ASEAN and its Free Flow of Goods: Rule-based or based on willingness?

Transcription

1 ASEAN and its Free Flow of Goods: Rule-based or based on willingness? Name: M.C. van Dorst ANR: Master: International and European Public Law; accent European Union Law Supervisor: Ms. Prof. Dr. L.A.J. Senden Second reader: Ms. Dr. H. Oosterom-Staples Handed in on: 7 December 2009 Graduation Date: 16 December 2009

2 Abbreviations... 3 Introduction ASEAN free flow of goods Introduction Developments towards the ASEAN Economic Community Blueprint The ASEAN Trade in Goods Agreement Elimination of import duties Rules of Origin Elimination of non-tariff barriers Trade facilitation ASEAN Single Window Customs integration Standards and technical barriers to trade Comparison with the free movement of goods within the European Union Implementation and enforcement of the provisions of the ATIGA The ASEAN structure ASEAN Summit The Coordinating Council The Community Councils The ASEAN Sectoral Ministerial Bodies The Secretary-General and ASEAN Secretariat The Standing Committee Implementation system Enforcement mechanism Advisory mechanism ASEAN Protocol on Enhanced Dispute Settlement Mechanism The European Union The Council of the European Union The European Council The European Commission The European Parliament The European Court of Justice Implementation of the free movement of goods within the EU Enforcement actions against EU Member States Conclusion on comparison made The problems of the implementation and enforceability of the free flow of goods Introduction Implementation The weakness of the Secretariat Monitoring function of the Secretariat Ensuring implementation of Summit decisions Implementation with the European Union Compliance with the ATIGA? Article 11 ATIGA The European Union The dispute settlement mechanism The SEOM in the dispute settlement mechanism The dispute settlement panels Compliance of findings and recommendations

3 3.4.4 The need of a dispute settlement mechanism Comparison with the EU enforcement system Concluding remarks Economic analysis and recommendations Economic analysis Foreign investors The Secretariat Ensuring implementation The Senior Economic Officials Meeting (SEOM) The dispute settlement mechanism The SEOM in the dispute settlement mechanism The establishment of dispute settlement panels General recommendations Conclusion Sources

4 Abbreviations ACB ACT ASEAN ASEAN-6 ATIGA AFTA AFTA Council CCA CEPT ECJ EPG EU FDI ROO SEOM WTO ASEAN Compliance Monitoring Body ASEAN Consultations to Solve Trade and Investment Issues Association of Southeast Asian Nations Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand ASEAN trade in goods agreement ASEAN Free Trade Area ASEAN Free Trade Area Council Coordinating Committee on the implementation of ATIGA Common Effective Preferential Tariff European Court of Justice Eminent Persons Group European Union Foreign Direct Investment Rules of Origin Senior Economic Officials Meeting World Trade Organization 3

5 Introduction As regionalism is a global phenomenon, regional organizations can be found on all continents. The European Union in Europe, the North American Free Trade Agreement (NAFTA) in North America, the Mercado Común del Sur (Mercosur) and the Andean Community in Southern America, the African Union on the African continent and the Association of Southeast Asian Nations (ASEAN) in Asia. All these regional organizations strive for roughly the same goal; economic integration by reducing a variety of barriers to trade. The level of integration, however, varies for each organization. Since a higher level of economic integration demands an increase in political integration, this process becomes more difficult as the level of integration increases. ASEAN was established on 8 August 1967 in Bangkok with the signing of the ASEAN Declaration by Indonesia, Malaysia, the Philippines, Singapore and Thailand. After the establishment five more countries have joined ASEAN; Brunei Darussalam in 1984, Vietnam in 1995, Lao's People Democratic Republic and Myanmar in 1997 and Cambodia in In 2007, the ASEAN Member States have adopted the Cebu declaration to establish an ASEAN Community and, subsequently, the ASEAN Economic Community Blueprint by which a single market will be realized in As we shall see many elements of this single market correspond with the European single market. However, with regard to the structure of the organizations, the EU and ASEAN are very different. The EU is a supranational organization which is institutionalized to a high level. The classical functions of the executive, legislative and judicial power are institutionalized in the European bodies; the European Commission, the European Parliament and the European Court of Justice. ASEAN is not as institutionalized as the EU and has only one ASEAN body; the ASEAN Secretariat. Other bodies are comprised of national representatives. Because of this structure the Member States have retained all control over the integration process. In this thesis the consequences of this will become clear. This thesis will focus on the obstacles for the functioning of the free flow of goods. The aim of this thesis is to exam the effectiveness of the legal system of the free flow of goods. The central research question is: 'What problems will ASEAN face with regard to the free flow of goods within ASEAN and more specifically with regard to its 4

