ASEAN Community: Unblocking the Roadblocks 9789812308443

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THE ASEAN COMMUNITY Unblocking the Roadblocks

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued almost 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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ASEAN Studies Centre Report No. 1

THE ASEAN COMMUNITY Unblocking the Roadblocks

INSTITUTE OF SOUTHEAST ASIAN STUDIES

Singapore

First published in Singapore in 2008 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2008 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the editors and contributors and their interpretations do not necessarily reflect the views or the policy of the publisher or its supporters. ISEAS Library Cataloguing-in-Publication Data ASEAN community : unblocking the roadblocks. (ASEAN Studies Centre report series, no. 1) 1. ASEAN. 2. Regionalism—Southeast Asia. 3. Southeast Asia—Relations. I. Institute of Southeast Asian Studies. ASEAN Studies Centre. II. Series: ASEAN Studies Centre report no. 1. JZ5333.5 A9A85 no. 1 2008 ISBN 978-981-230-843-6 (soft cover) ISBN 978-981-230-844-3 (PDF) Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Utopia Press Pte Ltd

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CONTENTS

vii

Introduction Session I:

Identifying the Roadblocks to ASEAN Economic Integration

1

Session II:

Whither the ASEAN Regional Forum?

4

Session III:

Designing a Blueprint for the ASEAN Socio-Cultural Community

6

Does the ASEAN Charter Really Matter?

9

Session IV:

Background Papers Towards an ASEAN Economic Community by 2015 Denis Hew

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Implementing the ASEAN Economic Community Blueprint Hadi Soesastro

30

Towards an ASEAN Economic Community: Matching the Hardware with the Operating System Eduardo Pedrosa

39

Whither the ASEAN Regional Forum? Rodolfo C. Severino

56

The ASEAN Socio-Cultural Community Carolina S. Guina

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Contents

The ASEAN Charter and a Legal Identity for ASEAN Locknie Hsu

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The ASEAN Charter: Making Sense out of Mixed Responses 84 Mely Caballero-Anthony 96

List of Speakers, Participants and Chairmen

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INTRODUCTION

On 15 April 2008, the ASEAN Studies Centre and the Regional Economic Studies Programme, both of the Institute of Southeast Asian Studies, organized a workshop on “The ASEAN Community: Unblocking the Roadblocks”. The first endeavour in which the new ASEAN Studies Centre was actively involved, the closeddoor workshop gathered Southeast Asian experts on ASEAN for what was essentially a brainstorming session on the nature of the ASEAN Community that the association aspires to be, segmented into its three pillars — the ASEAN Economic Community, the ASEAN Security Community, and the ASEAN Socio-Cultural Community. The session examined the benefits expected from regional community building for the people of Southeast Asia and the obstacles that lay on the way to its achievement. The workshop suggested certain measures for removing those obstacles. It then discussed the newly signed ASEAN Charter: the significance of its provisions, how it could help build the ASEAN Community, and how it might fall short of doing so. The workshop also heard a short briefing on the aims and functions of the ASEAN Studies Centre and proffered suggestions for it. A list of the names and contact details of the participants are at the end of this report. The report, the first in the ASEAN Studies Centre report series, begins with a brief account of the important points raised during the discussions, including the recommendations made. This is followed by short papers by Denis Hew, Hadi Soesastro and Eduardo Pedrosa on the ASEAN Economic Community and

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Introduction

regional economic integration; Rodolfo C. Severino on the ASEAN Regional Forum; Carolina S. Guina on the proposed blueprint for the ASEAN Socio-Cultural Community; and Locknie Hsu and Mely Caballero-Anthony on the ASEAN Charter. It is hoped that the summary and the papers will help both policy-makers and the interested public in appreciating the benefits of a comprehensive regional community and what it would take to bring it about. The 2008 ASEAN Roundtable, an annual event organized by ISEAS, will take place towards the end of July. Supported by the Konrad Adenauer Stiftung, it will examine in detail the blueprint adopted for the ASEAN Economic Community.

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WORKSHOP ON ASEAN COMMUNITY: Unblocking the Roadblocks

SESSION I IDENTIFYING THE ROADBLOCKS TO ASEAN ECONOMIC INTEGRATION Challenges in Implementing the AEC Blueprint At their summit in November 2007 in Singapore, the ASEAN leaders adopted the ASEAN Economic Community (AEC) Blueprint. The Blueprint is a comprehensive document that was crafted to realize the AEC by 2015. The AEC is envisaged to be: (i) (ii) (iii) (iv)

a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region that is fully integrated into the global economy.

With the adoption of the Blueprint, ASEAN is now ready to move into an economic integration process that is driven by clearly defined goals and timelines. However, there are a number of challenges in implementing the Blueprint. Although the Blueprint is a binding document, there is a serious lack of capacity in ASEAN to enforce it either at the regional or at the national level. Moreover, some goals in the

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Blueprint are vaguely defined with hardly any milestones. Therefore, in the process of its implementation, signposts will need to be erected to track the progress made towards achieving the goals. Here the development of “scorecards” can be useful, perhaps even critical, in the successful implementation of the Blueprint. ASEAN appears to be less than transparent regarding disclosing its members’ failure to implement economic commitments. While ASEAN has made progress in publicizing its many economic initiatives, it has a rather poor track record in informing the public about the implementation process and outcomes of these initiatives. Other challenges faced by many member countries in implementing the Blueprint include customs modernization, standards and conformance, and infrastructure development. Hence, there may be a need to establish institutions or mechanisms to monitor the implementation of commitments in the Blueprint. Each member country could begin this process by preparing a more detailed national action plan to implement the AEC Blueprint. By having a set of peer-review mechanisms based on systematic monitoring and tracking at the regional and national levels, meaningful “signposts” to indicate progress (or the lack thereof) towards achieving the AEC can be established. Systematic efforts at monitoring and tracking the progress would clearly contribute to the successful implementation of the Blueprint. In turn, this could help identify areas in which analysis, policy development and technical inputs would need to be organized.

Priority Sectors ASEAN has decided on the fast-track integration of twelve priority sectors to advance the AEC process. They are electronics,

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e-ASEAN, healthcare, wood-based products, automotives, rubberbased products, textiles and apparels, agro-based products, fisheries, air travel, tourism, and logistics. But four years after the announcement of the priority sectors, there has yet to be any substantial increase in intra-regional trade in these sectors. The continued use of negative lists in the priority sectors (as in the AFTA experience) calls into question the political commitment of ASEAN governments to economic integration. In the light of the increasingly competitive environment, ASEAN must take steps to remove these items from the negative lists. Otherwise, the AEC risks failure. An alternative approach to fasttracking ASEAN economic integration may be needed, given the fact that the AEC deadline is only seven years away.

Barriers to Economic Integration It also remains to be seen whether businesses — whether they are local ASEAN companies or multinational corporations — will begin to use ASEAN as a single production base and market. In 2007, the Pacific Economic Cooperation Council (PECC) conducted a survey of opinion-leaders in the Asia-Pacific on the barriers to integration. Looking only at the responses from ASEAN member economies, a clearer picture of the challenge facing the AEC emerges. The survey found that the single biggest barrier to economic integration was infrastructure, followed by the uncertain legal environment and then poor corporate governance and inadequate intellectual property rights protection. Indeed, on the basis of some key indicators of infrastructure provision in the region, it is clear that even if all tariff and nontariff barriers are removed, it will still be very difficult for businesses to full utilize the ASEAN region as a single production base, because much of the region remains unconnected to both

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the major urban markets of the region and the global market. Hence, it will be a challenge for the region to be fully integrated without substantial investments in infrastructure. Moreover, as companies look to build more flexible supply chains and either locate manufacturing facilities or subcontract work to local firms, congestion and high costs in urban centres are reaching prohibitive levels. The development of economic corridors between second- and third-tier cities will enable the business community to better harness the complementarities within the region.

SESSION II WHITHER THE ASEAN REGIONAL FORUM? In considering the future of the ASEAN Regional Forum (ARF) and the role of ASEAN in it, it would be useful to focus on five issues — participation, the subjects for discussion, the question of ASEAN leadership, the nature of confidence building, and the prospects of preventive diplomacy. •

•

Participation: The expansion of ARF participation, often driven by the relations of individual participants with applicant countries, could have an impact on the forum’s “geographic footprint” and effectiveness. Agenda: It would increase the forum’s effectiveness if the number of items in the agendas for the ministerial and other senior-level meetings could be reduced, so that discussions could be more thorough, deeper and more focused. The more intensive discussions, however, should not intensify

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mutual suspicions and animosities and exacerbate divisions. Such a balance would present a challenge to ASEAN leadership. ASEAN leadership: In exercising leadership of the ARF, ASEAN must go beyond preparing for meetings and managing the process, although these are important. ASEAN has to ensure both deeper and more thorough treatment of each subject and the promotion of goodwill, amity and consensus. It has to contribute more consistently to ARF ideas and initiatives. At the same time, it must ensure that greater intellectual activism does not result in the loss of its valued neutrality. Confidence building: An examination of the ARF’s confidence-building function should yield answers to the questions of whether the forum is actually building mutual confidence between the major powers and whether confidence building can be achieved between powers whose strategic interests diverge significantly. Preventive diplomacy: In considering the exercise of preventive diplomacy, the ARF should determine in some measure whether that exercise should apply to conflict situations within nations and the relative degrees of attention to be given to “traditional” and “non-traditional” security threats.

As an indicator of the ARF’s — and ASEAN’s — efficacy as security institutions, Indonesia has not received much help in confronting the numerous threats to its security, which range from border disputes to separatism and communal conflicts to transnational challenges like terrorism, people trafficking and arms smuggling.

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SESSION III DESIGNING A BLUEPRINT FOR THE ASEAN SOCIO-CULTURAL COMMUNITY The ASEAN Secretariat is currently preparing the ASEAN SocioCultural Community (ASCC) Blueprint. The final draft is likely to be ready for consideration at the Forty-first ASEAN Ministerial Meeting (AMM) in July 2008. The ASCC Blueprint builds on the Vientiane Action Programme and incorporates the purposes and principles of ASEAN as formulated in the ASEAN Charter. The ASCC Blueprint will focus on sustainable development, regional resilience, adherence to common norms and values, and narrowing the developmental gaps in the region. It will have six core elements: • • • • • •

Human development (education, health, youth); Social welfare and protection; Social justice and rights; Environmental sustainability; Common ASEAN identity; and Narrowing the development gap

There are a number of challenges in designing the ASCC Blueprint: •

•

Unlike the ASEAN Economic Community, the ASCC lacks concrete drivers, as the stakeholders for the ASCC are far more diverse and complex. While the AEC Blueprint has specific targets and timelines, it will be difficult for the ASCC Blueprint to follow the same format. As many of ASCC goals are driven by national

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agendas, implementation of initiatives have to be done both at national and regional levels and hence may require two types of scorecards. ASEAN member countries may not have a common understanding of social issues, such as values, ethics and social justice. Furthermore, unlike the European Union, ASEAN does not have the institutional capacity to translate these social issues into legislation. Unlike the AEC, the ASCC does not enjoy the same level of support or enthusiasm from ASEAN’s Dialogue Partners. The ASCC does not have a champion. Although the lead ASEAN body for the ASCC is the ASEAN Standing Committee (ASC), it is more preoccupied with political issues.

What seems clear here is that designing the ASCC Blueprint will require a very different approach from that of the AEC Blueprint. For the ASCC to move forward, it is important for the ASEAN processes to recognize a number of key factors: (i)

that national initiatives will fundamentally drive the basic ASCC concerns of poverty, equity and quality of life; (ii) that the pace of national initiatives will vary, depending on the stage of development of the legal, regulatory, and institutional frameworks in each state; and (iii) that the linkages between national and regional initiatives will have to be clearly established both to generate synergies and to make a clear case for pursuing certain initiatives at the regional level.

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Given this, if national initiatives to achieve ASCC goals are recognized, governments should be given the leeway to define for themselves how shared goals at the regional level will be met. This implies setting broad goals at the regional level and allowing each member country to determine its own pace and set of milestones for reaching these goals. The ASCC will, therefore, be a composite of plans and programmes that are parts of the national development agendas. Despite the nationally driven initiatives for the ASCC, there are cases where a regional approach is necessary. These areas are environmental degradation, the prevention of communicable diseases, the control and prevention of HIV/AIDS, and the prevention of human trafficking, which have clear transnational dimensions. What then would be the role of regional cooperation in this process? Regional cooperation will play essentially three roles in the evolution of the ASCC. First, it can provide the platform for advocacy in promoting the shared goals of prosperity, equity and peace; sustainable development; and an ASEAN cultural identity. Second, it can leverage political commitments and apply peer pressure to the delivery of national programmes. Third, regional cooperation can complement or add value to national-level initiatives through new knowledge and collective experience and joint efforts in developing regional approaches and institutions. To realize these roles would require a proactive ASEAN Secretariat to identify opportunities that would bring about positive and meaningful synergies from seemingly disparate national actions towards the goals of the ASCC. The ASEAN Secretariat will need to strengthen its oversight role of the ASCC. It will need to do this in two areas: identifying opportunities for adding value

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to national initiatives at the regional level; and monitoring the collective impacts of nationally driven action plans in support of the ASCC. Ultimately, the social cohesion that is envisaged in the ASCC will have to evolve over the long term, as national social institutions become more developed in the course of development and as the process of economic integration promotes greater social interaction. Greater interaction, people-to-people contact, and social mobility will hopefully build a better understanding of values and traditions among ASEAN peoples with diverse historical experiences and a wealth of cultural heritage.

SESSION IV DOES THE ASEAN CHARTER REALLY MATTER? The signing of the ASEAN Charter on 20 November 2007 has set off in knowing ASEAN circles a vigourous debate on the value and significance of the Charter as adopted by ASEAN’s leaders. There are those who regard the framing of the Charter as a great opportunity to overcome what they perceive as the weaknesses and shortcomings of ASEAN and shape the association into a tool for advancing human welfare as they view it. They have been disappointed by the Charter as adopted, deploring its likely failure to change ASEAN in meaningful ways. On the other side are those who acknowledge the imperfections of the Charter but see it as moving ASEAN forward and making it into a more rulesbased association with a greater capacity to promote compliance with ASEAN agreements and commitments, including the expanded norms that the Charter affirms.

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The criticisms of the Charter have focused on its lack of mechanisms to ensure compliance with ASEAN obligations, including those norms having to do with democracy, human rights and fundamental freedoms, social justice, the rule of law, and good governance. The Charter, for example, provides for no sanctions for the violation of its provisions and of other ASEAN instruments. The critics are also wary of the terms that vest in the ASEAN Summit the final powers of decision, fearing that its decisions would inevitably be politically driven. They place importance on the Charter’s expression of the intention to set up an ASEAN human rights body but regret that it contains no specifics. Those who emphasize the Charter’s value point out that it not only confers at long last legal status on the association and reaffirms its existing principles, structures and practices; it also augments them. It proclaims norms that cover not only the relations between states but also the relationship of the state to its citizens. While the Charter provides for no specific sanctions for non-compliance with those norms as well as with other ASEAN commitments and no effective mechanism for their enforcement, they can be invoked in case of egregious violations. The decisionmaking powers of the ASEAN Summit leave room for nonconsensual methods of reaching agreement. Details on the ASEAN human rights mechanism will have to be worked out sooner or later; indeed, a task force has already been formed to draw up the terms of reference of the mechanism. The Charter seeks to strengthen ASEAN’s institutions so as to enable them to ensure compliance with ASEAN norms and agreements and otherwise promote ASEAN’s aims.

