VZCZCXRO9569
RR RUEHAG RUEHDT RUEHPB RUEHROV
DE RUEHBD #0140/01 1290625
ZNY CCCCC ZZH
R 090625Z MAY 07
FM AMEMBASSY BANDAR SERI BEGAWAN
TO RUEHC/SECSTATE WASHDC 3808
INFO RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 04 BANDAR SERI BEGAWAN 000140 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 05/09/2017 
TAGS: ASEAN BX ECON EINV ENRG ETRD EUN ECIN JA
SUBJECT: ASEAN ADVANCES FTA'S WITH EU, JAPAN 
 
 
Classified By: Ambassador Emil Skodon, Reasons 1.4 (B,D) 
 
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SUMMARY 
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¶1.  (C) ASEAN Economic Ministers used the occasion of their 
annual "retreat" to conduct consultations with the European 
Union and Japan that advanced Free Trade Area negotiations 
with both of these ASEAN partners.  EU Trade Commissioner 
Mandelson agreed to the establishment of a joint committee 
that will define the agenda for talks on an ASEAN-EU FTA, and 
Japanese Minister for Economy, Trade, and Industry Amiri 
approved a general framework of tariff reductions that may 
allow for signing of an ASEAN-Japan merchandise trade 
agreement by November.  Progress toward an ASEAN-EU FTA was 
made possible by EU willingness to finesse the issue of 
Burmese participation for now, although Mandelson's exchanges 
with his ASEAN colleagues on this subject were reportedly 
contentious and the issue was essentially kicked down the 
road for future resolution.  In addition to their 
consultations with the EU and Japan, the ASEAN ministers also 
discussed general principles that should guide drafting of 
the economic portion of the proposed ASEAN Charter, and the 
possibility of revising the ASEAN investment agreement so 
that coverage is expanded to foreign investors in ASEAN.  End 
Summary. 
 
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AEM MEET IN BRUNEI 
------------------ 
 
¶2.  (U) The thirteenth annual ASEAN Economic Ministers (AEM) 
Retreat was held in Brunei on May 3.  All ten ASEAN members 
except Cambodia were represented at ministerial level (a 
complete list of participants is in final para of this 
cable).  In keeping with the "retreat" format, most 
substantive sessions were restricted to the Head of 
Delegation plus one.  On May 4 the ASEAN ministers conducted 
formal consultations with European Union Trade Commissioner 
Peter Mndelson and informal consultations with JapaneseMinister for Economy, Trade, and Industry Akira Amai. 
 
-------------------------------------- 
ASEN AND EU TO BEGIN FTA NEGOTIATIONS 
------------------------------------- 
 
¶3.  (U) Following the EM-EU consultations, ASEAN Secretary 
General OngKeng Yong announced that agreement had been 
reachd to launch negotiations on an ASEAN-EU Free Trade 
Area.   Malaysian Minister of International Trad and 
Industry Rafidah, co-chair of the consultations, said a joint 
working committee comprising senior officials from the EU and 
all ASEAN countries would be established to develop the 
modalities, work program, and timetable for negotiating the 
FTA.  According to a press release, ministers "agreed that 
the negotiating process would be based on a region-to-region 
approach, which recognises and takes into account the 
different levels of development and capacity of individual 
ASEAN member countries." 
 
¶4.  (U) The press quoted Ong as saying the "journey is still 
very long, but we have taken it to the next step after 
talking for more than two and one half years."  He estimated 
that an FTA had the potential for eventually increasing trade 
between the two blocs by 10 to 18 percent.  Mandelson 
commented that an ASEAN-EU FTA "has huge potential, not just 
(for) economic ties, but to grow international trade as a 
whole to boost the global economy." 
 
---------------------------- 
ASEAN-EU NEGOTIATION PROCESS 
---------------------------- 
 
¶5.  (C) Lim Jock Hoi, Permanent Secretary for Trade and 
Economic Affairs in Brunei's Ministry of Foreign Affairs and 
Trade, told us that he considered the agreement to begin 
negotiating an ASEAN-EU FTA to be the major outcome of the 
AEM meetings.  He said negotiations would proceed as a 
"single undertaking" and, at least initially, nothing would 
be off the table -- competition policy, labor, environmental 
protection, government procurement and other issues could all 
be proposed as agenda items.  Although talks would be 
conducted on a region-to-region basis, Vietnam would act as 
coordinator for ASEAN, continuing the group's past practice 
of naming a member country to coordinate FTA negotiations 
with outside parties. 
 
¶6.  (C) Lim expected it would take three to four months to 
agree on the architecture of negotiations.  He also explained 
that the language regarding "different levels of development" 
allowed for an FTA that would place fewer requirements on the 
 
BANDAR SER 00000140  002 OF 004 
 
 
least developed members of ASEAN, in conformance with the WTO 
principle that developed countries should not insist on 
concessional commitments from LDC's in trade negotiations. 
 
