The ASEAN Economic Community after the ASEAN Charter

1
The ASEAN Economic Community after the ASEAN
Charter

• Trading Bloc or Blocked?
• Associate Professor Michael Ewing-Chow
• National University of Singapore

2
ASEAN, Quo Vadis?

• The ASEAN Charter was signed on 20 November 2007.
  
• The ASEAN members also issued a Declaration on
  the ASEAN Economic Community (AEC) with adopted
  the AEC Blueprint for the implementation of the
  AEC by 2015.
• The Declaration says that "the AEC Blueprint
  will transform ASEAN into a single market and
  production base, a highly competitive economic
  region, a region of equitable economic
  development, and a region fully integrated into
  the global economy."
• This presentation will consider whether the legal
  frameworks and institutions in ASEAN are
  sufficient to transform the vision of that
  Declaration into a reality.
• Is ASEAN more than the sum of its parts or
  less?

3
ASEAN History

• Originally a security bloc to show solidarity
  against communist expansion.
• Backdrop of the Konfrontasi.
• Therefore Bangkok Declaration on 8 August 1967
  emphasised cooperation, amity and
  non-interference.
• Different instinct than Schumans supranational
  European Coal and Steel Commission.
• This resulted in the ASEAN Way.
• Bali Summit in 1976 put economics on the agenda.
• In 1992, idea of a regional bloc formed with the
  CEPT scheme and AFTA.
• In 2001, idea of a hub-spoke model for ASEAN
  and China, Japan and Korea first enunciated.
• 2007 ASEAN Charter and ASEAN EC Blueprint.
• Momentous Constitutional Moment?

4
Hubs and Spokes in Asia Pacific
Source METI MEC
ASEAN 3/6
Canada
NAFTA
China
ROK
ASEAN1
ASEAN1
Japan
ASEAN1
Mexico
U.S.
ASEAN
Thailand
Malaysia
ASEAN1
Singapore
India
Brunei
ASEAN1
NZ
Chile
P4
Australia
APEC
5
Principal Organs of ASEAN
6
The ASEAN EC

• From the ASEAN Secretariat website
• The ASEAN Economic Community is, as outlined in
  the 1997 ASEAN Vision 2020, the end-goal of
  economic integration measures. 
• The goal is to create a stable, prosperous and
  highly competitive ASEAN economic region in which
  there is a free flow of goods, services,
  investment and a freer flow of capital, equitable
  economic development and reduced poverty and
  socio-economic disparities in year 2020.
• The ASEAN Economic Community seeks to establish
  ASEAN as a single market and production base, so
  as to make ASEAN a more dynamic and stronger
  segment of the global supply chain.
• 3 Main Building (Stumbling?) Blocks AFTA, ASEAN
  Charter and AEC Blueprint

7
First Block - AFTA

• Launched in 1992, the ASEAN Free Trade Area
  (AFTA) is now in place.  It aims to promote the
  regions competitive advantage as a single
  production unit. 
• The elimination of tariff and non-tariff barriers
  among Member Countries is expected to promote
  greater economic efficiency, productivity, and
  competitiveness.
• Enabling Clause Notification.
• AFTA Agree First Talk After?

8
Tariff Reductions

• As of 1 January 2005, tariffs on almost 99
  percent of the products in the Inclusion List of
  the ASEAN-6 (Brunei Darussalam, Indonesia,
  Malaysia, the Philippines, Singapore, and
  Thailand) have been reduced to no more than 5
  percent.  More than 60 percent of these products
  have zero tariffs. 
• The average tariff for ASEAN-6 has been brought
  down from more than 12 percent when AFTA started
  to 2 percent. 
• For the newer Member Countries, namely, Cambodia,
  Lao PDR, Myanmar, and Viet Nam (CLMV), tariffs on
  about 81 percent of their Inclusion List have
  been brought down to within the 0-5 percent range.

9
Other non-tariff initiatives

• Other major integration-related economic
  activities of ASEAN include the following
• Roadmap for Financial and Monetary Integration of
  ASEAN
• trans-ASEAN transportation network
• Roadmap for Integration of Air Travel Sector
• interoperability and interconnectivity of
  national telecommunications equipment and
  services, including the ASEAN Telecommunications
  Regulators Council Sectoral Mutual Recognition
  Arrangement (ATRC-MRA) on Conformity Assessment
  for Telecommunications Equipment
• trans-ASEAN energy networks
• Initiative for ASEAN Integration (IAI) focusing
  on infrastructure, human resource development,
  information and communications technology, and
  regional economic integration primarily in the
  CLMV countries
• Visit ASEAN Campaign and the private sector-led
  ASEAN Hip-Hop Pass to promote intra-ASEAN tourism
• Agreement on the ASEAN Food Security Reserve.

