President's Newsletter - President's Newsletter - October 2014

Amb. Ted Osius
President & CEO
US-ASEAN Business Council

I want to thank you for the tremendous support that you brought to the Council’s 30th anniversary celebration and our U.S. Ambassador’s Tour. We had an enormously successful event, where the Council was deeply honored to be able to look forward to the future of the US-ASEAN relationship, highlight the ASEAN Matters for America Project, recognize Rod Hills for his incredible role in growing the Council, and celebrate the life of Laura Hudson.

Still to come this year are the business missions to the Philippines, Thailand, and Indonesia, as well as numerous opportunities through the US-ASEAN Business Alliance for Competitive SMEs.

Thank you for making our first 30 years so successful, and we are excited about what the next 30 will bring!

Highlights

The Council has business missions to the Philippines on October 22 - 23, Thailand on November 3 - 4, and Indonesia on December 8 - 11. For more information about the mission to the Philippines, please contact Carr Slayton at cslayton@usasean.org; for more information about the mission to Thailand, please contact Praab Pianskool at praab@usasean.org; for more information about the mission to Indonesia, please contact Alex Stuart at astuart@usasean.org.

The US-ASEAN Business Alliance for Competitive SMEs will participate in two days of discussions with the ASEAN SME Working Group focused on the Online SME Academy and Women’s Entrepreneurs in Bangkok on November 4 and 5. For more information please contact Mario Masaya at mmasaya@usasean.org.

The Council will be organizing the next Food & Agriculture Mini Mission to Vietnam (December 3, 2014) and to Thailand (second half of February 2015). Please provide your feedback/inputs on these upcoming missions to the Council’s Food & Agriculture Manager, Sunita Kapoor at skapoor@usasean.org.

Membership

We are pleased to welcome American Express, bringing total Council Membership to 143 companies. Please find a description of the new member below.

As most know, American Express Company is a leading global provider of travel-related services, payment services, financial advisory services and banking services. Amex operates in North America, Europe and Asia Pacific region and its products are offered in more than 140 countries. It is headquartered in New York and employed 62,800 people as of December 31, 2013.

Regional Highlights

Defense
The partial lifting of the ban on the export of lethal weapons to Vietnam reinforces the growing closeness of US-Vietnam relations and potentially will create substantial opportunities for U.S. companies. On October 22 the Council will hold a briefing with the State Department Vietnam Desk and Office of Arms Transfers to discuss the new policy. To register, please click here.

Energy
A delegation of six leading U.S. energy companies organized by the US-ASEAN Business Council engaged the ASEAN Energy Ministers during the 32nd ASEAN Ministers of Energy Meeting. The mission was led by the Council’s Energy Committee leaders ConocoPhillips, GE and Peabody Energy, and Kathy Santillo, Regional Managing Director at the US-ASEAN Business Council. The delegation presented the Ministers with key messages based on the ASEAN Plan of Action for Energy Cooperation (APAEC) and discussed ways that the Council members can partner with ASEAN governments to support ASEAN-wide energy priorities. The Council delegation also discussed themes that included skilled labor mobility in the context of the ASEAN Economic Community (AEC) as well as energy technology in electrical grid integration and renewable energy development. Companies participating in the delegation also included first-time AMEM participants APR Energy, Emerson and SunEdison. To read the latest Council Energy update please click here.

Financial Services
Indonesia’s House of Representatives ended its legislative session on September 30, leaving the controversial banking bill and a key bill for financial crises management unfinished. The two bills, in addition to 119 others, have now been effectively dropped, since the House lacks a carry-over mechanism for unfinished bills. The banking bill draft, which sought to cap foreign ownership of banks at 40 percent, was never finalized. If the new House chooses to reinitiate the bill, it will have to do so from scratch. This process would likely take two to three additional years, buying time for companies and the local financial regulators to voice their opposition. The Indonesian Financial Services Authority (OJK) maintains that it should retain the right to set ownership caps, so that the caps can be kept flexible.

