China’s Silk Road: Altering the global economic order

December 23, 2017

China’s Silk Road: Altering the global economic order

by Salman Rafi

Image result for US$14 billion Diamer-Bhasha Dam in Kashmir


The world is gradually awakening to the dark side of China’s Belt and Road Initiative, often called One Belt, One Road, or OBOR and designed to bring infrastructure development to a huge slice of the world. But a growing number of projects completed or in process, including the China-Pakistan Economic Corridor (CPEC), are beginning to demonstrate the grip that China has over the target countries’ economies.

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The massive undertaking is increasing Chinese hegemony not only in Asia but elsewhere, causing concerns to grow in Europe and beyond. The AidData research lab at the College of William and Mary in Virginia in the United States found that only 21 percent of Chinese money channelled into development across 140 countries could be called traditional aid. The rest of the money is in commercial loans at stiff rates that must be repaid to Beijing with interest. The Beijing rate averages 6 percent and above. By contrast, the International Bank for Reconstruction and Development, a unit of the World Bank, charges roughly 1.5 percent above the London Interbank Offer Rate, currently standing at 2.04 percent on loans of 12 months and above for a total of about 3.5 percent.

A French Senate delegation visited Pakistan last week to study CPEC has come away with reservations.

“France enjoys close ties with China, but we feel the project may have consequences on the geopolitical situation,” Pascal Allizard, the delegation’s leader, told local media. “We would be submitting our report (to the Senate) after analysing if this initiative is Chinese regional hegemonic agenda or a step towards greater regional connectivity.”

Questions for Eurozone

China’s financial and economic incursions into Europe have already raised questions, for instance, over one of its most ambitious projects, the Budapest-Belgrade high-speed rail track, which is under investigation for violation of EU laws regarding such large projects.

Ironically enough, during the delegation’s visit, significant cracks appeared in CPEC with reports that China is rolling back a number of projects over potential disagreements with Pakistan. Among other projects excluded recently from the CPEC vision is the US$14 billion Diamer-Basha Dam in Kashmir. According to Pakistani officials, it was excluded because “Chinese conditions for financing the dam were not doable and against our interests.”

With China being now blamed for not protecting Pakistan’s vital interests, the Pakistan-China ‘all-weather’ friendship seems to be on a slippery slope, spurring conflict and divergence rather than convergence of interests.

But Pakistan isn’t the only country in the region where blowback is occurring. Sri Lanka’s Mattala Rajapaksa International Airport in Hambantota, 250 km south from Colombo, was built with Chinese loans of US$190 million at 6.3 percent annual interest, covering more than 90 percent of the total cost.

Sri Lanka in hock

Today, Sri Lanka is finding it impossible to repay that loan and is reportedly considering handing over the airport to an Indian company willing to pump US$205 million into it for a 70 percent share for 40 years.

Sri Lanka is thus finding itself in a Chinese debt trap. Colombo owes China US$8.8 billion in loans. Significantly, the Indian proposal to run the airport won a favorable review in Sri Lanka within only a fortnight of Sri Lanka’s US$1.1 billion deal with China, which had given the state-run China Merchants Port Holdings 70 percent of the revenue in a joint venture to run the Hambantota port. That is very much identical to China’s 91 percent share for the next 40 years in Pakistan’s Gwadar port.

Malaysia too

While the Sri Lankan airport has already been branded the “world’s emptiest airport,” the condition of Malaysia’s Forest City is little different. Malaysia’s former Premier, Mahathir Mohamad, has accused the incumbent government of selling the country’s most precious land to foreigners, it is coming clear that Forest City may end up nothing but a forest.

The first glimpse of the problems came in March when China imposed aggressive domestic measures to clamp down on capital outflows, resulting in cancellations by 60 major Chinese interests of their Forest City bookings and depriving Forest City’s access to its primary target market, leading some to predict that the project will become a giant white elephant.

