Blueprint 2025

ASEAN’s Trade Modernization Agenda?

Last week, ASEAN leaders and economic ministers held a series of meetings in Southern California with one another and with a variety of cutting edge businesses.  These meetings ought to spur officials to redouble efforts to craft an appropriate trade modernization agenda for the region.  A forward-thinking set of policy frameworks can help large and small businesses better capture potential gains from trade.

After the leader’s summit in Sunnylands, officials moved to San Francisco and Silicon Valley.  USTR took economic ministers and trade delegations from ASEAN on a “road show” to highlight different types of companies and technologies at the forefront of innovation. 

These efforts were supplemented by a conference organized by the US-ASEAN Business Council that also discussed additional elements of an appropriate trade agenda, including creating new funding models to foster creative start-up companies and encourage entrepreneurs. 

One challenge for ASEAN is the tendency for officials to try to micromanage the business environment.  Perhaps the single most important take-away from the California experience may have been that government has a critically important role to play to setting in place broad, facilitating policies that foster growth in the private sector and allows companies to flourish.  But heavy-handed interventions or narrowly prescriptive policies are likely to lead in the wrong direction.    

In fast-moving sectors, government attempts to pick and choose appropriate policies, or to select the “right” sectors, firms or industries to support are more likely to backfire than ever before. 

While it is important for governments to encourage companies to take advantage of trade opportunities, officials might more usefully focus their attention on removing policy obstacles and allow firms to find their own pathways to success and failure.  In a world where companies can locate anywhere in the globe, governments simply cannot afford policy roadblocks and time consuming and expensive obstructions to doing business. 

Our own proposal for adding a broad e-commerce perspective to AEC Blueprint 2025 can be found here.  We welcome suggestions from companies for specific items to flesh out the details.

Silicon Valley, of course, represents the current extreme end, perhaps, of innovation built up around the promise of digital connectivity.  However, in a very short period of time, many elements of what appears to be revolutionary today will spread to companies large and small in often far-flung locations. 

The smallest firms can provide services via mobile platforms.  Companies in remote locations will be able to create products using additive manufacturing techniques.  Firms can use various types of platforms to manage everything from client relationships to human resource systems to inventory controls in the most complicated global companies and even across firms that are not directly connected.

Such innovations are not simply a distant prospect or likely to remain the preserve of well-financed major Western players.  These technologies will spread and costs will fall, just as smart phone technology has allowed more and more people to harness tremendous computing power in the palm of their hands today.

The trade agenda in ASEAN (and in most places) has simply not caught up with this rapidly evolving environment.  While the AEC Blueprint 2025 nods in the direction of helping smaller firms, mentions the importance of e-commerce, and says that services are important, none of this is really sufficient for ASEAN member states to effectively harness the new trade modernization agenda that is needed to help businesses compete. 

Instead, ASEAN officials must seriously drill down and create practical policy frameworks to ensure that trade can continue to flourish across the region in the next decade.  This means, most critically, that ASEAN must work on policy areas that have traditionally been considered “off limits.”  For instance, it is no longer possible for a modern trade agenda to leave data, internet and information policy details to individual member states. 

Officials have to understand how globally connected firms do business today. Many of the ideas of how to provide privacy and security, as an example, do not match up with the way that firms actually move information around. 

The charming notion that police could walk into a room and “seize” data does not match the reality of how information actually flows.  No sensible firm would want to house important information in only one location, as it would be extremely vulnerable to disaster.  A fire, flood or earthquake could wipe out a whole firm.    Companies—even small ones—would like to have multiple locations for data storage and seamlessly switch (or have their service provider switch) between them if needed to avoid disruptions in service.

This is not to suggest, of course, that privacy and security are not critically important ideas or that government and companies ought not be concerned with either notion.  It is simply to note here that officials responsible for crafting rules and regulations to ensure privacy and security need to understand how companies actually operate and how they might reasonably be expected to operate in the near term before trying to craft responsible policy solutions. 

