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Business as Usual in ASEAN’s Trade Policy

Business as Usual in ASEAN’s Trade Policy

By Joseph Purugganan

“Closer ties among larger markets” seems to be mantra of trade policies across Southeast Asia as governments continue to pursue policies that further liberalize trade in goods and services and ease restrictions on investments, and as the ASEAN aims to create one single regional market.

Community building, as ASEAN governments have defined this objective of regional integration, has gained momentum, at least in the level of official policy.

The most advanced aspect of regional community building is in the area of the economy.  In 2007 ASEAN adopted the ASEAN Economic Community (AEC) Blueprint, which defines the block’s strategies and plans for enhanced regional economic integration. The fact that the AEC blueprint came ahead of the two others—the political and security blueprint and the socio-cultural blueprint—is an indication that economic integration has now become ASEAN’s top priority. This is a far cry from ASEAN’s early years when economic issues took a back seat to politico-security issues faced by the fledgling regional block.

The clear centerpiece of ASEAN’s approach to economic integration has been its pursuit of free trade agreements (FTA). ASEAN is emerging as the hub for FTA activity in the region with agreements being negotiated and forged with its main dialogue partners. ASEAN has secured comprehensive trade and investment deals with China, Japan, Korea, Australia and New Zealand, and India. It has likewise launched negotiations with the European Union and explored long-term economic partnership with the United States.

Ambition and secrecy
ASEAN has by and large pushed for what can generally be described as WTO-plus agreements. These deals contain chapters on the so-called Singapore issues of investment, competition policy, trade facilitation and government procurement that were already rejected by developing countries in the WTO negotiations.
Aside from subscribing to an ambitious liberalization agenda, another common feature of these FTAs is that they were/are being negotiated in almost total secrecy.  Copies of the official negotiating texts are inaccessible to the public and very minimal spaces for public consultations regarding these negotiations are opened up in the process.  Often but not always, copies of the final agreement are made public only after the negotiations have been concluded.  In the case of the ASEAN -Australia and New Zealand FTA (AANZFTA) for example, the final texts of the agreement remain inaccessible to the public even after the deal has already been sealed.
Investment regime in ASEAN

Recent efforts in ASEAN to further open up trade in goods and services through these bilateral and regional free trade agreements have been preceded by reforms undertaken at the country level to liberalize investment regimes.  Over the years, Member States have undergone considerable reforms in their investment policies, affecting a shift from being generally restrictive of foreign participation to a more liberal regime that encourages and gives incentives to foreign investments. Regulations covered by these reforms are those dealing with the entry and establishment of investments, restrictions on the level of foreign ownership, performance requirements and special treatment and incentives for foreign investors.

Although these unilateral reforms were for the most part driven by competition from within the region for foreign direct investments (FDI) and in response to the changing international climate favoring more liberal investment regimes, these policy changes across the region nevertheless paved the way for what has been referred to as de facto integration or market driven integration.  Not surprisingly, as labor and trade analyst Rene Ofreneo pointed out “it has been the transnational corporations (TNCs) that have either regional operations in Southeast Asia or in the individual ASEAN countries that have been integrating ASEAN.” De facto integration resulted from the establishment by these TNCs of their vertically integrated production chains across the region.

A more recent trend however has been the greater emphasis on bilateral and regional trade and investment agreements as main mechanisms not just of liberalization but of regional integration as well.


De jure integration or integration driven by formal institutional arrangements has become the preferred mode of ASEAN.
The Framework Agreement on the ASEAN Investment Area (AIA) has since been revised with the forging of the ASEAN Comprehensive Investment Agreement in Cha-am, Thailand, on 26 February 2009.  The comprehensive and “forward looking” agreement is envisioned to create an investment regime in the region that is “comparable to international best practices” in order to increase intra- ASEAN investments and enhance ASEAN’s competitiveness in attracting inward investments into ASEAN.
One thing new about the Comprehensive Agreement is that it has made the objective of regional integration more explicit.  The creation of a “free and open” investments regime is meant to achieve the end goal of economic integration as defined under the ASEAN Economic Community Blueprint (AEC).
The agreement spells out the steps to achieve this goal: progressive liberalization of investment regimes of Member States; provision of enhanced protection to investors of all Member States and their investments; improvement of transparency and predictability of investment rules, regulations and procedures; joint promotion of the region as an integrated investment area; and cooperation to create favorable conditions for intra- ASEAN investments.

