US-ASEAN Business Council

The US-ASEAN Business Council (US-ABC) has been privileged to conduct an annual dialogue with the ASEAN Economic Ministers (AEM) during the annual AEM meeting for the past 17 years.

The US-ASEAN Business Council strongly supports the establishment of the ASEAN Economic Community (AEC), The AEC represents a regional economic strategic imperative for sustaining both ASEAN’s global competitiveness to attract its share of global FDI flows and centrality in the evolution of Asia’s regional trade and financial architectures. The more efficient, unified, and free a market ASEAN can become, the more American companies can invest, employ and trade. The Council is eager to continue working with ASEAN to fulfill the vision of the AEC while still working towards the next set of goals expressed in ASEAN Vision 2025. At the request of the ASEAN Economic Ministers, the Council annually queries its sectoral working groups on what they felt were the key issues affecting the ability of ASEAN to attract investment in specific industries. The Council has collected and updated their input in order to offer a list of recommendations both regional in nature and sector specific. We believe the recommendations reflect priority opportunities for ASEAN to achieve the regional economic integration objectives associated with the AEC and increase foreign direct investment in leading growth engines in ASEAN. Some of these recommendations are within the direct action purview of the ASEAN Economic Ministers, and others are primarily within the purview of other sectoral ministerials, but our members believe it is important for the AEMs to be aware of them for their own information and for their interagency discussions.

Long-term U.S. company priorities can be expressed by the acronym RICH:

Recognize qualified testing regimes from elsewhere in the world and follow best practices recommendations of global bodies, including for government procurement.

Implement current commitments, such as o The ASEAN Free Trade Areao The ASEAN Free Area of Serviceso The ASEAN Comprehensive Investment Agreemento ASEAN Logistics Roadmap o ASEAN Single Window o Mutual Recognition Agreements for skilled professionals

Consult with Stakeholders through expanded engagements Harmonize FTA agreements and existing regulations

In the post AEC era, U.S. companies are focused on measures that can build transparency, consistency and ease of access to information and technology:

• Create Energy legislation clearinghouses • Establish central e-portals for government procurement activities • Support an expansion of the regulatory cooperation model utilized by

ASEAN Capital Markets Forum (ACMF) to other sectors and the ACMF’s use of their Implementation Plan as a roadmap tool with time sensitive benchmarks to measure tangible progress.

• Include the development of a regional framework of rules and regulations governing the free movement of data and information across borders within ASEAN as a strategic element of ASEAN’s regional connectivity agenda.

• Formulate an ASEAN approach to relaxing limits on foreign equity investment participation and or joint venture requirements to enhance the competitiveness of ASEAN nations to attract investment and ASEAN’s position as a global asset class.

In the future, access to technology and cross- border e-commerce will continue to expand in important. ASEAN needs to adopt regulations that promote innovation friendly eco-systems and allow the free flow of digital trade.

Prioritize cross-sectoral e-commerce policy coordination Facilitate the movement of good across borders Enhance the e-commerce and e-payments regulatory environment

for businesses and consumers Build a secure, trusted, and facilitating online environment Empower ASEAN consumers and businesses through access to

the internet and technology

ASEAN’s network of free-trade agreements, reaching 50% of the world’s population, are potentially a game-changing advantage, but it is important that they adhere to high-enough standards to make them meaningful to multi-national companies who will bring high-quality investment. While only four ASEAN members are party to the TPP, we hope the key principles of transparency, protection of intellectual property rights, and free flow of data and information will be applied in RCEP negotiations as well in order to ensure ASEAN benefits as much as possible from its FTAs.

Customs

1. Action Item: Facilitate Cross-Border E-Commerce

In today’s evolving trade environment, advances in internet technology and the emergence of new innovations are giving rise to new opportunities but also new challenges for Customs Administrations. The growth of cross-border e-commerce presents policy questions that span multiple sectors, ranging from cross-border data flows to cybersecurity.1 Most crucial for Customs are challenges relating to the movement of purchased goods across borders.

ASEAN’s plan to intensify cooperation on e-commerce through the development of an ASEAN Agreement on e-Commerce2 is laudable. We believe that ASEAN’s economy and small and medium enterprises (SMEs) especially can benefit significantly by governments pursuing a strategic focus on cross-border e-commerce development. That said, we recognize that there are challenges for both customs administrations and the private sector in realizing this goal.

For Customs, the boom in cross-border e-Commerce trade is resulting in a shift in activity, with an increase in individual transactions between new classes of buyers and sellers who may be occasional shippers and not familiar with customs data requirements. This poses challenges for Customs, particularly in risk management. While complicated border clearance procedures are a problem for all international traders, they can be even greater obstacles for SMEs for whom customs holds, late deliveries, or inefficient return procedures – all of which are common across ASEAN – can put their survival at risk.

1 US-ABC’s policy paper, “Enabling Cross-Border E-Commerce Trade in ASEAN”2 “ASEAN 2025: Forging Ahead Together,” Jakarta: ASEAN Secretariat, November 2015, p.24.

Recommendationsi. Support Ecosystems for Processing Personal and Low Value E-

Commerce Shipments:

a. Implement the World Customs Organization Immediate

Release Guidelines

b. Simplify exporter/ importer registration

c. Review current de minimis thresholds to ensure they

are commercially relevant in order to create new

benefits and opportunities for ASEAN SMEs and

consumers.

d. Introduce a duty-drawback scheme to facilitate cross-

border e-Commerce product returns

ii. Improve Risk Management

a. Implement the World Customs Organization Immediate

Release Guidelines

b. Simplify exporter/ importer registration

c. Review current de minimis thresholds to ensure they

are commercially relevant in order to create new

benefits and opportunities for ASEAN SMEs and

consumers.

d. Introduce a duty-drawback scheme to facilitate cross-

border e-Commerce product returns

iii. Enhance Customs Service

a. Electronic clearance through National Single Windowb. Refrain from erecting new requirements for cross-

border e-Commerce shipments, such as higher inspection rates or additional consignee information.

2. Action Item: Adopt Global Data Standards for Supply Chain Security and Efficiency

Customs Administrations continually face the difficult task of balancing between the goals of facilitating legitimate trade while ensuring public safety and security against illegal trade. Customs officers need to make timely and well-informed decisions on whether to admit or deny the entry of goods. The adoption of Global

Data Standards (GDS) that are standard and interoperable between countries can improve both supply chain efficiency and security.

Adopting GDS ensures that supply chain data on goods is accurate, readily available, and in a common, easily understood format that can be seamlessly shared between parties (including between the public and private sectors). It eliminates unnecessary paperwork, empowers more accurate and timely decision-making, and ensures easy access to reliable data through unambiguous product identification and authentication.

GDS allows complete product tracking and tracing along the supply chain, therefore enabling global supply chain visibility from manufacturer to consumer. It also enables more effective risk profiling and therefore can improve border control efficiency.

The use of GDS would help advance the stated objectives of the ASEAN Single Window, which are to:

1) Accelerate the release of cargo and reduce trade transaction costs and time thus facilitating trade;

2) Facilitate the free flow of goods and promote the harmonization of standards and conformance procedures;

3) Facilitate coordination and partnership among customs agencies; and4) Promote the cross-border electronic exchange of information for improved

and modernized risk management.

US-ABC encourages ASEAN Customs to explore the benefits of GDS in enhancing Customs effectiveness across ASEAN countries.

Recommendations i. Facilitate information-sharing about global data standards with

customs administration

ii. Initiate pilot projects with private sector partners from key industries

to explore the benefits of using Global Data Standards to enhance

supply chain efficiency and security.

3. Action Item: Follow WCO Guidelines

It is important for customs administrations in ASEAN to consider the WCO Customs Valuation Guidelines. Transfer price adjustments already exist today and supply chain models that require inter-company sales are becoming increasingly prevalent. However, customs authorities across the region are becoming increasingly concerned about related party transactions and whether the relationship between the buying and selling entity has influenced the price. In

addition, after the OECD’s base erosion and profit shifting (BEPS) project, the environment will be more challenging for companies as there are obligations to provide country-by-country reporting. This comes at a time when companies will also apply for Advance Pricing Agreements (APA) for more certainty in their tax environment. As the transfer price in the whole value chain becomes more visible to the tax authority and available to customs administrations, it is critical for companies to have certainty operating in an environment where they are dealing with two different authorities with different principles, but on the same set of information. It is important for authorities to come to a consensus on accepting the principles of transfer pricing and provide options that are fair to companies on customs valuation and transfer price adjustment.

Enhanced cooperation between ASEAN customs and the business sector to leverage and consult each other on customs valuation issues will contribute to a more conducive and stable customs regime, which is critical to the promotion of trade and investment.

