Trade, tech issues seen to shape ASEAN’s future

Fifty two years ago, the founding members of the Association of Southeast Asian Nations (Asean) fought the embers of communism across Asia. Today, Asean is confronting another “FIRe,” the so-called Fourth Industrial Revolution.

The FIRe is being seen as a tool that Asean needs to comprehend, brace for and harmonize if its member-states want a stronger regional economic integration via the Regional Comprehensive Economic Partnership (RCEP).

Former Tariff Commissioner George N. Manzano told the BusinessMirror that forging the RCEP at the time that Asean member-countries are preparing for the FIRe is a step in the right direction.

With the inclusion of the electronic commerce (e-commerce) chapter in the RCEP deal, Manzano said parties to the deal would now be able to follow a common set of standards.

The 14th of 18 chapters, the e-commerce chapter is expected to promote electronic commerce among the participating countries and foster its wider use globally. E-commerce is also expected to enhance cooperation among RCEP participating countries in developing the ecommerce ecosystem.

“The e-commerce chapter would help position RCEP as a modern agreement that benefits and creates opportunities for facilitating e-commerce, especially for SMEs [small and medium-size enterprises],” Manzano asserted.

“The Fourth Industrial Revolution is coming. RCEP should adapt,” he said. “They should [craft and unite on] rules on digital trade because, if they have rules on that, everyone will adapt. If the rules are common, it would be easier to trade.”

Ownership, standards

Rules are the least of worries of AirAsia Group Berhad CEO Tony Fernandes.

During the Asean business and investment summit  on November 2, Fernandes lamented the lack of an e-commerce champion in Asean.

“If you look about one example, if you think about e e-commerce, that’s Lazada, that’s Alibaba. But there’s really no Asean e-commerce champion,” Fernandes said in Bangkok, Thailand. “One of the reasons is customs clearance: we don’t have a single customs window.”

Aside from an e-commerce champion, Fernandes pointed to an absence of harmonized standards and mutual recognition agreements as hobbling a robust e-commerce sector in Asean.

He also pointed to barriers that come in the form of travel levies or the lack of one Asean visa.

“So, some of the barriers we have seen in Asean: foreign ownership regulations and mutual recognition of Asean standards,” Fernandes said during the forum. “Sometimes it is easier for companies outside of Asean to sell than companies inside of Asean.”

Fernandes also urged Asean leaders to remove trade barriers.

“If you are going to look at the potential of social e-commerce and SMEs like Lazada throughout Asean, it is huge,” he said.

“But there are visible and invisible barriers that still exist. So I really urge the leaders of Asean to look at breaking down these walls so the people and SMEs can benefit from this huge market.”

New approaches

Philippine Trade Secretary Ramon M. Lopez told the BusinessMirror the RCEP bodes well for Asean economic integration in time for the Fourth Industrial Revolution.

“Yes, of course. With greater trade and investments, technologies flow better,” Lopez said.

FIRe is credited to Klaus Schwab, founder and executive chairman of the World Economic Forum, who noted that disruptive technologies such as Internet of Things (IoT), artificial intelligence, self-driving cars and robotics, would change the way business operates and people live today.

The chief of the Department of Trade and Industry (DTI) said the country has an advantage in knowledge workers, innovation and creativity amplified by a good educational system, a young population and facility in the English language.

“This advantage is also supported by a strong intellectual property protection regime, particularly on patent protection, and the recent passage of the Philippine Innovation Act,” Lopez told the BusinessMirror.

Moreover, he said, there is a huge opportunity in the Philippines for heavy industries to utilize most modern technologies, which is expected to generate more investments in the area of research and development (R&D) and technology centers.
As an example, Lopez said the Filipinos were known as one of the top innovators in Silicon Valley, citing a Bloomberg article as source.

This recognition, he said, can help trigger investments in the country and create a conducive environment for innovation in the country not only for product development for the future but transfer of knowledge and technology as well.

Elements for FIRe

However, while the DTI is already doing something about Industry 4.0 like Thailand, Manzano said that Malaysia and Singapore area already ahead with their respective programs.

“The DTI is doing something on the Fourth Industrial Revolution, but it would be much better if we would be able to articulate and cascade it. Our Internet should be fast as well as our broadband,” he said, lamenting the country’s weak infrastructure.

