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ASEAN: the key to East Asia's future?

A Note by the Director                                                                                                Ditchley 16/09

ASEAN: the key to East Asia's future?
13-15 October 2016

Context
The conference took place at a time of considerable change in the region.  China had dismissed Singapore as a “Little Red Dot” in response to its stand on the South China Sea arbitration ruling. President Duterte of the Philippines was meanwhile preparing to visit Beijing to nurture his relationship with Premier Xi Jinping. In the United States the Transpacific Trade Partnership (TTP) deal had become a political football in the election campaign and was looking unlikely to be implemented in its current form, even in the event of a Clinton victory. The King of Thailand had just passed away, ending a 70 year reign and opening up new questions on stability and democracy.

People
Michael Williams chaired a diverse group that included policy makers, diplomats, academics and business leaders from Australia, Canada, China, Indonesia, Japan, Malaysia, New Zealand, Philippines, South Korea, Singapore, Thailand, United Kingdom, USA and Vietnam.

Diagnosis
It’s all about China, but this is as much a question of perception as of reality.

Politics and Security
How to accommodate the rise of China to its full commanding height in the region was the recurring question of the conference. China was referenced constantly in every context. The United States a lot. Russia about twice. India once. The UK and Brexit probably only came up because of the British context. For some of the delegates “China was geography, the United States’ involvement in the region a matter of history”. When a local giant awakens on your doorstep it is only natural and prudent to wonder what he will do next.

Because of the rise of China there was a sense of “the walls closing in on ASEAN”. People in the region knew that its founding tenet of centrality was a myth that only works as long as the great powers played along. There was increasing nervousness that China would only do so as long as this suited its interests. There were plenty of signs that China viewed ASEAN as only one forum amongst many for addressing regional issues and was not particularly concerned at the prospect of strengthening ASEAN. China’s preference was to address the ASEAN states bilaterally, creating a network of influence that was strongest in close neighbours like Cambodia and Laos, and increasingly the Philippines.

There was no consensus amongst ASEAN states on how to handle China and the South China Sea and nor could there be: the interests and political economy of ASEAN states were too varied and ASEAN remains a loose association, rather than a community with common policies. The code of conduct process risked dragging on for years: some delegates wanted to set deadlines. Others felt, strongly, that this would bring great risks, judging that dialogue was better than a vacuum that could lead to conflict.

Despite President Obama’s deliberate pivot towards Asia, the United States was seen by those from the region as declining in influence in East Asia in contrast to China. It was a part time Asian power, although always a Pacific power. There was a risk that its policy would become focused solely on security issues. Failure to implement TTP would increase this impression in the ASEAN states ready to sign up but perhaps also in those not yet committed. Most Asian delegates were hoping for a Clinton win and continuity because they did not know what President Trump would mean for Asia, beyond the likelihood of his renouncing TTP.

The quality of ASEAN democracy is declining in some countries but improving in others. Overall, this did not seem a critical issue. There was debate about the quality of leadership: some were nostalgic for the autocrats of the past, Lee Kuan Yew for example. Others preferred lower key democratic leaders to the risks of authoritarianism.

Economics
This Asian sense of a US distracted from Asia by its own problems and continued turmoil in the Middle East was not, however, reflected in the economic data, where the US role was growing not reducing.  The US was by far the largest direct foreign investor in the ASEAN region, investing more than China, Japan and India combined.  China was not even in the top five on investment.  China certainly led on trade but even here China was not as dominant across the ASEAN countries as the political discourse would suggest with 15 percent of ASEAN trade with China, ten percent to Japan and 5 percent to Korea. 

China’s biggest economic impact was with the countries closest to it – Laos and Cambodia, as well as Myanmar.  China’s One Belt, one road investments, Mekong industrial zones, a 1450km road, and many other projects, could have a transformative impact.  China was investing in places and at a rate that neither the market nor other states were prepared to match. 

Securing sufficient investment in infrastructure was a problem across the ASEAN countries with speed of return on investment insufficient to attract market funds.  Many of the projects were also poorly packaged and potential investors still had to grapple with official corruption, bureaucracy and lack of confidence in the rule of law.

