Singapore Foreign Policy Update


March 3, 2017

Singapore Foreign Policy Update

by Dr Vivian Balakrishnan

https://www.mfa.gov.sg/content/mfa/media_centre/press_room/pr/2017/201703/press_201703021.html

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2016 was a tumultuous year for the world and a very busy year for (Ministry of Foreign Affairs) MFA staff. The previous global consensus on the benefits of free trade and, on economic integration is broken. And unfortunately, political discourse in many countries, unlike in this House, has become increasingly nationalistic, anti-incumbent and even sometimes xenophobic. The threat from terrorism, radicalism and extremism has increased, and new media has also amplified this threat far and wide.

Quite frankly, we have to anticipate even more of such external challenges and challenges that will test our resolve, our unity and our agility. As a small city state, Singapore has no option. Isolation and protectionism is not an option for us. In fact, the world is even more interconnected than ever before. So we have actually to double down on globalisation. The economic headwinds and the global protectionist sentiments are not going to go away soon, and they will have serious implications on our trade-dependent economy. We are probably the only country where our trade volume is three and a half times our GDP.  So for us, free trade is not a debating point – it is our lifeblood.  So if you think about it, the larger context of this budget debate, of the COS, and of the Committee on the Future Economy (CFE) is that we have to enhance the competitive position of Singapore and Singaporeans.  That is the only way we can survive and thrive in this uncertain world. Add to that, the fact that major power interactions and rivalry will impact the region, and will impact us and we have seen evidence of that.

So the question, therefore, that all of you have posed is: How will we navigate these challenges? Our fundamental realities remain.  We are still a tiny island in an uncertain neighbourhood, we still have to try our best to build a wide network of friends.  We have to be a relevant, valuable, reliable partner, and at the same time, be realistic about our place in the world.  As former British PM and Foreign Secretary Lord Palmerston once pointed out, nations have no permanent friends or allies, they only have permanent interests.

Tenets of Singapore’s Foreign Policy

Our key foreign policy principles therefore have not changed.  First, we conduct an independent sovereign foreign policy in order to safeguard our independence and the interests of all Singaporeans.  Second, we promote ASEAN unity and centrality.  And third, we have to remain committed to a rules-based international system.

Finally, foreign policy begins at home.  And the effectiveness of our foreign policy depends on us being a successful nation-state and on the continued support of a united citizenry. And one point which I want to commend today – I’ve listened to the very thoughtful speeches from Mr Low Thia Khiang, Mr Pritam Singh, and I am grateful for the bipartisan support that we have in this House.  This unity of purpose is essential for us to pursue our foreign policy goals in this uncertain and volatile environment.

So all the Members of this House understand and appreciate these key tenets of our policy.

Long-Term Value Proposition and Relevance to Other Countries

Many of you have asked questions on Singapore’s long term value proposition and the relevance of Singapore to other countries.  Ms Sun Xueling asked about Singapore-China relations.  Mr Cedric Foo asked about US-Singapore relations under the new Trump Administration.  Mr Amrin Amin, Mr Chia Shi Lu have asked for updates on our relations with Malaysia and Indonesia.  All of these are key relationships.

Singapore and China

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Let me deal first with China.  Singapore has been a steadfast and longstanding friend of China.  Our bilateral relationship, right now, I will describe it as in “good working order”.  In November 2015, when President Xi Jinping came here, we signed an agreement which characterised our relationship as an ‘All Round Cooperative Partnership Progressing with the Times’.  Putting aside the words, the point is historically, our relationship has been built on the strong foundations laid by Mr Lee Kuan Yew and Mr Deng Xiaoping.

And over the decades, Singapore has supported and demonstrated in action and investment in China’s peaceful development and its progressive engagement of the region and the international community.  And we do so because we believe that China’s success is good first for the citizens of China.  It is also good for the region and it is good for us.

I am always amazed that tiny Singapore currently is China’s largest foreign investor, and we have been so since 2013.  China is Singapore’s largest trading partner, also since 2013.

Several Cabinet members including myself just accompanied DPM Teo to Beijing.  We came back just two days ago.  We attended the Joint Council for Bilateral Cooperation (JCBC).  It was a very good meeting and it gave both sides opportunities to explore ways to deepen cooperation especially in this flagship project of President Xi Jinping’s, the “One Belt and One Road” initiative.  I also had a very good meeting with my counterpart, and I can say that this again is a reflection of the deep resilient nature of our relationship.

Our third and latest Government-to-Government project, the Chongqing Connectivity Initiative, has been designated a priority demonstration project for the “Belt and Road”, and will play a catalytic role in linking up Western China – both to Southeast Asia as well as across to Central Asia and beyond.

Besides the JCBC, we also have candid exchanges and sharing of experiences through established platforms such as the China-Singapore Forum on Leadership; and the Singapore-China Social Governance Forum.

The various projects, the business engagements, the people-to-people ties – you’ve heard 2.8 million Chinese tourists to Singapore and I think for us, it would be 800,000 or so Singaporeans who have travelled to China in a year.  The high frequency of interactions at senior leadership level have conferred a very high degree of resilience and I would add strategic trust in our relationship.

Therefore, even when we have differences over some issues, as I said in an earlier session, we should not overreact and we should, in a sense, anticipate that these incidents are not unusual even amongst close friends and neighbours, and we must recognise that our shared interests far exceed these differences.  So we must not be distracted from the larger strategic imperatives or allow incidents to derail the substantive, longstanding and mutually-beneficial cooperation.

Singapore-US Relations

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let me turn now to the US.  There is a new Administration.  It is settling in.  There’s always a period of uncertainty, a period of adjustment that goes on both domestically when a new Administration takes over, and also at the international level.  Basically because the US is such an important superpower.