Alongside the banking bill, the House has also dropped a long-delayed bill on the financial system safety net (JPSK) which was meant to legally enshrine emergency regulations that were issued in lieu of law (Perppu) during the 2008 financial crises. The Perppu, and the bill which was meant to replace it, contains measures on crisis prevention and management to maintain stability in the financial system, including mechanisms on the lender of last resort policy. The bill had attracted some opposition from lawmakers who were concerned that it granted too much power to financial regulators. It also appears that a separate bill must first be passed to repeal the Perppu before the JPSK Bill can actually be passed. Officials from Bank Indonesia and the OJK expressed displeasure at the failure of the JPSK Bill and will likely continue to push its passage during the new legislative session.

OJK is also expected to unveil a new lower cap on foreign ownership of insurance companies in the coming months, after a new insurance regulation bill was approved by House Commission XI on September 15 and passed into law by the DPR at the end of September. The new law will require all insurance companies to locally incorporate as Perseroan Terbatas (PT), but does not contain a cap on foreign equity ownership as was anticipated. Instead, the OJK will issue a regulation setting the ownership cap following consultations with stakeholders. The Finance Ministry plans to immediately organize a review with an eye on longer-term visions for the insurance industry in addition to discussions of an explicit foreign equity cap. The key concerns of the OJK and Finance Ministry appear to be whether or not local insurance companies would be able to raise sufficient capital domestically. Currently, nine of the top 10 insurance companies are foreign joint ventures. It appears that these prospective limits on foreign equity combined with the recently announced merger of several state-owned insurers and efforts to publically list private domestic insurers are part of a strategy to shift the financing sources of the Indonesian insurance sector to the domestic market. This apparent effort to insulate the Indonesian insurance sector from the global market would not only likely prevent Indonesian firms from accessing much needed foreign expertise and capital, it would be contrary to ASEAN’s regional integration plans.

For the latest Financial Services update, please click here.

Food & Agriculture
On September 19, APEC announced that it was set to take on new food security challenges in the region. Agricultural and food ministers from APEC economies came together to unveil the new framework on food security which plans to ensure safe, accessible and sustainable food supplies through innovation-based cooperation. The ministers emphasized strengthening food safety management while also committing to enhanced surveillance and early warning information sharing. Also, they seek to strengthen training on trans-border animal and plant diseases as well as informational exchanges and cooperation on safety on food import and exports. Further, the Ministers called for the liberalization of agricultural trade and investment, requesting that APEC economies move away from protectionist practices in the agricultural sector. On the issue of climate change, the ministers agreed to pursue research on more eco-friendly approaches to agricultural production.

Health & Life Sciences
HLS Committee members participated in a roundtable discussion with the Malaysian Minister of Health, Dr. S. Subramaniam, on September 26 in Washington DC. Topics of discussion included the proposed tax on sugared drinks, intellectual property rights for pharmaceuticals, and medical device issues such as public sector reimbursement, local assembly requirements, and the Medical Device Act.

ICT
On October 2 the Council held its Third Executive Committee Meeting of the Indonesia ICT Consultative Forum (IICF). The meeting opened with a presentation on the “Vision of Indonesia’s ICT Eco-system” by Alexander Rusli, President Director & CEO of Indosat, followed by a discussion on Indonesia’s e-Commerce Market featuring Irni Palar, Director & Country Manager of MasterCard Indonesia and moderated by

Shinto Nugroho, Head of Public Policy and Government Relations, Google Indonesia. The meeting also included a discussion on Encouraging Trade & Investment in Indonesia’s ICT Industry. The last meeting for 2014 of the IICF is tentatively scheduled for Friday, December 12, alongside the Indonesia Business Mission, where we expect to deliver a report of the Forum’s activities for the year. For any questions regarding the IICF please contact Shay Wester at swester@usasean.org and Kim Yaeger at kyaeger@usasean.org.

Infrastructure
The Council’s Infrastructure Committee is registering senior-level executives for its Infrastructure Mini Mission to the Philippines on October 24, 2014. The Philippines currently faces urgent infrastructure challenges. According to the World Economic Forum's Global World Competitiveness 2013-2014, the Philippines is ranked 96 for Infrastructure. Infrastructure problems are now viewed as the leading obstacle to economic growth in the Philippines. Based on input from Infrastructure Committee members and the growing bilateral government-to-government ties, the Council suggests the following themes and advocacy messages for this year's Infrastructure Mini Mission to the Philippines:

If your company would like to participate in the 2014 Infrastructure Mini Mission to the Philippines, please contact the Council's Infrastructure Manager, Sunita Kapoor at skapoor@usasean.org.

