Southeast Asia is aiming high as it plans for closer economic and trade integration. Law, and lawyers, have a big part to play.
With the issues confronting Europe, is now the time to form new trading blocs? ASEAN seems to think so. High on the agenda at the 2013 summit of the 10-member Association of Southeast Asian Nations was the plan to establish an ASEAN Economic Community (AEC) by 2015.
According to ASEAN, the AEC will form a single market and production base and be a highly economically competitive and fully integrated region.
In November 2007, ASEAN leaders adopted an Economic Blueprint outlining the measures to be taken and the schedule of implementation for the AEC. It also sets out three further characteristics of the AEC: a rules-based community of shared values and norms; a cohesive, peaceful, and stable region with shared responsibility for comprehensive security; and a dynamic and outward-looking region.
According to Riding the ASEAN elephant, a report sponsored by law firm Baker & McKenzie and published by the Economist Corporate Network (ECN), the global community is in support of the project. But although more than half of the respondents to the survey informing the ECN report thought ASEAN would succeed in building the AEC, 46.8 per cent felt it would arrive several years late.
However, the ECN report quotes Pushpanathan Sundram, a former deputy Secretary-General of the ASEAN Secretariat, as saying that even if ASEAN only meets 70 per cent of its AEC targets by 2015, ‘that will still be a huge achievement.’ The report also says companies are already reaping the benefits of existing ASEAN frameworks, with many already pursuing regional strategies ‘without waiting for ASEAN to create a perfect market’.
In many ways, the plans and goals of the AEC echo those of the European Economic Community (the forerunner of the present-day European Union) and it is tempting to make frequent comparisons between the projects. But these comparisons should be applied bearing in mind the fundamental cultural and historical differences between ASEAN and the EU. The two blocs arose as a result of different influences and with different goals. Present day ASEAN is also in a very different shape from Europe at the point of its integration. ‘There is no ASEAN political union in sight, and no monetary union – it’s more of a free trade operation than anything else,’ says Simon Makinson, Allen & Overy’s Bangkok Managing Partner.
Fred Burke, Managing Partner of Baker & McKenzie in Vietnam, has a similar opinion. ‘Some institutions are just not on the cards – a central bank, a common currency, a parliament, or even a common legal system,’ he says. ‘But a common set of principles is taking root to govern trade and investment, movement of skilled labour and resolution of disputes. This allows businesses to treat the diversity of ASEAN as a benefit, not a burden, by planning their head office, manufacturing and service operations each in the most appropriate location.’
ASEAN has grown up through a system of informal understandings; in contrast to the EU which from its early days used legally-binding treaties to regulate the relationships between the union and its members, and between the members themselves. ‘The culture is not one of open disagreement, therefore a lot is left to the grey, not black and white,’ says Dr Kien Keong Wong, Chair of Baker & McKenzie’s activities in Singapore, Malaysia and Indonesia. ‘It’s hard to create ASEAN institutions to bang people into shape.’
‘In Europe there has been a ceding of sovereign power in certain areas… I suspect we’re quite a long way from that in ASEAN’
Asia and Middle East Regional Managing Partner, Hogan Lovells
This approach appears to have served the region well, however. In a speech given in 2001, then ASEAN Secretary-General Rodolfo C Severino said: ‘By not forcing its incredibly diverse and mutually suspicious members into legally binding standards, ASEAN has done the remarkable job of moving its members from animosity to the close cooperative relationship that they enjoy today.’
This incredible diversity is another feature which, many say, sets ASEAN apart from the EU. John Lewis, United Kingdom Director and partner of boutique law firm Anglo-Thai Legal, explains. ‘The EU have a common history and interlinking traditions whereas the ASEAN region is a group of massive islands which share few commonalities,’ he says.
Internal free trade agreements have long been a mainstay of the bloc’s integration and economic growth, while external agreements have now become a key part of ASEAN’s strategy. This has resulted in a network of FTAs (free trade agreements) so complex it has been nicknamed ‘the noodle bowl’ (see box – ASEAN: key facts).
Asean: key facts
Founded: 8 August 1967
Member States: Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam
Population: 604 million (8.8 per cent of world population)
GDP: $2.18tn (ninth in the world)
Average GDP growth: 4.7 per cent
Total FDI inflow (2011): $114bn
Sources: www.asean.org, CIA World Factbook
Similar to the EU, but different
Some may wonder why, if FTAs have served ASEAN so well, the AEC is needed at all. Severino partly answered this question in his 2001 speech, saying: ‘I believe that it is about time that people looked upon ASEAN in terms of legal obligations and norms.’
‘As ASEAN moves into further integration, we can expect an expanded number of binding undertakings,’ Severino continued. ‘More broadly and fundamentally, ASEAN countries will have to harmonise domestic laws and regulations that govern trade and investment… to provide the harmonised regional investment regime that investors increasingly require.’
