Trade Integration in ASEAN: E i d I tit ti l Di iEconomic and Institutional Dimension

Sachin Chaturvedi

Managing Regional and Global Governance in Asia:Managing Regional and Global Governance in Asia:

“OPPORTUNITIES AND CHALLENGES FOR THE ASEAN ECONOMIC COMMUNITY (AEC)”

Regional Workshop for Young Professionals from ASEAN+3

Jakarta, October 5th 2011

Structure

• Broad Trends in Integration• LimitationsLimitations• Deep and Shallow Integration

F d T d d I i i I di• Food Trade and Institutions Impediments• Trade Facilitation and Food Trade in

ASEAN

Regional Trade Cooperation

• Success of regional cooperation in Europe and North America stimulated similar ideas in mid 1980s in Asia.

• Particular were the RTAs like NAFTA and EU which deepened their regional cooperation through preferentialdeepened their regional cooperation through preferential free trading arrangements loaded with strong rules of origin and mobility of (labour) and capital.

• After accomplishing economic integration EU moved towards monetary integration with a single currencytowards monetary integration with a single currency.

Regional Trade Cooperation

• Success of regional cooperation in Europe and North America stimulated similar ideas in mid 1980s in Asia.

• Particular were the RTAs like NAFTA and EU which deepened their regional cooperation through preferentialdeepened their regional cooperation through preferential free trading arrangements loaded with strong rules of origin and mobility of (labour) and capital.

• After accomplishing economic integration EU moved towards monetary integration with a single currencytowards monetary integration with a single currency.

Free/Regional Trade Cooperation• Under WTO rules, the goods and services aspects of RTAs , g p

have to be notified separately, so they are counted separately. H tti th t t th th 484 tifi ti t• However, putting the two together, the 484 notifications to end-December 2010 involved 376 individual RTAs, of which 198 are currently in force.

• Total Number of FTAs Countries of the region are involved in (both intra regional and extra regional)- North America: 28 - South America: 25- Africa: 18 - Europe: 70- Middle East: 21 - West Asia: 11- East Asia: 47

ASEAN A i E i f T dASEAN: Asian Engine for Trade

• After East Asia Crisis of 1997 regional economic integration came in with new force

• ASEAN expedited implementation of AFTAp p• Chiang-Mai Initiative was launched with ASEAN+3

(Japan, China and South Korea)• Japan, China, South Korea and India became dialogueJapan, China, South Korea and India became dialogue

partners• FTAs talks are on with all the dialogue partners and with

New Zealand and Australia’s which are at various different stages

• Extent of Sub-regional cooperation and complementarities are directly related.y

ASEAN A i E i f T dASEAN: Asian Engine for Trade

• Full potential of regional economic integration can only come with optional base, when downsides of bilateral and sub-regional cooperation are avoided.

• Fresh stimulus for growth in the Asian region is coming from within

• Existing capacities in the region would be most optimally g p g p yused with greater regional integration.

• Aggarwal (2002) shows that the lost output because of under utilisation of capacity in Japan and South Korean

i d i i i d i ld b f hconstruction and engineering industries could be of the order of 10-15 per cent of GDP of the regional or about a trillion dollar a year.

Regional Trade Cooperation

• Important stimulus for regional integration is Asia has come from growing intra-regional trade and value chains

ASEAN d ith th l di i l iacross ASEAN and with other leading regional economies.

• Synergy within Asia like labour scarcity in Japan andSynergy within Asia, like labour scarcity in Japan and South Korea is matched by many members from ASEAN. This also matches resource base of these economies.

• We also learn that there are several regional initiatives even before the ones that we can check noweven before the ones that we can check now.

Regional Trade Cooperation• Bangkok Agreement• Agreement name:: Asia Pacific Trade Agreement (APTA)( Formerly

known as "Bangkok Agreement")• Coverage: Goodsg• Date of signature: 7/31/1975• Date of entry into force: 6/17/1976• Current signatories: Bangladesh; China; India; Korea Republic of;• Current signatories: Bangladesh; China; India; Korea, Republic of;

Lao People's Democratic Republic; Sri Lanka.• Original signatories: Bangladesh; India; Korea, Republic of; Lao

People's Democratic Republic; Sri LankaPeople's Democratic Republic; Sri Lanka.• Are all Parties WTO members? No• Type: Partial Scope Agreement• Notification under: Enabling Clause

Regional Trade CooperationAsian Clearing Union (ACU)g ( )

• ACU was established in 1974 at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

• Governments and central banks from India Iran Nepal• Governments and central banks from India, Iran, Nepal, Pakistan, and Sri Lanka. Then Bangladesh, Myanmar Bhutan and Maldives joined.

