Amb. Ted Osius
President & CEO
US-ASEAN Business Council
November has been another significant month in US-ASEAN relations as President Obama returned to Myanmar for the East Asia Summit. You can read more about the current situation in Myanmar in our recent Myanmar updates. A council delegation visited Naypyitaw last week to participate in the ASEAN Business and Investment Summit, and another group headed to Beijing to participate in the APEC CEO Summit and various sideline meetings.
As members may know, this month we lost another leading light in US-ASEAN relations, as Council co-founder and Chairman Emeritus Rod Hills passed away. You can read a longer note on Rod and his contributions to the Council by clicking here.
Highlights
Indonesia
The Council’s Indonesia Business Mission will take place December 9-11. Interest in this year’s mission has been very high, and spots are now sold out. For information about the mission please contact Alex Stuart at astuart@usasean.org.
On October 20, Joko Widodo (known as Jokowi) was inaugurated as the seventh President of the Republic of Indonesia and Jusuf Kalla as his Vice-President. President Jokowi took office as President Yudhoyono stepped down after serving two five-year terms. To watch the video and read a full transcript of his inauguration speech please click here.
A week after his inauguration, President Jokowi announced that his cabinet will consist of 34 cabinet positions, including four coordinating ministers. For a list of cabinet members please click here.
Food and Agriculture Mini Mission to Vietnam
The Council will conduct a Food and Agriculture mini-mission to Hanoi on December 3. Members who are interested are requested to contact Sunita Kapoor at skapoor@usasean.org.
Forum on Human Capital and 21st Century Skills Development in ASEAN
Council members across a wide range of industries have identified human capital and 21st century skills development in ASEAN as an increasingly important issue for their businesses. At present, U.S. companies face challenges with the demand for talent outpacing its supply and the need for further soft skills for recent graduates entering the work place. To explore these challenges across the region from a global private sector perspective, we are organizing a half-day forum to discuss human capital development, workforce readiness and labor policies across ASEAN with stakeholders and decision makers in the private sector, policy arena, ASEAN academic communities, and ASEAN youth. Themes such as curriculum and partnerships for job-ready graduates and entrepreneurs, and how to support the mobility of talent in a regionally integrated ASEAN will be explored via benchmarking standards for curriculum and work place readiness. The forum will also feature both the horizontal and vertical perspectives of the ICT sector as they relate to strengthening innovation ecosystems in ASEAN.
For more information please contact Kim Yaeger at kyaeger@usasean.org.
Membership
We are pleased to welcome First Solar, Nielson and AVM Software, bringing total Council Membership to 146 companies.
First Solar is a US based company, engaged in providing photovoltaic (PV) solar energy solutions. The company also designs, constructs, and sells photovoltaic (PV) solar power systems. The company operates in the US, Europe and Asia. It is headquartered in Tempe, Arizona and employs around 5,600 people.
Nielson is a global information and measurement company that provides clients with a comprehensive understanding of consumers and consumer behavior. It is headquartered in New York, New York and employs approximately 35,000 people.
AVM Software owns and operates a video chat community offering video and chat capabilities that facilitate virtual face-to-face interactions between individuals and groups. It is headquartered in Jericho, New York.
Regional Highlights
APEC
The Asia-Pacific Financial Forum has published their Interim Report to the APEC Finance Ministers with the 2014 APEC Business Advisory Council Report. The Interim Report contains concrete action plans in 12 areas that can significantly contribute to the advancement of tangible near-term goals within the financial sector. These initial steps can help expand financial access for small enterprises and consumers, finance trade and supply chains, develop deeper, more liquid and more integrated capital markets and mobilize more long-term investment. The Council’s Financial Services Committee would like to draw on this report to raise actionable recommendations during our upcoming business mission to Indonesia and we invite members to review this report and contribute feedback on which policy issues you would like prioritized in our meetings during the missions.
From November 8-10, the US-ASEAN Business Council attended the APEC CEO Summit as part of the U.S. APEC Business Coalition. On the sidelines of the Summit the Coalition held meetings with President Sang (Vietnam) and Minister for International Trade and Industry, Mustapa Mohamad (Malaysia).
