President's Newsletter - December 2014

Despite the fast-approaching holidays, there is still a great deal of activity here at the Council.  We have just completed an innovative event in Singapore, a Human Capital Forum designed to work on supporting ASEAN countries in the creation of a 21st century workforce.  You can read some of the press coverage here.  This week, our sold-out Indonesia mission is visiting Jakarta and we are hosting a briefing with Senior ASEAN Commerce officers here in D.C.

Highlights

The Council is holding a briefing December 11 in Washington, DC for two Senior Commerce ASEAN staff members, Cherie Rusnak, the Director of the Office of ASEAN and the Pacific Basin in Washington, and Maggie Hanson-Muse, who will take over for Patrick Santillo as Minister Counsellor in the U.S. Embassy in Singapore and Senior Regional Commercial Officer for ASEAN. There will be call-in available.  Members can RSVP here.

Membership

We are pleased to welcome Merck Group and Facebook, bringing total Council Membership to 148 companies.

Merck Group (Merck KGaA – a separate company from current member Merck & Co.) develops, makes and sells biotech pharmaceutical and chemical products for global consumption.  Name-brand prescription drugs include treatments for cardiovascular disease, cancers, fertility, and neurological disorders.  Aside from drugs, the firm makes specialty chemicals, including laboratory reagents and cosmetic ingredients, as well as liquid crystals for televisions.  The company is known as EMD in the US and Canada.

Facebook is a social networking platform which enables users to share ideas, opinions, pictures and activities.  The company operates globally with offices or data centers in more than 25 different countries.  Facebook is headquartered in Menlo Park, California and employed 6,337 employees as of December 31, 2013.

Regional Highlights

Customs
Development of single-window customs clearance systems in ASEAN continues, with Vietnam unveiling its first steps toward a national electronic single window on November 12.  Businesses moving goods through the ports of Hai Phong, Ho Chi Minh City and Ba Ria-Vung Tau Province will now be required to submit documents through an online portal for clearance.  The system, however, is not yet connected to all relevant ministries.  Upon launch it could only handle documents for the finance and transport ministries while the Ministry of Industry and Trade is expected to be connected soon.  The health, agriculture and natural resource ministries will not be added until the second quarter of 2015.  It takes about 21 days to clear customs in Vietnam but the government expects that if the single-window is successfully implemented, it will reduce that time to 3.5 to 4 days.  In the past few years, Vietnam has noticeably reduced regulatory burdens in cross-border trade and successfully launched an electronic processing system for the customs department.  Vietnam hopes its reforms will meet ASEAN-6 standards by 2015.  ASEAN views the single-window project as the centerpiece of its AEC 2015 trade facilitation blueprint, but implementation progress has not been uniform.  Only Malaysia and Singapore have fully developed systems, while Indonesia, the Philippines, Thailand, Brunei and now Vietnam have partially implemented single windows.  Cambodia, Laos and Myanmar are further behind.  Given these shortfalls, the ASEAN Single Window is still far from being operative and upon launch next year, it will have a very limited scope.

Energy
Global oil prices have taken a tumble and this has caused the Indonesian government to reassess its subsidized fuel policy to ensure that consumers are not overpaying for fuel.  This reassessment comes about a month after President Joko Widodo announced that the government was going to ease the fuel subsidy in an attempt to save enough government money to fund future government projects and to reduce the current account deficit.  Now that global prices for crude oil have dropped about 10 percent, the current price for gasoline is valued at Rp 8,000 per liter, lower than the current price at the fuel pump, Rp 8,500.  In speaking on the government’s plans to re-adjust the fuel subsidy, Energy and Mineral Resources Minister Sudirman Said stated, “We keep reviewing fuel prices and will coordinate with the finance ministry to recalculate and find an effective subsidized price.”  The easing of the government subsidy has been met with opposition from both the public and some politicians.  The falling of global prices will allow the Joko Widodo administration to reduce government spending on the fuel subsidy without causing consumers to feel a significant burden at the fuel pump, helping dampen the voice of those who oppose the increase in fuel prices.

