ASEAN ADVANCES FTA'S WITH EU, JAPAN

C O N F I D E N T I A L SECTION 01 OF 04 BANDAR SERI BEGAWAN 000140 SIPDIS SIPDIS E.O. 12958: DECL: 05/09/2017 TAGS: ASEAN BX ECON EINV ENRG ETRD EUN ECIN JA SUBJECT: ASEAN ADVANCES FTA'S WITH EU, JAPAN Classified By: Ambassador Emil Skodon, Reasons 1.4 (B,D) -------------- SUMMARY -------------- ¶1. (C) ASEAN Economic Ministers used the occasion of their annual "retreat" to conduct consultations with the European Union and Japan that advanced Free Trade Area negotiations with both of these ASEAN partners. EU Trade Commissioner Mandelson agreed to the establishment of a joint committee that will define the agenda for talks on an ASEAN-EU FTA, and Japanese Minister for Economy, Trade, and Industry Amiri approved a general framework of tariff reductions that may allow for signing of an ASEAN-Japan merchandise trade agreement by November. Progress toward an ASEAN-EU FTA was made possible by EU willingness to finesse the issue of Burmese participation for now, although Mandelson's exchanges with his ASEAN colleagues on this subject were reportedly contentious and the issue was essentially kicked down the road for future resolution. In addition to their consultations with the EU and Japan, the ASEAN ministers also discussed general principles that should guide drafting of the economic portion of the proposed ASEAN Charter, and the possibility of revising the ASEAN investment agreement so that coverage is expanded to foreign investors in ASEAN. End Summary. -------------- AEM MEET IN BRUNEI -------------- ¶2. (U) The thirteenth annual ASEAN Economic Ministers (AEM) Retreat was held in Brunei on May 3. All ten ASEAN members except Cambodia were represented at ministerial level (a complete list of participants is in final para of this cable). In keeping with the "retreat" format, most substantive sessions were restricted to the Head of Delegation plus one. On May 4 the ASEAN ministers conducted formal consultations with European Union Trade Commissioner Peter Mndelson and informal consultations with JapaneseMinister for Economy, Trade, and Industry Akira Amai. -------------- ASEN AND EU TO BEGIN FTA NEGOTIATIONS -------------- ¶3. (U) Following the EM-EU consultations, ASEAN Secretary General OngKeng Yong announced that agreement had been reachd to launch negotiations on an ASEAN-EU Free Trade Area. Malaysian Minister of International Trad and Industry Rafidah, co-chair of the consultations, said a joint working committee comprising senior officials from the EU and all ASEAN countries would be established to develop the modalities, work program, and timetable for negotiating the FTA. According to a press release, ministers "agreed that the negotiating process would be based on a region-to-region approach, which recognises and takes into account the different levels of development and capacity of individual ASEAN member countries." ¶4. (U) The press quoted Ong as saying the "journey is still very long, but we have taken it to the next step after talking for more than two and one half years." He estimated that an FTA had the potential for eventually increasing trade between the two blocs by 10 to 18 percent. Mandelson commented that an ASEAN-EU FTA "has huge potential, not just (for) economic ties, but to grow international trade as a whole to boost the global economy." -------------- ASEAN-EU NEGOTIATION PROCESS -------------- ¶5. (C) Lim Jock Hoi, Permanent Secretary for Trade and Economic Affairs in Brunei's Ministry of Foreign Affairs and Trade, told us that he considered the agreement to begin negotiating an ASEAN-EU FTA to be the major outcome of the AEM meetings. He said negotiations would proceed as a "single undertaking" and, at least initially, nothing would be off the table -- competition policy, labor, environmental protection, government procurement and other issues could all be proposed as agenda items. Although talks would be conducted on a region-to-region basis, Vietnam would act as coordinator for ASEAN, continuing the group's past practice of naming a member country to coordinate FTA negotiations with outside parties. ¶6. (C) Lim expected it would take three to four months to agree on the architecture of negotiations. He also explained that the language regarding "different levels of development" allowed for an FTA that would place fewer requirements on the BANDAR SER 00000140 002 OF 004 least developed members of ASEAN, in conformance with the WTO principle that developed countries should not insist on concessional commitments from LDC's in trade negotiations. -------------- FINESSING BURMA -------------- ¶7. (C) Lim told Ambassador that the initiation of FTA talks with the EU had been made possible by the EU's adjustment of its position on including Burma in the negotiations. The agreement to follow a "region-to-region approach" while simultaneously taking into account "the different levels of development and capacity of individual ASEAN" countries helped finesse the issue: it allowed ASEAN to include Burma at the negotiating table as part of the ASEAN region, while giving the EU scope to treat it differently in a final FTA agreement. According to Lim, Mandelson had made clear privately that the EU could give no commitments about what it might ultimately offer to Burma under an ASEAN-EU FTA, and had advised that some capacity building could be possible but improved market access was unlikely as long as the present regime stayed in place. ¶8. (C) Comments made to Ambassador by resident Chiefs of Mission from ASEAN states and from Germany (which currently holds the EU Presidency) indicated that the EU-ASEAN discussions regarding Burma were much more contentious than Lim let on. They described Mandelson as having been insistent that his negotiating mandate applied only to seven ASEAN countries, and he could not agree to FTA negotiations that included Burma, Laos, or Cambodia. ASEAN ministers were just as adamant that either all ten of them would have places at the table or none of them would. According to our diplomatic colleagues, this impasse made for tense moments in which tempers flared on both sides. They described the agreement to form the working group as basically a means for kicking the issue down the road to be dealt with at a later date. (Not surprisingly, the Burmese Ambassador to Brunei told Ambassador his government was "pleased" with the outcome.) ¶9. (C) Lim was frank in admitting his surprise that the EU had apparently decided that gaining ASEAN's agreement to begin FTA talks was worth finessing the Burma issue. He speculated that the EU might have lost confidence in the Doha Development Round, or it might have decided to emulate the U.S. in seeking regional agreements even while continuing to pursue the Doha Round. In any case, he believed the EU was serious in targeting ASEAN, India, and Korea for FTA negotiations. -------------- -------------- ASEAN AND JAPAN TO CONCLUDE MERCHANDISE TRADE DEAL... -------------- -------------- ¶10. (U) Following AEM informal consultations with Japanese Minister Amari, SecGen Ong told the media that he expected ASEAN and Japan to wrap up talks on freeing merchandise trade under the umbrella of their Economic Partnership Agreement (EPA) in time for the pact to be signed at the November ASEAN Summit (the original deadline had been last April). Keita Nishiyama, Director of the Asia and Pacific Division at Japan's Ministry of Economy, Trade, and Industry, said "we have agreed in principle on the modalities of the trade deal" and predicted that negotiations would be finalized in August in expectation of a November signing (the next AEM Meeting is scheduled to take place in Manila in August). ¶11. (U) Before the consultations began, SecGen Ong had said that Japan was seeking full tariff elimination on 88-92 percent of total trade and wanted one percent of its imports excluded, but was not willing to specify specific product lines falling under the one percent exclusion, an omission that was unacceptable to ASEAN. Press reports indicated that the breakthrough came during the consultations when Japan agreed to eliminate 92 percent of its tariffs by value on merchandise imports from ASEAN members within ten years, reduce tariffs on another seven percent classified as "sensitive" or "highly sensitive" goods, and specify the remaining one percent of goods that would be excluded completely from tariff reductions. In return, ASEAN's five founding members plus Brunei would eliminate tariffs on 90 percent of imports by value from Japan within ten years, Vietnam would do the same within 10-15 years, and Laos, Burma, and Cambodia within 15 years. -------------- ...BUT MAYBE NOT AS SOON AS EXPECTED -------------- ¶12. (C) Bruneian trade officials confirmed to us that BANDAR SER 00000140 003 OF 004 progress had been made on negotiations with Japan, but they were not convinced that an agreement could be wrapped up by November. They described it as a "very ambitious" deadline and suggested that a deal might be concluded but not actually signed by that time. That would depend in large part on the August negotiating session, when Japan had said it would present detailed lists of sensitive, highly sensitive, and excluded products by SITC code. The Bruneians expected that rice and other agricultural products would be on the excluded list. ¶13. (C) Asked by Ambassador about Director Nishiyama's comments that Brunei had agreed to include a chapter on energy in its own bilateral EPA with Japan, PermSec Lim confirmed that general language had been agreed in order to satisfy Japan's interest in securing its energy imports. It was, however, a