Regional leadership needed to save trade regime


July 5,2018

Regional leadership needed to save trade regime

by Mari Pangestu, University of Indonesia, and Christopher Findlay, University of Adelaide

http://www.eastasiaforum.org/2018/06/24/regional-leadership-needed-to-save-trade-regime/

Image result for Mari Pangestu, University of Indonesia

The world in which Asia Pacific economies operate is changing. Two main forces are driving this change — one ‘top-down’, the other ‘bottom-up’.

The top-down force is the emergence of a world with a larger number of key economies. In recent decades, growth rates around the world have diverged. For much of Asia, this has meant dramatic improvements in incomes and a huge reduction in the number of people living in poverty. It has also meant a new order among countries — a multipolar world.

Image result for Christopher Findlay, University of Adelaide

 

Prof. Christopher Findlay, University of Adelaide

The bottom-up force is the change in the way production is organised, driven by progress in communications and information technology. Technological improvements have shifted the location of production, with production processes becoming increasingly fragmented across countries. The nature of work and the composition of skills within economies have changed.

Given the new order of production and trade, the Trump administration’s mercantilist focus on reducing merchandise trade deficits will end up hurting the United States, as well as disrupting global production networks.

As trade flows change, pressure for domestic structural change can arise. In the United States, a decline in support for international trade and openness has been exacerbated by a lack of adjustment support for geographically concentrated bearers of the burden. Their reaction via domestic political processes has shocked the international system.

In the United States and elsewhere, good macroeconomic outcomes no longer win elections. Much economic policy is now driven by nationalistic and protectionist politics. This is particularly evident in US initiatives to protect its domestic production and seek adjustments from China.

These political conditions were preceded by waning support for openness at a multilateral level. As multilateral negotiations stalled, the response has been the emergence of ‘mega-regional’ platforms such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP 11) and the East Asian Regional Comprehensive Economic Partnership (RCEP).

These initiatives sit atop a ‘noodle bowl’ of messy bilateral agreements. Before the current US America First regime, these mega-regional and bilateral agreements still operated under the lid of the World Trade Organization. The rules-based trading system was still an anchor for economic integration, especially the dispute settlement mechanism.

Today, the principles of openness, non-discrimination, transparency and open regionalism — which have helped generate prosperity in the region, especially for developing economies in Asia — are being severely challenged. When the United States leaves the TPP, undertakes unilateral action and declares that the multilateral rules have not served US interests, the anchor of the trading system is challenged. At most international forums like the G20, policymakers’ time is being wasted on phrasing defensive communiques instead of cooperating on the substantive trade and investment issues of the day.

At the same time, new issues are emerging in relation to trade and investment, such as the taxation of international income flows, the treatment of data flows and the management of intellectual property. Responding to climate change and finding appropriate policies to deal with inequality are also among the challenges.

Progress will be difficult in the multipolar world without clear leadership from the major economies.

Waiting for a consensus to emerge among key economies about the importance of maintaining these anchor principles — while at the same time dealing with the new issues that have emerged — is not an option. There are no obvious forces now at work to resolve this lack of consensus within a reasonable timeframe. Lower-income people in rural ASEAN areas, for example, should not have to wait for the rest of the world to figure out how to shift their own economies and communities to new sources of growth.

In the absence of leadership from the advanced economies, a shared leadership model in the region should be the answer. The key then is the response of the increasingly influential ‘second-tier’ economies. No actors are more important than Indonesia and Southeast Asia, operating through ASEAN and the ASEAN-plus regional agreements that are already in place and being consolidated under RCEP.

Recent statements by leaders in Indonesia indicate recognition of the role it can play and wants to play. But Indonesia’s contribution will be so much greater and more effective if it acts in concert with others. Concerted action could take multiple forms. It might include unilateral reforms, or working on sustainability initiatives that are in both local and global interests.

Effective concerted action depends on a few factors. Foremost, it depends on shared principles. Part of this is agreeing on a purpose, such as the basic principles of non-discrimination, transparency and support for the rules-based trading system. Other principles can relate to specifics, such as the management of open data flows. These principles provide important reference points as countries take their own actions. There is value in sharing experience and aligning countries’ expectations about each other’s reform programs.

These are not new approaches. Readers with long memories will recall efforts like the APEC non-binding investment principles and Individual Action Plans. But this is the point — we already have relevant structures for mobilising this cooperation that can be rejuvenated.

APEC is the most relevant example. Putting weight on APEC does carry a risk. But APEC has a well-developed network of second-track structures that can be engaged more deeply. Given the complexities of the new issues facing the regional economic order, it is even more imperative that there be wide, multi-stakeholder participation and input.

Even more importantly, APEC remains a forum in our region where key economies in the multipolar world and the leading second-tier countries can interact effectively, and where the major protagonist, the United States, can still be engaged.

Mari Pangestu is former Indonesian trade minister and Professor at the University of Indonesia. Christopher Findlay is Professor and Executive Dean of the Faculty of the Professions at the University of Adelaide.

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Trade Wars in Asia’.

 

 

 

ASEAN Car, National Car and What else–Let’s Get Real, not Sentimental


June 29, 2018

ASEAN Car, National Car and What else–Let’s Get Real, not Sentimental

by Bunn Nagara@www,thestar.com.my

The international marketplace can be an unforgiving arena, if the hard economic realities of global markets are replaced by sentimentality or nostalgia. 

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A “national car” in Vietnam or Malaysia tends to miss the wood for the trees. Larger regional realities determine the local prospects, not the other way round. All goods and services are subjected to tough market realities.–Bunn Nagara

THERE is a pattern and a rhythm in global markets that, when acknowledged and heeded, can yield profits – but when denied or confronted may lead to loss and pain.