• The Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ‘ACU Dollar’ and ‘ACU Euro’, which is equivalent in value to one US DollarACU Euro , which is equivalent in value to one US Dollar and one Euro, respectively.

Regional Trade CooperationAsian Clearing Union (ACU)g ( )

• All instruments of payment under ACU have to be d i t d i AMUdenominated in AMUs.

• Settlement of such instruments may be made by AD• Settlement of such instruments may be made by AD Category-I banks through the ACU Dollar Accounts and ACU Euro Accounts, which should be distinct from the

h U S D ll d E i lother U.S. Dollar and Euro accounts, respectively maintained for non ACU transactions

Regional Trade CooperationChiang Mai Initiative (CMI)Chiang Mai Initiative (CMI)• CMI is a multilateral currency swap arrangement among

the ten members of the Association of Southeast Asian Nations (ASEAN), China, Japan and South Korea.

B i M 2000 i Chi M i Th il d l• Began in May 2000 in Chiang Mai, Thailand, at an annual meeting of the Asian Development Bank.

• The CMI is a landmark liquidity support facility in East Asia, which is intended to reduce the risk of currency crises and manage such crises or crisis contagion.

ASEAN Free Trade Area• ASEAN Free Trade Area (AFTA) is a trade bloc

agreement by the Association of Southeast Asian Nations i d 28 J 1992 i Sisigned on 28 January 1992 in Singapore.

• When the AFTA agreement was originally signed, ASEAN g g y ghad six members, namely, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand.

• Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia in 1999.

• Latecomers were required to sign the AFTA but were given longer time frames for tariff reduction obligations.

ASEAN Free Trade AreaASEAN Free Trade Area• Basic feature: liberalization of trade in the region, done

through the elimination of intra regional tariffs and nonthrough the elimination of intra-regional tariffs and non-tariff barriers.

C Eff ti P f ti l T iff (CEPT) S h• Common Effective Preferential Tariff (CEPT) Scheme is the main mechanism.

• Intra-regional tariffs: 0-5% tariff band by 2002; 2006 –Viet Nam; 2008 – Lao PDR and Myanmar; 2010 –Cambodia.

• Non-tariff barriers will also have to be eliminated under the CEPT Scheme.

Vision for an ASEAN COMMUNITY 2015Vision for an ASEAN COMMUNITY 2015

ASEAN C i  b      b  b d      ill  

Vision for an ASEAN COMMUNITY 2015Vision for an ASEAN COMMUNITY 2015

ASEAN Community by 2015 to be based on 3 pillars 

– ASEAN Security Communityy y‐ ASEAN Economic Community‐ ASEAN Socio‐Cultural Community

ASEAN Economic Community (AEC) as the end‐goal of l ( l d )regional economic integration (Bali Concord II).

Policy Options: Institution Building

Committee on Food, Agriculture and Forestry(COFAF) and

ASEAN Consultative Committee on Standards andASEAN Consultative Committee on Standards andQuality (ACCSQ)

Good Agricultural Practices (GAP)

G d C ll i P i (GCP)Good Collection Practices (GCP),

Good Agriculture and Collection Practices (GACP)Good Agriculture and Collection Practices (GACP)

ASEAN Integration InitiativesASEAN Integration InitiativesASEAN Integration InitiativesASEAN Integration Initiatives

Priority sectors for integration identified:

Agro‐Based ProductsAutomotive

Wood‐Based Products

Air Travel

Electronics

Fisheries

e‐ASEAN (ICT)

HealthcareFisheries

T til   d A l

Healthcare

Tourism

L i ti

Rubber‐Based Products

17

Textiles and Apparels Logistics

Market share of world agricultural IMPORTS

Patrice, Deboyser (2011).

Food Trade : Global Trends• Global economy is witnessing a radical shift in the

composition of food trade for last four decades• Efforts for trade integration may give further fillip• Efforts for trade integration may give further fillip

to this sector.• South Asia would be no exception to this• Processed food is gaining importance over other

food trade due to changing dietary habits globally.• Consequence of rapid industrialisation• Consequence of rapid industrialisation,

globalisation, and the development ofcommunication systems as well as of foodt h ltechnology

Global TrendsGlobal Trends

Equivalence (SPS Agreement, Article 4)qu a e ce (S S g ee e t, t c e )

1. Members shall accept the sanitary or phytosanitary measures of otherMembers as equivalent, even if these measures differ from their own or fromthose used by other Members trading in the same product, if the exportingMember objectively demonstrates to the importing Member that its measuresachieve the importing Member's appropriate level of sanitary or phytosanitaryprotection. For this purpose, reasonable access shall be given, upon request, tothe importing Member for inspection, testing and other relevant procedures.