Image result for China's ERL Project in MalaysiaKuala Lumpur, Malaysia


There is also the East Coast Rail Line (ECRL). According to reports and claims raised from within Malaysia, it is to be constructed by a Chinese state-owned firm at allegedly inflated prices, using mostly Chinese labor and building materials and funded by soft loans from Chinese state banks. While this is again quite similar to the way China is building a number of CPEC projects, as we reported previously,  it also raises the question of whether Chinese funded projects such as this one can truly be called “investments.”

This is already echoing in host countries, such as Malaysia, where political forces are questioning terms and conditions attached with loans, which the ruling elites continue to dub as “investment.”

“We do want Chinese investment,” said one Malaysian parliamentarian from the opposition Democratic Action Party, “but the type of Chinese investments that are coming to Malaysia today are either dodgy or in reality are Malaysian-paid-for investments that are not really FDI.”

Scenario unfolding in other countries

The scenario now unfolding in countries like Sri Lanka, Malaysia and Pakistan can be seen in dozens of small countries in Asia such as Thailand where disagreements and disputes over terms of business with China have appeared and greatly delayed the construction of Sino-Thai high speed train project.

The controversy has been caused by China demanding that it apply the same conditions agreed to by the Lao government for financing a high-speed rail linking that nation to southern China. According to the demands made by China, the Chinese government will be able to seize five mine assets if they fail to repay the debt. While the project has now received a go-ahead, it happened only when Bangkok decided not to rely on Chinese capital, contractors or operators, but to procure China-made rolling stock as a trade-off to mollify Beijing.

While this has also led to a project that is markedly different from the one originally planned, it also shows how some countries have already started to impose limits on what the Chinese can or can’t do with the so-called “investments.”

These developments are only proving correct the warnings made in a study of the UN Economic and Social Commission for Asia and the Pacific, which claimed that Chinese “investments” were going to increase financial risks in a host of countries in Asia where China was pumping more money than the relative size of the host country.

In this context, Chinese “investment” in Pakistan greatly outweighs the size of Pakistan’s economy. And, that explains why Pakistan has stopped agreeing to whatever China asks for in terms of giving loans.

Thus, the Silk Roads are already beginning to become Chinese inroads into other countries, aimed at altering the global economic order to its own advantage.

Salman Rafi Sheikh is a Pakistani academic and regular contributor to Asia Sentinel

No End in Sight to the Brexit Madness

November 22, 2017

No End in Sight to the Brexit Madness

The slow-motion self-immolation that is Brexit continues for the U.K. Speaking in Brussels on Monday, Michel Barnier, the senior European Union official in charge of negotiating the terms of Britain’s departure, confirmed that British banks were set to lose their so-called E.U. passport, which currently enables them to offer services throughout the twenty-eight nations in the bloc. “On financial services, U.K. voices suggest that Brexit does not mean Brexit,” Barnier said. “Brexit means Brexit, everywhere.”

As if to reinforce the point, a meeting of E.U. ministers on Monday confirmed that two big E.U. agencies that are currently headquartered in London, the European Banking Authority and the European Medicines Agency, would be moving to Paris and Amsterdam, respectively. “The twenty-seven will continue to deepen the work of those agencies, together,” Barnier said. “They will share the costs for running those agencies. Our businesses will benefit from their expertise. All of their work is firmly based on the E.U. treaties which the U.K. decided to leave.”

In the months after the Brexit vote, which took place almost a year and a half ago, “Leave” supporters used the fact that the U.K.’s economy continued to expand and create jobs to claim that the prophets of doom had been mistaken. But to those Britons who are willing to acknowledge reality, these latest developments were the latest confirmation that the consequences of the historic vote are now starting to be felt. “While not surprising, these moves mark the beginning of the jobs Brexodus,” Vince Cable, the leader of the Liberal Democrats, and a prominent opponent of Brexit, said. “Large private-sector organizations are also considering moving to Europe, and we can expect many to do so over the next few years.”