Asia’s two largest economies, China and Japan, are set to face off in South-East Asia in at least one sector: automobiles.

The signs of this looming challenge are becoming observable, as the portents of the rivalry settle steadily into place. A “national car” in Vietnam or Malaysia tends to miss the wood for the trees. Larger regional realities determine the local prospects, not the other way round. All goods and services are subjected to tough market realities. A temporary reprieve may come only with costly subsidies or tariffs which then render items uncompetitive over the longer term.

Among the realities of the global auto market are, first, that the motorcar is the single most costly consumer item commonly sold across borders. Second, of all the global consumer items traded daily, the car is probably the least nationally oriented. Parts come from all over the world, plants are established abroad for cost and other reasons, and companies from abroad buy proud “national” firms producing even the most prestigious brands.

Britain’s Jaguar Land Rover was bought by America’s Ford, and then by India’s Tata. Britain’s most prestigious marques, Rolls Royce and Bentley, were bought by Germany’s Volkswagen which also bought Italy’s supercar Lamborghini and France’s pride Bugatti, besides Spain’s Seat and Czechoslovakia’s Skoda.

Lamborghini was previously taken over by the Swiss (Mimrans), then the Americans (Chrysler), and then Indonesians (V’Power) and Malaysians (MyCom).

China’s Geely bought Sweden’s Volvo, the London Taxi Company, Germany’s prestigious Daimler (Mercedes) Benz, the US “flying car” company Terrafugia – and Malaysia’s Proton and Lotus.

Proton had earlier acquired Britain’s iconic sports car company, Lotus. Ownership “promiscuity” in the auto industry across borders is spread all round.

Some of these acquisitions may not be 100% but they are still substantial. Geely, for example, owns 49.9% of Proton and 9.69% of Benz, both being the single largest stake in these companies. Among the earliest across borders was General Motors’ acquisition of Germany’s Opel in 1929, after which Opel models were still sold in the UK as “British” Vauxhall. Last year Opel was acquired by France’s Groupe PSA which incorporates Peugeot and Citroen.

The pace and number of cross-border auto acquisitions continue to grow, along with the scale. It is a game for the super cash-rich, making independent national operations unviable while squeezing the prospects of new startups. In ASEAN countries today, mega competition on Level Two between Japanese and Chinese auto firms is shaping up. Even Korean companies are only looking in to see if there is a possible opening.

Sales of individual cars to consumers on Level One continue for all marques, but sales of whole auto companies (Level Two) are the new name of the game. Apart from direct competition between Japanese and Chinese corporations, competition is growing between their locally named subsidiaries – and between rival compatriot firms. The result may see South-East Asian auto companies functioning largely as proxies of parent Chinese and Japanese firms.

SAIC Motor, China’s biggest auto firm which also assembles US and European brands, wants Thailand as the regional production hub for export to other countries. Japanese companies had set that example in this region and are still trying to keep the “flag flying.” Toyota has raised its stake in the Philippines, as has Mitsubishi, with increased investments in factories for larger output. However, higher levels of local technical input are still limited at best.

The international auto acquisitions market has also involved prestigious car design firms. Vietnam’s first car company Vinfast proudly announced engaging Italy’s Pininfarina, which designed Ferrari and Maserati models – and which was bought earlier (76%) by India’s Mahindra.

Developing countries may be smitten by the “national car” bug, while developed countries are more interested in producing sophisticated high-value systems that can be incorporated into all cars: among them, AI for self-driving cars. These high-end components are the real value-added skills in auto production today, rather than basic parts assembly so commonly found in Third World car factories.

Ultimately, the issue is the degree of local content along with the technical input rather than a hidebound obsession with a “national” car. Production and ownership promiscuity across borders means that cars no longer have distinct nationalities.

Image result for Thailand the hub of auto industry in ASEAN

 

Thailand produces some two million cars a year, more than half for export, about as many produced as all the other ASEAN countries combined. It has no national car project since it manufactures only automotive components and assembles cars from other countries. Nonetheless its automobile sector is widely regarded as economically successful, employing more than half a million people and accounting for 10-15% of GDP. Most of the world’s auto parts and automobile manufacturers operate in the country.

A lack of high-end technical inputs for greater value-added has however been limiting to growth. Lately the auto sector pledged to scale up the technical ladder, with attractive government-supported incentives for environmentally clean designs.

Indonesia has ambitious plans for boosting its auto sector, encouraged by rising local demand since 2012 but still hampered by limited exports. It therefore risks mistaking local demand for overseas demand, which has been only 20% of Thailand’s.

Within ASEAN, Indonesia is the biggest country with the biggest population and economy, but its auto sector has not been competitive internationally. Government support through protectionism is no answer. Now the Indonesian auto sector may be facing another challenge – competition from elsewhere in ASEAN such as Vietnam. Its structural inefficiencies remain a persistent problem.

A study by Prof Sadayuki Takii found that the problems include weak or minimal local content and government protection contributing to a lack of competitiveness. The same conditions may be found in other ASEAN countries.

Another reality in the global auto market is how successful companies come from countries with a sizeable domestic market providing healthy competition nationally. Through the years, market discipline made these companies competitive internationally and fit to compete against companies in other countries. Protectionism however works in the opposite direction.

mahathir-jokowi-iriz-ev-01

Indonesian President Joko Widodo has been toying with the idea of an “ASEAN car,” which would bring together engineering skills across this region to produce a competitive world-class item. This desire still exceeds the capacity or the prospect, unfortunately.