Economic integration amongst ASEAN countries had made significant progress but there was a great deal more that could be done to release latent growth.  Inter-ASEAN trade amounts to around 25 percent of trade volumes, not bad but lower than the trade between North East Asian countries as a regional comparison.  Non-tariff barriers were probably more important than tariffs and on this TTP would have been a useful standard bearer.

Technological advances in manufacturing mean that low wage economies no longer have the competitive advantages they once had, even accounting for the impact of rising wage costs in China.  Manufacturers want bases that deliver a technologically savvy workforce combined with rule of law protection for intellectual property.

On the upside, the region is poised to take advantage of these trends with heavy investment in education and strong take up of mobile digital devices. Thailand is investing 20 percent of its budget in education. Fifty percent of people in Myanmar now have a mobile device (83 percent in urban areas according to the latest GSMA report) and payment platforms are spreading quickly. Disruptive companies like Uber are being challenged by local ASEAN startups like Grabtaxi.  Tourism  continues to be a major industry.

The combination of outside investment and a young and dynamic technologically adept population is delivering one of the few bright spots of global growth at present, although this is more true at the edge than the centre of gravity of ASEAN. There are good reasons for optimism although there remain very significant risks, for example another Asian banking crisis. Cyber security and data protection is also a major challenge in the region and this will intensify as the economy becomes ever more technologically dependent.

Economic growth is creating familiar threats to the environment with plastic bags, for example, a growing problem in the region’s seas.  There is also a local variant of the global trend towards greater inequality as globalisation and technology deliver variable benefits that can look good when averaged out but that create pools of poverty and frustration.

PRESCRIPTIONS

ASEAN
Its focus on form and ceremony has played an important role in creating a group identity for a group of countries that otherwise have historically been ignored by larger regional and global powers.  But if ASEAN is to remain relevant and useful then it will need to evolve significantly.

Developing the East Asia Summit was seen as a promising route for evolution: the appointment of formal sherpas and creation of a permanent secretariat would help build consensus towards serious agreements and then enable the monitoring of their implementation. 

It was in ASEAN interests to create an ASEAN space for the big powers to negotiate their compromises in the region.  This would help sustain ASEAN “centrality” and give it at least a seat at the table. 

ASEAN could move towards a limited transfer union with stronger states helping to support weaker states, particularly in times of need.  At the very least ASEAN states should increase their subscriptions from the current minimum – USD1.1 million – levels.

ASEAN’s evolution has to work with the grain of China’s vision for itself, not be seen to be seeking to contain it on behalf of the United States.

ECONOMIC GROWTH

More can be achieved on economic integration.  Although a single ASEAN market is plainly unrealistic there might be scope for a series of regional markets that would expand and simplify regional trade. 

More can be done without major concessions on sovereignty to agree cross-ASEAN standards for different industries and professional services. The ASEAN business advisory council could play an important role in this regard as a powerful private sector voice.

Attracting more capital for infrastructure development is essential for realising the region’s economic potential. The Chinese role is positive but should not be the only option for major projects. Long term bonds are a possible way forward with infrastructure projects appropriately packaged. Use of commercial strategic delivery partners could be an attractive option.  More work is required on reducing corruption and bureaucratic inefficiency.

Even if comprehensive trade deals like TTP fail to get traction ASEAN countries need to continue to work on lowering tariff and non-tariff barriers to trade in a pragmatic, piecemeal way.

Although ASEAN’s adoption of digital technology is promising, investment in research and development and science and technology remains very low in most ASEAN countries e.g 0.2 percent in Thailand and 2.7 percent in Singapore.  This needs to be increased significantly if ASEAN countries are to avoid the middle income trap and to take full advantage of the technological revolution.  Tackling cyber security and data protection will also be essential for the region as for other countries.

THE RISE OF CHINA

There is no prospect of ASEAN being an effective vehicle to constrain or to check China – ASEAN was not designed for this.  States will have to pursue their policies towards China through different means, either bilaterally or in other alliances.