6 enforceability? In order to answer this question, the following sub questions will be addressed: 'Is the free flow of goods a rule-based system or is the system based on willingness?', 'How does the ASEAN free flow of goods model compare with the European free movement of goods model?' This question is relevant since the EU model has been quite successful. The last sub question is 'What is the expected effectiveness of the ASEAN free flow of goods when we look at its economic results? In chapter one, a description of the development of ASEAN and its objectives in general will be given. After this short introduction to ASEAN, the focus will be on the content of the single market. Therefore the substantial rules of the free flow of goods as will apply in the Economic Community will be given. This will in turn be followed by a comparison of the substantial rules of the European free movement of goods and the ASEAN free flow of goods. In chapter two, the focus will be on the procedural framework of ASEAN, in specific the implementation and enforcement mechanisms with regard to the provisions of the free flow of goods. To this end, the structure of the organization of ASEAN will be described first, which will be followed by the description of the implementation system and the dispute settlement mechanism. Next, a comparison of the ASEAN procedural framework will be made with the EU framework. This will be done by describing the structure of the European Union as well as its implementation and enforcement methods. In chapter three, the implementation system and the enforceability under the free flow of goods will be analyzed. Within this analysis, the problems regarding the implementation and enforcement will be identified. In this regard the report on the ASEAN charter of the Eminent Persons Group will be leading. This analysis will be followed by a comparison whereby the problems identified will be compared with the European equivalent. In chapter four the integration process of ASEAN will be put into economic perspective, which means that the economic effectiveness of ASEAN thus far will be examined. This chapter will also bring recommendations for the problems identified in chapter three. The outcome of the economic analysis will be leading for these recommendations. 5

7 Lastly, in the conclusion the sub questions and the central research question will be answered. Furthermore, recommendations to enhance the effectiveness of the free flow of goods will be given. 6

8 1 ASEAN free flow of goods 1.1 Introduction On the 13 th of January 2007 the ASEAN Member States have signed the Cebu Declaration 1 and, with that, have clearly taken up the plan to establish an ASEAN Community by A few months later, the ASEAN Economic Community Blueprint to implement the Economic Community was adopted and introduced the establishment of a single market. 2 A single market cannot be achieved overnight, but is instead a process of decades of integration. If ASEAN succeeds in establishing its single market by 2015, it has been almost forty years since the first steps were taken. In this chapter a description will be given of ASEAN and its developments towards this single market. After this, the focus will be on one element of the Economic Community, namely the free flow of goods. Therefore, the content of the free flow of goods will be discussed in detail in the second section of this chapter. In the last section a comparison will be made with the free movement of goods of the EU. 1.2 Developments towards the ASEAN Economic Community Blueprint ASEAN was established as a political organization, whose main objective was to secure peace, stability and development throughout the area. 3 In the urge to protect the Southeast Asian region from the perceived communist threat, the Member States decided to expand their activities to encompass further economical cooperation. 4 Two treaties, which were signed in the seventies, show the development towards this greater economic cooperation: 5 the Treaty of Amity and Cooperation in Southeast Asia, in and the Declaration of ASEAN Concord in The following years were spent further developing the economical cooperation. One of the main steps was the establishment of 1 Cebu Declaration on the Acceleration of the Establishment of an ASEAN Community by 2015, Cebu, Philippines, 13 January ASEAN Economic Community Blueprint, Singapore, 27 November ASEAN Declaration (Bangkok declaration), Bangkok, Thailand, 8 august L.H.Tan, Will ASEAN economic integration progress beyond a free trade area? (2004) ICLQ 935, Ibidem, Treaty of Amity and cooperation in Southeast Asia, Indonesia 24 February 1976, a copy can be obtained from the ASEAN Secretariat website at 7 Declaration of ASEAN Concord 1976, Bali, Indonesia, 24 February 1976, a copy can be obtained from the ASEAN Secretariat website at 7

9 the ASEAN Free Trade Area (AFTA) in The AFTA focuses on the reduction of tariffs and the elimination of quantitative restrictions and other non-tariff barriers. Since January 2003 the ASEAN-6 9 have reduced their tariffs to the 0-to-5 percent level on 99,6 percent of their products of the inclusion list. 10 Soon after the implementation of the AFTA it became clear that the AFTA was not the end stage of the economical integration in Southeast Asia. The next step in the ASEAN economic integration process will be the introduction of a single market. The first signs of development towards this single market in the form of an ASEAN Economic Community can be found in the ASEAN Vision 2020 which was adopted in In this document the free flow of goods was mentioned for the first time. The ASEAN Economic Community as such was first introduced in the Bali Concord II which was signed in The planned date of 2020 set by the Bali Concord II has been brought forward to 2015 by the Cebu declaration. The Economic Community is supposed to be one of the three pillars which will form the ASEAN Community. The other two pillars are the Political-Security Community and a Socio-Cultural Community. To focus on clear targets and timelines for implementation the decision was made to develop a single and coherent Blueprint. With the signing of the Economic Community Blueprint the Economic Community started to materialize. The Blueprint declares that the ASEAN Economic Community (AEC) will realize the economic integration as set in the Vision One of the general goals of ASEAN is to create a stable, prosperous and highly competitive ASEAN economic region with effective facilitation for trade and investment in which there is a free flow of goods, services, investment and a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities. 12 The AEC also strives for the realization of this goal. The principles shaping the AEC are the principles of an open, outward-looking, inclusive, and market-driven economy; further the AEC should be consistent with multilateral rules as well as adherence to rule-based systems for effective compliance and implementation of economic commitments. These principles 8 The ASEAN Free Trade Area was established by the Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area, Singapore 28 January ASEAN-6 refers to the first six Member States that joined ASEAN; Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand 10 ASEAN Secretariat 2004h:17 Products in the inclusion list are those that have to undergo immediate liberalization through reduction in intra-regional (CEPT) tariff rates, removal of quantitative restrictions and other non-tariff barriers. 11 Vision 2020, Kuala Lumpur, Malaysia, 15 December ASEAN Charter article 1(5) 8