ASEAN has got to do a much better job of reaching out directly to companies to determine which policies are creating obstacles and which areas need improvement.  This must include more than annual summit meetings with top level ministers and business councils (welcome though these meetings may be), but must include sustained and ongoing input to working committees at all levels within member states and at the ASEAN level. 

The practical consequence of a failure to create policy frameworks across ASEAN that are in harmony is that businesses will not grow in some member countries.  Companies will not invest in locations that do not provide a facilitating environment.  Innovation will not happen.  Entrepreneurs will not develop, or they will leave and go to some other location to build up their new ideas.  This would be a tremendous waste of the talent and energy found across Southeast Asia.

---Note:  Last week’s post about the TPP timelines led to an excellent query by Alice at UBS in Singapore.  (UBS clients should request their outstanding TPP Timelines research full of excellent graphics.)  Congress will vote on the implementing legislation to bring US laws into conformity with the TPP.  (As soon as possible, please!) Then USTR will start the process of certifying that other TPP members have complied with TPP rules.  USTR will notify Congress of the results of this study.  But Congress does not need to vote on this process.  Once the report is finished and submitted (assuming no major objections), the US domestic procedures are considered to be finished.  If all 12 parties have also finished, TPP entry into force will proceed in 60 days.

Second TPP Note:  The New Zealand TPP Website has released the Spanish and French versions of the texts.  One big change with the overall legal scrub has been the tariff schedules that were adjusted to remove all the complicated reference notes (like B5) and given more standardized formatting.

***Talking Trade is a blog post written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Trade Outlook for 2016

Last year was quite extraordinary for anyone interested in trade policy.  Things were happening at the global, regional, and bilateral levels and involved most of the countries in Asia.  What will 2016 look like for trade?

The year ahead promises to be quite exciting.  The global or regional economy might be less robust, but there are ample opportunities for companies to use new trade arrangements or to promote specific policy outcomes that can affect their bottom lines.  Many of the trade changes that are coming into effect across Asia will provide new avenues for companies to generate growth and to explore new market opportunities. 

As always, come see us at the Asian Trade Centre for more details on how your firm can use trade agreements and trade arrangements to your advantage and how we might work together to influence trade policy outcomes for the future.

Implementation of the ASEAN Economic Community (AEC):  The AEC came into force at the start of the year.  During 2016, firms should spend time figuring out how to take advantage of existing commitments made by various ASEAN members.[i] 

Government officials have promised to implement the entire set of AEC pledges during 2016.  Many domestic level regulations, laws and procedures have not yet been brought into compliance with ASEAN commitments.  The gaps are particularly large in services and investment and often at the local or provincial levels.

In the diverse context of ASEAN, some members have more enthusiastically embraced the AEC and have made on-the-ground changes as required.  The level of commitment varies across the region, across local provinces, and across sectors or types of commitments.  (As prior Talking Trade posts have noted, please ignore optimistic assessments of levels of implementation drawn from ASEAN’s Scorecard exercise.)

The best use of the AEC, however, may be that companies can use AEC commitments as a platform for engagement with local officials.  If an ASEAN member state has already made a specific commitment, companies can encourage compliance with these existing pledges. 

ASEAN Blueprint 2025:  ASEAN has already started turning its attention to a new set of requirements for the next ten years.  The Blueprint practically promises everything to everyone.  Hence, it also provides an opportunity for savvy firms to help define specific areas where change would be most helpful.

For example, ASEAN could usefully discuss a range of non-tariff barriers.  Up until now, negotiations over various types of barriers like incompatible or inconsistent standards or regulations over things large and small have proceeded slowly.  Firms could help ASEAN focus on the critically important non-tariff obstacles that are hampering trade in a time of economic slowdown in the region.

Clearly, ASEAN will need to do more work to open up services markets and, especially, to think hard about licensing requirements that make it difficult or impossible for companies to provide services across the region.  Given that ASEAN’s own stated objective is to create a market with a free flow of services, these types of barriers to an increasingly important aspect of trade are deeply problematic. 