To be sure, the country’s economy hasn’t collapsed. The gross domestic product is rising, and the unemployment rate has fallen to 4.3 per cent, its lowest level since 1975. But the rate of G.D.P. growth has fallen this year, and consumer-price inflation has risen because a fall in the value of the pound has made imported goods more expensive. This has hit living standards. Earlier this month, the National Institute of Economic and Social Research, an independent think tank, estimated that Brexit has already cost each British household about six hundred pounds, which is roughly eight hundred dollars. “It is almost certain that the relative deterioration in the UK economy and the accompanying fall in living standards over the past year are a consequence of the vote by the British people to leave the European Union,” Garry Young, a senior economist at the institute, wrote.

If Theresa May’s government had presented a credible path to the prosperity that it claims will accompany Britain’s departure from the E.U., the economic slowdown could perhaps be written off as an inevitable and temporary transition cost. But, of course, no such credible path has been offered. Beset by internal divisions, ministerial departures, and the hangover from a disastrous general election that saw it reduced to a minority in the House of Commons, May’s government has stumbled along, making barely any progress in negotiating the terms of Brexit, which was originally pegged for March, 2019.

In September, May announced that Britain wanted to push Brexit back two years, until 2021, and said that it would abide by all the E.U. rules during the transition period. But, even after that concession, the negotiations with Brussels remained bogged down. At the end of last week, Donald Tusk, the E.U.’s President, said that, if Britain wanted talks to begin a new trade agreement that would preserve its access to the huge European market, it would have to make concessions in a number of areas, including the settlement of Britain’s financial obligations to the E.U.; the legal protections that would be afforded E.U. citizens living in the United Kingdom; and the future of the border between Northern Ireland, which is leaving in the E.U., and the Republican of Ireland, which isn’t.

In his speech on Monday, Barnier, a former Foreign Minister of France, appeared to broaden the E.U.’s demands, strongly hinting that, if Britain wanted a favorable trade deal, it would have to abide by European regulations in many areas, even though it would no longer be a member of the Union. “The U.K. has chosen to leave the E.U.,” Barnier said. “Does it want to stay close to the European model or does it want to gradually move away from it? The U.K.’s reply to this question will be important and even decisive, because it will shape the discussion on our future partnership and shape also the conditions for ratification of that partnership in many national parliaments and obviously in the European parliament.”

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Boris Johnson and Michael Gove are backing the embattled Prime Minister Theresa May

Although Barnier’s language was polite, his meaning was clear: the E.U. will not countenance Britain trying to set itself up as a haven from regulation and taxes for international companies that want to do business in Europe but don’t like being subject to oversight from Brussels. And, indeed, that is precisely the scenario that some of May’s colleagues—including Boris Johnson, the Foreign Secretary, and Michael Gove, the Environment Secretary—have in mind. In their vision, post-Brexit Britain would turn into a European version of Singapore or Hong Kong during the days of British colonial rule. “We may choose to remain identical to the EU or we may embrace a vision more aligned with pro-competitive regulation,” Johnson and Gove wrote, last week, in a letter to May. “Other countries must know this choice is in our hands, and they must know it on day one.”

To give them a bit of credit, May and Philip Hammond, the Chancellor of the Exchequer, seem to grasp that Johnson and Gove are pursuing a fantasy. They understand that the E.U. won’t allow Britain to both have its cake (access to the giant E.U. market) and eat it (freedom from E.U.-style regulation). They also recognize that if companies such as Honda and Nissan no longer have free access to and from Europe for the outputs and inputs of their British factories, they will have little choice but to relocate at least some of their facilities to the Continental mainland. The same goes for big international financial institutions, such as Deutsche Bank, JPMorgan Chase, and Goldman Sachs.

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 Bye, Bye, London Post-Brexit?

So May and Hammond are still trying to pursue a so-called soft Brexit, which would preserve as much market access as possible. But, at every turn, they and their allies are being undermined and vilified by the Little Englanders and the conservative Fleet Street newspapers. Last week, the Daily Telegraph published photographs on its front page of fifteen Conservative M.P.s who have had the temerity to suggest that the parliament should have the right to sign off on the final Brexit deal. The paper labelled them “The Brexit mutineers.” Some of these M.P.s subsequently received threats.