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It has been pointed out that the Charter can be reviewed, amended and improved after five years. In any case, much depends on the implementing rules still to be formulated and on how effectively the ASEAN member countries use the Charter as a tool to advance ASEAN’s purposes.

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BACKGROUND PAPERS

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TOWARDS AN ASEAN ECONOMIC COMMUNITY BY 2015 Denis Hew

The idea of an ASEAN Economic Community (AEC) was first proposed by then Singaporean Prime Minister Goh Chok Tong at the 2002 ASEAN Summit in Phnom Penh, Cambodia. He envisaged that the AEC would be similar to the European Economic Community of the 1950s. The following year, at the 2003 ASEAN Summit in Bali, Indonesia, ASEAN leaders agreed to embark on this ambitious project, integrate their economies by 2020, and establish the AEC. In line with the ASEAN Vision 2020, the AEC will be a single market and production base with free flow of goods, services, investments, capital and skilled labour.1 At the ASEAN Summit in Cebu, Philippines, in January 2007, the deadline to realize the AEC was brought forward by five years to 2015.2 What is the main motivation for ASEAN to embark on this ambitious economic integration project? The loss of economic competitiveness to emerging markets such as China and India has been the major driving force in ASEAN’s efforts to accelerate economic integration. A study on ASEAN undertaken by McKinsey and Co. a few years ago found that ASEAN had lost its competitive edge to China.3 This became even more evident in recent years, as China overtook ASEAN as the developing world’s top location for foreign direct investment (FDI) (see Figure 1). Meanwhile,

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FIGURE 1 FDI Inflows to China and ASEAN, 1980–2006 80,000 70,000

US$ m i l l i ons

60,000 50,000 ASEAN

40,000

China

30,000 20,000 10,000 0 1980

1990

2000

2001

2002

2003

2004

2005

2006

Source: UNCTAD.

international production networks and global supply chains are being reconfigured to take account of China’s rapid economic expansion and industrialization. India, another potential major competitor to ASEAN, has become a major provider of services, such as information and communications technology (ICT), and is strengthening its manufacturing capabilities. Such developments will have serious repercussions on ASEAN’s economic well-being over the longer term if ASEAN remains uncompetitive. Driven by these concerns, a number of initiatives to propel the region towards closer economic integration eventually led to the adoption of the AEC Blueprint at the November 2007 ASEAN Summit in Singapore. The AEC Blueprint essentially lays out a roadmap to accelerate economic integration and realize the AEC by 2015. This includes action plans, targets and timelines to

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Main Highlights from the AEC Blueprint I. Single Market and Production Base Five core elements:

Free flow of goods Free flow of services Free flow of investment Free flow of capital

Free flow of skilled labour

Liberalization Tariff and NTB elimination Synchronized external tariff alignment Full market access and national treatment Remove substantially all restrictions on trade in services All industries and services incidental to these industries for ASEAN investors Relax capital control measures on intra-ASEAN portfolio investment Remove discrimination in employment

Facilitation Customs integration Standards and technical barriers to trade MRAs on professional services; professional exchange Transparency; streamlined procedures, avoidance of double taxation; joint promotion Harmonize capital market standards; facilitate market driven efforts to establish exchange and debt market linkages Harmonization of standards in education and training; MRA on vocational training

Priority Integration Sectors (PIS) • Conduct a bi-annual review to monitor the status, progress and effectiveness of the PIS roadmaps to ensure timely implementation • Identify sector-specific projects or initiatives through regular dialogues or consultation with stakeholders, particularly the private sector. Food, Agriculture and Forestry • Enhance trade and long-term competitiveness of ASEAN food, agriculture and forestry products • Promote cooperation with international, regional organizations and private sector II. • • • • • •

Competitive Economic Region Develop a competition policy Strengthen consumer protection Regional cooperation in Intellectual Property Rights (IPRs) Regional cooperation in infrastructure development Complete network of bilateral agreements on avoidance of double taxation Promote electronic commerce (e-commerce)

III. Equitable Economic Development • Accelerate the development of small and medium-sized enterprises (SMEs) • Enhance the Initiative for ASEAN Integration (IAI) to narrow the development gap IV. Integration into the Global Economy • Achieve a coherent approach towards external economic relations, including its negotiations for FTAs and comprehensive economic partnerships (CEP) • Enhance participation in global supply networks

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facilitate economic integration and advance the AEC process. In the AEC Blueprint, ASEAN aims to be: (i) a single market and production base; (ii) a highly competitive economic region; (iii) a region of equitable economic development; and (iv) a region that is fully integrated into the global economy. Hadi Soesastro has noted that the AEC Blueprint is a clear departure from ASEAN’s tradition. It has not been ASEAN’s practice to devise a blueprint to achieve its objectives. Therefore, the adoption of the AEC Blueprint indicates that ASEAN is now prepared to undertake an integration process that is driven by clearly defined goals and timelines. Although the approach towards creating a single market and production base was not elaborated in the Bali Concord II, what seems clear was the need to have a significantly higher degree of regional economic integration and institutional development. As mentioned earlier, economic integration could provide the means to revitalize ASEAN’s economies. Given that ASEAN countries are at very different levels of economic development, this economic diversity can be a comparative advantage, as it maximizes the complementarities among ASEAN member countries and encourages the development of regional production networks. An integrated market and production base would clearly boost intra-regional trade and investment flows across the region, while ASEAN’s consumer market of almost 600 million people would be a lucrative place for companies to set up shop and do business. In 2003, the ASEAN High Level Task Force (HLTF) on Economic Integration recommended a slew of economic initiatives to kick-start the AEC project.4 These initiatives included: • •

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Fast-track integration of priority sectors; Faster customs clearance and simplified customs procedures;

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Elimination of barriers to trade; Accelerated implementation of mutual recognition arangements (MRAs) for key sectors (for example, electrical and electronic equipment and telecommunications equipment); and Harmonization of standards and technical regulations.

The fast-track integration of selected sectors in goods and services underscores the approach ASEAN is taking in integrating its economies. The ASEAN HLTF on Economic Integration highlighted eleven priority sectors. These were electronics, e-ASEAN (ICT), healthcare, wood-based products, automotives, rubber-based products, textiles and apparel, agro-based products, fisheries, air travel and tourism.5 At the 2007 ASEAN Cebu Summit, ASEAN’s leaders endorsed a twelfth priority sector — logistics. These priority sectors were selected on the basis of their potential to maximize the complementarities among ASEAN economies and to serve as catalysts for expediting the integration process. In the area of trade in goods, ASEAN officials have improved the Common Effective Preferential Tariffs (CEPT) Scheme’s Rules of Origin (ROO) in several ways. These include making the ROO more transparent, predictable and standardized and taking into account the best practices of other Regional Trading Arrangements (RTAs), including the World Trade Organization’s (WTO) ROO. To ensure transparency on non-tariff measures (NTMs) and eliminate those that are barriers to trade, the following actions would be taken over the next few years: • • •

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Establish an ASEAN database on NTMs; Set clear criteria for identifying measures that are classified as barriers to trade; Set a clear and definitive work programme for the removal of such barriers; and

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Adopt the WTO agreements on Technical Barriers to Trade; Sanitary and Phyto-Sanitary and Import Licensing Procedures and develop implementation guidelines appropriate for ASEAN.

One of the most important recommendations of the HLTF was the enhancement of the ASEAN dispute settlement mechanism (DSM). To date, the ASEAN DSM has never been used by any member country. This is not surprising in the light of ASEAN’s consensusdriven and non-confrontational decision-making process as well as the politically charged nature of any trade-related DSMs. Nevertheless, the number of trade disputes will invariably rise as the region undergoes deeper economic integration. Hence, a workable DSM would be absolutely vital for the successful implementation of the AEC project. The following measures will be undertaken to enhance the ASEAN DSM:6 • •

•

Establish a legal unit within the ASEAN Secretariat to provide legal advice on trade disputes; Establish the ASEAN Consultation to Solve Trade and Investment Issues in order to foster the quick resolution of operations problems (this would be similar to the EU mechanism); and Establish the ASEAN Compliance Body.

To advance the AEC project, a six-year action plan was launched at the 2004 ASEAN Summit in Vientiane, Laos. This plan, which is known as the Vientiane Action Programme 2004–2010 (VAP), has three broad objectives: •

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Intensify current economic cooperation initiatives which are targeted for completion on or before 2010 as well as accelerate the integration of the eleven priority sectors;

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Remove barriers to the free flow of goods, services, and skilled labour and freer flow of capital by 2010; and Develop and implement economic measures that would put in place the essential elements for ASEAN to function as a single market and production base.

Building Blocks to Support the AEC Achieving deeper economic integration may seem very challenging, but ASEAN has already started the process. ASEAN has already put in place important economic building blocks to support and advance the AEC. These building blocks include the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA), and the ASEAN Framework Agreement on Services (AFAS). These are discussed separately below.

ASEAN Free Trade Area (AFTA) AFTA was launched with the signing of the CEPT Scheme for the ASEAN Free Trade Area on 28 January 1992. This agreement required member countries to reduce their tariff rates on a wide range of products traded within the region to 0 to 5 per cent. ASEAN-5 plus Brunei (ASEAN-6) had already complied with the CEPT scheme by 2003. Vietnam achieved its tariff elimination target in 2006 and Laos and Myanmar in 2008. Cambodia is committed to do so in 2010. To date, tariffs on 99 per cent of products in the CEPT Inclusion List of the ASEAN-6 countries have been reduced to 0 to 5 per cent; tariffs on over 70 per cent have been completely eliminated. In November 1999, the ASEAN Economic Ministers went further in their efforts to realize the vision of a regional free trade area by agreeing to eliminate all tariffs by 2010 for the ASEAN-6 and 2015 for the CLMV countries. For products in the priority

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sectors, tariffs were to be eliminated for the ASEAN-6 by 2007 and 2012 for the CLMV. Although most ASEAN countries have complied with tariff reductions under AFTA, Tongzon (2005) found that the utilization of the CEPT has been relatively low due to the lack of clear and transparent procedures, the lack of mutual trust between the preference-receiving country and the preference-granting country, the low margin of tariff preferences (between CEPT and mostfavoured-nation rates), and the lack of private sector awareness of AFTA concessions.7 Furthermore, the less developed ASEAN countries may be reluctant to fully implement AFTA on account of the huge losses in customs revenue that would arise from the implementation of the CEPT. Not surprisingly, one observes that intra-ASEAN trade has not increased significantly over the past ten years (see Figure 2). Furthermore, tariff reduction or elimination is the easier part of the AFTA. Eliminating non-tariff barriers (NTBs) is more difficult. NTBs not only include border measures but also standards, regulations and domestic laws of each member country that prevent the free movement of goods and services across the region. It was found that NTBs, even in the priority sectors, continue to persist and impede greater intra-ASEAN trade.8 Hence, effectively tackling NTBs and other non-tariff barriers would be crucial if a fully functioning AFTA is to be feasible by 2015. To date, ASEAN has failed to tackle NTBs effectively, with many member countries not providing a comprehensive list of NTBs to the ASEAN Secretariat. Severino (2006) suggested that it would be more useful to have a list of NTBs from companies that have encountered them rather than to rely on one that is based on what governments are willing to disclose.9

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FIGURE 2 Intra-ASEAN Trade as Percentage of Total ASEAN Trade

30

26.6 26.7 27.2 27.2 24

25 20.3

%

20

17.9

24.7 24.1 24.4

18.8

15 10 5 0 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006

Source: IMF Direction of Trade Statistics 2007.

ASEAN Investment Area (AIA) The AIA, signed on 7 October 1998, aims to make ASEAN a highly competitive investment area that will attract FDI flows from ASEAN and non-ASEAN investors. This agreement binds member countries to reduce or eliminate investment barriers and grant national treatment to ASEAN investors by 2010 and to all investors by 2020. The AIA aims to encourage investors, particularly from ASEAN countries, to adopt a regional investment strategy and to promote regional production networks. The AIA is thus expected to provide greater scope for division of labour and industrial activities across the region, creating

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opportunities for greater industrial efficiency and cost competitiveness. Investors can benefit from the AIA through greater investment access to industries and economic sectors, as well as from more liberal and competitive investment regimes that should reduce the transaction costs of doing business in the region. The AIA currently covers the manufacturing, agriculture, mining, forestry and fishery sectors and services incidental to these sectors. ASEAN is currently considering whether to extend national treatment to its present or proposed FTA partners, namely, China, Japan, Korea, India, and Australia and New Zealand by 2010. By turning the region into an integrated investment area, the AIA would serve as a natural complement to greater trade integration under AFTA. Because regional production networks, trade and FDI flows in the region are driven mainly by non-ASEAN investors (viz., the United States, Japan and Europe), it makes no sense to wait so long to extend national treatment to all investors (see Figure 3). Hence, the AIA should be open to all investors sooner rather than later. In this context, a new investment strategy may need to be designed — one which moves away from a regional investment strategy that promotes intra-regional investments to one that creates a platform that attracts global foreign investments. This new AIA strategy would be more aligned with the AEC’s objective of creating an integrated production base that is plugged into the global supply chain. The AEC Blueprint also highlights the need to create a more comprehensive investment agreement that incorporates not just investment liberalization but also investment protection. In this context, the AIA and the 1987 ASEAN Agreement for the Promotion and Protection of Investment will be reviewed. Clearly, a

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FIGURE 3 Source of FDI Inflows to ASEAN, 1995–2005

ASEAN9 4%

US 18%

NIEs 29%

Japan 19%

EU 30%

Notes: i. ASEAN9 excludes Singapore. ii. Newly Industrialized Economies (NIEs) which are Hong Kong, Republic of Korea, Singapore and Taiwan. Source: M. Kawai and G. Wignaraja, “Regionalism as an Engine of Multilateralism: A Case for a Single East Asian FTA”, Asian Development Bank (ADB) Working Paper series on Regional Economic Integration No. 14.

comprehensive investment agreement will provide the necessary building block for achieving the objectives of the AEC.

