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Business

Sharing prosperity from Asean integration: The legal challenges

Manuel V. Pangilinan - The Philippine Star

(Closing remarks delivered before the Asean Law Association (ALA) at the Rizal Ballroom, Makati Shangri-La Hotel on Feb. 28, 2015.)

Salutation: The handshake

Chief Justice Hatta Ali, ALA Secretary General Swandi Halim, ALA president Ave Cruz, other Asean chief justices including our Chief Justice Maria Lourdes Sereno, honored guests – good evening.

As a businessman, I engage with a number of lawyers here and abroad, whose job it is to advise people like myself what to do. This is my first time to speak to so many lawyers in one place – and a chance in turn, to suggest to you what may be done to help regional integration. Your invitation is a unique opportunity, for which I am truly privileged and grateful.

Indeed, the world of law and the world of business do intersect; my task tonight is to describe the many challenges of integration from a business perspective.

Introduction

Let me start with an old lawyer’s story.

I was told, a group of you got lost on your way here. You stopped a man at a street corner and asked him: “Sir, do you know where we are?”

• The man replied, “You are here.”

• “Ah!” The Indonesian in the group exclaimed, “A lawyer!”

• “How do you know?” His Thai and Malaysian colleagues asked.

• “Because his answer is correct – but it led us nowhere.”

As I prepared for this event, I asked lawyers, businessmen, and academics where we are in this whole matter of “Asean Integration.” There were many answers, but only one consensus: “We are here.”

Well, at least we know where we are. This, coupled with the knowledge of where we came from, suggests that we have somehow progressed in our journey.

We at First Pacific believe in Asean. And we walk the talk. We’ve invested in infrastructure and agriculture in the Philippines; power in Singapore; food and agriculture in Indonesia; tollways and bridges in Vietnam; consumer products and tollways in Thailand; food production in Myanmar.

The Asean Community

The notion of Asean integration is compelling indeed. Ten member countries aggregating a market of 620 million people – the third most populous economic entity in the world; GDP of $2.3 trillion – 7th largest in the world; total external trade of a similar amount. Asean is perhaps the most dynamic among the world’s regional groupings.

We’re also blessed with the treasure of our people – their talent and their skills – hardworking, aspiring, family-centered. Which is probably why the Philippines’ most valued asset is also claimed by most of Southeast Asia: Manny Pacquiao, the people’s champion. We know you share our excitement for his coming fight with Mayweather this may.

I think Manny will go for a quick knockout. Unlike lawyers, he doesn’t get paid by the hour.

Integration: Political issues

Forging a community needs commonalities and shared traits. But ASEAN is as diverse as one can imagine. Noted Thai journalist Kavi Chongkittavorn once asked – what can bind the people of ASEAN?

Khun Kavi notes that our histories are so varied, as to be unable to impart quickly a strong sense of union, a tangible sense of common identification. People of the European Union feel they’re Europeans – but it took them at least 50 years to say this. On our part, we need to articulate the idea of what an ASEAN citizen really means.

Our governments stand on varied thoughts, and a political rainbow straddles the region – from absolute monarchy to self-styled democracies, and everything in between.

Integration – Economic issues

Further, disparities in economic structure, financial systems, legal and regulatory environment – and the different states of their maturity – exist in the region. In per capita income, the wealthiest ASEAN country is 60x the poorest. The richest – is 15x the Asean average. Whilst Asean’s external trade stands at $2.4 trillion, intra-Asean trade amounts to $609 billion – only 24 percent of total trade. Intra-Asean foreign direct investments are significantly lower than exogenous FDI’s flowing inward.

Yet convergence is progressing on two major streams – trade and security, albeit at a different pace.

As to trade, Asean’s is largely intra-industry, that is, trade in products within the same industry – electronics, motor vehicles, and petroleum. We must expand beyond this to create regional production and supply chains for export to the rest of the world. We do have some important similarities in mining, in agribusiness, aquaculture, tourism, and infrastructure needs. Indonesia and Malaysia are the world’s biggest producers of palm oil. Thailand and Vietnam are top rice producers. The Philippines and Indonesia lead the world in coconut oil, and are also one of the most mineralized countries in the world. All this is fertile ground complementaries to the root. Between and amongst ourselves, we are in a position to influence global markets for these commodities, not to mention the supply needs of China and India.

