Amb. Ted Osius
President & CEO
US-ASEAN Business Council
A happy new year to our friends in Cambodia, Laos, Myanmar and Thailand!
It has been a sad month with the death of Singapore’s founding Prime Minister Lee Kuan Yew and the tragic passing of Council friends Tan Sri Jamaluddin Jarjis (JJ), the Special Envoy and former Malaysian Ambassador to the United States, and Dato Azlin Alias, principal private secretary to the Prime Minister. You can read the Council’s statement on the death of Lee Kuan Yew here. You can read the Council Statement on the death of Tan Sri JJ and Dato Azlin here.
The upcoming month will be busy as we work towards major events such as our first Asia-Pacific Presidents’ Mission, which will visit Jakarta and Kuala Lumpur from May 4-7.
To ensure the Council has the proper capabilities in place, we recently announced some key promotions and hirings. You can read our press release on the Council’s newly minted Directors here.
As always, you can check out the calendar at the Council website to get a sense of our many upcoming events in Southeast Asia and Washington, D.C.
Highlights
Advocacy
A few upcoming Advocacy highlights:
- The Council has joined a TPA Business Coalition letter to the U.S. Congress advocating the value of including Investor State Dispute Settlement provisions in U.S. trade agreements.
- The Council in partnership with AMCHAM-Indonesia is developing a presentation to the Government of Indonesia advocating changes to their new regulations on local content requirements for 4G mobile devices. For more information contact Alexandra Stuart at astuart@usasean.org.
- The Council in partnership with other foreign and local business organizations in Indonesia is developing a letter to the GOI advocating changes to the Implementing regulations of their Halal Law.
- Japan’s Ministry of Economy, Trade and Industry (METI) informed the Council that the E-Commerce chapter of the Council’s Beyond AEC 2015: Policy Recommendations for ASEAN SME Competitiveness paper was referenced in the GOJ’s proposal to negotiate an E-Commerce chapter in the RCEP negotiations.
Intelligence
Our Indonesia team examined the possible fall-out from some of the nomination battles around President Jokowi’s choices for key positions. Read more here.
Our Myanmar team discussed the significance of the draft nationwide ceasefire agreement signed on March 31. Read the full take here.
The Defense & Security Committee has published a guidebook which complements the ongoing activities of the Committee. To access the 2015 Defense & Security Guidebook Q2, please click here. Members who are either new to ASEAN or the defense and security industry may gain an overview of the markets in advance of engagements organized by the Committee.
Relationship Building
Myanmar Business Mission
The proposed May dates for the Myanmar Business Mission have proved unworkable. The Council is pursuing new dates towards the end of June and will update members once we have confirmation.
Asia-Pacific Presidents’ Mission
The Council is organizing a business mission to Indonesia and Malaysia for Chairman's Council members at the Asia-Pacific Presidents level. The mission will seek to engage Heads of Government and Minister-level officials in both countries as well as the ASEAN Secretary General. Mission participation will be capped at 12 Chairman's Council companies. For questions, please contact Mads Stockwell at mstockwell@usasean.org.
The US-ASEAN Business Alliance for Competitive SMEs is a powerful way to support the growth of small businesses in ASEAN. The Business Alliance was created at the request of the ASEAN Economic Ministers, and the AEM receives regular updates on its progress. Please contact Mario Masaya at mmasaya@usasean.org for more information.
Promotion
ASEAN Ambassadors’ Tour
The Council is organizing the Annual ASEAN Ambassadors’ Tour from July 27-31. The tour will bring the ASEAN Ambassadors in Washington, D.C. to several cities across the United States to engage in conversations with member executives, participate in site visits, and meet with local government officials, business leaders, academics and media. Interested members should contact Mads Stockwell at mstockwell@usasean.org.
Annual Gala Dinner
The Council will be hosting its Annual Gala Dinner on Monday, June 15, in Washington, D.C. Additional details will follow. Interested members should contact Mads Stockwell at mstockwell@usasean.org.
Membership
Medtronic acquired fellow member Covidien in a merger that took place earlier this year. Following the merger, Medtronic decided to join the Chairman’s Council. These changes bring the current membership count to 149 members, with 64 Chairman’s Council and 85 Corporate members.
APEC
The Council hosted a discussion on April 14 on upcoming opportunities for private sector participation on the sidelines of the Second Senior Officials Meetings (SOM II) in Boracay later in May. These include proposed public-private dialogues (see below) as well as a dialogue alongside the Ministers Responsible for Trade (MRT) meeting. Council members heard from Ed Brzytwa, Director for APEC Affairs at the Office of the US Trade Representative. For additional questions please contact Alex Stuart at astuart@usasean.org and Maxie Crébassa at em.crebassa@usasean.org.
The Public-Private Dialogue (PPD) on Manufacturing, Agriculture and Environment-related Services on May 17 on the sidelines of SOM2 in Boracay is part of the 2015 PPD series designed to engage the public and private sectors, as service providers and users, in a fruitful discussion on how to increase the competitiveness of services in the Asia-Pacific region. You can find the latest notional agenda for the May 17 PPD here. If you have questions or are interested in nominating an expert resource/speaker for this PPD, please contact Cathy Maceda, Executive Director of ABAC at cathy.maceda@abac2015chair.com.
View the Council’s latest APEC updates
ASEAN
There are a number of future opportunities for engagement with the US-Business Alliance for Competitive SMEs. Please contact Mario Masaya at mmasaya@usasean.org to discuss opportunities.
A Council Delegation will participate in the 4th ASEAN-BAC joint consultation meeting with ASEAN +1 Business Councils in Kuala Lumpur April 25. In addition, the group will attend the ASEAN Summit opening ceremony on April 27. Members who are interested in attending should contact Ezani Mansor at emansor@usasean.org.
The Council is working with SME Corp to create a U.S. Pavilion at the ASEAN SME Showcase May 26-28 in Kuala Lumpur. Members who are interested in participating should contact Mario Masaya at mmasaya@usasean.org.
View the Council’s latest ASEAN updates
Customs
The Customs Committee is now registering members for the Council’s Mission to the 2015 ASEAN Customs Directors-General Meeting in Brunei Darussalam from May 20-21. The schedule will consist of two days of bilateral meetings and a formal consultation with the Customs Directors-General. If you wish to learn more about the mission or have not received an invitation, please contact Shay Wester at swester@usasean.org or Ian Saccomanno at isaccomanno@usasean.org.
