The ASEAN Economic Community after the ASEAN Charter

Trading Bloc or Blocked?

Associate Professor Michael Ewing-Chow National University of Singapore

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 "[t]he 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?

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?

Hubs and Spokes in Asia Pacific

Source: METI & MEC

ASEAN +3/+6
ASEAN +1

Canada

China ROK
ASEAN +1 ASEAN +1 Thailand Malaysia Singapore

NAFTA

Japan

ASEAN
ASEAN+1

U.S.

Mexico

India

ASEAN+1

Brunei

NZ Australia P4

Chile
APEC

Principal Organs of ASEAN

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

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?

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.

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 (ATRCMRA) 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.

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.

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.

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.
Member State Singapore Brunei Darussalam Malaysia Lao PDR Cambodia VietNam Government Ratification Tuesday, 2007 December 18 Thursday, 2008 January 31 Thursday, 2008 February 14 Thursday, 2008 February 14 Tuesday, 2008 February 25 Tuesday, 2008 March 06 Deposit of Instrument of Ratification Monday, 2008 January 07 Friday, 2008 February 15 Wednesday, 2008 February 20 Wednesday, 2008 February 20 Wednesday, 2008 April 2 Friday, 2008 March 14 Signed by Prime Minister Sultan of Brunei Darussalam Foreign Minister Prime Minister Cambodian King President

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;

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.

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).

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

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. S&D Treatment for CLMV including IAI. NB: AFTA ROOs at the moment is 40% regional value content.

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

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 (!?)

Getting to the AEC

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

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?

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?

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 US$9.05 million. Thus each Member State contributes US$905,000 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).

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)

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?

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?

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?)

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.

A journey of a thousand miles begins with a single step

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