“They [other countries] already have industrial parks that are really for FIRe, wherein you can locate there and receive tax exemption so that they could promote those entities that are under [using technologies of] FIRe,” he added.

Manzano also lamented that the Philippines is not that strong in terms of research and development, which he said is crucial for innovation under FIRe.

Lopez begged to disagree.

The trade secretary admitted that some multinationals started operations in the country initially on the basis of abundant skilled labor. But they eventually realized the higher quality and technical competence of our workers, Lopez said.

They now use them, for example, in more research and development, technical and design engineering types of work, he added.

According to Lopez, it was six years ago when Samsung R&D Institute Philippines was established.

“Its roster is composed of expert engineers engaged in the development of various solutions related to cloud computing and web and data intelligence,” Lopez said. “Recently, one company has signified its intent to put up another R&D Center in PH and will be hiring around 500 engineers as part of its team.”

Agreements, barriers

According to Manzano, Asean is already reaping the benefits of its economic integration. However, there is still a room for improvement, especially when it comes to trade in services for the regional bloc, he added.

“There are still many things to be done. There is still nothing much that is happening when it comes to services. We still do not have movements of people although it’s hard,” he said.

Manzano shares Fernandes’s opinion that there’s a need for more mutual recognition agreements and the removal of nontariff barriers.

“Mutual recognition agreements recognize the competency of professionals. If you are an engineer, you have a mutual recognition agreement, meaning to say, if you are an engineer in the Philippines, you will be recognized as an engineer in Malaysia,” he said.

While the gaps in integration can be addressed within Asean, Manzano said it seems the regional bloc is not yet ready for the free movement of workers.

Some pros, cons

Both Manzano and Fernandes pointed out that Asean is still not on a par with the European Union (EU) when it comes to having harmonized standards.

Manzano said Asean is not yet integrated like EU since the latter is “homogenous” unlike Asean.

“Well, integrated is a relative term. So it is integrated compared to other parts of the world. Kasi [Because] the other thing is we are not yet integrated as Europe, as the European Union,” Manzano said. “We still do a lot of trade with other parts of the world, which is not bad.”

He also pointed out that there are advantages and disadvantages of having a setup like EU.

“[There are] pros and cons because EU is homogenous while we have a huge disparity in Asean,” he said, referring to different levels of economic development in the region.

Easy access

However, Justin Wood, head of Regional Agendas of World Economic Forum-Asia Pacific, said Asean policymakers must prioritize the integration of the markets in order to continue attracting investment and for global value chains to be based in the region.

With the advent of FIRe, Wood said companies who will look to build their global value chains in the future will look for three things.

“They are going to look for labor and how skilled and how deep is the labor force. They are going to look for data and how easy it is for them to access data; and they are going to look for broadband and how affordable and high quality is the broadband,” he said.

Wood said the government must also think about how to adjust policies toward data, noting that many governments around the world are putting in place data utilization and data protection measures to prevent cross-border data flow.

He said these limit the opportunities for companies to get involved in global services value chains.

“Data has to be allowed to move freely to build these types of structures, and then finally, I think global trade policy is gonna have to change in order to facilitate this new world of data and the rise of services and so on,” Wood said.

AI, Big Data

During the 35th Asean Summit under the chairmanship of Thailand, Asean member-countries agreed to promote and facilitate cross-border data flows and develop a common platform on statistic linkage by employing digital technologies such as Big Data and AI.

According to the Asean Declaration on Industrial Transformation to Industry 4.0 released publicly on November 2, Asean leaders vowed to enhance human resource development and capacity building to catch up on frontier technologies and innovation. These would be in relation to smart factories, digital value chains and digital literacy by focusing on the up-skilling and re-skilling of the workforce including micro-enterprises and SMEs.

They also expressed a commitment to stimulate adoption and diffusion of innovation and technologies involving Industry 4.0, such as IoT, AI, Big Data and Cloud-based Technology, Augmented Reality and Additive Manufacturing or 3D printing. These, the Asean believes, could be achieved through joint researches, investments and development activities and through the sharing of information, experience and best practices on formulating and implementing policies, especially innovation system policies and mechanisms to promote Industry 4.0.