Customs
Philippine Senate President Franklin M. Drilon has joined his House colleagues in stressing that the proposed Customs Modernization and Tariff Act (CMTA) be passed into law prior to the 2015 implementation of the ASEAN Economic Community (AEC). Philippines customs regulations were last overhauled in 1978 and the CMTA includes measures to move all customs documents, forms and receipts to a paperless electronic system. Modernized inspection methods of inbound cargo would also be mandated under the CMTA to more accurately assess duties and combat smuggling. The current draft of the bill before the House was submitted on October 21 and has been held there pending feedback from government agencies and business stakeholders. Electrification of the Bureau of Customs (BOC) would almost certainly help Customs Commissioner John Philip Sevilla root out corruption within the BOC, an agency identified within the country as particularly prone to corruption and unsatisfactory revenue collection. Additionally, an enacted CMTA would work toward Sevilla’s commitment, made publicly on October 23, to reduce processing time of imports to four hours and create a “streamlined, predictable and efficient” BOC. Congressional recognition of the need for passing the CMTA is commendable in and of itself. That Senator Drilon and his colleagues frame the issue in terms of better preparing Philippine industry to participate in the AEC indicates growing respect for the regional integration project now present in at least one regional capital. You can read our latest Customs update by following this link.
Defense
The U.S. State Department has 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 change in policy will remove a presumption of denial for lethal and potentially lethal exports that have maritime applications. Individual applications for export licenses will be evaluated on a case-by-case basis.
Energy
The Philippines is expecting a power crisis next summer with predicted electricity shortages ranging between 400MW and 1000MW. To deal with the anticipated increased demands on the grid, the government is looking to implement an interruptible load program (ILP) that would pay owners of large generators to continually run them, reducing the load on the grid. Critics of the ILP, however, claim that it will not go far enough. The Filipino Energy Secretary, Carlos Jericho L. Petilla, is also not convinced that the ILP alone will resolve the looming shortage because there are not enough incentives for companies to participate in the program. The House Energy Committee has recently pushed for approval of a joint resolution that would give more power to the executive branch to look at other measures to deal with the power crisis. The Senate Energy Committee though will likely seek to limit executive authority as the committee believes that the ILP is the best solution to the country’s energy problems.
Malaysia and Indonesia have both taken recent action to address the issue of fuel subsidies. In Malaysia, the government is currently working on a fuel subsidy rationalization program. The program will be split into three-tiers, dependent on monthly income. Those earning below RM5,000 will receive a full subsidy while Malaysians earning between RM5,000 and RM10,000 would be granted a partial subsidy. No fuel subsidies would be given to those earning RM10,000 or above. The full mechanism of the subsidy rationalization is still being studied by the Domestic Trade, Cooperatives and Consumerism Ministry. In his October 2015 Budget speech, Prime Minister Najib suggested that the government would roll out a new subsidy scheme designed specifically to benefit the country's low to middle-income earners. This latest proposal has been met with skepticism as critics say it will widen the government budget deficit, be hard to execute and is politically motivated to appease price-conscious voters. This proposed revised program emerged after Malaysia cut fuel subsidies in September 2013 and then again in October 2014 in order to shore up its finances. The most recent cut to the subsidies has sparked debate about the cost of living and inflation.
Similarly contentious, in Indonesia one of the first things on the list for President Joko Widodo is tackling fuel subsidies that currently consume approximately $20 billion a year of the state budget - money that is drastically needed for more productive investments in infrastructure, education and health services. Less than a month after taking office, and taking advantage of lower global oil prices, on November 17, President Jokowi announced a significant reduction in fuel subsidies. The move will raise domestic gasoline prices by around 31% and diesel prices by 36%. The central bank will likely raise its benchmark interest rate in order to counter short term inflationary shock.
As in the past, any increase in price will be accompanied by direct transfers to the poor as well as welfare packages distributed to offset the increase in the price of fuel. Increased fuel prices should help to lower Indonesia’s import bill for oil (affecting the current account deficit, and helping to arrest further decline of the rupiah) and facilitate a shift from an oil-based economy toward an economy based on domestically produced gas and other fuel sources.
ICT
On September 30, 2014, then-Indonesia ICT Minister Tifatul Sembiring issued the ICT Ministerial Regulation on the Registration of Electronic System Providers that details administrative registration requirements and defines public and non-private service providers. According to the regulation, entities categorized as public service providers will be required to establish a data center in Indonesia by 2017, per Article 17 in Government Regulation 82/2012.
Recognizing that sustained engagement with policymakers is critical given the rapidly evolving ICT regulatory landscape in Indonesia, the Council’s ICT committee has been actively engaging with key ICT industry stakeholders in the Indonesia ICT Consultative Forum (IICF), a joint initiative between the Council and the Indonesia Coordinating Ministry for Economic Affairs (CMEA). A key outcome of the IICF is the development of a report outlining the findings from the quarterly IICF meetings and recommendations for the new administration’s consideration. This paper will be delivered to senior government officials during the last IICF meeting for 2014, which is tentatively scheduled for December 12, alongside the Indonesia Business Mission (December 9-11). For questions regarding the IICF please contact Shay Wester at swester@usasean.org and Kim Yaeger at kyaeger@usasean.org.