Defense & Security
At the APEC Summit on November 12, following many hours of discussion between U.S. President Barack Obama and Chinese President Xi Jinping, the U.S.-China Memorandum of Understanding (MOU) on the Rules of Behavior for the Safety of Air and Maritime Encounters was announced.  The MOU is seen as a step forward in a region that has seen a number of high-profile incidents, as China looks to expand its capabilities and the United States “rebalances” to Asia.  In each of these incidents, China is alleged to have made challenges against the U.S. Navy while operating within and around China’s Exclusive Economic Zone (EEZ).  This comprises the 200 nautical mile around a country’s shoreline, within which a state has special rights regarding the exploration and use of marine resources.  Similar discussions continue around a “code of conduct” for the South China Sea, governing China’s encounters with ASEAN nations.

President Aquino of the Philippines announced on November 17 that the Philippines intended to spend more than US$2 billion on defense procurement before 2017, a substantial increase for a nation often perceived as underinvesting in defense.  The Aquino administration has already spent as much on defense procurement as its three predecessors combined.  Priority target areas for the Philippines are maritime domain awareness and naval and aviation capabilities.

Financial Services
In a November 5 keynote speech from the 2014 Asia Securities Industry and Financial Markets Association conference entitled “Integrating Asia’s Capital Markets,” Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, highlighted ASEAN’s growing middle class and infrastructure investment requirements as key drivers to regional financial services expansion.  Loh forecast demand for financial services products in Asia to rise proportionally to household income, with assets under management reaching approximately US $176 trillion by 2020 and less dominated by high-net-worth individuals.  Ongoing market integration is proceeding at two levels, among regional jurisdictions and between participants, according to Loh.  A jurisdictional example is the ASEAN Banking Integration Framework, which when completed will liberalize banks’ expansion into neighboring markets and thereby enhance banking services available to both consumers and SMEs.  Loh also highlighted the ASEAN Trading Link, which allows trilateral stock-market access between Singapore, Malaysia and Thailand, as well as the implementation of common disclosure standards in bond markets to enable issuance across ASEAN markets based on one prospectus.  Noting that continued innovation in regional financial services will offer investors greater investment options, Loh also focused on the use of financial products for regional economic development.  Infrastructure finance centers such as the World Bank Group Singapore Hub and Asian Infrastructure Centre of Excellence, she stated, can make infrastructure financing vehicles more accessible to investors seeking access to the US $300 billion of bankable projects in Asia.  The resulting infrastructure improvements would drive broad-based economic growth throughout Asia and further increase the need for financial services.  Loh also touched on the role of insurance in natural catastrophe mitigation and the gradual expansion of OTC derivatives markets in Asia as evidence of strengthening Asian capital markets.  The speech can be read in full here.

Infrastructure
On November 13, leading global development banks publicly endorsed a G20 initiative announced in September to create a Global Infrastructure Initiative (GII).  The GII Hub will be based in Sydney and its primary role will be to erase the often sizable information gap between infrastructure projects in need of capital investment and international investors lacking sufficient information on bankable projects.  Both G20 and non-G20 governments will be free to use the Hub’s services for their respective infrastructure development needs.  To achieve its objectives, the GII will work with governments, the private sector, development banks and other relevant stakeholders to overhaul infrastructure markets for improved efficiency.  The World Bank, IMF, Asian Development Bank, African Development Bank and other international financial institutions, which together provide approximately $130 billion annually in infrastructure finance, acknowledge the GII as a necessary facilitator for providing information to channel private capital to those growth-creating projects that governments lack funds to finance.  The World Bank estimates that there is currently a $1 trillion annual gap in worldwide infrastructure financing.  The G20 considers increased infrastructure development worldwide, and especially in developing countries, as crucial to stimulating demand and boosting productivity levels.  The GII Hub in Sydney is planned to be opened as quickly as possible.  Its annual budget of $10 to $15 million will be funded by voluntary contributions from G20 members, and the GII will have a four-year mandate.  The G20’s outline of the Global Infrastructure Initiative can be found here.