Countries in ASEAN still need to get over the lack of substantive technology transfer if they are to acquire the real skills that make the auto sector competitive. Increasing investments by Japanese and Chinese firms at largely parts assembly level are contributing to the problem. But who can say no to immediate investments offering more jobs?

Beyond technology transfers, local players also need to become innovative on their own. That has yet to happen. Another problem to resolve is the growing competition between ASEAN countries. The competing concepts of “regional car” and “national car” are in a zero-sum game.

The Philippines also wants to be the regional auto manufacturing hub within a decade. This national-centric approach, typical of the region, retards regional integration and prospects for the ASEAN Economic Community.

The more likely prospect is to become local outposts for larger Chinese or Japanese firms.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

Bunn Nagara

Bunn Nagara

 

Timor Leste is no Failing State but 11th ASEAN Member-in-Waiting


June 8, 2018

Timor Leste is no Failing State but 11th ASEAN Member-in-Waiting

by Bobby Anderson

http://www.newmandala.org/timor-leste-no-failing-state/

Image result for  Mount Kristo Dili, Timor Leste

Dili Waterfront Monument to East Timor’s Independence

After nearly a year of political deadlock following the 2017 parliamentary elections, on 12th May Timor-Leste’s citizens elected a new government, with Xanana Gusmao the likely new Prime Minister. The parliamentary power his Change for Progress Alliance coalition might wield is little different from the power it was prohibited from wielding under the previous government.

After the 2017 polls, the Fretilin party—having bested Xanana’s CNRT by a few fractions of a percentage point—ultimately refused to convene parliament to face a majority Xanana cobbled together from smaller parties, claiming that because Fretilin received the largest number of votes for any single party, it possessed the “majority”. By this logic parliamentarians exercising their authority would be undertaking a coup d’état. It remains to be seen whether this same illogic will emerge again. Xanana, for his part, surely has promises to keep, and we can anticipate new ministries so that coalition partners might be rewarded. In the near term we can anticipate so many overseas “study tour” junkets that they may necessitate a brand new ministry to organise them.

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Kayrala Xanana Gusmao.

This is all grist to the mill for many a Timor-watcher who has consigned the country to an “arc of instability” alongside Papua New Guinea, Vanuatu, and the Solomon Islands. The picture painted is one of a failed state, according to Foreign Affairs, or a still-failing one, according to a La Trobe University lecturer, with the long-exasperated neighbour Australia at any moment exposed to the fallout of potential collapse in the form of civil conflict or irregular migration.

Except, of course, that it’s not true.

The view from Dili

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Cristo Rei of Dili, Timor Leste/East Timor

After Timor-Leste’s independence in 2002, the United Nations Temporary Administration in East Timor (UNTAET) built Timor-Leste’s institutions of government, but political violence resulted in another peacekeeping mission in 2006. Since 2013, the country has achieved stability through petroleum revenue-funded “reconciliation” between political elites.

Certainly, viewing Timor-Leste through a political economy lens and then extrapolating that view across the multiplicity of sectors and layers that constitute local government and public service delivery makes for dark viewing. In recent years, while conducting field research on service delivery in the country, I heard the dire pronouncements of many a Dili-based NGO or donor representative, or a Timorese health, education, or other line ministry official, and these coalesced around a key assumption: a lack of civil servant capacity in remote and inaccessible hinterlands results in low health, education, and other human development indicator measurements which set the stage for another generation of development assistance. This is usually followed by a melancholy “we are a new country” caveat. Hearing enough of this in Dili, one can be forgiven for assuming that everyone in the countryside is uneducated, hungry and dying. This perception surely underlies Singapore’s objection to Timor-Leste’s membership of ASEAN.

Mount Ramelau (Photo: Bobby Anderson)

But this dark view evaporates as soon as one leaves Dili. Let’s begin with bromides concerning low human resource capacity outside of a few towns. Across Timor-Leste’s rural areas where the majority of Timorese reside, civil servants can be found at their posts and doing their jobs in a challenging environment—one in which little attention is received from the centre.

Decentralisation has in some imperfect manner occurred, with schools functioning autonomously and health services improvising to provide services. These civil servants may often be under-qualified—the teachers may only have high school diplomas—but they are there. Anecdotally, service standards are higher in rural Timor-Leste than in much of remote eastern Indonesia.

“Remote” is also relative in Timor-Leste. Iliomar, often mentioned as one of the most remote areas of the country, can be reached in nine hours from Dili by car, with a nearly uninterrupted 3G phone signal across the entire journey; by no standard of measurement is this remote, especially compared to areas of nearby Indonesian Papua that are up to a week’s walk from a road, with complete network absence. No area of Timor-Leste that I am aware of suffers a lack of services and corresponding ill health, high mortality, low school attendance and student performance due to remoteness. Claiming that geography inhibits service delivery is disingenuous.

State failures, but not a failed state

Timor-Leste’s problems are bureaucratic, not geographic. The biggest obstacle rural civil servants identify is not “remoteness” or “human resource capacity”: it is “Dili”, an often insular centre that lacks understanding of, and experience in, the rural areas where most Timorese live.

The new state’s problems are many, but they are surmountable, and they are concentrated in Dili. They involve ineffective logistics, haphazard supply chains, a lack of facilities standardisation and maintenance, top-down budgeting that takes no account of local conditions, lengthy delays in payments and financial acquittals, and so on. This in turn stems from less-than-competent senior management and politically-driven appointments. While the centre does host committed and effective senior technocrats, they are exceptions.