2. Members shall, upon request, enter into consultations with the aim ofachieving bilateral and multilateral agreements on recognition of the

i l f ifi d i h iequivalence of specified sanitary or phytosanitary measures.

Equivalence in CodexEquivalence in Codex

CAC/GL 53 2003 G id li th J d t f• CAC/GL 53-2003 Guidelines on the Judgement of Equivalence of Sanitary Measures Associated with Food Inspection and Certification SystemsFood Inspection and Certification Systems

• General principles for determining equivalence

• Objective basis of comparison

P d f d t i i i l• Procedure for determining equivalence

• Judgement

Benefits of EquivalenceBenefits of Equivalence

• Allows more flexibility in the use of current or yimproved practices or practices that better reflect the country’s situation/environmenty /

• Provides greater consistency in national food g ycontrol systems which can lead to a more efficient systemy

EU Provisions* EU imports of agricultural and dairy productsEU imports of agricultural and dairy products* Regulation (EC) 178/2002 – Article 11Equivalence: different approachesq ppEquivalence: different types of agreements

Mutual Recognition Agreements (MRAs)iVeterinary Agreements

Association AgreementsFree Trade Agreements

Equivalence: in absence of a bilateral agreementConclusion

Status of Accreditation Systems of ASEAN Member StatesStatus of Accreditation Systems of ASEAN Member States((Ramesh Shirley V (2011)

Member State Accreditation Body Recognition

Brunei Darussalam - -

C b diCambodia - -

Indonesia National Accreditation Committee (KAN)

ILAC / IAF

Lao PDRLao PDR - -

Malaysia Standards Malaysia ILAC / IAF

Myanmar - -

Philippines Philippines Accreditation Office (PAO) ILAC / IAF

Singapore Singapore Accreditation Council (SAC) ILAC / IAF

Thailand National Standardization Council ILAC / IAF(Agricultural Commodity and Food Standards, Department of Medical Sciences and Office of the National Accreditation Council))

Viet Nam Bureau of Accreditation ILAC / IAF

Policy Options: Harmonisationy p

• As is evident from the trade statistics the South Asian region is graduallymo ing in the direction of food trade hich is largel al e added In order tomoving in the direction of food trade which is largely value added. In order tofacilitate it further, it may be explored if basic agreement on harmonisation ofvarious elements is accomplished.

• This may involve various stages like the principles governing inspection andcertification. This may follow Codex or any other international organisation,whose membership is open to all the countries.

• Important to recognise that the countries that certify exports of food and thoseimporting countries which rely on export certificates should take measures toassure the validity of certification; confidence that official or officiallyrecognised inspections systems have verified that the product or processrecognised inspections systems have verified that the product or processreferred to in the certificate conforms with requirements.

• Measures by importing countries may include point of entry inspectiony p g y p y psystems, audit of exporting inspection systems, and ensuring that certificatesthemselves are authentic and accurate.

Policy Options: Agreement on Equivalencey p g q

• There is need to recognise that different inspection or evenifi i b bl f i hcertification systems may be capable of meeting the same

objective and therefore the idea of equivalence.

• With equivalence, even if imported food products must meet thesame safety standards as domestically produced foods,international trade rules permit a foreign country to apply itsown differing regulatory authorities and institutional systems inown, differing, regulatory authorities and institutional systems inmeeting such standards, under an internationally recognizedconcept known as equivalence.

• Under the Article 4 of the SPS Agreement it has scope to identifythe roadmap that the member countries need to follow whileimplementing the agreement The SPS Committee in 2001implementing the agreement. The SPS Committee in 2001adopted a decision clarifying implementation of the Article 4 ofSPS (G/SPS/19).

Policy Options: Agreement on Equivalencey p g qThe Codex Committee on Food Import and Export Certification andInspection Systems (CCFICS) has developed a number of guidelines relatingto equivalence.q

Key Areas :

(a) legislative framework, including the texts of all relevantlegislation, which provides the legal basis for the uniform andconsistent application;

(b) control programs and operations including the texts of all the(b) control programs and operations, including the texts of all theexporting country’s pertinent measures that would be the subject of theagreement, as well as other materials that relate to control programs andoperations;

(c) decision criteria and action;(c) decision criteria and action;(d) facilities and equipments, this includes transportation and

communications as well as basic sanitation and water quality;(e) laboratories, including information on the evaluation and/or( ) , g

accreditation of laboratories, and evidence that they applyinternationally accepted quality assurance techniques;

Agreement on Equivalence(f) details of the exporting country’s systems for assuring

t t d lifi d i ti th h i tcompetent and qualified inspection through appropriatetraining, certification, and authorization of inspectionpersonnel; and the number and distribution ofinspectors;inspectors;

(g) details of the exporting country’s procedures for audit ofnational systems including assurance of the integrity andnational systems, including assurance of the integrity andlack of conflict-of-interest of inspection personnel;

(h) d t il f th t t d ti f id l t(h) details of the structure and operation of any rapid alertsystems in the exporting country

i l h i l f d• As is clear the agreement on equivalence of SPS measures doesnot require duplication or sameness of measures, but the acceptanceof alternative measures that meet an importing partner's appropriatelevel of sanitary or phytosanitary protectionlevel of sanitary or phytosanitary protection.

