“German business should seize the first-comer-advantage.”

Interview with Pushpanathan Sundram, former Deputy Secretary-General on the ASEAN Economic Community, about the challenges, achievements and prospects of the ASEAN Economic Community.

The National Single Windows (NSW) and ultimately the ASEAN Single Window (ASW) are meant to harmonize and accelerate customs procedures. What are the obstacles of the establishment of the customs regime?

With regard to the National Single Windows, I see three challenges. First, agency leadership: the initiative to harmonize the customs regimes comes from the national ministries of trade, but it is the ministries of finance that are in charge of customs. In the less developed countries, like Cambodia, customs revenues still constitute a significant share of the government revenues and therefore an important source for public spending.

In Singapore, customs play an important role in facilitating trade apart from its traditional customs functions. Secondly, building the national single window requires financing so that there is cross border inter-operability with the ASW. And thirdly, the lack of technical capacities is another challenge for the establishment of the ASW. In order to make the system work, you need the people to manage it. Both aspects are demanding for the less developed countries, in particular.

Regarding the ASEAN Single Window, we discussed the set-up of the server to exchange the customs data. Instead of a centralized server, which would have con-
strained the member states’ control over the data, the ASEAN member states agreed to a decentralized system: the data remain under the control of the individual countries and are exchanged bilaterally. The ASW is currently caught in the situation that all operational aspects have been discussed, but the legal framework has not been completed. An adequate common legal framework is necessary for the electronic transaction of data.

This has to cover data privacy, acceptance of electronic signatures, electronic data retention and archiving policies, and admissibility of electronic evidence in court proceedings? Another crucial issue is enforcement: which mechanism is to be used to settle conflicts, national procedures or the ASEAN Dispute Settlement Mechanism? What is the process for this?

When do you expect ASEAN to provide for a fully integrated customs procedure?

The ASW is to be in operation by 2015 but I would not be surprised if one or two countries decide to opt-in after 2015.

The ASEAN member states have so far only adopted MRAs for electronics and medical devices as well as common standards and conformity assessment regimes for cosmetics and electronics. Why is the development of common policies so difficult for the ASEAN member states?

First of all, ASEAN is a diverse group of countries having different sets of technical standards and regulations. A number of them lack high-quality testing labs. As such, it is an issue for intra-ASEAN trade as some of the export products of one country may not meet the testing requirements of another. The regulations of certain sectors are progressing more slowly than, for example, rules for cosmetics or medical devices do.

Take food as an example: The governments seek to regulate it in a responsible manner as it involves the consumers. The role given to business in the development of regulations is limited here compared to sectors like automotive, electronics, cosmetics etc. Moreover, some governments may try to protect their domestic industry. The majority of domestic companies are SMEs. They are most affected by the new regulations as they take time to understand and comply with them.
 
Multinational companies can easily produce at high international standards. But SMEs, which provide for the majority of jobs in ASEAN, do not. Therefore, the govern-
ments have the responsibility to take into account the preparedness of the SMEs for any regulatory changes.

How can the ASEAN member states accelerate the development of common technical standards?


ASEAN pursues two ways to accelerate progress: they develop mutual recognition agreements, which define the basic requirements to allow for the free flow of products. This approach reconsiders the huge development gap among the countries. To address the lack of highquality testing labs, the ASEAN member states have assigned ASEAN testing labs where manufacturers can have their products tested and get them certified. The test results are then recognized by all ASEAN member states.

The AEC is often described as a purely government-driven integration project which is executed above companies’ heads. Particularly the companies from the ASEAN region often do not seem to acknowledge the benefit of the ASEAN Economic Community. What is required to increase the domestic companies’ sympathy for the market integration project?

SMEs have difficulties visualizing the bigger picture of market integration and are uncertain about the benefits for them. MNCs which already have regional operations look more at the bigger picture and in the long-term. SMEs usually have insufficient information on the AEC. For example Indonesian SMEs are unsure about the impact on them about the opening of the domestic market under AEC. It is essential that the governments get them to understand that the AEC is also for them. Preparation is critical.

Some countries have done a good job in preparing the domestic economy for AEC while others, especially the bigger ASEAN countries and the less developed ASEAN countries, have to do more about raising the awareness of the benefits of the AEC and in addressing the problems the SMEs will face.

The states should mainstream the integration of SMEs into the AEC

For now, the integration of SMEs into the AEC has not been mainstreamed. I think the ASEAN member states could learn from Germany how the government prepared its domestic SMEs for the European integration process.

