Thursday, October 30, 2014

How to Get Timor Leste Into ASEAN by 2020

This week Christian Whiton, whose work I respect, wrote in on the reasons why Timor Leste should join ASEAN.  Now I would agree with the political, economic and other reasons put forth in the article. Unfortunately, I don't see how this will become reality any time soon, perhaps not in this decade.

This was discussed in one of the earliest posts of this blog.  Have things changed since 2011, when Indonesia was actively pushing for Timor Leste in its role as ASEAN Chair? 

On the ground, Timor Leste has improved its governance and infrastructure, as Christian notes in his article.  However, sources in the ASEAN Secretariat and in Dili have indicated to me that Timor Leste is still far behind in understanding and incorporating the aquis of commitments associated with full ASEAN membership.  Much of this is related to the relative lack of skills and human resources in Timor Leste’s government; however, similar issues did not hold back Cambodia from joining ASEAN, issues which were resolved through the passage of time and the influx of resources.

Just as importantly, ASEAN itself is not ready for Timor Leste to join its ranks., for reasons big and small.   In 2015, ASEAN is conducting a stocktaking of the ASEAN Community, which will include a review of the authority and functioning of the ASEAN institutions.  Implementation both of the post-2015 ASEAN Community agenda and the institutional reform will take time.   ASEAN needs to get this right with its existing members before it takes on a new member.

On the smaller reasons, Dili will need time to develop the physical infrastructure to host the two ASEAN summits that will come with becoming ASEAN Chair at some point; one of these ASEAN summits will also incorporate the East Asia Summit which the leaders of the United States, China and other countries will attend.  Furthermore, if Timor Leste joined now, the rotational ASEAN Chair position would be filled by Timor Leste in 2020 (currently scheduled to be Vietnam’s term as ASEAN Chair, as the rotation is supposed to be Malaysia, Laos, Philippines, Singapore, Thailand and Vietnam beginning in 2015; Timor Leste would fit in after Thailand).  This means that Timor Leste probably cannot join ASEAN until Vietnam’s term as ASEAN Chair in 2020, or more likely, Timor Leste will agree to a delayed term as ASEAN Chair upon joining.  Although these considerations may appear to be minor, they are given weight by the ASEAN leadership. 

Weaving all of these considerations leads to a worst-case scenario of Timor Leste joining ASEAN by 2023, when its former occupier Indonesia becomes ASEAN Chair once again.  By that year, sufficient time will have passed for Dili to have addressed the large and small concerns regarding its membership application, which should allow Indonesia to make a full court press for Timor Leste once again and succeed where it could not in 2011.   

The problem is that 2023 is 8 long years away and much could happen in the interim.  Furthermore, ASEAN membership can, in and of itself, be used as a carrot and a stick to encourage Timor Leste to continue with its economic and political reforms.  Better then, to give Timor Leste a fixed date of membership, say by 2020 (which was the original date for the ASEAN Community), but take efforts to ensure that Timor Leste can be a fully functioning member by then.  That means letting Timor Leste participate as an observer to ASEAN meetings (something promised by then-ASEAN Chair Indonesia in 2011 but not really implemented) and increasing support for its accession efforts (both to ASEAN and the WTO; full accession to the WTO will greatly help Timor Leste deal with its AEC commitments).  That also means making accession conditional on achieving set goals during the process, so that ASEAN does not lock itself into taking on an unprepared Timor Leste.

By doing this, ASEAN can avoid the mistakes of the European Union. The EU has arguably taken on new members who were unprepared and required years to catch up.  The EU also started accession talks with Turkey which became interminable due to domestic European politics and ultimately alienated that country. 

Timor Leste, by comparison, carries no such political risks for the ASEAN leaders but comes with regional risks which can be alleviated by the proper use of time and resources. The bigger risk would be to put off Timor Leste indefinitely and create a underperforming, or worse, failed state at the southeastern edge of southeast Asia. 