ASEAN Framework Agreement on Services (AFAS) AFAS, which was signed on 15 December 1995, aims to enhance cooperation in the services sector among ASEAN countries by eliminating intra-regional trade restrictions and facilitate the free flow of services by 2015. Under AFAS, the scope of the

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ASEAN Community: Unblocking the Roadblocks

liberalization of trade in services goes beyond that already undertaken under the WTO’s General Agreement on Trade in Services (GATS). In other words, the AFAS is designed to be a GATS-Plus agreement. AFAS uses a positive list approach to services liberalization within a GATS framework. Seven sectors are covered by AFAS — air transport, business services, construction, financial services, maritime transport, telecommunications and tourism. ASEAN has concluded six packages of commitments under AFAS. These packages provide details of commitments from each ASEAN country to the other member countries. However, progress made in services trade liberalization under AFAS has been slow. Member countries have been very cautious in committing themselves to AFAS and have made little progress in liberalizing services trade at the regional level. In fact, member countries’ commitments have not been significantly bolder and more far-reaching under the AFAS than under GATS. The ASEANX principle is currently being applied as a means to speed up the liberalization process. This principle allows member countries that are ready to liberalize to go ahead first, with other members joining at a later stage. Regional cooperation in the services sector took another important step with the conclusion of mutual recognition agreements (MRAs). MRAs are intended to facilitate the freer movement of providers of professional services in the region. ASEAN will use the value of intra-regional trade, the existence of technical barriers, and indications of strong interest on the part of member countries as criteria for identifying the sectors that would be suitable for MRAs. ASEAN concluded MRAs on engineering services in December 2005, on nursing services in December 2006, and on architectural services and on surveying qualifications

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in November 2007. ASEAN is also considering MRAs in accountancy, medical practice and tourism.

Stronger Institutional Structure It is also important to note that deeper economic integration in ASEAN cannot be successfully achieved without the establishment of stronger institutional structures. ASEAN still maintains very loose institutional structures and does not operate on the principle of using a formal, detailed, and binding institutional structure to prepare, enact, coordinate, and execute policies for economic integration. The “ASEAN way” of making decisions continues to be very much entrenched: i.e., musyawarah (discussion and consultation) and mufakat (unanimous decision and consensus). ASEAN’s weak institutional structure may be one of the reasons for’its relatively slow progress in economic integration. Nonetheless, ASEAN has, in recent years, been moving towards a more structured, rules-based system to regulate and enhance economic relations and integration among its members. Progressive steps have also been achieved in terms of the content and directives contained in the newer ASEAN trade and investment agreements since the 1990s, with binding rules and procedures now more clearly set out in such documents. Furthermore, the ASEAN Charter, which was adopted in November 2007, is envisioned to pave the way towards a more rules-based institutional structure for ASEAN.

Concluding Remarks So what will the AEC be like in 2015? There is no evidence to indicate that there is any political desire on the part of ASEAN leaders to establish a European-style single market. Although the ASEAN Charter will provide ASEAN with a legal identity, the

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regional grouping’s institutional structure is likely to remain weak so long as its policy-makers are not more flexible in adopting the concept of “pooled sovereignty”, especially in economic matters. Regional cooperation based on the existing consensus-based decision-making process not only undermines institutional development but slows down economic integration. Nevertheless, ASEAN could still be a highly competitive economic region by 2015. It is possible for ASEAN to realize an “AFTA Plus” arrangement in less than a decade if non-tariff barriers are successfully tackled. An “AFTA Plus” AEC would be a fully functioning free trade area with minimal non-tariff barriers and freer movement of goods, services, investments, capital and skilled labour. Also around this time, ASEAN could be a potential free trade hub for the region. Most of the “ASEAN+1” FTAs with its major trading partners will be operational over the next seven to ten years. ASEAN currently has FTA arrangements with China, Japan, Korea, Australia and New Zealand, and India (and is currently negotiating one with the European Union). While this may be a more limited objective, it would be politically acceptable and feasible, given the short timeline of seven years from now to 2015. In this context, the successful implementation of the AEC Blueprint, which sets out the approach, targets and milestones leading up to 2015, would be absolutely critical. However, the main concern here lies in getting member countries to comply with the Blueprint and meet the demanding targets and deadlines. This is why the ASEAN Dispute Settlement Mechanism has to be made workable.

Notes 1.

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The ASEAN Vision 2020 envisaged “a stable, prosperous and highly competitive ASEAN Economic Region in which there is a free flow

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2.

3. 4. 5. 6.

7.

8.

9.

29

of goods, services and investments, a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities” (ASEAN 1999, p. 12). Cebu Declaration on the Acceleration of the Establishment of an ASEAN Community by 2015, Cebu, Philippines, 13 January 2007 . A. Schwartz and R. Villinger, “Integrating Southeast Asian Economies”, The McKinsey Quarterly, No. 1 (2004). The ASEAN HLTF’s Economic Recommendations are annexed to the Bali Concord II. The recommendations of the ASEAN HLTF on Economic Integration are annexed to the Bali Concord II. For more details regarding the enhanced DSM, see Recommendations of the High Level Task Force on ASEAN Economic Integration (Annex 1: Mechanism of the Dispute Settlement Mechanism). J.L. Tongzon, “Role of AFTA in the ASEAN Economic Community”, in Roadmap to an ASEAN Economic Community, edited by Denis Hew (Singapore: Institute of Southeast Asian Studies, 2005). C. Findlay, D. Parsons and H. Plunkett, “An Assessment of ASEAN’s Priority Sectors for Fast Track Integration”, in Brick by Brick: The Building of an ASEAN Economic Community, edited by Denis Hew (Singapore: Institute of Southeast Asian Studies, 2007). R. Severino, Southeast Asia in Search of an ASEAN Community: Insights form the former ASEAN Secretary-General (Singapore: Institute of Southeast Asian Studies, 2006).

Denis Hew is Senior Fellow at the Institute of Southeast Asian Studies, Singapore.

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IMPLEMENTING THE ASEAN ECONOMIC COMMUNITY BLUEPRINT Hadi Soesastro

Background It has taken ASEAN a whole decade to translate its vision of an ASEAN economic community into a blueprint. The beginning was the ASEAN Vision 2020 that was adopted by the ASEAN leaders in December 1997 in Kuala Lumpur. The vision envisaged “a stable, prosperous and highly competitive ASEAN economic region in which there is a free flow of goods, services, investment and freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities” by the year 2020. The Hanoi Plan of Action was issued as a first step to implement the vision. A further boost came from the Summit in Bali in October 2003, when the leaders signed the Declaration of ASEAN (Bali) Concord II. They declared that the ASEAN Economic Community (AEC) shall be the goal of regional economic integration as outlined in the ASEAN Vision 2020. In December 2005, the ASEAN Leaders discussed the acceleration of the AEC to 2015. Subsequently, the High Level Task Force (HLTF) on ASEAN Economic Integration took up the matter and recommended to the ASEAN Economic Ministers (AEM) that the establishment of the AEC be advanced from 2020 to 2015. They also requested the ASEAN Secretariat to develop “a single and coherent blueprint for advancing the AEC by identifying the characteristics and elements of the AEC by 2015 consistent with the Bali Concord II

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with clear targets and timelines for implementation of various measures as well as pre-agreed flexibilities to accommodate the interests of the CLMV and other concerned Member Countries”. The AEM endorsed the recommendation and agreed to propose the acceleration of the AEC to the leaders at their Summit in January 2007 in Cebu, the Philippines. At the ASEAN Summit in November 2007 in Singapore, the leaders adopted the AEC Blueprint. They stated that each ASEAN member country shall abide by and implement the AEC by 2015. They also tasked the concerned Ministers, assisted by the ASEAN Secretariat, to implement the AEC Blueprint and to report regularly on the progress of its implementation through the Council of the ASEAN Economic Community.

The Blueprint The AEC Blueprint is definitely a serious document. It is the first of its kind for ASEAN. The Blueprint has been crafted to realize the AEC, defined by its four main characteristics, namely, 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 clearly shows the comprehensive nature of the Blueprint. To ensure its successful realization, there needs to be a common understanding of the essence of each of the above characteristics. The idea of a single market and production base is essentially about providing consumers in the region with an expanded market from which they can fulfil their consumption needs and producers in the region with an expanded space in which they can undertake their production activities without having to worry about national (administrative) boundaries within the region. Activities in this expanded market can exploit economies of scale and the differing comparative advantages of

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the constituent members in the region. Creating this expanded market requires that all barriers to trade in goods and services as well as investment be fully removed. ASEAN governments have agreed to achieve this by 2015, in about seven years from now. ASEAN has come a long way since the agreement to form the ASEAN Free Trade Area (AFTA) in 1992, but the removal of all barriers still faces many hurdles, not only physical and technical, but also economic and political as well as cultural. ASEAN’s decision to form AFTA and subsequently to create a single market and production base, by removing barriers to cross-border economic transactions, are fundamental measures to create a competitive economic region. The establishment of a free trade area was not meant to create an internal market in the region but to turn the region into an attractive production and export platform for global and regional (ASEAN) investors. In addition, several measures will need to be undertaken at the regional level to continuously increase the region’s attractiveness to global investments. These include the development of a regional framework on competition policy, regional cooperation on intellectual property rights (IPR), and regional cooperation in infrastructure development. As ASEAN moves towards deeper economic integration, greater emphasis needs to be placed on developing an appropriate competition policy regime. The globalization of business also highlights the importance of competition issues. A competition framework assists in the healthy development of the private sector and in the sound handling of anti-competitive behaviour. Healthy competition in the ASEAN region ensures the attainment of a competitive economic region. Infrastructure development in the ASEAN region is a key catalyst for international competitiveness. It also plays a critical role in the economic development and growth of the members.

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Regional cooperation in infrastructure development can produce a more efficient system of transportation and telecommunications and energy networks. It can promote regional integration and contribute to narrowing the development gap within the region. Economic integration must also be accompanied by specific efforts to reduce development gaps as manifested by large disparities in income, poverty incidence and other dimensions of human development both among member countries and within member countries. Trade and investment liberalization does not automatically reduce development gaps. In fact, in the short term it might aggravate the problem. A development agenda needs to be introduced to strengthen the less developed parts in the region to facilitate further trade and investment liberalization and domestic restructuring. Any regional integration requires the provision of regional public goods. These public goods can be in the form of technical assistance, grants-in-aid, concessionary loans (ODA), preferential market access without reciprocity, and other privileges. The provision of these regional public goods is often referred to as “enabling clause” with the objective of strengthening human and institutional capacity in the less developed members. The key in the provision of regional public goods, however, is to ensure that they benefit all ASEAN members and are seen to help “level up” the region as a whole. There needs to be a special development fund to finance the development of regional public goods. And finally, ASEAN has been at the forefront in promoting and practising the concept of “open regionalism”. It has made great progress in regional economic cooperation and integration while strengthening its links to the rest of the world and deepening its integration with the global economy. ASEAN has a great stake in the continued open, fair and more equitable international economic regimes. This interest must

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be ensured by strong, proactive and well-coordinated ASEAN multilateral economic diplomacy. ASEAN has taken various initiatives at promoting and taking an active part in wider regional cooperation arrangements and community-building processes. These include the ASEAN Plus Three (APT), the East Asia Summit (EAS), the Asia Pacific Economic Cooperation (APEC), ASEM (Asia Europe Meeting) and FEALAC (Forum of East Asia and Latin American Cooperation). These efforts are in line with ASEAN’s strategy of concentric circles of cooperation, which helps ensure optimal outcomes for ASEAN’s integration into the global economy. This is an integral part of the efforts to realize the AEC. ASEAN is engaged in a number of ASEAN+1 initiatives (with Australia-New Zealand CER, China, India, Japan, and the Republic of Korea, and prospectively also with the European Union). ASEAN members need to coordinate all these efforts. Several negotiations have been completed. Beyond the negotiations, they should develop common strategies and approaches to implementing the agreements in the more difficult and complex areas of services, investment, intellectual property (IP) protection, competition policy, and government procurement. These could reinforce the efforts to realize the AEC. The Blueprint should be seen as a grand plan, consisting of roadmaps to delivering specific outcomes, namely the objectives of the AEC, by organizing sets of deliveries (so-called “core elements”) to be carried out by purposefully designed delivery vehicles (or “actions/measures”), all of which are to be delivered within a certain timeframe (as indicated in the “strategic schedule”). The Blueprint has identified 17 core elements of the AEC and included 176 priority actions to be undertaken within a strategic schedule of four implementation periods (2008–2009,

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2010–2011, 2012–2013; and 2014–2015). The seventeen core elements are listed in the Annex.

Implementing the Blueprint The AEC Blueprint is a clear departure from ASEAN’s tradition, as it has not been its practice to devise a blueprint to achieve its objectives. In the past, the process of regional cooperation and “regional community building” has been kept open-ended, driven by the dynamics of the process itself and often dictated by the slowest mover. With the adoption of the Blueprint, ASEAN is now ready to move into an integration process that is driven by clearly defined end goals and timelines. However, ASEAN is largely still a voluntary organization with decisions being mostly of a non-binding nature. Although the AEC Blueprint has become a binding document for member countries, there is a serious lack of capacity in ASEAN to enforce its decisions either at the regional or at the national level. An ASEAN Charter should be able to change this. The Blueprint is not a detailed agreement that resulted from lengthy negotiations upfront, as was the case with the North American Free Trade Agreement (NAFTA), which was a narrow but rather deep integration project. In a sense, the ASEAN process towards realizing the AEC is more like that of the European Union (EU) rather than that of NAFTA. The stark and important difference, however, is that the process of EU integration is driven by strong regional institutions, whereas in ASEAN such institutions still need to be developed. Some details of the plan have been left out, perhaps in recognition of the fact that an agreement on several aspects of “community building” cannot be reached until there is greater confidence and comfort in the process and the existence of a

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larger and stronger constituency. The existing gaps among member countries appear to be another reason for this. In some areas, the Blueprint has gone rather far, but this was made possible by having a provision for “pre-agreed flexibility”. Some goals in the Blueprint remain vaguely defined, and “milestones” are still missing. Therefore, in the process of its implementation, signposts will need to be erected along the road to help indicate the progress made towards achieving the goals. Here is where the development of “scorecards” can play a useful, perhaps even critical, role in the successful implementation of the Blueprint. Having the Blueprint also means that the process of regional economic integration will receive greater public scrutiny. ASEAN has made progress in publicizing its many initiatives, but it has a rather poor record in informing the public about the implementation and outcomes of those initiatives. Many observers have complained about ASEAN’s lack of transparency in that sense. This lack of transparency could well be due to the fact that the organization wants to spare member countries the embarrassment of failing to implement their commitments. Perhaps there is greater realization in ASEAN now that this lack of transparency could well be the cause of the poor record of its performance. The Blueprint will also help coordinate the many efforts to achieve the objectives of the AEC and to drive forward the process of integration. It provides for a framework to organize a set of peer review mechanisms, based on systematic monitoring and tracking at the regional and national levels that can help erect meaningful “signposts” to indicate progress (or the lack thereof) towards establishing an economic community. Systematic efforts to monitor and track the implementation will contribute to the successful implementation of the Blueprint. In turn, this can help

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identify areas in which analysis, policy development and technical inputs will need to be organized in the process. In a public seminar in Jakarta in November 2007, the Indonesian Trade Minister identified several key challenges for Indonesia in the implementation of the AEC Blueprint. These include customs modernization, standards and conformance, and infrastructure development. In addition, she stressed the importance of establishing institutions or mechanisms within Indonesia to monitor the implementation of commitments. Similar challenges are likely to be faced by other member countries. ASEAN member countries must now focus their attention on implementing the Blueprint by organizing themselves accordingly. Each member country will have to begin this process by preparing a more detailed “national action plan”. How this will be organized will likely differ from member country to member country, but a clear and strong focal point must be established. At the regional level, the Blueprint outlines the ASEAN bodies that will be involved in the coordination of the implementation of the Blueprint. These will include not only government agencies, but also sectoral bodies, business associations and civil society. The ASEAN Secretariat is entrusted with a major task of reviewing and monitoring the implementation of the Blueprint. It is already devoting about 60 per cent or more of its resources to this task. It definitely needs to be strengthened. However, without the cooperation and serious national efforts on the part of member countries, ASEAN will not be able to pass the challenge of implementing the Blueprint with flying colours.