Health & Life Sciences
Following the inauguration of Indonesian President Joko Widodo and Health Minister Nila Moeloek, the new administration is developing a new work plan outlining the policy priorities for Indonesia’s Health Ministry. Reported priorities include the rollout of the Universal Healthcare Coverage scheme, the health card scheme, and the scaling up of primary care systems. The Indonesian House of Representatives also recently passed the Bill on Halal Products that applies to drugs and biological products, among other consumables.
To take advantage of this watershed moment for healthcare in Indonesia, the HLS committee is preparing a Healthcare White Paper that will outline key focus areas for the new administration and identify where the private sector can have a positive effect in providing universal access to quality health services. This paper will be delivered to government officials during the Council’s Business Mission to Indonesia (December 9-11). If you would like to contribute to this paper, please contact Shay Wester at swester@usasean.org or Han Sufen at shan@usasean.org.
Financial Services
As of October 28, the Singapore dollar (SGD) is directly tradable with the Chinese yuan (CNY). The SGD becomes the 11thforeign currency present on the China Foreign Exchange Trade System platform, and its addition obviates the need to change either currency to U.S. dollars in order to make large purchases of the other. The resulting increase in price transparency and substantial reductions in transaction costs will both increase SGD-CNY use in cross-border trade and investment as well as incrementally internationalize the Chinese currency’s use in global trade and investment. China is currently Singapore's largest trading partner and Singapore is the leading provider of FDI into China. Potential increases in bilateral trade between the two countries are therefore large, and U.S. companies seeking to access Chinese goods and services markets for the first time can now more easily use Singapore as a home base for their operations. Singapore is already a world-leading foreign exchange trading center and stands to gain greatly from direct trading in terms of domestic financial product innovation as it vies with Hong Kong and up-and-coming Shanghai for regional financial prominence. In other bilateral developments resulting from the 11th Joint Council for Bilateral Cooperation, held in Suzhou, the Monetary Authority of Singapore (MAS) and the China Securities Regulatory Commission pledged to increase connectivity between the Singaporean and Chinese derivatives markets. MAS also plans to pair with the China Insurance Regulatory Commission to enhance products aimed at mitigating risk from natural catastrophes.
Cambodia
The Council held its annual business mission to Cambodia September 4-5. The business mission delegation included representatives from seven Council member companies: Apple, ConocoPhillips, GE, Moody’s, Oracle, RMA Group and Visa. The delegation focused on strengthening engagement with the Royal Government of Cambodia’s new cabinet, improving understanding of their policy priorities, expanding U.S. business engagement with public and private sector stakeholders during the policy formation process and supporting Cambodia’s preparations for the AEC 2015. To access the Council's 2014 Cambodia Business Mission Report, please click here. U.S. Ambassador William E. Todd highlighted the Council's business mission in an op-ed entitled "Investing in Cambodia’s Future – Bringing U.S. Business to Cambodia."
Indonesia
On October 20, Joko Widodo (known as Jokowi) was inaugurated as the seventh President of the Republic of Indonesia and Jusuf Kalla as his Vice-President. President Jokowi took office as President Yudhoyono stepped down after serving two five-year terms. To watch the video and read a full transcript of his inauguration speech please click here.
A week after his inauguration, President Jokowi announced that his cabinet will consist of 34 cabinet positions, including four coordinating ministers. For a list of cabinet members please click here. The role of Coordinating Minister for Maritime Affairs is a new position underscoring the elevated importance that the Jokowi administration will place on Maritime Affairs. Of the 34 names announced, 14 are from political parties that supported President Widodo’s campaign and 20 have professional backgrounds. The President has called for all ministers with party affiliations to step down from any roles they have in the party and for all ministers to undergo training from the Corruption Eradication Commission for greater transparency. To read the Council’s analysis of the cabinet please click here.
Delivering on a campaign promise, and taking advantage of lower global oil prices, on November 17, President Joko Widodo announced a significant reduction to fuel subsidies. The move will raise domestic gasoline prices by around 31% (from Rp. 6500 to Rp. 8500 ($0.80) a litre and diesel prices by 36% (from Rp.5,500 to Rp. 7500 a litre). On November 18 the Central Bank lifted its benchmark interest rate by 0.25 percent to 7.75 percent in order to counter short term inflationary shocks. Inflation is expected to increase between 2-2.5 percentage points in the short term. Approximately Rp. 276 trillion ($22.6bn) had been earmarked for fuel subsidies in the 2015 budget. This week’s price hike could save the government Rp. 15.5 trillion this year and more than Rp. 100 trillion next year. The rupiah rose 0.5 percent to 12,150 per dollar today and the Jakarta Composite Index gained 1 percent.