Saturday, October 18, 2014

EU Fails to Get Same Treatment as US and EFTA on Singaporean Stamp Duty

Yesterday, when I heard that the EU and Singapore announced that they had concluded the investment chapter of their bilateral free trade agreement (FTA), the first thing that came to my mind was “how will this impact the Singapore property market?” 

Confused?  Let me explain.

In Singapore most foreign nationals are required to pay an additional 10 percent stamp duty (called Additional Buyers’ Stamp Duty or ABSD) on their real estate purchases. Singaporeans do not pay ABSD.  However, nationals of the United States and members of the European Free Trade Association (EFTA, made up of Switzerland, Norway, Liechtenstein and Iceland) are exempt from paying the ABSD because of the specific terms of their FTAs with Singapore that require Singapore to treat them the same as Singaporeans.  This is known as “national treatment” in FTA terminology, e.g., the right for foreigners to be treated the same as the locals. 

Would the EU be able to achieve similar treatment for its nationals? 

The answer is no, according to the final text (subject to “legal scrubbing”) available here. 

In an “understanding” making up part of the agreement, the EU and Singapore agreed as follows:

1. Article 9.3 [National Treatment] shall not apply to any measure relating to:

(a) the supply of potable water in Singapore;

(b) the ownership, purchase, development, management, maintenance, use, enjoyment, sale or other disposal of residential property or to any public housing scheme in Singapore.

Hence this means that national treatment for EU nationals will not include equal treatment regarding the ABSD or other laws regarding residential property in Singapore. The EU didn’t get what the US and EFTA achieved in their FTAs.  This is because the EU was relatively late in seeking an FTA with Singapore (the EFTA-Singapore FTA was among the first FTAs of Singapore) and not as powerful as the United States (whose preferential treatment is also rooted in the most-favored-nation clause of its FTA, which grants it the same treatment as the EFTA members under their Singapore FTA).

However, the EU did obtain some hope in the form of a future review of the ABSD:

2. Three years after the entry into force of this agreement and every two years thereafter, should ABSD still be in force, the Trade Committee will review to see if the maintenance of the ABSD is necessary for addressing the stability of the residential property market. In these consultations, Singapore will provide statistics and information relevant to the state of the residential property market.

Thus Singapore has committed itself to scrutiny by the Trade Committee of Singaporean and EU government representatives to confirm whether the ABSD is still necessary to control Singapore property prices.  This is not the same as the US and EFTA FTAs, but it does mark a commitment by the Singaporean government to joint review of its property policies, a very rare occurrence.  Perhaps the ABSD will be terminated three years from now and this will become a moot point, perhaps not.  Either way, it is another example of how FTAs can set policy – or restrain policy options – for a government.

The EU-Singapore FTA investment chapter also contains an investor-state dispute resolution chapter that allows for international arbitration.  This has become controversial in other FTA negotiations such as the Trans Pacific Partnership talks, but evidently not so for the EU-Singapore FTA.  But its inclusion will only embolden ASEAN members such as Indonesia who believe that terminating their bilateral investment treaties with the EU (and their associated arbitration clauses) will encourage the EU to conclude their own bilateral FTAs with them.

Other items of note are exemptions for government policies necessary to protect general welfare, as follows:

 (a) necessary to protect public security, public morals or to maintain public order;

(b) necessary to protect human, animal or plant life or health;

(c) relating to the conservation of exhaustible natural resources if such measures are applied in conjunction with restrictions on domestic investors or investments;

(d) necessary for the protection of national treasures of artistic, historic or archaeological value;

(e) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Chapter including those relating to:

(i) the prevention of deceptive or fraudulent practices or to deal with the effects of a default on a contract;

(ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidential of individual records and accounts;

(iii) safety.

(f) aimed at ensuring the effective or equitable imposition or collection of direct taxes in respect of investors or investments of the other Party.