Recommendationsi. Customs administrations to follow developments in the World

Customs Organization Valuation Guidelines as they look to clarify

and improve transfer pricing and customs valuation regimes, and

update their practices and decision making on the ground.

ii. Implement the recommendation of the WCO Guidelines on both

Transfer Price and Customs Valuation released in June 2015 and

case studies finalized at the Technical Committee on Customs

Valuation

iii. Customs administrations to clarify actions to be taken arising from

transfer pricing adjustments for goods already imported and establish

a uniform approach amongst AMS.

iv. Adopt the practice of providing official valuation rulings in a time-

bound manner on individual companies’ transfer pricing practices to

avoid unnecessary delays due to pricing and valuation challenges.

v. Provide voluntary disclosure mechanism with customs rules to

allow importers to apply for voluntary disclosure for any true up

and true down transfer pricing retrospective adjustments.

vi. Customs administrations to allow more duty shortfall collection

and refund situation.

vii. Customs to simplify customs disclosure for such adjustments

by lump-sum adjustment.

viii. Enhance cooperation between customs administrations and

private sector to consult each other on customs valuation

issues.

ix. More ASEAN customs administrations are undertaking retro-

verification audits, an important tool aligned with customs

valuation verification. We recommend that detailed guidelines,

protocols & processed are agreed upon by ASEAN customs

administrations so that the private sector has clear guidance

with regards to this important tool.

x. Issues relating to Certificate of Origin, such as values to be

reported in Form D and third party invoicing details should be

addressed at the pan-ASEAN level.

Defense

1. Action Item: Support the creation of expanded Public-Private seminars on Defense procurement processes throughout ASEAN.   

Recent experiences of U.S. Industry members and staff of the US-ASEAN Business Council confirm the potential of Southeast Asia as a region where exports of U.S. defense articles could be significantly expanded. However, frequent consultations with regional governments indicate a lack of knowledge about the processes, procedures, and regulations involved in doing business with U.S. companies. Varying degrees of knowledge already exists with regards to U.S. funding available to support the purchase of defense goods and service from United States companies.   The US-ASEAN Business Council has proposed the creation of a repeatable US Government/U.S. Industry study group on the various aspects for the procurement of Defense related goods and services. The seminar includes input and participation from stakeholders including Department of Defense, State, and Commerce and US Industry representatives.    The study group serve to educate respective countries on a number of related topics to include: operational requirements, priorities, plans, and respective procurement laws and business practices.  The Council would look to learn the military requirements for each ASEAN country over the next 1-5 yrs.  Answered questions include:  *What format/setting for the discussion would be most useful for ASEAN countries*What U.S technologies are available for Procurement from the U.S.?  *What are the available methods of procurement for equipment and services?  Who do I

contact?  *What financing options are available from the U.S. Government? What is the process

for requesting technology not identified in the briefing? *What is the difference between Foreign Military Sales and Direct Commercial Sales?

 A similar program should be conducted to answer the same questions on behalf of each ASEAN government. ASEAN countries are unlikely to harmonize their defense procurement processes anytime soon, but an effort to clarify the different rules would make it substantially easier for defense companies to understand the conditions surrounding working in ASEAN.  

9

Energy

1. Action Item: Increase stakeholder consultation in policy

formation. In many ASEAN countries, businesses could provide very useful input in the policy formulation process if there was a systematic method to include consultation with business in advance of laws or regulations being adopted. The benefits of such consultation exchanges are enormous and can avert costly problems down the road. The process of consultation during the drafting of new laws and regulations educates both stakeholders and officials. It improves the quality of rules and reduces enforcement costs for both governments and citizens subject to rules. Accurate and timely information to policymakers about the impact of new laws and regulations can ensure there are no unintended consequences stemming from new laws and regulations that work against the original policy objectives of the legislation. Businesses in general often do not have the chance to see or comment on draft laws and regulations before they come into effect. This can lead to a lengthy process of revising laws or regulations after they have been passed. Energy legislation and regulations which conflict with existing regulations and contracts, mandate requirements that in practice are not feasible, or negatively impact the investment climate and trade flows, could be avoided through greater consultation. Policymakers responsible for drafting increasingly complex energy sector regulation, especially in legislative bodies, would benefit from having energy industry experience. Stakeholder consultation can help officials to identify the full complexities of the potential impacts of their legislation before problems arise.

Businesses can also contribute to policymaking by sharing knowledge with ASEAN members at an early stage on new technologies that will help ASEAN members to plan policies that are more connected and will lead to greater efficiencies and increased vendor opportunities. One such example is the work that is ongoing with the HAPUA Council Working Groups on interoperability standards for smart grids.

10

Recommendationsi. We recommend that a group within ASEAN review and recommend the

implementation of a method in which ASEAN governments systemize how they consult with stakeholders on draft laws and regulations. Opportunities during the drafting process for all relevant stakeholders to view draft legislation would lead to a better final result. One model to consider could be based on a U.S. process that includes the U.S. government website www.thomas.gov, where the text and status for all bills under consideration in the U.S. Congress can be found. Singapore and China have additional standardized consultation processes which operate effectively, and U.S. companies would support a consultation processes modelled after those systems. The US-ASEAN Business Council and its companies are willing to organize and fund a best practices workshop to help ASEAN countries design a mechanism for stakeholder input, including on technical aspects such as the recommended website.

ii. It can also be highly beneficial to policy makers to put draft energy legislation and regulations through a cost- benefit analysis by officials with some expertise in the energy sector, and make the results of such analyses publically available. Such analysis can often identify issues that can be addressed in advance of legislations’ passage to avoid unintended costs. While we understand that comprehensive cost-benefit analysis by independent experts can be cost-prohibitive to undertake for every piece of legislation, there may be special cases for key comprehensive energy sector legislation where this would be very beneficial and could have optimal outcomes. Often the private sector is willing to fund such studies. These studies could be done by mutually agreed-upon industry experts to avoid conflicts of interest.

2. Action Item: Establish transparent procurement processes for new blocks and infrastructure to ensure the best results.

In several ASEAN countries where the need for infrastructure projects and investment is great, confusing and non-transparent procurement processes sometimes discourage the best-qualified companies from bidding. Examples of these problems include tenders that are not well-publicized, and procedures to offer projects to companies which are not consistently implemented.

Complicated registration processes which make it difficult for companies to be declared as a “registered bidder” further complicate procurement and discourage potential new entries into the market. Other problems include changes that are frequently made to technical requirements or other requirements during the tender process without

11

adequate notification or time allowed for re-submission of modified proposals. In addition, many ASEAN countries do not make the government’s criteria for selecting a winning proposal transparent, allowing for the possibility for corruption. These combined factors harm the economic development of ASEAN countries and slow down the development of infrastructure growth, by preventing companies which are highly competitive from being able to participate in the procurement processes. In addition, even in cases where the criteria may be relatively transparent, decisions made solely on the basis of up-front lowest cost do not take into account factors such as quality of construction or environmental standards, which can lead to long-term high life-cycle costs to a government that outweigh any initial savings. For example, inexpensive but low-quality construction of a power plant often results in high maintenance costs and plant breakdowns in the future. U.S. companies often find themselves at a disadvantage as ASEAN governments in many cases select winning bids solely on the basis of which company offers the lowest up-front price.

Recommendationsi. One way that ASEAN countries could improve transparency and

immediately increase the quality of bidding for government procurement is to create websites where procurement information is made available to all bidders.

ii. We recommend each ASEAN country establish a central e-portal for government procurement activities, where all tenders will be listed. This could eventually be merged into one comprehensive, one-stop shop website for all of ASEAN.

iii. Each tender should be listed with a clear and non-negotiable list of technical requirements and deadlines, with sufficient time given for all interested parties to submit a high-quality proposal.

iv. In countries in which local and regional authorities are involved in the evaluation process, technical support and training on best evaluation practices should be provided to avoid unnecessary delays.

v. We recommend that the criteria by which proposals will be evaluated should be standardized, made publicly available, and take into consideration the full life-cycle costs of a project.

