ASEAN integration? Forget about it.

my Trade Tripper column in a weekend issue of BusinessWorld:

This is my second article on the upcoming 2015 ASEAN integration (see ASEAN Integration, March 14, 2014). Many still express concern about it, although most of the perceived issues are really off, arising from two misconceptions: the first is that the ASEAN Economic Community (AEC) will lead to a common market in the mold of the European Union, and the second is that the Philippines needs to prepare for 2015. Both are incorrect.

The AEC is not envisioned as an Asian version of the European Union. The AEC, at best, would be one of continuing evolution. As pointed out by Coraline Goron: “The ASEAN Economic Blueprint presents two main objectives: to transform ASEAN into a single market and production base and make it a competitive economic region. One should be aware, however, that despite the bold language, the ideas put forward in this document remain significantly lower than the economic integration in the EU. Notably, no customs union and no single currency are envisaged.”

By the way, a “customs union” focuses on uniform external tariffs, which is different from a free trade agreement or FTA (which also has lowered tariffs but maintains separate external trade policies).

Finally, the idea that integration will take place next year is not exactly accurate. ASEAN integration has long begun. In fact, we have long been living in an integrated ASEAN. The truth is that many of the provisions of the ASEAN integration plans are already in place: from the lowered tariffs, to increased FTA activity, to the smoothening of customs procedures.

As of 2012, Philippine compliance with ASEAN integration is at 76.9%. Many members are at more than 80%. But Vietnam is still at 79.6%, Cambodia 76.6% and Brunei 75.5% (lower than the Philippines).

In other words, intra-ASEAN trade is already virtually duty-free, providing a relative advantage (price-wise) on the cost of goods when compared to other countries. Plus, note the various FTAs that ASEAN has with other countries

Having said that, there is certainly work to be done. The question really is not the dangers that ASEAN integration can bring (if there are any) but rather if the Philippines itself is ready to take advantage of it or be left again in the dust.

One challenge for the Philippines is to realize and manage the transition from a negotiations-based system to a more legal, rule-oriented paradigm. As far as legalities are concerned, the main source of Philippine obligations is found in Article 5.2 of the ASEAN Charter: “Member States shall take all necessary measures, including the enactment of appropriate legislation, to effectively implement the provisions of this Charter and to comply with all obligations of membership.”

Incidentally, Article 24 states that all disputes “relating to specific ASEAN instruments shall be settled through the mechanisms and procedures provided for in such instruments.”

With such general-sounding obligations, our government is nevertheless mandated to review Philippine laws to determine compliance on matters relating to: tariff and non-tariff barriers, rules of origin, customs integration, professional and employment qualifications, investment laws, capital markets, securities standards, intellectual property, taxation, competition policy, and the like. Our courts and administrative agencies must now be brought up to speed on the demands of ASEAN.

Incidentally, the foregoing also highlights the need for lawyers not only with professed international law capabilities but also business orientation and ASEAN competence. Emphatically, there is a necessity now for our lawyers to develop an “international” outlook. Which is inevitable, what with international law forming part of the laws of the Philippines.

But this globalization of our lawyers’ mindsets must also be based on pragmatic considerations, including particularly our nation’s interests. The decision of some local law schools to favor World Trade Organization or international commercial arbitration courses (or even that of the European Commission), for example, has sadly come at the expense of lawyers being completely unfamiliar with the legal systems of our neighboring trading partners in ASEAN and the Asia-Pacific Economic Community.

Finally, to reiterate what I wrote the last time, what is the point of opened markets if we don’t have the know-how and capacity to satisfy those markets? And what is the point of opening up the country for investments if the environment does not make it attractive for investors?

Our use of the ASEAN FTA benefits continues to hover at a mere 20%. This low rate has never been resolved, and even up to now a lot of Philippine firms are still baffled by the mechanics of FTAs.

Despite reported improvements in the area of competitiveness, our foreign direct investments, ease of doing business, power, transport, productivity, infrastructure, education, and rule of law protection lag behind most other ASEAN countries. Our worsening traffic, rather than a sign of progress, allegedly costs the country an amount equal to 7% of the GDP.

So, really: the best way to deal with ASEAN integration is to forget about it. And instead focus on improving ourselves.