Brunei
The 2014 Business Mission to Brunei was held on Thursday, September 11 in Bandar Seri Begawan. The delegation was led by me and Lai Yeow Hin, Market Development Director, Singapore and Brunei, the Council’s Brunei Committee Chair, and also included representatives from ConocoPhillips, KPMG, Microsoft, and Visa. The discussions focused on how U.S. business can support expanding the capacity of Brunei’s Small and Medium Sized Enterprises, help build Brunei’s human capital, and offer support toward Brunei’s economic diversification.

To read the Council’s latest Brunei update, please click here.

Indonesia
On October 20, President-elect Joko Widodo (Jokowi) will be inaugurated as the next President of Indonesia, and is expected to announce the selection of his cabinet ministers a day or two after. Jokowi has pledged to increase spending on infrastructure, cut red tape, tackle corruption and reduce fuel and electricity subsidies. Jokowi will face stiff opposition in the Parliament - led by Prabowo’s five-party Red and White Coalition who currently hold the majority in the House- who may block his attempts to push through reforms like reducing the fuel and electricity subsidies. The Council will provide a report on the inauguration and the cabinet announcements early next week.

On September 26 the House of Representatives passed the Regional Elections Bill that eliminates direct voting of regional heads. Almost all of President Yudhoyono’s Democratic Party (the largest party in parliament with 148 out of 560 seats) walked out of the plenary session of parliament leaving the remaining legislators to pass a bill that removes direct voting in the regions. As a result, regional legislatures (DPRD) will choose mayors, district heads and governors. Critics say this bill is a setback for democracy. An appeal for judicial review has been brought to the Constitutional Court, but experts say there is nothing “unconstitutional” about the passing of the law. The bill was backed by the Red and White coalition who supported Prabowo in the recent Presidential election, and is seen as an attempt to eliminate the chances of “outside” politicians from gaining political prominence (in the way that President-elect Joko Widodo did).

After receiving fierce criticism, on October 3, President Yudhoyono issued government regulations in lieu of law (Perppus) to repeal this controversial law that revokes direct elections for regional heads. However, both of these regulations need to be approved by the House of Representatives which does not seem likely given that the Red and White coalition controls the majority in the House of Representatives.

The Indonesian Parliament has passed a number of bills in its final days in session. To read the Council’s September Legislative update please click here.

We are also looking forward to the Indonesian Business Mission December 8 – 11. For more information on the mission, please contact Alex Stuart at astuart@usasean.org.

To read the Council’s latest Indonesia update, please click here.

Malaysia
On October 10, Malaysia’s much anticipated 2015 budget was tabled in Parliament by Prime Minister Najib after drafting by the Finance Ministry. The budget aims to strengthen the government’s fiscal position through deficit reduction while also promoting strong economic growth. In the 2015 budget, Malaysia narrowed the budget shortfall to 3.9 percent of gross domestic product in 2013, heading toward a balanced budget by 2020. Deficit reduction will be achieved through subsidy cuts and implementation of a 6 percent Goods and Services Tax (GST). These changes have left companies and consumers grappling with higher costs. Despite the higher costs of doing business, Prime Minister Najib hopes to increase foreign investment by dedicating more resources to human capital development and providing incentives. “To remain resilient and competitive, Malaysia must move to an economy based on knowledge, high skills, expertise, creativity and innovation,” Najib said. “Economic planning and policies of a country need to be adjusted according to the developments and challenges in the domestic and external environment.”

The Council held its annual Malaysia Business Mission from September 8 through 10, meeting with Deputy Prime Minister Tan Sri Muhyiddin Yassin and other leaders of the Malaysian government. The Mission promoted work on human capital development and cross-border data flows while offering support for Malaysia’s role in ASEAN and the Trans-Pacific Partnership. In addition to engaging senior Malaysian officials during the business mission, the Council hosted top Malaysian leaders in the U.S. on the sidelines of the UN General Assembly.

On September 23, Marc Mealy, Vice President (Policy), served as the Chairman of a Business Opportunities in Malaysia forum in Boston, Massachusetts. After the presentations, Marc lead a discussion on U.S.-Malaysia business ties between the United States and members of a Malaysian business delegation which also traveled to Boston. Later that day, Marc moderated a discussion with Prime Minister Najib at Georgetown University. The Prime Minister spoke on the role of Southeast Asia in managing peaceful relations in the Asia Pacific. Prime Minister Najib’s speech from the event can be found here.

