Wednesday, June 20, 2012

Deciphering the stalled Timor Leste’s membership bid

Reportedly, on June 21-22, the Working Group (WG) to assess the implications of Timor Leste’s bid for ASEAN membership will meet for the first time in Jakarta. The meeting is very important because it will chart the direction the WG’s subsequent meetings.

The WG was established as two ASEAN Summits under Indonesia’s Chairmanship in 2011 were unable to make concrete decisions on Timor Leste’s bid for ASEAN membership due to Singapore’s rigid stand.

Singapore stiff reservation has caused numerous speculations. Singapore argues that including Timor Leste at this juncture may derail the implementation of the ASEAN Community, particularly its ASEAN Economic Community (AEC) in 2015, while Indonesia and others support Timor Leste to be ASEAN member before 2015. There are plausible theories for Singapore’s obstinacy.

First, Singapore is wary about Indonesia’s “genuine intentions” in bringing Timor Leste into ASEAN because it seems that Timor Leste puts a high priority on maintaining its cordial relationship with Indonesia. Singapore might worry that Timor Leste will become Indonesia’s “poodle” in ASEAN. However, this suspicion should not be the case, since with or without Timor Leste in ASEAN, Indonesia is considered by many as the ASEAN’s most influential member.

Second, Singapore has a hidden economic agenda that it might use as a trade-off (behind the screen) to Timor Leste for its membership support in ASEAN. In my opinion, this argument is more plausible than the previous one in the view that Singapore is a trading country in which most things should be economically calculated.

Timor Leste is rich in oil and gas and hence it may become a net oil and gas contributor to ASEAN once it is admitted to the grouping. In this regard, Singapore has a central and strategic position in energy issues since the benchmarking of oil prices is based on Mean of Platts in Singapore (MOPS).

Furthermore, through its Singapore Petroleum Company Limited (SPC), it engages in exploration and sale of petroleum products and has oil refining capacity of 1.5 million barrels per day. Hence, from time to time Singapore has to maintain its position as the region’s center of refinery and a place to benchmark oil prices.

The issue is that the oil exploration in Timor Leste is dominated by Australian companies and most of its oil refinery is done in Australia. Thus, it is rather awkward if there is a member of ASEAN that is not dependent on Singapore’s regional central oil role. Furthermore, although dominated by Australia, the oil exploration activities in Timor Leste are not restricted to only Australian oil companies. The only ASEAN country that has an exploration share is Malaysia’s Petronas. Hence, there is an opportunity for Singapore’s oil company should they be interested in or want to be offered concessions by Timor Leste.

Aside of its possible hidden agenda, in public, I have read no strong arguments in countering Singapore’s economic concerns.

As we are aware, currently ASEAN has three pillars of community (political-security, economy and social cultural) each of which has clear programs and a timetable including the AEC. It is logical that Singapore is “anxious” since there are now risks of losing credibility once commitments are ignored and timetables are missed, particularly if a new member joins in at this juncture. Hence, what are the risks and uncertainties of a new prospective member with respect to the AEC?

Before that, it is important to differentiate between the risk and uncertainty. Risk can be assumed as probability that a certain event will occur and thus can be rated by the market. Uncertainty is worse, as there is no probability that the event will occur at all. Thus, uncertainty and volatility play a larger role than the risk emanating from the economic realm, such as Timor Leste is a low income country. In fact, it is argued that low economies may be conducive to liberalization because large numbers of vested interests against liberalization often do not exist.

Furthermore, in the past enlargement, ASEAN has eased its new CLMV (Cambodia, Laos, Myanmar and Vietnam) members into CEPT scheme through accommodation of their needs and permitting them to a full decade of completing the tariff reduction process.

Furthermore, after 2006, Timor Leste has politically been relatively conducive and thus has lowered the uncertainty factor. Concerning the risk emanated from the economy, it is argued that the costs of failure to commitments are low if the ability of ASEAN to enforce sanctions against those violating the rules is unclear and if the economic dependence of the prospective member on ASEAN is marginal.

In addition, from the Charter and the ASEAN Community blueprint there is no single provision on the sanction for countries that fail to meet commitments on the timetable of the AEC.

Furthermore, according to the World Bank (2011), Timor Leste’s trade policies are not a constraint with its growth and exports, and in fact Timor Leste has one of the most liberal trade policy regimes in the word.

Market access has not been a major issue for Timor Leste’s exports, even though they do not belong to any multilateral or regional trading arrangements. In addition, more than 70 percent of its imports come from ASEAN countries which provide for more than a quarter of the country’s exports.

Hence, even if now the ASEAN market might not be suited for a merger with Timor Leste, ideally it should still be allowed to join ASEAN so that there is an ongoing dialogue, while the market integration can exclude Timor Leste for some time.

Indeed, ASEAN Charter Article 21 (2) provides an arrangement on economic commitments which states that: “In the implementation of the economic commitments, a formula for flexible participation, including the ASEAN minus X formula, maybe applied where there is a consensus to do so”.

Thus, a rigid and unwarranted stand may create further speculation and dissension.

By Benny YP Siahaan an alumnus of Tsukuba University in Japan

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