Centralisation of fiscal policy and procurement is justified by an alleged lack of capacity in the countryside. But the way such matters are handled in the capital would be laughable if it wasn’t so harmful. For example: Government tenders for vehicle maintenance are awarded where all repairs are done in Dili only. Repairs can take over a year, and work can be shoddy: in Lospalos, an ambulance repaired a year after delivery broke down on the drive back. Fuel provision contracts are awarded in such a way that vehicles must drive to Dili to fill up their tanks. To cope with this absurdity, sub-national administrators utilise other budgets to purchase fuel locally. Some ministries have such a bad reputation among potential private service providers with regard to delayed payments that only the worst contractors bid for their tenders. Most damagingly, civil servant salaries can be collected only in municipal capitals. This takes administrative post health, education, and other officials out of their posts for two days to a week every month.

Graffiti targeting an ex-finance minister in Dili (Photo: Bobby Anderson)

Individual civil servants, including those in Dili, strive to distinguish themselves from the Indonesian state structure they replaced. However, they are disempowered from acting independently, and are hobbled by the focus of the bureaucracy on paperwork and “accountability”—such as the requirement of undue amounts of signatures for the release of funds, one of the worst aspects of New Public Management superimposed by UNTAET.

 

Middle managers defer decisions upwards; they receive few rewards for good performance and face fewer consequences for poor performance. A lack of managerial accountability is found throughout: for example, a preventable death from an obstetric emergency will result in no investigation or administrative sanction to the civil servants responsible for a particular shortage or lack of maintenance that led to the death. A junior civil servant may be dismissed for absenteeism, but their manager will not be dismissed for failing to provide the supporting structure that made it impossible for that civil servant to do their job in the first place.

These problems are hardly unique to Timor-Leste. They are found across the developing and developed world. And yet Timor-Leste is described as at risk of collapse, even though it lacks the violence, insurgency, and debilitating corruption of other failed and failing areas: as though it possesses the political equivalent of a genetic predisposition. But contemporary observable conditions in the countryside fly in the face of the dire pronouncements of the centre, mostly backed by old data. Most current human development indicators available from donor and agency sources demonstrate improvements in the last 10 years but even these might be unduly pessimistic.

Invented problems

So why does this image of failure persist? The root cause is that national-level civil servants and development workers speak for a grassroots that they don’t understand. Also to blame is the repetition of biases and application of expired heuristics across decades. In the 1970s, Timorese diaspora opponents of Indonesia’s invasion, and their threadbare foreign supporters, spoke of the tragedy of an invasion of a nation already left behind by hundreds of years of Portuguese neglect, then subjected to horrendous levels of violence and social engineering schemes, dying from neglect or from intention.

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Much of this message was encapsulated in the imagery of emaciated children in relocation camps, and that image has never left us. It is implanted in the minds of government and NGO staff who easily absorb those images and aid in their recycling. The unthinking continuity of this image supports the unthinking elements of the development industry; it is the reason why many a salary is drawn (including the salaries of underpaid local enumerators who are expected to feed doom up the line to their superiors) and many a study tour and per diem is taken. Local government and NGO workers I’ve spoken to across Timor-Leste offer numerous examples of enumerators filling in household surveys with exactly the results they expect to find.

Another cause is that many government and NGO workers in Timor-Leste have never worked elsewhere. It’s easy to believe conditions in Timor-Leste are the same as Afghanistan or the Congo if one knows absolutely nothing about those failed states.

Some of Timor-Leste’s problems seem to be invented. For example: the small stature of many Timorese is often classified by donors and NGOs as “stunting”, childhood malnutrition which can result in diminutive size, cognitive deficiency, and ill health. Undoubtedly the diminutive stature of many Timorese is caused by childhood malnutrition; some foreign-funded nutrition projects are needed, and welcomed, but all too many of them assumed that the problem is a lack of food, which they then attempted to address through food distribution.

But malnutrition in Timor-Leste is not caused by a lack of food so much as it is caused by a lack of knowledge—of nutrition, of breastfeeding and supplemental feeding, of sanitation and food storage. And also, some people are just shorter than others. The articulation of stunting comes with a laundry list of negative physical and mental outcomes offered as though they are inevitable to all Timorese below a certain height. This is insulting and racist: diminutive stature does not mean that one is stupid, but the small stature of many a Timorese is re-cast as a dire epidemic of mental imbecility and physical frailty —a problem from the worst excesses of the Indonesian occupation, reinvented in order to open a funding line and respond to something that cannot be defeated because it mostly doesn’t exist.

 

Timor-Leste has enough palpable problems; one need not resort to the past or one’s imagination. Youth unemployment is high, economic opportunity is lacking, education is sub-par, maternal and child mortality are high, and malnutrition is prevalent. Violence against women and children is unacceptable at any level, much less the level found in Timor-Leste. The government’s political decisions impede policies to improve the lot of the majority of Timorese in favour of expenditures such as the Oecussi Special Economic Zone, the Tasi Mane petroleum corridor, exorbitant pensions to insurgent veterans and their offspring, and so on. These short-sighted expenditures are often funded by Petroleum Fund draw-downs which impact that fund’s Estimated Sustainable Income levels.

Government employment is an erroneous form of social protection. Even the official status of Portuguese is wasteful, with local civil servants dependent on the translations of Portuguese “advisors”. Most importantly, Timor-Leste has the highest birth rate in Asia: this will degrade all human development progress made in the near term. Family planning underpins nearly all positive outcomes in maternal and child health and family health in general—physical, economic, and so on. It is foundational to gender equality.

