Saturday, January 23, 2016

Two free reports provide insights into big power contention and impacts in the Asia-Pacific and ASEAN theatres

ASEAN Strategic presents two new and detailed reports focussing on geopolitical assessments from the European Union and the United States of America on possible near-future military and economic battlegrounds. Their publishers have kindly made digital versions available free-of-charge for a period of time:

CONNECTIVITY WARS: Why migration, finance and trade are the geo-economic battlegrounds of
the future (published January 2016 by the European Council on Foreign Relations). This collection of 23 essays edited by Mark Leonard explores how the world’s powers are weaponising the interconnectedness of the global economic system - specifically economic, institutions and  infrastructure - in order to hit out at each other. Sanctions, currency manipulation, boycotts and public divestment campaigns, controlling migrant flows, digital and physical infrastructure, and more are all being used by countries around the world. The report, written by authors such as Ian Bremmer, Kelly M. Greenhill, Parag Khanna, Hina Rabbani Khar and Juan Zarate, also highlights which countries form the new “geo-economic G7” – the new superpowers of finance, regulation, migration, spoiling and energy, plus “Peoples Power,” and what influence each exerts. Download the report here.

ASIA-PACIFIC REBALANCE 2025: Capabilities, Presence,
and Partnerships (published December 2015 by Center for Strategic and International Studies with Rowman & Littlefield). This independent assessment of the USA’s military strategy and force posture in the Asia-Pacific, as well as that of USA’s allies and partners, over the next decade, is edited by Michael J. Green, Kathleen H. Hicks, Mark F. Cancian, John Schaus and Zack Cooper. They and authors assess USA progress to date and recommend initiatives necessary to protect USA military interests in the Pacific Command area of responsibility through 2025. Four lines of effort are highlighted: (1) continuing to align Asia strategy within the USA government and with allies and partners; (2) accelerating efforts to strengthen ally and partner capability, capacity, resilience, and interoperability; (3) sustaining and expanding USA military presence in the Asia-Pacific region; and (4) accelerating development of innovative capabilities and concepts for USA forces. Download the report here

Tuesday, January 12, 2016

Unfinished business: The birth of the ASEAN Economic Community

By Dr Deborah Elms

THE ASEAN Economic Community (AEC) became official on 1 January 2016.  The launch of the AEC represents a high water mark on the Association of Southeast Asian Nations' decades-long quest to create a stable, more integrated region.

Many ASEAN members are enthusiastically promoting the region and AEC benefits by noting that the market size of the 10 member states collectively add up to US$2.6 trillion with over 622 million people. As a region, the Secretariat has noted that ASEAN is the third largest economy in Asia and the seventh largest in the world.

While there are multiple elements to the AEC, most firms are interested in promises to create a “free market for goods, services, investment, skilled labor and freer movement of capital.”

In general, in ASEAN, soaring rhetoric often obscures a rather less glamorous reality on the ground. Veteran watchers in the region will shrug knowingly and say, “Well, it’s the ASEAN Way - eventually they will get round to doing things properly and certainly, the potential is there.”

The language of the AEC suggests strong parallels with the European Union, but this was never the intention.  ASEAN is not a common market, does not intend to pool sovereignty, and has a microscopically small institutional structure and matching budget to manage a complicated structure and many commitments.

So what has ASEAN accomplished and where does it go from here?

The primary benefit of ASEAN has been the elimination of tariffs on goods.  This was largely finished in 2010, but note that there are still some gaps in coverage.

Tariffs cannot be viewed in isolation in a trade agreement without simultaneously considering rules of origin (ROOs).   This is because it is possible to open a market completely at zero tariffs (duty free), but create such difficult or onerous rules of origin that hardly any products actually qualify for zero duties.

ROOs are necessary in a free trade agreement like the AEC because countries want to make sure that only ASEAN businesses benefit from lower tariffs and not firms from non-ASEAN countries.

Originally, ASEAN used a simple ROO, 40% regional value content (RVC).  This meant that as long as 40% of the content of the item being shipped across an ASEAN border into another ASEAN country come from within ASEAN, it would qualify for ASEAN preferential tariff rates.  However, this simple rule is not always easy for firms to use and, over time, ASEAN included new options as well, including change in tariff classification (CTC) and process rules.  (Note that many of the ASEAN+One free trade agreements use different variations of ROOs.)