The Philippine Senate has vowed to pass legislation (Senate Bills 1084, 1149 and 1404) by the end of June to create a new office tasked with formulating a cohesive international trade strategy. According to Senate President Franklin Drilon, the Philippine Trade Representative Office (PTRO) will be responsible for developing international trade policy and conducting negotiations. Lawmakers say the move is long overdue, particularly because the entity currently responsible for conducting trade negotiations, the Tariff and Related Matters (TRM) Committee, has no authority over APEC or ASEAN issues. The PTRO is also expected to curb the difficulties historically associated with the implementation of trade policy in the Philippines, such as the lack of cooperation among government agencies, research capacity and feedback mechanisms. At the same time, three panels in the Philippine House of Representatives have endorsed a measure liberalizing the access of foreign vessels to inter-island trade. The bill, SBN-2486, was conceived by the Aquino administration as a way to bolster trade. Under law, the right to engage in cabotage trade is restricted to Philippine-registered ships. The restrictions were intended to promote the development of the domestic freight sector, but businesses say the lack of international competition has contributed to high shipping costs. Under the proposed legislation, non-Philippine sea carriers would be allowed to carry cargo to any domestic destination after being cleared at their initial port of entry. Plenary debates on the bill will begin when Congress resumes on May 4. These bills are part of a wider trend to improve cross-border trade in the Philippines. The long delayed Customs Modernization and Tariff Act, which seeks to automate all customs forms and procedures, is finally expected to be passed this year. The Bureau of Customs has also been one of the focal points for President Aquino’s anticorruption efforts.
Myanmar has put forward tentative plans to establish a national single-window customs system, which will be ready for testing by the fourth quarter of 2015. At a meeting of the ASEAN Single-Window Steering Committee, U Tun Thein, Director General of the Customs Department, told the assembled delegates that they would soon begin designing the system and that it would be built on top of the Myanmar Automated Cargo Clearance System (MACCS). Myanmar began development of MACCS in 2014 for cargo clearance and risk management procedures with support from the Japan International Cooperation Agency (JICA). It is expected that JICA will continue working with the Myanmar Customs Department to further develop these systems. While the schedule proposed by U Tun Thein is optimistic, the move suggests that Myanmar’s government recognizes the importance of the ASEAN Single Window initiative.
View the Council’s latest Customs updates
Defense & Security
The Defense & Security Committee has published a guidebook which complements the ongoing activities of the Committee. To access the 2015 Defense & Security Guidebook Q2, please click here. Members who are either new to ASEAN or the defense and security industry may gain an overview of the markets in advance of engagements organized by the Committee. In addition to the Committee’s bi-monthly Defense & Security Updates and website resources, this document will be periodically updated to reflect changes in each ASEAN country. The Defense & Security Guidebook focuses almost exclusively on individual ASEAN members. However, highlights from the ASEAN Defense Ministers Meeting (ADMM) are discussed at the end of the guidebook. The information in this document is sourced from publicly available documents.
Newly-released images show that China is proceeding apace with the creation of another artificial island in the Spratly Archipelago. The Philippine Navy had reported in February the presence of Chinese dredgers at Mischief Reef, 135 kilometers west of the Philippines and well within that country's exclusive economic zone. The shoal, referred to as Meiji Reef in China, was previously under water; the only habitable area was a concrete platform built in the 1990s by the People’s Liberation Army Navy (PLAN). Washington has said it is aware of the construction work, which flies in the face of recent U.S. calls for a freeze in provocative activity in the South China Sea. Collectively, these facilities considerably enhance the PLAN’s ability to project force in the region, although their military utility against a credible opponent would likely be marginal. The unprecedented scale of reclamation at Mischief Reef, and the lack of fanfare with which it was executed, suggests a change in strategy on the part of Chinese policymakers. Since the HYSY 981 oil rig incident last May, Beijing has largely eschewed bellicose rhetoric and blatant displays of force, even as it has maintained the pace of construction. By avoiding international scrutiny, China hopes to delay the resolution of the South China disputes until its own domination of the region is a fait accompli.
In March, Reuters reported that Washington had asked Vietnam to stop letting Russia use Cam Ranh Air Base to stage air patrols in the Pacific region. State Department officials have characterized the flights as an apparent attempt to menace U.S. military assets in Guam, and say they are part of a global pattern of provocative behavior by Putin’s government amid deepening tensions over the crisis in Ukraine. The American demarche puts Vietnam in an awkward position. It is stated Vietnamese policy not to allow foreign powers basing rights, nor the use of its own territory to carry out hostile activities against other countries. At the same time, however, Hanoi is clearly loath to jeopardize ties with its long-time ally and primary source of military matériel. The easing last year of a 30-year embargo on lethal weapon systems does give Washington some leverage. In the event Vietnam does impose restrictions on Russian activity, Moscow’s response would be tempered by the fact that Cam Ranh is its only logistical hub in the region. For its part, China is likely to view any disruption to U.S.-Vietnamese rapprochement as a favorable outcome, even as it remains skeptical of Russia’s motives in Southeast Asia. Despite worsening ties with the West, moreover, Moscow has remained conspicuously silent on the subject of China’s various maritime disputes.
This year’s Langkawi International Maritime and Aerospace Exhibition witnessed several defense companies vie for Malaysia’s Multirole Combat Aircraft (MRCA) tender, though local officials remain tight-lipped on any final decision. Currently, the Malaysian air force operates an eclectic array of American and Russian airframes, necessitating two separate logistics systems. While this arrangement comported well with Malaysia’s strategy of diplomatic balance, it has historically led to inefficiency and low rates of operational readiness. The air force is due to retire its MiG-29 fleet by the end of 2015, leaving the country with a gap in multirole-capable platforms. In the meantime, the number of security challenges facing the country has multiplied. While the current political and economic climate complicates military modernization, the Najib administration has recognized the procurement of a modern, flexible fighter platform as an important priority. Details on the MRCA program remain limited, but the government has reportedly narrowed its selection to four candidates: Boeing, Dassault, Saab, and BAE. The various contenders have given inducements such as long-term repayments and lease options in an attempt to persuade the country to make a decision, thus far without success. Last week, Dassault reportedly offered Malaysia a 10-year bank loan to support a purchase of the company's Rafale fighter jet.