Mutual Recognition Agreements (MRAs)

• The MRAs constitute an important available option to addressstandards related limitation for countries.

• Essentially a bilateral process, this arrangement can help inreducing the cost of retesting or recertification, apart fromreducing the time span for trade approvals.

• The MRAs may also cover non-harmonised nationallegislations which require independent testing and org q p gcertification and or even marking by a third-party.

• The MRAs are accomplished through a procedure comprisingThe MRAs are accomplished through a procedure comprisingclearly following aspects: (i) Standard operating procedures(SOP); (ii) Regulation of testing procedures; (iii) Method ofsampling (incidentally this is one of the major challenges mostf h d l i i f hil d di i h iof the developing countries face while standardizing their

approval mechanisms), and (iv) Accreditation of laboratories.

Mutual Recognition Agreements (MRAs)

• The MRAs may take several forms depending upon which ofthe above steps are covered in the agreement.

• Several MRAs which cover only SOPs or testing procedures or• Several MRAs which cover only SOPs or testing procedures orare even just confined to accreditation of laboratories.

• However, some of them cover all the features mentioned abovei th t th d ti i t f th i tiin that case the domestic requirements of the importingcountries are considered as equivalent.

• Conformity Assessment Bodies (CABs)• These detailed product-specific agreements are directed at

specific markets.• In a way an MRA may be seen as an advanced version ofIn a way an MRA may be seen as an advanced version of

harmonisation (or approximation) as it attempts to achieve thesame though at various stages of testing and certification

Food Exports and Trade Facilitationp• Trade Facilitation

By improving transparency and quick clearance– By improving transparency and quick clearance– By using electronic service delivery channels

• Reduce interface between Trade and Custom Officers• Protect domestic industry from injury

– Valuation concerns– Commercial frauds

Timely and accurate trade statistics– Timely and accurate trade statistics

• Address public safety and security concerns arising out p y y gof international trade– Use of Risk Management techniques

Trade Facilitation ChallengesTrade Facilitation Challenges

• Allocation of adequate financial resources q• Trade facilitation –– nested in various agencies ––

making comprehensive approach difficult ––lacks ownershiplacks ownership

• Delay in transposition of regional commitments into national regulationcommitments regulation

• Lack of understanding/Capacity building

TF and Food Import Procedures

- Scope of Automation- Product Registration- Accreditation of Establishments- Licensing of Importsg p- Issuance of Import Permits- Risk ManagementRisk Management

Automated Customs Clearances with Risk Management

E-Filing through gateway

Post Clearance Audit

Ri k M t S tRisk Management System

Delivery Examination

Recommendations

• South East Asia has to be vocal about NTBs• Database on Experiences• Regional Cooperation and MRAs• Regional Cooperation and MRAs• Focus on Select commodities to begin with• Learning from Other regional Groupings like

ASEAN• Activating Institutional Frameworks• Role of Multilateral Institutions

References

Chaturvedi Sachin (2011) MRAs and Food Exports, paper presented at theSub-Regional Consultation Workshop on ‘Equivalence and MutualRecognition Agreements to Facilitate trade of safe and quality food’ for

i f S h A i ’ 28 29 S b B k kcountries of South Asia’, 28-29 September, Bangkok.

Patrice Deboyser (2011) EU Experience the motivation the process thePatrice, Deboyser (2011). EU Experience-the motivation, the process, theproblems, the pay-offs and the cost, paper presented at the Sub-RegionalConsultation Workshop on ‘Equivalence and Mutual RecognitionAgreements to Facilitate trade of safe and quality food’ for countries ofAgreements to Facilitate trade of safe and quality food for countries ofSouth Asia’, 28-29 September, Bangkok.

Ramesh Shirley V (2011) Regional integration towards trade facilitation iny ( ) g gASEAN”, paper presented at the Sub-Regional Consultation Workshop on‘Equivalence and Mutual Recognition Agreements to Facilitate trade of safeand quality food’ for countries of South Asia’, 28-29 September, Bangkok.