As far as Singapore is concerned, we believe that our many decades of consistent policies and interactions with the US, have created trust and I believe they consider us a reliable partner.  I am confident that we will be creative and adaptable in developing win-win partnerships with the US even as President Trump pursues a new set of policies.

We have had a strong and enduring base of relations for the last 51 years.  These mutually-beneficial ties have spanned five Republican and four Democratic Administrations. On the economic front, the US is Singapore’s 4th largest trading partner in goods and our top trading partner in services.  The US is also Singapore’s largest foreign direct investor.  And Singapore is the US’ 4th largest Asian investor (after Japan, Australia and the ROK).

On the defence front, our Air Force has training detachments in Texas, Idaho and Arizona.  The US is a significant user of both Changi Naval Base and Paya Lebar Air Base.  And Singapore also supports the rotational deployment of US Littoral Combat Ships and P8 Poseidon aircraft. These fundamentals of our relationship remain unchanged and their value is recognised by both Republican and Democratic Administrations.

Similarly, the strategic and economic imperatives that have underpinned America’s longstanding engagement of our region actually remain unchanged. We have to constantly look for new areas of convergence for win-win cooperation with the US.  So for instance, one of the more recent things we are working on is cybersecurity, and we signed an MOU on Cybersecurity in 2016.

Mr Nair and Mr Low Thia Khiang also asked some searching questions about how the relationship between China and the US will impact Singapore.  And indeed, this is the key bilateral relationship that will affect peace, security and prosperity in our region and indeed in the world.

Whilst competition between the US and China is inevitable, but what is different in historical terms is that never before have two powers been so interdependent, so intertwined economically.  Even in the depths of the Cold War, remember, that the American and Russian economies were never intertwined to the same degree that the US and Chinese economy is.  So therefore, we hope that both sides, after they have measured these imperatives will come back to the same conclusion that a constructive engagement and win-win cooperation is the right formula.  If they can achieve this, this will provide space for countries in the region, including Singapore, to be part of a common circle of friends, and achieve win-win outcomes for all.

This is in fact a key reason why for the last 51 years, Southeast Asia, in particular the founding members of ASEAN, have enjoyed peace, security, prosperity over the last five decades.  So we hope that they would arrive at this conclusion.  But we should also bear in mind that we have no say.  We cannot determine the dynamics of that relationship.  Mr Low asked, “what do we do, if they don’t get along”.  And the answer, is that number one, we have no say.  Number two, we should avoid being forced to choose sides for as long as possible.

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“Relationship with Malaysia is actually as good as it ever has been.”

Now, closer to home, our relationship with Malaysia is actually as good as it ever has been.  More recently, we reached a milestone by signing the Agreement on the KL-Singapore High Speed Rail (HSR) in December 2016. And this is a landmark agreement that will transform the way both countries interact and do business. It will bring our two peoples and economies even closer together. In addition to the HSR, we are also looking to sign a bilateral agreement on the Singapore-JB Rapid Transit System (RTS) this year. The RTS will improve the flow of people and business between Singapore and Johor, and bring both sides closer together. On the whole, our bilateral relations are excellent.  Other than these connectivity initiatives, the economic, the people-to-people ties remain strong.  We will continue to cooperate on security, defence and counter-terrorism.

Mr. Baey Yam Keng asked about the Pedra Branca case and how this impacts our bilateral relations. Part of what underpins our good relations with Malaysia is a commitment by both sides to resolve disagreements amicably in accordance with international law, while allowing mutually-beneficial cooperation to continue in the meantime.  So you will recall that in 2003, Singapore and Malaysia agreed to submit the case concerning sovereignty over Pedra Branca, Middle Rocks, and South Ledge to the International Court of Justice (ICJ). In its judgment dated 23 May 2008, the ICJ found that sovereignty for Pedra Branca belonged to Singapore, sovereignty over Middle Rocks belonged to Malaysia, and sovereignty over South Ledge belonged to the State in the territorial waters of which it is located. On 2 February 2017, Malaysia applied for a revision of the judgment under Article 61 of the ICJ’s Statute.

 Under Article 61, an application for a revision of judgment must satisfy several criteria.  These criteria include: first, it must be based upon the discovery of facts which were unknown to the court and to the party claiming revision when judgment was first given.  And these newly-discovered facts must be decisive, and of such a character as to lay the case open to revision.  An application for revision must also be made at latest within six months of the discovery of the new fact, and within ten years of when the judgment was given.

Our legal team has studied Malaysia’s application carefully, including the three documents relied on by Malaysia to support its application. Our legal team strongly believes that the documents relied on by Malaysia do not satisfy the criteria under Article 61. We will submit to the ICJ our comprehensive and compelling rebuttal to Malaysia’s application by 14 June, which is the time limit fixed by the ICJ.

We are confident of our legal team and our case. We are very fortunate to still have Professor Jayakumar, and we have Senior Judge Chan Sek Keong, and Ambassador-at-Large Tommy Koh who led our original Pedra Branca team. They are also working very hard now, very enthusiastically, I may add.  They are also working with a younger team of bright legal minds in AGC. This way, we are also using this episode as an opportunity to build up expertise and experience in the next generation. Succession again. This is important as I am sure there will be more international legal issues in future.  And equally, we must ensure that the same whole-of-government spirit of unity prevails. These are crucial ingredients in order for Singapore to punch above our weight at international fora. Singapore is committed to resolving this issue amicably and in accordance with international law.

Bilateral relations with Malaysia therefore are good, will remain good, and we will continue with all our mutually-beneficial bilateral programmes. Singaporeans should not be disconcerted by these developments, because even with the best of diplomatic and personal relationships, we must expect other states to act in their own self-interests.

Relations with Indonesia

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Our relations with Indonesia are also strong.  Prime Minister Lee Hsien Loong and President Jokowi (Joko Widodo) had a successful Leaders’ Retreat in Semarang last November.  They jointly witnessed the opening of the Kendal Industrial Park, and agreed to set up an Indonesia-Singapore Business Council and to explore cooperation in the energy and tourism sectors.

