The 8 th Asia Economic Forum ASEAN After 45 Years: A Review of Achievements & Challenges

1. The 8th Asia Economic Forum ASEAN After 45 Years: A Review of Achievements & Challenges Hang Chuon Naron 17th March 2012 1

2. I- Achievements

3. Successful regional organization in the developing world • ASEAN represents a market of almost 600 million people uniting 10 Southeast Asian nations. • Transformed from a light, anti-communist organization in 1967 to a more or less institutionalized body under the ASEAN Charter; • After the end of the cold war, ASEAN was able to fill the void left by the confrontation between the East and the West to promote open regionalism: Defense Ministers’ Meeting Plus Plus, ARF (27 members). • Since 1992 the Leaders’ Meeting took place every 3 years, annual meeting since 1995 and bi-annual meeting since 2009 (before that only AMM).

4. From gradual institutionalization to proliferation of organs • In 1976, the AEM has started to meet and the ASEAN Secretariat was established; • In 1985 there were more than 25 commissions, 70 committees and groups of experts. Now there are hundreds of commissions and committees; • The problem of ASEAN now is to coordinate between different committees. • The 3 pillars: political-security, economic and socio-cultural are designed to address the coordination problem, yet this remain an issue.

5. ASEAN is at the center of the region • From a hot spot, ASEAN has been transformed into a center of sustained economic growth at a faster pace; • The Asian financial crisis has been the watershed for ASEAN. • The Plus Three Countries: China, Japan and Korea understand that if ASEAN in economic trouble, they will also be in trouble. • At the initiative of ROK President Kim Dae-jung an East Asian Vision Group was formed in 1999 to propose measures to foster regional integration. • ASEAN+3 cooperation has moved forward very quickly.

6. ASEAN is at the center of the region • Trade between ASEAN countries and the Plus 3 countries increased exponentially. • The Chiang Mai initiative has been promoted in ASEAN+3 financial cooperation and has become a model for the world in the area of Regional Financial Arrangements. • During the GFC in 2010 the agreement to establish Chiang Mai Initiative Multilateralization (CMIM) has been finalized (from $76 billion to $120 billion). • The ASEAN+3 Macroeconomic and Research Office (AMRO) established early 2011 replaced the ASEAN+3 Economic Review and Policy Dialogue. • ASEAN attends G20 meeting as observer.

7. II. The Challenges 7

8. Issues facing ASEAN • Strategies and action plans are always ahead of institutions; • Lack of prioritization: there are many initiatives unfunded; • Remain a elitist organization for the Leaders and Officials: the Charter strives to promote ASEAN as a people-centered organization; • Private sector: institutional weakness, the private sector is less involved in ASEAN integration, which has been pushed forward by the ASEAN governments. • Financing : The main problem is to finance ASEAN projects: dependence on dialogue partners, the Plus 3.

9. The lack of a dispute settlement mechanism • Dispute related to specific instruments, the settlement should be made in conformity to the instruments. • Economic dispute will be settled according to the 2004 Protocol on Enhanced Mechanism of Dispute Settlement (borrowed from WTO): consultation (good offices, conciliation and mediation); panel of experts (3 members); an Appellate Body (7 members) – permanent; SEOM will approve the reports; sanctions: compensation and suspension of concession. Arbitrage.

10. The lack of a dispute settlement mechanism • Dispute not related to interpretation and implementation of the Charter: 1976 Treaty of Amity and Cooperation: High Council (Representatives of Parties at Ministerial level); consensus decision; the ASEAN Secretariat is in charge of implementation of recommendations. • Dispute related to the implementation of the Charter: The 2010 Protocol to the ASEAN Charter on Dispute Settlement Mechanism: consultation, good offices, mediation, conciliation and arbitrage. • Derogatory regime: recourse to Article 33 of the UN Charter.

11. III. What does it means by Achieving the AEC by 2015? 11

12. AEC’s objectives by 2015 • It will establish ASEAN as a single market and production base, specifically by strengthening and developing the ASEAN Free Trade Area. • Realizing a single market and production base; • Creation of a highly competitive economic region; • Ensuring equitable economic development process; and • Promoting ASEAN integration to the rest of the world.

