EIU Survey Says Regulations Most Important Barrier to AEC Integration

This week the Economist Intelligence Unit (EIU) published “Redrawing the ASEAN Map,” a survey of the business environment in ASEAN, sponsored by CIMB Bank and Baker & McKenzie.   The EIU survey focuses on how companies view the ASEAN Economic Community as a market and a production base. 

I recommend the EIU survey as a pretty good overview of corporate opinion of ASEAN, although it is probably a tad optimistic.  This optimism reflects the survey participants, as 85.8% of the participating companies were headquartered outside of ASEAN, and 77.6% had a capitalization of over US$ 1 billion.  Hence the participants were primarily large multinationals with operations in ASEAN, and as I have noted earlier, these business segments are indeed more optimistic about the AEC. The SME sector and the indigenous ASEAN sector were not significant segments of the survey, and they have not been as involved in regional economic integration.

Nevertheless, from the law and policy point of view, the EIU survey does indicate how ASEAN government policies are negatively impacting private sector sentiment towards the AEC.  “Different laws & business regulations” were listed as the most important barrier to to adopting a consistent approach to sales and marketing across different ASEAN countries.  The EIU survey takes this in a positive light, noting as follows:

For the ASEAN organisation this must be encouraging news. The results suggest that the greatest barriers preventing companies from treating ASEAN as a single market are institutional barriers that can be addressed. Language, religion  and culture cannot be changed. But disjointed regulations and unharmonised standards are more easily fixed.

That’s true. Regulatory issues are indeed easier to address than non-regulatory structural impediments.  The more difficult question is how the ASEAN institutions will deal with the regulatory barriers.  The EIU survey does recognize this:

Not that anybody is suggesting the process of integration at this level will be simple. Certainly many companies express concern at the slow pace of change. . . . Nonetheless, as these results show, if governments really want to link ASEAN markets into one, and thereby reap the benefits of creating regional scale, then addressing these institutional barriers will go a long way towards achieving their goal.

There’s the rub. The EIU report was limited to a survey, and so it did not mention how ASEAN should address these regulatory barriers.  However, regular readers of this blog know what I would recommend: strengthening ASEAN by further empowering the ASEAN institutions and/or providing for a robust ASEAN dispute resolution system.  Without some sort of reform of the ASEAN institutions, the institutional barriers will continue hinder the AEC from benefitting all ASEAN citizens.

Giving Full Effect to ASEAN Measures, Including Drivers' Licenses

Today the news feed brought in another example of how many of the ASEAN Economic Community’s major problems are in the compliance and enforcement of existing ASEAN agreements, rather than the creation of new agreements. 

In the January 6, 2015, Bangkok Post, the Thai Association of Domestic Travel urged the Thai government to push for an ASEAN driver’s license to facilitate travel by tourists:

Yutthachai Sunthornrattanavej, chairman of the ADT, said on Tuesday that his association planned to submit a letter to Tourism and Sports Minister Kobkarn Wattanavrangkul asking for guidelines to boost tourism in border areas before the launch of the Asean Economic Community later this year with an eye toward making Thailand Asean's tourism hub. He urged the ministry to hold meetings with provincial chambers of commerce, immigration offices in border provinces, and officials from neighbouring countries to jointly lay guidelines for personal travel, particularly the issuance of Asean driving licenses.

It would seem reasonable to create an ASEAN driver’s license, which would allow for cross-border access by ASEAN drivers in other ASEAN member states.  However, this raises the question of which authority would issue an ASEAN driver’s license, since there is no ASEAN institution that would have sufficient supranational authority to do so. 

Better then, to have mutual recognition within ASEAN of drivers’ licenses issued by other national authorities in ASEAN member states.  After all, that is what happens in the EU, where drivers’ licenses of the various EU member states are recognized by other EU member states.

