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On Open Skies and Free Trade – not so open and free?

Updated On: Jul 20, 2007

ASEAN members are looking at liberalising more sectors of their economy as well as negotiating free trade agreements to promote economic development.

However, opposition lurks round the corner.

In Malaysia, Transport Minister Datuk Seri Chan Kong Choy said that Malaysia would not rule out bringing forward the ASEAN open sky policy from the original schedule of 1 January 2009. The ASEAN agreement would initially apply for routes between ASEAN capitals and later expand to other cities.

This piece of news was welcomed by a spokesman from Singapore’s transport ministry, suggesting that there could be a move towards liberalising the Singapore-Malaysia air travel, particularly on the Singapore-Kuala Lumpur sector.

Malaysian-based budget carrier AirAsia has been among the most vocal in campaigning for access to the Singapore-Kuala Lumpur route dominated by Singapore Airlines and Malaysia Airlines. Both flag carriers account for 85 percent of traffic on the short sector between the two cities. AirAsia will gain an estimated RM18 million if it is allowed two flights a day to Singapore.

However, the Managing Director of  Malaysian national carrier, Malaysian Airlines,  cautioned, “We need more time. If you do it [liberalisation] earlier, I don't believe that Malaysia will win but in fact I thinkSingapore will be the winner in all this.”

Separately, the Malaysian government recently signed a memorandum of understanding (MOU) with India to liberalise air travel to promote tourism. The MOU comes ahead of the expected signing of the ASEAN-India FTA later this year.

Malaysia is also currently negotiating or looking to negotiate several other FTAs. Potential partners have expressed interest. New Zealand Prime Minister Helen Clark pointed out that New Zealand is interested in FTA talks with Malaysia and talks would begin over the next six months.

The US Assistant Trade Representative for Asia Pacific Barbara Weisel said that the Malaysia-US Free Trade Agreement (FTA) talks are progressing well. Both countries should conclude talks by the end of the second quarter of 2008.

Like Malaysia, the Philippines is looking at liberalising air travel to help boost its tourism industry and meet its target of five million tourist arrivals by 2010. President Gloria Arroyo has apparently personally ordered unrestricted ‘open skies’ access to the recently renamed Diosdado Macapagal International Airport (DMIA) to be given to foreign carriers.

This bold act of unilateral liberalisation is likely to come under serious objection.  Opposition voices have been quick to point out that open skies at DMIA do not automatically mean more tourism and business. For instance, although 38 foreign airlines have landing rights for the central city of Cebu, only five fly there.

In other economic sectors, some Philippines businesses are also urging rethink on the Philippine’s commitment under ASEAN. For instance, the Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) has written a letter to Trade and Industry Secretary Peter B. Favila, urging him to hold the publication of Executive Order (EO) 617 in abeyance pending its full review.  EO 617 was issued as part of the Philippines’ commitment under the ASEAN Free Trade Area (AFTA). Under the AFTA schedule, 80 percent of ASEAN countries’ tariff lines must be reduced to zero this year.

Even within the official level, some of the Philippines officials are concerned about competition from fellow ASEAN members. The Tariff Commission chairman Edgardo B. Abon has urged for the quick approval of the Japan-the Philippines Economic Partnership Agreement (JPEPA) lest the ASEAN-Philippines EPA be implemented first. He said that supposed privileges obtained by Japan and the Philippines would be useless if these were extended to the rest of ASEAN and a region-wide free trade pact takes effect before 2010, when ASEAN is scheduled to abolish tariffs on almost all products.

Mr Abon said, “We don't want to regionalize what we have offered to JPEPA [Japan-Philippines Economic Partnership Agreement]. We don't want [other ASEAN countries] to [have a free ride] on our offer to Japan.”

There is some conflict of interest since the Philippines, as ‘coordinating country’ has been tasked to finish the ASEAN-Japan deal by November. Given that it would be easier to implement the ASEAN-Japan deal since tariff cuts need only a Palace executive order (as opposed to the JPEPA which requires a Senate approval), the Philippines (Senate) has to either speed up passing the JPEPA otherwise, there could be less pressure to have the JPEPA approved.

The general mood toward protectionism is also reflected in the unhappiness by some Filipino businesses over the ASEAN-China FTA. The president of the Cagayan Agro-Industrial Pioneer Corporation, Demosthenes Du complained that the business sector was not being consulted about Philippine commitments under the ASEAN-China FTA before it was implemented.  (19 July 2007)

Sources:

MAS-FAX Row Over Planes' Plight Deepens (Business Times Singapore19 July 2007)

Malaysia-India Air Pact (Business Times, 19 July 2007)

Fast-Tracking Open Skies Could Benefit Singapore: MAS (18 July 2007)

Cagayan De Oro Businessmen Cautious Towards Trade Agreements With China (BusinessWorld, 18 July 2007)

M'sia Loses, S'pore Wins If Asean Liberalises Air Routes Earlier (Bernama, 18 July 2007)

Pact With IndiaA Boon For Tourism (New Straits Times, 18 July 2007)

Malaysia, US Eye FTA Deal By Second Quarter Of 2008 (Business Times, 17 July 2007)

PhilippinesBanks On Open Skies To Boost Tourism (Straits Times, 17 July 2007)

Neighbors Get No Free JPEPA Ride(BusinessWorld, 17 July 2007)

Assemblers Protest Inclusion Of Autos In New EO Lifting Tariffs (Manila Bulletin, 16 July 2007)

Malaysia-US FTA Negotiations Still Ongoing, Says Rafidah (Bernama, 16 July 2007)

Malaysia-US FTA Talks Expected To Conclude By June 2008(Bernama, 16 July 2007)

New Zealand Seeks More FTAs To Improve Trading Relationships (Bernama, 16 July 2007)

M'sia Keen To Bring Forward Asean Open Sky Policy (Bernama, 16 July 2007)

S'pore Looking Forward To Work With MalaysiaTo Liberalise Air Services (ChannelNewsAsia, 16 July 2007)







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