POTENTIAL TRADE PROSPECTS IN MINDANAO: THE BIMP-EAGA

UNCLAS SECTION 01 OF 02 MANILA 001953

SIPDIS
SENSITIVE

STATE FOR EAP/MTS, EAP/EP
STATE PASS USTR BWEISEL, AND KEHLERS
STATE ALSO PASS USAID, OPIC
USDOC FOR 4430/ITA/MAC

E.O. 12958: N/A
TAGS: ECON EAID ETRD ECIN EINV PGOV RP
SUBJECT: POTENTIAL TRADE PROSPECTS IN MINDANAO: THE BIMP-EAGA

Ref: A) Manila 1610, B) Manila 1050, C) Manila 1790, D) Manila 0998



1. (U) Summary: This cable describes an international policy
initiative designed to promote links between the southern
Philippines and peripheral regions of neighboring countries known as
the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN
Growth Area (BIMP-EAGA). Supporters believe the initiative has
great potential to promote regional economic prosperity, but
progress has been slow. This cable provides a general overview of
the BIMP-EAGA initiative and its challenges, and is one in a series
of cables that highlight the economic issues of the Mindanao region,
which is often associated with peace-and-order challenges and high
poverty rates (Ref A). End summary.

BIMP-EAGA: A Poor Rich Area
--------------


2. (U) The BIMP-EAGA is a sub-regional economic cooperation
initiative first established in 1994 to spur development in the
geographically proximate territories of Brunei Darussalam,
Indonesia, Malaysia and the Philippines, all of which are member
countries of the regional Association of Southeast Asian Nations
(ASEAN). Covering an area of about 1.6 million square kilometers
that is home to about 60 million people, the BIMP-EAGA's goal is to
accelerate trade, investment, and transportation among
resource-rich, less-developed areas that are geographically distant
from their national capitals. The area includes Kalimantan,
Sulawesi, Maluku, and Irian Java in Indonesian; Sabah, Sarawak and
Labuan in Malaysia; the southern Philippine islands of Mindanao and
Palawan; and all the islands, waters, and resources in between. The
entire sultanate of Brunei Darussalam is also part of the sub-region
and the initiative, although it has largely escaped poverty through
the development of its abundant offshore hydrocarbon resources.


3. (SBU) The area includes some of the most valuable concentrations
of natural resources in the world, encompassing two of the world's
largest rainforests, the center of the world's marine bio-diversity
in the so-called "coral triangle," the migration routes of immense
schools of tuna and sardines, and some of the world's largest
deposits of gold, nickel, copper, and chromites. Although not fully
surveyed, the area is also thought to be rich in hydrocarbon
deposits. Newly developed oil fields near Palawan have already
begun supplying significant quantities of petroleum to Philippine
refineries (reported septel).


4. (SBU) At present, the Asian Development Bank (ADB) is the
BIMP-EAGA's most important source of development assistance. ADB
officials recently explained to Embassy officers their hypothesis
that this sub-region is relatively impoverished and underdeveloped
in part because it is geographically distant from the national
capitals. The distance from the capital leads to less attention
from the national government, less spending on social services,
infrastructure, and transportation links, which in turn reinforces
the sense felt by the inhabitants of a sub-regional "separateness"
and disenfranchisement from the mainstream of their respective
countries. In the case of Mindanao, this "separateness" manifests
itself in a range of ways from insurgent violence against the
national government, to calls by mainstream political and business
leaders for a federal system of government that gives the people of
Mindanao more control over how local resources are developed.
Differences between local and national interests contribute to the
difficulty in efficiently developing the economic resources of the
area.