Hadi Soesastro is Executive Director of the Centre for Strategic and International Studies (CSIS), Jakarta.

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Annex The 17 Core Elements of the AEC Blueprint Single Market and Production Base 1. Free flow of goods 2. Free flow of services 3. Free flow of investment 4. Freer flow of capital 5. Free flow of skilled labour 6. Priority Integration Sectors 7. Food, Agriculture and Forestry Competitive Economic Region 8. Competition Policy 9. Consumer Protection 10. Intellectual Property Rights 11. Infrastructure Development 12. Taxation 13. E-commerce Equitable Economic Development 14. SME development 15. Initiative for ASEAN Integration (IAI) Integration into the Global Economy 16. Coherent Approach towards External Economic Relations 17. Enhanced Participation in Global Supply Networks

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TOWARDS AN ASEAN ECONOMIC COMMUNITY: MATCHING THE HARDWARE WITH THE OPERATING SYSTEM Eduardo Pedrosa

The members of ASEAN are some of the most trade-dependent economies in the world today. In recent years the patterns of intra-ASEAN trade and of ASEAN’s exports have changed dramatically, driven by factors such as: greater openness in the global economy; the emergence of other low-cost locations for manufacturing in Asia and the rest of the world; rapid technological change; and the increased rate of vertical supply chain atomization. All four are inter-related. In 2003, partly driven by these changes in the external environment, ASEAN agreed to establish an ASEAN Economic Community (AEC) which would transform the region into a “single market and production base, turning the diversity that characterises the region into opportunities for business complementation making the ASEAN a more dynamic and stronger segment of the global supply chain”. However, ASEAN’s past attempts at promoting greater economic integration and cooperation have not been very successful. The ASEAN Free Trade Area (AFTA) in particular has not lived up to expectations with utilization of the preferential tariff estimated at low levels — some as low as 5 per cent.1

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In 2004, the region’s leaders agreed to the ASEAN Framework Agreement for the Integration of Priority Sectors in 2004. To give further impetus to the initiative, in 2007, the ASEAN leaders went further and adopted the ASEAN Economic Community Blueprint which sets out the steps to be taken to achieve this ambitious goal by 2015. Based on two of the key characteristics of the AEC, two major trends can be expected: an increase in intra-regional trade as firms decide to allocate various nodes of their global supply chains in different locations in the region, and a certain degree of price convergence as barriers to trade come down. The Blueprint, along with the focus on priority sectors, goes a long way in addressing the problems associated with previous attempts at integrating the region. However, while the Blueprint provides the policy measures needed to create the Economic Community, the region lacks the infrastructure needed for the people of the region to fully realize the benefits of integration. Drawing an analogy from the world of electronics, it is akin to having developed the operating system and software for a stateof-the-art computer without the processor and hard drive that can handle them.

Intra-ASEAN Trade One of the criticisms of the earlier AFTA initiative is that it failed to provide any boost to intra-regional trade, unlike the North American Free Trade Agreement (NAFTA).2 At first glance, trade between ASEAN members, as measured by the ratio of exports to total exports, has remained at a reasonable level of above 20 per cent since 2002 (see Figure 1). However, trade with Singapore dominates intra-ASEAN exports, which reflect two things: Singapore’s dominance in electronics; and the role of Singapore

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FIGURE 1 ASEAN-5–Intra-ASEAN Trade: All Commodity Groups 250,000

25%

% total

US$

100,000

15% 10%

2007

2006

0%

2005

0

2004

5%

2003

50,000

% total

20%

150,000

2002

US$ millions

200,000

FIGURE 2 Intra-ASEAN Trade: By Economy Thailand 26,813

Indonesia 20,506

Malaysia 42,245

Singapore 86,603

Philippines 7,557

as the hub for shipping in not only ASEAN but East Asia as well (see Figure 2). Furthermore, the context of ASEAN integration is very different from when those initiatives took place. China’s emergence as the “factory floor” of the world economy brought on by the lure

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of the advantage of production within China’s large domestic market and the lower transaction costs between actors along a supply chain in a single territory makes it unlikely that ASEAN can lure primary production and sourcing to its shores. However, modern supply chains require flexibility. For example, when the SARS outbreak occurred in Asia, many companies were forced to reconsider some location decisions as over-concentration in one location would make the supply chain too vulnerable to port shut-downs and tighter border restrictions. The SARS outbreak and the rapidity with which it struck in 2003 and the likely responses to an even worse epidemic like avian flu have led many busineses to rediscover the need for building redundancies into their systems. Indeed, many companies are now pursuing “China Plus One” strategies in their sourcing of manufactured products and “India Plus One” on the services side. This corporate strategy adds some backing to the renewed commitment to ASEAN integration. It supports the idea that although ASEAN in itself may have lost out to China in the latest wave of FDI, it does not mean that the region should abandon all hopes of building a robust manufacturing sector.

The Priority Sectors The McKinsey study on ASEAN emphasized the need for a fasttrack approach to integration to highlight its benefits to the wider public, which should then create support for the regional economic community. The priority sectors designated by ASEAN are electronics, e-ASEAN, healthcare, wood-based products, automotives, rubber-based products, textiles and apparel, agrobased products, fisheries, air travel, tourism, and logistics. The following section looks at five of the priority sectors and the level of intra-ASEAN trade, using exports over total exports as an

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indicator of the degree of integration in the sector. The dataset used is the 2-digit product category. These numbers are indicative and the product coverage for intra-ASEAN trade in these sectors does not match entirely the product coverage indicated in the protocols. See Table 1. The ASEAN Framework Agreement for the Integration of Priority Sectors identifies measures to be implemented to fasttrack integration in eleven (now twelve) key sectors. Roadmaps have been established detailing the steps to be taken and the lists of goods to be included under each sector. Four years after the announcement of the priority sectors, there has yet to be any substantial increase in intra-regional trade in five of these sectors.3

Electronics Intra-ASEAN trade is dominated by one single product group — electronics — which accounts for over one-fifth of all exports between the ASEAN-5.4 Moreover, much of this trade is dominated by exports to Singapore. This is not surprising, given the central role that Singapore’s port plays in world trade. However, it makes it harder to make a judgement on the success that ASEAN is having in promoting itself as a single production platform. There have been some interesting developments in the sector, with Indonesia and the Philippines beginning to account for a greater proportion of electronics trade in the region, indicating that at least for the electronics sector the region is beginning to be used as a production platform.

Healthcare Healthcare has also seen very little progress in intra-ASEAN trade in goods. Again, while much of the ongoing work in promoting ASEAN integration in healthcare will not be visible at the level of

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TABLE 1 Product Coverage and Number of Items in 5 of the Priority Sectors Electronics Textiles and Automotives Healthcare (products Apparel (products (products covered: (products covered: covered: 1,077) covered: 1103) 245) 1,183) Number of items in negative Brunei 322 Cambodia 293 Indonesia 52 Laos — Malaysia 45 Myanmar 82 Philippines 2 Singapore — Thailand 236 Vietnam 42

list for each sector — 128 127 94 11 516 8 21 3 485 1 345 129 443 — — 24 173 206 235

Agro and Agro-based products (products covered: 106)

21 29 5 16 13 58 9 — 90 41

— 19 16 — 8 3 10 — 20 —

Source: ASEAN Secretariat website.

trade in goods, what is seen is not encouraging. Trade between the ASEAN-5 in healthcare products has remained static at the 20 per cent level.

Automotives One of the sectors that have been the most promising is automotives. Intra-ASEAN-5 trade in the automotive sector was as high as 32 per cent in 2004. However, intra-regional trade in automotives has actually dropped in recent years to 24 per cent of total trade. The extensive negative lists even for the priority sectors make it very difficult for businesses to both perceive and use the region as a single production platform.

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Textiles and Apparel Intra-ASEAN trade in textiles and apparel is even lower, at 10 per cent. It is likely that including the CLMV members would boost this figure, given their comparative advantages in this sector.5 However, international distortions make this a difficult sector in which to make progress.

Agro and Agro-based Products Similar to the other sectors, intra-regional exports in agro and agro-based products have not seen any significant rise since the announcement of the priority sectors. They have been steady at 16 per cent. While it has been only a year since the adoption of the AEC Blueprint, it has been four years since the announcement of the priority sectors, sixteen years since the announcement of AFTA and five years since AFTA became fully operational. Moreover, there are only seven years left before the AEC is supposed to be achieved. While the sectoral protocols and the Blueprint contain many important measures that should help at least to foster a more conducive environment for regional economic integration, one large question mark is whether businesses, either ASEAN companies or multinational corporations, will begin to see and use ASEAN as a single production base and market. The continued use of negative lists as in the AFTA experience calls into question the political commitment the region’s governments have to integration. In the light of the increasingly competitive environment, ASEAN must take steps to remove these items from the negative lists. Otherwise, having built up expectations, the AEC risks failure.

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45%

46

22%

2002

31%

2003

32%

2004

32%

2005

25%

2006

Automotives, 24%

2007

Agro, 15%

Healthcare, 21% Textiles, 10%

15%

Electronics, 29% 20%

33% 16%

22% 9%

33% 16%

23% 9%

17%

36% 20% 10%

40% 16%

20%

7%

42%

Note: *Using only export data, exports to each ASEAN-5 member/exports to rest of the world. The product categories for the HS system do not match perfectly with the product categories for each priority sector. For these purposes the following HS product classifications were used: Electronics - HS85; Textiles and Apparels HS41:42, HS50:64; Automotives HS87; Healthcare HS30; Agro-based products HS01-21 and HS31. Source: Global Trade Atlas .

0%

5%

10%

15%

20%

25%

30%

35%

9%

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40%

FIGURE 3 Intra-ASEAN-5 Trade in Priority Sectors*

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Law of One Price A single market would theoretically maximize efficiency and equalize prices around the region — creating enormous business opportunities. A study by McKinsey & Co. commissioned by ASEAN’s economic ministers undertook an extensive review of price differentials in some seventy household products. Not surprisingly enormous price differentials were found. The onset of budget airlines has created the opportunity for some of the more mobile ASEAN citizens to embark on shopping sprees across the region to take advantage of these price differences. While unlikely to drive policy-makers and legislators to a greater sense of urgency, businesses can and should be gearing up to exploit these differentials. Additionally, those companies that are active across the region are able to exploit the lack of regional integration and policy coordination and charge the prices that the local rather than the regional market can sustain. While making good business sense, licensing structures that prevent parallel importing often act as an impediment to the creation of a single market. The price differentials are relatively large. The cost per kilometre of sending a 1 kg box to an ASEAN capital varies enormously around the region (see Figure 4). The cost for a business operating in Kuala Lumpur is 40 per cent higher than the average, while Manila is 52 per cent cheaper than average. This might be explained by the relatively high cost per kilometre of short journeys. The differential between Singapore and Kuala Lumpur cannot be explained. While the differentials are lower for chicken, there are still quite large differences in price, with Singapore 11 per cent higher than the average and Jakarta 9 per cent lower than the average (see Figure 5).

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FIGURE 4 Price Differential: Cost of Sending 1 kg box to each ASEAN capital (US$ per km)

60% 39.9% 40% 20%

13.5% 2.8%

0% -4.2%

-20% -40%

Singapore

-52.0% Manila

Kuala Lum pur

Jakarta

Bangkok

-60%

Source: Express courier websites. FIGURE 5 Price Differentials: Chicken per kg 15%

10.8%

10% 4.4%

5% 0% -0.5%

-5% -5.5%

-10%

-9.3% Singapore

Bangkok

Jakarta

Kuala Lum pur

Manila

-15%

Source: EIU Worldwide Cost of Living Database.

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The point here is that there is substantial room for the AEC to have a very positive impact on costs across the region. However, the corporate sector in each individual ASEAN economy lacks some of the key characteristics necessary both to exploit the single market and to build the kinds of partnerships some of the large multinational corporations need to operate efficient supply chains. The shallowness of the corporate sector in the region is often cited as a major impediment for foreign multinationals operating in the region. While a few companies stand out, the business sector is often composed of inward-looking companies focused on the domestic market. The creation of a single market should foster an environment in which domestic companies can begin to develop the scale they need to be competitive in the international market. Renewed ASEAN focus on competition policy will be crucial to making this happen.

Barriers to Integration In 2007, the Pacific Economic Cooperation Council (PECC) conducted a survey of opinion leaders in the Asia-Pacific on the barriers to integration. On the basis of the responses from ASEAN member economies, a clearer picture of the challenge facing the AEC emerges. Asked to choose from a list of twelve barriers to integration, a panel of 104 respondents from business, governments, and non-governmental organizations, chose infrastructure as the single biggest barrier, followed by the uncertain legal environment and then poor corporate governance and poor protection of intellectual property rights. Seventy-five per cent of the business respondents from the region cited the lack of physical infrastructure as being a significant to very significant barrier to integration.

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Indeed, on the basis of some key indicators of infrastructure provision in the region, it is clear that even if all tariff and nontariff barriers are removed, it will still be very difficult for businesses to fully utilize the ASEAN region as a single production base, because much of the region remains disconnected from both major urban and global markets. If we look at just two metrics of infrastructure — the number of telephone lines per hundred of the population and road service density — it is clear that even with full liberalization of trade in goods and services, it would be a challenge for the region to fully integrate without substantial investments in infrastructure. See Figures 6 and 7. The adoption of logistics as the twelfth priority

FIGURE 6 Fixed Lines and Cellular Subscribers per 100 133

140 120 100 80

75 66 55

60

44

40 18

18

20

5

4

1 Vietnam

Thailand

Singapore

Philippines

Myanmar

Malaysia

Laos

Indonesia

Brunei

Cambodia

0

Source: Millennium Development Goals Database accessed 14 April 2008.