But a better economically integrated ASEAN region could offer significant economic advantages to China, which wants and needs to trade with the world.  This could deliver in turn a stronger political connection between ASEAN and China and help shape China’s plans for the region in a positive way.

This Note reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression.

CHAIR: The Lord Williams of Baglan Ph.D, M.Sc (Econ) 
Distinguished Visiting Fellow and former Acting Head, Asia Programme, Chatham House. Formerly: United Nations Under-Secretary-General and Special Coordinator for Lebanon (2008-11); UK Special Representative on the Middle East and Special Projects (2007-08).

AUSTRALIA

Mr John McCarthy AO 
Co-Convenor, Australia-Indonesia Dialogue. Formerly: National President, Australian Institute of International Affairs; Australian Diplomatic Service: High Commissioner to India (2004-09); Ambassador to Japan (2001-04).

Mr Paul Stephens 
Assistant Secretary, South-East Asia Regional Branch, Australian Department of Foreign Affairs and Trade.

AUSTRALIA/CANADA

Dr Malcolm Cook
Senior Fellow, Institute of Southeast Asian Studies, Singapore. Formerly: Dean, School of International Studies, Flinders University (2011-13).

CANADA

Professor Brian Job 
Professor, Political Science, and Associate Director, Institute of Asian Research, University of British Columbia; Senior Fellow, Asia Pacific Foundation of Canada; Co-Editor, Global Governance journal; editorial boards, International Relations of the Asia Pacific and the International Journal.

Ms Saumya Krishna 
Associate, McKinsey & Company; World Economic Forum Global Shaper.

Dr Erik Kuhonta 
Associate Professor of Political Science and Member of the Institute for the Study of International Development, McGill University.

CANADA/USA

Mr Murray Hiebert 
Senior Adviser and Deputy Director, Southeast Asia Program, Center for Strategic & International Studies. Formerly: Senior Director for Southeast Asia, U.S. Chamber of Commerce. 

CHINA

Mr Shao Zheng 
Counsellor for Policy Analysis and Strategic Planning, Chinese Embassy to the United Kingdom. A member of The Ditchley Foundation Programme Committee.

ICJ/UK

Sir Christopher Greenwood CMG QC  (ICJ/UK)
Judge, International Court of Justice, The Hague. A Governor of The Ditchley Foundation.

INDONESIA

Ms Rahimah Abdulrahim 
Executive Director, The Habibie Center.

Mrs Hastin Dumadi 
First Secretary, Economic Affairs, Embassy of the Republic of Indonesia to the United Kingdom.

Dr Shafiah Muhibat 
Deputy Head, Department of Politics and International Relations, Centre for Strategic and International Studies - Jakarta; Editor-in-Chief, The Indonesian Quarterly.

His Excellency Mr Rizal Sukma 
Ambassador of the Republic of Indonesia to the United Kingdom. Formerly: Executive Director, Centre for Strategic and International Studies, Jakarta.

JAPAN

Mr Noriyuki Sato 
Executive Vice President and Executive Coordinator, Mitsui & Co., Europe, London.

HE Ambassador Kazuo Sunaga 
Ambassador of Japan to ASEAN.

MALAYSIA

Tan Sri Munir 
Chairman, Bank Muamalat Malaysia Berhad, Kuala Lumpur; Chairman, CIMB Asean Research Institute; Chairman, ASEAN Business Advisory Council, Malaysia. Formerly: Founding Executive Chairman, Securities Commission.

Ms Elina Noor 
Director, Foreign Policy and Security Studies, ISIS Malaysia.

NEW ZEALAND

Dr David Capie 
Director, Centre for Strategic Studies, and Associate Professor of International Relations, Victoria University of Wellington.

PHILIPPINES

His Excellency Mr Evan P. Garcia
Ambassador of the Philippines to the United Kingdom.

Ms Zelda dT Soriano 
Legal and Political Advisor, Greenpeace (Southeast Asia).

