishing a U.S. Congressional caucus devoted to ASEAN, according to the Jakarta Post:

“Only 26 percent of Congress members pay close attention to ASEAN although our region has huge potential for the US economy,” said Indonesian Ambassador to the US, Budibowo Leksono, as quoted by Antara.  “Congress members have an important role in increasing US and ASEAN strategic partnerships, especially in 2015 when the ASEAN Community is established,” he said.

He further said ASEAN was the US’ fourth-largest trading partner after Canada, Mexico and China and that the US was the third-largest trading partner for ASEAN, creating around 560,000 jobs for Americans. “US investments in ASEAN countries are greater than their investments in China, India, Hong Kong, New Zealand, South Korea and Taiwan combined,” Budibowo said.

“More interesting is, within one decade, the amount of investment from ASEAN member countries in the US rose by more than 1,440 percent to US$27.5 billion in 2012 from $1.8 billion in 2001. The amount was bigger than the investments of China, Hong Kong, India, New Zealand and Taiwan combined in the country,” he went on.  Additionally, the ambassador noted that around 47,000 students from ASEAN countries were studying in the US during the 2012-2013 academic year, contributing more than $1.4 billion to the country’s economy.

Other ASEAN member states -- Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam -- have Congressional caucuses made up of legislators (and just as importantly, their staffs) who want to express continuing support for bilateral relations.  Establishing an ASEAN Congressional caucus would be an important step for the ASEAN institutions in the short term and long term.

First, an ASEAN caucus would allow U.S. legislators continued access to ASEAN members without having to go through bilateral channels. Most U.S. politicians may not want to engage Thailand publicly at the moment, because of the military junta’s takeover.  However, engagement through an ASEAN caucus provides political cover for continued dialogue.   An ASEAN caucus would help deal with similar concerns, although perhaps less pressing at the moment, with Myanmar, Cambodia and Brunei (which don’t have their own bilateral caucuses). 

Second, an ASEAN caucus would help the ASEAN institutions improve their public standing in Washington DC.  This is not to be understated; to use a prosaic example, you can buy a NATO or Organization of American States flag in Washington but not an ASEAN flag.  More importantly, U.S. legislative initiatives influence American foreign policy.  A significant portion of donor aid to the ASEAN institutions comes from the U.S. Agency for International Development (funded by the U.S. Congress), and it was the U.S. Congress that pushed through legislation for the appointment of a resident U.S. ambassador devoted to ASEAN.
Finally, an ASEAN caucus is an important step to establishing long-term relationships between ASEAN and the United States on the basis of the three pillars of ASEAN.  Many in the United States support political-security cooperation, particularly on the South China Sea/East Philippine Sea issues. 

However, economic cooperation can also be improved. If an ASEAN-US free trade agreement can ever be achieved, an ASEAN caucus is a necessary initial supporting step, much as the Singapore caucus helped passage of the U.S.-Singapore free trade agreement.  Such an agreement might seem like a distant goal or even fantasy, given the domestic political opposition in some ASEAN members (e.g., Indonesia or the Philippines) and the U.S. to the deep trade and investment liberalizations required by a U.S. free trade agreement.  On the other hand, after 17 years, we Americans are finally getting the APEC travel card this month, so distant objectives often are achieved.  I just hope an ASEAN-US free trade agreement doesn't take as long.

Sunday, June 1, 2014

Cleaning Up ASEAN FTA Certificate of Origin Redundancies

ASEAN and Japan announced that they had revised the certificate of origin form used for trading goods under the ASEAN-Japan Comprehensive Economic Partnership (AJCEP), the free trade agreement (FTA) between ASEAN and Japan. Although this sounds like a minor technical correction, in reality it marks a major change in how the ASEAN FTAs work, hopefully one that will carry through to other ASEAN FTAs and the ASEAN Trade in Goods Agreement (ATIGA) itself.

Currently, all goods traded in the ASEAN FTAs must be accompanied by a form (“Form D” in the case of ATIGA) to confirm that the goods qualify for FTA treatment.  This is done by establishing that they meet one of the rules of origin, in most cases either (1) the goods have sufficient regional value content  (RVC) (usually a minimum value of 35%) or (2) the goods have undergone sufficient physical processing to change their tariff classification (CTC). 

As I discussed in an earlier post, ASEAN had originally based its rules of origin almost entirely on the RVC approach in its first FTAs.  This contributed to the underutilization of FTAs, as small and medium sized ASEAN companies had difficulties with the accounting and recordkeeping requirements necessary to demonstrate that the RVC percentage had been met.  Hence ASEAN added the alternative CTC approach, which does not require such information but focuses more on the change of the physical nature of the product.

The problem was that although ASEAN had added this alternative approach, the ASEAN customs authorities continued to request accounting and other value-based information on RVC, such as the FOB value of the goods.  If the customs form did not contain the FOB value, ASEAN customs authorities would deny FTA treatment for the goods. This happened, despite the fact that if the CTC approach is being invoked, the FOB value of goods is completely irrelevant.  

The AJCEP parties’ decision is thus a good development, as it recognizes that value information is not needed in the form when the CTC approach has been invoked.  Now the question is whether the other ASEAN+1 FTAs with Australia-New Zealand, China, India and Korea will follow suit, and indeed whether the ATIGA itself will do so as well.

Most important is the question of why such forms are necessary in the first place.  If ASEAN and its trading partners move to self-certification by exporters and a post-entry audit system, as is practiced in the developed world, then minor documentary defects acting as a block to FTA qualification will become a thing of the past.