Cambodia
On November 12, Cambodia raised the minimum monthly wage for garment workers to US$128 from US$100.  The hike fell short of labor group demands of as much as US$177, which had been consistently rejected by government and factories during negotiations.  Cambodia’s garment sector, which contributes to 70 percent of exports, has seen a series of strikes and protests over working conditions at factories that produce items for top international brands.

Indonesia
On behalf of the Indonesian Embassy in Washington D.C. we invite you to take a few minutes to complete a survey to share your feedback on current investor sentiment on doing business in Indonesia.  Results of this survey will be compiled by the Embassy and shared with key government counterparts in Jakarta.  The survey can be found here.  Responses are appreciated before December 11. 

After weeks of discord in the Indonesian Parliament, agreement has finally been reached on how to resolve fighting over leadership positions held within the House of Representatives (DPR).  On November 17, an agreement was reached after negotiations involving leaders of the ruling Great Indonesia Coalition (KIH) and the opposition Red-and-White Coalition (KMP) that consists of five points that will result in revisions to the 2014 Legislative Institutions (MD3) Law regulating distribution of power among the political factions in the House.  The agreement states that all revisions were to be made before December 5.  The agreement is a positive development as protracted feuding had concerned investors that a dysfunctional Parliament or an emboldened opposition could hamper the government’s ability to work effectively and push through reforms.

President Jokowi has appointed a new head energy regulator to the Upstream Oil and Gas Regulatory Task Force (SKKMigas) to restore investor confidence and improve the reputation of the energy sector.  Amien Sunaryadi will replace the acting chairman of SKKMigas, Johannes Widjonarko.  Energy and Mineral Resource Minister Sudirman Said stated, “SKKMigas needs to be managed by a fighter, and in my opinion Sunaryadi can be categorized as a fighter.”  The appointment of Sunaryadi, a former senior official at the Corruption Eradication Commission (KPK) with a good anti-corruption reputation, marks a change in the direction of SKKMigas, one that seeks to rid the energy sector of corruption and corrupt actors.  The Energy Minister also appointed economist Faisal Basri as the head of the reform team for the oil and gas sector.

Malaysia
Malaysia assumed chairmanship of ASEAN at the close of the ASEAN Summit in Nay Pyi Taw on November 13.  Prime Minister Datuk Seri Najib Razak called for a more “people centered ASEAN” as the region prepares for the ASEAN Economic Community (AEC).  The launch of the AEC at the end of 2015 will be at the front of Malaysia’s agenda as they lead the development of ASEAN’s 10-year post-AEC plan to guide ASEAN’s continued growth. If it can deliver on its promises, the birth of the AEC under Malaysia’s watch could become something of a legacy project for Prime Minister Najib, who has pledged that his country’s leadership will see ASEAN focus on people-centered initiatives like supporting SME development, advancing sustainable growth, and taking action on climate change.  Even while Myanmar officially held the chair in 2014, Malaysia was still playing a leading role in the union, pushing for improvements to ASEAN’s governing institutions.  Malaysia’s upcoming two-year term on the United Nations Security Council may also become a platform for advancing ASEAN, as Malaysia seeks to peacefully manage disputes in the South China Sea, improve air traffic safety, and advance the role of developing countries in the 2015 Paris climate change talks.  Following the transition of the ASEAN chairmanship, the ASEAN Business Advisory Council handed over its chairmanship from ASEAN-BAC Myanmar to ASEAN-BAC Malaysia.  Speaking at the ceremony on November 19 in Kuala Lumpur, ASEAN-BAC Malaysia Chairman Tan Sri Dr. Mohd Munir bin Abdul Majid said he would work on resolving national measures that hindered the realization of the AEC and called on the cooperation of the private sector to achieve ASEAN’s goals.

