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OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHML #1953/01 2280745
ZNR UUUUU ZZH
O 150745Z AUG 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1619
INFO RUCPDOC/USDOC WASHDC IMMEDIATE
RUCNASE/ASEAN MEMBER COLLECTIVE IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RHHMUNA/CDR USPACOM HONOLULU HI//FPA//

UNCLAS SECTION 01 OF 02 MANILA 001953 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP/MTS, EAP/EP 
STATE PASS USTR BWEISEL, AND KEHLERS 
STATE ALSO PASS USAID, OPIC 
USDOC FOR 4430/ITA/MAC 
 
E.O. 12958: N/A 
TAGS: ECON EAID ETRD ECIN EINV PGOV RP
SUBJECT: POTENTIAL TRADE PROSPECTS IN MINDANAO: THE BIMP-EAGA 
 
Ref: A) Manila 1610, B) Manila 1050, C) Manila 1790, D) Manila 0998 
 
 
¶1.  (U) Summary: This cable describes an international policy 
initiative designed to promote links between the southern 
Philippines and peripheral regions of neighboring countries known as 
the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN 
Growth Area (BIMP-EAGA).  Supporters believe the initiative has 
great potential to promote regional economic prosperity, but 
progress has been slow.  This cable provides a general overview of 
the BIMP-EAGA initiative and its challenges, and is one in a series 
of cables that highlight the economic issues of the Mindanao region, 
which is often associated with peace-and-order challenges and high 
poverty rates (Ref A).  End summary. 
 
BIMP-EAGA: A Poor Rich Area 
--------------------------- 
 
¶2.  (U) The BIMP-EAGA is a sub-regional economic cooperation 
initiative first established in 1994 to spur development in the 
geographically proximate territories of Brunei Darussalam, 
Indonesia, Malaysia and the Philippines, all of which are member 
countries of the regional Association of Southeast Asian Nations 
(ASEAN).  Covering an area of about 1.6 million square kilometers 
that is home to about 60 million people, the BIMP-EAGA's goal is to 
accelerate trade, investment, and transportation among 
resource-rich, less-developed areas that are geographically distant 
from their national capitals. The area includes Kalimantan, 
Sulawesi, Maluku, and Irian Java in Indonesian; Sabah, Sarawak and 
Labuan in Malaysia; the southern Philippine islands of Mindanao and 
Palawan; and all the islands, waters, and resources in between.  The 
entire sultanate of Brunei Darussalam is also part of the sub-region 
and the initiative, although it has largely escaped poverty through 
the development of its abundant offshore hydrocarbon resources. 
 
¶3.  (SBU) The area includes some of the most valuable concentrations 
of natural resources in the world, encompassing two of the world's 
largest rainforests, the center of the world's marine bio-diversity 
in the so-called "coral triangle," the migration routes of immense 
schools of tuna and sardines, and some of the world's largest 
deposits of gold, nickel, copper, and chromites.  Although not fully 
surveyed, the area is also thought to be rich in hydrocarbon 
deposits.  Newly developed oil fields near Palawan have already 
begun supplying significant quantities of petroleum to Philippine 
refineries (reported septel). 
 
¶4.  (SBU) At present, the Asian Development Bank (ADB) is the 
BIMP-EAGA's most important source of development assistance.  ADB 
officials recently explained to Embassy officers their hypothesis 
that this sub-region is relatively impoverished and underdeveloped 
in part because it is geographically distant from the national 
capitals.  The distance from the capital leads to less attention 
from the national government, less spending on social services, 
infrastructure, and transportation links, which in turn reinforces 
the sense felt by the inhabitants of a sub-regional "separateness" 
and disenfranchisement from the mainstream of their respective 
countries.  In the case of Mindanao, this "separateness" manifests 
itself in a range of ways from insurgent violence against the 
national government, to calls by mainstream political and business 
leaders for a federal system of government that gives the people of 
Mindanao more control over how local resources are developed. 
Differences between local and national interests contribute to the 
difficulty in efficiently developing the economic resources of the 
area. 
 