The positive and stable partnership that we have enjoyed in recent times has been mutually-beneficial.  Business ties and tourism continue to grow. Singapore remained Indonesia’s top foreign investor in 2016.

This year, we celebrate 50 years of diplomatic relations with Indonesia.  The Indonesian Foreign Minister, Ibu Retno Marsudi, and I jointly announced the start of these celebrations last month during her official visit to Singapore.

We also marked a milestone in bilateral relations through the exchange of instruments of ratification for the Eastern Boundary Treaty on 10 February 2017. This was a demonstration of how both countries can work together to resolve bilateral issues in areas of mutual interest, in accordance with international law. This is an important principle that both sides share, because as neighbours, we must expect disagreements to arise from time to time, but what matters is how we resolve these disagreements.

Bilateral Relations with Brunei

Singapore and Brunei, of course, share a long-standing and a special relationship, anchored in deep mutual trust and respect, which has been built up over decades, over generations of leaders. This is epitomised by the Currency Interchangeability Agreement, which marks its 50th anniversary this year.  We will continue to build on this special relationship with the younger generation of Bruneian leaders though platforms like the Singapore-Brunei Young Leaders Programme.

Singapore in ASEAN

More broadly, Southeast Asia is our immediate hinterland.  And as many of you have said, ASEAN serves a crucial role as the main platform for regional cooperation.  ASEAN has kept our region peaceful and allowed our Member States to focus on growing our economies and improving the lives of our people.  Dr Teo Ho Pin, Mr Liang Eng Hwa, and Mr Low Thia Khiang asked very timely and important questions about ASEAN’s relevance, the pace of integration, the future of ASEAN unity and the key achievements as we celebrate its 50th anniversary.  Mr Cedric Foo and others also asked about our coordinatorship of ASEAN-China dialogue relations.

ASEAN enables us to more effectively shape our external environment and to have our views taken into account by bigger players.  In an often turbulent world, ASEAN is, as Mr Low puts it, Singapore’s anchor and a cornerstone of our foreign policy.

ASEAN has a strong value proposition. We are now already the seventh largest economy in the world and barring any mishaps, we are projected to become the fourth largest economy by 2050. Today we have 628 million people, our combined GDP US$ 2.5 trillion, and by sometime between 2030 to 2050 we hope that this will quadruple to US$10 trillion.  What’s important also is that we will have the third largest labour force in the world, and more important than that, more than half of the population of ASEAN is under the age of 30. So we have a demographic dividend that is not yet harvested.

To maintain our relevance, ASEAN must continue to be neutral, united, and committed to an open and inclusive regional architecture, and that means that we will continue to consolidate and to deepen our economic integration.  We adopted the ASEAN Community Vision 2025 and the three Community Blueprints in 2015.

We must do more to help Singaporeans better understand and to identify with ASEAN. We must also explore ways for ASEAN to ride the technological wave of the Fourth Industrial Revolution.

We will continue to partner with organisations like the Singapore Business Federation and the Association of Small and Medium Enterprises to help our businesses maximise the economic opportunities that ASEAN presents.

Working closely with Philippines as ASEAN Chair

We will also work closely with the Philippines to ensure the success of its Chairmanship this year, and to begin preparations for our own ASEAN Chairmanship in 2018.

It is important that we strive for an integrated, outward-looking and confident ASEAN. To that end, we also hope to build new links with other regional organisations, for instance the Pacific Alliance and the Eurasian Economic Union.

At the same time, the events unfolding in the EU are also a salutary reminder for us not to reprise their problems, and ASEAN must remain pragmatic and practical in managing the pace and the scale of the implementation of our economic integration. The sequence, the pace and the scale – the implementation of all of these are very important.

ASEAN’s cohesion and unity, to be frank with you, have been tested by difficult issues, not only just last year but many times before.  Nonetheless, we have endured and we have even thrived over the past 5 decades.

Looking ahead, I can tell you that ASEAN will become more, not less, critical to our foreign policy.   I totally support Dr Teo Ho Pin’s three suggestions on strengthening unity, promoting partnerships between businesses and encouraging more people to people ties.

Now let me turn to our role as the dialogue relations coordinator between ASEAN and China. Again I want to stress that we have to be honest brokers and we have to do our best to manage this strategic partnership based on mutual benefit and respect.  We upgraded the ASEAN-China FTA in 2015 and we facilitated a successful and substantive ASEAN-China 25th Anniversary Commemorative Summit last year.  We will continue advancing other initiatives such as enhancing connectivity and making progress on the Code of Conduct in the South China Sea in the remaining one and a half years of our coordinatorship.

Relations with other countries – Japan, India, Australia and the EU – are also important, and I am glad to report that relations are also good and will deepen.

Singapore-Japan 50 year partnership

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We commemorated 50 years of diplomatic relations with Japan in 2016. We had a series of high-level exchanges including a State Visit by President Tony Tan.  We are working towards upgrading the Japan-Singapore Economic Partnership Agreement and our Air Services Agreement, and we hope to strengthen bilateral cooperation in air, land and sea transport and infrastructure through the inaugural Vice-Ministerial Transport Forum this year.

India

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In India, steady progress has been made under the Strategic Partnership signed when Prime Minister Narendra Modi visited us in November 2015.  The Strategic Partnership has allowed us to broaden and to deepen relations in diverse areas, both at the central level as well as in selected states in India.

And this was reaffirmed during Prime Minister Lee Hsien Loong’s visit to India in October 2016, when he launched the Centre of Excellence for Tourism Training (CETT) in Udaipur. The master-planning of Andhra Pradesh’s new capital city, Amaravati, by Singapore experts has been completed, and a Singapore Consortium is now bidding to be a participant in the “seed development” of this brand new city.