Malaysia
On October 16, Malaysia was one of five countries elected as a non-permanent member of the U.N. Security Council for the coming term. The country garnered 187 out of a possible 193 votes in the election process - well exceeding the two-thirds required to gain membership. Malaysia’s term as a member of the UN Security Council will begin January 1, 2015 and conclude December 31, 2016. Malaysia previously served as a member of the Security Council on three occasions in 1965, 1989, and most recently in 1999. Prime Minister Najib said in a statement after its accession, “with our Security Council seat, Malaysia will promote international peace and security by advancing a Malaysian vision of peace and moderation.” The Prime Minister outlined the country’s five priorities as member of the UN Security Council, which include: (1) advancing moderation globally; (2) advocating mediation as an approach to conflict resolution; (3) promoting UN peacekeeping operations; (4) facilitating the peace-building process in conflict zones; and (5) pursuing deliberations on the UNSC’s comprehensive reformation. Malaysia’s ascent to the Security Council is significant as it demonstrates that Malaysia is willing to take on greater leadership on the international stage. This appointment is also timely, as Malaysia will take on the Chairmanship of ASEAN in 2015 – positioning Malaysia as a regional leader as well.
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 proposal, Malaysia narrowed the budget shortfall to 3.9 percent of GDP 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. Speaking on Malaysia's desire to attract investment, Prime Minister Najib stated, “to remain resilient and competitive, Malaysia must move to an economy based on knowledge, high skills, expertise, creativity and innovation.” Najib continued noting, “economic planning and policies of a country need to be adjusted according to the developments and challenges in the domestic and external environment.” These statements send the clear message that Prime Minister Najib is committed to international trade.
Myanmar
Concern over cracks in the ongoing peace process with Myanmar’s armed ethnic groups, in particular with the Karen National Union, have led to diplomatic outreach from Ambassador Derek Mitchell and, on October 31, an unprecedented meeting between President U Thein Sein, Lower House Speaker Thura U Shwe Mann, NLD Leader Daw Aung San Suu Kyi, Tatmadaw Commander-in-Chief Senior General Min Aung Hlaing, and Khun Htun Oo, Head of the United Nationalities Alliance. Following the discussions, Presidential Spokesman and Information Minister U Ye Htut said that Myanmar would consider revising its constitution, in particular the military’s 25 percent share of Parliamentary seats, an effective veto on further constitutional change. Speaker of the Lower House Thura U Shwe Mann later clarified that any changes would not affect the results of the 2015 election, for which the current charter would remain in place. While the meeting was historic for bringing together different players, Daw Aung San Suu Kyi and other players downplayed its immediate significance and called for further small group talks. President Obama spoke separately to both President U Thein Sein and Daw Aung San Suu Kyi ahead of the October 31 meeting, calling for a peaceful, inclusive process leading towards the 2015 elections, but has stopped short of demanding that the constitution be revised to allow the NLD chairwoman to be a candidate for the Presidency. President Obama held bilateral meetings with both in Naypyitaw on November 12 and 13 during the East Asia Summit.
On, October 30, OFAC announced the addition of Lower House MP U Thura Aung to the SDN List. U Thura Aung is the former Minister of Industry, a confidant of retired Senior General U Than Shwe, and the father of two of Myanmar’s more visible tycoons. U.S. officials noted that he was added to the list because of long-standing concerns over his support for intolerant nationalist movements such as 969, and his involvement in direct persecution of Rohyinga Muslims. U.S. officials indicated to Council staff that the move does not signify any change in overall U.S. policy towards Myanmar or its government.
Philippines
The Council recently organized its annual Business Mission to the Philippines followed by a one-day mini- mission focused on Infrastructure. The delegation was able to engage with government officials to discuss the Philippines’ ongoing economic reforms, human capital development, infrastructure build-out and goals around the ASEAN Economic Community and the Philippines’ Chairmanship of APEC in 2015.