In any event, the impact (or lack thereof) on the Singaporean property market is the immediate news from this development.  Given that this is a major concern of many Singaporeans, that is not surprising, as reflected by this issue being the most popular topic on this blog.  Again, however, the ABSD issue shows how FTAs can affect areas of governance far beyond trade in goods.

Wednesday, October 15, 2014

The Need to Increase AEC Awareness in Malaysia

With the December 31, 2015, effective date for the ASEAN Economic Community (AEC) coming up, all of the ASEAN member states are holding conferences and symposia on ASEAN integration.  Hence this report from the Star newspaper in Malaysia on a public outreach event held by the Malaysian Ministry of International Trade and Industry (MITI) was particularly exceptional, mainly because it reflects a general lack of understanding of the AEC in Malaysia. This is remarkable because Malaysia is the 2015 ASEAN chair, the lead country on ASEAN institutional reform, and the home of two of the ASEAN companies most supportive of ASEAN economic integration, Air Asia and CIMB bank.

According to the article, last week MITI minister Datuk Seri Mustapa Mohamed gamely dealt with about 100 representatives of non-governmental organizations (NGOs) who either did not understand or did not want to understand the AEC process:

Given that readers from Malaysia rank #7 in page views among the readers of this blog, far behind those from Singapore, Indonesia and Thailand and even behind Cambodia, I am more inclined to be charitable and say that the former is more likely.  Here are some of the claims made by  the NGOs:

A representative from the Persatuan Pengguna Islam Malaysia spoke about ethnic cleansing of the Rohingyas in Myanmar, asking Asean to put more pressure on Myanmar and insisting that the message must be stated when Malaysia assumes the Asean chair next year.

Comment: at first glance, this is not an AEC matter but a political-security pillar matter.  However, the basic issue of movement of natural persons across national borders in the AEC, and the fundamental rights created by such movement, is a long-term issue for ASEAN. Hopefully ASEAN leaders can understand this as the AEC process continues.

Another spoke of uncontrolled inflow of unskilled labour flooding the local market once the AEC comes into effect.

The subject on the movement of professionals within the region was raised several times during the question and answer session with the speakers expressing concern over the fate of local workers and their confusion over the terms of reference of skilled labour.

Comment: again the issue of movement of natural persons comes up.  In the short-term the issue of unskilled labor movement is not ripe, as the ASEAN Movement of Natural Persons Agreement only deals with skilled and professional workers, and not unskilled workers. But in the long run, movement of persons across national borders in the AEC will have far-reaching consequences for ASEAN and its member states.

A representative from the Malaysian Aids Council called for improving the government’s engagement with the civil society while the spokesperson from the Women Aid Organisation said the Asean women caucus had done a good analysis on women, the economy and their rights in Asean and asked who to submit the paper to.

Comment: these issues fall under the socio-cultural pillar of ASEAN and thus not within the immediate ambit of the AEC.  On the other hand, these comments do raise concerns about governance of ASEAN and the interaction between the private sector and the ASEAN institutions, another long-term issue for ASEAN.

The minister (and the reporter) summarized the sentiment from the meeting as follows:

“It is a big embarrassment if we keep on talking about AEC but many people in Malaysia do not know what Asean is all about.”

How do you explain to them that the AEC is not a monster to be feared but to be embraced, as many aspects of it are already part and parcel of us for some time now?

And therein lies the problem for Malaysia and other ASEAN member states as end-2015 approaches.  How will they deal with the increasing anxiety about the AEC?  As the above comments indicate, many of these fears are not about the AEC itself, as they deal with non-economic matters. However, to the extent that they deal with general issues of governance regarding all of the ASEAN Community, they will eventually have to be resolved, including but not limited to strengthening the ASEAN institutions. 

Thus, December 31, 2015, is not the end of the AEC process, not even the beginning of the end but merely the end of the beginning.  What happens after December 31, 2015, requires much greater consideration by ASEAN member states and their constituents because that is the true test of whether ASEAN can deal with its many challenges.