With the fall in tariffs, a much more serious problem in ASEAN has been the proliferation of non-tariff barriers (NTBs).  NTBs can include a wide variety of mechanisms, not all of which are designed explicitly to keep out foreign products.

For example, rules on the labelling of products can be legitimately about providing consumers appropriate information about the content of a good, but can also be done in such a way to place an unfair burden only on imported products.  Other NTBs include other health and safety regulations, as well as import quotas and other quantitative restrictions.

Although ASEAN members promised to eliminate NTBs by 2012 for the original ASEAN 6 members and by 2015 for the CLMV countries, progress has been very slow.

Opening markets for goods only works if products can transit borders, so ASEAN added trade facilitation to the agenda very early.

The most visible element of ASEAN’s facilitation agenda is the commitment to the ASEAN Single Window (ASW).  This is a very ambitious project aimed at seamless transfer of goods across customs’ authorities in all 10 members.

The original deadline called for national single windows to be implemented in all 10 members by 2012 in order for the ASW to be ready for the AEC prior to 2015.  However, with the launch of the AEC, not all 10 ASEAN members had national windows in place, and plans to integrate customs across the region are delayed.

The AEC promised to deliver free flow of trade in services.  A fascinating, hard-hitting paper out from the World Bank and ASEAN Secretariat shows how far away the region has been from meeting this goal.  The report notes that ASEAN’s last four years of negotiations in services failed to deliver liberalization.

Overall, ASEAN shows levels of restrictions in services that are more than 60% above global averages and worse than any region but the Gulf States.  Discretionary licensing regimes create the largest obstacles to the free movement of services and without a renewed focus on regulatory barriers, the situation may not improve in the future.

Investment liberalization has also proceeded slowly, with limited commitments from many member states.  Many of the current pledges are not likely to be seen as commercially meaningful.

While skilled labor is meant to move freely as well through the use of mutual recognition agreements (MRAs), these arrangements are in place for just eight industries (like architecture, accounting and nursing).  Within these industries, few people have actually moved using an ASEAN MRA, since individuals must clear all domestic immigration and visa hurdles as well as any necessary licensing or regulatory barriers that apply.

In short, the AEC launch does not signify the creation of true common market in Southeast Asia.  It does not meet its own stated objectives for free movement of goods, services, investment, skilled labor and freer movement of capital (where the deadline remains 2020). 

However, while simultaneously trying to finish up commitments in the AEC and handle negotiations with its Dialogue Partners in the Regional Comprehensive Economic Partnership (RCEP), ASEAN officials were boldly crafting a new vision for the future.  The new ASEAN Blueprint 2025 promises to continue the path towards ever-greater economic integration in the future.

The first objective of Blueprint 2025 is to complete all unfinished business from the AEC by the end of this year.  Then, officials will turn their attention to a wide range of deeper integration objectives, including fostering greater resilience; supporting equitable and inclusive growth; furthering poverty reduction; facilitating productivity enhancement; improving prospects for good governance; continuing with connectivity expansion; encouraging sustainability; and spreading green technology.

Stay tuned!

Dr Deborah Elms is Executive Director of the Asian Trade Centre, Singapore. She is also a senior fellow in the Singapore Ministry of Trade and Industry’s Trade Academy. Previously, she was head of the Temasek Foundation Centre for Trade & Negotiations and senior fellow of international political economy at the S. Rajaratnam School of International Studies at Nanyang Technological University, Singapore. She publishes the Talking Trade Blog.

Saturday, November 28, 2015

Why business should get interested in the world's next regional single market: the ASEAN Economic Community

Mr Simon Merrifield, Australia's first Jakarta-resident Ambassador to ASEAN (Association of Southeast Asian Nations), has trekked thousand of kilometres over recent months explaining the importance of the imminent new regional single market known as the ASEAN Economic Community, to Australian businesses.