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With opinion polls suggesting that most Britons, if given a chance, would now vote to remain in the E.U., a second referendum seems like a good idea.

“How can this be happening in a country known for its pragmatism?” the Oxford economist Simon Wren-Lewis asked in a blog post. How indeed? With opinion polls suggesting that most Britons, if given a chance, would now vote to remain in the E.U., a second referendum seems like a good idea. But the opposition Labour Party, for reasons of its own, has already committed to accepting the first Brexit vote. About the only people calling for a do-over are the Liberal Democrats, who have just twelve seats in the Commons, and a few figures who are even less popular, such as Tony Blair and Lloyd Blankfein, the chief executive of Goldman. (In a tweet last week, Blankfein said, “So much at stake, why not make sure consensus still there?”) The country is still in the grip of Brexit madness, and, sadly, there is no relief in sight.

Toward a People-Centered ASEAN Community

November 19, 2017

Toward a People-Centered ASEAN Community

by Moon Jae-in

In the 50 years since the founding of the Association of Southeast Asian Nations, almost all of Asia has been utterly transformed. ASEAN’s contributions to harnessing and spreading economic dynamism have been essential to the region’s success.

Image result for President Moon Jae-in and ASEAN

ASEAN TIES. South Korean President Moon Jae-in speaks at ASEAN-South Korea 2017 Summit in Manila recently.

SEOUL – I am delighted that my first meeting with the leaders of the Association of Southeast Asian Nations comes at a historic moment: the 50th anniversary of ASEAN’s founding. During those 50 years, not only my country, the Republic of Korea, but almost all of Asia has been utterly transformed. ASEAN’s role in harnessing and spreading economic dynamism has been essential to the region’s success.

For Korea, ASEAN has undoubtedly been a special and valued friend. Last year alone, some six million Koreans visited ASEAN member states, both as tourists and for business. Approximately 500,000 citizens of ASEAN member states now live and work in Korea, while roughly 300,000 Koreans live and work in ASEAN countries.

This is one example of why Korea’s ties with ASEAN are more than just intergovernmental relations. Our relationship is deepened in the most personal way possible, through the intertwining of so many individuals’ lives.

This fact should not surprise anyone. ASEAN 2025: Forging Ahead Together, which was endorsed by ASEAN leaders at their 27th Summit in November 2015, states that the group strives to be a “people-centered, people-oriented community” that seeks to build a caring and sharing society which is inclusive and where the well-being, livelihood, and welfare of the people are enhanced.

“People first” has been my longstanding political philosophy as well, and it is a vision in line with the spirit of Korea’s “candlelight revolution” that lit and heated up the winter in Korea a year ago. Korea and ASEAN share a common philosophy that values people, and that shared outlook will set the path that Korea and ASEAN take together in the years and decades ahead.

Since 2010, Korea and ASEAN have made significant strides together as strategic partners. Korea-ASEAN cooperation so far, however, has remained focused mainly on government-led collaboration in political, security, and economic affairs. I intend to help advance Korea-ASEAN relations while placing a high priority on the “people” – both Koreans and the people of ASEAN. My vision is to create, in cooperation with ASEAN, a “peace-loving, people-centered community where all members are better off together.” This can be summed up in “three Ps”: People, Prosperity, and Peace.

To realize this vision, I will pursue “people-centered diplomacy.” So, from this point onward, cooperation between Korea and ASEAN will be developed in a way that respects public opinion among all of the peoples of our association, gains their support, and invites their hands-on participation.

To this end, and in commemoration of ASEAN’s 50th anniversary, we have designated this year as “Korea-ASEAN Cultural Exchange Year,” and actively promoted various cultural and people-to-people exchanges. Last September, the ASEAN Culture House (ACH) opened in Korea’s southern port city of Busan. The ACH is the first of its kind to be opened in an ASEAN dialogue partner country, and it is expected to serve as a hub for cultural and people-to-people exchanges between Korea and ASEAN members. The Korean government will spare no effort to expand these exchanges, especially among the young people who will lead Korea-ASEAN relations in the future.