Indeed, this is such a good idea that it was actually agreed upon thirty years ago by the ASEAN member states in the Agreement on the Recognition of Domestic Driving Licences Issued by ASEAN Countries:

The Contracting Parties agree to recognize all domestic driving licences except for temporary/ provisional/learner's driving licences (hereinafter referred to as "the licences") issued by the designated authorities or national automobile associations of the ASEAN countries.

By virtue of the recognition hereby of the licences, holders of the licences issued in any one of the ASEAN countries and intending to take only a temporary stay in the territory of any of the other ASEAN countries may drive therein the classes or types of vehicles the licences permit them to drive.

Hence there already exists an “ASEAN driving licence” scheme that would allow for ASEAN nationals to drive in Thailand.

So what is the Thai association complaining about?  The Bangkok Post article goes on to state that:

The existing regulations limit the travel of not more than 200km from checkpoints bordering Malaysia, said Mr Yutthachai. He believed the regulations, if adjusted, would boost the number of tourists in the country. Tourists from other border areas could travel to Bangkok and other tourism towns like Pattaya, thus generating more revenue.

Thus, the problem identified by the Thai association is with Thai domestic implementation of the existing 1985 ASEAN agreement.  The Thai government is not giving full effect to the agreement because ASEAN drivers are limited to the border regions and not throughout Thailand, as specified in the agreement. 

This rather prosaic example illustrates the importance of monitoring compliance with ASEAN measures beyond the border, as well as the need to publicize existing ASEAN commitments.  In addition, it underlies the need to strengthen ASEAN institutions to perform these functions:  clearly the Thai tourism association’s problem is with its own government, but if its own government refuses to implement the 1985 ASEAN agreement fully, the association has no other recourse, as the ASEAN institutions as currently situated do not have authority to do more than publicize the non-compliance. 

In other words, the ASEAN agreements must be given full effect for the ASEAN Economic Community to function properly, even with regard to the “small” aspects of ASEAN.  

Happy Holidays from the AEC Blog!

As we come to the last days of 2014, the ASEAN Economic Community blogs wishes you and your family a happy holiday season and a wonderful 2015!  I offer everyone my law firm’s holiday card below:

 Next year promises to be eventful for the AEC, as the end of the beginning for formation of the single production base and single market comes for ASEAN.  Also next year, Cambridge University Press will publish books co-authored by Stefano Inama of UNCTAD and myself:

The Foundation of the ASEAN Economic Community: An Institutional and Legal Profile

ASEAN has undertaken the complex task of creating a single economic entity for Southeast Asia by 2015 in the form of the ASEAN Economic Community (AEC), but without regulators or supranational institutions, its implementation has been an inconsistent process. Through comparisons with the EU and NAFTA, this book illustrates the shortcomings of the current system, enabling readers to understand both the potential of regional economic development in ASEAN and its foundational and institutional deficiencies. The authors' analysis of trade in goods and services, investment, and dispute resolution in the AEC indicates that without strong regional institutions, strong dispute resolution or a set of norms, full and effective implementation of the AEC is unlikely to result. The book offers clear solutions for the ASEAN institutions to help the AEC reach its full potential. Written by two leading practitioners, this insightful book will interest policymakers, students and researchers.

Rules of Origin in ASEAN: A Way Forward

Rules of Origin in ASEAN is the first in-depth exploration of the complex rules of origin in ASEAN's trade agreements. Written by two leading practitioners, they explain with clarity the existing ASEAN Rules of Origin (RoO) practices and their administration regimes in a comparative context and provide a recommendation for reform. The ASEAN RoOs can be simplified by focusing on value of materials and lowering the regional value content required to qualify as ASEAN-origin. The administration of ASEAN RoOs can be improved by expanding the use of self-certification, moving away from document-based verification to more modern post-entry audit and trade facilitation approaches. This is a timely and important topic which will be insightful to practitioners, policymakers and businesses in understanding how commerce and trade is conducted in Southeast Asia.

Please click on the above links to pre-order.

See you soon in 2015!