REPUBLIC OF KOREA

Dr Jung Taik Hyun 
President, Korea Institute for International Economic Policy (2016-). Formerly: Senior Secretary for Policy Coordination, Blue House; Vice Chairman, National Economic Advisory Council; Chairman, Korea Trade Commission.

SINGAPORE


High Commissioner Foo Chi Hsia 
High Commissioner of Singapore to the United Kingdom.

Professor Joseph Liow 
Professor of Comparative and International Politics and Dean, S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore; Advisory Board, ASEAN Institute for Peace and Reconciliation.

THAILAND

Dr Termsak Chalermpalanupap 
Research Fellow, Political and Security Affairs, ASEAN Studies Centre of the Institute of Southeast Asian Studies - Yusof Ishak Institute, Singapore. Formerly: Director, Political and Security Cooperation, ASEAN Secretariat, Jakarta (1999-2012).

Dr Surin Pitsuwan 
Distinguished Professor in Study of Islam and the ASEAN Community, Universiti Brunei Darussalam. Formerly: ASEAN Secretary-General (2008-12); Foreign Minister of Thailand (1997-2001); Deputy Leader of the Democrat Party, Thailand.

UK

Mr Philip Bouverat 
Director External Global Affairs, JCB, London; member, ASEAN Council.

Mr Mark Canning CMG 
Senior Adviser, Bell Pottinger. Formerly: Her Majesty's Diplomatic Service: HM Ambassador to the Republic of Indonesia and UK Representative to ASEAN (2011-14).

Mr Roderick Gow OB
Chairman and Founder, The Asia Scotland Institute, Edinburgh; Chairman and Founder, Canongate Partners Limited. Formerly: Chief Executive, Asia House.

Mr Richard Graham MP 

Member of Parliament (Conservative) for Gloucester; Prime Minister's Trade Envoy to the ASEAN Economic Community, Indonesia, Malaysia and the Philippines.

Mr Stephen Lillie 
Director Asia Pacific, Foreign and Commonwealth Office. Formerly: Ambassador to the Philippines (2009-13).

Professor Steve Tsang D.Phil. (Oxon)
Professor of Contemporary Chinese Studies and Director of the Taiwan Studies Programme, University of Nottingham; Director-designate, China Institute, School of Oriental and African Studies.

Mr Kevan Watts 
Chairman, UK-ASEAN Business Council; Vice Chairman, Global Banking, HSBC, London.

USA

Mr John Brandon 
Senior Director, International Relations Programs and Associate Director, The Asia Foundation, Washington, DC.

Professor Donald K. Emmerson 
Director, Southeast Asia Program, Shorenstein Asia-Pacific Research Center, and Faculty Affiliate, Abbasi Program in Islamic Studies and Center on Democracy, Development, and the Rule of Law, Stanford University.

Mr Alexander C. Feldman 
President and CEO, US-ASEAN Business Council. Formerly: Owner, B2Bcast, Singapore (2000-09); Senior Advisor to Under Secretary of Commerce for International Trade (2006-08).

Ambassador Stapleton Roy 
Distinguished Scholar, Woodrow Wilson Center, Washington, DC; Co-Chair, United States-Indonesian Society. Formerly: U.S. Diplomatic Service (1956-2001): Ambassador to Indonesia (1996-99); to China (1991-95); to Singapore (1984-86).

Dr Amy Searight
 
Director, Southeast Asia Program, Center for Strategic and International Studies, Washington, DC. Formerly: Deputy Assistant Secretary of Defense for South and Southeast Asia, U.S.Department of Defense (2014-16).

Professor David Steinberg
Distinguished Professor of Asian Studies Emeritus, formerly Director of Asia Studies, Georgetown University.

VIETNAM

Dr Nguyen Duc Thanh 
President, Viet Nam Institute for Economic and Policy Research, University of Economics and Business, Vietnam National University, Hanoi. Formerly: Member, Prime Minister's Economic Advisory Group (2011-16).

Mr Thanh Vu 
Deputy Regional Managing Director and Vietnam Country Representative, US-ASEAN Business Council.

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