Building on what’s there

Despite myriad problems, it is worth repeating: things aren’t so bad. In rural Timor-Leste civil servants are struggling to provide services with little support; children are in school, being taught by teachers who are mostly present; health posts are open and relatively clean, and pharmacies have stocks of some medicines. Civil servants know what their duties are, feel obligated to undertake them, and understand the support they need to execute those duties optimally. They freely offer prescient criticisms and suggest solutions.

The countryside is direly under-developed in terms of infrastructure, but the government has responded through the National Program for Village Development; communities select and action their own infrastructure needs, and the results and impact are impressive. That program—one of the most successful implemented by the state—reveals the capacity that exists in ordinary Timorese. And the bonds of reciprocity found across the multiplicity of Timorese cultures which constitute society become apparent in discussions with everyone from volunteer teachers to ambulance crew members. Yes, conflict and violence exist, but this is still a society made cohesive by shared experience of occupation and resistance: a transcendent sense of membership, even amongst those in conflict with one another, exists.

Timor-Leste’s most pressing issues are as tedious as they are solvable. The imagery of boatloads of stunted Timorese washing ashore in Australia’s Northern Territory as the country burns like a Yule Log so big it can be seen from space is a delusion. Timorese won’t kill one another in large enough numbers to touch off such a crisis. They don’t even have enough boats. Approaching a country from the perspective of its impending demise likely doesn’t lead to good assistance. A new paradigm by which to approach development in Timor-Leste is needed: one that builds upon the solid foundations one can find if only one manages to look and listen beyond the capital. Timor-Leste has a new government, and with it arrives new opportunities.


The opinions expressed in this article are the author’s own. Readers may also be interested in the Australian National University’s 2018 Timor-Leste Update, which will be held in Canberra on 21/22 June.

 

The 32nd ASEAN Summit’s Economic Priorities and Implications for US-ASEAN Economic Relations


May 3, 2018

Image result for Asia-Pacific Bulletin

Number 422 | May 2, 2018
ANALYSIS

The 32nd ASEAN Summit’s Economic Priorities and Implications for US-ASEAN Economic Relations

By Kaewkamol Karen Pitakdumrongkit

The Summit’s Economic Priorities for ASEAN

The leaders of the ten member countries of the Association of the Southeast Asian Nations (ASEAN) gathered at the 32nd ASEAN Summit in Singapore from April 25 – 28, 2018 under the theme of “Building a Resilient and Innovative ASEAN.” Among the economic cooperation priorities agreed to were the continued advancement of the ASEAN Economic Community (AEC), pursuit of the Regional Comprehensive Economic Partnership (RCEP), and establishment of an ASEAN Smart Cities Network (ASCN).

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These agreed outcomes are steps in the right direction concerning regional integration. Although AEC – aimed at transforming the region into a single market and production base – was officially established in December 2015, more work is needed in areas such as trade facilitation and services liberalization. Another outcome was continued pursuit of RCEP, a trade mega-deal among ASEAN and its six dialogue partners (i.e. Australia, China, India, Japan, New Zealand, and South Korea) proposed to consolidate the existing ASEAN+1 free trade agreements (FTAs) to tackle a “noodle bowl” problem. If successfully concluded, it will encompass 45 percent of the world’s population and one-third of the world’s GDP.

Proposed by the Singapore Chair, ASCN is an initiative to foster smart and sustainable urban development. Recognizing that digital technologies have weaved their way into the economy and people’s lives, this program is aimed at leveraging technology to improve quality of life in increasingly urbanized Southeast Asia. The ASCN will cut across several sectors (e.g. transport, environment, and healthcare) and can in the future be applied beyond the 26 pilot cities. The initiative also holds the potential to improve life even in remote areas, for example, smart sensors installed in households send consumption data to the power distribution centers, enabling the latter to better distribute electricity and avoid power shortages. ASCN can help accomplish the AEC 2025’s goal of “A Resilient, Inclusive, People-Oriented, and People-Centered ASEAN.”

Beyond living standard improvements, ASCN can enable businesses to better participate in transnational production networks, helping to achieve another AEC 2025 objective of “A Competitive, Innovative, and Dynamic ASEAN.” For example, Singapore’s Intelligent Transport System feeds in real time traffic data to alert commuters of accidents on major roads. Although the immediate beneficiaries are drivers and motorists in the city-state, the system facilitates trade. The data enable truck drivers to avoid congested routes or accidents and deliver cargo to the ports on time, increasing businesses’ participation in the global supply chains.

The Future of US-ASEAN Economic Relations

The economic priorities agreed to at the 32nd ASEAN summit can be seen as parts of the regional states’ efforts to enhance their economic cooperation in the “America First” era. The fact that the US’ Indo-Asia-Pacific Strategy has not been clearly articulated elevates the importance of regional integration as the nations turn to rely more on the combined size of regional economies as a means for further liberalization.

However, it is wrong to think that Southeast Asia’s economic integration will leave little room for the United States to participate. The development of its regional economic architectures has been based on the principle of “Open Regionalism” which embraces an open system and regards regional arrangements as building blocks for wider economic integration. According to the ASEAN Leaders’ Vision for A Resilient and Innovative ASEAN adopted at this Summit, “ASEAN shall keep our markets open and competitive, deepen economic integration . . .[and] forge high quality and mutually beneficial economic agreements with external partners. . . to strengthen resilience against rising protectionism and global volatilities.” Such commitment has been reflected by RCEP, other FTAs and Comprehensive Economic Partnerships (CEPs) among individual ASEAN members and their extra-regional partners, and the engagement of non-ASEAN countries in several programs such as the Master Plan for ASEAN Connectivity 2025.