On November 11, Bank Negara Malaysia and the People’s Bank of China (PBoC) announced a Memorandum of Understanding for the creation of a renminbi clearing bank in Malaysia.  With this agreement, Malaysia will become the first emerging market in ASEAN to host a bank for renminbi clearing and settlement.  The PBoC did not immediately announce which Chinese bank would host the clearing facility, but insiders have reported that it will be the Bank of China.  Malaysia is the 11th largest settler of renminbi trades.  It is projected that Malaysia’s ranking will continue to improve, as the volume of goods and services trade between Malaysia and China continues to grow – amongst ASEAN members, settlements of renminbi trades are highest in Malaysia.  As more Chinese money flows through Malaysian banks, the new clearing system can be expected to further boost the importance of the Malaysian financial sector in Southeast Asia in the lead up to the ASEAN Economic Community.  In 2010, the ringgit became the first currency to be directly traded with the renminbi on the China Foreign Exchange Trading System and it is now the first emerging market currency in Asia to receive its own clearing bank.  As part of their slow campaign to internationalize the renminbi, China has also recently announced clearing banks in Toronto and Qatar, while on October 27, the Singapore dollar became the ninth currency to be directly convertible to renminbi following the U.S. dollar, euro, Japanese yen, British pound, Australian dollar, New Zealand dollar, Russian rouble, and Malaysian ringgit.

Myanmar
Myanmar’s chairmanship of ASEAN concluded after the November completion of the ASEAN Summit and the East Asia Summit.  Overall, Myanmar’s chairmanship successfully kept the ball rolling on major issues and avoided any significant setbacks on ASEAN unity around issues like the South China Sea.  Logistical issues were sometimes challenging, in particular the slow pace of information around the scheduling of events, but Myanmar significantly upgraded its capacity to handle international visitors and provided many with a positive impression after hosting the impressive roster of VIPs who attended the East Asia Summit.  Myanmar will now be able to redouble its attention on its own internal reform issues, with a particular focus on national reconciliation before the 2015 elections. Three major issues currently dominate the landscape: 

• Constitutional Reform:  Following the summit meeting between Myanmar’s various power centers, including the President, Daw Aung San Suu Kyi, the military and representatives of the armed ethnic groups, Speaker of the Lower House Thura U Shwe Mann threw cold water on speculation that charter change could take place before the 2015 election.  President Obama offered strong support for Aung San Suu Kyi during his visit, clearly putting his weight behind the eventual change of the charter and saying that the law barring her from the Presidency “doesn’t make much sense.”  It is worth remembering that the Presidency in Myanmar is an appointed position and one cannot truly “run” for it.  A political party winning a large majority in the Lower House will have a substantial, but not insurmountable, advantage in controlling the appointment process.
   
• The Peace Process:  Clashes between the Tatmadaw and the Kachin Independence Army have flared up again, with reports indicating that 23 cadets from various ethnic armies were killed when the Kachin military academy was shelled.  The Kachin State Minister of Border Security reported that the shelling in retaliation for a KIA attack on a road construction crew was intended as a warning, and the killing of the cadets was accidental.  The incident illustrates the nature of the Burmese border conflicts where Tatmadaw units and Ethnic Armed Groups operate in close proximity to one another and small incidents have the potential to easily escalate into more significant clashes, disrupting the peace process.
   
• The Rohyinga Issue:  NGOs called upon President Obama and UN Secretary General Ban Ki Moon to address the Rohyinga issue during their visit, with a social media campaign focused around asking them to “say their name.”  The UN Secretary General faced criticism for referring to the issue only euphemistically, but President Obama tackled it head on, saying discrimination against Rohyinga “does not express the kind of country Myanmar wants to be.”  His repeated emphasis on the issue did not generate any specific promises from the Burmese, although Minister in the President’s Office U Soe Thane did address it in his November 13 New York Times op ed, saying Myanmar would release a revised action plan but asking for time to change.

In a November 20 interview with Voice of America that can be read here, President U Thein Sein firmly defended the government’s stance on all three issues, and indicated that he felt international pressure was overblown and not reflective of on-the-ground realities.

Philippines
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. An enacted, CMTA would work toward Customs Commissioner Sevilla’s commitment, made publicly in October, to reduce processing time of imports to four hours and create a “streamlined, predictable and efficient” Bureau of Customs.