The Blueprint also acknowledges the need for legal development, stating that ASEAN is making efforts to lay the groundwork ‘for an institutional framework to facilitate free flow of information based on each country’s national laws and regulations; preventing and combating corruption; and co-operation to strengthen the rule of law, judiciary systems and legal infrastructure, and good governance.’
Member countries are required to build the programmes and activities set out in the Blueprint into their own development plans, and a scorecard mechanism has been developed to monitor progress. The first results were published in 2010, covering the previous two years’ work.
‘The scorecard noted that the implementation of the regional commitments during the period under review was generally positive, with around 73 per cent of the AEC legal instruments targeted within this period having entered into force,’ says James Evans, a consultant with Tilleke & Gibbins in Bangkok.
Another update on progress was given at the 8th ASEAN Senior Law Officials Meeting (ASLOM) in November 2011. After the meeting, the officials produced a joint communiqué in which, with perhaps some hint of self-congratulation, they ‘noted with satisfaction the progress made by ASLOM in carrying out its work in the implementation of various legal cooperation programmes and activities agreed upon at previous [meetings]’.
But it is clear that this work is at a very high level – it has included producing an updated ASEAN Government Law Directory, the establishment of the ASEAN Law Information Authority, and the implementation of various ASEAN government law officials’ programmes and exchange of study visits. Speaking at the opening of the 2011 ASLOM, Cambodian Prime Minister Hun Sen acknowledged that ASEAN ‘must intensify cooperation on law and legal matters to jointly address the legal challenges to ensure the success of integration.’
Lawyers also say ASEAN needs to move more quickly if it is to achieve any kind of substantive legal integration by 2015. Some stress the need for central institutions with a considerable amount of power, again pointing to the practice of the EU.
‘In Europe there has been a ceding of sovereign power in certain areas so that the ECJ [European Court of Justice] becomes the supreme court in certain issues,’ says Patrick Sherrington, Asia and Middle East Regional Managing Partner of Hogan Lovells. ‘You have to decide that there are certain things about the common market that are going to be applied in a common way. It requires a lot of coming together to establish a common court – it requires people to give up sovereignty in certain areas.’
‘I suspect we’re quite a long way from that in ASEAN. There just isn’t the same political motivation as there was in post-war Europe,’ he adds.
‘Perhaps ASEAN could provide something similar to Article 4(3) of the Treaty on European Union so as to ensure conformity between all Member States,’ suggests Mariette Peters-Goh, IP and Knowledge Management Partner with Zul Rafique & Partners in Malaysia. This is a fundamental provision which sets out the ‘principle of sincere cooperation’, and under which Member States must take appropriate measures to fulfil their treaty obligations and do nothing detrimental to the proper functioning of the union.
Harmony isn’t easy
However it is brought about, creating a more formalised and harmonised region with a freer movement of goods, services, investment, skilled labour and capital will bring many benefits to the economies of the member countries. The AEC will also bring benefits to external parties investing into individual ASEAN countries or the region as a whole. At present, however, investors must deal with vastly differing administrative and political policies and very diverse legal and regulatory standards. Commercial law is practised very differently in across the bloc, and discussions on harmonisation have generally been at quite a high level thus far.
‘ASEAN is still very much a talking shop where we exchange ideas and academic papers, and [share] experiences. Harmonisation is a long way away,’ comments Mochamad Fachri, a partner of Hadiputranto Hadinoto & Partners, Baker & McKenzie’s Indonesian member firm. ‘Some ASEAN countries, such as Thailand and the Philippines, do not have a competition law to harmonise with other ASEAN countries.’
‘There is no ASEAN political union in sight, and no monetary union. It’s more of a free trade operation than anything else’
Bangkok Managing Partner, Allen & Overy
The advent of an effective AEC will help foreign investors overcome many of the issues they currently face, one of which is the disparities in foreign investment rules. With regard to regulation, at one end of the spectrum is Singapore, which allows 100 per cent foreign ownership in almost all domestic sectors. Near the other end of the scale lies Thailand. ‘Recognising the importance of foreign investment for its economic growth, Thailand has through the years relaxed restrictive investment laws and regulations. At the same time, however, it has stubbornly held on to some antiquated laws restricting foreign participation in industries where Thai nationals are deemed to not yet be competitive,’ wrote law firm Tilleke & Gibbins in a recent online briefing.
The Philippines falls somewhere in the middle of the spectrum. There, the retail sector is tightly regulated, while in financial services foreign investors must enter a 40:60 partnership with a local firm. And although Malaysia has a relatively well-developed legal system, according to Peters-Goh it has often faced scrutiny. ‘The issues raised by most lawyers are regarding the separation of powers and transparency,’ she says.