Lopez admitted that the challenge in Asean when it comes to FIRe is its readiness to embrace the new platform and ways of doing trade and business.

“Because of technology, industries and business models have been revolutionized,” he said. “Many countries have yet to align their laws and policies on these new developments, thus, the need to reserve policy space. In addition, for most countries, capacity building and understanding of the effects of these technological development have yet to be addressed.”

New programs

Asked what the government is doing to help prepare MSMEs for the impact of Industry 4.0, Lopez said there are programs with the Commission on Higher Education, the Department of Education and the Technical Education and Skills Development Authority to “expose them to newer technologies, smart manufacturing, exposure to new equipment, skills, future preparations.”

However, Philippine Exporters Confederation Inc. President Sergio Ortiz-Luis told the BusinessMirror the government must do more than information dissemination.

“The government, therefore, has to come up with concrete programs for that [preparing MSMEs for Industry 4.0]. I don’t even know if there is budgetary allocation for this thing,” Ortiz-Luis said.

He said the federation intends to come up with programs and projects for MSMEs so that they will be prepared information-wise and techology-wise. Luis-Ortiz added the federation conducts seminars about Industry 4.0 “so they will be aware of what’s going to happen.”

“For short, we are allocating time and resources preparing MSMEs for Industry 4.0,” he said. “This matter was discussed in depth during the PBC [Philippine Business Conference] and business came up with resolutions on how they plan to face Industry 4.0. One of the resolutions is to prepare for a change in era, with how things are done, with how businesses operate.”

Economic partnership

Aside from grappling with FIRe, Asean is also wrestling with the realization of RCEP as it is seen to build up strong value chains in the region with a rapidly growing market.

In a speech during ABIS, Japan External Trade Organization’s Nobuhiko Sasaki said the time has come for Asean to be the “standard bearer of free trade,” especially as the world stands on the brink of a total trade war between the US and China.

“RCEP enables Asean to widen the initiative of AEC (Asean Economic Community) to the Asia Pacific region while pressing for further development of GVCs (global value chains),” Sasaki said.

In the same speech, Sasaki also noted that nontariff measures in the regional bloc should be addressed since these hinder trade and investment, according to their research.

Should India give its final decision not to join the deal anymore, Lopez told the BusinessMirror that RCEP—with 15 countries including the Philippines—would still account for 29 percent of the world economy, from 32 percent for RCEP with 16 countries as members.

“China and other countries [are] opening more of their markets, as well as better rules on trade and investments protection,” he said.

Lopez said all 15 countries have concluded all the 20 chapters on RCEP and they are almost done on market access discussions.

“Legal scrubbing to start and we will be ready to sign next year,” he said.

As for India, he clarified that they may be out as of now, but their pending issues will be sorted out until next year.

Without India, the deal would be less attractive, according to Manzano.

“If India leaves RCEP, it means lesser chance for the other countries to penetrate the Indian market because they have high tariffs. The others have low [tariffs] so RCEP is attractive on one hand,  because India is a member…[which] has high tariffs [and] will be forced, if it’s a member of RCEP, to lower its tariffs. That is why India left,” he said.

Coping sans India

Will India’s opting out of RCEP affect the Philippines?

Manzano said he doesn’t think so as the country trades more with China and Japan rather than with India.

However, he said it would have been better if India is still part of the deal, especially since it is “relatively more protectionist.”

“Well in theory, any FTA [free-trade agreement] with more partners, the better. That means you can export more and they can export to you,” Manzano explained.

He added he doesn’t see any risks with India leaving the deal at the time of US-China trade tension.

“None, really, in the sense that we have already existing FTAs with all the partners; so RCEP will just integrate them all. So that is what we are looking for, not only us, but everyone else: for India to open up [but] India got cold feet,” he said. “So India is really the good opportunity here for RCEP. If India is included, RCEP is very attractive. This means you can access the Indian market.”

Manzano also said he doesn’t believe that India could be a good counterbalance to China as the two countries have different strengths.

While India is strong when it comes to trade in services, China is strong in trade in goods.

“India’s strength is not in goods so it could never surpass China. India is strong in BPO [business-process outsourcing] services,” Manzano said. “They are competitive when it comes to software, while China is competitive in goods, shoes, electronics, among other products.”

Source: Business Mirror