10 interrelate with the key characteristics of the AEC, which will be 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. 13 These principles and characteristics interrelate in turn with, what is said by many authors to be one of the main objectives of ASEAN economic integration, namely attracting foreign direct investments. 14 The single market will contribute to making ASEAN more competitive and dynamic and to strengthen the institutional mechanisms of ASEAN, which will give investors confidence to invest their money in this region. 15 The first element described in the Blueprint is the free flow of goods. It is not without reason that this is the first element to be described since, as stated in the Blueprint, this is one of the principal means by which the aims of a single market can be achieved. The objective of the ASEAN single market for goods is the facilitation of the development of production networks in the region and the enhancing of ASEAN s capacity to serve as a global production centre or as a part of the global supply chain. To provide a legal framework for the realization of the free flow of goods the Member States have signed the ASEAN Trade in Goods Agreement (ATIGA) at the last ASEAN Summit. 16 The Agreement still has to be ratified by all Member States before it enters into force. This was planned for August 2009 but got delayed The ASEAN Trade in Goods Agreement The Agreement sets out general provision in the first chapter. Article 6 ATIGA sets out the rule that products of other countries be treated the same way as like products manufactured in the importing country. 18 Article 7 ATIGA further states that in connection with import or export, only fees and charges may be imposed for services actually rendered. The costs of the services may not be an indirect protection to 13 ASEAN Economic Community Blueprint, Singapore, 27 November M.G Plummer and D. Cheong, FDI Effects of ASEAN Integration (2007) Paper prepared for: Is Free Trade still relevant in the 21 st century? A conference celebrating Professor Rachel McCulloch at the International Business School Brandeis University on June , conferences/mcculloch/plummer_cheong.pdf and L.H.Tan, Will ASEAN economic integration progress beyond a free trade area? (2004) ICLQ 935, A. Schwarz and R. Villinger, Integrating Southeast Asia's economies (2004) 1 The McKinsey Quarterly ASEAN Trade in Goods Agreement, Thailand, 26 February The fourteenth ASEAN Summit was held in Cha-am, Thailand from 26 February till 1 March One of the reasons of the delay was a conflict which had arisen between Thailand and the Philippines. The latter wanted to protect their rice market after the devastation by two typhoons. 18 This rule is copied from Article 3 of GATT

11 domestic goods. Import or export duties, charges equivalent to an internal tax or other internal charges may be charged but these charges may not exceed the charges imposed on domestic products. 19 Article 8 ATIGA provides a list of exemption measures. These measures are not prohibited to be adopted or to be enforced by the ATIGA. 20 This list seems to be limitative and includes measures which are necessary to protect public morals, human, animal or plant life or health but also measures necessary to secure compliance with laws and regulations and measures relating to the products of prison labour. Also article 9 ATIGA provides for exceptions, but only for the protection of essential security interests of the Member States. Both articles 8 and 9 ATIGA do not state clearly whether the exceptions can be made on either financial or non-financial restrictions or on both. The Blueprint has introduced a variety of measures which will have to be taken to establish the free flow of goods. In the ATIGA these measures are further developed into a legal framework. The measures taken are: - The elimination of import duties on all products (chapter 2 of the ATIGA); - Putting in place Rules of Origin criteria (chapter 3 of the ATIGA); - The elimination of Non-Tariff Measures (chapter 4 of the ATIGA); - The enhancement of trade facilitation (chapter 5 of the ATIGA); - The establishment of an ASEAN Single Window (article 49 of the ATIGA); - The enhancement of customs integration (chapter 6 of the ATIGA); - The creation of standards to eliminate technical barriers to trade (chapter 7 of the ATIGA). The objectives of the ATIGA with these actions is to minimize barriers and deepen economic linkages among Member States, lower business costs, increase trade, investment and economic efficiency, create a larger market with greater opportunities and larger economies of scale for the businesses of Member States and create and maintain a competitive investment area. Harmonization also plays a role in these objectives since harmonization of rules and standards reduces transaction and production costs, which will lead to an increase in cross border trade and a better 19 This rule is copied form article 3.1 GATT This article will be more elaborated on in section