View the Council’s latest Defense & Security updates
Energy
The U.S. Department of State and USAID will lead a Renewable and Clean Energy Business Delegation to the Asia Clean Energy Forum 2015. The event will include an opening plenary on June 15, to be followed by a full agenda of panel discussions on June 16. Government representatives from the LMI member countries will offer perspectives on renewable energy needs and opportunities in their markets. U.S. government renewable energy experts from the Departments of Commerce and Energy will participate, along with experts from Ex-Im, OPIC, and USTDA to review project development and finance opportunities available through the U.S. government. Pre-registration is required and details on how to pre-register will be provided soon. General inquiries may be directed to Mr. Paul Ghiotto at GhiottoPA@state.gov.
The Indonesian Government has plans to install an additional 35GW of power generation capacity and add 50,000 km of transmission lines over the next five years. This will require US$ 83.5 billion in capital. The US-ASEAN Business Council will support the U.S. Embassy in Jakarta to establish a U.S. Power Working Group as a "Team USA" platform to help interested U.S. firms to support President Jokowi’s 35 GW power development plan. This will serve as a forum for U.S. firms to dialogue with the Indonesian government on how their products and services would contribute to Indonesia’s power infrastructure. The Power Working Group will be spearheaded by the U.S. Embassy in Jakarta.
View the Council’s latest Energy updates
Financial Services
I was pleased to co-lead the Council’s 2015 Senior Executives Business Mission to the ASEAN Finance Ministers and Central Bank Governors Meeting delegation with co-chairs of the Council’s Financial Services Committee (FSC), Juan Luis Ortega, Regional President of ACE in Asia Pacific and Michael Zink, Head of ASEAN at Citi. The 10-company delegation was comprised of ACE, Citi, Visa, GE, JPMorgan Chase, MasterCard, Moody’s, PayPal, Standard & Poor’s and State Street.
Co-hosts Minister of Finance II Husni and Governor Aziz of Bank Negara Malaysia announced at the meeting that from 2015 forward the two meetings will be joined and called the ASEAN Finance Ministers and Central Bank Governors Meeting. For the first time in 15 years of attending the AFMM, the Council’s delegation was honored to convene a working luncheon dialogue with attending finance ministers as well as attending central bank governors.
During the March 21 discussion, the Council’s FSC presented policy and program proposals on three topics addressed in detail in the committee’s briefing paper to the ministers and governors. Those policy themes are capital markets development and integration, digitization of financial services and data management, and financial inclusion for economic development.
View the Council’s latest Financial Services updates
Health & Life Sciences
On April 1, Malaysia’s new Goods and Services Tax (GST) of 6 percent came into effect amid continuing concerns about its impact on healthcare. While it was initially announced that healthcare would be exempt from GST, the reality is more complex. Public health services are exempted from GST, but private healthcare services and products fall under a number of categories and methods of taxation that will take some effort for private providers and patients to navigate. This issue is particularly salient for pharmaceutical products, which fall under three GST categories depending on the type of drug and place of purchase. The Royal Malaysian Customs Department recently revised the list of zero-rated medicines to include 4,215 medicine brands, up from 2,900 previously. Other drugs are exempted from GST when prescribed by a private doctor and bought from a hospital’s own pharmacy or the doctor’s private practice, but are subjected to GST if purchased at a retail pharmacy. These classifications may be made even more complicated if the Ministry of Health moves forward with its plan to introduce a hotly debated new Pharmacy Bill (see here under Council’s Take), which proposes the separation of prescribing and dispensing of drugs. While medical equipment is not currently GST exempt, on April 3 the Ministry of Health announced that it has submitted a list of 124 types of medical equipment to the Ministry of Finance for exemption, aimed at providing reprieve to private healthcare facilities trying to manage the additional costs. The Customs Department estimates that private health care costs will go up by 3-4 percent because of the GST.
Council members joined a meeting on March 27 to discuss the establishment of the HLS Working Group in Indonesia headed by the U.S. Embassy in Jakarta. U.S. Ambassador to Indonesia Robert Blake recently met with Minister of Health Professor Nila F. Moeloek. In the meeting the Minister agreed to establish a commercial health working group comprising representatives from the Ministry of Health (MOH), the National Drug and Food Control Agency (BPOM), the American Chamber of Commerce Indonesia (AmCham Indonesia), the US-ASEAN Business Council, the U.S. Embassy, and U.S. healthcare companies. The group would meet periodically and serve as a forum for discussion of policy and regulatory issues. If you have questions about the HLS Working Group, please contact Fatimah Alsagoff at falsagoff@usasean.org.
The Health & Life Sciences (HLS) Committee will hold its second quarterly committee call April 22 at 7:30AM Eastern Time/7:30PM Singapore Time.
View the Council’s latest Health & Life Sciences updates
ICT
Malaysian Communications and Multimedia Minister Datuk Seri Ahmad Shabery Cheek announced that amendments to the Communications and Multimedia Act of 1998 and Communications and Multimedia Commission Act of 1998 are expected to be tabled in October in an effort to strengthen laws against cybercrime. Although it is unclear how the laws will be amended, the Minister told Parliament that he is reviewing the acts and intends to update them to regulate the use of social media. The government aims to balance respect for individuals’ privacy with protection against cyberbullying, extremist propaganda/terrorist recruitment, bank fraud and phishing. The Council is currently exploring ways to engage the Ministry of Communications to ensure that these amendments do not restrict the free flow of data or impede business and investment.
According to Philippines Senator Ralph Recto, Chair of the Committee on Science and Technology, the Senate will pass legislation to create the Department of Information and Communications Technology (DICT) by June. The new department is expected to streamline information and communications technology without creating a cumbersome bureaucracy or burdening the taxpayers. Many local and foreign business groups have supported the proposed legislation in the last three sessions of Congress and expect that a dedicated ICT department will improve the country's e-governance, broadband quality and cyber-security infrastructure.