99.6 percent of all tariffs lines have already been reduced since 2010 to the target 0-5 percent. But there are non-tariff barriers which stand in the way – some of which are understandable. Take the case of sugar in the Philippines. Domestic prices are almost double international prices. In theory, we should import our sugar requirements because domestic sugar is uncompetitive. If we do, we will displace more than 500,000 workers, and affect a further four million of our people, whose livelihood, directly and indirectly, depend upon the industry. The reality is that non-tariff barriers would need to be in place for the meantime, to allow the industry to adjust to the competitive realities in the region. It would help if some member states extend their hand to improve our plantation yield with better varieties and agricultural methods, as well as invest in new, more efficient mills.

To push the point further, if the Philippines chooses to produce surplus sugar, we can export them to Indonesia – which imports at least four million tons yearly – and trade our sugar for their palm oil.

As to security, we’re all aware that our economic growth and prosperity are anchored at having a stable and peaceful region. Yet, because of outstanding maritime and territorial disputes, stability has, from time to time, been threatened. ALA could play a positive role to regional peace by advocating the rule of law, adding its voice to the need for sobriety, reason, and pragmatism in regional affairs.

A single market

At the end, the transformation of ASEAN into a single market will require the “principle of singularity” applied across the region:

The elimination eventually of non-tariff barriers to trade in goods and services.

• labor mobility.

• Harmonization of standards, laws and regulations to encourage fair pricing across countries.

• Common taxation regimes to ensure similarities in the cost of doing business;

• Free flow of capital, by removing discriminatory regulations such as foreign equity caps or outright investment prohibition.

• Ultimately, a common currency to eliminate foreign exchange differentials which could cause pricing and pricing power distortions.

These conditions are tough to meet, will take time to effect, and require robust political will, especially on the matter of sovereignty. Countries will have to agree to forego some instruments of government policy, including fiscal policy and its national currency and, to a degree, its national laws.

Look at Greece today. Part of its painful dilemma is its inability to deploy traditional financial tools like devaluation which can help save its economy – precisely because as part of an economic union, financial sovereignty has been subsumed into the broader notion of community.

The question of vested interest

Finally – the question of vested interest.

The “Asean Comprehensive Investment Agreement” (ACIA) aims at creating a free and open investment regime to achieve economic integration under the Asean Economic Community.

Provisions on “National Treatment” and “Most Favored-Nation Treatment” were incorporated in ACIA requiring members to be given no less favorable treatment, than each of them accords to other members, or non-member states.

But – appendix “A” of ACIA contains each member’s “Reservation” – a list of off-limits industries or transactions where other members are not welcome.

Isn’t “Reservation” the antithesis to a “Free and Open Investment Regime” intended by ACIA? Isn’t discrimination the nemesis of integration?

Conclusion

It is time to close.

Let me conclude by reiterating my earlier point that Asean integration, despite the challenges, is a noble goal to pursue. But the road to integration has many land mines, and the journey will take time.

We all know great concepts are attractively elegant. Yet the underlying realities do not necessarily agree with the beauty of the theory. Thus, we should not be seduced by the conceptual elegance of integration. Its advocates may sell the concept as if it were snake oil or silver bullet – promising an economic miracle, quickly. It simply is neither.

In travelling that road, everyone in this hall are necessary companions. As lawyers, your challenge is precisely to craft coherent and converging laws, facilitating an Asean without borders in the flow of goods, services, money and people. 

And so I end as I began.

Just like our friends who got lost on the way here, I ask you now: “Do we know where we’re going?”

It is my hope that years from tonight, our reply will be more than “We are here.”

Thank you for your most kind invitation. Have a great time in Boracay tomorrow.

 

 

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