10
Second Block ASEAN Charter

• From the ASEAN website
• The ASEAN Charter is at the core of ASEAN's
  strategy to adapt itself to a changing regional
  landscape and the challenges of the future.
• ASEAN Leaders recognise that this is an
  opportunity to set a clear and ambitious
  long-term vision, of an ASEAN that is relevant
  and competitive, effective and credible.
• With the Charter, ASEAN intends to build a solid
  institutional framework that will facilitate a
  more focused and coordinated agenda.
• This will be supported by a rigorous legal
  framework that will reinforce ASEAN's cooperation
  and commitments in all areas.
• At the same time, we are working to make the
  Charter a visionary document, to inspire the
  people of ASEAN and our future generations, and
  engage them more closely in the future of our
  region.

11
Charter Timeline

• Nov 2004
• "Development of an ASEAN Charter" included in the
  Vientiane Action Programme (2004-2010)
• Dec 2005
• Kuala Lumpur Declaration on the Establishment of
  the ASEAN Charter - ASEAN Leaders at 11th ASEAN
  Summit appoint a 10-member Eminent Persons' Group
  of senior statesmen to come up with bold and
  visionary recommendations to be included in an
  ASEAN Charter. Singapore's representative was DPM
  S Jayakumar.
• Jan 2007
• EPG submits its report to the 12th ASEAN Summit.
• Cebu Declaration on the Blueprint for the ASEAN
  Charter - ASEAN Leaders mandated a 10-member High
  Level Task Force on Drafting the ASEAN Charter of
  senior officials to prepare the draft Charter.
  Singapore's representative was Ambassador-at-Large
  Tommy Koh.
• Nov 2007
• ASEAN Charter adopted at 13th ASEAN Summit in
  Singapore.

12
Ratification of the Charter

• For the 1st Asean Charter to become legally
  binding, it has been agreed upon that all ten
  member nations must ratify the Charter before the
  next ASEAN Summit this December 2008.
• The Charter will become effective on the 30th day
  after the 10th "Instrument of Ratification" has
  been submitted to the ASEAN Secretary-General,
  Dr. Surin Pitsuwan.

13
The Charters Economic Purposes

• Art 1 of the Charter
• The Purposes of ASEAN are
• 2. To enhance regional resilience by promoting
  greater political, security, economic and
  socio-cultural cooperation
• 5. To create a single market and production base
  which is stable, prosperous, highly competitive
  and economically integrated with effective
  facilitation for trade and investment in which
  there is free flow of goods, services and
  investment facilitated movement of business
  persons, professionals, talents and labour and
  freer flow of capital
• 6. To alleviate poverty and narrow the
  development gap within ASEAN through mutual
  assistance and cooperation

14
Single Market?

• To most people, a single market is synonymous
  with a custom union which also includes not just
  free movement of goods but also of labour,
  services and capital.
• The most famous single market, the European Union
  (EU) began life as the European Coal and Steel
  Community in 1951 (Treaty of Paris (1951)) and
  went on to become the European Economic Community
  (EEC) in 1957 (Treaty of Rome (1957)) (when it
  become known in Britain and Ireland as "the
  Common Market").
• The abolition of internal tariff barriers was
  achieved in 1968. In subsequent years little was
  done to move from this basic customs union to a
  full single market.
• The Single European Act was signed in 1986 to
  establish a Single European Market by 1992, by
  removing the barriers to free movement of
  capital, labour, goods and services.
• ASEAN EC will have free movement of goods,
  services, skilled labour and freer movement of
  capital but is unlikely to be a custom union.

15
Custom Union?

• Unlikely because a custom union has to create a
  common external tariff policy.
• Singapore has an almost zero tariff policy (only
  beer, stout, samsu and medicated samsu c.f.
  excise tax).
• This means that Singapores tariffs will have to
  go up or that other ASEAN members will have to go
  down significantly to implement a common external
  tariff policy.
• Further, Singapore will have to give up many of
  its FTAs with non-ASEAN partners unless they
  agree with all the other ASEAN partners or the
  preferential tariff rates are harmonised with the
  ASEAN common external tariff rates (thus, making
  the FTA superfluous at least for goods).

16
Charters Institutions

• Art 7 ASEAN Summit held twice annually to
  make decisions
• Art 8 ASEAN Coordinating Council
• Art 9 ASEAN Economic Committee Council
• Art 11 A DSG for Economic Community
• Art 12 Permanent Representatives to ASEAN

17
Third Block ASEAN EC Blueprint

• Along with the Charter, ASEAN leaders also
  adopted the AEC Blueprint.
• Blueprint Para 9. An ASEAN single market and
  production base shall comprise five core
  elements
• (i) free flow of goods (tariffs/NTBs eliminated
  ROOs and TF improved to create single production
  base)
• (ii) free flow of services (particularly air
  transport, e-ASEAN, heath care and tourism /
  MRAs)
• (iii) free flow of investment (AIA and ASEAN
  IGA)
• (iv) freer flow of capital (ASEAN Capital Market
  Development and Integration) and
• (v) free flow of skilled labour (visas and
  employment passes for professionals and skilled
  labour and ASEAN University Network).
• In addition, the single market and production
  base also include two important components,
  namely, the priority integration sectors, and
  food, agriculture and forestry.
• SD Treatment for CLMV including IAI.
• NB AFTA ROOs at the moment is 40 regional value
  content.

