The ‘elephant in the room’ for the AEC, part 2


The ‘elephant in the room’ for the AEC, part 2

Just to recap: in the last issue we looked at the newly-signed Trans-Pacific Partnership (TPP) trade agreement which currently has 12 member states, including the United States and Japan as well as four AEC members: Singapore, Malaysia, Brunei and Vietnam, and how the TPP could potentially reduce the strength of the AEC as a whole.

The AEC, which consists of all 10 Asean member states, does not limit individual member countries from being able to join other trading blocs.

Nonetheless, there is a general feeling the TPP will significantly impact, if not outright disrupt the AEC as a single market and production base. There is a suggestion Asean could be split if its member states prioritize their economic interests at the expense of the region-wide collective economic interests. Given human nature, that’s exactly what will happen.

TPP members the US, Japan and Australia are among the top 10 trading partners of Asean, and, by extension, the AEC.

They are also the top 10 sources of foreign direct investment (FDI) inflow to Asean. For example, in 2014 they accounted for 24.5 percent of the total FDI into Asean that year.

There is a strong possibility that trade and investment could potentially be diverted from the current six non-TPP Asean members to countries that are members of both the TPP and AEC. This is simply because of the benefits the TPP offers to its members, such as lower trade barriers and better protection for foreign investors.

Consider the comments made by both Cambodian leader Hun Sen and the former Philippines Finance Secretary Cesar Purisma. Hun Sen wanted a review of the TPP given that it “included half of Asean as partners,

leaving half of Asean outside.”

Cesar Purisma, mindful that other Asean member states such as Thailand and Indonesia are still considering the potential benefits of joining the TPP at some point, said, “If there’s a lag between the joining of the others in a high-quality agreement such as TPP, there can be resentment, particularly since we continue to integrate.”

One seriously controversial clause of the TPP is what is called the investor-state dispute settlement (ISDS). The ISDS gives corporations the right to sue a host country where they operate, challenging regulations which may be seen as not beneficial for business, including loss of expected profit, and totally disregarding the objective of the rules for the general public.

For example, the cigarette manufacturer Philip Morris sued Uruguay for its anti-smoking campaign, claiming it expected to lose profit.

Article 9.9 of the TPP allows foreign companies to challenge government policies aimed at supporting local job creation and business growth, something which would be likely to cause great angst in Thailand.

Continued next issue