13. Contradiction: Free Flow vs. AFTA • The AEC Blueprint: Single market and Production base viz. free flow of goods, services and investment, and freer flow of capital and skilled labor within the AEC. • a) Free flow of goods: Free flow of goods is central to the establishment of a single market and production base. The achievement of this condition will eliminate trade and non trade barriers in intra-ASEAN transactions i.e there will be no restrictions on imports and exports within the region. • b) Free flow of services: Free flow of trade in services will require that there will be no restriction on ASEAN services suppliers in providing services and in establishing service providing companies across national borders within the region, subject to domestic regulations.

14. Contradiction: Free Flow vs. AFTA • c) Free flow of investment: This condition will ensure that all industrial activities shall be open for cross border investment by ASEAN investors within the region and non discriminatory (i.e. equal national and MFN) treatment will be granted to all ASEAN investors both at the pre- and post-establishment stages of the industry. Consequently there will be free flow of investment within the ASEAN Investment Area and IGA. This implies that a natural or a legal person of a member country can freely establish a company in another member country within ASEAN.

15. Contradiction: Free Flow vs. AFTA • d) Freer flow of Capital: This condition requires free transfer of capital across borders within the ASEAN (open capital account or capital account liberalization). This will have implications for the exchange rates of Member countries, particularly for Cambodia which has a dollarized economy. • e) Freer flow of skilled labor: This condition requires allowing managed mobility or facilitated entry by Member countries of natural persons engaged in trade in goods, services, and investments within the region, according to the prevailing regulations of the receiving country. It is more relevant to regulate the flow of unskilled labor.

16. Liberalization: Trade in Goods • Tariff barriers: AFTA has been achieved: 0% for older members; 5%-0% for newer members; • Tariffs on all products on the inclusion list will be eliminated by 2015 (except for 7% of tariff lines for which tariff elimination is scheduled by 2018, some petroleum products that are sensitive to revenue, that are extended until 2024). • The challenge is Non-tariff barriers: Technical Barriers to Trade are rising for ASEAN countries: for instance Vietnam and Thailand are requesting SPS certificates for agricultural products (more restricted than before).

17. ASEAN’s preparedness for AEC • Trade in Service: Remain a big challenge and ASEAN is in the process of reviewing it; some problems in all countries; • Investment liberalization: no problem; • Trade facilitation: ASEAN Single Window in 2012, but there are many challenges; • Cross-border transportation remains an issue;

18. Constraints and policies • 1) – Single market and production base: the ASEAN way, borders still exist, cross-border inspection and rules of origin: it will be a Single Union of 10 ASEAN countries and Facilitated Flows of production factors (goods, services…); • 2) – Highly competitive economic region – reforms will be required to address high production (except labor) and infrastructure costs, legal infrastructure is under-developed and different from some members: consumer protection, intellectual property rights and competition policies.

19. Constraints and policies • 3) Equitable Economic Development: Promotion of Small and Medium Enterprises (SMEs): the Action Plan for 2004-2014 focuses on HRD, capacity building in marketing, access to credit and streamlining legal and regulatory framework; • Initiative for ASEAN Integration (IAI) - 4 priority sectors: infrastructure (transport and energy), HRD, ITC and regional economic integration. The Singapore – Kunming raillink; • ASEAN Development Fund (US$4 million financed by ASEAN-6 and US$2 financed by the Plus Three Countries (China, Japan and the Republic of Korea); • Lack of funds to finance IAI projects.

20. Integrating ASEAN with the rest of the world • Integrating ASEAN with the rest of the world by promoting ASEAN+1 FTAs • Cambodia attaches importance to the preferential trading arrangements with ASEAN dialogue partners. • Cambodia has ratified 6 ASEAN+1 free trade agreements: (i) for goods with China, Republic of Korea, Japan (except investment and services), Australia and New Zealand, and India (except investment and services); (ii) for services with China, Republic of Korea, and Australia and New Zealand; and (iii) for investment with China, Republic of Korea, and Australia and New Zealand.