Bilateral Relations with Australia

Singapore has a close and longstanding bilateral relationship with Australia. This was elevated in June 2015 with the Comprehensive Strategic Partnership (CSP), and this is a substantive undertaking with over 40 bilateral initiatives that will be delivered through the period to 2025.

We have moved quickly to implement the CSP.  Key agreements were signed during PM’s visit to Australia in October 2016. The MOU on Military Training and Training Area Development gives the SAF significant enhanced access to training areas in Australia over the next 25 years.  Areas which, I may add, are multiples the size of Singapore.  This will add significantly towards addressing the SAF’s evolving training requirements.

The upgrade to the Singapore-Australia Free Trade Agreement is expected to come into force this year. It will create many more opportunities for Singapore businesses and professionals to access the Australian markets.

ASEAN-EU Relations

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Brexit notwithstanding, we continue to engage Europe and the EU, for example through the EU-Singapore FTA.  Yes, it has been delayed by certain legal hurdles that we have to go through, but so far all the countries that we have engaged within Europe have expressed support for this free trade agreement.  We are also working on the EU-ASEAN Comprehensive Air Transport Agreement.

Singapore will also continue to seek economic links and opportunities for our companies in emerging markets such as Africa, Latin America and the Middle East, and SMS Maliki will elaborate on this, after I finish my contribution. But let me just say the following short points on the Middle East.

We are one of few countries that engages in a principled way with all of the protagonists in the Middle East.  In the short one and a half years I have been here, I have accompanied the PM to Jordan, to Israel and to Ramallah, under the Palestine National Authority (PNA).  We have gone to the Temple Mount, visited the Dome of the Rock, Al-Aqsa Mosque, Church of the Holy Sepulchre, been welcomed by all parties.  And it is amazing again if you think about it: us, tiny little Singapore is welcomed by all parties.  I believe we have this special position because we take a principled position.  And we also work in a win-win way to support all parties.  So for instance, with the Palestinians we have extended our technical assistance with the PNA.  But more importantly I think one of the key secret ingredients is the fact that Singapore itself, is a successful model of multi-racial multi-religious integration.  Because that gives us a special moral standing to be able to engage, and to speak, and to interact with all parties. Very few countries have this special role that we have.

And so, apart from all these engagements, bilateral and regional, we need to continue to support international groupings and arrangements.  These arrangements increase opportunities for Singapore companies and Singapore to do more in the face of a world which is sometimes at risk of insularism and protectionism.

RCEP

We will work towards the expeditious conclusion of the Regional Comprehensive Economic Partnership (RCEP), and will continue to further the development of the ASEAN Economic Community. We will explore ways to take the TPP forward, despite the US’ withdrawal.

Prime Minister (Lee Hsien Loong) attended the G20 Summit in China last year at President Xi’s invitation, and he will attend the G20 Summit in Hamburg in July this year at German Chancellor Angela Merkel’s invitation.  This will be the seventh time that Singapore is invited to attend a G20 Summit.

An Independent Foreign Policy

The next aspect that I want to talk about is about how we pursue an independent foreign policy.  This means having a foreign policy that serves Singapore and Singaporeans’ interests first and foremost.

Mr Sitoh Yih Pin spoke about the importance of a rules-based international system.  And this is critical for a small state like Singapore.  And you asked how we can strengthen the multilateral system. As a small country, the rule of law is crucial for our survival. The UN, and other international organisations and fora are key components of a rules-based international system.  They create a stable framework for cooperation, for managing tensions and addressing global trans-boundary problems. The multilateral system must become more inclusive, more transparent. Global solutions must have broad-based support from countries to be effective. On our part we play our role by initiating or by catalysing the work of organisations like the Forum of Small States (FOSS), that we actually initiated, and the Global Governance Group (3G), and we work closely with many other small states to have a greater collective voice on the international stage.

We also contribute to the multilateral system through technical assistance to developing countries.  I think we have trained over 112,000 officials from many other countries because they want to understand how Singapore works, and how these lessons can be brought back home. And humanitarian assistance is important and we do contribute when there are disasters and actually it is this training, this development that makes a longer term impact on many other countries.

Foreign Policy Begins at Home

Finally, I want to stress and repeat that foreign policy begins at home.  We need the support and understanding of a united citizenry.  Ms Joan Pereira’s question about how MFA can better engage the public on Singapore’s foreign policy is very timely.

While MFA takes the lead in foreign policy, the issues are becoming more complex and cross-cutting in nature.  Other Ministries and government agencies play an increasingly vital role in Singapore’s external front.  MFA must therefore act as a coordinator to work closely with other Ministries and agencies to pursue a ‘Whole of Government’ foreign policy and to strengthen our domestic resilience in the face of an uncertain and sometimes hostile external environment.

This also means convincing Singaporeans of the need for consistent and principled diplomacy for our long term interests instead of taking the path of least resistance in order to achieve short term gains.  The events of the last six months actually is a reminder of this.  And I am grateful for the support of Singaporeans and of members of this House.

So we will continue to work with all stakeholders to raise awareness amongst our fellow Singaporeans of the stakes for us, of the principles behind our policy, and of the sometimes difficult positions that we have to take, despite the pressures we will face from time to time.

Terrorism–A Real and Present Threat

Terrorism still remains a real and present threat.  This is evidenced by the high-profile attacks in parts of Europe and Southeast Asia, and we are actually at even higher risk, even as ISIS loses its strong hold in the Middle East.  So MFA and MHA (Ministry of Home Affairs) will continue to monitor security and terrorist threats, and we stand ready to assist Singaporeans in distress overseas. We have had Singaporeans injured or otherwise involved in terrorist incidents overseas.  Singaporeans are one of the most widely travelled people in the world.  One of our top challenges is to strengthen our consular assistance. Dr Maliki will elaborate more on this later on.