“It is wrong to think that Southeast Asia’s economic integration will leave little room for the United States to participate.”

As the door will not be closed for Washington, American policymakers have to think how to further engage their fourth-largest trading partner to reap the benefits of the latter’s combined GDP of more than $2.4 trillion and market of 632 million people. There exist several ways to do so. First, the United States can participate in the ASEAN Smart Cities scheme as more than half of the ASEAN population do not have access to basic Internet services. With their comparative advantage in digital technology, U.S. policymakers should encourage American firms to build such infrastructure. Also, cooperation under the US-ASEAN Connect Initiative created in 2016 should be further enhanced. Moreover, Washington should rely more on American research institutions to provide inputs helpful for its decision-making process. Furthermore, regular Track 1.5/2.0 dialogues between American and ASEAN academic and think tank communities should be developed and enhanced. These platforms can be used to discuss issues too sensitive to be raised at the Track I (government-to-government) level. This would enable both Washington and Southeast Asian countries to test ideas and explore optimal solutions before forwarding them for consideration in the inter-government talks.

Southeast Asia’s transnational supply chains have been deepening and regional efforts at economic integration have been increased as reflected in the announcements of the 32nd ASEAN Summit. There is still room to expand US-ASEAN trade and investment as well as other forms of commercial interaction. Washington should speed up its effort to roll out programs enhancing such economic ties. Doing so could help the United States reap more benefits from the world’s most dynamic economic region.

About the Author

Kaewkamol Karen Pitakdumrongkit is an Asia Studies Visiting Fellow at the East-West Center in Washington DC. She is also Deputy Head & Assistant Professor at the Centre for Multilateralism Studies, at the S. Rajaratnam School of International Studies (RSIS) of Nanyang Technological University, Singapore. She can be contacted at PitakduK@EastWestCenter.org.

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington
APB Series Coordinator: Peter Valente, East-West Center in Washington

The views expressed in this publication are those of the authors and do not necessarily reflect the policy or position of the East-West Center or any organization with which the author is affiliated.

Trade outcome vital to success of ASEAN Summit


March 18, 2018

Trade outcome vital to success of ASEAN Summit

by Mari Pangestu and Peter Drysdale

http://www.eastasiaforum.org/2018/03/16/trade-outcome-vital-to-success-of-asean-summit/
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Economists Dr Mari Elka Pangestu (above) and Dr. Peter Drysdale

Australia has been an ASEAN dialogue partner since 1974, an acknowledgement of the centrality of ASEAN to Australia’s regional security. There have been ASEAN summits with Japan, China, the United States and India but the ASEAN summit in Sydney this weekend is the first in Australia.

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The Host, ASEAN-Australia Special Summit 2018, Prime Minister Malcolm Turnbull

The summit comes at a time when leaders in ASEAN and Australia confront a number of strategic choices. None is more important than how they respond to the threat to the global trading system, the foundation of East Asia’s prosperity and a critical element in its security.

ASEAN centrality has been an organising framework for Asian economic policy cooperation over the past half century.

The retreat of the United States under President Trump from leading the global economic order; the rise of China with its assertive stance on the South China Sea and its infrastructure development ‘carrot’ in the Belt and Road Initiative; a putative ‘Quad’ configuration of Indo-Pacific power around the US, India, Japan and Australia; and the North Korea crisis all present significant challenges to ASEAN’s central role in the region.

Last week, Mr Trump fired the first shots in what could become a global trade war with the imposition of 25 per cent tariffs on steel imports and 10 per cent tariffs on aluminium. The action, taken under the Section 232 national security provisions of US trade law, risks provoking tit-for-tat retaliation by trading partners who, unlike Canada, Mexico and Australia, aren’t able to negotiate exemption from its impact. It also risks the WTO rules-based trading system.

Mounting uncertainty has affected confidence in trade and economic recovery since Trump translated his campaign protectionist rhetoric into an ‘America First’ agenda. But the White House announcement last week threw the international system into chaos. If Trump’s imposition of these tariffs on a flimsy national security pretext does not outright flout the rules of the WTO, then it at least flouts its widely shared norms.

The response from the European Commission was to ‘do the same stupid things to respond to stupid things’ — promising retaliatory tariffs on a range of US exports into Europe, from Harley-Davidson motor bikes to bourbon whisky. The tariff imposts also launched a process in which partners like Australia successfully begged exemption on various grounds both sound and spurious, all of which are in clear violation of the understanding that trade will be conducted under internationally agreed rules, not ad hoc bilateral deals. That’s the beginning of the rot; it may be a short-term tactical victory for countries like Australia, but it is not effective trade policy strategy.

What can be done now?

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Australia’s Prime Minister Malcolm Turnbull (R) waves with ASEAN leaders (L to 2nd R) Laos’ Prime Minister Thongloun Sisoulith, Indonesia’s President Joko Widodo, Cambodia’s Prime Minister Hun Sen, Brunei’s Sultan Hassanal Bolkiah and Thailand’s Prime Minister Prayuth Chan-O-Cha for a family picture at the ASEAN-Australia Special Summit in Sydney on March 17, 2018.

The strategic objective is to keep the WTO system alive in the face of a potentially mortal threat. The United States is playing itself out of the system. Learning to live without the United States as a rules- and norms-enforcer won’t be easy, but it is the only response that will protect the system and avoid the large-scale economic cost and the dangerous political consequences of an escalating trade war.