We should also work to build a community of peace where people are safe. In Asia, we all are facing the threat posed by North Korea’s nuclear weapons and missiles, as well as non-traditional security threats, including terrorism, violent extremism, and cyber-attacks on our businesses, our social and civic infrastructure, and our official institutions. The Korean government will strive to ensure that both Koreans and the people of ASEAN are able to lead happy and safe lives, which means cooperating with all ASEAN member states, at both the bilateral and multilateral level, to overcome the security challenges that we jointly face.

Finally, I will endeavor to promote greater mutual prosperity, which benefits citizens of both ASEAN and Korea. To ensure the sustainability of people-centered cooperation, all countries in the region must grow and develop together. Creating a structure for mutual prosperity requires lowering regional and transnational barriers to facilitate the flow of goods and promote people-to-people interactions. In short, ASEAN’s dynamism must now be tied to its inclusiveness.

That is why Korea will actively support the “Master Plan on ASEAN Connectivity 2025” and “Initiative for ASEAN Integration (IAI) Work Plan,” both of which call for enhancing the connectivity between ASEAN economies and citizens. We will also accelerate the pace of negotiations for the further liberalization of a Korea-ASEAN Free Trade Agreement (FTA), in order to pave the way for freer and more inclusive growth in the region.

Korea is now preparing for yet another “hot” winter: the PyeongChang Olympic and Paralympic Winter Games, to be held in February 2018. Our preparations are focused on ensuring that these Games deliver a message of reconciliation, peace, mutual understanding, and cooperation throughout the world.

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I happily invite you all to discover a peaceful and joyous winter in PyeongChang, and experience the dynamism sweeping through Korea and ASEAN. Don’t miss an opportunity to find out and enjoy what Korea and ASEAN share in common.

Moon Jae-in is President of the Republic of Korea.

East-Asian Regionalism — A Bulwark Against a “Post-Liberal” International Order?

November 18, 2017

East-Asian Regionalism — A Bulwark Against a “Post-Liberal” International Order?–

By  See Seng Tan (RSIS, Nanyang Technological University)

In his January 2017 address to the World Economic Forum in Davos, Switzerland, Chinese President Xi Jinping positioned himself—unusually for the leader of Communist China—as a defender of globalization and free trade. Without a doubt, Xi’s remarks were directed at incoming US President Donald Trump, whose campaign rhetoric stressed resistance to globalization and promised the likelihood of an increasingly nationalist, isolationist, and protectionist America. Trump is not alone in wanting to reverse the tide of globalization the current pro-Brexit UK government has been singing a similar tune.

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This paper makes three interrelated points. First, the rising nationalist cum protectionist tide in the West is not a foregone conclusion due to mitigating factors that impel the great powers to cooperate, if only instrumentally and in the short term. Second, the history of East Asia from the Cold War to the present has been one where an emphasis on the preservation and protection of neutrality has given way in the post-Cold War period to so-called open regionalism, a broad-based preference for extensive and deep engagement with external powers and access to outside markets and resources. Third, East Asia’s shared commitment to open regionalism makes East Asian Regionalism, despite the present uncertainty surrounding regional trade deals like the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), an important counter-narrative and alternative model to the isolationist and protectionist zeitgeist.

Is the World Turning Protectionist?

Should Trump and other anti-globalists have their way, how might their behavior impact the liberal international economic order? According to a Brookings Institution report, despite holding the largest share of world trade and foreign capital, the US, relative to its size, is not as globally integrated as other countries.1) What could prove detrimental, however, is if other countries retaliate against US protectionist policies this fact serves as the basis for concerns that Trump could precipitate a trade war. Yet while retaliatory trade behavior might only be a short-term issue, the more fundamental risk is if countries repudiate global norms and institutions that underpin the globalized economy. This is possible if they feel that the US is no longer committed to upholding the liberal economic order and shouldering its burden—a worry that predates the Trump presidency but has since been reinforced by it.2)