12 allocation of sources. 21 However, the ATIGA does not reveal more about the process of harmonization then stating that harmonization takes mainly place by harmonizing national standards and procedures with international standards and procedures Elimination of import duties The Blueprint states that the tariffs on all intra-asean goods will be eliminated in accordance with the schedule and commitments set out in the Common Effective Preferential Tariff (CEPT-) Scheme for the AFTA 22 and other relevant Agreements and Protocols. The CEPT is an agreed effective tariff, preferential to ASEAN, to be applied to goods originating from ASEAN Member States. The CEPT was adopted with the thought that the preferential trading arrangements among ASEAN Member States would act as a stimulus to the strengthening of national and ASEAN Economic resilience, and the development of the national economies of Member States by expanding investment, production opportunities, trade, and foreign exchange earnings. The ATIGA does not, however, provide for a full elimination of all tariffs for all products. The first article in the chapter on tariff liberalization states that Except as otherwise provided in this Agreement, Member States shall eliminate import duties on all products traded between the Member States by 2010 for ASEAN-6 and by 2015, with flexibility to 2018, for CLMV. 23 The second section includes a list of exceptions. Depending on the type of product, the products are set in a schedule which determines the elimination date. Article 19 ATIGA excludes the import duties of unprocessed agricultural products and petroleum products (for Cambodia and Vietnam) and the out-quota tariff rates (for Thailand and Vietnam) from elimination in section D, E, F and G. It is also prohibited to introduce Tariff Rate Quotas, in accordance with article 20 ATIGA. In addition, Vietnam and Thailand have to eliminate their existing Tariff Rate Quotas. Each Member State shall issue a legal enactment to give effect to the implementation of the tariff liberalization schedules. 21 Z.S. Malang, Economic Integration in the Asian Region: Harmonization of law (2007) Mindanao Law Journal The Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area, Singapore, 28 January CLMV refers to Cambodia, Lao PDR, Myanmar and Vietnam. These are the least developed countries within ASEAN 11

13 1.3.2 Rules of Origin As well as in the CEPT, a good shall be treated as an originating good in the AGITA if the Rules of Origin (ROO) apply. To apply the Rules of Origin a good can either be wholly obtained or produced in the exporting Member State in accordance with article 27 AGITA or a good is not wholly obtained or produced in the exporting Member State, and is eligible under article 28 AGITA or article 30 AGITA. Article 28 (1)(a) determines goods as originating goods when working or processing has been taken place in the Member State and the goods have a Regional Value Content of at least 40 percent. This means that 40 percent of its content, including labour and profit, originates from that Member State. Article 28 ATIGA further determines goods as originating goods if all nonoriginating materials used in the production of the goods have undergone a change in tariff classification. A good satisfying the origin requirements can apply the preferential tariff treatment, in accordance with article 32 ATIGA. This claim can be supported by a Certificate of Origin. 24 A sub-committee on Rules of Origin shall be established pursuant to article 90 ATIGA. This Committee shall support the effective and uniform implementation of this chapter Elimination of non-tariff barriers The AFTA has made significant progress in the removal of tariffs, 25 but many barriers still exist. The ATIGA will include the elimination of non-tariff barriers, it defines nontariff barriers in article 2 as measures other than tariffs which effectively prohibit or restrict imports or exports of goods within Member States. Article 40 ATIGA prohibits Member States to adopt or maintain non-tariff measures on the importation of any good of any other Member State or on the exportation of goods destined for the territory of any other Member State, except if the measures are in accordance with WTO rights and obligations or in accordance with this agreement. For the full elimination of non-tariff barriers ASEAN wants to enhance transparency on those measures that are permitted and those that are prohibited. Article 41 ATIGA further prohibits the adaptation or maintenance of any prohibition or quantitative restriction on the importation or exportation of any good to or from another Member State. Based on article 2(n) ATIGA, quantitative restrictions means measures intended to prohibit or restrict quantity of 24 Further details on the Certificate of Origin can be found in Annex 7 and 8 25 ASEAN Economic Community Blueprint, point 11 12