21. Integrating ASEAN with the world • Integrating ASEAN with the rest of the world by promoting ASEAN+1 FTAs • The agreements are broad in scope, covering trade in goods and services, as well as investment, and the agreement with Australia/New Zealand also contains provisions in other areas such as intellectual property, SPS and TBT, and competition. • These agreements, together with ASEAN's AFTA, are expected to help Cambodia to expand exports to the dynamic economies of Asia, both by securing access for Cambodia's current products and by attracting investment to create production targeted to those markets.

22. Integrating ASEAN with the rest of the world • Integrating ASEAN with the rest of the world by promoting ASEAN + + FTAs • There are now 6 ASEAN+1 FTAs. • China proposes to establish ASEAN+3 FTAs, but Japan proposes ASEAN++ FTAs, meaning that the ASEAN+3 FTAs should keep the door open for Australia, New Zealand and India to join; • ASEAN to develop templates to negotiate the ASEAN++ FTAs to ensure ASEAN’s centrality.

23. Integrating ASEAN with the rest of the world • Integrating ASEAN with the rest of the world by promoting ASEAN + + FTAs • The approach can be: (i) a single undertaking negotiation: trade in goods and services, investment, intellectual property, competition, consumer protection will be reached at the same time; or (ii) sequential negotiation in these areas; • ASEAN ++ FTA is a compromise between ASEAN Plus 3 FTA favored by China and Comprehensive Economic Partnership favored by Japan.

24. ASEAN’s Response to TPP • Trans-Pacific Partnership (TPP) - 9 countries: Australia, Brunei, Japan, New Zealand, Malaysia, Singapore, US and Vietnam are in the process of negotiating firm commitments (with 20 Working Groups), in response to the stalled APEC voluntary liberalization. • Now half of ASEAN members: Brunei, Malaysia, Singapore, and Vietnam are involved in negotiating firm commitments under the TPP; • China, in response, announced a USD10 billion million contribution to the ASEAN Infrastructure Fund, including USD 4 billion in soft loan;

25. ASEAN Framework for Regional Comprehensive Economic Partnership • At the 19th ASEAN Summit in Bali, the ASEAN Leaders endorsed the ASEAN Framework for Regional Comprehensive Economic Partnership; • An ASEAN-led process by setting out principles under which ASEAN will engage interested ASEAN FTA partners in establishing a regional comprehensive economic partnership agreement and, subsequently, with other external economic partners; • The objective is to maintain the so-called ASEAN centrality.

26. ASEAN’s Response to TPP • Broader and deeper engagement with significant improvements over existing ASEAN FTAs/CEP with Dialogue Partners, consistent with the WTO Agreement. • The agreement shall facilitate trade and investment, including reduction of transaction costs for businesses, improving regulatory and administrative barriers to trade and investment. • The agreement shall provide for special and differential treatment to ASEAN Member States, especially Cambodia, Lao PDR, Myanmar and Viet Nam.

27. IV. Issues for newer ASEAN Member States 27

28. Constraints in meeting AEC • Human and financial resources to meet the requirements of the AEC; • High costs of investing in physical infrastructure; • Variable commitment in developing soft infrastructure; • The inadequacy of physical infrastructure, in particular transportation infrastructure, is at the heart of the difficulties faced by Cambodian producers in competing with other ASEAN members. • A lowering of transport and electricity costs is central to any effort to improve the competitiveness of the Cambodian economy.

29. Factors constrain exports • High production and infrastructure costs, low competitiveness and productivity; • Limited value added in many sectors, due to high import dependency for raw materials and intermediate inputs; • Poor quality and limited differentiation of products, limited access to technology, and small design and R&D capacity; • Enterprises have difficulties meeting exacting quality standards of various foreign markets as well as meeting time delivery requirements of foreign buyers; • Underdeveloped, albeit improving, legal and institutional framework for business export development.

30. Challenges • Promotion of inclusive growth. • The quality of education and vocational training. • Competitiveness and the ability to compete with other countries for Foreign Direct Investment. • Export development through the expansion of supply-side capacity will remain the central element of trade policy. • The ability to diversify the economy and move up the ladder of international specialization.

31. Thank You 31