Additionally, there is concern whether China, despite President Xi’s performance at Davos 2017, will honor the commitments it has made. These include accepting imported manufactured products and services as well as fully implementing TRIPS (the Agreement on Trade-Related Aspects of Intellectual Property Rights) as China promised to do when it joined the World Trade Organization (WTO) in 2001.3) Finally, there is also concern about various types of “covert” protectionism (i.e., the so-called behind-the-border barriers) rampant in China and other emerging markets that are challenging to address.4)

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Recent developments suggest that Trump has been forced by unanticipated events to delay or defer the pursuit of his anti-liberal agenda. The Trump administration has made a series of abrupt reversals in foreign policy, such as revising his earlier opinions about NATO, US involvement in Syria, burden sharing by US allies, the One China policy, US involvement in the South China Sea, and the US Export-Import Bank. It has also retreated from intended protectionist moves toward China because Chinese cooperation is sorely needed to manage a recalcitrant North Korea. Consequently, Trump has gone from accusing China of being the “grand champion” of currency manipulation to declaring they have not manipulated the China’s currency in months. Additionally, since initially proposing a 45 percent tariff on Chinese goods for allegedly hollowing out US manufacturing, the administration has gone quiet (whilst at the same time threatening to impose a 20 percent tariff on Canadian lumber). Crucially, Trump has also expressed strong support for bilateral free trade deals.5)

Whether this retreat from protectionism and isolationism is a temporary or expedient move remains to be seen. After all, there is evidence to suggest that, despite these reversals toward what some observers see as a more traditional US foreign policy,6) Trump appears to persist in his preference for transactional approaches.7) This was apparent during the Trump-Xi summit, where both leaders reportedly deliberated with “a cold calculation of interests” as they mutually exacted concessions from one another while still acknowledging their interdependence.8) In other words, the reversals merely reflect the Trump administration‟s pragmatic response to evolving international conditions that require corresponding changes in reciprocity. These are the quid pro quos that embody transactional diplomacy. Still, by acknowledging mutual dependence, even if only on a transactional basis, a slide towards full-blown protectionism and unadulterated solipsism has been kept at bay.9)

East Asia: From “Neutrality” to “Open Regionalism”

Image result for East-Asian Regionalism -- A Bulwark Against a “Post-Liberal” International Order?

A More Engaged and Assertive Japan under Prime Minister Shinzo Abe

It is worth noting that the emergence and evolution of East Asian Regionalism (EAR) did not occur outside the liberal international order but within it. If anything, EAR has sought to complement rather than compete against liberalism. When former Malaysian Premier Mahathir bin Mohamad’s idea of an East Asian Economic Grouping (EAEG)—later amended to an East Asian Economic Caucus (EAEC)—was proposed in 1990, the assumption then was that the EAEG/EAEC would form a Japan-led regional bloc that could serve as a counterweight to emerging—and potentially rival—regionalisms in Europe (such as the European Union, or EU) and North America (such as the North American Free Trade Area, or NAFTA). However, EAR would take a back seat to Asia-Pacific regionalism with the formation of the ASEAN Regional Forum (ARF) in 1994. Together with the earlier formation of the Asia-Pacific Economic Cooperation (APEC) trade forum, the emergence of ARF—with ASEAN as first its midwife and subsequently its anointed custodian—marked a strategic shift in the way ASEAN viewed the involvement of great and regional powers within Southeast Asia. For the ASEAN countries, the Cold War perspective of the great powers as outsiders seeking to intervene, exploit, and divide the region and who therefore must be checked—as embodied in the 1971 ASEAN declaration of the Zone of Peace, Freedom and Neutrality (ZOPFAN)—was gradually replaced by a post-Cold War perspective of those same powers as external actors with whom Southeast Asians ought to actively engage through multilateral diplomacy, among other means.