12

3. Action Item: Address domestic content preferences in procurement

We note a disturbing trend that many ASEAN countries are giving preferential consideration to domestic companies for procurement in varying degrees. While it is understandable that countries want to provide the benefits of large infrastructure projects to encourage local employment and skill development, we believe the practice is short sighted. U.S. companies will want to localize sourcing and construction wherever possible to keep costs down. Restrictive rules which favor domestic over foreign bidders can result in less competitive companies winning tenders and reduced benefits for ASEAN governments and citizens. If international tenders are issued only when there is no domestic company interested, regardless of the qualifications of domestic companies, a sub-optimal result is more likely. Even in cases where the law mandates non-discriminatory treatment, there are instances where in practice preferences are given to domestic proposals. Limits on foreign ownership of land to only concessions and renewable leases make it difficult for companies to construct facilities, and become a barrier to investment by foreign companies. Establishing rights to lease and operate on land are often complicated by coordination bottlenecks between regional and local authorities, and confusing property laws. Laws limiting foreign ownership of companies and mandating divestment of operations over a given period of time in the energy sector are widespread in ASEAN. Such requirements lead to partnerships of convenience that are unsustainable in the long term, harm the efficiency of operators, and result in reduced energy production. Additionally, these requirements negatively impact foreign companies’ desire and ability to invest in ASEAN, have the potential for negative implications under international investment frameworks, and are not the ideal way to promote domestic industry. If necessary, knowledge transfer and technology transfer can be promoted in other ways to allow the longer term leverage of such technologies and business processes by ASEAN companies. There are several negative consequences to protectionist requirements. Domestic labor requirements endanger efforts to raise skills in order to be more competitive, and limit the ability of companies to move skilled personnel from one country to another when jobs require highly specialized expertise. Goals such as 99% domestic employment in the energy industry are often unrealistic, and may cause companies to divert investment to other countries with less stringent requirements. Domestic labor requirements restrict the movement of skilled labor within ASEAN and surrounding countries. Particularly for the oil and gas sector which faces high initial investment costs, long-term contracts for 30-50+ years are required in order to make investments attractive, as opposed to shorter contracts of 5-10 years. Countries with a history of increasing local

13

content requirements in any of the above areas may find themselves at a disadvantage in attracting foreign investment, as policy stability is one of the key factors that companies evaluate when deciding where to undertake these long-term investments.

Recommendationsvi. One way that ASEAN countries could improve transparency and

immediately increase the quality of bidding for government procurement is to create websites where procurement information is made available to all bidders.

vii. We recommend each ASEAN country establish a central e-portal for government procurement activities, where all tenders will be listed. This could eventually be merged into one comprehensive, one-stop shop website for all of ASEAN.

viii. Each tender should be listed with a clear and non-negotiable list of technical requirements and deadlines, with sufficient time given for all interested parties to submit a high-quality proposal.

ix. In countries in which local and regional authorities are involved in the evaluation process, technical support and training on best evaluation practices should be provided to avoid unnecessary delays.

x. We recommend that the criteria by which proposals will be evaluated should be standardized, made publicly available, and take into consideration the full life-cycle costs of a project.

4. Action Item: Move towards market based energy pricing U.S. companies support action by ASEAN governments to move towards free market principles in the pricing of oil, gas, mineral resources, and electricity. ASEAN and U.S. energy companies agree that a fundamental change in pricing structures is needed to make energy and industrial investment in ASEAN countries competitive, prevent energy shortages, and safeguard ASEAN’s energy security. As a policy to help citizens manage the cost of living, several ASEAN countries currently subsidize electricity and fuel costs. Recognizing the good intentions behind these subsidies and the political difficulties associated with removing them, it is also widely recognized that such subsidies tend to have a negative impact on investment climate, and divert large portions of national budgets away from more productive means of economic development. In certain ASEAN countries, subsidized energy for private citizens is paid for by passing on the additional costs to industry, increasing the cost of doing business and seriously damaging national attractiveness to foreign investors. In other countries, low oil and gas prices are insufficient to attract high risk exploration

14

efforts needed to maintain production and supply levels, and result in significant gaps between domestic prices and international prices. Low electricity prices are maintained by offering tariffs to power producers which are not competitive, resulting in awarding of projects to low-cost operators which use low-quality equipment and do not sufficiently maintain plants. This ultimately results in inefficient operations and plant breakdowns.

Recommendationsxi. One way that ASEAN countries could improve transparency and

immediately increase the quality of bidding for government procurement is to create websites where procurement information is made available to all bidders.

xii. We recommend each ASEAN country establish a central e-portal for government procurement activities, where all tenders will be listed. This could eventually be merged into one comprehensive, one-stop shop website for all of ASEAN.

xiii. Each tender should be listed with a clear and non-negotiable list of technical requirements and deadlines, with sufficient time given for all interested parties to submit a high-quality proposal.

xiv. In countries in which local and regional authorities are involved in the evaluation process, technical support and training on best evaluation practices should be provided to avoid unnecessary delays.

xv. We recommend that the criteria by which proposals will be evaluated should be standardized, made publicly available, and take into consideration the full life-cycle costs of a project.

The way forward for ASEAN countries that want to encourage the private sector to take a larger role in providing clean energy solutions, includes continued progress in scaling back unsustainable energy subsidies. We recommend that market-wide subsidies be replaced with smaller, more targeted subsidies designed to benefit those members of society most in need of assistance. We applaud recent action taken in Malaysia and Indonesia to reduce and eliminate energy subsidies and are encouraged by plan to redirect the subsidies toward investments in public infrastructure, health and education. Direct welfare transfers to the poorest in Indonesia have helped manage to offset the immediate impact of higher fuel prices and against inflation. National development goals of many ASEAN countries and the ASEAN Plan of Action for Energy Cooperation (APAEC) call for increased levels of renewable power generation and higher energy efficiency standards. For industry, incentives for adopting clean energy and energy efficiency standards should replace general subsidies, so long as it is not done by shifting the cost of the incentives to other energy producers or

15

industry. Money saved from ending national energy subsidies could be better channeled to promote renewable energy solutions for power generation and efficiency. A good example is the Renewable Energy Law of the Philippines. Incentives could be provided that would encourage industries which are major energy users to adopt more efficient standards. Such policies would go a long way towards alleviating the energy shortages that regularly affect many ASEAN nations.

16

Financial Services

The US-ASEAN Business Council’s Financial Services Committee believes 2016 is a crucial year for pursuing regional financial sector development in ASEAN as a key element to the Post-2015 AEC agenda. We therefore propose the following topics for collaboration in 2016 and beyond:

1. Implications of a Digitizing Financial SystemTwenty-first century finance is built on data. Delegates seek to work with ASEAN policymakers to help determine how they can best manage data and digital products, given the need to protect privacy and security while transferring data across borders for processing and storage. Delegates seek to:

a. Encourage ASEAN governments to coordinate across finance, technology, and communications ministries to design consistent policies that protect privacy and security while also enabling the movement and use of data.

b. Encourage establishment of regular technical forums that include industry to share information, develop harmonized cyber-security regulations, and confront cyber threats. The technical forums should include a platform that will exchange information on the nature of cyber threats, to assist insurance companies in designing products.

c. Recommend global best practices for developing digital finance ecosystems which enable innovation and increased access to financial services.

2. Financial Inclusion for Economic DevelopmentExpanding citizens’ and SMEs’ access to financial services supports economic development, builds a broader financial sector, and increases the availability of local capital. New trends, products, and data from digital finance are creating new private sector tools that will support financial inclusion and literacy. Delegates seek to:

a. Discuss how the advent of digital finance can best be used to expand financial inclusion with mobile banking, Mobil assurance, and electronic payments/e-Money.

b. Promote a regulatory framework and standards that better allow digital finance – across banking, insurance, and payments – to support financial inclusion.

c. Explore innovative financial literacy programs that take advantage of on-line and mobile resources in conjunction with support from the private sector.

d. Define a regulatory environment to advance the growth of microinsurance.

3. Building on the ASEAN Integration AgreementsThe enabling of modern and sustainable economic growth benefits from having a diverse, competitive, and global network of financial institutions. Delegates seek to:

17

a. Recommend enhancements and support for financial sector integration through the key integration initiatives: the ASEAN Banking Integration Framework, the ASEAN Insurance Integration Framework, and the ASEAN Trade in Services Agreement.

b. Recommend enhancements to the ASEAN Capital Markets Forum (ACMF) led initiatives like the ASEAN Trading Link and the Collective Investment Scheme by further harmonizing regulatory requirements, expanding allowable products, and revamping the Trading Link.

Section 1: Implications of a Digitizing Financial System

Enabled by rapid advances in information technology, financial services firms in the 21st century will deliver new products, services, and utilize platforms that can reach more people at a lower cost than ever before. ATMs, the Internet, and mobile technology are fundamentally changing the way financial services are provided. Financial Technology (FinTech) is creating new products, services, providers, and platforms, affecting traditional providers and new entrants.

The management of data has become extremely important with the move towards digital products, services, and platforms. This data needs to be collected and transferred for efficient and secure analysis, processing, and storage in countries around the world and in regional, and global data centers. Firms and regulators alike must protect the privacy of individuals and maintain security in the face of fraud, crime, and natural disasters during and after transfers.

The challenge before all relevant parties – incumbents, new entrants, and policy makers – is to ensure that a culture of innovation is not stifled, while balancing considerations of competitiveness and fairness, the functioning of essential markets, the flow of credit and other financial services to the real economy, and the needs of customers.

1. Action Item: Increase investment in both capacity building and cross-border regulatory cooperation to speed the development of local equity, bond and currency markets to help channel regional resources to regional investments in critical infrastructure areas including energy, logistics, health and education.

18

Recommendations i. Light touch regulation, with intervention only when necessary, to

enable innovation in financial services while balancing risks.

ii. Where possible, governments should explore the possibility of

establishing a regulatory “sand box” for financial institutions and non-

financial players to experiment with Financial Technology (FinTech)

solutions reduce regulatory friction and provide a safe environment

testing of new innovations.

iii.