We see that low-wage countries, like Laos and Vietnam, lack skilled labor which is even enhanced by labor migration to higher-wage countries, like Thailand. Yet, skilled labor is essential to climb up the value chain. It seems that the AEC will even enhance the problem of lacking skilled labor for low-wage countries as it aims at facilitating free flow of skilled labor. How can the ASEAN member states tackle this problem and allow the free flow of skilled labor without jeopardizing national economic development?

This is really a big challenge. The agreement is good for ASEAN production networks. Low-wage countries, like Laos, are attractive for the production of labor-intensive goods; capital-intensive manufacturing rather takes place in Malaysia, Singapore, Thailand etc. Companies that already have operation in Thailand and want to set up a factory in Malaysia should be able to bring their skilled Thai labor to Malaysia for a period of time to establish the processes there and train the people on-site. Skilled workers from low-wage countries gain knowledge on the job abroad and can go back to their countries and thus transfer skills.

A second challenge is the rural population that moves to urban areas, but is unskilled. It is necessary that the governments set up proper training programs for them to make them employable. The more developed ASEAN member states need to help here. Singapore and Malaysia have such projects for the less developed countries through the Initiative for ASEAN integration.

Besides common rules, infrastructure plays a huge role for the success of the AEC. Despite the member states’ limited funding capacities, how can they still unlock this potential?

Infrastructure is a game changer. Transport, IT, energy, power, water are crucial areas. Three lines of funding will be essential to provide for the enormous bulk of funding. The national governments need to increase the budget for infrastructure projects. Multilateral development banks, like the Asian Development Bank, World Bank and even the Asian Infrastructure Investment Bank, can play an important role. ADB manages for example the ASEAN Infrastructure Fund, which will be able to lend about 4 billion dollars with the participation of ADB and other cofinancing partners come 2020. Public Private Partnerships (PPP) will be the third pillar of infra-
structure funding.

Yet, leveraging PPPs is not easy. The ASEAN member states seek to receive funding for very big projects, which will take time to yield revenues. Private investors however look for shorter-term projects. The ASEAN governments there fore need to break the larger projects into smaller chunks. In order to make the public-private funding scheme attractive and work, the governments need to provide seed funding for some of the infrastructure projects where possible.

Do you see opportunities for German companies in improving “physical connectivity” in ASEAN?


There are two kinds of infrastructure: hard infrastructure, like roads, mass rapid transport and ports, as well as soft infrastructure, including logistics, science and techno-
logy. In the former category, the Japanese and increasingly the Chinese governments have expressed interest and are able to provide the needed funds at preferential rates. I think Germany is more competitive in the second category. German technology has a good branding and is in high regard. German companies should seize this advantage.

The ASEAN member states lag behind in adopting common rules so that the full implementation of the AEC will take longer than 2015. In the face of this persistent regulatory fragmentation of ASEAN, why should German companies pay greater attention to the ASEAN region?


Integration is like building a family. It cannot be done overnight. By the end of 2015, we will not achieve 100 percent, rather about 80 percent, I believe. At least, ASEAN is in the right trajectory towards building the AEC come 2015. The establishment of the AEC is work in progress and will still occupy the member states during the next decade. But we should not be disillusioned. The more we narrow the development gap, the faster the integration process will advance. We will establish the AEC step by step. 2015 will be the first step.

ASEAN does not follow the model of the European Union. The AEC is rather a “FTA++”, i.e. a FTA, including competition policy, intellectual property rights, finance integration and infrastructure projects. This approach is suitable for this particular region, which has huge diversities. German companies should consider that ASEAN provides opportunities beyond ASEAN. The Regional Comprehensive Economic Partnership (RCEP) will cover one fourth of global trade.

While negotiations are expected to be completed by 2015, I believe RCEP will take more time for its actual operation. By 2020, when the RCEP will be fully operational, German companies will be able to use ASEAN as springboard into Asia. German business should seize the firstcomer-advantage. When they come to ASEAN before the AEC and the RCEP are in place, they have time to understand the regulations and build networks. The Japanese have been very strategic and have started moving their investments from China to ASEAN.

Companies from the EU are still the biggest investors in ASEAN. German companies have a better picture of the region than other European countries. They should seize this as a starting point and strengthen their position as first-comers in the region.

Pushpanathan Sundram

Pushpanathan Sundram served as Deputy Secretary-General on the ASEAN Economic Community between 2009 and February 2012. He is Managing Director of EAS Asia, a a strategic advisory company with core specialisation in the food and nutritional product area. He is also Executive Chairman of the China ASEAN Business Association.