The formal start of the AEC on 1 January 2016 will bring together 10 national economies. It will represent some 625 million people, a growing GDP close to US$2.6 trillion and eight percent of global FDI. Last year Australia’s bilateral trade with ASEAN surpassed A$100 billion and its collective economies accounted for 15% of Australia’s trade, more than the second largest bilateral trading partner Japan.

The Ambassador's AEC-awareness program has recently taken him to Canberra and Australian state capital cities and various bilateral business forums including this month's Indonesia Australia Business Week in Jakarta.

At the conclusion of his IABW presentation, we asked him how Australian businesses have been reacting to the ASEAN economic integration story:

"There's a lot of interest, and a growing awareness," he told us. "It’s an iterative transition so it takes some time to absorb what it all means.
HE Mr Simon Merrifield

"We are very fortunate to have several very successful and identifiably Australian brands with very clear regional strategies.  We've heard today from ANZ about how they see the broader region, how they see the importance of integration, and about their strategy for it.

"Others have also grasped the integration trend and the implications that has for their positioning.  These businesses are squarely focused on investing time and effort to acquire in-market knowledge, expertise and relationships.  They are not there for quick wins but for long-term gains and market share.

"They appreciate that the ASEAN integration trend will spur growth and create opportunities for a wide range of business endeavours. Changes in the way the regional economy operates are unfolding in many different ways, dramatically in the case of, say, regional value chains, through to more nuanced and iterative changes in the enabling environment.

"Taken together and looked at over time, the changes will be dramatic and will be very good news for those who have moved at the right time.

"So there is clearly a growing appreciation of the opportunities, and an emerging sense of what’s required to prepare for them.”

Mr Merrifield kindly provided his most recent presentation for reproduction. It has been edited for publication:

What ASEAN Means for Australia 

By Simon Merrifield
Australian Ambassador to ASEAN

ON SUNDAY, 22 November 2019, leaders of the ten countries which make up the Association of Southeast Asian Nations announced the establishment of the ASEAN Community, which will include the ASEAN Economic Community or AEC.

This will be a key milestone in a long transition from a loose intergovernmental arrangement to something more integrated.

ASEAN has always been an important institution for Australia Governments. Well before it was fashionable, and well before ASEAN became a byword for Southeast Asia’s economic dynamism, Australia became ASEAN’s first dialogue partner in 1974.

The Department of Foreign Affairs and Trade, and the Australian Trade Commission (Austrade), set out their insights for business people in our publication “Why ASEAN and Why Now” - if you haven’t yet seen it, I commend it to you.

Australia celebrating its 40th anniversary as the first ASEAN
Dialogue Partner in 2014. Source: ASEAN Secretariat

SINCE FORMING IN 1967, ASEAN has been a constant in Southeast Asia’s transition from a poor and turbulent region to one of prosperity and optimism.

Southeast Asia’s economic achievement has had many drivers but key among them is ASEAN’s success as an organisation.

It’s been key to building the trust and habits of cooperation that have underwritten Southeast Asia’s stability and growth.  And that stability and growth has produced a great set of numbers:

  • A $2.57 trillion economy, with growth rates almost doubling per capita GDP in just seven years.   
  • A population of 625 million with 65% under 35, and 
  • 8% of global FDI.  

Australia has worked closely with ASEAN over the decades of its remarkable journey.  Not just with its member states but with ASEAN as an institution.  We now have a strategic partnership and collaborate on major ASEAN-led arrangements, such in the premier leaders’ forum – the East Asia Summit, in the regional security and defence ministers’ fora,  and of course on the trade and economic agenda including negotiations for the Regional Comprehensive Economic Partnership (RCEP) .

We are ASEAN’s most comprehensive FTA partner.  We work together on regional economic integration, as we do in helping to address some of the downsides of integration, like human trafficking.

And we share robust trade ties, which now exceed $100 billion per year.  As an aggregated economy ASEAN is our number two trading partner.

So with those equities, we take very seriously the impending declaration of the AEC. This is a signature year for ASEAN and an important time for all of ASEAN’s key partners.

It is not always well understood what ASEAN intends the AEC to be. So it’s important to clarify that.