A united citizenry allows us to pursue effective foreign policy.  We may be small, but the unity of our people is a source of strength.  Our stability, our consistency,our reliability are all the more valuable in an increasingly fractious world, and people respect Singapore for that. Such respect is hard-earned, but it allows our voice to be amplified and heard on the international stage.

I am grateful to Dr Teo Ho Pin and Mr Pritam Singh for your support for the staff of MFA and for adequate resources to be provided in the light of all these challenges. I totally agree with you that MFA staff must be well staffed and must be well resourced. Our MFA officers actually are the real key assets. Our budget may be, I think, the second smallest or the smallest budget of all the ministries but I think you will agree with me it is the staff of MFA.

We have a rigorous selection system. We continue to recruit high-quality people.  But we also provide continuous training to nurture our staff and to develop their leadership potential.  We also regularly review our manpower resources and our work functions to ensure that this precious manpower is deployed in an optimal way.

The work in MFA is very demanding and very labour-intensive and eats up all hours of the day and night.  Our officers work under very challenging conditions and at great cost to their personal and perhaps even more so to their family lives.  I would like to express my appreciation especially to the spouses, of MFA staff and to the children who probably have absentee parents because their parents are out there looking after the longer term interests of our nation and they sacrifice so much for Singaporeans.

But our officers have proven themselves to be dedicated and professional.  They are driven by their mission to advance the interests of Singapore.  They understand our vulnerabilities and what we need to do in order to remain relevant.  I think Members of this House who have ever travelled with MFA staff – I am very sure you can attest to their professionalism and their hard work and I want to thank Members of the House for your continued support of MFA.

Conclusion

Let me conclude. The events of the past year have been a stark reminder of the reality that Singapore faces.  But it has also provided lessons on how we can overcome these challenges. I think in a way, the pressure that we have come under has made us stronger and more united. So we will face another year of uncertainty ahead, MFA will continue to enhance Singapore’s long-term value proposition and relevance to other countries; we will maintain our commitment to an independent and principled foreign policy in a rules-based global order; we will continue to work with all Members of this House to build a deeper appreciation of the hard truths that underpin our foreign policy.

 

 

 

Sri Lanka and China’s Indian Ocean Strategy


February 22, 2017

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Number 372 | February 21, 2017

ANALYSIS

Sri Lanka Suffers from China’s Indian Ocean Strategy

By Shiyana Gunasekara

Amidst local protests against the Chinese presence in the southern Sri Lankan town of Hambantota, Beijing insists that the town’s port project has been discussed in the “spirit of equality and mutual benefit, and follows market rules.” China’s activity in the Indian Ocean – particularly in Sri Lanka, which is a focal point in China’s One Belt One Road (OBOR) plan – appears to be predatory lending under the guise of economic development.

India needs to recalibrate its strategy towards the other South Asian countries for its own security, if not regional stability; however, Delhi has yet to offer a comparable alternative to doing business with China. Instead, India has taken its asymmetric power in the region and the de facto allegiances of its much smaller neighbors for granted.  With China’s recent track record of placing military vessels in traditionally commercial docks, India must take its role as the South Asian hegemon seriously.

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80% share of  Sri Lanka’s Hambantota Port goes to China

In October 2016, Sri Lanka’s Prime Minister Ranil Wickremesinghe announced that the China Merchants Holdings (International) Company Ltd. would hold an 80% share of the Hambantota Port in exchange for over USD $1 billion in the country’s debt.  This should be of particular concern to India, since China has used the Colombo South Container Terminal, owned by the same Chinese firm, to dock submarines, as opposed to the Sri Lanka Port Authority’s mooring designated for military vessels.  Previously, Colombo intended to hide visits of two other Chinese naval vessels from the media. With the majority of the Hambantota Port sold to China’s semi-private sector, India should be prepared for another visit by the People’s Liberation Army (PLA) Navy – perhaps for a much longer period of time.

The complete details of Chinese loans and other financial assistance have not been disclosed to the public, notably including details of the loan interest rates. China leads the country’s foreign inflows, with 98% of Chinese assistance to Sri Lanka being loans and only two percent as grants. China’s Export-Import Bank accounts for 77% of these loans, with 14% coming from the China Development Bank, and five percent from interest-free loans. China’s Export-Import Bank has notoriously given loans to countries on its OBOR initiative with strict self-serving procurement and contracting regulations: Chinese companies must be awarded the contract, both for the project itself and for procurement, and at least 50% of project procurement must be services, equipment, technology and materials from China.

Foreign direct investment and other forms of financial engagement from a G2 country to an emerging economy should be focused on market-friendly approaches to supporting economic development in the latter. Chinese investment in Sri Lanka, and other countries along China’s visionary trail would be a true boost to the local economy if the loan money were staying in the country through greater local employment and project procurement. Instead, Sri Lanka borrows money from China, which China requires to be used to contract largely state-owned Chinese companies. These companies provide salaries to Chinese employees who come to Sri Lanka to build infrastructure projects using mostly Chinese materials and technology.

The Mattala Airport and the Hambantota Port are prime examples of large-scale infrastructure projects financed by China that did not promote local economic development.These projects were purely gambles by the former Sri Lankan government, for which there was no guaranteed return on investment – a risky move for an economy coming out of an expensive three-decade war.

Sri Lanka, undergoing vast economic reforms outlined by the International Monetary Fund (IMF), might not be the only South Asian state that will have to be bailed out due to crushing Chinese-owned debt.  An IMF report on the Chinese-Pakistan Economic Corridor (CPEC), noted that import requirements of the project “will likely offset a significant share of inflows, such that the current account deficit would widen.” While the IMF acknowledges that the long run benefits may help mitigate said costs, such success is not guaranteed, as seen in Sri Lanka.  Hence Pakistan too should take into serious consideration the equity-for-debt swap that Sri Lanka was forced into due to the island nation’s ill-advised decisions and China’s over-eagerness to offer self-serving loans.