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FIGURE 7 Road Service Density km per km2 5 4.5 4

Unpaved Paved

3.5 3 2.5

0.68 0.11

0.04 Myanmar

0.67

0.3 Malaysia

0.2 Indonesia

0.14

0.21

0.5

Cambodia

1

0.69

2 1.5

Vietnam

Thailand

Singapore

Philippines

Laos

Brunei

0

Source: Millennium Development Goals Database accessed 14 April 2008.

sector is an important step in addressing the problem of transaction costs within the region. In terms of port capacity, East Asia accounted for almost half of the global market in 2005. Industry forecasts place throughput growth in East Asia as a whole at about 9.8 per cent per year, with capacity growing at only 5.3 per cent a year, leading to capacity utilization of 108.2 per cent.6 The location and capacity of individual ports in the region are issues that the Blueprint does not address. While a Transport Sectoral Action Plan is in place, much more is needed, especially to connect the major centres of the region and the world.

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While some efforts have been made to promote subnational regional integration through the Brunei-Indonesia-MalaysiaPhilippines East ASEAN Growth Area (BIMP EAGA) and the Indonesia-Malaysia-Singapore Growth Triangle (IMS GT), it would be worthwhile looking again at these concepts in the context of the roadmaps for the priority sectors. As has been often stated, one of the biggest impediments to the successful implementation of ASEAN integration efforts has been the lack of political will. Encouraging multi-nodal development along various corridors would deepen the constituency for ASEAN’s work. Moreover, as companies look to build more flexible supply chains and either locate manufacturing facilities or subcontract work to local companies, congestion and high costs in urban centres are reaching prohibitive levels. The development of corridors between second- and third-tier cities will enable the business community to better harness the complementarities within the region. Furthermore, economic inequality between ASEAN members and within each economy is often cited as a reason for the continued protection of key sectors. Integration can and will, if implemented, spur development and rising incomes. The increased inequality that we have seen in the world in recent years has less to do with globalization and integration per se than with the lack of infrastructure to enable people living in rural areas and second- and third-tier cities to fully participate in the global economy. Another important aspect of infrastructure development is that while it is critical to facilitating the integration of the region, integration can also facilitate infrastructure development. ASEAN’s desire to create an Economic Community, whether it is explicit or not, requires a certain degree of harmonization of laws and

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standards. While uncertainty over the legal environment in some economies has hampered greater investment in infrastructure, the existence of the Blueprint and the roadmaps creates an additional source of pressure that can help to overcome domestic resistance to reform. While supra-national authorities like the European Commission and European Court are not yet envisioned, the peer pressure and desire to see the AEC succeed have a momentum of their own.

Hardware needed to Match Operating System While the Blueprint identifies many of the policy areas where regional cooperation can assist in the creation of a single market and production base, one of the difficulties that have plagued ASEAN integration throughout its history is the lack of political will to implement the bold vision set out for the region. The ASEAN process needs to better engage all branches of government at both the national and provincial levels. Doing so will both develop broader constituencies for ASEAN’s work and open up more opportunities for businesses to take advantage of the single market and create the jobs needed in the region. The AEC Blueprint represents a milestone in the region’s development. It sets targets and goals for members to achieve. Trade data from five of the priority sectors suggest that the region is some way off from achieving its goal of being a single production platform. While addressing the important tariff and non-tariff barriers — the “software” of economic integration — the “hardware’’ — transportation networks — needs to be upgraded. This situation is akin to having developed the operating system and software for a state-of-the-art computer without the processor and hard drive that can handle them. The hope is that having the

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software in place will spur the development of the hardware. Over time a symbiotic relationship between the software and the hardware could develop, as occurred in computing systems, accelerating growth and innovation.

Notes 1.

2. 3. 4. 5.

6.

Miriam Manchin and Annette O. Pelkmans-Balaoing, “Rules of Origin and the Web of East Asian Free Trade Agreements”, World Bank Policy Research Working Paper 4273, July 2007. Adam Schwarz and Roland Villinger, “Integrating Southeast Asia’s economies”, McKinsey and Company, 2004. Using data from the Global Trade Information Service: . Indonesia, Malaysia, the Philippines, Singapore and Thailand. See “An Investigation into the Measures Affecting the Integration of ASEAN’s Priority Sectors (Phase 2): The Case of Textiles and Apparel”, by William E. James, Peter J. Minor, and Kakada Dourng, REPSF Project No. 06/001c. See “DP World: Global Ports Connecting Global Markets”, .

References EIU-DHL. “A new export landscape for ASEAN and Asia”, EIU, 2007. Findlay, Christopher C. “An Investigation into the Measures Affecting the Integration of ASEAN’s Priority Sectors (Phase 2): Overview: Summary”, REPSF, April 2007. International Monetary Fund. “Regional Economic Outlook: Asia and Pacific”, World Economic and Financial Surveys, IMF, October 2007. Manchin, Miriam and Annette O. Pelkmans-Balaoing. “Rules of Origin and the Web of East Asian Free Trade Agreements”, World Bank Policy Research Working Paper 4273, July 2007.

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Schwarz, Adam and Roland Villinger. “Integrating Southeast Asia’s economies”, McKinsey and Company, 2004. Soesastro, Hadi M., “Accelerating ASEAN economic integration: Moving beyond AFTA”, CSIS Economics Working Paper Series, March 2005.

Eduardo Pedrosa is Secretary-General of the Pacific Economic Cooperation Council. The views presented here are his own and not those of the Council nor its constituent members.

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WHITHER THE ASEAN REGIONAL FORUM? Rodolfo C. Severino

In considering the future of the ASEAN Regional Forum (ARF) and the role of ASEAN in it, it would be useful to focus on five issues — participation, the subjects for discussion, the question of leadership, the nature of confidence building, and the prospects of preventive diplomacy.

Participation At its August 2007 ministerial meeting, the ARF admitted Sri Lanka as its twenty-seventh participant. The forum had started out with eighteen — the then-six ASEAN members; the thenseven Dialogue Partners; the observers, Papua New Guinea, Vietnam and Laos; and China and Russia, at that time “consultative” partners which were not yet in the ASEAN dialogue system. Despite repeated expressions of resolve to limit the size of the forum through “moratoriums” on the admission of new participants, the ARF has expanded steadily since then. Cambodia and Myanmar entered the forum when, in 1995 and 1996, respectively, they became ASEAN observers on their way to membership. India came in when it became an ASEAN Dialogue Partner in 1996. Mongolia was admitted in 1999, North Korea in 2000, Pakistan in 2004, Timor-Leste in 2005, Bangladesh in 2006, and Sri Lanka in 2007.

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The entry of three South Asian states within the space of three years has inevitably raised the question of whether this means that the ARF is expanding its “geographic footprint” from its original coverage of Southeast Asia, Northeast Asia and Oceania to encompass South Asia as well. The admission of the three South Asian nations, in addition to India, was reportedly subject to the condition — whether explicitly or implicitly is not clear — that the forum’s “geographic footprint” would not thereby change. In any case, there does not seem to be an interest on the part of any of the states in the subcontinent to raise strictly South Asian issues in the ARF — at least, so far. Moreover, some participants feel more comfortable having several states represent South Asia in the ARF than India alone. Other participants contend that India has a strategic interest and role in East Asia — that is, in the ARF’s “geographic footprint” — where the other South Asians do not. One reality to consider is that decisions on the admission of participants into the ARF are often motivated less by concerns over regional security or the forum’s effectiveness than by the relations between a current participant and the applicant country. In practice, such decisions are first subjected to ASEAN consensus, with the non-ASEAN participants subsequently consulted. In any case, the moratoriums on further expansion, repeatedly agreed on and just as frequently lifted, indicate some concern over the impact that the ARF’s growing size may have on the forum’s effectiveness.

Subjects for Discussion One measure of that effectiveness is the extent to which the annual ARF ministerial meetings are able to clarify, if not thresh

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out, vital issues of regional security and thus help build mutual confidence among the participating states. ASEAN and its partners envisioned the ARF as an Asia-Pacific-wide forum for consultation and dialogue on regional security issues, thereby building mutual confidence in the new regional security environment that developed after the end of the Cold War and the settlement of the Cambodian conflict. This would be the first stage in the forum’s evolution. Early in the ARF’s existence, the ministers agreed that the forum would deal with security issues of the “traditional” kind within its agreed “geographic footprint”, that is, Southeast Asia, Northeast Asia and Oceania. Other security issues, like the situation in the Middle East and the proliferation of nuclear weapons, as well as “non-traditional” security concerns, would continue to be discussed at the ASEAN Post-Ministerial Conferences (PMC). At their 1997 meeting, the ARF ministers declined to talk about drug trafficking and economic crimes like money laundering, agreeing instead that such matters were best left for the PMC to deal with. Over the years, however, the ARF agenda has steadily expanded, gradually erasing the distinction between ARF and PMC concerns. The chairman’s statement of the August 2007 ARF ministerial meeting in Manila indicated that the ministers had taken up an enormously broad range of subjects — the Korean peninsula, Myanmar, Thailand, the South China Sea, the situation in the Pacific island countries, the Middle East, Iran’s uranium enrichment programme, Iraq, Afghanistan, terrorism, the trade in small arms, maritime security, weapons of mass destruction, people trafficking, a potential avian influenza pandemic, and energy security. Of course, in the light of the fact that the ARF ministerial meeting, like all the others, took place only on one day, none of

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these topics were discussed with any depth or thoroughness, even if they were actually discussed at all. ARF delegations had come to feel compelled, for their own national interests or for domestic political reasons, to raise pet issues at the ARF ministerial meetings or have them mentioned in the chairman’s statement, sometimes without expecting the forum to do anything about them. This situation has given rise to complaints from some participants and to suggestions that the agenda for ARF meetings be more selective and focused. Ideally, ARF discussions should be shedding light on key strategic issues pertaining to the Asia-Pacific. Such issues might include China’s rise in all-around power and the United States’ perception of it; the U.S. military presence and defence alliances with Asia-Pacific partners and the Chinese perception of them; Japan’s relations with China and Tokyo’s confidence in its security treaty with Washington and in the U.S. security umbrella; the nature of Sino-Indian relations; the motives behind North Korea’s acquisition of nuclear weapons; and the expansion of “blue-water” navies in the region. While extensive and focused discussions on such issues could usefully clarify countries’ positions on them, contributing, it is hoped, to mutual confidence, care must be taken that the discussions do not instead heighten mutual suspicions and animosities and exacerbate divisions. This is the ARF’s dilemma and a challenge to ASEAN’s leadership of it.

ASEAN Leadership It has often been observed about the ARF that only ASEAN could have convened it. Leadership by any of the major powers would have been resisted by its rivals. In this light, ASEAN — and, indeed, some of the non-ASEAN participants — has repeatedly

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insisted that it must remain in the “driver’s seat” of the ARF. Moreover, ASEAN wields a critical mass of ten members, while being innocuous as a group. None of its members is powerful enough — or is inclined — to be a threat to anyone else. Yet, leadership by default is not enough. Neither is it enough simply to manage the institution and the process. ASEAN has done a remarkably competent job of managing the forum and moving the process along, undertaking the preparations, negotiating the chairman’s statements, chairing the meetings, and discharging the role of gatekeeper for the initiatives that the participants propose. The “ASEAN way” of consultation, consensus, informality and goodwill governs the ARF process. The ARF has formally adopted ASEAN’s norms, specifically those embodied in the Treaty of Amity and Cooperation in Southeast Asia. Indeed, the forum was born from the ASEAN PMC framework. However, ASEAN needs to provide more vigorous intellectual leadership to the ARF process. As indicated above, the ASEAN chair has to put together a more focused agenda, an agenda with only a few items, which are much more specific than the usual “exchange of views on regional security issues”. It has to ensure that such an agenda is accepted and adhered to by all. The chair has to conduct the discussions in such a way that they enlighten, build confidence, and, if possible, lead to action. At the same time, it has to make sure that the more focused, more pointed discussions do not, contrary to the ARF’s purposes, provoke animosities, engender suspicions, or widen divisions. ASEAN countries also have to take the lead in investing ARF endeavours with intellectual content. To take one example of ASEAN’s failure to do so, only Singapore and Thailand, among the

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ten ASEAN members, have been contributing regularly to the Annual Security Outlook; the others do so only sporadically, if at all. This annual ARF publication is a modest confidence-building measure as well as a basis for discussion at the ministerial and senior official levels. All ASEAN countries should have little difficulty in regularly contributing to it. At the same time, ASEAN must ensure that greater intellectual activism does not result in the loss of its valued neutrality.

Confidence Building According to ASEAN’s ARF concept paper, which the ARF adopted at its second ministerial meeting in 1995, confidence building is the first stage in the forum’s development. Indeed, it is generally accepted that the building of mutual confidence is a means of preventive diplomacy, the second stage. In the ARF scheme of things, mutual confidence is expected to be built by developing the habit of consultation, dialogue and consensus making among foreign affairs ministers and senior officials and defence and military personnel. The networks formed and the cooperative exercises and other activities undertaken are meant to advance the process of confidence building. Although this is seldom explicitly stated, a number of ARF participants seem to be quite content if the forum were to remain at the confidencebuilding stage. To them, that would be achievement enough, while avoiding possible problems that preventive diplomacy might bring. A fundamental question is whether the ARF process is actually building confidence, especially among the big military powers. Or are those powers merely attending the ARF in order to be in on whatever their rivals are doing in terms of the security

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configuration in East Asia and in order to be able to shape that configuration? A related question is whether the ARF can effectively build confidence among powers whose strategic interests substantially diverge.

Preventive Diplomacy Disagreements among participants over the nature and objectives of the ARF have given rise to endless, genteel wrangling over whether and when the forum should move to its second, preventive diplomacy phase. There are constant discussions on what constitutes preventive diplomacy and what precisely it is supposed to prevent and almost theological disputations on areas of overlap between confidence building and preventive diplomacy. The notion of preventive diplomacy was introduced into contemporary international affairs in “Agenda for Peace, Preventive Diplomacy, Peacemaking and Peace-keeping”, a report issued by Boutros Boutros-Ghali, then Secretary-General of the United Nations, in June 1992. The report defined preventive diplomacy as “action to prevent disputes from arising between parties, to prevent existing disputes from escalating into conflicts and to limit the spread of the latter when they occur”. It explained, “preventive diplomacy requires measures to create confidence; it needs early warning based on information gathering and informal or formal fact-finding; it may also involve preventive deployment and, in some situations, demilitarized zones”. In the ARF context, the question asked in some quarters is: prevent what? This question specifically addresses the issue of whether the conflicts to be prevented are those between states or whether these could include conflicts within states. It also asks whether preventive diplomacy is to deal with threats of the “traditional” military kind alone or whether the concept of

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security is to be a comprehensive one, encompassing “nontraditional” security threats like communicable diseases, environmental degradation, transnational crime, piracy and robbery at sea, and so on. On whether preventive diplomacy is to include in its purview intra-state as well as inter-state conflict, some ARF participants espouse the affirmative view on the grounds that domestic instability can have destablizing effects on the region. Others are more cautious, fearing that preventive diplomacy can be used as a pretext to interfere in their domestic affairs for the foreign-policy purposes of the powers seeking to exercise preventive diplomacy. It is this concern that evidently motivates the reluctance of some ARF participants to move on to the preventive diplomacy phase. Early in the ARF’s existence, it was made clear that the forum was all about traditional military conflict and threats to the security of states as conventionally conceived. However, more recently, the notion of “comprehensive security”, a notion that includes security issues of the non-traditional kind, has gained broad acceptance in the ARF. Some argue that it is only threats of the non-traditional, non-military sort that can evoke regionwide cooperation, since the differences in strategic outlooks among ARF participants in most cases preclude agreement on specific cooperative measures against specific traditional threats. Others point out that the ARF was conceived and set up in order to prevent inter-state, traditional, military conflict and should continue to be concerned primarily with the possibility of such conflicts. Unless consensus is reached within the ARF on what preventive diplomacy is all about, agreement will be out of reach on what preventive diplomacy measures to adopt.