mostly symbolic gesture, as a later clause stated that the agreement to maintain a consistent trade in energy was "subject to market conditions." -------------- -------------- ASEAN ECONOMIC COMMUNITY AND PROPOSED ASEAN CHARTER -------------- -------------- ¶14. (U) The AEM Retreat concluded with a call for completion of a blueprint containing clearly defined measures and timelines to achieve the goal of an ASEAN Economic Community by 2015, with the aim of having it ready for endorsement by ASEAN leaders at their November summit. Ministers also discussed general principles that should underlie the economic pillar of the proposed ASEAN Charter now being drafted. A press release following the meeting reported their conclusion that the Charter should provide for "a broad direction of ASEAN economic integration beyond 2015 toward a closely integrated regional entity" and reaffirmed the ASEAN goal of "a competitive single market and production base." The ministers also agreed that "the region should be an open, outward-looking, inclusive, and market-driven economy consistent with multilateral rules." ¶15. (C) Bruneian officials told us that AEM discussion of the proposed ASEAN Charter stuck to generalities, and the drafting process has a long way to go in translating general principles into operational modalities. As an example of practical issues that need to be addressed, they pointed out that current thinking is that each of the three proposed ASEAN "communities" -- economic, security, and social -- will have a ministerial council that reports directly to leaders. However, nobody has yet addressed the question of what ministers will sit on the economic council. Should it be ministers of economics, of trade, of finance, or a choice left to individual member states? They noted that such questions may seem innocuous, but their potential for delaying an agreement in the protocol-conscious and consensus-driven world of ASEAN could not be discounted. Our contacts also highlighted the diverse levels of development among ASEAN members, the competition between many to promote development in identical sectors, and the resulting impulse to protect "national champions" as additional reasons why progress on the economic community could be slower than on the security and social communities. -------------- INVESTMENT AGREEMENT AND OTHER AEM ISSUES -------------- ¶16. (SBU) According to the press release issued at the conclusion of the AEM Retreat, ministers also discussed the need to revise the Framework Agreement of the ASEAN Investment Area (AIA) so as to transform it into a comprehensive investment agreement. Malaysian Minister Rafidah said to the media that new features and provisions might be incorporated into the AIA to promote greater investor confidence and attract more investment from outside ASEAN. Bruneian officials told us that one idea is to amend the AIA, which currently extends national treatment in designated sectors to all ASEAN investors, so that it also applies to foreigners who invest in any single ASEAN country. As a result, a foreign company that has an investment in a designated sector in, say, Singapore or Malaysia, would receive treatment equal to that given an ASEAN investor if it wished to extend its production chain across ASEAN borders. ¶17. (U) Other results of the AEM Retreat were: -- endorsement of a roadmap for integration of logistics services, designed to encourage establishment of broader production networks, and due to be signed at the AEM meeting in August; -- agreement that all efforts should be made to conclude pending FTA negotiations so that the business community can BANDAR SER 00000140 004 OF 004 benefit from such arrangements; and, -- ASEAN recognition of Vietnam as a full market economy, coupled with a call to ASEAN dialog partners to provide early recognition of Vietnam's full market economy status. ¶18. (U) The following headed ASEAN national delegations to the AEM retreat: Brunei -- Pehin Dato Lim Jock Seng, Second Minister of Foreign Affairs and Trade Cambodia -- Pich Rithi, Deputy Director General, Ministry of Commerce Indonesia -- Mari Elka Pangestu, Minister of Trade (Director General of International Trade Cooperation Herry Soetanto represented Indonesia at consultations with the EU) Laos -- Nam Viyaketh, Minister of Industry and Commerce Malaysia -- Dato Seri Rafidah Aziz, Minister of International Trade and Industry Burma -- U Soe Tha, Minister for National Planning and Economic Development Philippines -- Peter Favila, Secretary of Trade and Industry (present for consultations with EU; Undersecretary Elmer Hernandez represented at AEM Retreat) Singapore -- Lim Hng Kiang, Minister for Trade and Industry Thailand -- Krirk-krai Jirapaet, Minister of Commerce Vietnam -- Truong Dinh Tuyn, Minister of Trade SKODON