Asia’s response to the Trump trade threat is critical for the international system. Asia’s prosperity and political stability depends critically on its integration into the global economy through the rules-based trading system which has underpinned the growth of Asian interdependence, Asia’s economic prosperity and its political security.

China is in Trump’s cross hairs as ‘the cause of US trade deficits because of its violation of trade rules’. But China is also a crucial stakeholder in the rules-based system through its largely faithful observance of the protocols of its accession to the WTO in 2001 and the huge trade in Asia and around the world that has been built on that.

Locking in China’s entrenchment to the WTO system — and resistance to the temptation to take retaliatory actions in the face of Mr Trump’s trade antics — is thus a major element in the system’s defence.

As China and the US stare each other down with a potentially devastating trade war on the horizon, it may seem strange to turn to ASEAN, but it has a central role in the collective response to Asia’s present predicament. That is because of ASEAN leadership in the strategic conception and negotiation of the Regional Comprehensive Economic Partnership (RCEP) in East Asia.

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RCEP includes not only the ten ASEAN economies but also Japan, South Korea, China, India, Australia and New Zealand. It’s a coalition of countries with the economic weight to deliver a powerful message to the world. The signing of the Trans-Pacific Partnership agreement without the United States in Chile last week was a start in defence of the global trading system. But that agreement doesn’t include China or most of ASEAN and is not systemically important enough to make the difference. RCEP is.

The threat to the multilateral trading system is more important than the still unfinished business on the Korean peninsula and worries about the South China Sea.

ASEAN, with Indonesia at its core, is a regional enterprise with a distinctly global outlook and objectives. Intra-regional trade is only 24 per cent of ASEAN’s total trade but it is deeply integrated into trade globally.

The Australia–ASEAN summit is a singularly important opportunity for setting out strategic interests in these economic dimensions of regional security and ASEAN’s role in achieving them. A declaration from the Sydney summit that commits to avoiding retaliation to US protectionism and elevating the momentum in RCEP will help cement a broader coalition of Asian economies, including China, Japan, South Korea and India, to holding firm on the international trading system.

It will also ensure ASEAN’s continuing centrality in cooperation across the region.

Dr. Mari Pangestu is former Indonesian Trade Minister and Professor at the University of Indonesia. Dr. Peter Drysdale is Professor of Economics and Head of the Asian Bureau of Economic Research and Co-Editor of East Asia Forum in the Crawford School of Public Policy at the ANU. This article was also published in the Australian Financial Review on 15 March 2018.

 

President Donald Trump at WEF in Davos, Switzerland


January 26, 2018

President Donald Trump at WEF in Davos, Switzerland

https://www.politico.com/story/2018/01/26/full-text-trump-davos-speech-transcript-370861

The following is the speech President Donald Trump delivered at the World Economic Forum at Davos, Switzerland on January. 26, 2018.

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I believe in America. As President of the United States I will always put America first just like the leaders of other countries should put their country first also. But America first does not mean America alone. When the United States grows, so does the world. American prosperity has created countless jobs all around the globe and the drive for excellence, creativity, and innovation in the U.S. Has led to important discoveries that help people everywhere live more prosperous and far healthier lives.–President Donald J Trump

 

It’s a privilege to be here at this forum an business and science diplomacy and people from world affairs gathered for many, many years to discuss how we can to advance prosperity and peace. I’m here to represent the interests of the America people and affirm America’s friendship and partnership in building a better world.

Like all nations represented at this great forum, America hopes for a future which everyone can prosper and every child can grow up free from violence, poverty, and fear. Over the past year, we have made extraordinary strides in the U.S. We’re lifting up forgotten communities, creating exciting new opportunities, and helping every American find their path to the American dream. The dream of a great job, a safe home and a better life for their children.

After years stagnation the nights is once again experiencing strong economic growth. The stock market is smashing one record after another, and has added more than $7 trillion in new wealth since my election. Consumer confidence, business confidence, and manufacturing confidence are the highest that they have been in many decades.

Since my election we’ve created 2.4 million jobs and that number is going up very, very substantially. Small business optimism is at an all-time high. New unemployment claims are near the lowest we’ve seen in almost half a century. African-American unemployment reached the lowest rate ever recorded in the United States and so has unemployment among Hispanic-Americans.

The world is witnessing the resurgence of a strong and prosperous America. I’m here to deliver a simple message. There has never been a better time to hire, to build, to invest and to grow in the United States. America is open for business and we are competitive once again. The American economy is by far the largest in the world and we’ve just enacted the most significant tax cuts and reform in American history. We’ve massively cut taxes for the middle class, and small businesses to let working families keep more of their hard earned money.

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We lowered our corporate tax rate from 35 percent all the way down to 21 percent. As a result, millions of workers have received tax cut bonuses from their employers in amounts as large as $3,000. The tax cut bill is expected to raise the average American’s household income by more than $4,000. The world’s largest company, apple, announced it plans to bring $245 billion in overseas profits home to America. Their total investment into the United States economy will be more than $350 billion over the next five years. Now is the perfect time to bring your business, your jobs, and your investments to the United States.

This is especially true because we have undertaken the most extensively regulatory reduction ever conceived. Regulation is stealth taxation. The U.S. Like many other countries unelected bureaucrats, we have, believe me, we have them all over the place, and they have imposed crushing and anti-business and anti-worker regulations on our citizens with no vote, no legislative debate, and no real accountability. In America those days are over. I pledged to eliminate two unnecessary regulations for everyone new regulation. We have succeeded beyond our highest expectations. Instead of two for one, we have cut 22 burdensome regulations for everyone new rule. We are freeing our businesses and workers so they can thrive and flourish as never before. We are creating an environment that attracts capital, invites investment, and rewards production. America is the place to do business, so come to America where you can innovate, create and build.