ASEAN has in mind an enhanced economic partnership among its members, and a partnership that looks outwards to the world.  It aspires to a single market and production base, achieved over time through the elimination of barriers to the flow of goods, services, investment and skilled labour.

It does not aspire to be a version of the EU.  It is not interested in EU-style strong central institutions.  It doesn’t want a common currency, or a customs union, or a single immigration zone.

Without dominant central institutions, implementation and compliance will sit with member states. They will proceed at different speeds reflecting their different stages of development, and it’s likely the AEC will work more seamlessly in some parts of Southeast Asia than others.

The transition will play out over an extended time-frame.  2015 is not an end point but a milestone - on a long journey that has already been underway for years.  There will be no sudden switchover to new arrangements.  But measured in five year chunks, progress will be impressive.

As it has been:  ASEAN integration has been occurring since the end of the Cold War.  Agreements in the 1990s put regional integration at the centre of ASEAN’s economic agenda where it has been ever since. That’s why tariffs have all but gone.

The World Bank says ASEAN’s integration project has gone well:  it has been trade creating rather than trade diverting; trade has become more efficient; it has helped attract FDI; and it has stimulated development in the less well-off member states.

Source: AEC-Hand Book for Business

SO ASEAN HAS BEEN a framework for liberalisation and reform, for advancing integration, for opening up borders and for enabling value chains. And it’s a pathway to help narrow the wealth gap between ASEAN’s richer and poorer members.

It has also afforded its Member States the collective weight to develop their economic engagement with the world beyond – we have seen that through the creation of valuable FTAs such as the ASEAN, Australia and New Zealand Free Trade Area (AANZFTA) and we are seeing it on a significantly greater scale through the negotiation of the RCEP.

This iterative integration is obviously important for the region’s continuing prosperity, but it is also strategically valuable because a more interdependent region raises the equities of all involved – the more we all have at stake, the more we all care about it not coming unstuck.

So the AEC is a fundamental part of what ASEAN has done and continues to do in the region.

ASEAN hasn’t just got lucky, as neutral turf at a time of intensifying geopolitical dynamics.  Rather, its track record of fostering trust has helped generate the all-important buy-in of external players to what it calls “ASEAN centrality’ – where ASEAN takes the role of ringmaster in regional organisations.

This is increasingly important as the global rearrangement of economic and strategic weight works its way through our region.

ASEAN’s export success has increasingly been built on a network of Regional Value Chains within and between countries in different ASEAN markets. Businesses in ASEAN have been developing strong trade and investment connectivity well before governments sought to enable it.

These RVCs have been a key contributor to the ASEAN connectivity agenda – they both drive economic integration and benefit from it.  The value chain connections in ASEAN are quite varied.  There are the obvious examples of manufacturers and component suppliers, but RVCs in ASEAN also tend to encompass a much wider group of relationships, such as R&D, logistics, administrative functions and marketing.

Why ASEAN Why Now goes into more detail on RVCs and why Australian businesses should find ways to tap into them.

SMART BUSINESSES with an eye on this region have been reading the implications of the integration trend and thinking about how to develop regional strategies to their best advantage. If Australian businesses are to realise the most attractive opportunities, they will need an in-country presence in ASEAN markets and an appreciation of the unfolding changes.

As Australians, are we making enough of this?  It’s great that ASEAN is our second largest trading partner, and it’s great that investment levels in both directions are rising, but there is significant room for growth.  We are not a top-ten investor in ASEAN but in 2013 rankings Belgium and the Netherlands were.  Our competitors are certainly recognising the opportunities.

With some notable exceptions, Australian business engagement has been thinner than seems right for a region of such dynamism, such international focus, such proximity to our shores and so many ready pathways to greater engagement, including deep migration and educational links.

From a government perspective, we have been hard at work on our longstanding relationship with ASEAN, which has never been stronger or more important to us.  This includes the work we have done to improve the trading environment, using both aid-for-trade programs and through negotiating FTAs.

This includes our FTAs with individual ASEAN members and with ASEAN as a whole.  Indeed, AANZFTA is ASEAN’s most comprehensive FTA, and it’s been put to me by ASEAN trade officials that landing AANZFTA underpinned the ambition and confidence to pursue the RCEP vision.

