Tuesday, November 10, 2015

Achieving the ASEAN Single Market in Services

Last week the ASEAN Secretariat and the World Bank jointly released the ASEAN Services Monitoring Report, a comprehensive survey of integration of services trade in Southeast Asia, and available here.   The report explains why the current approach to creation of a single market in ASEAN for services has reached its limit, as well as makes suggestions on how to move forward.  This makes the report timely as ASEAN moves on to its post-2015 ASEAN Economic Community (AEC) agenda, including the ASEAN Trade in Services Agreement (ATISA).

Currently, services trade integration is covered by the ASEAN Framework Agreement on Services (AFAS). The AFAS basically adopts the WTO General Agreement on Trade in Services (GATS) as a baseline for integration, with ASEAN members agreeing to apply most-favored-nation (MFN) and national treatment to cross-border services trade. ASEAN members have conducted multiple rounds of negotiations and resulting agreements. 

The report concludes that although the AFAS has helped improve trade in services in ASEAN, it may have reached its limits.   By basing progress on negotiating rounds, progress has become slower and more incremental.  Although AFAS was supposed to complete its rounds by 2015, ASEAN members are preparing to extend its mandate to 2016 and beyond.  Moreover, the report finds that AFAS is focused on explicit barriers to cross-border trade in services, e.g., those measures which could violate the MFN and national treatment obligations.  However, AFAS does not deal with domestic regulatory measures in ASEAN member states which do not clearly violate the terms of AFAS, yet nevertheless create barriers to creating a single market for services in ASEAN.  As a result, AFAS risks being outpaced by services trade integration efforts in the ASEAN FTAs as well as the Regional Comprehensive Economic Partnership (RCEP) agreement.

ASEAN members are well aware of the limitations of AFAS, and so are preparing to negotiate the ATISA, which would deal with services trade in a single undertaking rather than negotiating rounds.  The report does not directly address the inchoate ATISA, but does make several worthwhile recommendations:
  • Incorporate GATS norms  -- as the AFAS is based on the GATS, ASEAN should clarify the legal value that WTO panel decisions and interpretive documents have in the administration of AFAS.
  • Establish an ASEAN services monitoring system – this would remedy the current lack of information on compliance with AFAS and other ASEAN agreements affecting services trade.
  • Provide guidance on ASEAN services trade – the report suggests that ASEAN could provide for nonbinding guidance on ASEAN services trade issues, which would also improve transparency and communications with the private sector; the report also calls for upgrading the current ASEAN Coordinating Committee on Services into a permanent group of experts.
  • Improve ASEAN dispute resolution – the report calls for making the current Enhanced Dispute Settlement Mechanism (EDSM) more robust, as well as allowing the EDSM process to issue interpretive decisions that would not be based on a formal dispute between members.
  • Address domestic regulatory measures – ASEAN members need to administer such measures in a more cohesive manner to achieve convergence, if not harmonization; the report supports creating a regulatory checklist of principles that would be applied to determine whether domestic measures are consistent with the goal of creating a single market in services, as well as more intensive cooperative efforts on a sectoral basis, particularly for heavily regulated sectors such as aviation.
  • Eliminate barriers to establishment – the report calls for removing ceilings on the foreign equity ownership of service providers.
  • Apply a negative list approach – the report recommends that any successor agreement to AFAS apply a negative list approach to services, e.g., that its liberalizations would apply to all sectors except those otherwise reserved, such as in the ASEAN Comprehensive Investment Agreement (ACIA). 

Although the report recommends strengthening the ASEAN institutions and processes, it does not suggest whether that should be done by the ASEAN Secretariat or by a standing committee of ASEAN members.  Given that report was co-authored by the ASEAN Secretariat, that is understandable.  In addition, the report does not specifically address movement of natural persons, which again is understandable given its highly sensitive nature.

In any event, it is clear from the report that the current ASEAN approach to services integration has reached its limits.  Whether through ATISA, RCEP or some enhancement of the ASEAN institutions and processes, ASEAN needs to move beyond the current AFAS approach if it is to achieve a true single market for services in Southeast Asia.