--------------- 
FINESSING BURMA 
--------------- 
 
¶7.  (C) Lim told Ambassador that the initiation of FTA talks 
with the EU had been made possible by the EU's adjustment of 
its position on including Burma in the negotiations.  The 
agreement to follow a "region-to-region approach" while 
simultaneously taking into account "the different levels of 
development and capacity of individual ASEAN" countries 
helped finesse the issue:  it allowed ASEAN to include Burma 
at the negotiating table as part of the ASEAN region, while 
giving the EU scope to treat it differently in a final FTA 
agreement.  According to Lim, Mandelson had made clear 
privately that the EU could give no commitments about what it 
might ultimately offer to Burma under an ASEAN-EU FTA, and 
had advised that some capacity building could be possible but 
improved market access was unlikely as long as the present 
regime stayed in place. 
 
¶8.  (C) Comments made to Ambassador by resident Chiefs of 
Mission from ASEAN states and from Germany (which currently 
holds the EU Presidency) indicated that the EU-ASEAN 
discussions regarding Burma were much more contentious than 
Lim let on.  They described Mandelson as having been 
insistent that his negotiating mandate applied only to seven 
ASEAN countries, and he could not agree to FTA negotiations 
that included Burma, Laos, or Cambodia.  ASEAN ministers were 
just as adamant that either all ten of them would have places 
at the table or none of them would.  According to our 
diplomatic colleagues, this impasse made for tense moments in 
which tempers flared on both sides.  They described the 
agreement to form the working group as basically a means for 
kicking the issue down the road to be dealt with at a later 
date.  (Not surprisingly, the Burmese Ambassador to Brunei 
told Ambassador his government was "pleased" with the 
outcome.) 
 
¶9.  (C) Lim was frank in admitting his surprise that the EU 
had apparently decided that gaining ASEAN's agreement to 
begin FTA talks was worth finessing the Burma issue.  He 
speculated that the EU might have lost confidence in the Doha 
Development Round, or it might have decided to emulate the 
U.S. in seeking regional agreements even while continuing to 
pursue the Doha Round.  In any case, he believed the EU was 
serious in targeting ASEAN, India, and Korea for FTA 
negotiations. 
 
--------------------------------------------- -------- 
ASEAN AND JAPAN TO CONCLUDE MERCHANDISE TRADE DEAL... 
--------------------------------------------- -------- 
 
¶10.  (U) Following AEM informal consultations with Japanese 
Minister Amari, SecGen Ong told the media that he expected 
ASEAN and Japan to wrap up talks on freeing merchandise trade 
under the umbrella of their Economic Partnership Agreement 
(EPA) in time for the pact to be signed at the November ASEAN 
Summit (the original deadline had been last April).  Keita 
Nishiyama, Director of the Asia and Pacific Division at 
Japan's Ministry of Economy, Trade, and Industry, said "we 
have agreed in principle on the modalities of the trade deal" 
and predicted that negotiations would be finalized in August 
in expectation of a November signing (the next AEM Meeting is 
scheduled to take place in Manila in August). 
 
¶11.  (U)  Before the consultations began, SecGen Ong had said 
that Japan was seeking full tariff elimination on 88-92 
percent of total trade and wanted one percent of its imports 
excluded, but was not willing to specify specific product 
lines falling under the one percent exclusion, an omission 
that was unacceptable to ASEAN.  Press reports indicated that 
the breakthrough came during the consultations when Japan 
agreed to eliminate 92 percent of its tariffs by value on 
merchandise imports from ASEAN members within ten years, 
reduce tariffs on another seven percent classified as 
"sensitive" or "highly sensitive" goods, and specify the 
remaining one percent of goods that would be excluded 
completely from tariff reductions.  In return, ASEAN's five 
founding members plus Brunei would eliminate tariffs on 90 
percent of imports by value from Japan within ten years, 
Vietnam would do the same within 10-15 years, and Laos, 
Burma, and Cambodia within 15 years. 
 
------------------------------------ 
...BUT MAYBE NOT AS SOON AS EXPECTED 
------------------------------------ 
 
¶12.  (C) Bruneian trade officials confirmed to us that 
 
BANDAR SER 00000140  003 OF 004 
 
 
progress had been made on negotiations with Japan, but they 
were not convinced that an agreement could be wrapped up by 
November.  They described it as a "very ambitious" deadline 
and suggested that a deal might be concluded but not actually 
signed by that time.  That would depend in large part on the 
August negotiating session, when Japan had said it would 
present detailed lists of sensitive, highly sensitive, and 
excluded products by SITC code.  The Bruneians expected that 
rice and other agricultural products would be on the excluded 
list. 
 