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Conclusion These questions of participation, agenda setting, ASEAN leadership, confidence building, and preventive diplomacy pose an important challenge for ASEAN as the default manager of the ARF process.

Rodolfo C. Severino is Head of the ASEAN Studies Centre, Institute of Southeast Asian Studies, Singapore.

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THE ASEAN SOCIO-CULTURAL COMMUNITY Carolina S. Guina

Four years since the 10th ASEAN Summit in Vientiane in 2004, the ASEAN Socio-Cultural Community (ASCC) — one of the three pillars of the ASEAN Community — has remained as elusive as ever. The ASCC, as articulated in the Vientiane Action Programme (VAP), embodies the ultimate ASEAN aspiration to improve the quality of life of its peoples, promote equity in sharing the benefits of growth, and foster a shared cultural identity. To be sure, the VAP was unequivocal in specifying the strategies to fulfil these aspirations — building a community of caring societies that address the issues of poverty and equity, promoting sustainable management of the environment and natural resources, managing the social impacts of economic integration, and promoting an ASEAN identity. But the ASEAN process that would implement these strategies has not been easy to put in place. From the outset, it was envisaged that each of the three pillars of the ASEAN Community — political, economic and sociocultural — would be guided by a blueprint that would set concrete and time-bound targets. While the blueprint of the ASEAN Economic Community (AEC) has been completed, that of the ASCC is still a work-in-progress, and ASEAN countries have yet to agree on its structure and implementation modality. Some countries have expressed unease about having to commit to

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specific milestones; others have suggested that an update of the VAP would be sufficient in lieu of having a blueprint. The unease about having an ASCC blueprint, which implies some degree of precision in terms of targets and timing, is rooted in a number of reasons. Social sector initiatives have been carried out primarily through project-based (functional) cooperation since the early years of ASEAN. In many cases, functional cooperation projects have been designed without the benefit of rigorous sector analysis, often resulting in poorly designed projects with limited and largely unsustainable benefits. Countries realize that a blueprint that would simply compile or aggregate these projects will not be meaningful. Furthermore, the number of ASEAN functional cooperation areas (sectors) has increased considerably, making it difficult to prioritize projects. The lack of a unifying sector framework in most cases has diminished the coherence and focus needed to plan for a strategic trajectory of cooperation. Many projects evolve simply out of a common or shared need without a sufficiently strong rationale for cooperation at the regional level other than the sharing of information or expertise. More importantly, ASEAN lacks the financial resources which it could allocate independently to priority projects. Most functional cooperation projects depend on donor support that is circumscribed by the preferences of the funding entity. Although the VAP reflected the political commitment of member countries to contribute to a common pool called the ASEAN Development Fund, this has not been fully set up at the present time. The imperatives of a concrete, doable and meaningful plan of action for the ASCC are now compelling ASEAN member countries to rethink both the strategy and modalities for the implementation of social sector initiatives. The Millennium Development Goals (MDGs) has been considered as a possible unifying framework

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for cooperation projects on education, health, gender and poverty reduction. The plan is to ask ASEAN member countries to commit to advancing or topping up their existing commitments to the MDGs by 2015 (MDG plus). The MDG framework, however, is not comprehensive enough to cover the goals of environmental sustainability and ASEAN cultural identity. On another plane, the stakeholders (national and local governments, communities, private providers of education and health services, civil society in general) involved in ASCC are not only diverse within members states, but are also diverse across member states in terms of maturity and capacities of social institutions. This diversity has made countries reluctant to commit themselves to specific milestones on the basis of which they could be held accountable. For the ASCC to move forward, it is important for the ASEAN processes to recognize a number of key factors, namely: (i) that national initiatives will fundamentally drive the manner and extent to which the basic ASCC concerns of poverty, equity and quality of life will be addressed; (ii) that the pace of national initiatives will vary, depending on the stage of development of the legal, regulatory, and institutional frameworks in each state; and (iii) that the linkages between national and regional initiatives will have to be clearly established, not only to generate synergies, but also to make a clear case for pursuing certain initiatives at the regional level. These factors are embedded in the VAP, albeit in rather imprecise terms, and should be able to guide the design of the ASCC implementation modalities. If national initiatives are recognized as the driving force for realizing ASCC goals and objectives, governments should be given the leeway to define for themselves how shared goals at the regional level will be met. In terms of an implementing modality for the ASCC Plan of Action, this implies setting broad goals at

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the regional level and allowing each member country, within its own development context, to determine its own pace and set of milestones for reaching these goals. For example, the goal of promoting universal access to education can translate into different programmes in each ASEAN member country, depending on the constitutionally mandated role of the state, the institutional and legal frameworks for the public and private provision of educational services, and the sources of funds for supporting the education budget, among other factors. The programmes, and by extension the milestones, towards the shared goal of facilitating access to educational services will necessarily vary among the countries. The ASCC will therefore be a composite of plans and programmes that are part and parcel of the national development agenda. As national initiatives are implemented, the vision of the ASCC will gradually evolve. Instead of being driven by a rigid blueprint, the ASCC will emerge out of the synergies of national actions, just like a tapestry woven out of threads of different hues, textures and patterns. Despite the predominance of nationally driven initiatives for the ASCC, there are cases where a collective approach is necessary. Addressing the problem of environmental degradation is one that compels collective effort on account of the externalities involved. The prevention of communicable diseases, the control and prevention of HIV/AIDS, and the prevention of human trafficking have clear transnational dimensions that warrant a regional approach. Managing the social impacts of economic integration may require a higher level of cooperation in terms of harmonizing standards for accrediting skills training institutions, monitoring the labour markets, and setting up minimum programmes of social insurance at the regional level. The programmes and projects in these areas are much more complex to design and execute, and

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would generally require a combination of national measures, complemented by regionwide interventions. The development gaps among member states will matter in attaining the goals of the ASCC. ASEAN leaders at the 2004 Vientiane Summit recognized that deeper economic integration has to be accompanied by technical and development cooperation to address the development gaps among member countries. The report of the Eminent Persons Group (EPG) on the ASEAN Charter also made a similar assertion — that ASEAN’s ability to achieve its long-term economic goals would depend on how the development gap is addressed. Narrowing the development gaps among ASEAN member countries and within countries will be a fundamental building block towards the goal of an ASCC. The Initiative for ASEAN Integration (IAI) provides the framework for narrowing the development divide, by, among other means, assisting the newer members meet their ASEAN commitments and through various capacity-building efforts. Both in a broad and a specific sense, the IAI will play a pivotal role in how the ASCC evolves. What then would be the role of regional cooperation in this process? Regional cooperation will play essentially three roles in the evolution of the ASCC. First, it can provide the platform for advocacy in promoting the shared goals of prosperity, equity and peace; sustainable development; and an ASEAN cultural identity. Second, it can leverage political commitments and apply peer pressure to the delivery of national programmes. Third, regional cooperation can complement or add value to national-level initiatives through new knowledge and collective experience and joint efforts in developing regional approaches and institutions. To realize these roles would require a proactive ASEAN Secretariat to identify opportunities that would bring about positive and

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meaningful synergies from seemingly disparate national actions towards the goals of the ASCC. The ASEAN Secretariat will need to strengthen its oversight role of the ASCC. It will need to do this in two areas: (i) identifying opportunities for adding value to national initiatives at the regional level; and (ii) monitoring the collective impacts of nationally driven action plans in support of the ASCC. With regard to item (i), the ASEAN Secretariat will need to focus its capacities on the formulation and design of regional projects that would add value to national initiatives, rather than focusing on its present gatekeeper role of appraising and approving projects. This will emphasize the ASEAN Secretariat’s facilitative role, and will serve to enhance consistency and coherence across the ASCC programmes. For item (ii), the ASEAN Secretariat would need to design and implement a monitoring system that focuses on programme and project impacts (at the national level) and a system of aggregating these impacts at the regional level. There should be less effort devoted to monitoring the progress of projects. Ultimately, the social cohesion that is envisaged in the ASCC will have to evolve over the long term, as national social institutions become more developed in the course of development and as the process of economic integration promotes greater social interaction. Greater interaction, people-to-people contact, and social mobility will hopefully build a better understanding of values and traditions among ASEAN peoples with diverse historical experiences and a wealth of cultural heritage.

Carolina S. Guina is an independent consultant and former Assistant Director at the ASEAN Secretariat, Jakarta.

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THE ASEAN CHARTER AND A LEGAL IDENTITY FOR ASEAN Locknie Hsu

Introduction After more than four decades, ASEAN is a cluster of nations seeking a legal identity. The establishment of a political and economic identity has long preceded this current exercise. From its early aims of promoting peace and cooperation in the region to the more recent establishment of an economic free trade area, ASEAN has been making its presence felt. Over the past few years, ASEAN has as a group been actively negotiating economic agreements with its trading partners.1 It has managed to make notable progress on these fronts since its creation, albeit without a central document such as a Charter. So why has it decided to add yet another document to its already ample collection of agreements, declarations, memoranda, and “roadmaps”? This document is meant to be, in a way, the “mother” of all ASEAN documents in the sense of providing an overall legal framework for ASEAN’s existence, operations and external relations. The ASEAN Charter was conceived as a necessary step to provide “the legal and institutional framework for ASEAN”.2 In order to achieve this, the Charter requires all ten members to sign and ratify it.3

Purposes If one were to trace the roots of the Charter’s purpose language, one finds much of these in the Kuala Lumpur Declaration on the

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Establishment of the ASEAN Charter. The declared purposes then were that: •

•

•

the ASEAN Charter will serve as a legal and institutional framework of ASEAN to support the realization of its goals and objectives; the ASEAN Charter will codify all ASEAN norms, rules, and values and reaffirm that ASEAN agreements signed and other instruments adopted before the establishment of the ASEAN Charter shall continue to apply and be legally binding where appropriate; the ASEAN Charter will reaffirm principles, goals and ideals contained in ASEAN’s milestone agreements.4

Soon after this Declaration was issued, an Eminent Persons Group was established to examine and recommend the contents of the Charter. As the immediate past Secretary-General of ASEAN, Mr Ong Keng Yong, explained, the threefold purpose of the Charter is as follows: the ASEAN Charter will serve the organisation well in three interrelated ways, such as, formally accord ASEAN legal personality, establish greater institutional accountability and compliance system, and reinforce the perception of ASEAN as a serious regional player in the future of the Asia Pacific region.5

Perceptions on the focus of the Charter have varied, and include the following: •

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provision of a stronger collective voice and ensuring plans are implemented;6

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setting the framework and laying the legal foundation for ASEAN to restructure its existing mechanisms;7 the “Charter makes ASEAN stronger, more united and effective … more rules-based with a new culture that leverages on networking, consultation, accommodation and concensus [sic]”.8

Reading its provisions, one may conclude that the Charter addresses three main aims. First, it reaffirms established principles and also many practices. Secondly, it steers ASEAN further forward as a regional grouping by seeking to remove any doubts over its legal status. Thirdly, it is a symbolic legal document that espouses fundamental principles, norms and, importantly, a number of structures to give life to those principles and norms. On this point, one should not confuse the aims of the Charter with its effectiveness. While there have been criticisms of places where it falls short (especially in compliance matters), the Charter is still an important legal document in that it will establish a number of new structures and obligations.

A. Reaffirmation Even before it has gone into effect, the ASEAN Charter has been criticized as a diluted document.9 To a large extent, its preambular objectives and purpose clause reflect existing aims and directions already found in earlier ASEAN declarations and statements. In this respect, the Charter unsurprisingly reaffirms many of ASEAN’s aims. In addition, several of ASEAN’s existing practices are now captured in the Charter, such as decision-making by consensus, regular meetings of the ASEAN Summit,10 rotation of ASEAN Chairmanship and engagement with dialogue partners. It however does not stop there, as will be discussed below.

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B. Direction In addition to affirming existing values and practices, the Charter augments them. It introduces statements on values, such as those of democracy, rule of law and protection of human rights, as well as supporting procedures, committees and powers. These are significant changes for two reasons. First, they show the continuing direction forward of ASEAN. While the economic integration activities (particularly since 1992) have occupied much of the attention on the group, ASEAN as a whole has — despite often harsh criticisms — been generally moving forward, in identity building as well as integration. While the rate of progress may be uneven in the three “pillars” or areas of integration, it is moving as an organization. The Charter therefore continues to take the group forward in this direction. The second reason that the changes are significant is that the new structures created by the Charter aim to strengthen the existing institutional infrastructure of ASEAN. This can be seen in the enhanced role of the Secretary-General, the creation of an ASEAN Coordinating Council with stated tasks and powers, ASEAN Community Councils for the three “pillars”, and a Committee of Representatives of ambassadorial status to be based in Jakarta. The effective implementation of goals requires appropriate and empowered mechanisms, and the Charter seeks to improve the existing ASEAN institutional infrastructure to achieve this.