On March 20 in Hanoi, the Council hosted a Forum on the Policies and Regulations Governing the Management of Data in Vietnam. The Council is currently planning follow-up engagement with the Vietnam government on the importance of cross-border data flows and other issues affecting ICT development. For more information contact Kim Yaeger at kyaeger@usasean.org.
Planning for the 2015 Indonesia ICT Consultative Forum (IICF) is under way. More information on our 2014 activities can be found in the IICF Report that was delivered during the 2014 Indonesia Business Mission in December. In 2015, the IICF will build on last year's momentum to focus on understanding the impact of ICT across Indonesia’s key sectors while also reviewing existing government and regulatory processes to streamline them for greater business efficiency and enabling the rapid deployment of ICT to support the broader Indonesia economy. The 2015 IICF Work Plan identifies policy priorities and programs of engagement for the year. We are currently asking for feedback on the work plan, members to designate a lead or point of contact, as well as financial support. For more information please contact Kim Yaeger at kyaeger@usasean.org and Shay Wester at swester@usasean.org.
View the Council’s latest ICT updates
Infrastructure
According to a 2009 study by the Asia Development Bank (ADB), Asia will build an US $8 trillion market for infrastructure between 2010 and 2020. In addition, Asia needs to spend approximately US $290 billion on specific regional infrastructure projects in transport and energy that are in the pipeline. On the ASEAN front, CIMB Research identified that US $2.4 trillion will be required between 2014 and 2020. Less than 20 percent of this required investment can be financed by ASEAN governments due to fiscal and other policy constraints. The gap in required infrastructure investment can best be filled by private and international infrastructure investment. China is making a major step toward filling this gap with its proposed Asian Infrastructure Investment Bank (AIIB). The China-led multilateral development bank intends to reduce the funding gaps not currently met by global institutions such as the World Bank and the International Monetary Fund (IMF). Beijing’s promise to invest an initial US $50 billion in the AIIB indicated that it can become a serious alternative source of infrastructure investment in Asia. Speaking at the Center for Strategic and International Studies (CSIS) on April 7, World Bank President Jim Yong Kim endorsed Beijing’s new institution and stated that he will meet with Chinese officials to discuss the institution’s launch and development. After putting the launch of the AIIB high on the agenda ahead of next week’s World Bank and IMF spring meetings, Dr. Kim claimed more multilateral institutions are needed to tackle infrastructure in the developing world. In all, there are 34 founding AIIB members confirmed, including nine ASEAN countries. The Philippines remains a prospective founder with a non-binding agreement to join. Finance Secretary Cesar V. Purisima stated that the final decision will be made in June. Although the United States and Japan have chosen to refrain from joining for now, the new institution appears ready to become an influential actor in the Asia-Pacific region. Ideally, the new institution should adhere to the World Bank and Asia Development Bank’s leading standards on governance and transparency. Other key challenges surrounding poor infrastructure stock in ASEAN include inadequate stakeholder identification and prioritization of approved investment grade opportunities and lower than expected success rate for public-private partnership projects. World Bank President Jim Yong Kim’s speech at CSIS can be viewed here.
The 2015 Infrastructure Industry Mission to Indonesia has been rescheduled from April 7 to June 4. Infrastructure Committee Chair Caterpillar will be co-leading this mission with me. Meetings with Ministry of Transportation, Ministry of Public Works, Ministry of Energy and Mineral Resources, State Ministry of National Development Planning (BAPPENAS), Indonesia Investment Coordinating Board (BKPM), Ministry of Finance, Ministry of State Owned Enterprises, and Ministry of Communication and Information Technology are on the agenda. For more information, please contact the Council’s Infrastructure Manager, Sunita Kapoor at skapoor@usasean.org.
View the Council’s latest Infrastructure updates
Food & Agriculture
U.S. Trade Representative Mike Froman announced on March 18 that the United States would request a formal dispute settlement with the World Trade Organization over Indonesia’s agricultural trade restrictions. The U.S. and Indonesia have engaged in a two-year dispute over opaque and complex import restrictions in the implementing regulations of Indonesia’s 2010 Horticulture Law. The implementing regulations (Ministry of Agriculture Regulation 60 and Ministry of Trade Regulation 60) require Indonesian importers to obtain an Import Recommendation of Horticulture Products (RIPH) before applying for an Import Permit Letter from the Ministry of Trade. The Ministry of Agriculture has discretion on whether to issue an RIPH based on an assessment of domestic production and supply considerations. In addition, the horticultural products to be imported must be verified by Indonesian surveyors and/or their authorized agents in the country of origin, and Bahasa Indonesia labels must be attached to the packaging before the products enter the Indonesian customs area. There is a similar import licensing regime for animals and animal products. The United States has repeatedly raised concerns over Indonesia’s trade restrictions and requested consultations with Indonesia under the WTO dispute settlement procedures in January 2013. After the consultations failed to resolve these trade restrictions, the United States requested the establishment of a dispute settlement panel in March 2013. Indonesia consequently relaxed its import restrictions in late 2013 but tightened restrictions again in January of this year. The U.S. is working closely with New Zealand to escalate this recent WTO complaint against Indonesia.
Under the chairmanship of Bruce Blakeman, the Food & Agriculture Committee has completed three industry missions: Philippines (August 2014), Vietnam (December 2014) and Thailand (March 2015). An industry mission to Indonesia will be held in the second half of 2015 or once the Minister of Agriculture is ready to meet with private industry (the Minister has indicated that he will not meet with corporate representatives during the initial phase of his tenure). Regarding an inaugural Food & Agriculture Industry Mission to Myanmar (early July 2015), please convey your interest in participation and provide input on possible topics to Sunita Kapoor at skapoor@usasean.org.