India is the largest power in South Asia in essentially every measure, and should continue to initiate deeper maritime collaborations with its neighbors for its own interests as well as for the benefit of the region. India can accomplish this goal by providing fiscal alternatives for its smaller neighbors to develop their infrastructures and human capital that are more favorable than Chinese-financed loans with unclear intentions.

China is a pragmatic power, and most likely foresaw Sri Lanka’s economic decline that resulted in Chinese ownership of the Hambantota port. China’s actions of fostering questionable loan conditions and blurring the line between commercial and military objectives do not correspond to its purported aim of establishing a positive public image. Ultimately, if China commits to increased transparency, its ambition to become a re-emerging global power will be better received.

About the Author

Shiyana Gunasekara is a masters candidate at Johns Hopkins School of Advanced International Studies focusing on international economics and Asian affairs, and was a Fulbright Scholar to Sri Lanka in 2014-2015. She can be contacted at Shiyana.Gunasekara@jhu.edu

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, Project Assistant, 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.

East Asia: Trade Regime critical for Economic Stability and Political Security


East Asia: Trade Regime critical for Economic Stability and Political Security

by  EAF Editorial Group

What the Trump Administration will ultimately do to the shape of the global trade regime is difficult to foretell but there’s no question that it will change it forever, even if there is strong global push-back against Trump’s threat to unravel trade agreements and carry a protectionist stick.

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The trade regime, and the way in which it encourages open trade and international interdependence among those who sign on to its rules, is not simply an instrument of economic policy strategy that can be changed without political consequence. For most countries, and certainly those in East Asia which are so dependent on open trade to sustain their basic livelihood, the trade regime is a critical instrument of political security.

Trump has already signed executive orders to withdraw the United States from the Trans-Pacific Partnership (TPP) and renegotiate the North American Free Trade Agreement (NAFTA). What appeared noisy campaign rhetoric has been transformed into concrete action.

Trump’s withdrawal from the TPP is no big deal in itself: with the exception of what it promised in terms of liberalisation of the Japanese economy, the economic effects of the deal that was on the table were oversold. Even renegotiation of NAFTA may have more limited economic consequences than have been threatened. But these steps, together with the threat of punitive tariffs on imports from China and Mexico, plus a total retreat from multilateral or regional trade agreements, tears at the core principles upon which the US supported postwar economic order had been built.

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POTUS Donald J. Trump and China’s President Xi

Anyone who says that a switch of this magnitude and direction in the trade policy strategy of the world’s largest economy and second-largest international trader is of little consequence is seriously delusional. The old certainties that brought prosperity and a significant measure of stability to world affairs for nearly three-quarters of a century after the Second World War are under serious threat.

A world in which the defining characteristic is a lot of bilateral trade agreements rather than one in which multilateral and regional frameworks are predominant imposes costs on business and consumers alike because of the need for compliance with different rules of treatment across different trading partners. It also injects a different tone into international politics. These concerns are what motivates the argument for regional and global trade regimes that govern international flows of goods and services through unified rules and standards.

The broader the framework within which trade can take place, the greater will be the scope for division of labour and the higher the gains from international trade. Bilateral trade deals can’t replicate the gains from regional and multilateral agreement, and they will unhelpfully cut across global and regional value chains. As the largest centre of production networks, East Asia has much at stake in the push back against an open, global rules-based trading system and the regional arrangements that support it.

While the direct economic costs of Trump turning America’s back on the TPP and other measures might be relatively small, the systemic costs are much larger.

As Shiro Armstrong and Amy King write in this week’s lead essay, Trump’s executive order to withdraw the United States from the TPP agreement in the Asia Pacific ‘is a strategic turning point in the open economic order. It is a blow to furthering reform for some members, a lost opportunity for the United States to write the rules of international commerce, and more worryingly a sign of the United States turning its back on the global economic system it helped create and lead’.

How can East Asia, which includes China and Japan — the world’s largest and fourth-largest trading nations — stand against the corrosion of a global trading order that is so central to their common economic and political interests?

The economies of East Asia must, of course, stand quietly firm in global and regional forums and in all their bilateral representations to the United States against the undermining of the global trading system, giving strength to those forces in America that can help to shape much better outcomes than the present circumstances threaten. But, through their own commitment to collective liberalisation and reform, they can also help to lead the system back from the brink.

With major multilateral trade deals at the WTO now too difficult and bilaterals only able to make slow and incomplete progress towards freer markets, Armstrong and King observe, all eyes now turn to Asia’s Regional Comprehensive Economic Partnership (RCEP) agreement. It is the most important initiative on the global trade scene.

Image result for flags of asean member statesASEAN is the hub of RCEP Agreement

RCEP comprises the 10 Southeast Asian members of ASEAN as well as Australia, China, India, Japan, New Zealand and South Korea. Though, as Armstrong and King say, there are many misconceptions about the RCEP enterprise.

‘The first misconception is that RCEP is China-led. But China is a spoke and ASEAN is the hub of the arrangement. RCEP was built to consolidate ASEAN’s five separate free trade agreements with China, South Korea, Japan, India and Australia–New Zealand. And the RCEP idea and its guiding principles were crafted not in China, but in Indonesia. ASEAN centrality has ensured that RCEP has incorporated Asia’s other large power — Japan — and reflects Japanese preferences as much as those of China. Originally, China wanted to limit core membership of Asian cooperation to ASEAN plus China, Japan and South Korea. Japan wanted a larger membership, involving Australia, New Zealand and India, to help provide a counterweight to China’.

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In the end, ASEAN centrality and the interests of Australia and India in the region meant a broader and representative group ideally placed to take the lead collectively on global trade.