2. Action Item: Support national and regional initiatives such as the AEC and policies to foster modernization of payment and settlement systems in ways consistent with global best practices and regional financial integration efforts that enable open, competitive, integrated, safe, and efficient domestic and cross border payments.

19

Recommendations i. ASEAN bodies establish a cross-sectoral platform to facilitate

coordination on issues in digitization, involving key stakeholders

in the central banks as well as ministries of finance, information

and communications technology, industry, trade, and consumer

protection.

ii. The ASEAN Working Committee on Payments and Settlement

Systems (WC-PSS) undertake regular consultations with

business.

iii. Engage actively with industry to design high standard, internationally

compatible, and practical data management policies in ways that do not

create less secure systems, impediments to post-event recoverability,

and uneconomical burdens on business and that will enable innovation

and efficient access to modern financial services.

Data Privacy

ASEAN Member States have begun implementing privacy regulations, which is a positive development for citizens and companies as it provides an overarching framework. However, these regulations vary considerably between jurisdictions and risk raising the costs of doing business across ASEAN, undermining regional integration. As many of the privacy regulations are based on similar principles, it would be helpful to have greater coordination to harmonize regulations where possible and establish a consistent recognition regime for transfers. Work on this is already being done under the APEC Cross Border Privacy Rules. The European Union and the United States are also working on transfers of information under the Privacy Shield. Including an effort to develop an ASEAN regional approach to this issue as part of the Post-2015 AEC agenda would be beneficial to firms large and small seeking to participate in cross border trade and investment activities.

3. Action Item: Encourage uniformity in ASEAN of financial regulatory environments via increased mutual recognition agreements, e.g. the ASEAN Trading Link, or other means for consumer financial services related products and services to

20

facilitate regional market growth and cross border exchanges.

Recommendations i. ASEAN develop a regional privacy framework that achieves greater

harmonization in privacy regulations and establishes a mechanism for

the transfer of information between ASEAN countries and with APEC,

the United States, and the European Union.

ii. Privacy frameworks should enable innovative uses of data while still

protecting consumers’ privacy by recognizing a risk balancing approach

by organizations in their use of the data and the distinction between

personally identifiable data and de-identified data.

Cybersecurity

Protecting data against cyber-attacks is of paramount importance for businesses and governments. The financial services sector is particularly sensitive to the threats of cybercrime given that it holds sensitive personal financial information of its customers. As a result, the financial services sector has been among the most aggressive in addressing cyber threats.

Governments and industry must work together to confront the emerging threat of cyber-attacks. A country-by-country approach is not possible given the cross border nature of cybercrime. We recommend ASEAN explore the use of global best practices, harmonize its regulations, and create an industry-government forum for discussing cybersecurity. Insurance products that can protect companies and individuals should also be further developed.

Governments have begun to tackle cyber threats in a more organized manner. In the United States, President Obama recently announced the Cybersecurity National Action Plan (CNAP). CNAP establishes a Commission on Enhancing National Cybersecurity, proposes a US$3.1 billion Information Technology Modernization Fund, and invests more than US$19 billion in cybersecurity as part of the President’s 2017 budget. Other ongoing initiatives by the Department of Homeland Security, the Department of Justice, and the National Institute for Standards and Technology aim to address and manage cybersecurity risk in a cost-effective way, without placing additional regulatory requirements on businesses.

21

There have also been effective private sector-led, collaborative initiatives focused on mitigating cyber risk. The Financial Services Information Sharing and Analysis Center (FS-ISAC) gathers threat, vulnerability, and risk information about cyber and physical security risks faced by the financial services sector around the world. Sources of information include security companies, government agencies, Computer Emergency Readiness Teams, and academic sources. After analysis by industry experts, alerts are delivered to participants.

4. Action Item: Increase coordination between ASEAN central banks, finance ministries and ICT ministries to ensure the formulation of digital data management policies which protect citizens’ privacy and security while enabling access to 21st century financial services and development of products.

Recommendations i. ASEAN convene regular technical forums that include industry to share

information, develop harmonized cyber-security regulations, and

confront cyber threats.

ii. One outcome of this collaboration should be an increased focus on

developing cybersecurity talent for protecting financial services. Support

of cybersecurity education could also be used by ASEAN Member

States to develop the human capital needed to defend financial services

networks.

iii. Relax limits on foreign equity or joint ventures for international insurers

participating in cyberthreat insurance

Section 2: Financial Technology in the Inclusion Agenda

Achieving financial inclusion means that all consumers and businesses have access to a full suite of financial products, information, and services that help them confidently manage their daily finances, improve their resiliency, and meet their long-term goals. Financial technology, can enable greater access and improved usage of financial products and services for more people at a lower cost, thereby assisting financial inclusion. Relevant, ongoing, and actionable financial education paired with products is also critical to helping consumers improve their financial health. At the same time, as

22

these financial services move to digital platforms, digital literacy will become as important as financial literacy. Mobile and internet banking and insurance provide great opportunities, along with electronic payments, savings, credit and micro-insurance, especially when paired with trusted intermediaries and distribution channels.

Mobile and internet banking and insurance

Digitization can connect more people to banking and insurance, but changes to regulations are often necessary. For example, allowing institutions to offer a comprehensive range of products and services through online platforms, mobile phones, or ATMs rather than physical branches can dramatically extend the reach of financial institutions. India has changed regulations recently to allow for this, recognizing the need to provide more products and services to a larger number of people. Being able to offer products and services online and through mobile devices is another way to extend the reach of firms. There are an estimated 264 million people who do not have access to bank accounts or other formal financial services in Southeast Asia, whereas there are 776 million mobile connections in the region. This is an opportunity for mobile banking. Individuals and SMEs can be helped by greater availability of microfinance. Consumers and SMEs can access products and services, particularly in more remote areas, without travelling long distances to physical branches. To enable all of this, changes to regulations need to be made to allow for digital products and services, sales, distribution, identification verification, and record-keeping.

1. Action Item: Support an expansion of the regulatory cooperation model of the ASEAN Capital Markets Forum to other sectors and the ACMF’s Implementation Plan in nurturing a market infrastructure for an enabling environment for regionally focused products and intermediaries.

Recommendations i. ASEAN countries review existing regulations with a view to expanding

access to banking, insurance, and other financial services for the underserved, accompanied by appropriate consumer protection initiatives. Suggestions include:

• Know-your-customer (KYC) and anti-money laundering (AML) rules should be amended to allow digital identification and flexibility for low risk money transfers

• Physical presence requirements should be made more flexibleii. Licensing systems should be reviewed to ensure new firms are able to

enter markets

23

Electronic payments

Electronic payments have a significant role to play in the financial inclusion agenda. With advancements in payments security technology such as tokenization and biometric-based security features, consumers benefit from the convenience of making safe and secure electronic payments from anywhere. Innovation in accepting electronic payments such as mobile point-of-sale devices and QR code-based acceptance points, make it cheaper and more convenient for small merchants to accept electronic payments. Studies have shown that accepting electronic payments allows businesses to grow more than if they were to only accept cash as a form of payment.

E- and M-commerce are gaining prominence and importance in national economies as more people move online to make purchases. E- and M-commerce are also a great leveler as they allow small businesses, even in rural areas, to access markets outside their immediate surrounding and allows them to compete better with bigger businesses. Electronic payments are an important component of E- and M-commerce models as it facilitates more efficient payment for goods and guaranteed payment to the online merchants. In ASEAN, debit cards are more widespread than credit cards. However, many issuers block online transactions for debit cards due to fraud and security risks. The adoption of internationally accepted security practices such as the use of risk-based authentication coupled with tiered AML/KYC regulations and the proliferation of interoperable payment instruments (e-money, prepaid cards, and debit cards) will further facilitate online transactions and grow the E- and M-commerce sector especially to the benefit of SMEs.

Governments are increasingly spending more on social disbursement programs to address income disparity. The majority of these government social programs are still disbursed in cash. This is not only inefficient, but it is subject to fraud. In addition, there is no way that governments can ensure that the disbursed funds are not spent on unproductive products and services. Relying on electronic payments for social disbursement can mitigate these challenges, reduce fraud and leakage, improve efficiency, and ensure that government social spending is well-targeted and spent appropriately. Globally, governments have worked with the private sector to establish national social benefit programs that use national identity programs with biometrically authenticated payments allowing social disbursements and other government benefits to be electronically distributed.

2. Action Item: Formulate ASEAN principles or guidelines for developing transparent processes of national financial sector regulatory policy formulation, which facilitates input from both consumers and investors, to support the growth of efficient and competitive capital markets and financial services industries.