14 trade with other Member States, whether made effective through quotas, licenses or other measures with equivalent effect, as well as administrative measures and requirements which restrict trade. The elimination of non-tariff barriers proceeds in three different trenches. The Member States are divided into these three groups depending on the development level of the Member States Trade facilitation As indicated in the Blueprint the reduction of transaction costs will enhance export competitiveness and facilitate the integration of ASEAN into a single market for goods, services and investments and a single production base. To this end, chapter 5 of the ATIGA introduces a Work Programme on Trade Facilitation which will set out all actions and measures with its targets and timelines of implementation. This will create a consistent, transparent, and predictable environment for international trade transactions to save time and reduce costs ASEAN Single Window The ASEAN Single Window is the environment where ten National Single Windows of the Member Countries operate and integrate. The National Single Window is a system which enables a single submission of data and information, a single and synchronous processing of data and information; and enables a single decision making for customs release and clearance. A single decision making shall be uniformly interpreted as a single point of decision for the release of cargoes by the Customs on the basis of decisions. 26 The Blueprint stated that the ten National Single Windows shall be operational no later than Article 49 ATIGA prescribes that Member States shall take necessary measures for the establishment of their National Single Windows and the ASEAN Single Window Customs integration Integrating customs procedures is one of the trade facilitation measures which will facilitate free flow of goods. Chapter 6 ATIGA, therefore, sets out rules for the customs procedures which will apply to goods traded among Member States. The objectives of these rules are: a) to ensure predictability, consistency and transparency in the 26 Agreement to Establish and Implement the ASEAN Single Window, Kuala Lumpur, Malaysia, 9 December

15 application of customs laws of Member States; b) to promote efficient and economical administration of customs procedures, and expeditious clearance of goods; c) to simplify and harmonize customs procedures and practices to the extent possible and; d) to promote cooperation among the customs authorities. Therefore the Member States shall, in accordance with article 54 ATIGA, ensure that its customs procedures and practices are predictable, consistent, and transparent and facilitate trade. For some procedures existing agreements will suffice. For example the standards and recommended practices of the World Customs Organization and part I of the Customs Valuation Agreement which will apply for the determination of the customs value of goods, in accordance with article 57 ATIGA. For other procedures harmonization will take place, to the extent possible. This is the case with administrative procedures and practices for the determination of value of goods. With regard to the customs decisions made in accordance with these procedures any person in its territory has access to administrative review and appeal within the customs authorities, in accordance with article 69 ATIGA. As mentioned before ASEAN intends to integrate customs procedures to establish a free flow of goods. ASEAN, however, does not have a customs union and neither the Charter nor the Economic Blueprint mentions the creation of one. This will leave one stage out of the economic integration as prescribed by Balassa. 27 Balassa s five stages are as follows: 1) Free Trade Area, 2) Customs Union, 3) Common Market, 4) Economic Union, 5) total economic integration. It is unlikely that ASEAN will create a Customs Union since a Customs Union indicates a common external tariff policy. The creation of a common external tariff policy is extremely difficult because this requires a strong commitment by, and compromises from, all countries. The fact that Singapore already has an almost zero tariff policy and has many free trade agreements with non-asean partners indicates which compromises and commitments the other Member States will have to make to realize a customs union Standards and technical barriers to trade A free flow of goods does not merely involve the removal of tariff barriers; it also involves the promotion of greater efficiency and enhances cost effectiveness of 27 J. Pelkmans, European integration; methods and economic analysis (Pearson Education Limited, Edinburgh 2001)

16 production of intra-regional imports and exports. Chapter 7 establishes provisions on standards, technical regulations and conformity assessment procedures to ensure that these do not create unnecessary obstacles to trade. Furthermore, in accordance with article 73 ATIGA, Member States shall take one or more of the following measures: a) Harmonize national standards with relevant international standards and practices; b) promote mutual recognition of conformity assessment results among Member States; c) develop and implement ASEAN Sectoral Mutual Recognition Arrangements and develop ASEAN Harmonized Regulatory Regimes in the regulated areas where applicable; and d) encourage the co-operation among National Accreditation Bodies and National Metrology Institutes to facilitate the implementation of Mutual Recognition Arrangements in regulated and non-regulated sectors. In addition to the general objectives of the Blueprint to include sanitary and phytosanitary measures, the ATIGA contains a chapter on these issues as well. This chapter 8 highlights the desire for ASEAN to protect the life and health of humans, animals and plants. Chapter 9 on Trade Remedy Measures affirms the fact that Member States shall retain their rights and obligations under the WTO Agreements. 1.4 Comparison with the free movement of goods within the European Union The ASEAN free flow of goods resembles to a large extent the free movement of goods in the EU, like its name suggests. Similarities are seen in both the objectives of creating an internal market and the contents. Especially with regard to the objectives a comparison can be made. The objective of the European Economic Community was to preserve peace and liberty and to lay the foundations of an ever closer union among the peoples of Europe. So both organizations have used the economic integration in an attempt to create more stability in the region. Article 2 EC further sets the tasks for the European Community: To promote a harmonious, balanced and sustainable development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable and non-inflationary growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States. Many of these aspects correspond with the aspects mentioned for the objective of the ASEAN Economic Community. 15