View the Council’s latest Food & Agriculture updates
Manufacturing
Datuk Seri Mustapa Mohamed, Minister of the Ministry of International Trade and Industry, announced in late March that the Trans-Pacific Partnership Agreement (TPP) cost-benefit report for Malaysia will be released in July. The study was commissioned to promote transparency and ease public concern surrounding Malaysia’s participation in the TPP. The study will be used by legislators to debate whether Malaysia should participate in the TPP. Traditionally, the Malaysian Parliament does not debate or oversee the adoption of trade agreements. However, given some segments of the public’s opposition to the TPP, the government has agreed to give Parliament a chance to debate the agreement. A Parliamentary Caucus on the TPP was established in 2013 and will play a leading role in the debate. Specific areas of concern are the TPP’s effect on Malaysia’s sovereignty, government-linked companies and Bumiputera preferences. Despite these hotly debated areas of concern, the potential costs of abstaining from the TPP are incalculable. Should Malaysia fail to join in the agreement’s first round, the country’s key manufacturing sectors would almost certainly be excluded from rapid supply chain integration developments in which neighbors such as Singapore, Vietnam and Brunei could gain competitive ground. The Government of Malaysia must now make a concerted effort to explain the long-term benefits a complete TPP would bring to key Malaysian industries and elaborate on how not making the necessary policy adjustments to join would cost the national economy’s future.
Cambodia
On April 8, Minister for Economy and Finance H.E. Aun Porn Moniroth revealed the proposed 2016 Strategic Plan on the National Budget. The budget will increase by 11.1 percent to US $4.35 billion to 2016. Building on the Royal Government’s efforts to rebrand Cambodia, the budget is aimed at diversifying Cambodia’s economic base and expanding growth sectors of small and medium-sized enterprises. According to the Phnom Penh Post, the increased expenditure will be allocated as follows: “$439.3 million for general administration, up 4.6 percent; $669.7 million for security and defense, up 9.8 percent; $1.15 billion for social-sector spending, an increase of 10.7 percent; and $1.89 billion towards economic development.” The government intends to pay for the 11.1 percent increase in expenditure through tax collections. However, the Kingdom is in much need of better internal revenue management systems. In 2014, the General Department of Taxation collected $1.06 billion in tax revenue, an increase of 17.7 percent over the previous year. Similarly, the General Department of Customs and Excise reported that taxes on imports and exports in 2014 was $1.34 billion, up from $1 billion in 2013.
On April 7, President Obama announced that he will nominate William A. Heidt as the next U.S. Ambassador to Cambodia. To read his biography, please click here.
View the Council’s latest Cambodia updates
Indonesia
The last month has been a turbulent time for national politics in Indonesia. On April 6, President Jokowi reached agreement with leaders of the House of Representatives regarding the nomination of Badrodin Haiti for National Police Chief. This agreement follows a month of tension following the initial nomination of Budi Gunawan, which had strong support from the House but sparked public protests after the Corruption Eradication Commission (KPK) named him a suspect in a graft case. There are still calls to install Budi Gunawan as Deputy Police Chief, but President Jokowi has stated that this will be resolved internally by the police department. The Indonesian Democratic Party of Struggle (PDI-P) held its congress on April 9 and reelected Megawati Soekarnoputri as general chairperson for 2015-2020. Former president Megawati has served as party leader since 1999. Tensions have increased between President Jokowi and Megawati recently, particularly over the nomination of the Police Chief. Recent opinion polling places Jokowi and other younger party members such as lawmaker Pramono Anung Wibowo and Central Java Governor Ganjar Pranowo ahead of Megawati as the most popular PDI-P leader. Notwithstanding these new leaders, the party has voted for Megawati to retain leadership of the Party for another term. Meanwhile, infighting also continues with the second largest political party, Golkar, who is divided into two factions, one led by Agung Laksono, and the other led by former Chairman, Aburizal Bakrie. This protracted dispute could lead to the formation of another political party as happened following earlier conflict leading to the formation of the National Democratic Party, the Democratic Party and the Great Indonesia Movement Party. Protracted feuding could also jeopardize Golkar’s success at regional elections later this year.
The government has submitted a bill to the House of Representatives on infrastructure financing. The bill, known as the Indonesian Infrastructure Financing Agency (LPPI) bill, will be discussed in conjunction with the Ministry of Finance. The bill will merge state infrastructure-financing company Sarana Multi Infrastruktur (SMI) and state investment office, the Government Investment Center (PIP), to create a new infrastructure bank with a greater lending capacity of US$ 1.91 billion. The would-be financing agency will issue bonds equal to the level of government bonds, as the company would not be allowed to collect third-party funding directly as banks do. According to the 2015-2019 National Mid-Term Develop Plan (RPJMN), Indonesia will need to invest IDR 5.5 quadrillion (US$ 550 billion) in infrastructure projects over the next five years in order to sustain economic growth. The Infrastructure Financing bill is expected to be endorsed in early 2016. The Infrastructure Bank will place primary focus on social projects. The President Director of state-owned Bank Mandiri, Budi Gunadi Sadikin, stated that the future financing agency could fill the financing gap for infrastructure projects deemed unfeasible by commercial banks.
Indonesia would like to play a major role in the new China-led Asian Infrastructure Investment Bank (AIIB). Indonesia hopes to obtains the Vice President’s position and has also made a bid to host the headquarters in Jakarta. Finance Minister Bambang Brodjonegoro expects Indonesia to be one of the AIIB’s biggest clients as it seeks significant funding to build new roads, ports and bridges. The US$ 50 billion AIIB is expected to start operations by the end of 2015 and is attracting a growing list of countries. China revealed its plans for the establishment of the AIIB at the 2013 APEC Leaders meeting in Bali. The AIIB should help close gaps in infrastructure funding and boost the region’s competitiveness. It is expected to play a vital role in enhancing integration and improving economic growth. It is natural for Indonesia to be an influential member of the AIIB as it is one of the region’s largest markets, and has huge infrastructure development plans. The United States opposes the AIIB based on concerns that it would undermine existing institutions like the World Bank and would not follow international transparency, labor and environmental standards. Despite sustained doubts from the United States, the United Kingdom, Germany, France, Italy, Australia, New Zealand, Spain, South Korea, and Brazil have all agreed to join. There are now 47 countries and territories that have applied to join the bank.
President Jokowi’s visit to the United States will not take place in May and has been postponed until later in the year. For questions please contact Alex Stuart at astuart@usasean.org.