¶13.  (C) Asked by Ambassador about Director Nishiyama's 
comments that Brunei had agreed to include a chapter on 
energy in its own bilateral EPA with Japan, PermSec Lim 
confirmed that general language had been agreed in order to 
satisfy Japan's interest in securing its energy imports.  It 
was, however, a mostly symbolic gesture, as a later clause 
stated that the agreement to maintain a consistent trade in 
energy was "subject to market conditions." 
 
--------------------------------------------- ------ 
ASEAN ECONOMIC COMMUNITY AND PROPOSED ASEAN CHARTER 
--------------------------------------------- ------ 
 
¶14.  (U)  The AEM Retreat concluded with a call for 
completion of a blueprint containing clearly defined measures 
and timelines to achieve the goal of an ASEAN Economic 
Community by 2015, with the aim of having it ready for 
endorsement by ASEAN leaders at their November summit. 
Ministers also discussed general principles that should 
underlie the economic pillar of the proposed ASEAN Charter 
now being drafted.  A press release following the meeting 
reported their conclusion that the Charter should provide for 
"a broad direction of ASEAN economic integration beyond 2015 
toward a closely integrated regional entity" and reaffirmed 
the ASEAN goal of "a competitive single market and production 
base."  The ministers also agreed that "the region should be 
an open, outward-looking, inclusive, and market-driven 
economy consistent with multilateral rules." 
 
¶15.  (C) Bruneian officials told us that AEM discussion of 
the proposed ASEAN Charter stuck to generalities, and the 
drafting process has a long way to go in translating general 
principles into operational modalities.  As an example of 
practical issues that need to be addressed, they pointed out 
that current thinking is that each of the three proposed 
ASEAN "communities" -- economic, security, and social -- will 
have a ministerial council that reports directly to leaders. 
However, nobody has yet addressed the question of what 
ministers will sit on the economic council.  Should it be 
ministers of economics, of trade, of finance, or a choice 
left to individual member states?  They noted that such 
questions may seem innocuous, but their potential for 
delaying an agreement in the protocol-conscious and 
consensus-driven world of ASEAN could not be discounted.  Our 
contacts also highlighted the diverse levels of development 
among ASEAN members, the competition between many to promote 
development in identical sectors, and the resulting impulse 
to protect "national champions" as additional reasons why 
progress on the economic community could be slower than on 
the security and social communities. 
 
----------------------------------------- 
INVESTMENT AGREEMENT AND OTHER AEM ISSUES 
----------------------------------------- 
 
¶16.  (SBU) According to the press release issued at the 
conclusion of the AEM Retreat, ministers also discussed the 
need to revise the Framework Agreement of the ASEAN 
Investment Area (AIA) so as to transform it into a 
comprehensive investment agreement.  Malaysian Minister 
Rafidah said to the media that new features and provisions 
might be incorporated into the AIA to promote greater 
investor confidence and attract more investment from outside 
ASEAN.  Bruneian officials told us that one idea is to amend 
the AIA, which currently extends national treatment in 
designated sectors to all ASEAN investors, so that it also 
applies to foreigners who invest in any single ASEAN country. 
 As a result, a foreign company that has an investment in a 
designated sector in, say, Singapore or Malaysia, would 
receive treatment equal to that given an ASEAN investor if it 
wished to extend its production chain across ASEAN borders. 
 
¶17.  (U) Other results of the AEM Retreat were: 
 
-- endorsement of a roadmap for integration of logistics 
services, designed to encourage establishment of broader 
production networks, and due to be signed at the AEM meeting 
in August; 
 
-- agreement that all efforts should be made to conclude 
pending FTA negotiations so that the business community can 
 
BANDAR SER 00000140  004 OF 004 
 
 
benefit from such arrangements; and, 
 
-- ASEAN recognition of Vietnam as a full market economy, 
coupled with a call to ASEAN dialog partners to provide early 
recognition of Vietnam's full market economy status. 
 
¶18.  (U) The following headed ASEAN national delegations to 
the AEM retreat: 
 
Brunei -- Pehin Dato Lim Jock Seng, Second Minister of 
Foreign Affairs and Trade 
 
Cambodia -- Pich Rithi, Deputy Director General, Ministry of 
Commerce 
 
Indonesia -- Mari Elka Pangestu, Minister of Trade (Director 
General of International Trade Cooperation Herry Soetanto 
represented Indonesia at consultations with the EU) 
 
Laos -- Nam Viyaketh, Minister of Industry and Commerce 
 
Malaysia -- Dato Seri Rafidah Aziz, Minister of International 
Trade and Industry 
 
Burma -- U Soe Tha, Minister for National Planning and 
Economic Development 
 
Philippines -- Peter Favila, Secretary of Trade and Industry 
(present for consultations with EU; Undersecretary Elmer 
Hernandez represented at AEM Retreat) 
 
Singapore -- Lim Hng Kiang, Minister for Trade and Industry 
 
Thailand -- Krirk-krai Jirapaet, Minister of Commerce 
 
Vietnam -- Truong Dinh Tuyn, Minister of Trade 
SKODON