‘With the world trading system under threat’, as Armstrong and King conclude, ‘it is time for leaders in Asia to step up and push for opening markets and deepening reforms to enhance economic integration, not just with each other but with Europe, the United States and the rest of the world’.

*The EAF Editorial Group is composed of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

http://www.eastasiaforum.org/2017/02/20/east-asias-agreement-to-keep-the-world-economy-open/

50 Year Old ASEAN–No Longer Business As Usual


February 10, 2017

50 Year Old ASEAN–No Longer Business As Usual

by Dr. Munir Majid@www.thestar.com.my

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IT is not business as usual. As ASEAN’s array of official and private sector meetings roll out for the year, urgent thought must be given to dramatically new challenges beyond the stubborn issues that continue to arrest the region’s meaningful integration.

The advent of Donald Trump as President of the United States has overturned many regional assumptions and threatens to cause economic as well as political turmoil. These developments should make ASEAN think crisis management – even if, in the end, the worst does not happen.

There are a number of “what ifs” which should be addressed.What if Trump causes a trade war to break out between America and China by imposing the punitive import duties on Chinese goods that he has threatened?

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It will then not be a simple outcome of relocation of manufacturing centres from China to low-cost Vietnam, for instance, as some have rather sanguinely suggested. The supply chains to which many ASEAN exports are linked for the finished Chinese product would be broken. There will be export disruption – not just for China.

There are countries in ASEAN, apart from Vietnam (90%), like Singapore (176%), Thailand (69%) and Malaysia (71%) whose exports amount to a substantial proportion of their GDP.

On top of exports through China, their own direct exports to the US will also be affected, as will any relocated exports from Vietnam.

There will be no winners in a trade war, no benefits to be derived from China’s apparently singular predicament. The knock-on effect will be widespread. In time, as excess capacity looks for export sales, dumping will become a problem, as will protection against it.

Motor cars that cannot get into America will have to go somewhere. Steel turned away from the US as Trump seeks to protect mills and jobs in the mid-west will have to be shipped somewhere else. Even the textile industry will be spinning in different directions as Trump has promised to revive it in America.

The whole global free trade ecosystem will go topsy-turvy. How will free trade within the ASEAN Economic Community, such as it is, be maintained? Can ASEAN+6 move on to the Regional Comprehensive Economic Partnership (RCEP) as the fallout from Trump’s America First trade policy hits the world?

Asia – and ASEAN – will have to stick together and carry on with the open, albeit reduced, global free trade and investment system. Will that happen?

Some ASEAN states with larger domestic economies are less dependent on international trade than others. Already, now, they take a different position on opening up their market. Will it get worse in the situation of stress, should it come about?

ASEAN must talk about these possibilities now, before they happen. Someone must take the lead. Too often this does not happen in ASEAN. Can the officials, or the secretariat, or the private sector do this scenario-setting for the ministers, for the leaders? Or is ASEAN going to carry on as if everything is not changing around it?

I am reminded of what George Orwell has been said to have remarked: In a time of universal deceit, telling the truth is a revolutionary act. The tendency to take to the ASEAN level what routinely happens in many ASEAN domestic systems should be snapped. Some functionary in ASEAN must warn the regional grouping of the dire threat facing it.

The other challenge facing Asia and ASEAN is the risk Trump poses to regional peace and stability. This comes from the challenge again thrown at China, this time in respect of its claim to the South China Sea. As China’s predominance in the disputed expanse of territory is by no means ideal, its exposure to a more counter-assertive and belligerent American stance under Trump – no Chinese access to islands artificial or militarised that do not belong to China “under international law” – may encourage claimant ASEAN states to be less compliant with the China-set path of dispute management.

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Since the law of the sea tribunal decision last July, there has been a lowering of temperature in the South China Sea dispute, even if at the cost of not highlighting the baselessness and futility of China’s claims under international law. The return has been a commitment by China in the diplomatic channeling with ASEAN to having a code of conduct (COC) finally in place this year – although only in framework form.

It has been a long-term ASEAN objective to have this COC for peaceful conduct in the South China Sea. China has hitherto been dragging its feet on this. With a more assertive American policy against China, would there be among ASEAN states a disposition to push with the US to get a better deal on the South China Sea?

This kind of geopolitical arbitrage may be attractive, but it would come at a longer-term cost to regional cooperation, which has become critical because of Trump’s foreign economic and trade policies. This is a dilemma ASEAN states would do well to address together.

Already, beyond ASEAN, India appears attracted to taking advantage of the predicament China might be in with Trump. India, of course, has long-standing border disputes with China, which Beijing has been happy to keep unresolved. At the same time, there is strategic competition between the two over their regional place in Asia.

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Another could be Japan which, again, has many unresolved disputes and issues with China. India, in particular, appears to want to flirt with Trump even at the cost of frustrating conclusion of the RCEP. The cost to India, however, could be isolation from the Asia-Pacific region for an uncertain alliance with Trump’s America.

You cannot do strategy with a counter-party whose leitmotif is transactional. With Trump it is not going to be win-win. It is going to be win-win-win for America.

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Trump’s Win For America First Foreign Policy

ASEAN states should want to address these profound issues. Even dissuade member and partner countries from wanting to sup with the devil, as it were.

China, of course, has not been the ideal big country partner beyond platitudinous statements and suffocation of ASEAN by money. Its actions in the South China Sea are not indicative of a great power that will not grind your face in the dirt if you did not do its bidding.

Will China become the good big brother it claims it wants to be, even as America becomes the bad and ugly one?

It looks like ASEAN might be caught between a rock and a hard place. Individual member states no doubt will be doing their calculation with the hope to position themselves in a better than survival mode.

However they will all be better off if they also worked together among themselves and partnered Asia-Pacific countries to achieve better economic integration, whose benefit will discourage them from playing dangerous geopolitical games.