The Central Bank’s Monetary Board approved the rules implementing a signed law earlier this year that liberalized the entry of foreign lenders into the Philippines and allows 100 percent foreign ownership of domestic banks.  Bangko Sentral ng Pilipinas (BSP) said, “With the approval of the IRR (implementing rules and regulations), additional foreign banks can now apply to operate in the Philippines either as a branch or as a wholly-owned subsidiary.”  Republic Act No. 10641, or An Act Allowing the Full Entry of Foreign Banks in the Philippines, allows more foreign banks to operate in the Philippines through any one of the following modes of entry: acquiring, purchasing or owning up to 100 percent of the voting stock of an existing bank; investing in up to 100 percent of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or establishing branches with full banking authority.  The new law could provide a boon for increased FDI to the country with BSP Governor Amando M. Tetangco, Jr. saying, “Implementing the new law comes at an opportune time because the foreign banks can be vehicles for foreign direct investments into the Philippines at a time when we have attained investment-grade rating while also preparing further for regional integration.”  A key point to note in this law is that although foreign banks can own up to 100 percent of a domestic bank, the new law also mandates the BSP to keep a ceiling on assets held by foreign banks at 40 percent of the whole banking system’s resources, higher than the previous cap of 30 percent.  This means domestic banks should, at all times, hold at least 60 percent of the system’s resources.

​The House Committee on Energy voted in favor of a joint resolution that would grant emergency powers to President Aquino to address the anticipated power shortage next year.  The bill, House Joint Resolution 21, authorizes Aquino to generate additional power-generating capacity, as mandated by Republic Act No. 9136 or the Electric Power Industry Reform Act (EPIRA).  The House is expected to approve the joint resolution by the end of the month.  The Senate chamber has put a hold on passing a resolution to address the impending power shortage until the 2015 national budget is passed.  In addition to granting emergency powers to abate the power crisis, the Department of Energy (DOE) is asking firms to sign up for the Interruptible Load Program (ILP), which calls on businesses with loads of at least 1MW to run their own generator sets, if needed, instead of drawing power from the grid.  So far, more than 30 business establishments have registered for the program, but the DOE is calling on more firms to sign up.  The business community in the country has welcomed the proposal saying it would help alleviate the power shortage while encouraging the use of their own power generators.

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

Singapore
As of October 28, the Singapore dollar (SGD) is directly tradable with the Chinese yuan (CNY).  The SGD becomes the 11th foreign currency present on the China Foreign Exchange Trade System platform, and its addition obviates changing 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 and 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. 

Thailand
The Minister of Justice announced that Thailand’s martial law will not be lifted for the foreseeable future, despite an earlier pledge to lift the law in some provinces to help the tourism industry, one of Thailand’s largest, which has struggled since the military coup in May.  "Martial law is necessary and we cannot lift it because the government and junta need it as the army's tool," Thai Justice Minister General Paiboon Koomchaya said.  All political protests are banned under the law, but that has not stopped some university students from staging protests against the junta this week by flashing a three-finger salute, a gesture adopted from The Hunger Games films.  Last week, United Nations Secretary General Ban Ki-moon expressed concern over the continuation of martial law in Thailand and urged the government to ensure a prompt return to civilian rule and constitutional order during a meeting with PM General Prayut Chan-ocha on the sidelines of the ASEAN Summit in Nay Pyi Taw, Myanmar.

Thailand will lose an estimated US $3.62 billion worth of trade in the Chinese market to Cambodia, Laos, Myanmar and Vietnam over the next five years due to the ASEAN neighbors’ better labor competency and higher manufacturing quality.  Further, Thai exports to China will likely shrink by 117 billion baht over the next five years as a result of liberalization under the ASEAN Economic Community (AEC).  Thailand is heading for a second straight year of slumping exports, something the one-time tiger economy hasn’t experienced in at least two decades and a loss that magnifies challenges for the military-run government.  While Thailand has grappled with political instability and record flooding in recent years, rivals Vietnam and the Philippines have seen exports climb. The Thai government has unveiled a stimulus package of about US $11 billion to provide cash handouts to farmers and pledged to accelerate budget spending to boost consumption.  With this, Thailand will still need to do more to attract investors. 