I believe in America. As President of the United States I will always put America first just like the leaders of other countries should put their country first also. But America first does not mean America alone. When the United States grows, so does the world. American prosperity has created countless jobs all around the globe and led the drive for excellence, creativity, and innovation in the U.S that has led to important discoveries to enable people everywhere to live more prosperous and far healthier lives.

As the United States pursues domestic reforms to unleash jobs and growth, we are also working to reform the international trading system so that it promotes broadly-shared prosperity and rewards to those who play by the rules. We cannot have free and open trade if some countries exploit the system at the expense of others. We support free trade but it needs to be fair and it needs to be reciprocal because in the end unfair trade undermines us all. The United States will no longer turn a blind eye to unfair economic practices including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning.

These and other predatory behaviors are distorting the global markets and harming businesses and workers not just in the U.S. But around the globe. Just like we expect the leaders of other countries to protect their interests, as president of the United States, I will always protect the interests of our country, our companies, and our workers. We will enforce our trade laws and restore integrity to our trading system. Only by insisting on fair and reciprocal trade can we create a system that works not just for the U.S., but for all nations.

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As I have said, the United States is prepared to negotiate mutually beneficial, bilateral trade agreements with all countries. This will include the countries within TPP, which are very important. We have agreements with several of them already. We would consider negotiating with the rest either individually or perhaps as a group if it is in the interests of all. My administration is also taking swift action in other ways to restore American confidence and independent. We are lifting self-imposed restrictions on energy production to provide affordable power to our citizens and businesses and to promote energy security for our friend all around the world. No country should be held hostage to a single provider of energy. America is roaring back and now is the time to invest in the future of America.

We have dramatically cut taxes it make America competitive. We are eliminating burdensome regulations at a record pace. We are reforming the bureaucracy to make it lean, responsive and accountable and we are insuring our laws are enforced fairly. We have the best colleges and universities in the world and we have the best workers in the world. Energy is an abundant and affordable. There is never been a better time to do business in America. We are also making historic investments in the American military because we cannot have prosperity without security. To make the world safer from rogue regimes, terrorism and revisionist powers, we’re asking our friend and allies to invest in their own defenses and to meet their financial obligations. Our common security requires everyone to contribute their fair share.

My administration is proud to have led historic efforts at the united nations security council and all around the world to unite all civilized nations in our campaign of maximum pressure to de-nuke the Korean peninsula. We continue to call on partners to confront Iran’s support for terrorists and block Iran’s path to a nuclear weapon. We’re also working with allies and partners to destroy jihad it terrorist organizations such as ISIS and very successfully so. The nights is leading a very, very broad coalition to deny terrorists control of their territory and populations, to cut off their funding and to discredit their wicked ideology. I am pleased to the support that the coalition to defeat ISIS has retaken almost 100% of the territory once held by these killers in Iraq and Syria. There is still more fighting and worked to be done. And to consolidate our gains. We are committed to insuring that Afghanistan never again become as safe haven for terrorists who want to commit mass murder to our civilian populations.

I want to thank those nations represented here today that have joined in these crucial efforts. You are not just securing your own citizens but saving lives and restoring hope for millions and millions of people. When it comes to terrorism we will do whatever is necessary to protect our nation. We will defend our citizens and our borders. We are also securing our immigration system as a matter of both national and economic security. America is a cutting-edge economy but our immigration system is stuck in the past.

We must replace our current system of extended family chain migration with a merit-based system of admissions that selects new arrivals based on their ability to contribute to our economy, to support themselves financially, and to strengthen our country.

In rebuilding America we are also fully committed to developing our workforce. We are lifting people from dependence to Independence because we know the single-best anti-poverty program is a very simple and very beautiful paycheck. To be successful it is not enough to invest in our economy.

We must invest in our people. When people are forgotten the world becomes fractured. Only by hearing and responding to the voices of the forgotten can we create a bright future that is truly shared by all. The nation’s greatness is more than the sum of its production and a nation’s greatness is the sum of its citizens, the values, pride, love, devotion and character of the people who call that nation home.

From my first international G-7 Summit to the G-20, to the U.N. General Assembly, to APEC, to the World Trade Organization and today at the World Economic Forum my administration has not only been present but has driven our message that we are all stronger when free, sovereign nations cooperate towards shared goals and they cooperate toward shared dreams. Represented in this room are shared dreams.

Represented in this room are some of the remarkable citizens from all over the worlds. You are national leaders, business titans, industry giants and many of the brightest mind in many fields. Each of you has the power to change hearts transform lives and shape your country’s destinies. With this power comes an obligation however, a duty of loyalty to the people, workers, customers, who made you who you are.

Together let us resolve it use our power, our resources and our voices, not just for ourselves but for our people, to lift their burdens, to raise their hopes and to empower their dreams. To protect their families, their communities, their histories and their futures. That’s what we’re doing in America, and the results are totally unmistakable. It’s why new businesses and investment are flooding in. It’s why our unemployment rate is the lowest it’s been in so many decades. It’s why America’s future has negative been brighter.

Today, I am inviting all of you to become part of this incredible future we are building together. Thank you to our hosts, thank you to the leaders and innovators in the audience but most importantly, thank you, to all of the hard-working men and women who do their duty each and every day, making this a better world for everyone. Together let us send our love and our gratitude to make them because they really make our countries run. They make our countries great. Thank you and God bless you all. Thank you very much.