Lawyers say many of their larger multinational clients are already looking at ASEAN as a single bloc, and one which provides huge opportunities. Many support the idea of allowing investors to treat ASEAN as a single territory for investment purposes.‘I can see a lot of benefit for foreign investors coming into the region and saying they want to treat ASEAN as one bloc,’ says Wilson Ang, a partner with Norton Rose Singapore who heads up the firm’s regulatory compliance and investigations practice. ‘What I can’t see is how that can be achieved practically, given the diversity of laws and cultures in ASEAN,’ he continues.
In the field of capital markets and corporate finance, a number of initiatives are being undertaken to develop unified standards. The ASEAN Corporate Governance Scorecard Project aims at developing a set of domestic rankings and a pilot regional ranking (which is yet to be published). This initiative provides a good example of the issues involved in harmonising law, regulations and standards, and the ways in which these can be dealt with. The development and initial phases of this private sector-led initiative were undertaken by a group of regional experts comprising of a mix of academics and representatives from institutes of directors, and is supported by the regional securities regulators with Securities Commission Malaysia acting as the secretariat. The project has now been handed over to institutes of directors and shareholder associations in the individual ASEAN member countries.
Professor Mak Yuen Teen from the National University of Singapore worked for two years as the Singapore expert on the initiative, which provides a good example of achieving harmonisation by applying an external standard (another example being the plans to regularise IP law by joining the Madrid Protocol, for trademarks, and the Patent Cooperation Treaty). ‘Convergence in this case was achieved by an agreement to use the Organisation for Economic Co-operation and Development (OECD) principles of corporate governance as a benchmark, supplemented by local ranking initiatives and other international corporate governance codes,’ he explains.
Mak continues by describing the challenges involved in accommodating the spectrum of standards found within ASEAN, before giving his opinion on how barriers to integration may be overcome. ‘For such initiatives to work, it does require each country to put aside parochialism and think about what is best for the country, their companies, investors and the region in the longer term,’ he says. ‘What can defeat such initiatives would be if commercial or other vested interests enter into the process.’
No thought for lawyers
Clearly lawyers should play an important role in the future of the AEC, and some analysts have suggested that the bloc should introduce a system whereby lawyers from one ASEAN member country could practise in any of the others. The EU introduced the idea of a European lawyer in 1977. Since then, certain legal professionals licensed in one member state are allowed to practise in other states; thus a German Rechtsanwalt may practise in England, and an English solicitor may practise in Germany without further licensing requirements (although those lawyers operating across borders must be instructed and act in conjunction with a locally-licensed lawyer).
Unfortunately, AEC documents do not make any reference to this kind of idea. Nor do they specifically include legal professionals in the plans for provisions on free movement of workers. There are also doubts as to whether such a system could work in ASEAN, as priorities probably lie elsewhere. ‘They’re looking at things like food standards, the import-export tax regime and so on,’ says Dao Nguyen, Managing Partner of Allen & Overy Vietnam. ‘In terms of lawyers, I don’t think they’ve thought about it and I don’t think they ever will think about it – it’s just too different.’
Some say lawyers in the region tend to view each other as competitors rather than identifying with each other as fellow practitioners. ‘This manifests itself in some of the protectionist policies that have evolved, such as giving foreign lawyers restricted rights or only a limited number of hours to operate in a country,’ says Ang. ‘But at the same time, although I don’t think there’s an overly rosy and unrealistic sense of comradeship, I can see ways in which lawyers can be collaborative: for example in some of the multi-jurisdictional review projects that we undertake where we regularly work alongside our local counterparts.’
Countering the threat of China
ASEAN leaders themselves openly admit that the most difficult areas of the AEC’s plans are yet to be addressed. What is more, many member countries are on their own paths toward reform and are focusing on internal issues. Vietnam, for example, acceded to the World Trade Organization (WTO) in 2007 and is still addressing the challenge of implementing its obligations and opening the market in certain sectors. Laos has lots to do after
‘Some ASEAN countries, such as Thailand and the Philippines, do not have a competition law to harmonise with other ASEAN countries’
Hadiputranto Hadinoto & Partners, Indonesia
becoming the WTO’s newest member in February 2013, while Indonesia continues to battle corruption and Burma has only just come in from the cold.
‘Every individual member of ASEAN thinks all the other members should be opening up but is moving more cautiously on the domestic front,’ says Makinson. ‘It’s a combination of the political will of each country plus the ASEAN road map, which is not terribly firm because of the diversity of the countries.’
When assessing the chances of ASEAN’s success, though, it must be remembered that ASEAN has grown and integrated very quickly so far. It has ridden out severe storms including the 1997 Asian financial crisis and the effects of the 2004 tsunami. The huge economic possibilities of the AEC are likely to provide a great part of the impetus necessary to achieving the AEC goals. Countering the economic threat of China will also be a key factor in bringing the ASEAN nations closer together, while lobbying from large regional and international companies will also play a big part in pushing forward the integration agenda.
Phil Taylor is a freelance writer and editor, he can be contacted at email@example.com