Pangilinan says ASEAN integration will take time amid need to address ‘land mines’

“We all know great concepts are attractively elegant. Yet the underlying realities do not necessarily agree with the beauty of the theory,” Mr. Pangilinan told the members of the ASEAN Law Association during its 12th General Assembly.

Mr. Pangilinan, who chairs the local ASEAN Business Advisory Council, noted that disparities exist in economic structures, financial systems, legal and regulatory environments — as well as the different levels of maturity in ASEAN’s 10 member-states.

He added that intra-ASEAN trade only amounted to $609 billion, 24% of its total trade. External trade, on the other hand, stood at $2.4 trillion.

Meanwhile, intra-ASEAN foreign direct investment (FDI) remains “significantly lower” than FDI from outside the region.

“Thus, we should not be seduced by the conceptual elegance of integration. Its advocates may sell the concept as if it were snake oil or silver bullets — promising an economic miracle quickly. It simply is neither,” he added.

As for economic integration sticking points, Mr. Pangilinan cited an appendix to the ASEAN Comprehensive Investment Agreement (ACIA) listing each country’s “reservations” to the 2012 agreement that promoted liberalization and non-discrimination against foreign investors from ASEAN member-states.

The appendix listed industries and transactions where foreign participation including that of ASEAN member-states is limited or even disallowed.

An example for the Philippines would be the non-application of the non-discrimination obligation on mineral resources, iron and steel manufacturing and forest product processing.

Other ASEAN member-states have reservations on non-discrimination in the alcohol, mineral and food processing industries.

“Isn’t ‘reservation’ the antithesis to a ‘free and open investment regime’ intended by ACIA? Isn’t discrimination the nemesis of integration?” Mr. Pangilinan said.

Even as he acknowledged that the region is progressing towards trade integration, Mr. Pangilinan noted that ASEAN trade is “largely intra-industry — that is, trade in products within the same industry: electronics, motor vehicles, petroleum.”

Instead, he said the ASEAN region could influence the global market for agribusiness, aquaculture, tourism, and infrastructure.

“We must expand beyond this to create regional production and supply chains for export to the rest of the world,” he said, adding the region could also tap into the supply needs of the emerging economies of China and India.

Meanwhile, Mr. Pangilinan noted that 99.6% of all tariff lines have been reduced since 2010 to the target 0-5%, although he also said some non-tariff barriers still stand in the way, a fact he described as “understandable.”

For one, he cited the uncompetitive Philippine sugar industry as an example that needed to be enhanced through the help of other member-states.

“Domestic prices are almost double international prices. In theory, we should import our sugar requirements because domestic sugar is uncompetitive. If we do, we will displace more than 500,000 workers, and affect a further 4.0 million of our people, whose livelihood, directly and indirectly, depend upon the industry,” Mr. Pangilinan said.

“The reality is that non-tariff barriers would need to be in place for the meantime, to allow the industry to adjust to the competitive realities in the region,” he added, saying other member-states could extend their hand in improving plantation yields and investing in new, more efficient mills.

Pushing the point further, he remarked the country could export surplus sugar to Indonesia, which imports four million tons yearly, in exchange for its palm oil.

Even then, Mr. Pangilinan listed in his speech the eventual elimination of non-tariff barriers to trade in goods and services as among six ways to facilitate the “principle of singularity” that would be required in the transformation of ASEAN into a single market.

He also called for labor mobility, harmonization of regulations to encourage fair pricing across countries, common taxation regimes to ensure similarities in the cost of doing business, and free flow of capital, by removing discriminatory regulations on foreign equity and investment.

Ultimately, he said a common currency would “eliminate foreign exchange differentials which could cause pricing and pricing power distortions.”

“These conditions are tough to meet, will take time to effect, and require robust political will, especially on the matter of sovereignty. Countries will have to agree to forego some instruments of government policy, including fiscal policy and its national currency and, to a degree, its national laws,” Mr. Pangilinan said.

Mr. Pangilinan also challenged lawyers to “craft coherent and converging laws, facilitating an ASEAN without borders in the flow of goods, services, money and people.”

First Pacific, he noted, had a stake in several ASEAN countries, having invested in infrastructure and agriculture in the Philippines, power in Singapore, food and agriculture in Indonesia, tollways and bridges in Vietnam, consumer products and tollways in Thailand, and food production in Myanmar. — Vince Alvic Alexis F. Nonato, Businessworld