In addition to the Council’s Washington engagement with the Prime Minister, on September 25, Prime Minister Najib held a series of trade and investment promotion events in New York, including a luncheon with Council members. The luncheon presented a great opportunity to engage the Prime Minister as well as key officials traveling in the Malaysian delegation.

On September 26, the Council hosted Minister of Health S. Subramanian in Washington, DC. The roundtable discussion was a great opportunity to open a line of communication with the Minister, who until recently, has not engaged industry. During our discussion, members were able to raise areas of concern and build upon issues raised during the mission including Malaysia’s local procurement policies, medical reimbursement, ICT usage, attracting investment and concerns over a potential tax on sugared beverages.

In domestic news, Selangor has implemented new restrictions on foreign property ownership, effective September 1, which are beginning to attract controversy. Under the new rules, foreigners, permanent residents, and foreign companies will only be able to buy residential properties priced above RM 2 million in Petaling, Gombak, Hulu Langat, Sepang, Klang, Kuala Selangor and Kuala Langat districts and above RM 1 million in Hulu Selangor and Sabak Bernam. The minimum purchase price for commercial and industrial properties has been set at RM 3 million across Selangor.

The labor rights monitoring group Verité released the results of a two-year study of Malaysian high-tech manufacturers on September 17, reporting that one third of the 200,000 migrant workers are held in some form of forced labor. The U.S. Department of Labor commissioned the study after reports of labor abuses in the country. It comes as Malaysia and other members are attempting to conclude the Trans-Pacific Partnership negotiation, which is expected to include a chapter on labor that would involve each country making commitments on labor rights protection and mechanisms to ensure cooperation, coordination, and dialogue on labor issues of mutual concern such as workplace practices to enhance workers’ well-being and employability, and to promote human capital development and high-performance workplaces. The report can be accessed by clicking here.

Myanmar
Myanmar has tentatively announced plans for the resettlement of refugees from conflict in Rakhine State – the resettlement is planned to be implemented around April or May of next year. More than 140,000 people, mostly Rohyinga Muslims, were displaced by the conflicts that reached their height in mid-2012. These resettlement plans rely on the buy-in of local communities including the Rohyinga. The status of the minority Rohyinga, with an estimated population of 800,000 to 1.1 million (mostly in Rakhine State) has remained a sore spot for Myanmar’s relations with the international community, , as they are not recognized as citizens of Myanmar. There is deep concern among some members of the human rights community around Myanmar’s draft plan, which, according to a Reuters special report, requires those Rohyinga desiring Burmese citizenship to be classified as “Bengalis” rather than Rohyinga and provide documentation proving long-time family residence in Myanmar, a difficult challenge for many. A pilot citizenship verification process recently gave citizenship to 209 Muslims in Rakhine, but the number included members of the Kaman Muslim minority, a group which Myanmar recognizes as a legitimate Myanmar ethnic group, making it difficult to assess what the success rate would be like for those Rohyinga willing to go through the verification process. Meanwhile, Medicins Sans Frontieres, the group whose ouster from Rakhine during 2012 conflict caused international condemnation and deprived Rakhine of a substantial amount of its health infrastructure, has a work agreement in place to return to Myanmar but has been warned to avoid politics. The situation remains one to watch.

Myanmar has confirmed that it intends to proceed with the building of a dam in Shan State. The dam is to be constructed along the Thanlwin River through a partnership with the Three Gorges Company, a Chinese-owned firm. Concerned residents are worried that villages as well as ancient pagodas and stupas would be destroyed in the building of this dam. A report from the Ministry of Electric Power shows that Myanmar has plans to complete 32 more hydropower projects in cooperation with foreign companies, most of which are Chinese. Chinese involvement in hydropower in Myanmar has been the source of significant controversy, due to environmental and labor concerns, as well as issues around nationalism and control of resources. The highest-profile project, the Myitsone Dam, has been stalled since President U Thein Sein delayed it very early in his term of office. Myanmar has stated that it was hoping to engage western firms in the future development of hydropower in Myanmar. According to the Myanmar Times, U Mar Thaw Htwe, Deputy Minister for the Ministry for Electric Power in early September stated, “The trend for hydropower project implementation is to turn to Western companies […] who have reliable construction quality and financing.” Additionally, Myanmar has already begun the process of starting some of these projects as they have already signed agreements with foreign companies to start four hydropower projects. Myanmar has also signed memoranda of understanding for another 19 projects. Eight of the 32 projects remain in the proposal stage. Currently, only about 30 percent of Myanmar’s population has access to reliable energy, 70 percent of which comes from hydropower. Myanmar sees the further development of their hydropower capabilities as a key component in meeting the energy needs of the country.