Advocacy:
- The Council has been working alongside AmCham Indonesia with members to engage the Government of Indonesia regarding forthcoming local content regulations for 4G devices. On April 8, the Ministry of Communications and Information Technology (MCIT) held a public hearing on the forthcoming 4G local content regulation. According to Director General of Post and Informatics Resources Muhammad Budi Setiawan, Minister Rudiantara intends to move towards signing the regulation at the end of April after a two-week public comment period. He added that the draft regulation will be available soon on the Ministry website. Discussions at the public hearing also indicated that the exact local content thresholds and the definition of local content could still be changed. The local content definition is set forth in Ministry of Industry Regulation No. 69/2014, which defines local content as 80 percent manufacturing and 20 percent development. According to DG Muhammad Budi Setiawan, the Minister of Communication and Information Technology, Minister of Trade and Minister of Industry agreed last year that application development, software development, and technology transfer are included in the development category. The Ministry of Industry is currently revising regulation No. 69/2014 to take stakeholder input into account. According to Director of Electronics and Telematics Industry Ignatius Warsito, who was present at the public hearing, the Ministry of Industry will also hold a public hearing on how to calculate local content before the MCIT’s local content regulation is signed. Tech in Asia recently reported on the local cell phone manufacturers that may benefit from the new regulation (click here to read). The best placed local manufacturers appear to be recently established TSM Technologies and Polytron, which is part of the influential Djarum Group. The United States has questioned Indonesia on the regulation at the World Trade Organization’s Committee on Trade-Related Investment Measures (TRIMs). The public letter, which says the United States is “very concerned” about the regulation, is available at this link. AmCham Indonesia and the Council have secured a follow-up meeting with DG Warsito and DG Budi Setiawan this week of April 13.
- The Council collected input from members on the Halal Bill that was passed last year. Comments have been collated and shared with other chambers including EuroCham and the Indonesia-Australia Business Council. Once reviewed and finalized these comments will be formally submitted to the government for their consideration in drafting implementing regulations. For questions please contact Fatimah Alsagoff at falsagoff@usasean.org.
- The U.S. Embassy in Jakarta is working to establish a U.S. Power Working Group as a "Team USA" platform to help interested U.S. firms support President Jokowi’s 35 GW power development plan. This will serve as a forum for U.S. firms to dialogue with the Indonesian government on how their products and services would contribute to Indonesia’s power infrastructure.
View the Council’s latest Indonesia updates
Laos
The US-ASEAN Business Council conducted a Business Mission to Laos March 30 and 31. Please click here to read the press release.
View the Council’s latest Laos updates
Malaysia
On April 4, the Council lost two great friends and allies of American business. Tan Sri Jamaluddin Jarjis (JJ), Special Envoy to the United States, and Dato Seri Azlin Alias, the Prime Minister’s Principal Private Secretary, were among six people involved in a deadly helicopter crash. Tan Sri JJ was a driving force in improving diplomatic and business ties between Malaysia and the United States since Prime Minister Najib took office in 2008. Tan Sri JJ’s relationship with the Council dates back well before his days as the Ambassador of Malaysia to the United States (2009-2012). As Ambassador, he tirelessly promoted U.S.-Malaysia relations. Following the posting, he maintained his commitment to the U.S.-Malaysia relationship through his position as Special Envoy and worked to strengthen the trade and economic relationship between our two countries. Dato Seri Azlin Alias was the Principal Private Secretary to the Prime Minister since 2014. Prior to this posting, Dato Azlin was the Special Officer and an Advisor to the Prime Minister. He was a key supporter of the Council and frequently assisted with arranging meetings with Prime Minister Najib. Both will be remembered for their roles in the growth and deepening of the political, diplomatic and strategic relationship between the United States and Malaysia. Our thoughts are with the families of all involved.
In business news, on April 1, the Goods and Services Tax (GST) went into effect and many are evaluating what the tax will mean for business and consumers. In the healthcare sector there are concerns over how the tax may impact consumers seeking medical treatment from a private healthcare facility. While public healthcare services are tax exempt, private healthcare facilities face varying classifications and methods of taxation, which has led to confusion over what goods or services will be subjected to the GST. This issue is especially salient for pharmaceuticals. Medicines listed on the government’s National Essential Medicines List (NEML) will be exempt from the GST, yet this list only represents a fraction of pharmaceuticals available to treat patients. Drugs that are not covered under the NEML can also be tax exempt, if prescribed by a private doctor and bought from the hospital's own pharmacy. Despite this exemption, if medicine prescribed by a private doctor is purchased at a retail pharmacy, a 6 per cent tax will be applied. These exceptions to the GST may be made more complicated if the Ministry of Health moves forward with its plan to introduce a new Pharmacy Bill, which proposes separation of prescribing and dispensing pharmaceuticals. The Council will continue to advocate for greater clarity on the implementation of the GST as well as additional exemptions in the healthcare sector.
View the Council’s latest Malaysia updates
Myanmar
Proposed May dates for the Myanmar Business Mission have proved to be unworkable. The Council is looking at new dates for late June, and will provide updates as soon as possible.
Myanmar moved to further open the country’s banking and insurance sectors to international firms this past week. On April 5, Myanmar state-owned insurance company, Myanma Insurance, announced that it completed the rules and regulations for foreign insurance firms that reportedly will be allowed to operate in the country's special economic zones (SEZs). According to Eleven Media, the regulations stipulate that these companies will have to pay a US$ 30,000 licensing fee to enter one of the SEZs. Firms that have paid the licensing fee will not be required to pay the fee again. Currently, 15 European and Asian companies have been allowed to open offices in the Thilwa, Kyaukpyu and Dawei SEZs. Further, after barring foreign banks from operating in the country for 50 years, Myanmar’s Central bank gave regulatory approval for banks to enter and operate in the country. A total of nine foreign banks – from Singapore, Japan, Thailand, Malaysia, China and Australia – won provisional licenses in October 2014 and a number of them have now received permission to open branches in the country. According to an official from the Central Bank, the licenses to operate come with a number of restrictions, which includes preventing foreign banks from opening retail operation. The official also stated, “If foreign banks have operated in the market for four or five years, the Central Bank can decide the next step, whether it will benefit the market or not.” The Central Bank is cautious about the effect foreign banks will have on domestic banking firms, especially in the retail banking sector. Moving forward, foreign financial institutions seeking to operate in the banking and insurance sectors in Myanmar will need to continue to assess the regulations and restrictions as they may be subject to change in the future.