24

Recommendations i. Create a competitive electronic payment ecosystem for multiple service

operators to provide more cost-efficient, secure, and innovative

electronic payment solutions and services that cater to all segments of

the society.

ii. Adopt internationally accepted and recognized standards to ensure

interoperability in the electronic payment ecosystem.

iii. Encourage the proliferation of electronic payment products and

services especially mobile payments solutions.

iv. Adopt minimum security standards such as the use of risk-based

authentication together with tiered and proportionate AML/KYC policies

to counter money laundering and mitigate fraud and cyber threats.

v. Intensify the move toward a cashless society by encouraging or

incentivizing, where possible, the use of open-loop and interoperable

electronic payment products and methods for government services,

mass transit, and transportation.

vi. Create open forms of digital identity that will enable payments providers

to quickly and easily authenticate consumers.

Financial literacy

Digitization of communications and finance can expand access to financial education and its effectiveness. With new technology platforms and data analysis, companies can better understand consumer needs, engage them with more relevant information, and deliver that content through more cost effective channels.

3. Action Item: Continue to drive increased financial inclusion through the creation of ASEAN financial inclusion conferences that emphasize consumer financial education and discusses affordable access to financial services by economic actors at all levels including the micro, small and

25

medium enterprise and the household sectors. Index national results of financial inclusion on an annual basis to incentivize verifiable gains in ASEAN populations’ ability to access and use financial services with the objective of facilitating economic growth.

Recommendations i. ASEAN countries explore innovative literacy programs that take

advantage of on-line and mobile resources in conjunction with support

from the private sector. These programs would preferably be multilingual

and help both consumers and SMEs.

SME financing ecosystems

Financing SMEs remains challenging. In some places, regulatory structures need to be reformed to facilitate lending. Secured transactions systems and insolvency frameworks are important elements. Promoting good practices and internationally accepted principles on secured transactions legislation, including comprehensive and flexible definitions of eligible collateral and the free assignability of claims for financing, can enhance the ease of accessing credit for SMEs. We encourage governments to foster the establishment and development of effective modern collateral registries and promotion of pathways to single, central, and online security interests notice filing systems and comprehensive coverage of security interests on movable assets, receivables, and other forms of intangible assets within their economies.

It is also crucial to improve the capacity of lenders in structuring, delivering, and managing credits based on movable assets, receivables, and other forms of intangible assets as well as improving the necessary operational infrastructure, such as third-party collateral management industries, electronic finance platforms, and credit enhancement services to support the expansion of such credits for SMEs, agri-business operators, domestic and cross-border traders, and infrastructure companies. Alternative dispute mechanisms may be needed to facilitate faster, more efficient, and predictable enforcement for economies where the judicial system is not yet conducive to requirements necessary for secured lending. Judicial reform may be necessary in the longer term. The average time for contract enforcement in APEC economies is 424 days and costs approximately 33% of the claimed amount. In some less developed APEC economies, these figures can run into thousands of days and cost a majority of the claimed amount. Useful work is being done in the Financial Infrastructure Development Network (FIDN), a specialized subgroup within the Asia Pacific Financial Forum (APFF), an APEC Finance Ministers’ sponsored platform for public-private

26

collaboration to accelerate capital market integration and financial infrastructure development. ASEAN may be able to draw on work being done by the FIDN.

Recommendations i. ASEAN financial policy makers and regulators could strengthen

the ASEAN Strategic Action Plan for SME Development 2016-

2025 by launching an initiative to map the regulatory changes

needed to expand access to SME financing.

ii. ASEAN should look for ways to work with APEC’s Financial

Infrastructure Development Network as it looks for regulatory best

practices.

iii. ASEAN should explore the creation of regulatory sandboxes for

innovative SME credit providers that provide working capital or small

loans to underserved businesses.

iv. ASEAN should consider the role of insurance and microinsurance

in mitigating risks associated with SME financing.

Section 3: ASEAN Financial Integration Objectives

Free Flow of Services

As all ASEAN countries develop domestic services industries, it is critical that businesses’ growth potential be maximized through access to the most modern, high-quality, and cost effective financial services. The free flow of services, be it in the form of data, products or human capital, is critical to a dynamic financial services industry. The extent of liberalization of services will impact the quality of products available to consumers and firms in ASEAN and the rate at which modern financial services are adopted. Additionally, ASEAN firms’ access to markets can be maximized under the freest flow of services possible.

Freer Flow of Capital

Access to capital in a region with relatively high savings rates such as ASEAN is critical at the individual, household, firm, and national levels. Discussions on maximizing the efficiency of capital flows to the most productive users have been ongoing for years. Reducing broader constraints on the intra-ASEAN flow of capital and ASEAN countries’

27

access to global capital markets can most quickly and efficiently address this longstanding issues.

Harmonizing Standards Based on International Best Practices

Regulatory harmonization is important if ASEAN is to effectively compete with the larger surrounding single markets such as China and India. Our delegation seeks to collaborate with ASEAN in creating an AEC, which by virtue of regulatory harmonization, can better compete with larger markets. Integration based upon existing global best practices and common international standards can most effectively and efficiently facilitate regional development and ensure ASEAN countries are able to engage with global consumers and compete with global firms.

Varying levels of development across ASEAN will require some countries to take the lead in implementing regulations suitable to all regional partners. Consensus is key. Countries in more formative stages of development face greater challenges. However, they also enjoy the opportunity to leapfrog years of developmental processes by prudently adopting best practices.

ASEAN Banking Integration Framework (ABIF)

While it is important to enhance the presence of ASEAN banks in ASEAN countries, foreign banks also play an important role in the region and should also be able to benefit from the ABIF. Foreign banks provide core products and services to ASEAN firms in their home countries and, perhaps more importantly, to ASEAN-based firms investing, manufacturing, and trading with key global markets beyond ASEAN like the United States and the European Union. In doing so, foreign institutions support ASEAN’s growth and integration.

The presence of leading foreign firms also helps to introduce global best practices, innovation, varied services, and competition to local markets. This helps to ensure markets are efficient and effective to the benefit of consumers and the wider economy.

Recommendation

i. ASEAN allow foreign banks with substantial presences in ASEAN to participate in the ABIF, instead of just ASEAN headquartered banks.

ASEAN Insurance Integration Framework (AIIF)

If the AIIF can enhance the ability of insurance companies to operate and invest in ASEAN’s markets, those insurance firms could play an important role in funding long-term investments into important areas, including infrastructure. Knowing that the AIIF is

28

still new, members hope it can grow to include larger segments of the insurance market and come to be seen as a key pillar of the financial services integration agenda.

Recommendations

i. Leaders should invest more in expanding the AIIF and accelerate its development.

ii. ASEAN members should begin discussing harmonization of insurance standards.

iii. ASEAN should allow foreign insurance companies with substantial presences in ASEAN to participate in the AIIF, instead of just ASEAN headquartered insurance companies.

Payment and settlement systems

Development of competitive, interoperable, secure, efficient, and reliable domestic and cross-border payment and settlement systems for trade, remittances, retail, and capital markets is essential for enhancing intra-ASEAN trade and strengthening ASEAN as a trading bloc. New technologies offer new possibilities while traditional payment systems also remain important for global connectivity.

Investments in building hardware and software and the constant need to upgrade these systems to bring them up to date in terms of efficiency, market relevance and countering evolving cyber threats, are huge. Rather than building something from scratch, governments have an opportunity to cooperate and partner with the private sector to leverage the investments that have already gone into establishing such systems. Such cooperation would result in freeing valuable government resources to invest in priority areas such as infrastructure development and educational and health needs of the populace. Such systems should be consistent with international standards to minimize cost of implementation and to ensure secure, cost-effective implementation to support cross-border as well as domestic transaction flows both for in-person and remote transactions.

Cross-border trade in goods is complex due to the different standards, requirements in paper work, and terminology used in the physical transport of goods between countries. Such complications also apply to cross-border payments and settlement. Ideally, to improve efficiency and productivity and to reduce business cost, all such standards, requirements and terminology related to cross-border trade should be harmonized and integrated. However, traditional forms of cross-border payments, due to system limitations, cannot allow for such integration and ease of payments. Electronic networks and platforms that can carry rich information beyond payment transaction information already exist in the payments industry, which can integrate the different aspects of cross-border trade electronically to provide a seamless experience.

29

Recommendation

i. ASEAN should adhere to global industry standards and best practices, particularly for security, cross-border data transmission, and data privacy standards. Following these global standards and best practices rather than establishing new or proprietary standards will ensure that ASEAN Member States benefit from the payment industry’s international experience and remain integrated into the global economy.

ii. ASEAN should maintain open and competitive markets for the provision of retail electronic payments in individual countries and across the ASEAN region. A competitive environment encourages investment and innovation from multiple sources, delivering the best and most cost effective outcomes for consumers and business.

iii. ASEAN governments should focus on accelerating the migration to electronic payments in established payment channels including government-to-citizen and citizen-to-government programs. Such initiatives deliver significant budgetary savings for governments, reduce grey market activities, promote good governance, reduce leakage, and support financial inclusion.

iv. ASEAN governments should avoid regulatory requirements for local storage of payments data as these greatly limit the ability of technology based solutions to enhance the current payments system.