But ASEAN government officials are often uncertain about their own services markets and have an unclear understanding of the kinds of barriers to trade in services that firms actually face.  Hence, in 2016, it would be extremely helpful for firms to provide specific input to ASEAN about which obstacles should be addressed first in the road to Blueprint 2025.

Regional Comprehensive Economic Partnership (RCEP):  Officials in the 16 member countries[ii] involved in the RCEP negotiations have suggested that the trade negotiations will conclude in 2016. 

For now, there are three rounds scheduled.  The first will take place in Brunei next month.  The Asian Trade Centre has been working to get stakeholder outreach sessions in place for the April meetings in Perth, Australia, and New Zealand in mid-year.  Companies should think about what sort of outcomes would be most helpful in this trade arrangement that brings together all the economies in Asia into one agreement. 

RCEP will, likely, not be terribly ambitious which means that the most highly sensitive goods will not be opened with new, deep tariff cuts (or perhaps tariff cuts at all).

But this does not mean that RCEP will not bring benefits to many firms, even for agricultural trade, textiles, and manufactured goods.  Any agreement that links together 16 of the most important markets in the world can provide benefits for companies. 

Even if the tariff cuts and coverage for goods are relatively thin (and this may not ultimately be the case if officials seize opportunities to bold in 2016), RCEP also includes a range of other issues that also matter, including services, investments, e-commerce, intellectual property rights, and so forth.  The final commitments in some of these areas may ultimately be much more ambitious than market liberalization for goods. 

More important for firms—officials basically have one shot at this agreement.  It is quite rare for governments to sit down in the future and engage in a wholesale revision of an existing agreement.  Whatever comes out of the RCEP process is likely to be the trade agreement across Asia for at least the next decade.  Hence, company engagement with governments at the level of individual members and the group is critical to crafting the best possible deal for the future.

Trans-Pacific Partnership (TPP):  The Talking Trade blog posts have covered the TPP negotiations quite extensively.  Negotiations in this ambitious, sweeping agreement that links together 12 countries[iii] across the Pacific finished in October.  The year ahead will be largely focused on the domestic level ratification procedures needed to bring the agreement into force.

For most firms active in or across TPP member markets, this agreement should bring substantial benefits.  For non-members, the TPP can also have strong impact. 

Firms should spend time in 2016 evaluating the consequences of TPP entry into force, since much of the TPP commitments also start on the date of entry into force.  This includes not just the dropping of tariffs on roughly 90 percent of all goods to zero on that date, but also most of the changes in services, and investment.  Many of the commitments in areas like intellectual property rights or government procurement procedures will also take effect immediately.

Companies need to know what is in the agreement and think hard about what these new commitments may mean for their own firm, for their suppliers, customers and even for their competitors.  Some firms will need to start changing their supply chains in anticipation of new benefits and consider (or reconsider) investment decisions ahead of TPP entry into force.

Bilateral agreements:  While most Asian governments have been focused on regional trade negotiations and commitments, some have continued to sign and will be implementing bilateral trade agreements in 2016.  The most important may be China/South Korea and South Korea/Vietnam.  If the European Union solves an issue domestically with the investment provisions of FTAs, trade agreements with Singapore and Vietnam are finished and more are being negotiated with ASEAN members like Philippines. 

Multilateral or global trade:  Just before the end of the year, the World Trade Organization (WTO) managed to quietly kill off more than a decade of mostly fruitless negotiations in the Doha Development Agenda.  But it did so without consensus from 160+ member states on what, exactly, ought to be done instead.  Hence, 2016 should be a year of intense discussions and dialogue on the multilateral trade front as officials scramble to create a new agenda for global trade.

In short, 2016 promises to be an extremely active year again on the trade front.  There are many opportunities for companies to shape the agenda on the local, regional and even global level and to address many of the specific roadblocks and barriers that impede trade.  We are looking forward to it!

***Talking Trade is a blog post written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

[i] ASEAN: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

[ii] RCEP: Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, Thailand, and Vietnam.

[iii] TPP:  Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam.