ASEAN Integration Through Law

Reader - Teaching Material

The ASEAN Economic Community -

TRADE in SERVICES

Imola Streho

Associate Professor, School of Law

Associate Researcher, Centre d’études européennes

Sciences Po – Paris

Former Referendaire European Court of Justice

© Imola Streho & CIL, NUS (2014)

These materials are offered as a public service by CIL, National University of Singapore. They may be used for educational purposes

only and cannot be commercialized in any manner. Their origin should be acknowledged in any use made of them. Since this version

is a working draft, please do not cite without the authors’ permission.

2

Table of Content

Notes ……………………………………………………………………………………….…………….p.3

Further readings …………………………………………………………………………….……..p.4

Official WebPages ………………………….……………………………………………………..p.5

1 – Primary Sources ………………………………………………………………………………p.6

1.1 The AFAS ………………………………………………………………….…………………p.6

1.2 The ASEAN Economic Community (AEC) Blueprint ………………p.11

1.3 ASEAN Integration in Services ………………………………………….……….p.15

2 – Excerpts ASEAN Integration Through Law – The AEC and Trade in

services …………………………………………………………………………………………………..p.22

2.1 Liberalization of Trade in Services under the AFAS ………………….p.22

2.2 Services Liberalization in ASEAN+ FTAs …………………………………..p.51

3 – Topics for Debate .....................................................................................................................p.63

4 – Case Study………………………………………………………………………………………...p.85

3

Notes

“Free flow of trade in services is one of the important elements in realising ASEAN Economic Community,

where there will be substantially no restriction to ASEAN services suppliers in providing services

and in establishing companies across national borders within the region, subject to domestic regulations.”

(ASEAN Economic Community Blueprint, November 2007)

Course description The course provides an introduction to services and services trade in the ASEAN. After giving some trends, figures and policy context in the field, we begin by considering the evolution and place of services in the ASEAN economic agenda. In a second part, we turn to the EU and the GATS experience; we study how trade in services is liberalized in those fora and consider possible lessons for the ASEAN. The aim of the course is to familiarize course participants with the specific sector of services, the trends in liberalizing services, the negotiation options available in regional and multilateral framework. We shall study examples from a variety of countries of ASEAN, subsectors of services both in a comparative perspective and through in-depth case studies, debates and moot litigation on specific trade issue. Course objective The course is designed to serve as the basis for a specialization on trade in services in the ASEAN thanks to a contextual approach to policy, economic and legal considerations. It should provide course participants with an understanding of the importance of services in the economies of the ASEAN countries, their liberalization in the framework of the AEC and the possible ways to achieve it. It provides broad comparative perspective with the EU and the WTO experience in liberalizing trade in services. Knowledge of these comparative settings is indeed essential to rightly consider the potential for liberalizing services in the ASEAN. Course requirements The course is based on lectures to familiarize course participants with the sources and literature in the field. Course discussions (based on the assigned readings and questions included in the TM) and group presentations (debates, moot exercises) are used to illustrate the key concepts and expand upon several case studies. Therefore, for interaction and pro-active learning, the assigned readings and exercises are imperative. Each course session begins with lectures and then move to discussion and group presentations. The main objective of the discussions and group exercises are to move beyond pure description and to demonstrate what we can learn from a case that adds up to more in depth knowledge of the course topic.

4

Further readings

Aldaba, Rafaelita m. and Gloria O. Pasadilla (2010), “The ASEAN Services Sector and the Growth

Rebalancing Model”, ADBI Working Paper Series, No. 249, (September), Tokyo: Asian Development Bank

Institute.

Andenas, Roth (2002), Services and Free Movement in EU Law, OUP, Oxford.

ASEAN Secretariat (2011), “ASEAN Integration in Trade in Services: Development, Challenges and Way Forward”,

Paper presented at an ADBI-PECC Conference on “Strategies to Enhance Competitiveness and Facilitate

Trade and Investment in Services, Hong Kong, China, (1-3 June).

Davies (2007), “The Services Directive: Extending the Country of Origin Principle, and Reforming Public

Administration”, ELR

Dee, Philippa (2010), “Deepening East Asian Economic Integration in Services”, in ERIA Policy Brief, No.

2010-01, (October), Jakarta: Economic Research Institute for ASEAN and East Asia.

Dee, Philippa and Huong Dinh (2009), “Barriers to Trade in health and Financial Services in ASEAN”, ERIA

Discussion Paper Series, ERIA DP 2009-11, Jakarta: Economic Research Institute for ASEAN and East Asia.

De Witte (2007), “Setting the Scene. How did Services get to Bolkenstein and Why?”, EUI Working Papers, Law

n°20

ERIA (2008), Developing a Roadmap toward East Asian Economic Integration, (February), Jakarta: Economic

Research Institute for ASEAN and East Asia.

Feketekuty (1998), Setting the agenda for services 2000: the next round of negotiations on trade and services, World

Trade Organization, Geneva, Occasional paper nº 8.

Feketekuty (1998), International Trade in Services: an Overview and Blueprint for Negotiations, An American

Entreprise Institut/Ballinger Publication, Cambridge MA

Grubel (1987) “All Traded Services are Embodied in Materials or People”, World Economy, vol. 10, n° 3.

Hall (1968.), “Are Goods and Services Different?”, Westminster Bank Review, August.

Hatzopoulos (2012), Regulating Services in the EU, OUP, Oxford.

Ishido, Hikari and Yoshifumi Fukunaga (2012), ‘Liberalization of Trade in Services: toward a harmonized

ASEAN++ FTA”, ERIA Policy Brief, No. 2012-02 (March), Jakarta: Economic Research Institute for ASEAN

and East Asia.

Kawai, Masahiro and Ganeshan Wignaraja (2010), “Asian FTAs: Trends, Prospects and Challenges”, ADB

Economics Working Paper Series, No. 226, (October), Manila: Asian Development Bank.

Lianos, Odudu (2012), Regulating Trade in Services in the EU and the WTO, CUP, Cambridge.

Messerlin (P.), Sauvant (K.) eds., The Uruguay round: services in the world economy, The World Bank,

Washington DC.

Mikic, Mia (2009), “ASEAN and Trade Integration”, ESCAP Trade and Investment Division Staff Working Paper,

No. 01-09, Bangkok: United Nations Economic and Social Commission for Asia and the Pacific.

O’Leary (1999), “The Free Movement of Persons and Services”, The Evolution of EU Law, Craig et De Burca

éd., OUP, Oxford.

Oliver (1999) “Goods and Services: Two Freedoms Compared”, Mélanges en hommage à Michel Waelbroeck,

volume 2, Bruylant, Bruxelles.

PECC and ADBI (2011), Services Trade: Approaches for the 21st Century: Report of the PECC-ADBI Task Force,

Singapore and Tokyo: Pacific Economic Cooperation Council and Asian Development Bank Institute.

5

Petri, Peter A., Michael G. Plummer and Fan Zhai (2010), “The Economics of the ASEAN Economic Community”,

Mimeo, (15 September).

Roth (1988.), “The EEC’s Law on Services: Harmonisation”, CMLR

Sauvé, Stern (2000) eds, GATS 2000. New Directions in Service Trade Liberalization, Brookings Institution Press,

Washington DC.

Shepherd, Ben and Gloria Pasadilla (2012), “Services as a New Engine of Growth for ASEAN, the People’s

Republic of China and India”, ADBI Working Paper Series, No. 349, (March), Tokyo: Asian Development Bank

Institute.

Snell (2002), Good and Services in EC Law, OUP, Oxford.

Steindorff (1988), «Freedom of Services in the EEC», Fordham International Law Journal, vol. 11.

UNCTAD (2011), Information Economy Report 2011: ICTs as an Enabler for Private Sector Development, New York

and Geneva: United Nations Conference on Trade and Development.

Van der Marel, Erik and Ben Shepherd (2011), “Services trade, regulation and regional integration: Evidence

from sectoral data”, Munich: MPRA Paper No. 34343, posted 26 October.

Woods (2004), Free Movements of Goods and Services within the EC, Ashgate

World Bank (2012), Services Trade Restrictiveness Index Database, Trade Department, Washington, D.C.: The

World Bank.

World Trade Organization (2012), International Trade Statistics 2012, Geneva: World Trade Organization.

Official web pages

ASEAN, AEC, Services

http://www.asean.org/communities/asean-economic-community

http://www.asean.org/communities/asean-economic-community/item/asean-framework-

agreement-on-services

http://www.aseansec.org/wp-content/uploads/2013/07/Publication-Integration-in-Services.pdf

http://fr.scribd.com/doc/111763432/ASEAN-Economic-Community-Scorecard-2012

EU, Services

http://ec.europa.eu/internal_market/top_layer/services/index_en.htm

WTO, GATS

http://www.wto.org/english/tratop_e/serv_e/serv_e.htm

http://www.wto.org/english/tratop_e/serv_e/gats_factfiction_e.htm

6

1 – Primary Sources

1.1 The AFAS

Note:

The first document is the full text of the 1995 ASEAN Framework Agreement on Services. The

agreement is a short document and is followed by several packages of commitments to liberalize

services. To date, eight such packages of commitments were signed, the last one in 2010. The

negotiations were given a new dynamic with the AEC Blueprint of 2007 as we shall see.

Questions:

1. What are the aims of the AFAS?

2. Which instruments does the AFAS include to liberalize services?

3. What do you notice about the language of the AFAS and the GATS?

ASEAN Framework Agreement on Services (Bangkok, 15 December 1995)

________________________________________

The Governments of Brunei Darussalam, the Republic of Indonesia, Malaysia, the

Republic of the Philippines, the Republic of Singapore, the Kingdom of Thailand, and the

Socialist Republic of Vietnam, Member States of the Association of South East Asian

Nations (hereinafter referred to as "ASEAN");

RECOGNISING the Singapore Declaration of 1992 which provides that ASEAN shall

move towards a higher plane of economic cooperation to secure regional peace and

prosperity;

RECALLING that the Heads of Government, at the Fourth Summit held in Singapore on

27-28 January 1992 declared that an ASEAN Free Trade Area (AFTA) shall be established

in the region;

NOTING that the Framework Agreement on Enhancing ASEAN Economic Cooperation

signed in Singapore on 28 January 1992 provides that ASEAN Member States shall explore

further measures on border and non-border areas of cooperation to supplement and

complement the liberalisation of trade;

RECOGNISING that intra-ASEAN economic cooperation will secure a liberal trading

framework for trade in services which would strengthen and enhance trade in services

among ASEAN Member States;

DESIRING to mobilise the private sector in the realisation of economic development of

ASEAN Member States in order to improve the efficiency and competitiveness of their

service industry sector;

7

REITERATING their commitments to the rules and principles of the General Agreement

on Trade in Services (hereinafter referred to as "GATS") and noting that Article V of GATS

permits the liberalising of trade in services between or among the parties to an economic

integration agreement;

AFFIRMING that ASEAN Member States shall extend to one another preference in trade

in services;

HAVE AGREED AS FOLLOWS:

Article I : Objectives

The objectives of the Member States under the ASEAN Framework Agreement on Services

(hereinafter referred to as "this Framework Agreement") are:

(a) to enhance cooperation in services amongst Member States in order to improve the

efficiency and competitiveness, diversify production capacity and supply and distribution

of services of their service suppliers within and outside ASEAN;

(b) to eliminate substantially restrictions to trade in services amongst Member States; and

(c) to liberalise trade in services by expanding the depth and scope of liberalisation beyond

those undertaken by Member States under the GATS with the aim to realising a free trade

area in services.

Article II : Areas of Cooperation

1 . All Member States shall participate in the cooperation arrangements under this

Framework Agreement. However, taking cognizance of paragraph 3 of Article I of this

Framework Agreement on Enhancing ASEAN Economic Cooperation, two or more

Member States may proceed first if other Member States are not ready to implement these

arrangements.

2. Member States shall strengthen and enhance existing cooperation efforts in service

sectors and develop cooperation in sectors that are not covered by existing cooperation

arrangements, through inter alia:

(a) establishing or improving infrastructural facilities;

(b) joint production, marketing and purchasing arrangements;

(c) research and development; and

(d) exchange of information.

3. Member States shall identify sectors for cooperation and formulate Action Plans,

Programmes and Understandings that shall provide details on the nature and extent of

cooperation.

8

Article III : Liberalisation

Pursuant to Article 1 (c), Member States shall liberalise trade in services in a substantial

number of sectors within a reasonable time-frame by:

(a) eliminating substantially all existing discriminatory measures and market access

limitations amongst Member States; and

(b) prohibiting new or more discriminatory measures and market access limitations.

Article IV : Negotiation of Specific Commitments

1. Member States shall enter into negotiations on measures affecting trade in specific

service sectors. Such negotiations shall be directed towards achieving commitments which

are beyond those inscribed in each Member State's schedule of specific commitments

under the GATS and for which Member States shall accord preferential treatment to one

another on an MFN basis.

2. Each Member State shall set out in a schedule, the specific commitments it shall

undertake under paragraph 1 .

3. The provisions of this Framework Agreement shall not be so construed as to prevent

any Member State from conferring or according advantages to adjacent countries in order

to facilitate exchanges limited to contiguous frontier zones of services that are both locally

produced and consumed.

Article V : Mutual Recognition

1 . Each Member State may recognise the education or experience obtained, requirements

met, or licenses or certifications granted in another Member State, for the purpose of

licensing or certification of service suppliers. Such recognition may be based upon an

agreement or arrangement with the Member State concerned or may be accorded

autonomously.

2. Nothing in paragraph 1 shall be so construed as to require any Member State to accept

or to enter into such mutual recognition agreements or arrangements.

( These agreements or arrangements are concluded for Member State only. In the event a

Member State wishes to join such agreements or arrangements, it should be given equal

opportunity to do at any time.)

Article VI : Denial of Benefits

The benefits of this Framework Agreement shall be denied to a service supplier who is a

natural person of a non-Member State or a juridical person owned or controlled by

persons of a non-Member State constituted under the laws of a Member State, but not

engaged in substantive business operations in the territory of Member State(s)

9

Article VII : Settlement of Disputes

1 . The Protocol on Dispute Settlement Mechanism for ASEAN shall generally be referred

to and applied with respect to any disputes arising from, or any differences between

Member States concerning the interpretation or application of, this Framework Agreement

or any arrangements arising therefrom.

2. A specific dispute settlement mechanism may be established for the purposes of this

Framework Agreement which shall form an integral part of this Framework Agreement.

Article VIII : Supplementary Agreements or Arrangements

Schedules of specific commitments and Understandings arising from subsequent

negotiations under this Framework Agreement and any other agreements or

arrangements, Action Plans and Programmes arising thereunder shall form an integral

part of this Framework Agreement.

Article IX : Other Agreements

1 . This Framework Agreement or any action taken under it shall not affect the rights and

obligations of the Member States under any existing agreements2 to which they are

parties.

2. Nothing in this Framework Agreement shall affect the rights of the Member States to

enter into other agreements not contrary to the principles, objectives and terms of this

Framework Agreement.

3. Upon the signing of this Framework Agreement, Member States shall promptly notify

the ASEAN Secretariat of any agreements pertaining to or affecting trade in services to

which that Member is a signatory.

(Existing Agreements are not affected as these have been notified in the MFN Exemption

List of the GATS.)

Article X : Modification of Schedules of Specific Commitments

1 . A Member State may modify or withdraw any commitment in its schedule of specific

commitments, at any time after three years from the date on which that commitment

entered into force provided:

(a) that it notifies other Member States and the ASEAN Secretariat of the intent to modify

or withdraw a commitment three months before the intended date of implementation of

the modification or withdrawal; and

(b) that it enters into negotiations with an affected Member State to agree to necessary

compensatory adjustment.

10

2. In achieving a compensatory adjustment, Member States shall ensure that the general

level of mutually advantageous commitment is not less favourable to trade than that

provided for in the schedules of specific commitments prior to such negotiations.

3. Compensatory adjustment shall be made on an MFN basis to all other Member States.

4. The SEOM with the endorsement of the AEM may draw up additional procedures to

give effect to this Article.

Article XI : Institutional Arrangements

1 . The SEOM shall carry out such functions to facilitate the operation of this Framework

Agreement and further its objectives, including the Organisation of the conduct of

negotiations, review and supervision of the implementation of this Framework

Agreement.

2. The ASEAN Secretariat shall assist SEOM in carrying out its functions, including

providing the support for supervising, coordinating and reviewing the implementation of

this Framework Agreement.

Article XII : Amendments

The provisions of this Framework Agreement may be amended through the consent of all

the Member States and such amendments shall become effective upon acceptance by all

Member States.

Article XIII : Accession of New Members

New Members of ASEAN shall accede to this Framework Agreement on terms and

conditions agreed between them and signatories to this Framework Agreement.

Article XIV : Final Provision

1 . The terms and definitions and other provisions of the GATS shall be referred to and

applied to matters arising under this Framework Agreement for which no specific

provision has been made under it.

2. This Framework Agreement shall be deposited with the Secretary-General of ASEAN,

who shall promptly furnish a certified copy thereof to each Member State.

3. This Framework Agreement shall enter into force upon the deposit of instruments of

ratification or acceptance by all signatory governments with the Secretary-General of

ASEAN.

IN WITNESS WHEREOF, the undersigned, being duly authorised by their respective

Governments, have signed the ASEAN Framework Agreement on Services.

11

1.2 The ASEAN Economic Community (AEC) Blueprint

Note:

The following excerpts are from a declaration by the ASEAN Leaders. They have adopted the

ASEAN Economic Blueprint at the 13th ASEAN Summit on 20 November 2007 in Singapore to

serve as a coherent master plan guiding the establishment of the ASEAN Economic Community

2015.

Full text http://www.asean.org/archive/5187-10.pdf

Questions:

1. What is the nature (declaratory, legal, political..) of this document?

2. What are the foundations of the AEC project?

3. What is the timeframe to realize the AEC? How does the Blueprint help in respecting and

keep up with the timeframe?

RECALLING our earlier decision to establish by 2020 the ASEAN Community, including the ASEAN Economic Community (AEC), made in the Declaration of ASEAN Concord II in Bali, Indonesia, on 7 October 2003; DETERMINED to achieve higher levels of economic dynamism, sustained prosperity, inclusive growth and integrated development of ASEAN; CONSCIOUS of the increasing interdependence of the ASEAN economies within the region as well as with the rest of the world and stressing the importance of narrowing the development gap for accelerating the ASEAN Economic Community by 2015; RECOGNISING that different levels of development within ASEAN require some flexibility as ASEAN moves towards a more integrated and interdependent future; REAFFIRMING our collective commitment, made at the 12th ASEAN Summit in Cebu, the Philippines, on 13 January 2007, to accelerate the establishment of the ASEAN Community, including its AEC pillar, to 2015; COGNISANT of the need to have a strengthened institutional framework and a unified legal identity as set forth in the ASEAN Charter by putting in place rules-based systems to realise the establishment of the AEC by 2015; EXPRESSING satisfaction at the overall progress made and commitment shown by ASEAN in developing the AEC Blueprint and to ensure its timely implementation; REAFFIRMING the ASEAN Economic Ministers (AEM) as the coordinator of all ASEAN economic integration and cooperation issues;

12

DO HEREBY: 1. ADOPT the AEC Blueprint which each ASEAN Member Country shall abide by and implement the AEC by 2015. The AEC Blueprint will transform ASEAN into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy. The AEC Blueprint including its strategic schedule is annexed to this Declaration. 2. TASK concerned Ministers, assisted by the ASEAN Secretariat, to implement the AEC Blueprint and to report to us regularly, through the Council of the ASEAN Economic Community, on the progress of its implementation. … II. CHARACTERISTICS AND ELEMENTS OF AEC 5. The AEC is the realisation of the end goal of economic integration as espoused in the Vision 2020, which is based on a convergence of interests of ASEAN Member Countries to deepen and broaden economic integration through existing and new initiatives with clear timelines. In establishing the AEC, ASEAN shall act in accordance to the principles of an open, outward-looking, inclusive, and market-driven economy consistent with multilateral rules as well as adherence to rules-based systems for effective compliance and implementation of economic commitments. 6. The AEC will establish ASEAN as a single market and production base making ASEAN more dynamic and competitive with new mechanisms and measures to strengthen the implementation of its existing economic initiatives; accelerating regional integration in the priority sectors; facilitating movement of business persons, skilled labour and talents; and strengthening the institutional mechanisms of ASEAN. As a first step towards realising the ASEAN Economic Community, ASEAN has been implementing the recommendations of the High Level Task Force (HLTF) on ASEAN Economic Integration contained in the Bali Concord II. 7. At the same time, the AEC will address the development divide and accelerate integration of Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV) through the Initiative for ASEAN Integration and other regional initiatives. Other areas of cooperation are also to be incorporated such as human resources development and capacity building; recognition of professional qualifications; closer consultation on macroeconomic and financial policies; trade financing measures; enhanced infrastructure and communications connectivity; development of electronic transactions through e-ASEAN; integrating industries across the region to promote regional sourcing; and enhancing private sector involvement for the building of the AEC. 8. Based on the above and taking into consideration the importance of external trade to ASEAN and the need for the ASEAN Community as a whole to remain outward looking, the AEC envisages the following key characteristics: (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy. These characteristics are inter-related and mutually reinforcing. Incorporating the required

13

elements of each characteristic in one Blueprint shall ensure the consistency and coherence of these elements as well as their implementation and proper coordination among relevant stakeholders. A. Single Market and Production Base 9. An ASEAN single market and production base shall comprise five core elements: (i) free flow of goods; (ii) free flow of services; (iii) free flow of investment; (iv) freer flow of capital; and (v) free flow of skilled labour. In addition, the single market and production base also include two important components, namely, the priority integration sectors, and food, agriculture and forestry. … A2. Free flow of services 20. Free flow of trade in services is one of the important elements in realising ASEAN Economic Community, where there will be substantially no restriction to ASEAN services suppliers in providing services and in establishing companies across national borders within the region, subject to domestic regulations. Liberalisation of services has been carried out through rounds of negotiation mainly under the Coordinating Committee on Services. Negotiation of some specific services sectors such as financial services and air transport are carried out by their respective Ministerial bodies. In liberalising services, there should be no back-loading of commitments, and pre-agreed flexibility shall be accorded to all ASEAN Member Countries. 21. In facilitating the free flow of services by 2015, ASEAN is also working towards recognition of professional qualifications with a view to facilitate their movement within the region. Actions: i. Remove substantially all restrictions on trade in services for 4 priority services sectors, air transport, e-ASEAN, healthcare and tourism, by 2010 and the fifth priority services sector, logistics services, by 2013; ii. Remove substantially all restrictions on trade in services for all other services sectors by 2015; iii. Undertake liberalisation through consecutive rounds of every two years until 2015, i.e. 2008, 2010, 2012, 2014 and 2015; iv. Target to schedule minimum numbers of new sub-sectors for each round: 10 sub-sectors in 2008, 15 in 2010, 20 in 2012, 20 in 2014 and 7 in 2015, based on GATS W/120 universe of classification; v. Schedule packages of commitments for every round according to the following parameters:

14

• No restrictions for Modes 1 and 2, with exceptions due to bona fide regulatory reasons (such as public safety) which are subject to agreement by all Member Countries on a case-by-case basis; • Allow for foreign (ASEAN) equity participation of not less than 51% by 2008, and 70% by 2010 for the 4 priority services sectors; not less than 49% by 2008, 51% by 2010, and 70% by 2013 for logistics services; and not less than 49% by 2008, 51% by 2010, and 70% by 2015 for other services sectors; and • Progressively remove other Mode 3 market access limitations by 2015; vi. Set the parameters of liberalisation for national treatment limitations, Mode 4 and limitations in the horizontal commitments for each round by 2009; vii. Schedule commitments according to agreed parameters for national treatment limitations, Mode 4 and limitations in the horizontal commitments set in 2009; viii. Complete the compilation of an inventory of barriers to services by August 2008; ix. Allow for overall flexibilities2, which cover the sub-sectors totally excluded from liberalisation and the sub-sectors in which not all the agreed parameters of liberalization of the modes of supply are met, in scheduling liberalisation commitments. The scheduling of liberalisation commitments in each round shall be accorded with the following flexibilities: • Possibility of catching up in the next round if a Member Country is not able to meet the parameters of commitments set for the previous round; • Allowing for substituting sub-sectors that have been agreed to be liberalised in a round but for which a Member Country is not able to make commitments with subsectors outside the agreed sub-sectors; and • Liberalisation through the ASEAN Minus X formula. x. Complete mutual recognition arrangements (MRAs) currently under negotiation, i.e. architectural services, accountancy services, surveying qualifications, medical practitioners by 2008, and dental practitioners by 2009; xi. Implement the MRAs expeditiously according to the provisions of each respective MRA; xii. Identify and develop MRAs for other professional services by 2012, to be completed by 2015; and xiii. Strengthen human resource development and capacity building in the area of services. … NB.: See strategic schedule for ASEAN Economic Community at the end of the Blueprint (p.37 & 38 for services)

15

Note: A Mid-term Review of the Blueprint was conducted in 2011-2012 by the research institute ERIA and submitted the report to the ASEAN Economic Ministers Meeting in August 2012 (http://www.eria.org/Mid-Term%20Review%20of%20the%20Implementation%20of%20AEC%20Blue%20Print-Executive%20Summary.pdf ). According to the report, while the AEC has not quite obtained ‘single market’, substantial steps toward ‘integrated production base’ have been achieved. Based on the main results, the seminar discusses (i) policy requirements for further activating regional production networks as a source of strength and competitiveness of the ASEAN economy, achieving both the deepening of economic integration and the narrowing of development gaps, (ii) substantial achievements so far in the areas such as tariff removal, trade facilitation, rules of origin, and investment liberalization and imperative AEC measures toward 2015 such as the removal of core non-tariff barriers and further steps of services… At the midpoint of the time period for the implementation of the AEC Blueprint, the Leaders of ASEAN committed in April 2012 - in the Phnom Penh Agenda for ASEAN Community Building - to redouble their efforts and to set priority activities and concrete key actions to realize the AEC in 2015.

1.3 ASEAN Integration in Services

Note: The following excerpts are from a document prepared by the ASEAN Secretariat in 2009 on services. As we have seen the Blueprint has significant impact on liberalisation of trade in services in ASEAN, providing actions, targets, and timelines for the free flow of services and integration of trade in services in ASEAN as part of the goal of the integrated single market and production base. The document provide an overview of the benefits of services liberalisation, trade in services in ASEAN, the institutional processes in ASEAN for services liberalisation, the status of the negotiations on trade in services, and the initiatives taken to move forward services integration.

Full text http://www.aseansec.org/wp-content/uploads/2013/07/Publication-Integration-in-

Services.pdf

Questions:

1. Why did the Secretariat produce a separate document on Services?

2. Is the economic importance of Services similar in all ASEAN countries?

…

B. BENEFITS OF TRADE IN SERVICES LIBERALISATION The liberalisation of the services sector in ASEAN is expected to create a competitive environment that leads to better and more efficient services delivery. The modern economy relies on rapid and efficient services delivery network to function and to facilitate the development in other sectors of the economy. The services sector makes up at least 40~50% of the Gross Domestic Product in many ASEAN Member States. It is also the fastest growing sector in the region. With the progressive liberalisation in ASEAN, local

16

services providers will be able to take advantage of the market openings as well as to benefit from new ideas and processes arising out of the opening up of the services sector. … The gains to ASEAN from services liberalisation are potentially very high. With liberalisation, investment in services, which is vital for economic development, is expected to increase. In 2008, the services sector in ASEAN received 50% of total ASEAN FDI flows amounting to US$33.5 billion. Increasing investment in the services sector in ASEAN will promote the development of a sound and modern financial, telecommunications, distribution, and transport sectors for economies in the region. ASEAN will also benefit from technology flows, know-how and management skills from the free flow of services in the region. In addition, trade in services is expected to keep pace with the economic growth of the region. The key will be that well-managed and progressive liberalisation of services by ASEAN will lead to expansion of productive capacity and economic development. C. TRADE IN SERVICES IN ASEAN At this volume of trade, ASEAN is currently the largest services trader compared to other developing countries’ regional groupings. ASEAN’s share of total world exports and imports of commercial services stands at 4.7% and 5.7%, respectively in 2007.

17

18

… ASEAN export of services to the world market has grown steadily, doubling from US$68.0 billion in 2000 to US$153.2 billion in 2007. ASEAN import of services from the world market has also expanded markedly, of similar trend and magnitude as exports, doubling from US$86.6 billion in 2000 to US$176.3 billion in 2007. …

D. ASEAN FRAMEWORK AGREEMENT ON SERVICES The ASEAN Economic Ministers (AEM) signed the ASEAN Framework Agreement on Services (AFAS) on 15 December 1995 during the 5th ASEAN Summit in Bangkok, Thailand, recognising the growing importance of services to the economy and the need to enhance and strengthen trade in services within ASEAN. AFAS aims to: * Enhance cooperation in services amongst Member States in order to improve the efficiency and competitiveness, diversify production capacity, and supply and distribution of services of their service suppliers within and outside ASEAN. * Eliminate substantially restrictions to trade in services amongst Member States. * Liberalise trade in services by expanding the depth and scope of liberalisation beyond those undertaken by Member States under the GATS with the aim to realising a free trade area in services. AFAS provides the enabling legal framework for setting out the broad parameters that enables Member States to progressively improve market access and provide national treatment to services suppliers of ASEAN Member States.4 All AFAS rules are consistent with international rules for trade in services as provided for under the GATS Agreement of the World Trade Organisation (WTO). As mentioned above, one of the objectives of AFAS is to liberalise services trade towards achieving liberalisation beyond Member States’ commitments under GATS. This is often referred to as the GATS-plus principle. It means that ASEAN Member States shall schedule commitments under AFAS that go beyond their GATS commitments or offer new service sectors/sub-sectors that have not been scheduled under GATS5. With the adoption of the ASEAN Economic Community (AEC) Blueprint in 2007, future liberalisation commitments under AFAS will be based on the targets and thresholds as laid out under the AEC Blueprint. E. INSTITUTIONAL MECHANISM There are currently several ASEAN bodies which are undertaking work on the integration of trade in different services sectors: * The Coordinating Committee on Services (CCS) which reports to the ASEAN Economic Ministers through the Senior Economic Officials Meeting (SEOM) * The Coordinating Committee on Investment (CCI) which reports to the ASEAN Economic Ministers - ASEAN Investment Area Council (AEM-AIA Council), and through the SEOM

19

* The Air Transport Sectoral Negotiation (ATSN) of the Air Transport Working Group (ATWG) which reports to the ASEAN Transport Ministers (ATM) through the Senior Transport Officials’ Meeting (STOM) * The Working Committee on ASEAN Financial Services Liberalisation under AFAS (WC-

FSL/AFAS) which reports to the ASEAN Finance Ministers Meeting (AFMM) through the

ASEAN Finance and Central Bank Deputies Meeting (AFDM).

…

G. ASEAN ECONOMIC COMMUNITY (AEC) BLUEPRINT Following the adoption of the AEC Blueprint in 2007, the subsequent rounds of negotiations under AFAS will be based on the parameters and timelines as outlined in this Blueprint. The Blueprint contains the following actions on the liberalisation of trade in services: i. Remove substantially all restrictions on trade in services for 4 priority services sectors, air transport, e-ASEAN, healthcare and tourism, by 2010 and the fifth priority services sector, logistics services, by 2013; ii. Remove substantially all restrictions on trade in services for all other services sectors by 2015; iii. Undertake liberalisation through consecutive rounds of every two years until 2015, i.e. 2008, 2010, 2012, 2014 and 2015; iv. Target to schedule minimum numbers of new sub-sectors for each round: 10 subsectors in 2008, 15 in 2010, 20 in 2012, 20 in 2014 and 7 in 2015, based on GATS

v. Schedule packages of commitments for every round according to the following parameters: • No restrictions for Modes 1 and 2, with exceptions due to bona fide regulatory reasons (such as public safety) which are subject to agreement by all Member States on a case-by-case basis; • Allow for foreign (ASEAN) equity participation of not less than 51% by 2008, and 70% by 2010 for the 4 priority services sectors; not less than 49% by 2008, 51% by 2010, and 70% by 2013 for logistics services; and not less than 49% by 2008, 51% by 2010, and 70% by 2015 for other services sectors; and • Progressively remove other Mode 3 market access limitations by 2015.

vi. Set the parameters of liberalisation for national treatment limitations, Mode 4 and limitations in the horizontal commitments for each round by 2009; vii. Schedule commitments according to agreed parameters for national treatment

limitations, Mode 4 and limitations in the horizontal commitments set in 2009;

viii. Complete the compilation of an inventory of barriers to services by August 2008;

ix. Allow for overall flexibilities12, which cover the sub-sectors totally excluded from

liberalisation and the sub-sectors in which not all the agreed parameters of liberalization

of the modes of supply are met, in scheduling liberalisation commitments.

20

The scheduling of liberalisation commitments in each round shall be accorded with the

following flexibilities:

• Possibility of catching up in the next round if a Member State is not able to meet the

parameters of commitments set for the previous round;

• Allowing for substitution of sub-sectors that have been agreed to be liberalized in a round but for which a Member State is not able to make commitments, with subsectors outside of the agreed sub-sectors; and • Liberalisation through the ASEAN Minus X formula. x. Complete mutual recognition arrangements (MRAs) currently under negotiation, i.e. architectural services, accountancy services, surveying qualifications, medical practitioners by 2008, and dental practitioners by 2009; xi. Implement the MRAs expeditiously according to the provisions of each respective MRA; xii. Identify and develop MRAs for other professional services by 2012, to be completed by 2015; and xiii. Strengthen human resource development and capacity building in the area of services. …

I. MUTUAL RECOGNITION ARRANGEMENTS (MRAs) Mutual Recognition Arrangements (MRAs) is another important initiative in ASEAN integration on trade in services. MRAs can facilitate trade in services by mutual recognition of authorisation, licensing, or certification of professional services suppliers. The goal of the MRAs is to facilitate the flow of foreign professionals taking into account relevant domestic regulations and market demand conditions. The ASEAN Coordinating Committee on Services (CCS) established an Ad-hoc Expert Group on MRAs under its Business Services Sectoral Working Group in July 2003 to begin negotiations on MRAs in services. Subsequently, the CCS established the Healthcare Sectoral Working Group in March 2004, which undertook negotiations on MRAs in the healthcare sector under its regular agenda. At present, CCS has concluded seven (7) MRAs signed by the ASEAN Economic Ministers. …

These MRAs enable the professional services suppliers certified or registered by the relevant authorities in their home country to be mutually recognised by other signatory Member States. They are currently in various stages of implementation, with mechanisms being established to administer the implementation of the MRAs. …

L. MOVING FORWARD The ASEAN Economic Community is the realisation of the end goal of economic integration as espoused in the 2003 Declaration of Bali Concord II and the 2009 Cha-am Hua Hin Declaration on the Roadmap for the ASEAN Community. The AEC will establish ASEAN as a single market and production base, making ASEAN into a more dynamic and