C. Symbolism Finally, the Charter serves the purpose of giving symbolism and legal effect to the group’s efforts in becoming an increasingly rules-based and cohesive group. The use of a legal instrument that centralizes and consolidates structures, powers and decision-

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making principles is a strong statement of the priority given by ASEAN to a more recognizable and orderly institutional framework. In this respect, several provisions relate to institutional “housekeeping” matters, such as the formation of Community Councils for each of the three ASEAN pillars of integration, a Committee of Permanent Representatives, and expansion of the Secretariat with the creation of two new posts of Deputy Secretaries-General. However, the Charter goes beyond mere housekeeping; the expanded role of the Secretary-General focuses attention on the compliance of members with their obligations. This is significant, as it comes at a time that ASEAN has — at least in the economic sphere — set out a detailed blueprint for the economic community, with more defined stages of liberalization and reform than ever before.11 In addition, the preamble of the Charter captures important key principles such as “democracy, the rule of law and good governance, respect for and protection of human rights and fundamental freedoms”. Although these have not been set out in greater detail than in this preambular statement (and purposerelated provisions in Article 1(7) in the body of the Charter), a significant inclusion is Article 14, which creates an ASEAN Human Rights Body. At the time of writing, the ASEAN Foreign Ministers Meeting — tasked in that provision to establish the Body’s terms of reference — has not yet announced those terms.12

Legal Structures and Obligations Having said that the Charter is intended to be a legal instrument, one observes that in true ASEAN style, the Charter provides a combination of “hard” and “soft” law provisions.13 The creation of new structures may be said to be definitive hard provisions. These

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are accompanied by many softer provisions, either setting out the tasks assigned to these structures in a relatively broad fashion, or leaving procedures or specific powers open-ended for subsequent determination. Thus, while the Charter is a good step forward, to a large extent its ultimate credibility as a document containing serious legal obligations will depend on how these provisions play out. For instance, the exact parameters of operation of the Human Rights Body need to be spelt out before one can fully determine the effect of the Charter in this area. Article 3 of the Charter, an important provision, establishes the legal personality of ASEAN. This writer has previously explained some of the effects of not having such a personality, and the advantages of acquiring it.14 Already, the United States has appointed an Ambassador to ASEAN.15 Under Article 20, the Charter reaffirms the ASEAN method of decision-making, by consensus. However, it also provides that where such consensus cannot be achieved, the Summit “may decide how a specific decision can be made”. Though the method is left undetermined by the Charter (for instance, there is no directive to submit the matter to a vote), this provision still opens the door to the possibility of non-consensual decisions, a departure from the established practice. In the economic realm, for instance, an “ASEAN minus X” method has already been recognized.16 The Charter aims to create binding legal obligations; Article 5(2) refers to the obligation of members to implement their commitments in the Charter, and Article 5(3) refers to “serious breaches” and “non-compliance”, which can lead to the use of the dispute settlement system in the Charter. While this appears to invite complaints against fellow members, the Charter’s other face must be kept in mind. The Charter establishes “hard structures” but in many of its provisions uses “soft” obligations.

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This is not unexpected, considering that the Charter was, from its genesis to completion, drafted in a matter of about two years — a relatively short period in the light of its import and significance.17 This means that members have engaged in negotiations and a great deal of compromise to come up with the final document. This in turn explains why some provisions are “soft”. There is also no explanation of what a “serious breach” under the Charter is and how the Summit may handle such a breach. As will be seen below, there remains the possibility of some disputes remaining unresolved and requiring the Summit’s resolution under the Charter’s mechanisms.18 Ultimately, one would expect that decisions left to the Summit will result in political resolution, rather than resolution based strictly on legal rights and obligations. The Charter distinguishes between various dispute settlement mechanisms. Disputes relating to specific ASEAN instruments are to be settled by mechanisms thereunder. Disputes not relating to any particular ASEAN instrument are to be settled in accordance with the Treaty of Amity and Cooperation in Southeast Asia. Disputes relating to the interpretation or application of ASEAN economic agreements are to be settled in accordance with the ASEAN Protocol on Enhanced Dispute Settlement Mechanism 2004 (unless otherwise specified).19 The Charter also provides an open-ended means to solve disputes over the interpretation or application of the Charter itself — by “appropriate dispute settlement mechanisms, including arbitration”.20 Under the scheme of the Charter, therefore, ASEAN’s dispute settlement mechanisms are decentralized, being found in various ASEAN economic and non-economic documents, and having differing legal effects and levels of enforceability. This may in turn perpetuate the uneven rates of progress in different areas of ASEAN integration.

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This raises a related feature of the Charter, that it has no general provisions for sanctions in cases of non-compliance. If we compare this with the Enhanced Protocol for Dispute Settlement, which applies to ASEAN’s economic agreements, the contrast is clear; through the Protocol, ASEAN has already embraced the concept of sanction mechanisms, resembling those found in the World Trade Organization’s Dispute Settlement Understanding (DSU).21 The Charter also provides for disputes that may remain “unresolved” even after applying the dispute settlement procedures referred to above. In such cases, Article 26 requires the dispute to be referred to the ASEAN Summit for decision. This provision is curious, not in that it envisages “unresolved” disputes, but in its breadth. While some of the less rules-based mechanisms referred to in the Charter may not yield resolution and therefore require the Summit to resolve the dispute, economic disputes for instance have the benefit of “enforcement” provisions in the Protocol on Enhanced Dispute Settlement 2004. Further, Article 27 already covers non-resolution in the form of non-compliance, by referring non-compliance cases to the Summit. This would imply that “unresolved” in Article 26 should not cover situations of noncompliance, in order to avoid duplication of purpose of the two provisions. Article 26 may, for instance, refer to disputes mentioned in the good offices, conciliation or mediation provision in Article 23, which may not necessarily result in a final resolution of a matter. However, due to its width, Article 26 raises the question as to what other situations of “unresolved” disputes it exactly encompasses. It would have been better if the scope of Article 26 had been made clearer. A final observation is that the Charter reaffirms members’ sovereignty and the principle of non-interference,22 but does not

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explain how these will be reconciled, for example, with the to-bedetermined role of the new Human Rights Body. While the Charter refers to “democracy, the rule of law and good governance, respect for and protection of human rights and fundamental freedoms”,23 the exact functions, powers and composition of this Body remain to be seen.24 These will be an important gauge of ASEAN’s commitment to, and ability to put into practice, the principles in the Charter as well as how non-interference will work, postCharter. Secondly, it is not clear how non-interference will sit with the rules-based retaliatory provisions that may come into play under the Protocol on Enhanced Dispute Settlement Mechanism 2004; adverse rulings and retaliatory economic measures (where authorized) arguably seek to “interfere” with a member’s internal trade rules and policies, to bring about compliance by the member with its obligations under the economic agreements.25 Finally, according to the Charter, this will also be a legal prerequisite for new members wishing to join ASEAN. In addition, the Charter sets out the framework for interaction with external parties, such as dialogue partners and international organizations.26

Future Steps Even as the Charter’s ratification process is awaiting completion, further rules are being worked out to give effect to the Charter’s provisions. At the same time, ASEAN is already gearing up for a post-Charter era, in working out the detailed procedures and implementation rules of the Charter. It is by no means a perfect document, and the Charter leaves room for review after five years from its entry into force or as otherwise decided by the Summit, as well as for amendment where necessary.27

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The immediate task is to have the Charter come into force. Once that occurs, the focus will be on the implementing provisions being formulated, which can either give credibility to the Charter or justify familiar criticisms of ASEAN. The latter situation will unhappily arise if members look to future reviews or amendments to produce meaningful provisions, instead of formulating implementing provisions that make the Charter an even more significant turning point for ASEAN than it already is, and more than a legal symbol.

Notes 1.

2. 3.

4. 5. 6. 7.

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ASEAN has been in trade negotiations with China, India, Korea, Japan, and Australia and New Zealand and the European Union. The most recent agreement to be completed is that with Japan, signed in April 2008 (accessed on 5 May 2008). Preamble, ASEAN Charter. Article 47. At the time of writing, six of the ten members have ratified the Charter and deposited their documents with the ASEAN Secretariat (accessed on 5 May 2008). A summary of the major provisions of the Charter can be found here (accessed on 5 May 2008), while the text of the Charter and its Annexes may be found here (accessed on 5 May 2008). Preamble of the Declaration. See (accessed on 5 May 2008). See (accessed on 5 May 2008). See (accessed on 5 May 2008).

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8.

9. 10. 11.

12.

13. 14.

15. 16.

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See (accessed on 5 May 2008). The same paper describes it as “a piece of paper” which will be a “living document” with political will (to implement its provisions). See, for instance, (accessed on 5 May 2008). For instance, the Charter formally establishes the ASEAN Summit, which has long been an annual affair. ASEAN Economic Community (AEC) Blueprint, signed at the Thirteenth ASEAN Summit in Singapore on 20 November 2007. This Blueprint also refers to the establishment of a “scorecard” system to measure members’ implementation of AEC obligations (paragraph 73 of the Blueprint); see also the recent comment by the ASEAN Secretary-General: “the scorecard mechanism is crucial for a rules-based ASEAN to meet the targets and timelines as stipulated in the Blueprint” (accessed on 8 May 2008). Preamble. Section 1(6) further states that ASEAN has as one of its purposes “to strengthen democracy, enhance good governance and the rule of law, and to promote and protect human rights and fundamental freedoms, with due regard to the rights and responsibilities of the Member States of ASEAN”. It is not the aim of this article to examine all the provisions of the Charter; rather, selected examples are raised as illustrations. See Hsu, “Towards an ASEAN Charter — Some Thoughts from the Legal Perspective”, in Framing the ASEAN Charter: An ISEAS Perspective, edited by Rodolfo C. Severino (Singapore: Institute of Southeast Asian Studies, 2005). A supplementary protocol on this legal personality is expected (accessed on 5 May 2008). (accessed on 5 May 2008). This is referred to in Article 21(2) of the Charter; however, a

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17.

18. 19. 20.

21.

22.

23.

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consensus is still required for applying an “ASEAN minus X” formula under this provision. The Kuala Lumpur Declaration on the Establishment of the ASEAN Charter was adopted in December 2005 and the ASEAN Charter was completed and ready for ratification in December 2007. For what was to be a momentous and watershed document binding ten different nations, this is a very short timeframe indeed. The Cebu Declaration on the Blueprint of the ASEAN Charter was adopted in January 2007 and the High-level Task Force was to complete drafting of the Charter from that point, so that the document would be ready by the Thirteenth ASEAN Summit in Singapore in November 2007. See text after note 21. Article 24. Article 25. Article 51 refers to the ASEAN Secretariat being able to undertake interpretation of the Charter according to rules of procedure to be determined by the ASEAN Coordinating Council. Article 23 additionally provides for the possibility of use of good offices, conciliation or mediation of the Chairman or SecretaryGeneral of ASEAN in resolving disputes. The WTO Dispute Settlement system allows WTO members to authorize an aggrieved member who has received a favourable ruling to “enforce” its retaliatory action, subject to stated principles. There is also an active surveillance mechanism that requires the implementing member to report regularly on the state of implementation. These are important features of the system that have been largely replicated in the ASEAN Protocol on Enhanced Dispute Settlement 2004 (see Articles 15 and 16 at ). See Preamble. See also Article 2(2)(e) and (f). The non-interference principle is found in Article 2(c) of the Treaty of Amity and Cooperation in Southeast Asia, signed in February 1976. Preamble of the Charter. See also section 2(2)(i).

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24.

25.

26. 27.

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A clue — though not highly enlightening — perhaps can be found to this relationship in the reservation in Article 1(7): “with due regard to the rights and responsibilities of the Member States of ASEAN”. This could arguably be an “interference” even if, as in the WTO DSU system, a ruling does not specify the particular method of implementation to achieve compliance. A counter-argument, and more likely view, is that ASEAN members, in entering the various ASEAN economic agreements, have made a conscious or rational choice to subject this freedom from interference in the economic sphere to the rules in those agreements — including those designed to bring about compliance; see, for example, the use of this counterargument in the context of WTO members and non-intervention in Charles W. Kegley, Jr and Eugene R. Wittkopf, World Politics: Trend and Transformation (Thomson Wadsworth, 2005), at p. 182. Chapter XII of the Charter. Articles 50 and 48 respectively.

Locknie Hsu is an Associate Professor at the School of Law, Singapore Management University.

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THE ASEAN CHARTER: MAKING SENSE OUT OF MIXED RESPONSES1 Mely Caballero-Anthony

Introduction Since the formal adoption of the much-awaited ASEAN Charter in November 2007, opinions have been mixed regarding its impact on the institutional development of the forty-year-old association. At one end of the spectrum are the positive views that commend ASEAN for finally working out a Charter that could provide the legal framework for regional relations in Southeast Asia. At the other end are the critical views that dismiss the Charter as nothing more than a reiteration of the old ASEAN way of doing things — more form, less substance. While debates about the Charter will continue in the months and years to come, it is nevertheless an opportune time to assess where ASEAN is now in institutionalizing regional cooperation in Southeast Asia.

Chartering ASEAN The ASEAN Charter was formally adopted by ASEAN’s leaders on 20 November 2007. A media release from the ASEAN Secretariat noted that “for the first time after 40 years of regional cooperation, ASEAN Member states have codified organic Southeast Asian diplomacy, and listed key principles and purposes of ASEAN”.2 With thirteen chapters, fifty-five articles and four annexes, the new Charter has essentially laid out the legal and institutional

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framework of ASEAN. But while the adoption of a charter is certainly a watershed in ASEAN’s history, many observers have questioned how much the formal adoption of the Charter has actually achieved. The former ASEAN Secretary-General, Mr Ong Keng Yong, had declared that “the Charter will serve the organization well in three interrelated ways: (1) formally accord ASEAN legal personality, (2) establish greater institutional accountability and compliance system, and (3) reinforce the perception of ASEAN as a serious regional player in the future of the Asia Pacific region”.3 This next section will examine each of these issues on the basis of the provisions of the ASEAN Charter.