Negotiating the ASEAN Trade in Services Agreement (ATISA)

The Council welcomes further negotiations towards the ASEAN Trade in Services Agreement (ATISA) within the region and with dialogue partners, particularly on financial services and digital economy issues. The Trans-Pacific Partnership (TPP) provides a solid foundation for further financial services trade liberalization and a good reference point for development of the ASEAN Trade in Services Agreement. Future agreements should prohibit restrictions on the free flow of financial data as well as prohibit requirements for financial services data to be stored locally. The TPP also tackles emerging issues such as digitization in its e-commerce chapter, competition and state owned enterprise reform, as well as labor and environmental issues. In addition, it has a capacity building element and a focus on ensuring benefits flow to individuals and MSMEs as well as larger firms. ASEAN countries would benefit from addressing these next generation issues, particularly those countries that wish to join the TPP in the future.

Recommendation

30

i. ATISA should include financial services and new economy issues contained in the TPP, such as e-commerce, competition, and state owned enterprise reform. The ATISA should prohibit restrictions on the free flow of financial data as well as prohibit requirements for financial services data to be stored locally.

A Post-2015 AEC Agenda for Financial Integration

Our delegation believes that collaboration between the public and private sectors to build a modern, inclusive, and competitive financial system is essential to the success of the ASEAN Economic Community. We have focused on digital finance, financial inclusion, and the ASEAN integration agreements because of the central role these will play in 21st century economies for government and industry.

We intend for our submission to this paper to demonstrate how U.S. financial services firms can work with the ASEAN ministries of finance and central banks and ASEAN interagency discussions to develop a regulatory framework in ASEAN that is in the best interests of everyone. We share ASEAN’s belief that such a regulatory framework must create the most efficient and equitable outcomes for ASEAN’s citizens and companies. It must also integrate financial services both between the 10 ASEAN countries and with the wider world. Our companies offer you their continued assistance to support all elements of financial development. We welcome future discussions and collaboration. 

31

Food & Agriculture

U.S. agricultural exports to Southeast Asia have experienced extremely rapid growth in recent years and, in FY2014, climbed to a record $11.5 billion-up 11 percent from FY2013. In the past decade, Southeast Asia has had the fastest growth in U.S. agricultural sales of any region except South America. Strong economic growth and increasing demand for high-value products have been major drivers of this increase, and these trends are expected to continue to make Southeast Asia an attractive destination for U.S. exports in the future. Overall U.S. market share in the region has remained relatively steady in recent years, with most of the growth in U.S. exports coming as a result of the entire Southeast Asia market expanding. Despite fast growing trade between U.S. and ASEAN, the achievement of food security remains a key challenge in ASEAN. Demographic trends, transformation in agriculture, degradation of the natural resource base for food production, food price rise and volatility add to the pressure on agricultural sustainability and in turn food security in ASEAN. There has also been a drive towards achieving food self-sufficiency in some ASEAN markets through the introduction of trade prohibitive laws and regulations. The Council maintains that one key strategy to improve food security in ASEAN is to continually support, facilitate and enhance international trade of food and agricultural products. The Council has identified four issues that are hindering further development of U.S. trade in ASEAN, and the headlining action items that can elicit massive progress in this arena:

4. Action Item: Promote and enhance market access for agricultural exports by reducing or eliminating protectionist measures in trade

The United States Department of Agriculture (USDA) has noted that while import duties are being lowered or eliminated altogether, Non-Tariff Barriers (NTBs) are increasingly replacing tariffs as protective measures in various ASEAN member countries. NTBs covers sanitary and phytosanitary (SPS) regulations, technical barriers to trade (TBT) regulations, and a wide and diverse array of policy interventions affecting inter-ASEAN trade flows. Some recent examples include increasingly restrictive registration of animal remedies; regulatory and policy restrictions on investment and innovation; the requirement for a free sales certificate to be made available at the time of submitting any dossier for an animal remedy; complex product registration systems; restrictive laboratory testing requirements for agriculture commodities. These NTBs have the potential of devastating trade and investments in Indonesia as it goes well beyond international standards and are consistently unnecessary and impractical. It also adds on to the compliance costs of businesses and impedes flow of innovative products to the marketplace. In addition, unless addressed, NTBs can stand in the way of realizing the full potential and vision of the ASEAN Economic Community.

32

5. Action Item: Increase regulatory harmonization of standards, and promoted adherence to international science based standards such as Codex, World Organization for Animal Health (OIE) and International Plant Protection Convention (IPPC)

ASEAN’s ability to compete regionally and internationally will be enhanced if there is harmonization of regulatory regimes that regulate the introduction of new technologies, the cross border movement of biological materials, mutual recognition of standards, and the adoption of sensible, science-based consistent policies relating to key issues like low level presence of genetically modified organisms (GMO). With over 500 million residents, Southeast Asia is a considerable market for not only ASEAN based farmers and food manufacturers, but also global food manufacturers. By harmonizing the standards for food and agriculture products, ASEAN will facilitate the access to more affordable food and provide economic growth opportunities for ASEAN food businesses to service other ASEAN markets.  This will also generate investment into the food value chain which will underpin the innovation required to further improve agricultural productivity.

Recommendations i. The Council recommends that ASEAN governments move towards

using international food and agriculture standards of Codex, OIE, IPPC

as the basis for harmonization efforts.

ii. Additionally, standards should also be science based using risk

assessment methodologies as this will also encourage greater levels of

investment and innovation

5. Action Item: Promote greater acceptance of agri-innovation technology

Access of farmers to innovation and technology can help increase their yields. While the usage of biotechnology has grown significantly in the region in the past decade, some countries in the region have fallen behind in the global biotech development despite the benefits gains from going forward in biotechnology. Farmers throughout ASEAN are now unable to improve their productivity to contribute to food security goals and requirements. Primary constraint affecting progress is the inadequacy of local government R&D and extension services to help farms utilize new technologies, lack of

33

development and implementation of transparent, science based regulations for food/feed products containing ingredients derived from biotechnology.

Recommendations i. The Council recommends the development of a science based

regulatory system for biotechnology products, including agro-inputs such

as crop protection products, to encourage more innovation and

investment.

6. Action Item: Strengthen and Implement the ASEAN Intellectual Property Rights Action Plan 2016-2020

Farmers in may ASEAN countries are producing low yield crops due to the inefficient use of agricultural resources, inability to safeguard crops from rampant diseases as well as their lack of up to date agricultural knowledge. This has contributed to rising food security concerns, making it imperative for the farmers to increase domestic food production through improved yields. One feasible solution to address this challenge would be to promote reliance on seeds that produce higher yield crops. However, weak intellectual property rights (IPR) legislation has been consistently identified as a key variable inhibiting foreign direct investment in the agricultural sector, resulting in weak transfer of technology. The lack of concrete IPR legislation exposes foreign business ideas to the vulnerability of being replicated by counterfeit products. Besides impacting potential foreign direct investment, the prevalence of counterfeit products causes harm to farmers such as crop damage, not to mention the potential health and environmental issues from using products that have no purity guarantee. We hope that the ASEAN Intellectual Property Rights Action Plan for 2016-2020 will strive to develop an ASEAN IP system that takes not only will be able to address such issues, but also take into account the different levels of capacity of the Member States, balances access to IP and protection of IPRs, and responds to the current needs and anticipates future demands of the global IPR system. The Council’s Food & Agriculture Committee also stands ready to work with ASEAN governments in terms of public policy related activities to support efforts via public private partnerships to help address IRP issues and their food security goals.

ConclusionEssentially, we would like to create and ensure a level playing field for both multinational and domestic companies – including low/zero tariffs, removal / reduction of import quotas or export bans, reasonable registration procedures and timelines.  To reach food security and spur increased investment, we believe that more science based regulations; regulatory coherence and harmonization across the region and

34

internationally; and the application of market based principles will provide an environment for both domestic and internal businesses to grow and thrive. 

The Council renders our full support and commitment on the successful outcome of the region’s food security initiatives and also our desire to ensure food security to all of ASEAN’s citizens as defined by the WHO as existing “when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life”.   

35

Health and Life Sciences

The US-ASEAN Business Council commends ASEAN Member States on progress achieved thus far in the integration of the healthcare sector, for instance through the signing of the ASEAN Medical Device Directive (AMDD) by all ten ASEAN Member States.

In line with its commitment to helping ASEAN governments achieve our common goals of improving health outcomes of the populations in each ASEAN Member State, and realizing the full economic potential of an integrated ASEAN healthcare sector that will benefit all economies in the region, the Council and its Health and Life Sciences Committee would like to submit the following recommendations for your consideration as key action items for the region. 1. Action item: Harmonization of standards and accreditation. In line with the goal of regional economic integration through the establishment of the ASEAN Economic Community, it is essential to create a regional healthcare infrastructure that supports the ease of access and movement of health products and services across the region. We encourage the ASEAN Economic Ministers to prioritize continued cooperation on standards and regulatory harmonization, and alignment with international standards.