To read the Council’s latest Myanmar update, please click here.

Philippines

The Council is organizing its annual business mission to the Philippines October 22 –23. October 24 will be a Mini-Mission focused specifically on infrastructure. For more information on the mission, please contact Daniel Henderson at dhenderson@usasean.org.

The Council organized a roundtable discussion with President Aquino on September 23 during his trip to New York for the United Nations General Assembly meetings. President Aquino was accompanied by eight members of his cabinet, including Foreign Secretary Albert Del Rosario, Secretary Domingo of the Department of Trade and Industry and Secretary Purisima of the Department of Finance. Areas of discussion included the Philippines hosting APEC in 2015, empowerment of SMEs, harmonization of rules in preparation for AEC 2015 and fostering inclusive economic growth in the Philippines. The Aquino administration's reform agenda will continue, focusing on developing proper interaction between different levels of government, streamlined customs processes and reliable and sustainable energy sources and infrastructure.

The Philippines' economy grew by 6.4% in Q2, up from 5.6% in Q, making it one of the fastest growing Asian countries this year. This healthy growth was in large part due to the strong 10.8% expansion of the manufacturing sector, which is expected to drive economic growth in the second half of the year. Manufacturing has been boosted by high external demand, robust household consumption, and continued interests from foreign investors. Growth in the Philippines’ manufacturing sector is music to the government’s ears as it moves forward with the implementation of the Manufacturing Industry Roadmap led by the Department of Trade and Industry.

For the Council’s latest Philippines updates, please click here.

Singapore
Singapore's Jurong Rock Caverns - Southeast Asia's first underground petrochemical storage facility - was officially opened on September 2. Prime Minister Lee Hsien Loong commented that the effort, which cost 30 percent more than building it above ground, demonstrates Singapore's commitment to growing its petrochemical industry despite land constraints. Singapore aims to double its petrochemicals production by 2030, and is setting aside up to 40 percent of its reclaimed land on Jurong Island for new petrochemical plants. In that light, it is prudent for Singapore to move less profitable oil storage facilities underground. Two of five underground caverns have been operational since March, and when all are ready by the end of 2016, Jurong Rock Caverns will be able to store almost 1.5 million cubic meters of oil, or the equivalent of 600 Olympic-sized swimming pools.

To read the Council’s latest Singapore Update, please click here.

Thailand
The Council is organizing its annual business mission to the Thailand November 3 –4. For more information on the mission, please contact Praab Pianskool at praab@usasean.org.

The US-ASEAN Business Council organized a discussion with Deputy Prime Minister and Foreign Minister Thanasak during his visit to New York for the UN General Assembly meetings in September. The Deputy Prime Minister encourages the private sector to maintain its confidence in Thailand as a key investment destination in Southeast Asia. The new Cabinet approved by the King in early September will move forward with plans to approve key projects that have long stalled, including billions of dollars in infrastructure projects. The government will also work to solve the long-standing challenge of the Overlapping Claims areas in the Gulf of Thailand with its neighbor Cambodia.

For the Council’s latest Thailand updates, please click here.

Vietnam
The United States partially lifted a long-time ban on lethal weapon sales to Vietnam to help it improve maritime security, a historic move that comes nearly 40 years after the end of the Vietnam War. "The State Department has taken steps to allow for the future transfer of maritime security-related defense articles to Vietnam," State Department spokeswoman Jen Psaki told a briefing. The move represents a move toward completely normalizing U.S.-Vietnam relations. State Department officials told a separate briefing that the decision would ease a ban on sales of lethal weapons to Vietnam that has been in place since the end of the Vietnam War, although only for maritime security purposes at this point.

For the Council’s latest Vietnam updates, please click here.