Legal Personality of ASEAN This is perhaps the most significant achievement of the Charter. ASEAN officials have explained that the Charter would establish the association as a “juridical personality and a legal entity”, which in turn would bring about a number of advantages.4 For one thing, the Charter would grant ASEAN legal status under international law and would therefore allow ASEAN to enter transactions in its own right. More significantly, having a charter would be useful in providing a legal framework for incorporating ASEAN decisions, treaties and conventions into the national legislation of member countries. Moreover, the Charter has established and outlined the institutional structure of the association and created new ones. Aside from delineating the specific functions of the ASEAN bodies, it has also outlined the relationships among these institutions and explained their decision-making processes. The Charter has also put in place a number of important institutional changes. These include:

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Convening of the ASEAN Summit twice a year instead of once; Establishment of an ASEAN Coordinating Council made up of the ASEAN foreign ministers; Appointment of member states’ Permanent Representatives to ASEAN to form a Committee of Permanent Representatives; Single chairmanship for key high-level ASEAN bodies; and Establishment of an ASEAN human rights body

Establish Greater Institutional Accountability and Compliance Systems It has been argued that having a Charter will make ASEAN a more rules-based organization. As pointed out in an article written by the Singapore team represented in the High Level Task Force (HLTP) that drafted the Charter, “The ASEAN way … will not be done away with. It will be supplemented by a new culture of adherence to rule … a culture of taking our obligations seriously … will put in place a system of compliance monitoring and, most importantly, a system of compulsory dispute settlement for noncompliance that will apply to all ASEAN agreements.”5 While the prospects of turning ASEAN into a more rulesbased organization have been hyped up before the release of the formal document, particularly after the EPG Report had suggested the idea of instituting certain measures, such as possible sanctions,6 the lack of provisions for any effective compliance mechanism in the Charter has become a major point of contention across the different sectors of the ASEAN community. The argument is, absent any explicit legally binding provision for compliance and/or credible dispute settlement

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mechanism, ASEAN will not be able to carry out any measures nor effectively implement many of the regional agreements — in economics, politics, security and other functional areas — that have been agreed upon by member states. In the current institutional design, neither the ASEAN Secretary-General nor the ASEAN Secretariat has the mandate to authoritatively call for compliance. We also note that the ASEAN practice of compliance has, so far, been largely voluntary in nature. Encouraging members’ commitment of obligations has been carried out through persuasion and bargaining. Instead, what the Charter has provided/stated is that questions of discipline regarding cases of non-compliance with agreements would be referred to the ASEAN Summit.7 The above provisions have, therefore, raised a number of questions. Firstly, why the reluctance to create a mechanism for monitoring and compliance especially at a time when ASEAN is: (1) reorganizing itself, (2) embarking on a number of initiatives such as the establishment of a three-pillared community consisting of the ASEAN Economic Community, the ASEAN Political and Security Community and the ASEAN Socio-Cultural Community, and (3) currently facing systems overload with a small, overburdened Secretariat? The lack of progress in moving the ASEAN Free Trade Agreement (AFTA) forward, due largely to weak implementation and backsliding on commitments by some member-states, should have been sufficient to boost the case for instituting credible mechanisms with more teeth to move agreements beyond declarations to action. Second, why the reliance on the Summit? It is difficult at this point in time to imagine how the Summit will act decisively on issues of compliance. Against the recent history of what

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happened during the Thirteenth ASEAN Summit, when ASEAN leaders had to suffer the embarrassment of having to withdraw their invitation to UN Special Envoy Ibrahim Gambari to talk to them because of strong opposition from Myanmar, the logic of relying on the Summit to address issues of non-compliance not only with regional agreements but also with norms on acceptable state conduct towards its citizens is obviously flawed. One would recall how ASEAN leaders have had to put up a brave face in the face of criticisms, both within and outside the region, of its lack of credibility in handling Myanmar with kid gloves after the regime’s brutal treatment of demonstrators at a time when the Charter was going to be launched. It also did not help that among the reasons given for such display of solidarity was that “[they] did not want to come across as being too confrontational in a situation like this”. More importantly, given the standing ASEAN practice of decision-making by consensus, which has been been reinforced by its codification in the Charter, any move towards instituting a credible enforcement mechanism is severely hampered. While the Charter states that “when consensus cannot be achieved, the ASEAN Summit may decide how a specific decision can be made”, the lack of any clear reference as to how such a decision could be reached — either by majority vote or some other formula — further raises more questions. To be sure, this is a significant setback to the EPG recommendation for ASEAN to relax or do away with its style of decision-making by adopting an “ASEAN Minus X” formula that would allow decisions to be reached without full consensus. Hence, one can argue that sticking to the principle of decision-making by consensus effectively negates any effort at establishing possible sanctions for non-compliance.

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Finally, there remains the question on a mechanism for dispute settlement. The Charter states that disputes pertaining to economic matters will be referred to the 2004 ASEAN Protocol on Enhanced Dispute Settlement Mechanism. It is unclear, however, how other matters, including security issues, will be handled. The Charter provision on this points to the enhanced role of the ASEAN Secretary-General and the ASEAN Chair, i.e., that the “ASEAN Chair and the Secretary-General can be requested to provide good offices, conciliation or mediation in a dispute”. Note, however, that the provision only calls for an intermediary role, since unresolved disputes shall be referred to the ASEAN Summit for decision. Once again, similar reservations arise on how the ASEAN leaders will resolve disputes, given the embedded practice of decision-making by consensus. In brief, the issue is not so much the lack of trying as that ASEAN officials not having done enough, considering what could have been — the right time and the perfect opportunity to institute the much-needed institutional reforms for ASEAN. Since the adoption of the Bali Concord II, which outlined plans for ASEAN to build the three-pillared community — AEC, ASC and ASSC — the message being conveyed to the regional community was that ASEAN needed to change. And change here meant rising above or working around obstacles to closer cooperation and deeper commitments in the light of the urgency to respond to an array of security, economic and development challenges which require no less than a collective responsibility. Realizing the goals of the ASEAN three-pillared community, therefore, meant going beyond the ASEAN Way of informality and consensus decision-making to adopting clear strategies, decisive measures and credible mechanisms — even if these meant impinging on the internal

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affairs of member states. Hence, the absence of those elements in the Charter that was unveiled was a big let-down to many groups in the region, specially the civil society organizations that had joined and actively participated in the consultative processes of drafting the Charter. Against the range of questions and reservations that had emerged, it was not surprising that doubts were once again raised as to the prospects of ASEAN continuing to be a key player and leader in the wider Asia Pacific region.

ASEAN as a Serious Regional Player in the Future of the Asia-Pacific Region The standing of ASEAN as a key player in the region can be assessed at two levels. One is how ASEAN is regarded within the region, while the other is ASEAN’s standing in the international community. At least prior to the adoption of the ASEAN Charter, much of the rhetoric in the region has revolved around a number of themes, such as: community building, regional identity, inclusiveness, and being people-centred. Interesting also have been the discourses on the “shared vision and common values to achieve peace, stability, democracy and prosperity in the region”.8 The latter has significantly raised expectations that ASEAN was in the cusp of a normative transformation. The sense that emerged was that, after forty years, ASEAN would finally have a Charter that would spell out clearly its institutional norms and values, which in turn would commit member states to the promotion of democracy, the protection of human rights and human security. Arguably, such optimism within the region was warranted, since the discourses and ideas that were prevalent during that period were, in fact, further reinforced by the release of the EPG

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report, which called for “the active strengthening of democratic values”, as well as official declarations that urged adherence to “the promotion of democracy, human rights and obligations”.9 In sum, these developments, if pushed to their logical conclusion, could have indeed been a milestone in ASEAN, as they signalled that democracy and human rights were its next policy frontiers.10 But as events unfolded, it became clear that the hopes were not quite realistic. From the release of the EPG report to the time when copies of the Charter were “leaked” just prior to the start of the Thirteenth ASEAN Summit, the reported differences among ASEAN officials saw the watering-down of plans to establish a normative framework for ASEAN. Two factors in particular explain the pessimism that ensued. First was the decision to go ahead with the Singapore Summit and adopt the Charter despite the violence that took place in Myanmar. Myanmar’s attendance at the Summit and as a signatory to the Charter, which professed “to strengthen democracy, enhance good governance and the rule of law, to promote human rights and fundamental freedoms…”11, was seen as a big blow to ASEAN’s credibility and thus severely compromised its standing in the eyes not only of its own people but also of the international community that witnessed the brutal treatment of Burmese demonstrators by the regime’s military junta. Moreover, the cancellation of a scheduled briefing by Ibrahim Gambari at the Summit in the face of strong objections from Myanmar reflected the lack of gumption by other ASEAN leaders to assert the observance of human rights. The second was the promise of establishing a human rights body. While the Charter stated that a regional human rights body was going to be established, it did not go far enough to operationalize how this regional body was going to be constituted

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and how this was going to function. Absent too was any provision for sanctions or punitive mechanism for violations of the norms of democracy. Perhaps the only interesting thing that came up during the adoption of the Charter at the Singapore meeting was the statement issued by Philippine President Gloria Arroyo stating that her country would be hard-pressed to ratify the Charter unless the situation in Myanmar improved. President Arroyo’s statement on the Charter was seen as a sign of the tricky path ahead in its ratification by each of the ASEAN members, given the possibility that other democratic states in the region like Indonesia could follow the Philippine stance. As far as ASEAN’s image outside the region is concerned, the developments before and after the adoption of the ASEAN Charter certainly cast doubt on the ability of the grouping to seriously take up its role as a pivotal actor in the wider Asia-Pacific region. The conservatism and perceived rigidity reflected in the Charter, as well as the differences that emerged among members, highlighted the obstacles faced by ASEAN in pushing ahead with its vision of building a dynamic three-pillared community. Instead, what has come to light is the fact that even with an ASEAN Charter, it is still pretty much “business as usual” in ASEAN, where the features of decision-making by consensus, working on the basis of the lowest common denominator, strict adherence to the principle of non-interference, and reticence on any form of sanction for non-compliance remain unchanged. Against these concerns, was the Charter therefore a futile exercise?

Looking ahead Whatever one thinks of the issues surrounding the Charter, one could nevertheless push the argument that its adoption was a

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very significant development in ASEAN. The fact that ASEAN finally has a Charter has enabled this informal grouping to finally codify its key principles and purposes. These key principles and purposes include ASEAN’s adherence to democratic values, human rights, and fundamental freedoms.12 Thus, having signed on to the Charter has made it incumbent on member states to commit to the spirit of the Charter. In turn, the Charter has now become the legal basis for putting any member-state to task if it is seen to be in egregious violation of these principles. In this regard, until the situation in Myanmar improves, one can therefore be sure that Myanmar will now be pressured regularly by its own neighbours to become accountable for its actions and address political problems at home. Similarly, while it is unfortunate that the provision for establishing a human rights body lacks specific details, the fact that this is now incorporated in the Charter makes it incumbent on ASEAN members to act on it sooner or later. In the next year or so, ASEAN will have to come up with its blueprint for the ASEAN Political and Security Community (APSC). In this regard, among the things that one would expect to see are details on how the human rights body would be constituted, given that the protection of human rights is one of the key components embedded in the APSC. It has been argued that a Charter is a living document.13 Despite its imperfections, there is nothing that can stop the states and societies of this region from wanting to amend and/or add more provisions to the Charter, as and when the need arises, in the light of the growing demand for regional institutions to be responsive to new and emerging challenges. In this regard, the adoption of the Charter is in itself a step, albeit small, in the right direction. One can, therefore, further argue that despite what

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appeared to be a lost opportunity in having a good and certainly not a mediocre Charter, at the end of the day, the Charter does matter. And, given that the momentum in pushing ahead with change is already gaining ground in the region, it should not be wasted. The Charter can thus be an opportunity for change that cannot be missed.

Notes 1.

2.

3. 4.

5. 6.

7. 8. 9. 10.

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This article draws heavily from the author’s earlier work on “The ASEAN Charter: An Opportunity Missed or One that Cannot be Missed?”, Southeast Asian Affairs 2008, edited by Daljit Singh and Tin Maung Maung Than (Singapore: Institute of Southeast Asian Studies, 2008). See Media Release, ASEAN Leaders Sign ASEAN Charter, Singapore, 20 November 2007, available at , accessed 29 November 2007. Ibid. See Rodolfo Severino, Framing the ASEAN Charter: An ISEAS Perspective (Singapore: Institute of Southeast Asian Studies, 2005), pp. 7–8. See Tommy Koh, Walter Woon, Andrew Tan and Chan Sze-Wei, “The ASEAN Charter”, PacNet Newsletter 331, 7 September 2007. The EPG Report has gone further to recommend the possibility of “the suspension of rights and privileges” of membership. See EPG Report, p. 31. See Section 4 of Article 20, Chapter VII of the ASEAN Charter. See the ASEAN Security Community Plan of Action, Vientiane, 29 November 2004. Kuala Lumpur Declaration of the Establishment of the ASEAN Charter, Kuala Lumpur, 12 December 2005. See Mely Caballero-Anthony, “Non-Traditional Security, Democracy, and Regionalism in Southeast Asia”, in Hard Choices: Security,

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13.

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Regionalism and Democracy in Southeast Asia, edited by Donald K. Emmerson (forthcoming 2008). See Article 1, paragraph 7 of the ASEAN Charter (Singapore, 20 November 2007). These three elements are found in three separate places in the Charter: the Preamble, the Purposes and its Principles. See the ASEAN Charter. See Tommy Koh, et al., “The ASEAN Charter”.

Mely Caballero-Anthony is Associate Professor at the S. Rajaratnam School of International Studies, Nanyang Technological University.

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LIST OF SPEAKERS, PARTICIPANTS AND CHAIRMEN

1.

Assoc Professor Mely CABALLERO-ANTHONY S Rajaratnam School of International Studies (RSIS) Nanyang Technological University S4-B4, Nanyang Avenue Singapore 639798 Tel: (65) 6790-5886 Fax: (65) 6793-2991 E-mail: [email protected]

2.

Mr Termsak CHALERMPALANUPAP Special Assistant to the Secretary-General of ASEAN Office of the Secretary-General The ASEAN Secretariat 70A Jalan Sisingamangaraja Jakarta 12110 Indonesia Tel: (62-21) 724-3372 Ext 264 Fax: (62-21) 739-8234 E-mail: [email protected]

3.

Dr CHIN Kin Wah Deputy Director Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-2433 Fax: (65) 6775-6264 E-mail: [email protected]

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4.

Dr Suthiphand CHIRATHIVAT Chairman, Economics Research Center and Center for International Economics Faculty of Economics Chulalongkorn University Bangkok, Thailand Tel/Fax: (66-2) 218-6295 E-mail: [email protected]

5.

Dr Terence CHONG Fellow and Coordinator Regional Social and Cultural Studies Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-4518 Fax: (65) 6775-6264 E-mail: [email protected]

6.

Ms Sanchita Basu DAS Research Associate Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-4536 Fax: (65) 6775-6264 E-mail: [email protected]

7.

Dr Carolina S. GUINA Independent Consultant and former Assistant Director ASEAN Secretariat Jakarta Tel: (63-2) 632-4444 Ext 70481 Fax: (63-2) 824-4892 E-mail: [email protected]

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8.

Dr Denis HEW Senior Fellow and Coordinator Regional Economic Studies Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-4505 Fax: (65) 6775-6264 E-mail: [email protected]

9.

Assoc Professor HSU Locknie School of Law Singapore Management University 60 Stamford Road Level 4 Singapore 178900 Tel: (65) 6828-0572 Fax: (65) 6828-0805 Email: [email protected]

10.

Ambassador K. KESAVAPANY Director Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6778-0955 Fax: (65) 6778-1735 E-mail: [email protected]

11.

Dr David KOH Senior Fellow and Coordinator Regional Strategic and Political Studies Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-4529 Fax: (65) 6775-6264 E-mail: [email protected]

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12.

Mr Eduardo PEDROSA Secretary General Pacific Economic Cooperation Council 29 Heng Mui Keng Terrace Seventh Floor, Lobby A Singapore 119620 Tel: (65) 6737-9823 Fax: (65) 6737-9824 E-mail: [email protected]

13.

Dr Anish Kumar ROY Director Bureau for Resources Development ASEAN Secretariat 70A Jalan Sisingamangaraja 12110 Jakarta Indonesia Tel: (62-21) 726-2991 Fax: (62-21) 739-8234 E-mail: [email protected]

14.

Mr Rodolfo SEVERINO Head, ASEAN Studies Centre Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-4524 Fax: (65) 6775-6264 E-mail: [email protected]

15.

Dr Hadi SOESASTRO Executive Director Centre for Strategic and International Studies (CSIS) Jalan Tanah Abang III/23-27 Jakarta 10160 Indonesia Tel: (62-21) 380-9637 Fax: (62-21) 384-7517 E-mail: [email protected]

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Mr Andi WIDJAJANTO Lecturer University of Indonesia; and Visiting Research Fellow Rajaratnam School of International Studies (RSIS) Nanyang Technological University S4-B4, Nanyang Avenue Singapore 639798 E-mail: [email protected]

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