17 With regard to the content of the ASEAN free flow of goods more differences exist. In contrast with the internal market within ASEAN, where a full removal of barriers is not taking place, barriers within the EU borders have become none existing. In accordance with article 14 EC, the EU internal market comprises an area without internal frontiers in which the free movement of goods is ensured. A fundamental difference between ASEAN and the EU is that the EU consists of a common market which in turn is built on a customs union. As mentioned before ASEAN does not have a customs union. Furthermore, the ATIGA will merely establish a single market, in which some import duties will remain in existence. 28 The EU common market implies a common application of common rules at its external borders. This is seen as an essential element of the EU single market. 29 Article 23 EC further shapes the customs union. First of all, the customs union covers all trade in goods. Thus, no exceptions are made on any good. Second, it is prohibited for Member States to charge customs duties on imports and exports between Member States as well as all charges having equivalent effect. 30 Charges having equivalent effect implies that the prohibition is aimed at charges with the effect of impeding trade and not merely on those with that purpose. Note, that the Third, the customs union has a common customs tariff which applies to goods imported in the European Union from these third countries. Once a good is imported, the goods coming from third countries can freely circulate among the Member States, without the payment of further customs duties. This rule implies a significant difference with the ASEAN system in which the free flow of goods provisions only apply to goods originating in one of the Member States. Thus, the existence of the European common market demands a higher level of harmonization. Within the European internal market harmonization is common practice. Article 95 EC plays a vital role in this. On the basis of this article harmonization can take place if it benefits the achievement of the objective as stated in article 14 EC. The European Court of Justice (ECJ) has decided that within the framework of the internal market harmonization of law is justified, when differences in national law lead to disparities which cause or maintain a noticeable disruption of the competition 28 See article 19 ATIGA for the elimination of import duties Article 25 EC treaty establishing the European Community 16

18 conditions 31 or when those differences can become an infringement for the free movement. Member States can ask permission to deviate from harmonization rules on the grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures; or the protection of industrial and commercial property on the basis of article 95(4) EC and article 95(5) EC in conjunction with article 30 EC. The ECJ has extended the exception rules with the rule of reason in case law. 32 The rule of reason allows mandatory requirements to restrict trade. Where the abovementioned list of grounds is limitative, the rule of reason provides additional exceptions which are non-limitative. As we have seen, harmonization takes place in ASEAN as well; however, when compared with the EU it is clear that the policy on harmonization in ASEAN is not as extensive as in the EU. In the EU harmonization can take place in all aspects affecting the European internal market, within ASEAN harmonization only takes place for those provisions that are specifically indicated in the ATIGA. A general provision to justify harmonization like article 95 EC therefore cannot be found in ASEAN. The free movement of goods in the EU is guaranteed by the prohibition of quantitative restrictions on imports (article 28 EC) and exports (article 29 EC) as well as all measures having equivalent effect. This means that all measures with the effect of restricting imports or exports are prohibited as well. Also the ATIGA uses the term quantitative restrictions with equivalent effect which means measures intended to prohibit or restrict quantity of trade with other Member States. These phrases seem to be the same. However, in practice these phrases are very different, because it will be hard to proof whether a Member State had the real intention to restrict trade. ASEAN Member States will most likely succeed when they claim that the restriction of trade is merely an effect of a measure and not the intention of that measure. Another similarity, although differently formulated, is the exception rule. Article 8 ATIGA gives a number of measures of which the adoption will not be prevented by anything in the ATIGA. These measures include measures; a) which are necessary to 31 W.T. Eijsbouts, J.H. Jans, F.O.W. Vogelaar, Europees Recht; algemeen deel (Europa Law Publishing, Groningen 2006) Case 120/78 Rewe Zentrale v. bundesmonopolverwaltung für Branntwein ( Cassis de Dijon ) [1979] ECR

19 protect public morals, human, animal or plant life or health; b) relating to the importations or exportations of gold or silver; c) necessary to secure compliance with laws or regulations; d) relating to the products of prison labour; e) imposed for the protection of national treasures of artistic, historic or archaeological value. This rule is subject to the rule of unjustifiable discrimination, which states that discrimination is never allowed unless this discrimination is the direct result of other valid interests. Article 30 EC provides the ASEAN equivalent. The prohibitions of quantitative restrictions on import and export are not valid on grounds of public morality, policy or security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property on the basis of article 30 EC. This exception is also subject to the rule of unjustified discrimination. The exceptions of article 30 EC form a limitative list; however, the rule of reason can be applied. Unless total harmonization has been realized, the rule of reason provides a way to accept rules which restrict trade. For the rule of reason to apply, mandatory requirements have to be applicable. Aside from the requirement that harmonization rules have to be absent, a measure has to be a non-financial restriction, it has to be proportional and, it must be indistinctly applicable. When legislation for harmonisation is already in place, exceptions are only justified on the basis of these harmonization rules. Financial restrictions are only justified when they form a compensation for specific duties. Many of the measures mentioned in article 8 ATIGA can be found in the exception ground of article 30 EC, except for measures necessary to secure compliance with laws or regulations as stated in article 8 ATIGA. These measures are considered to be part of the rule of reason in the European equivalent. In the same case in which the ECJ adopted the principle of the rule of reason, it also adopted the principle of mutual recognition. Mutual recognition entails that goods lawfully produced and marketed in one of the Member States should be recognized by the other Member State and that these goods should be allowed to be marketed in any other Member State Case 120/78 Rewe Zentrale v. bundesmonopolverwaltung für Branntwein ( Cassis de Dijon ) [1979] ECR 649, para