There has been a considerable amount of discussion around a proposed Amendment to the Foreign Business Act (FBA), which has been misinterpreted by some foreign investors and has led to concerns that the military leadership could enact changes that would negatively impact businesses in Thailand.  The Ministry of Commerce has reassured foreign investors by issuing a statement indicating the Ministry is currently in the process of studying the existing FBA and gathering viewpoints and opinions from the relevant government agencies and private sector to ensure the current law reflects economic priorities accurately. The National Legislative Assembly (NLA) has announced it will proceed with impeachment hearings on January 9, 2015 against Yingluck Shinawatra over her role in the rice-pledging scheme.

Seven of Princess Srirasmi’s (the wife of Thailand's Crown Prince Vajiralongkorn) relatives have been arrested and accused of misusing their royal status to amass vast wealth and carry out numerous abuses.  The crown prince himself has now made the disgrace official by ordering her family to stop using the name Akrapongpreecha, which he gave them after he married Princess Srirasmi in 2001. A high-level graft investigation has enveloped several senior police and military officials, and has implicated the relatives in question.  Charges include money laundering, oil smuggling, extortion and illegal casino running.  The alleged ringleader of the operation, Lt. Gen. Pongpat Chayapan, is Srirasmi’s uncle.

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

Vietnam
On November 17, Ambassador Ted Osius was confirmed as the next US Ambassador to Vietnam by the U.S. Senate, after President Barack Obama nominated him for the position in May.  Ambassador Osius was most recently a professor at the National War College.  He has served in Asia -- Indonesia, India, Thailand, the Philippines, and Vietnam -- for most of his 25 years in the Foreign Service, and says that this position is “a dream come true.”  Osius has traveled all over Vietnam and once rode a bicycle 1200 miles from Hanoi to Saigon. “Early in my career I had the privilege of supporting Pete Peterson, the first US Ambassador to Vietnam following normalization, as he laid the foundation for a new relationship between our two nations,” said Osius.  “I represented Vice President Al Gore on the team that prepared a bilateral trade agreement with Vietnam, and I accompanied President Bill Clinton on his historic visit there.”  Ties between the United States and Vietnam have grown significantly since the two countries restored diplomatic relations in 1995.  Departing Ambassador David Shear, who concluded his mission as U.S. Ambassador to Vietnam last August, now serves as Assistant Secretary of Defense for Asian and Pacific Security Affairs.  For a copy of Ambassador Osius' bio, please click here.  For Ambassador Osius’ “Hello” video on YouTube, please click here.

Vietnam is expected to become the largest ASEAN supplier to the United States by the end of 2014 – with a net export value of around US $29.4 billion – per a study completed by the American Chamber of Commerce.  Vietnam increased trade to the United States 36-fold since 2000 from a base export value of US $800 million.  In the last 14 years, Vietnam has made tremendous economic progress and now accounts for 22 percent of ASEAN’s trade to the United States.

On November 28, the eighth session of the 13th National Assembly (NA), spanning 33 working days, concluded.  As a result of the session, 18 laws and 11 resolutions were passed, while 12 other draft laws and many important socio-economic issues were considered.  Most of the passed laws aim to improve economic institutions, state organizations, human rights, citizens’ responsibilities, administration and judicial reform.  They are also aimed at the renovation of programs around education, science and technology and the environment and the consolidation of national defense and society security programs.  The passed laws included revised investment and enterprise laws, state capital use laws and several laws on tax and finance.  Among the passed resolutions were votes of confidence for people holding high level posts, improving the effects of economic restructuring in several different sectors and industries, the ratification of the United Nations Convention against Torture and Other Cruel, Inhumane or Degrading Treatment or Punishment and on the Convention of the Rights of Persons with Disabilities.

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