What the agreement does in effect is align national investment policies across the region to conform to common principles and objectives in order to create an ASEAN investment area that is more transparent, predictable and investor-friendly. The regional framework complements the reforms made at the individual country level to ease regulations on investments in favor of liberalization coupled with stronger investor protection.

The agreement further outlines ASEAN’s priority sectors for investment liberalization as: manufacturing; agriculture; fishery; forestry; mining and quarrying; services incidental to the five priority sectors; and any other sectors as may be agreed upon by Member States.

Peoples concerns
Civil society organizations and social movements have raised serious concerns against these ASEAN FTAs.

Job losses
The ambitious agenda to further liberalize trade in goods and services would have profound negative consequences on jobs and livelihoods. While proponents of these deals dismiss job losses and worker displacements as mere temporary adjustment costs that would be offset by the positive trade creation effects of such agreements, any negative effect on employment particularly at a time of serious global economic crisis would have dire consequences on development.

Corporate control over resources
Another issue levied against these FTAs is that they advance the interests of corporations over the development interests of countries or regions and its peoples.  Corporate control particularly of public goods and resources is a particularly critical issue. With the goal of enhancing foreign investments, we would expect governments to be more aggressive and adamant in pushing for policies that would ease restrictions on investments, increase incentives and provide more protection for foreign corporations.

The weakening of domestic investment regulations, including the removal of restrictions that are enshrined in national laws and constitutions, in favor of corporate interests is a particularly serious issue in an environmentally and socially critical sector like mining where the livelihoods, rights, security and well-being of entire communities are at stake and have for decades been seriously contested.

Erosion of policy rights
FTAs also have the effect of eroding policy space or the ability of governments to use tariff and other trade-related policies to advance its own development objectives.  Under ‘free trade’ regimes, governments lock-in their tariff and trade policies by way of their commitments and obligations under the agreements.  The direction of trade policy is often just one way, moving towards the eventual elimination of tariffs and other trade barriers with very limited space and flexibilities for countries to calibrate these policies in line with their own development objectives or to safeguard domestic economies against import surges.

The adherence to investment disciplines that guarantee and protect investor rights, particularly the   rights of investors to claim compensation for acts by the state or states that are deemed to impede or violate these rights, further undermine development policy space. The number of cases brought up for arbitration and the huge amounts of money demanded by corporations under NAFTA create a “chilling effect” against any policy or regulation affecting the acts of corporations. This may lead to a reversal of existing ordinances and laws at the local and national levels that regulate the activities of mining corporations and/or stifle the power of local and national governments to enact new legislation or policies regulating investments for fear of being sued by these corporations for millions of dollars.

Exacerbating regional asymmetries
While the ASEAN FTAs recognize these asymmetries and hope to address these by way of differentiated obligations for the least developed countries in the region, these deals nevertheless are pushing for an ambitious trade and investment agenda that could very well exacerbate poverty and inequality among and within countries in the region. ASEAN’s obsession with closer economic relations through these comprehensive and ambitious trade and investment deals, coupled with the weakening of regulation at both the national and regional levels, may in fact lead to exactly the opposite—a region further divided along economic, political and social lines.

Business-as-usual trade policy

All of these policies however were drafted and adopted with a pre-crisis mindset and using pre-crisis assumptions.

In terms of trade policy, the general consensus among governments and multilateral institutions like the WTO, the World Bank and Asian Development Bank is to push more aggressively for free trade as panacea for trade contraction.

The clear position of ASEAN governments is to continue their strong commitment to free trade by standing firmly against protectionist measures, while refraining from raising new barriers and working with other partners to ensure an early conclusion of the Doha Development Agenda as well as continually pushing for free trade agreements in order to stimulate growth and investment in the region, in partnership with other cooperation frameworks, such as EAS, APEC and G20.

There is no retreat therefore but rather more push for export led model of economic development.

A crucial question therefore is to what extent have ASEAN and ASEAN Member States moved towards making their development strategies more equitable and sustainable in the wake of the global economic and climate crises.

The global crisis compels us to re-think old paradigms especially when old assumptions of progress and development no longer hold.  In the case of FTAs, it is quite clear that FTAs are not about developing equal partnerships but about perpetuating existing inequalities. A number of serious concerns have been levied against these types of trade agreements. We must continue to resist and put pressure on the governments to rethink trade policies, to renegotiate unfair trade agreements and to push for alternatives—better terms of trade and frameworks for economic relations.


 (Published in Focus on the Philippines October 2010: http://focusweb.org/oldphilippines/content/view/455/52/)

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