Gains in Trade, Investment and Tourism 
-------------------------------------- 
 
¶5.  (SBU) The ADB officials explained that as a result of BIMP-EAGA, 
new direct sea and air links have opened between these peripheries; 
investments, tourism, and trade have increased.  These air and sea 
linkages have generated a steady increase in intra-regional travel 
of about 7% per year.  Foreign direct investments in Mindanao from 
its area neighbors have included investments in tuna canning, 
energy, palm oil, banking, and tourism/hotel services.  Outbound 
investments have included tuna canning and automotive supplies. 
Among the southern Philippines' top exports to its area neighbors 
are coconut oil, natural rubber, tinned iron and steel, and 
chemicals.  The top five Philippine imports from the area include 
liquefied petroleum gas, copra, methanol, veneer sheet, plywood, and 
coal.  The southern Philippines' largest trading partner in the Area 
is Indonesia, followed by Malaysia. 
 
¶6.  (U) Transportation incentives offered by the BIMP-EAGA include 
 
MANILA 00001953  002 OF 002 
 
 
the BIMP-EAGA Uniform Port Tariff (UPT) rate for shipping services, 
which allows vessels docked at ports within BIMP-EAGA to enjoy 
reduced port fees.  Since 2002, BIMP-EAGA has offered a 50% discount 
on civil aviation fees and regulatory charges; landing and take-off 
fees; parking fees; terminal fees; and air navigation charges. 
There is a 50% reduction in certain customs and immigration fees in 
all participating seaports and airports in BIMP-EAGA.  And, all 
passengers traveling between area destinations are exempt from 
normal travel taxes. 
 
¶7.  (U) Memoranda of Understanding (MOU) signed in 2007 created the 
1) expansion of BIMP-EAGA air services fifth freedom rights to allow 
airlines to bring cargo and passengers from one country to another 
other than from its home country; 2) integrated sea links between 33 
designated BIMP-EAGA gateway ports; and 3) cross-border movement of 
commercial buses and coaches via ferry.  These MOU are milestone 
achievements in providing more liberalized transportation services 
in the sub-region--making the BIMP more attractive for future 
investments, and more integrated into the broader regional economy. 
 
 
Streamlining of Customs, Immigration, and Security 
--------------------------------------------- ----- 
 
¶8.  (SBU) The BIMP-EAGA has also streamlined Customs, Immigration, 
Quarantine and Security Rules (CIQS), Regulations, and Procedures. 
This initiative has led to joint maritime border patrols between the 
Philippines, Malaysia and Indonesia; common standards for air and 
maritime pilot-testing; joint assessments of the customs environment 
in priority ports; and convening the first BIMP-EAGA customs task 
force.  However, ADB officials noted to Embassy officers that there 
is much 'informal trade' (i.e., smuggling) between Area countries. 
 
 
¶9.  (SBU) The Philippine Long Distance Telephone Company has 
introduced discounted rates within the area, as well as an area 
code.  Demark motor manufacturing, a Malaysian company, has 
established operations in Zamboanga City, Oriental & Motolite 
Marketing Corporation (Filipino-owned) is now operating in Malaysia 
and Brunei, and there is direct import of diesel fuel from Malaysia 
to a number of fishing companies based in Zamboanga City, just to 
name a few of the investment ventures. 
 
Working toward Solutions 
------------------------ 
 
¶10.  (SBU) The ADB and the BIMP-EAGA National Secretariats recognize 
the need for improvement in private sector investment in the 
BIMP-EAGA initiative.  The fourth BIMP-EAGA Summit, which was held 
in Singapore in November 2007, called for a comprehensive review of 
BIMP-EAGA progress, with ADB technical support that will be 
presented in mid-October 2008.  According to ADB officials, the 
review will reveal a large gap between potential and actual 
investments by the private sector.  The ADB is now also assisting 
BIMP-EAGA to improve its marketing plans, create economic corridors, 
increase connectivity, and strengthen local government coordination 
within the Area. 
 
Comment 
------- 
 
¶11.  (SBU) ADB officials expressed great enthusiasm about the 
potential of the BIMP-EAGA initiative to improve regional prosperity 
and peace.  However, they admitted the initiative had gotten off to 
a slow start, suffered a number of unforeseen setbacks, and still 
faced serious challenges.  Among the major challenges include the 
lack of effective national government control of the area, and the 
ensuing smuggling, illegal drugs, piracy, and other criminal 
activities.  The ineffective national government presence in the 
area also complicates collection of quantitative indicators by which 
to measure the initiative's success.  The 2006-2010 BIMP-EAGA 
Roadmap sets some measurable goals, but it is still too soon to 
measure progress towards these goals.  Recent moves by Malaysia to 
expel Filipinos from Sabah, and increased smuggling in the area in 
response to the rising costs of food and fuel may undermine the 
goodwill on which the initiative is based. 
 
KENNEY