In winding up, let me that the emergence of ASEAN as a leading economic player is good news for Australia. And that the AEC can only make this better.  To be sure, it’s a long game, with gradual changes, in an environment which rewards those who can adjust their thinking towards five-year horizons.  But ASEAN’s diverse markets, urbanised population, growing services sector and dynamic growth trajectory make a compelling case.

There is a strong fit between the region’s primary growth drivers and Australia’s capability to meet them.

I’d encourage you to take a closer look at what is on offer in the region and think deeply about whether an ASEAN strategy might work as you plan your businesses’ future growth.


This article was originally published on the Indonesia Australia Report. It has been updated. Read the original article.

Friday, November 13, 2015

Forging ahead together: The 27th ASEAN Summit and the lead-up to the formal establishment of the AEC

THE 10 MEMBER COUNTRIES of the Association of Southeast Asian Nations (ASEAN) will meet in Kuala Lumpur, Malaysia, on 18-22 November 2015, less than two months from the formal establishment of the ASEAN Economic Community (AEC), a single regional market and production base.

Chaired and hosted by Malaysia, the 27th ASEAN Summit and related meetings will feature the signings of the Kuala Lumpur Declaration on the Establishment of the ASEAN Community, the Kuala Lumpur Declaration on the ASEAN Community Vision 2025: Forging Ahead Together, and the ASEAN Convention Against Trafficking in Persons, Especially Women and Children.

The ASEAN Senior Officials Meeting (SOM) on 18 November and associated events will precede the Heads of State/Government Summit. Activities will include:
  • Summits with China, Japan, South Korea, India, United States, New Zealand and United Nations
  • Joint Statement on the Regional Comprehensive Economic Partnership (RCEP) Negotiations
  • 10th East Asia Summit
  • Launching of the Guide to ASEAN Practices and Protocol
  • Launching of the Report of the ASEAN Institute for Peace and Reconciliation workshop on strengthening the participation of women in peace process and conflict resolution
Sideline events will include:
This summit marks the conclusion of Malaysia’s current Chairmanship of ASEAN and the hand-over of the role for the following year to Lao People’s Democratic Republic.

During its term, Malaysia has focused on priority measures and initiatives for the realisation of the ASEAN Community as outlined in the Roadmap for an ASEAN Community 2009-2015 where all 10 member nations aim to achieve uniformity of rules and procedures and seamless physical, infrastructural and people-to-people connectivity.

Besides leading ASEAN to achieve these goals in 2015, Malaysia also sees, as equally important, efforts to develop the ASEAN Community’s Post-2015 Vision as a guide for the community to further prosper and grow.

Among the major meetings Malaysia hosted since assuming the chairmanship are the 26th ASEAN Summit in April 2015, the 48th ASEAN Foreign Ministers' Meeting (AMM) from 1-6 August, and the 47th ASEAN Economic Ministers Meeting (AEM) from 20-25 August.

The 26th ASEAN Summit in Langkawi adopted three important documents, the Kuala Lumpur Declaration on People-Oriented, People-Centred ASEAN, Langkawi Declaration on the Global Movement of Moderates and the Declaration on Institutionalising the Resilience of ASEAN and its Communities and Peoples to Disasters and Climate Change.

The 48th AMM concluded on a high note with constructive discussions on regional and international issues of mutual concern, which is consistent with Malaysia's overarching theme of a People-Centred ASEAN.

At the 47th AEM, ASEAN members pledged to expedite efforts towards realising the ASEAN Economic Community (AEC) and endorsed in principle the AEC Blueprint 2025, setting the path for the region's progress beyond 2016.

The members also welcomed continued progress in the implementation of the AEC Blueprint, acknowledging the 91.5% or 463 out of the 506 prioritised measures that have been implemented.

ASEAN is currently the seventh largest economy in the world with a combined Gross Domestic Product (GDP) of US$2.5 trillion.

Formed on Aug 8, 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand, the membership of ASEAN expanded to include Brunei Darussalam, Cambodia, Laos, Myanmar and Vietnam.