21

competitive integrated economic region. The free flow of services is one of the five core elements to achieve this goal. The AEC Blueprint (2007) has outlined in the strategic schedule a number of actions with specific targets and timelines to be achieved in the realisation of the AEC by 2015. However, the achievement of this goal requires collective commitment and will from all ASEAN Member States. In addition, the parameters for further liberalisation of national treatment and movement of natural person limitations are still being developed and their implementation will require further effort to reduce and eventually to significantly eliminate these restrictions. The liberalisation of the services sector is a relatively recent development, compared with trade in goods and it is inherently different from goods trade. It is governed by a framework of myriad rules and regulations, and cross-border trade can be provided through different modes of supply. Services cover a very diverse and large number of sectors and subsectors. They come under the purview and are regulated by numerous government agencies and ministries, and some of these sectors may be regulated, unregulated or may not require regulation. The services sectors are at different levels of development, and the trade volume and significance of trade in services vary significantly between ASEAN Member States. Hence, the liberalisation and integration of services in ASEAN do present some significant challenges. Despite these challenges, given the rapid pace of integration of ASEAN economies into the global trading system and the intensifying pace of FTA/CEP negotiations and implementation with ASEAN’s Dialogue Partners, ASEAN is committed to work towards a higher degree of integration and cooperation in the area of trade in services among its Member States. ASEAN continues to work towards achieving the free flow of trade in services by 2015 as tasked by ASEAN Heads of States/Governments and outlined in the AEC Blueprint. In achieving this goal, cooperation between all stakeholders (business communities, governments, academia, and civil society) will play a critical role in the endeavour to assist in the way forward and to ensure the realisation of ASEAN integration in services.

22

2 – Excerpts ASEAN Integration Through Law – The AEC and

Trade in services

Note:

The following excerpts (2.1 and 2.2) are from part 2 of the ASEAN Integration Through Law

research project on the AEC. The contribution on Trade in Services was co written by Dora Neo,

Pierre Sauvé and Imola Streho. They will be published in a book by Cambridge University Press

(forthcoming), as part of the ASEAN Integration Through Law series. Please do not use the text

without the authors’ approval.

2.1 Liberalization of Trade in Services under the AFAS

Questions: 1. What are the connections between the AFAS and the GATS? 2. What does the ASEAN Minus X approach mean? What are its advantages and drawbacks?

3. How to link the MRAs with the AFAS and how do they advance the agenda of services

liberalization?

…

Whilst AFAS appears not to have elaborated specifically on the Article I(b) aim of

eliminating substantially restrictions to trade in services, the Article I(c) aim of

liberalization is expanded upon in Articles III and IV of AFAS, both of which merit

detailed analysis. Article III provides as follows:

Pursuant to Article I(c), Member States shall liberalize trade in services in a

substantial number of sectors within a reasonable time-frame by:

(a) eliminating substantially all existing discriminatory measures and market access

limitations amongst Member States; and

(b) prohibiting new or more discriminatory measures and market access

limitations.

…

[Excerpts from the ASEAN ITL Book on Services to be included here]

2.2 Services Liberalisation in ASEAN+ FTAs

23

Questions:

1. Why does ASEAN conclude FTAs?

2. Do all FTAs include Services?

3. How to reconcile successive commitments of Services liberalization of the ASEAN countries

in the different fora (internal AFAS, external bilateral and plurilateral)?

…

ASEAN as a group has been actively engaged in the negotiation of preferential trade

agreements (PTAs) and assorted Comprehensive Economic Partnership (CEP) agreements

with an increasing number of strategic partners. Five such agreements have been

concluded with six key partners: Australia, China, India, Japan, Korea and New Zealand.

These agreements envisage the liberalization of trade in goods and services, together with

investment liberalization, as important objectives, but progress on these different aspects

of liberalization has varied and the only constant across the five agreements is the

successful liberalization of trade in goods.

…

[Excerpts from the ASEAN ITL Book on Services to be included here]

24

3 – Topics for debate:

Is the EU Experience and the Creation of an Internal Market in Services Relevant for

ASEAN?

Does Liberalization of Trade in Services (as in the case of the EU) systematically leads

to Deregulation of the Sector?

Note:

Split the group of participants in two or four groups and each is assigned a position pro or con. The

groups should prepare its position on the basis of the enclosed assigned readings (see note 2) and of

any other sources.

During the course, the topics can be addressed in the style of a debating exercise where each group

presents its arguments, try to oppose the arguments of the other group and defend its position.

Note 2:

The following excerpt is from part 2 of the ASEAN Integration Through Law research project on

the AEC. The contribution on Trade in Services was co written by Dora Neo, Pierre Sauvé and

Imola Streho.

For the time being please do not use, quote or cite these excerpts as they are work in progress!

Full text available later on the CIL website;

http://cil.nus.edu.sg/research-projects/cil-research-projects/asean

Services Liberalization in the EU

Since its origin, primary EU law has included reference to services. The Rome Treaty1 does

not give a definition of what a service is but aims at liberalizing trade in services. For

decades services were considered only as instrumental to trade in goods. From the early

1990s, however, the economic weight of services increased and there was a shift towards

more regulation and more litigation on the basis of the primary law referring to services.

…

[Excerpts from the ASEAN ITL Book on Services to be included here]

4 - Case Study

Work in progress on the basis of a EU or GATS real case that led to dispute

settlement.

1 The Treaty of Rome established in 1957 the European Economic Community. The Treaty is also referred to as EECT and since the 1st of December 2009 as Treaty on the Functionning of the European Union, TFEU.