This will remove local certification procedures and other bureaucratic processes that create unnecessary delays in marketing authorization and raises cost of production for the business community due to the duplication in processes. In addition, alignment with international standards will ensure the safety and efficacy of the healthcare system through the establishment, enforcement and adherence to a rigorous and harmonized quality standard.

36

Recommendations i. ASEAN should develop a regional privacy framework that achieves

greater harmonization in privacy regulations and establishes a

mechanism for the transfer of information between ASEAN countries

and with APEC, the United States, and the European Union.

ii. Privacy frameworks should enable innovative uses of data while still

protecting consumers’ privacy by recognizing a risk balancing approach

by organizations in their use of the data and the distinction between

personally identifiable data and de-identified data.

iii. The US-ASEAN Business Council applauds the signing of the

ASEAN Medical Device Directive (AMDD), and now encourages

the full implementation of AMDD by all ten ASEAN Member

States.

iv. Align standards to International Conference on Harmonization of

Technical Requirements for Registration of Pharmaceuticals for

Human Use (ICH) guidelines: This will remove requirements for

local clinical trials which impacts patients’ access to life saving

medicines and vaccines.

v. Promote the adoption and recognition of international medical

device standards by national standards authorities in Member

States, i.e. International Organization for Standardization (ISO),

the International Electrotechnical Commission (IEC), and the

International Telecommunications Union (ITU).

vi. Establish standards, metrics, and accreditation procedures

aligned with international standards for health professionals.

vii. Explore cooperation on best practices in pharmaceutical product

registration.

37

2. Action Item: Investment in health and increasing access. Healthcare budgets in the ASEAN region tend to be below WHO recommendations. Increasing the investment in health, specifically prevention, will reduce the economic burden of disease, thereby stimulating growth, increasing productivity and transforming health "as a cost" to an economic asset and driver of growth. We encourage the ASEAN Economic Ministers to follow in the footsteps of the APEC economies and endorse the message that health is an investment and a driver of economic growth and not a cost. We would also strongly encourage increased access to health services through strengthening the capacity of the soft and hard infrastructure of the healthcare system. We recommend the following:

Recommendations i. Strengthen engagement with the rural and regional areas in the

health agenda.

ii. Strengthen training and education of healthcare professionals: For example, closer collaboration between Ministry of Health and Ministry of Education.

iii. Ensure regulatory environment that allows access to innovative medicines and medical products: the industry has been faced with legislation in a number of countries that are aimed towards protecting local industry but has had the adverse impact of restricting access to life-saving innovative medicines and medical products.

3. Action item: Establish regular stakeholder engagement platform. We fully support efforts by Member States and ASEAN to strengthen the healthcare infrastructure of their respective countries and the region. The US-ASEAN Business Council is encouraged by the bilateral dialogues we have been able to hold with a number of individual Member States to contribute input during the policy formulation process and offer support on various health-related initiatives that are being carried out. The lack of consultation with the private sector has at times led to contradictory legislation and the imposition of requirements that are impractical or impossible for the

38

business community to adhere to, which has a negative impact on the investment climate. In addition, healthcare companies can offer our technical expertise and knowledge and would like to partner with the governments that allows for this mutual exchange in order to optimize the positive impact of programs. In addition to bilateral dialogues with individual Member States, we would like to recommend the following:

A session for industry dialogue during the ASEAN Health Ministers Meeting (AHMM) or ASEAN Senior Officials Meeting on Health Development (SOMHD).

The US-ASEAN Business Council’s Health and Life Sciences (HLS) Committee comprises multi-national companies that span across healthcare sectors; pharmaceuticals, medical devices and diagnostics, over-the-counter consumer health and hygiene, health systems strengthening and delivery of care, nutrition and IT systems. Chaired by Jhpiego, a non-profit organization that focuses on maternal and child health, and GE Healthcare, and vice-chaired by Boston Scientific, GlaxoSmithKline, Johnson & Johnson, and Medtronic, the committee is premised on the belief that the industry and the public sector can work collaboratively to address the gaps faced in the healthcare environment. The group is committed to building dialogue, identifying commonalities and establishing partnerships with all stakeholders to build sustainable models for health that provide all people with access to affordable, innovative, and quality care.

39

ICT 1. Action Item: Facilitate a conducive and enabling environment for e-Commerce trade growth in ASEAN. The opportunities for cross-border e-Commerce trade in ASEAN are plentiful. Small and Medium-sized Enterprises may benefit from cross-border e-Commerce trade as it lowers the barriers for reaching beyond local markets. ASEAN’s growing middle class also benefits from accessing a wider range of goods more conveniently and more cost-effectively. While there have been positive trends among ASEAN cross-border-related e-Commerce initiatives, more work could be done surrounding areas of:

Digital trade promotion through the use of electronic payments; Customs procedure simplification by facilitating data exchange among

customs authorities of ASEAN member states; Improvement of internet access; Development of ICT infrastructure to build a secure, trusted, and

facilitating online environment; Enablement of transport connectivity, and; The harmonization of e-Commerce laws across different sectors.

Several of the above priorities are supported in the ASEAN ICT Masterplan 2020 (AIM).

Recommendations i. We encourage ASEAN to fulfil the targets and projects outlined,

to support the trade of both goods and digital services throughout

ASEAN, and would like to offer the support of the U.S. private

sector.

ii. We would like to share our experiences as ASEAN works to

study and identify enabling policies and best practices that will

accelerate the development of e-commerce and digital service

delivery in ASEAN (Action Points 1.1.1 and 7.2.1 respectively of

the AIM2020).

40

7. Action Item: Promote the adoption of world-class data management policies and regulations which follow globally recognized best practices and do not prohibit cross-border data flows.

World-class data management will enable companies to invest further in IT services, research and development, as well as delivery centers. The free movement of data across borders also enables business processes, support, and software development across ASEAN. This can create significant employment opportunities and further develop the skills base in all countries. A 2014 report by the McKinsey Global Institute3 identifies digital innovations as a key driver for growth in ASEAN with a potential economic impact of between $220 billion to $625 billion by 2030. The diversity of ASEAN and its abundance of SMEs stand to benefit greatly from digital trade. The free flow of data connects value and supply chains throughout the region with trading partners and grows businesses, stimulating overall economic growth.

Additionally, a data-management framework which enables cross border data flows would strengthen the global competitiveness of ASEAN. The APEC Privacy Framework, which reaffirms the value of privacy to individuals and to the information society, may serve as a base guideline as it is also consistent with the OECD’s 1980 Guidelines on the Protection of Privacy and Trans-Border Flows of Personal Data. Its six privacy principles include: Preventing harm; Providing notice; Collection limitation on personal information; Usage of personal information; Choice of use over personal information, and; Integrity of personal information. By adopting adhering to greater regional standards ASEAN member states will not only be protecting consumer data, but will also facilitate secure and trusted trading with other countries that have signed on to the APEC Privacy Framework. Herein lies the potential for strong and robust economic partnerships towards mutual growth.

By strengthening competitiveness, companies would increasingly see ASEAN and the AEC as an investment destination and would distinguish ASEAN from other Asian economies, such as India. Ensuring data can move freely across borders is essential to achieving efficient international trade. Information technologies have evolved to enable such tasks to be done from any geographic location, while respecting important issues such as individual privacy and data security. Policy priorities to achieve this objective include:

3 McKinsey Global Institute, Southeast Asia at the crossroads: Three paths to prosperity, November 2014. Copy available at http://www.mckinsey.com/global-themes/asia-pacific/three-paths-to-sustained-economic-growth-in-southeast-asia.

41

Recommendations i. Efficient, unimpeded flow of data across and within borders while

securing citizens’ privacy

ii. World-class cyber-security and data privacy laws

iii. Policies that encourage economic growth and competitiveness without

discriminating against imported goods or services or mandating local

data servers

iv. Support for the AIM Action Points, most notably:

Target 3.1.2, to establish a forum or platform for the private

sector to share developments and activities in big data

management and analysis

Target 8.1.1, to commission a study that compares personal

data privacy protection frameworks across AMS

8. Action Item: Enhancing cybersecurity laws without compromising or inhibiting the growth of innovative technologies

Echoing the sentiments of AIM Action Point 8.1.1, the development of regional data protection principles can strengthen information security in ASEAN and reduce the risk of engaging in cross-border data sharing – which are crucial elements for businesses and digital developments. As cybersecurity threats are a global matter, it is important to address them on a larger-than-local scale as well. At the moment, ASEAN member states have attempted to address cybersecurity and data protection to varying degrees, albeit many states still lack comprehensive digital strategies. Harmonized regional cybersecurity laws can boost consumer confidence in sharing information online when making cross-border transactions, which enhances the favorability of conducting business around the region.