So, as ASEAN under Philippines leadership looks at themes such as inclusive growth, an excellent focus, and addresses the many stubborn issues that are barriers to better integration, it must prepare also for the very difficult economic and political environment which will be fashioned by the Trump administration.

Tan Sri Munir Majid, Chairman of Bank Muamalat and visiting senior fellow at LSE IDEAS (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB ASEAN Research Institute.

 

Hoping for the Best Against Trump


January 30, 2017

Hoping for the Best Against Trump

By Ian Buruma

https://www.project-syndicate.org/commentary/hoping-against-trump-by-ian-buruma-2017-01

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Is there any reason for liberals to feel optimistic after a year of political disasters? Is there even a shred of silver lining to be found in the tatters of Brexit, Donald Trump’s election, and European disunity? Christians believe that despair is a mortal sin, so one might as well try to find a glimmer of hope.

In the United States, many liberals console themselves with the belief that the obvious dangers of being governed by an ignorant, narcissistic, authoritarian loudmouth backed by billionaires, ex-generals, peddlers of malicious fake news, and neophytes with extreme views will help to galvanize a strong political opposition. Trump, it is hoped, will concentrate the minds of all who still believe in liberal democracy, be they left or even right of center.

In this scenario, civil-rights groups, NGOs, students, human-rights activists, Democratic members of Congress, and even some Republicans, will do everything in their power to push back against Trump’s worst impulses. Long-dormant political activism will erupt into mass protest, with resurgent liberal idealism breaking the wave of right-wing populism. Well, perhaps.

Others seek comfort in the expectation that Trump’s wildly contradictory plans – lower taxes, while raising infrastructure spending; helping the neglected working class, while slashing welfare and repealing the Affordable Care Act – will suck his administration into a swamp of infighting, incoherence, and incompetence.

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All these things might happen. But protest alone won’t be of much help. Anti-Trump demonstrations in big cities will no doubt annoy the self-loving new president, and the moral glow of joining the resistance will warm the protesters. But without real political organization, mere protest will go the way of Occupy Wall Street in 2011; it will peter out into ineffectual gestures.

One of the most dangerous ideas of contemporary populism is that political parties are obsolete, and should be replaced by movements led by charismatic leaders who act as the voice of “the people.” By implication, all dissenters are enemies of the people. That way lies dictatorship.

Liberal democracy can be saved only if mainstream parties can regain voters’ trust. The Democratic Party must get its act together. “Feeling the Bern” (the mantra of Bernie Sanders’ leftist campaign) will not suffice to stop Trump from inflicting great harm to institutions that were carefully constructed more than two centuries ago to protect American democracy from demagogues like him.

The same thing is true of international arrangements and institutions, whose survival depends on the willingness to defend them. Trump has expressed his indifference to NATO, and US security commitments in East Asia. His election will further erode Pax Americana, already battered by a succession of foolish wars. Without the US guarantee to protect its democratic allies, institutions built after World War II to provide that protection would not survive for very long.

Perhaps there is a tiny ray of hope in this gloomy prospect. Europe and Japan, not to mention South Korea, have become too dependent on US military protection. The Japanese have fairly large armed forces, but are hampered by a pacifist constitution written by Americans in 1946. Europeans are completely unprepared to defend themselves, owing to inertia, complacency, and lassitude.

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It is just possible that Trump’s blustering “America first” rhetoric will galvanize Europeans and East Asians into changing the status quo and doing more for their own security. Ideally, European countries should build an integrated defense force that would be less dependent on the US. And the countries of Southeast and East Asia could construct a Japanese-led variant of NATO to balance the domineering might of China.

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But even if these arrangements came to pass (a huge if), it would not happen soon. Europeans are unwilling to pay higher taxes for their own defense. Germany has neither the wherewithal, nor the will to lead a military alliance. And most Asians, including many Japanese, would not trust Japan to lead such a coalition in Asia. The current Japanese government, under Prime Minister Shinzo Abe, would like to revise the pacifist constitution, as a necessary first step toward weaning the country off its total dependence on the US. But Abe’s revisionism is rooted in a nationalist ideology, which is prone to justifying historical atrocities instead of drawing lessons from them. This alone disqualifies Japan from leading others in a military pact.

So, while it might be time to rethink the world order built by the US on the ruins of WWII, the Trump presidency is unlikely to bring this about in a careful and orderly manner. His election is more like an earthquake, unleashing forces no one can control. Instead of encouraging the Japanese to think about collective security in a responsible way, Trump’s indifference is more likely to play to the worst instincts of panicky Japanese nationalists.

Europe is in no shape to rise to the challenge of Pax Americana’s erosion, either. Without a greater sense of pan-national European solidarity, European institutions will soon become hollow, and perhaps even cease to exist. But this sense is precisely what the demagogues are now undermining with such conspicuous success.

If there is reason for confidence, it is not in the liberal democratic world, but in the capitals of its most powerful adversaries: Moscow and Beijing. Trump, at least in the short term, seems to be good news for Russian President Vladimir Putin and his Chinese counterpart Xi Jinping. Without credible American leadership, or a strong alliance of democracies, there won’t be much left to restrain Russian or Chinese ambitions.

This might not lead to catastrophe in the next few years. Russia and China are more likely to test the limits of their power slowly, bit by bit: Ukraine today, perhaps the Baltics tomorrow; the South China Sea islands now, Taiwan later. They will push, and push, until they push too far. Then anything may happen. Great powers often blunder into great wars. This is no reason for despair, as we begin the New Year, but no reason to be optimistic, either.

Indonesia: Reassessing ‘Global Maritime Fulcrum’ (Poros Maritim Dunia)


September 7, 2016

Indonesia: Reassessing  ‘Global Maritime Fulcrum’ (Poros Maritim Dunia)