View the Council’s latest Myanmar updates
Philippines
The Board of Investments (BOI) released guidelines for the implementation of the 2014-2016 Investment Priority Plan (IPP). The IPP provides a blueprint for activities that qualify for government incentives. Under the 2014 IPP, the list of preferred businesses eligible to apply for government incentives is shorter than in previous years. The list includes enterprises in manufacturing, agribusiness and fisheries, services, economic and low-cost housing, hospitals, energy, public infrastructure and logistics, and PPPs. The BOI stated that income tax holidays (ITH) are granted based on the project’s net value-added, job creation, and measured capacity. The ITH is only applicable to revenues generated from services rendered to other enterprises. BOI’s guidelines also encourage enterprises to adopt the “Inclusive Business” strategy, under which businesses provide employment for “the low income segment of society.” The Department of Trade and Industry is expected to hold a press conference in the coming days to clarify the guidelines.
The Philippines Senate has vowed to pass legislation (Senate Bills 1084, 1149 and 1404) by the end of June to create a new office tasked with formulating a cohesive international trade strategy. According to Senate President Franklin Drillon, the Philippine Trade Representative Office (PTRO) will be responsible for developing international trade policy and conducting negotiations. Lawmakers say the move is long overdue, particularly because the entity currently responsible for conducting trade negotiations, the Tariff and Related Matters (TRM) Committee, has no authority over APEC or ASEAN issues. The PTRO is also expected to curb the difficulties historically associated with the implementation of trade policy in the Philippines, such as the lack of cooperation among government agencies. Ideally, it will also serve to improve the articulation of national priorities that inform the country’s trade positions. For its part, the Department of Trade and Industry has opposed the idea of a separate office for international trade, saying that it would be redundant.
According to Philippines Senator Ralph Recto, Chair of the Committee on Science and Technology, the Senate will pass legislation to create the Department of Information and Communications Technology (DICT) by June. The proposed bill primarily reorganizes the Department of Transportation and Communications’ technology-related activities, including electronic application processing for permits, licenses and land titles, under the new DICT. The new department is expected to streamline information and communications technology without creating a cumbersome bureaucracy or burdening the taxpayers. In a statement on March 1, Senator Recto said, “It [the department] will be revenue-neutral, and will maintain, if not lessen, the present operating cost of the agencies which will be folded into it.” Both the Senate and House of Representatives passed the bill in the last Congress, but they were unable to convene the bicameral conference committee to reconcile the differences between the two versions of the bill. The Philippines' ranking in the UN’s E-government Development Index has declined sharply since 2003, and the country is now ranked 95 out of 193. In ASEAN, Brunei, Indonesia, Malaysia, Singapore, Thailand, and Vietnam have a cabinet level agency for ICT. Many local and foreign business groups have supported the proposed legislation in the last three sessions of Congress and expect that a dedicated ICT department will improve the country's e-governance, broadband quality and cyber-security infrastructure.
The Philippine congress is stalled in passing a joint resolution that would allow President Aquino to address the looming energy crisis facing Luzon from March to July. The main issue surrounds the Interruptible Load Program (ILP), a voluntary program in which private companies run their generators during peak hours to help alleviate the load on the energy grid. Under the conditions of the ILP, private companies will be reimbursed for fuel costs incurred to operate their generators. The two chambers are deadlocked on whether these fuel costs should be paid by the government or passed on to consumers. According to the House Energy Committee Chairman, Reynaldo V. Umali, “given the present predicament of the people with their numerous burdens […] we remain firm with the stand of the House that we will not pass it on [to the consumers]. This is really the time for government to step in.” While the House believes that the government should fully subsidize the ILP, the Senate seeks to pass some of the costs on to consumers. President Aquino asked for special authority to tap additional capacity for the summer but both chambers of Congress failed to reach an agreement. Congress is now in recess until May 4. With or without a joint resolution however, the ILP will still be implemented. On March 12, the Energy Regulatory Commission announced that consumers in Luzon were going to bear the cost of the ILP, citing a regulatory guideline that allows the commission to charge consumers for the ILP without a joint resolution. Moving forward, the Department of Energy is confident that no major outages occur. Energy Secretary Carlos Jericho L. Petilla stated that “as long as the power plants do not go on [an] unplanned or forced outage, we should be okay.”
View the Council’s latest Philippines updates
Singapore
Private sector economists have lowered Singapore's annual growth expectations from 3.1 percent to 2.8 percent. The anticipated low growth is not likely to lead to an ease in monetary policy. Singaporean officials remain concerned over potential core inflationary pressures. In February, the country’s consumer price index (CPI) continued to decline for the fourth consecutive month. In a Reuters’ poll, 12 out of 17 economists and currency analysts predicted that Singapore’s central bank will continue allowing the local dollar’s appreciation in April. In part, this is because the Monetary Authority of Singapore (MAS) generally adjusts policy based on core inflation, which excludes the price of private road transport and housing/rent. Inflationary prices in food and services increased core inflation from 1 percent in January to 1.3 percent in February. In comparison, car-related and rent expenses contributed to a much lower CPI of -0.3 percent. Housing and Development Board (HDB) apartments reduced 1 percent in prices for the first quarter of 2015. MAS expects the CPI rate to remain between -0.5 and 0.5 percent this year. Meanwhile, core inflation still poses an inflationary risk. Singapore’s monetary officials perceive core inflation to better gauge out-of-pocket expenses for households. Therefore, it may indicate that an easing of monetary policy is counter-productive. A weaker currency could worsen Singapore's already high living and business costs.
View the Council’s latest Singapore updates
Thailand
The Council wishes all Thais a happy and safe Songkran holiday. Suk-San Wan Songkran!
The Constitution Drafting Committee is expected to submit the first draft of the new constitution to the National Reform Council (NRC) by mid-April. Under the proposed draft, the 200-member Upper House Senate will consist of indirectly-elected members, chosen by a diverse group of individuals with expertise in politics, national administration, judiciary process and society. It is unclear how that body of experts will be chosen. The Prime Minister will also no longer need to be an elected lawmaker.
At the end of March, Prime Minister Prayuth Chan-ocha announced the removal of martial law, which has been in place since May 2014. Businesses, especially in the tourism industry, applaud the government on this recent development.