The Philippines continues to face a growing energy shortage crisis. President Aquino warned that if a projected power shortage expected next summer is not addressed, economic losses may reach from P9.3 billion to P23.3 billion for the season. President Aquino has asked Congress to pass a joint resolution granting him emergency powers to contract additional generating capacity in anticipation of the power supply shortfall. The House Committee on Energy has questioned the projected power shortages figures provided by the DOE and objects to calls for special powers that would enable the President to negotiate power supply contracts. The House has pushed for their own draft of a joint resolution for emergency powers that gives private entities with self-generating capacities (SGFs) the ability to sign up for the Interruptible Load Program (ILP) and qualify for reimbursement from the government for fuel expenses and other costs. Under the ILP, big industrial and commercial customers which have the ability to produce their own electricity through generating sets should cut off or reduce their electricity consumption, particularly during peak periods of the day, and instead use their own generator sets. President Aquino gave reassurances that his request for Congress to grant him emergency powers to procure additional generating energy capacity would only be used to tackle the projected energy shortage.
Speaker of the House Feliciano Belmonte Jr. has said he plans to file a resolution putting the proposed amendments to the economic provisions of the 1987 Constitution to a national referendum simultaneously during the 2016 national and local elections. Before it can be put up for a referendum, the resolution must pass both chambers of Congress with a required three-fourths vote majority. The proposed amendments include changing the 60-40 rule that limits foreign ownership of certain activities in the Philippines. Belmonte and supporters of the proposed amendments say it will provide further economic growth to the country because of increased foreign direct investment and boost competition for infrastructure projects. According to a recent survey, around three out of five Filipinos do not want the 1987 Constitution amended at this time, although nearly half of them are open to having it amended sometime in the future.
Thailand
The Council recently organized its annual Business Mission to Thailand. A delegation of 34 leading U.S. companies was able to engage government officials and learn more about the economic reform and stimulus measures being planned by the new government while encouraging pro-business measures that will promote Thailand as a destination for investment and trade.
US Ambassador to Thailand Kristie Kenney has announced that she will be leaving her post in November and returning to Washington, where she will serve as a Deputy Assistant Secretary of State for East Asia Pacific and the Pacific. Deputy Chief of Mission Patrick Murphy will lead the mission as Charge’ d’Affairs.
His Majesty the King, who is recovering after an operation to remove his gall bladder, signed a royal command to appoint the 250-member National Reform Council (NRC) despite allegations of nomination “fixing” in some provinces the previous week. The NRC will approve the new constitution and will plan how to reform various issues seen as holding back the country.
Members of the National Reform Committee (NRC) selected 20 individuals among themselves to be on the Constitution Drafting Committee, while another five members were chosen by lawmakers. The members, tasked with drafting the country’s Constitution, were chosen amidst debates of who should be included in the committee. The NRC consists of one person from each of the 77 provinces and 173 others chosen because of their knowledge and experience in certain fields. The 250 members were chosen by the National Council for Peace and Order; members come from a variety of backgrounds and hold a range of political views. The NRC rejected the idea of nominating non-NRC members as drafters of the new constitution, saying that nominating non-NRC members may negatively affect the drafting of the new charter and could lead to a new round of discord. Those who oppose this move argue that to ensure fairness to all and more widespread support for the new charter, drafters should come from as many groups as possible.
The National Energy Policy Committee, chaired by Prime Minister Prayuth Chan-ocha, approved the Energy Ministry’s proposal to open a new round of bidding for petroleum concessions for 29 onshore and offshore blocks next year, which is expected to draw investments of 5 billion baht and add more than 20,000 jobs over the next three to five years. The new bidding round will be the first since 2007. Since the move, anti-petroleum concession groups have filed a petition with the Central Administrative Court asking for an injunction on any activity involving the new bidding round. In response to this the Prime Minister ordered the National Reform Committee to discuss this issue and find a solution in two months.
Vietnam
In mid-October, Vietnam sent its Defense Minister to Beijing to address maritime disputes with China with the goal of reinforcing bilateral ties, which sank to a three-decade low this year after China deployed a $1 billion oil rig to the disputed waters. Additionally, Vietnam condemned China for its construction of an airstrip in the Spratly Islands. Vietnam has strongly advocated a multilateral approach, which has been reflected in ASEAN and U.S. support for a code of conduct governing interactions in the South China Sea. China reaffirmed its relations with Vietnam describing the traditional cooperation as the valuable treasure of the two countries that needs to be further promoted.
US Trade Representative Michael Froman traveled to Hanoi in late October to meet with his Vietnam counterparts on the Trans-Pacific Partnership (TPP) negotiations. President Sang and National Assembly leaders reaffirmed commitment to further developing trade and investment with the United States and restated the importance of the Trans-Pacific Partnership to Vietnam’s economic development. Ambassador Froman urged President Sang to ensure Vietnam complies with the international regulations on intellectual property, the environment, and labor and assured him that the United States will continue to support Vietnam on its path to becoming a prosperous economy deeply integrated into the global market.