Additionally, AIM Action Point 7.2.2, which sets out to develop and foster cyber wellness through guidelines, education, and outreach programmes, is a crucial aspect of cybersecurity that is often overlooked. Locally, governments can engage their community and include different stakeholder views to raise awareness and improve resiliency towards new online threats and risks posed. Regionally, ASEAN governments can share information and data among countries on the trends and challenges faced on

42

the internet, and collaborate more in the process of formulating policies and programs to address cyber issues. Along the other target points listed in the AIM, improving cyber wellness and digital-literacy is a bottom-up strategy that entails many benefits while posing little risk with its execution.

Education is a fundamental driver of economic growth as it creates employability and entrepreneurship that contribute directly to the economy. Essential to education and employability today are digital inclusion and 21st century skills. Systemic management, strategic, analytic and collaborative thinking are all necessary for a productive work environment, and can be achieved through the use of ICT.

ASEAN needs to scale up ICT literacy training to bridge the digital divide. The definition of literacy will continue to evolve, however, within the context of access to information, ability to communicate effectively and access services and even perform transactions. These are the essential skills we all need to function effectively in the 21st century. Digital literacy is not entirely a government effort. The private sector can assist in developing national campaigns for ICT Literacy.

9. Action Item: Encourage a light-touch regulatory approach when regulating the internet, and ensure there is harmonization with existing regulations and standards.

With the proliferation of new digital and innovative technologies, ASEAN governments have become increasingly vigilant when regulating the internet. It is important that governments adopt a light-touch regulatory approach, so as not to over-regulate the space and stunt innovation. If the internet is over-regulated, the ability to boost economic growth that the internet currently allows for will no longer be accessible. A heavily regulated space serves as an impairment, especially for SMEs and local start-ups, which require the access to such services (i.e. cloud services, web-hosting, etc.) in order to expand beyond their own markets.

Following the perpetual development of new technologies, a natural tendency of wanting to regulate the space arises. However, due to the cross-sectoral nature of the internet, the regulations developed often overlap with existing regulations in other sectors. In some scenarios, the regulations set forth end up being contradictory to existing regulations. Having too many regulations to comply with becomes confusing and subsequently deters business and investment, especially for MSMEs.

43

Recommendations

i. Governments are encouraged to maintain open-door policies when it comes to regulating the internet. This approach evades the possibility of over-regulating the internet, so as to avoid stifling innovation and the growth of technologies.

10. Action Item: Encourage dialogue with multiple stakeholders on industry best practices

Improving collaboration and innovation between public and private sectors (Initiative 3.2 under the AIM) will leverage synergies and promote the development of a well-informed and harmonized regulatory space. This entails encouraging discussions within governments and across ministries, as ICT issues spill over into many sectors but sectoral-specific regulations may not always be compatible (as mentioned in Action Item 4). The private sector offers technical expertise, experience, and insight into the playing fields being regulated. Developing public-private partnerships can benefit the overall economy through the adoption of a more cohesive and comprehensive approach when it comes to addressing a plethora of policy issues spanning across many sectors. This approach will enhance the ability of governments to better assess and evaluate the impacts of their regulations when applied to the relevant market(s).

Studying the existing start-up ecosystem of incubators, as well as seeding funders and venture capitalists in ASEAN (as per Target 3.2.1.1 under the AIM) can also create an ecosystem that is conducive to the overall growth. It promotes the growth of start-ups and strengthens the development of SMEs by facilitating a space that encourages innovation.

Furthermore, this action item is also in line with Target 1.1.2 of the AIM, which hopes to convene a dialogue with Over-the-Top (OTT) players, regulators, and other industry participants to discuss best practices towards OTT applications. The ability to consider different stakeholder perspectives in the adoption of best policies and industrial practices creates business and consumer confidence alike. This will not only stimulate innovation, yet again, but enhance and attract greater investments as well.

Whether it’s start-up ecosystems, OTT, or any of the topics discussed above—the U.S. private sector stands ready to offer our expertise, global best practices, and perspectives on strengthening ASEAN’s growing digital economies.

44

Infrastructure Sector

According to CIMB Research, US$2.4 trillion in infrastructure investment will be required in ASEAN between 2014 and 2020. Less than 20 percent of this required investment can be financed by ASEAN governments due to fiscal and other policy constraints. The gap in required infrastructure investment can best be filled by private and international infrastructure investment.

Besides infrastructure financing challenges, other key challenges surrounding poor infrastructure stock in ASEAN include inadequate stakeholder identification, mapping and relations; absence of coherent list of approved investment grade project opportunities; inadequate project marketing, government procurement practices and project management; inadequate prioritization of infrastructure projects, inadequate project selection by institutional investors and lower than expected success rate for Public-Private Partnership. The Council and its Infrastructure Committee would like to submit the following recommendations for your consideration as key actions for the region in regards to addressing the key challenges identified:

1. Action Item: Promote a Favourable Infrastructure Financing Environment

To most efficiently attract global infrastructure investment, ASEAN governments must create robust long-term investment climates including:

a. Transparent regulatory frameworksb. Pipelines of infrastructure investment opportunitiesc. Transparent infrastructure procurement processesd. Selection of suitable financial assets such as debt or equitye. Appropriate risk allocation for the private sector

2. Action Item: Promote Sustainability in Infrastructure Development

Infrastructure investment and development can have a positive impact on economic potential with significant multiplier effects. The quality and extensiveness of infrastructure significantly impacts economic growth and reduces income inequalities. Infrastructure must be sustainable if it is to make a positive contribution to the future and improved social and economic development. (Source: CIMB ASEAN Research Institute).

3. Action Item: Strengthen Fair Government Procurement Practices

Procurement decisions should be made on a cost effective fit-for-purpose basis, and not based on or influenced by non-performance/capability based factors such as the

45

country of origin or local content/participation. Such criteria ultimately reduce competition and drives up costs. Short term benefits that may be benefited by such local requirements reduces the incentives for local players to innovate and play competitively against international players, thus resulting in limiting their ability to grow regionally and globally, and contribute towards the national economy. Internationally accepted and endorsed standards should be used whenever possible in project bid specifications, as domestic or specialized standards would reduce the range of products and services that could potentially be used for the projects, thus increasing project and implementation costs.

4. Action Item: Promote the use of Life Cycle Cost Assessment

Government procurement decisions should consider the total cost of ownership over an entire project/system life cycle, as it is not uncommon for projects to subsequently face unexpected operational, support and maintenance costs that were not anticipated at the point of procurement. Financial and socio-economic benefits to the government would be immense in terms of project cost savings through productivity and efficiency gains in massive infrastructure development projects with the use of products and services that provide superior value and benefits through their extended life cycle.

5. Action Item: Develop robust Public Private Partnership (PPP) mechanisms to strengthen greater private sector financing and investment in infrastructure projects

Institute integration in PPP planning: Investors want government agencies to be well coordinated. This includes adopting consistent practices across agencies that make processes straightforward and predictable throughout projects’ life spans. Investors prefer partnering with governments that implement PPP structures following project financing norms and use standard agreements that are recognized internationally. There must be robust interfacing with all key stakeholders i.e. government organizations, government owned and/or controlled corporations (GOCCs), government financial institutions (GFIs) and other government offices and instrumentalities to execute mammoth infrastructure projects.

Negotiate appropriate risk allocation for the private sector: According to Network ASEAN Forum 2013 Lifting the Barriers Report, one cause of PPP failure is the inability of the public and private sector to agree on the allocation of roles and responsibilities (and hence risk and returns). Lack of clarity on policies around market structure, pricing and subsidies and ownership and finance can lead to delays in implementation as the private sector are unable to accept the initial terms laid out for PPP projects. Strengthening negotiations for assigning risk and returns across the public and private sectors is critical because the terms that are agreed on upfront

46

need to be upheld over the life of the PPP concession which can last decades.

Source for feedback via user groups and gain perspectives from experts: Governments should involve user groups in PPP project development due to their understanding of how design influences service delivery. In addition, it is advisable to use foreign technical assistance through experts embedded in line agencies to prepare project bidding, and evaluate proposals.

6. Action Item: Discourage Used Equipment

Develop and promote a policy and regulatory framework to raise the minimum standard (quality) of Used Equipment imports and promote use of new equipment to balance local industry population base. These could include specific documentation or certification for customs clearance and proper registration of New and Used equipment on/off-road use. Each machine should have traceable records on its origin, manufacture (OEM), product identification, year of manufacture, service meter use etc. With regard to import of refurbished finished goods, consideration should be given to limiting such imports to OEM-refurbished equipment accompanied by equivalent new product warranty.

7. Action Item: Recognize Remanufactured Products

Promote clear recognition for OEM’s Remanufactured products and services as part of Environment and Sustainable Development effort. Policies that support development of remanufacturing industry and eliminate issues will be highly desirable.

8. Action Item: Recognize and Promote the Value of Using Technology in the Design and Construction of Infrastructure Projects

Using technological software and processes, a government infrastructure owner can save significant costs and time in completing a project, as well as increase visibility and transparency into the project for all stakeholders.

47