The E3 Initiative: The United States and ASEAN Take a Step in the Right Direction

  • photo courtesy of http://www.whitehouse.gov/blog/2012/11/20/president-obama-meets-southeast-asian-leaders-cambodia
    Dec 21, 2012

    The Expanded Economic Engagement (E3) Initiative was one of the most ambitious ideas to come out of the U.S.-ASEAN Leaders’ Meeting in Phnom Penh in November. Although it is not a groundbreaking effort, the E3 establishes a framework to expand cooperation to boost trade and investment between the United States and the ASEAN grouping that should help create more jobs in all 11 countries.

    The E3 meets ASEAN’s goal of getting the United States more engaged in trade and investment as part of the U.S. rebalancing toward Asia. The new initiative also lays the groundwork to prepare all the ASEAN countries to join high-level trade agreements with the United States, such as the Trans-Pacific Partnership that includes four ASEAN countries (Brunei, Malaysia, Singapore, and Vietnam) and seven others from both sides of the Pacific. Eventually, it might also form the building blocks for a U.S.-ASEAN free trade agreement (FTA)—a goal that many in the U.S. business community, and in CSIS, have endorsed.

    ASEAN is an often-underrated economic partner of the United States. The region reported a GDP this year of $2.2 trillion. It ranks fifth among U.S. trading partners, with two-way trade reaching $194 billion in 2011, up more than 9 percent from the previous year. U.S. companies last year had investment stock of nearly $160 billion in ASEAN countries, an increase of more than 11 percent from 2010, while investment by ASEAN companies in the United States reached almost $25 billion.

    For years, it was tough for U.S. officials to work with ASEAN as a group on trade and investment because of the U.S. government’s policy of isolating Myanmar for gross human rights violations. That barrier has now been overcome as the United States has moved to normalize relations with the quasi-civilian Myanmar government that has introduced a raft of political reforms over the past 18 months.

    A second obstacle was that Laos, unlike the other ASEAN countries, was not a member of the World Trade Organization. But Laos has now been approved to join and is expected to formally do so early in 2013.

    An outstanding hurdle is that the less-developed economies of ASEAN such as Cambodia, Laos, and Myanmar lack officials with the capacity to engage in high-level trade and investment agreements. Other countries like Indonesia, which has introduced a raft of protectionist measures over the past two years, fear that a high-standard trade agreement could challenge the leading economic positions of domestic companies.

    The E3 was designed to tackle both issues: build trade capacity and reduce anxiety in capitals like Bangkok, Jakarta, and Manila about entering high-standard trade talks with the United States. It will also support ASEAN’s commitment to achieve economic integration within the grouping by 2015 under the aegis of the ASEAN Economic Community.

    The E3 will begin by working on four specific priorities:

    1. Negotiating an ASEAN-U.S. trade facilitation agreement that will seek to simplify customs procedures and increase the transparency of the grouping’s customs administrations. U.S. officials hope this will lead to a harmonized “single window” among all customs regimes in the region, which will help ASEAN achieve economic integration.
    2. Developing information and communications technology principles that will help guide policymakers on issues such as the flow of information across borders, local content requirements, and the role of regulatory bodies. This project is intended to support ASEAN in its larger project of boosting connectivity between ASEAN economies.
    3. Developing principles that will address investment policies, including investor protection, nondiscrimination against foreign companies, transparency, and market access. In some countries, including Indonesia, U.S. companies have faced pressure from government regulators to reopen negotiations on already-signed contracts well before their period of performance has elapsed. Until now, Washington has not found much traction in many ASEAN capitals in attempts to negotiate a bilateral investment treaty.
    4. Working on harmonized standards across the region, protection for small and medium-size companies (which generate the lion’s share of jobs in ASEAN and the United States), and environmental standards.

    The United States and ASEAN have long worked on trade and investment issues in annual talks under the Trade and Investment Framework Agreement (TIFA). What gives the E3 additional heft is that it was endorsed by the 11 leaders at their November summit. U.S. officials hope this overcomes the challenge they faced in getting all ASEAN members to engage in trade initiatives.

    U.S. officials have begun working with ASEAN on several specific events this year that should help build stature for the E3. First, they are looking to organize an ASEAN trade ministers’ roadshow to several U.S. cities in mid-2013. For the first time, this group will be able to include a senior Myanmar trade official. Second, they plan to organize a second U.S.-ASEAN business summit in Brunei, which is chairing ASEAN in 2013. This will take place on the sidelines of the ASEAN Economic Ministers’ Meeting, probably in August. Third, Indonesia is hosting the Asia-Pacific Economic Cooperation (APEC) forum in 2013, which means that officials from the United States and the seven ASEAN members of APEC will have frequent meetings in Indonesia throughout the year. (Cambodia, Laos, and Myanmar are not yet members of APEC).

    One of the challenges for ASEAN trade officials will be to avoid becoming distracted by the other trade initiative launched in Cambodia in November: the Regional Comprehensive Economic Partnership (RCEP). The RCEP is an ASEAN-led initiative to craft a free trade agreement with the six countries with which the Southeast Asian bloc has already negotiated FTAs: Australia, China, India, Japan, New Zealand, and South Korea.

    For the E3 to take off, it will take two to tango. The key question for U.S. officials is the extent to which all ASEAN countries will be willing to engage with the United States on these initiatives. So far, fervor for the E3 is measured. “There wasn’t much enthusiasm over the E3 [in Phnom Penh],” noted one senior ASEAN trade official, adding that it “seems [like] a repackaging of the TIFA.”

    The same official nonetheless lauded the Office of the U.S. Trade Representative’s Southeast Asia team for its work and creativity in getting all the ASEAN countries to sign off on the new trade initiative. The next task will be to get the 11 governments to take real steps to implement the proposals.

    (This Commentary originally appeared in the December 20, 2012, issue of Southeast Asia from the Corner of 18th & K Streets.)

    Murray Hiebert is senior fellow and deputy director of the Chair for Southeast Asia Studies at the Center for Strategic and International Studies in Washington, D.C.

    Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

    © 2012 by the Center for Strategic and International Studies. All rights reserved.