View the Council’s latest Thailand updates
Vietnam
The Council led its annual Business Mission to Vietnam March 16-18. In total the delegation was composed of 29 companies and more than 70 delegates. The three-day mission was warmly received by the Government of Vietnam, and the week was rounded out with a one-day ICT forum focused on the Policies and Regulations Governing the Management of Data in Vietnam. To read the press release from the mission, please click here.
Vietnamese Prime Minister Nguyen Tan Dung has called for wide-reaching reforms of the country’s import-export regime by the end of 2015. Speaking after a working session with relevant ministries, Prime Minister Dung noted the salience of customs reform to almost every sector of the economy. He also ordered the ministries to initiate an evaluation of current procedures to identify and resolve impediments to trade. Vietnam’s customs regulations are frequently described as among the most complicated in Southeast Asia, but the government has recently moved to address many of these problems. Decree No. 08/2015/ND-CP, which took effect on March 15, exempts eligible businesses from goods checks while processing customs procedures. The decree also waives manifest requirements for certain transactions, such as temporary import-export. While these changes augur improvement, Prime Minister Dung has himself acknowledged that further action is needed to streamline the country’s trade environment. In upcoming programs like the Council’s mission to the ASEAN Customs Directors General meeting in Brunei May 20-22, Council members will have the opportunity to highlight the importance of reforming Vietnam’s import-export regime to the GOV as part of our TPP and AEC policy advocacy reform priorities.
SOEs constitute just under a third of Vietnam’s GDP and exert near-total control over several sectors of the economy, including transportation, energy and telecommunications. With few exceptions, these firms have historically been inefficient and marred by poor oversight. Though reliable data is not available, it is generally believed that state-owned entities are responsible for the country’s epidemic of non-performing loans. Since the 1990s, the government has pursued two avenues of public sector reform: privatization of SOE assets and liabilities, and improving efficiency through restructuring. The former initiative has achieved some successes. Vinatex, a textile firm, attracted nearly US$ 57 million in offshore capital during its successful IPO last September. The company did not sell as many shares as anticipated, however, and in general, foreign investors have shown little interest in investing in companies the government still controls. This is largely due to deficiencies in the second effort – that is, improving state firms’ efficiency. Thus, while the number of SOEs has fallen by more than 80 percent over the past 15 years, their proportional role in the economy only marginally decreased during the same period. Looking forward, Vietnam’s accession to the Trans-Pacific Partnership may be complicated unless the country cuts subsidies to its state-owned sector.
State of Bank of Vietnam (SBV) officials have reiterated plans to ease foreign equity restrictions in the country’s domestic banking sector. Currently, offshore ownership in Vietnamese banks is capped at 30 percent. Of this portion, a single “strategic shareholder” may hold up to 20 percent, though any rate higher than 15 percent is subject to government approval. To qualify as a “strategic shareholder,” foreign banks must meet several criteria, including the requirement to invest $20 billion in assets in the year before buying a stake. According to SBV Governor Nguyen Van Binh, these restrictions will soon be waived entirely in the case of ‘weak’ domestic banks undergoing compulsory restructuring. The news comes as Vietnam seeks to attract offshore investment into the country’s troubled banking sector, which suffers from a high rate of bad debt and a culture of lax oversight. Last year witnessed the prosecution of numerous high-level figures in the Vietnamese banking community. The arrests show that auditors are serious about cracking down on malfeasance, but systemic weaknesses in the areas of regulatory transparency, corporate governance practices and accounting standards must also be improved. While further liberalization of Vietnam’s banking sector can be expected under the ABIF, TPP and RCEP initiatives, how foreign investors assess both the risks and potentially significant opportunities in the banking industry will be an important issue area for Vietnam’s continued growth.
Vietnam’s Transport Ministry has announced its intentions to increase the privatization of the country’s aviation sector. The plan includes selling the sole airport on the resort island of Phu Quoc as well as the operating rights for several airport terminals such as Noi Bai in Hanoi. Vietnam Airlines was quick to bid for Hanoi’s sole domestic terminal at Noi Bai International Airport after the government rejected an offer by VietJet Air. The announcement divided public opinion. Some experts argued that selling terminals to foreign investors presented a national security risk as most Vietnamese airports serve both military and civil flights. These voices recommended that the terminals, if sold, should go to local investors. Other detractors recommended that the government institute regulations over how companies operate terminals to prevent monopoly behavior. Proponents of the deal argued that Vietnamese investors do not have the expertise to manage the terminals and that state owned enterprises (SOEs) have a history of inefficient mismanagement. They note that private investment is likely to boost efficiency and lower prices. This follows a general pattern of SOE privatization in Vietnam. Hanoi has used privatization in recent years to push economic growth as SOEs tend to be debt-laden. Economists have noted nearly 80 percent of privatized SOEs reported earnings growth in recent years. Currently, Vietnam is also attempting to attract private investments into its ports infrastructure, which is facing a similar debate. Foreign investors are attracted to Vietnam as it combines stable governance with the promises of new investment opportunities. The Airports Corporation of Vietnam, which currently manages 22 airports, is expected to submit a plan for privatization this April.
The government of Vietnam has agreed to discuss revisions to a law limiting retirement payouts following a six-day strike by thousands of textile laborers. A stoppage in late March, which affected four factories owned by Taiwanese footwear manufacturer Pou Chen Corp., was resolved after Prime Minister Nguyen Tan Dung pledged to raise workers’ concerns with the National Assembly. The law, which is set to go into effect by January 2016, seeks to encourage workers to save more for retirement by restricting their ability to prematurely withdraw funds. Currently, workers who have paid premiums into the program for less than 20 years can elect to receive a lump-sum payment worth about 150 percent of a monthly salary for each working year. Lacking access to loans or micro-finance programs, many low-income laborers with entrepreneurial aspirations or large expenses view this as an attractive option. The government argues this practice leaves workers financially vulnerable in their old age, and risks the long-term solvency of the pension system itself. Accordingly, the new law restricts pension disbursement to monthly installments at the age of retirement, which is 55 for women and 60 for men. The move is the latest attempt by the Party to overhaul the country’s flagging social security fund, which may face deficits as early as 2021. An earlier government proposal to raise the official retirement age was rejected by lawmakers.