20 It should be clear by now that although the free flow of goods is clearly inspirited by the free movement of goods, still many (subtle) differences exist. The objectives for creating the internal market are almost the same. In the content of the regulation more differences exist, but the most fundamental provisions correspond. The ASEAN free flow of goods also provides for the prohibition to restrict import and export in both financial and non financial way. In the following chapters the focus will be more on the procedural aspects and less on the content. 19

21 2 Implementation and enforcement of the provisions of the ATIGA The fact that the ASEAN Member States have adopted the ATIGA and have agreed to implement its provisions is no guarantee for its actual implementation, compliance and enforcement. This makes an enforcement mechanism desirable. In this chapter, the ASEAN structure will be explained first, therefore the ASEAN bodies will be introduced with their functions and their composition. This will help to better understand the implementation and enforcement mechanism. In this chapter the ASEAN bodies will be introduced with their functions and their composition. In the second part the implementation system will be discussed, followed by the enforcement system. In the last part the European institutions and the European implementation and enforcement mechanisms will be compared with ASEAN. 2.1 The ASEAN structure When examining the structure of ASEAN the most significant difference (at least in comparison with the European Union) is the fact that ASEAN is not as institutionalized as the European Union. The main reason for this is that in the diplomatic and security culture within ASEAN the Member States have emphasized the sovereign equality and ability to act in each nation s own national interests. 34 The result of this culture is that the Member States of ASEAN are very reluctant when it comes to transferring their powers to an organizational body, at least to ASEAN. 35 This explains the extent of decision making by consensus and the lack of transfer of sovereignty. However, this is not the only consequence of the Member States wish to stay in control. Ravenhill has said that, ASEAN appears to have confused an aversion to supra-nationalism with an unwillingness to accept binding commitments voluntarily entered into. 36 Ravenhill touches on the theory of ASEAN s way of decision making, which is called the ASEAN Way. Article 20 ASEAN Charter identifies one of the elements of this ASEAN way by stating that decision making shall be based on consultation and consensus. The ASEAN way, however, is more than this article. It is also a strict obedience to the principles of 34 B. Fort, D. Webber, Regional integration in East Asia and Europe: convergence or divergence? (Routledge, London 2006) J. Ravenhill, Fighting irrelevance: an economic community with ASEAN characteristics (2008) The Pacific Review 469, Ibidem,

22 non-intervention, and the sanctity of state sovereignty, as well as an informal and nonconfrontational way of decision making. 37 Article 20(2) ASEAN Charter states that where consensus cannot be achieved, the ASEAN Summit may decide on how a specific decision will be made. The ASEAN Charter, which was signed in November 2007 and by which the States have established a legal and institutional framework for ASEAN, seems to enhance the process of institutionalization. In chapter IV of the Charter the (main) organs of ASEAN are mentioned. These organs are: the ASEAN Summit (article 7), the Coordinating Council (article 8), the Community Councils (article 9), the Sectoral Ministerial Body (article 10), the Secretary-General and the ASEAN Secretariat (article 11). For a better understanding of the ASEAN structure, these organs will be discussed below ASEAN Summit The ASEAN Summit is the highest decision making body. It comprises of the Heads of State or Government of the Member States. Its task is to provide policy guidelines and to make decisions on key issues pertaining to the realization of the objectives of ASEAN. Furthermore, it makes decisions on important issues or issues referred to it by the ASEAN Coordinating Council, the ASEAN Community Councils and ASEAN Sectoral Ministerial Bodies. The Summit further instructs the agenda of the Councils through the relevant Ministers. The Summit will take appropriate actions in case of emergency situations affecting ASEAN. The Summit shall also act when in another body a decision cannot be reached or when a dispute cannot be settled through the prescribed procedure. The ASEAN Summit meeting shall be held bi-annually or when necessary. The ASEAN Summit is the highest decision making body of ASEAN and, although the ASEAN Charter does not say this explicitly, the Charter does not attribute decision making powers to other bodies. It therefore appears that other ASEAN bodies are only allowed to make decisions on internal organizational matters. The Charter does mention legal instruments, however, this list is not limitative and it does not elaborate on the legal status of these instruments. Legal instrument that are mentioned are; treaties, conventions, agreements, concords, declarations, and protocols. In the ATIGA 37 R. Stubbs, The ASEAN alternative, ideas, institutions, and the challenge to global governance (2008) The Pacific Review 451,