18
Tricky Bits

• Competition Policy by 2015 (NB Competition out
  of Doha Single Undertaking)
• Consumer Protection
• High Level of IPRs including accession to Madrid
  Protocol where possible
• Infrastructure Development
• Transport Linkages
• Energy Cooperation
• Mining Cooperation
• Double Taxation Agreement by 2010
• Biggest Tricky Bit Myanmar

19
Implementation of Blueprint

• High Level Task Force
• SG to provide monitoring and reporting
• Economic Committee and Summit to decide things
• ASEAN Minus X can be invoked to accelerate
  implementation
• Flexibility is pre-agreed (!?)

20
Getting to the AEC

• We have the vehicle ASEAN
• We have the destination AEC
• We have the map Blueprint
• Can ASEAN get there?

21
Is the vehicle good enough?

• Does the ASEAN vehicle have
• a steering wheel,
• an engine, and
• a spare tire?
• Does it have
• a decision making institution,
• a monitoring institution and
• an dispute settlement institution
• c.f. European Community?

22
Steering Wheel

• Art 20.1 As a basic principle, decision-making
  in ASEAN shall be based on consultation and
  consensus. (ASEAN Way)
• Art 20.2 Where consensus cannot be achieved,
  the ASEAN Summit may decide how a specific
  decision can be made. (refer to Rule 1?)
• Art 21.2 In the implementation of economic
  commitments, a formula for flexible
  participation, including the ASEAN Minus X
  formula, may be applied where there is a
  consensus to do so.
• Variable Geometry?

23
Engine

• Art 11 and 27 Greater role of the SG in
  monitoring and reporting to the ASEAN Summit
  regarding progress on Blueprint
• Equal financial contributions of member states.
• In the current financial year, ASEC has been
  given US9.05 million.   Thus each Member State
  contributes US905,000 to the budget.
• The ASEAN Secretariat staff now consists of SG, 2
  DSGs (from Cambodia and IndonesiaLao PDR and
  Myanmar are next in line to nominate theirs), 60
  openly-recruited staff from 9 Member States (none
  from Brunei Darussalam), and about 200 support
  staff (almost all are Indonesians).

24
A Spare (in case of blow ups)

• Art 25 Where not otherwise specifically
  provided, appropriate dispute settlement
  mechanisms, including arbitration, shall be
  established for disputes which concern the
  interpretation or application of this Charter and
  other ASEAN instruments.
• Art 26 When a dispute remains unresolved, after
  the application of the preceding provisions of
  this Chapter, this dispute shall be referred to
  the ASEAN Summit, for its decision.
• Art 24.3 Where not otherwise specifically
  provided, disputes which concern the
  interpretation or application of ASEAN economic
  agreements shall be settled in accordance with
  the ASEAN Protocol on Enhanced Dispute Settlement
  Mechanism. (implementation by negative consensus)

25
ASEAN Proton or Porsche?

• ASEAN Way?
• Considering the historical backdrop, the best one
  could hope for?
• Better for our culture?
• Does it matter that it does not look like the EU,
  so long as the vehicle takes us there?

26
Fuel

• As of 2006, the ASEAN region has
• a population of about 560 million,
• a total area of 4.5 million square kilometers,
• a combined GDP of almost US 1,100 billion,
• and a total trade of about US 1,400 billion.
• Facing competition for FDI from India and China.
• Increasingly manufacturers prefer a vertically
  integrated manufacturing chain.
• Reduced transactional costs will add to the
  attractiveness of the region.
• Together we stand, divided we fall?

27
Multilateralising ASEAN

• Art 6
• 2 Admission shall be based on the following
  criteria
• (a) location in the recognised geographical
  region of Southeast Asia
• (b) recognition by all ASEAN Member States
• (c) agreement to be bound and to abide by the
  Charter
• and
• (d) ability and willingness to carry out the
  obligations of Membership.
• 3. Admission shall be decided by consensus by the
  ASEAN Summit, upon the recommendation of the
  ASEAN Coordinating Council.
• (PNG Timor-Leste?)

28
The New Economic Landscape

• From ASEAN website
• For 2006, total ASEAN exports expanded by 16.5
  from US 650.63 billion in 2005 to US 758.04
  billion in 2006.
• Intra-ASEAN exports increased from US 164.06
  billion in 2005 to US 189.12 billion in 2006, up
  by 15.3.
• The growth in intra-ASEAN imports registered a
  15.8 increase from US 141.42 billion in 2005
  to US 163.69 billion in 2006. 
• The share of intra-ASEAN trade in ASEAN total
  trade remained relatively constant with a slight
  increase of 24.97 in 2006 as compared with 24.83
  in 2005 .
• Japan, the US, the European Union, China and
  Korea continued to be ASEANs largest trading
  partners. The share of ASEAN trade (exports
  imports) with these countries to overall ASEAN
  trade in 2006 was 11.55, 11.52, 11.43, 9.97
  and 3.73 , respectively.

29
A journey of a thousand miles begins with a
single step
30
Everything is for the best for man lives in
the "best of all possible worlds." Pangloss, in
Voltaires Candide
An optimist thinks this is the best of all
worlds. A pessimist fears the same may be true.
Doug Larson