Gains in Trade, Investment and Tourism
--------------


5. (SBU) The ADB officials explained that as a result of BIMP-EAGA,
new direct sea and air links have opened between these peripheries;
investments, tourism, and trade have increased. These air and sea
linkages have generated a steady increase in intra-regional travel
of about 7% per year. Foreign direct investments in Mindanao from
its area neighbors have included investments in tuna canning,
energy, palm oil, banking, and tourism/hotel services. Outbound
investments have included tuna canning and automotive supplies.
Among the southern Philippines' top exports to its area neighbors
are coconut oil, natural rubber, tinned iron and steel, and
chemicals. The top five Philippine imports from the area include
liquefied petroleum gas, copra, methanol, veneer sheet, plywood, and
coal. The southern Philippines' largest trading partner in the Area
is Indonesia, followed by Malaysia.


6. (U) Transportation incentives offered by the BIMP-EAGA include

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the BIMP-EAGA Uniform Port Tariff (UPT) rate for shipping services,
which allows vessels docked at ports within BIMP-EAGA to enjoy
reduced port fees. Since 2002, BIMP-EAGA has offered a 50% discount
on civil aviation fees and regulatory charges; landing and take-off
fees; parking fees; terminal fees; and air navigation charges.
There is a 50% reduction in certain customs and immigration fees in
all participating seaports and airports in BIMP-EAGA. And, all
passengers traveling between area destinations are exempt from
normal travel taxes.


7. (U) Memoranda of Understanding (MOU) signed in 2007 created the
1) expansion of BIMP-EAGA air services fifth freedom rights to allow
airlines to bring cargo and passengers from one country to another
other than from its home country; 2) integrated sea links between 33
designated BIMP-EAGA gateway ports; and 3) cross-border movement of
commercial buses and coaches via ferry. These MOU are milestone
achievements in providing more liberalized transportation services
in the sub-region--making the BIMP more attractive for future
investments, and more integrated into the broader regional economy.


Streamlining of Customs, Immigration, and Security
-------------- --------------


8. (SBU) The BIMP-EAGA has also streamlined Customs, Immigration,
Quarantine and Security Rules (CIQS),Regulations, and Procedures.
This initiative has led to joint maritime border patrols between the
Philippines, Malaysia and Indonesia; common standards for air and
maritime pilot-testing; joint assessments of the customs environment
in priority ports; and convening the first BIMP-EAGA customs task
force. However, ADB officials noted to Embassy officers that there
is much 'informal trade' (i.e., smuggling) between Area countries.



9. (SBU) The Philippine Long Distance Telephone Company has
introduced discounted rates within the area, as well as an area
code. Demark motor manufacturing, a Malaysian company, has
established operations in Zamboanga City, Oriental & Motolite
Marketing Corporation (Filipino-owned) is now operating in Malaysia
and Brunei, and there is direct import of diesel fuel from Malaysia
to a number of fishing companies based in Zamboanga City, just to
name a few of the investment ventures.

Working toward Solutions
--------------


10. (SBU) The ADB and the BIMP-EAGA National Secretariats recognize
the need for improvement in private sector investment in the
BIMP-EAGA initiative. The fourth BIMP-EAGA Summit, which was held
in Singapore in November 2007, called for a comprehensive review of
BIMP-EAGA progress, with ADB technical support that will be
presented in mid-October 2008. According to ADB officials, the
review will reveal a large gap between potential and actual
investments by the private sector. The ADB is now also assisting
BIMP-EAGA to improve its marketing plans, create economic corridors,
increase connectivity, and strengthen local government coordination
within the Area.

Comment
--------------


11. (SBU) ADB officials expressed great enthusiasm about the
potential of the BIMP-EAGA initiative to improve regional prosperity
and peace. However, they admitted the initiative had gotten off to
a slow start, suffered a number of unforeseen setbacks, and still
faced serious challenges. Among the major challenges include the
lack of effective national government control of the area, and the
ensuing smuggling, illegal drugs, piracy, and other criminal
activities. The ineffective national government presence in the
area also complicates collection of quantitative indicators by which
to measure the initiative's success. The 2006-2010 BIMP-EAGA
Roadmap sets some measurable goals, but it is still too soon to
measure progress towards these goals. Recent moves by Malaysia to
expel Filipinos from Sabah, and increased smuggling in the area in
response to the rising costs of food and fuel may undermine the
goodwill on which the initiative is based.

KENNEY