23 agreements and decisions are mentioned as overall terms for legal instruments. Also in this thesis decisions and agreements will be used in the broadest meaning of the words The Coordinating Council The Coordinating Council is comprised of the ASEAN Foreign Ministers. This body has, as its name suggests, a coordinating and executive function. This Council prepares the meetings of the ASEAN Summit. Furthermore, it coordinates the implementation of agreements and decisions, the enhancement of policy coherence and efficiency and the reports of the ASEAN Community Councils to the ASEAN Summit. Lastly, it also reviews the annual report of the Secretary-General on the progress of ASEAN and the report of the Secretary-General on the functions and operations of the ASEAN Secretariat and other relevant bodies The Community Councils The Community Councils are the three Councils of each of the pillars. These councils shall ensure the implementation of the (relevant) decisions of the ASEAN Summit. The national representatives for the specific subjects form the Community Councils. In most cases the representative is a Minister or Secretary. The Community Councils have under its purview Sectoral Ministerial Bodies of which they coordinate the work. The Councils submit reports and recommendations to the ASEAN Summit. Each Community Council shall meet at least twice a year. The ASEAN Economic Community Council 38 is second in the line of decision making power within the Economic Community. The Economic Community Council is supported by the Senior Economic Officials Meeting (SEOM), which is one of the Sectoral Ministerial Bodies The ASEAN Sectoral Ministerial Bodies The ASEAN Sectoral Ministerial Bodies work under the ASEAN Community Councils. As imposed by the ASEAN Charter the Sectoral Ministerial Bodies shall; a) function in accordance with their respective established mandates; b) implement the agreements and decisions of the ASEAN Summit under their respective purview; c) strengthen cooperation in their respective fields in support of ASEAN integration and community building; and d) submit reports and recommendations to their respective Community 38 Formerly known as ASEAN Economic Ministers, both terms are still used in the literature. 22

24 Councils. The ASEAN Free Trade Area Council (AFTA Council) is a Sectoral Ministerial Body under the purview of the ASEAN Community Council and is established in accordance with article 90 ATIGA. The AFTA Council comprises one ministerial-level nominee from each Member State and the Secretary-General of ASEAN. One of the most important Sectoral Ministerial Bodies is the SEOM. As mentioned before, the SEOM supports both the Economic Community Council and the AFTA Council. The SEOM is a grouping of national-level bureaucrats 39, the senior economic officials which came together in the Senior Economic Officials Meeting. The SEOM comprises of the heads of trade, industry, finance and commerce of the ASEAN Member countries which represent their own countries. Since 1987, the SEOM embodies all ASEAN Economic Committees and is supposed to handle all aspects of ASEAN economic cooperation. The SEOM meets regularly and reports directly to the Economic Community Council. Within the ATIGA the SEOM has a central place in carrying out ASEAN s policy on the national level, especially with the implementation of the ATIGA provisions. The SEOM can be compared with the Economic Community Council but on a lower level. The SEOM is third in line of decision making The Secretary-General and ASEAN Secretariat The Secretary-General shall be appointed by the ASEAN Summit for a period of five years. Its main task is to facilitate and monitor progress in the implementation of ASEAN agreements and decisions. The Secretary-General presents the views of ASEAN to the media and participates in meetings with external parties. The Secretary-General is also the Chief Administrative Officer of ASEAN. The Secretary-General shall be assisted by four Deputy Secretaries-General of different nationalities. The ASEAN Secretariat is comprised of the Secretary-General, four Deputy Secretaries-General and such staff as may be required. The Secretary-General does not have any power based on the Charter other than the influence he can derive from the participation in the meetings of the Summit, the Community Councils, the Coordinating Council and the Sectoral ministerial bodies

25 As can be seen most bodies are national based. This means that the bodies are comprised of staff member which in the first place works for their national governments. The Secretary-General and the ASEAN Secretariat are the only bodies which are true ASEAN bodies. The other bodies, with the ASEAN Summit as the highest decision making body are all national orientated. As will be shown in chapter 2.4, within the European Union different entities are represented by the different European bodies. The European Council represents the European governments, the European Parliament represents the European citizens and the European Commission represents the European Union. Politics / negotiations Rules / Implementation Summit Coordinating Council Secretary - General The Secretariat Economic Community councils The Standing Committee The ASEAN Standing Committee is a coordinating body, aimed to coordinate communications between the ASEAN Ministerial Meetings. It is also an advisory body to the Permanent Committees and as such reviews the work of Committees with a view to implementing policy guidelines set by the ASEAN Ministerial Meetings. The Standing Committee comprises a Chairman, the Secretary-General of ASEAN and the Directors- General of the ASEAN National Secretariats. 40 Political- Security Sociocultural Standing Committee The SEOM Sectoral Ministerial Bodies - e.g. SEOM Dispute Settlement Bodies Figure 1 Source: presentation of Ewing Chow,