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Cambodia and China–Strategic Partners in Development

Far from exclusivist, the new regionalism that emerged in the early post-Cold War years in the Asia-Pacific is what some have termed open regionalism. This concept argues for cooperation across national borders in a region to reduce transaction costs through the collective involvement of governments in “trade facilitation,” or the expansion of open trade.10)

Second, open regionalism is meant to be inclusive in that it seeks to incorporate outside powers such as the US and other eastern Pacific Rim countries into APEC and ARF.11) Belief in such inclusivism—coupled with the perceived need to construct a stable regional balance of power by including outside groups to counter possible hegemonic ambitions—led to a push to enlarge the membership of the East Asia Summit (EAS) to include countries beyond the 10+3 of ASEAN plus Three (APT).12)

Third, open regionalism encourages groups to make their enterprises compatible with institutional arrangements and practices in other parts of the world, including world bodies. For example, the architects of ARF made it clear that the forum is not meant to replace the San Francisco system of military alliances. Instead, it serves as a supplementary mechanism for dialogue and consultation. Likewise with the Chiang Mai Initiative (CMI) reserve currency pool, an institutional expression of EAR and APT, was launched against the backof the crippling Asian financial crisis of the late 1990s. Speculations that the CMI—along with its multilateral component, the CMI Multilateralization (CMIM)—would surpass the International Monetary Fund (IMF) as the region‟s first port of call for financial assistance in times of crisis were put to rest when it became clear that regional countries either prefer IMF assistance or bilateral swap agreements that had no IMF links.13)

This is also evident in how ASEAN and its suite of regional offshoots have avoided asserting themselves as the region‟s savior organizations when troubles hit by limiting their aim and remit. As in the case of the CMI/CMIM, Asian countries involved in territorial disputes have looked to world bodies such as the Hague-based International Court of Justice (ICJ)—as in the cases of the Indonesia-Malaysia dispute over Sipadan and Ligitan, the Malaysia-Singapore dispute over Pedra Branca, and the Cambodia-Thailand disputes over Preah Vihear and its promontory—the Hamburg-based International Tribunal for the Law of the Sea (ITLOS), or the Hague-based Permanent Court of Arbitration (PCA) for UNCLOS Annex VII arbitrations—activated recently in the case of the China-Philippines dispute over the South China Sea (SCS). Alternatively, they rely on bilateral means of dispute settlement rather than ASEAN-based dispute settlement mechanisms.14)

Reinforcing the Liberal Message Though EAR

Since the knee-jerk reactions in the immediate aftermath of the US withdrawal from the TPP—in particular, Japan’s insistence that a TPP without the US would be “meaningless”—Australia and Japan have emerged as the loudest voices in favor of an 11-member TPP trade deal sans the US, without ruling out the possibility of the latter’s return to the fold.15) Meanwhile some are hoping that RCEP will launch by the end of 2017, though the best possible outcome is likely to be a framework agreement.16) Much was made at the RCEP Kobe meeting in February 2017 about an inclusive agreement that ensures roles for all stakeholders. The argument by RCEP Trade Negotiating Committee Chief Iman Pambagyo, for example, that RCEP balance the needs of both developed and developing nations implies that progress is likely to be slow and by no means guaranteed.17) APEC supports a third trade pact, the Free Trade Area of the Asia-Pacific (FTAAP), but it remains at the consultative stage despite receiving strong support from China when it chaired the 2014 APEC summit.18)

Image result for modi's new india--Act EastIndia’s Act East Policy

Open regionalism inherently and intuitively liberalizes trade and refutes protectionism. Or it tries to. Despite the uncertainty surrounding TPP-11 and RCEP, they remain key reference points for any defense of trade liberalization. There is a longstanding debate over whether regional trade agreements compete with the world trade system.19) But, as we have seen, the ways in which open regionalism has hitherto been conceptualized and practiced in both the economic and security domains in East Asia render EAR a key political counterpoint to the anti-globalization fever that has seized the geo-economic cum geopolitical imaginations of the West. This is perhaps the most important role that EAR can and hopefully will play in the future, namely, as a bulwark against the anti-globalization tide through reinforcement of a liberal message.


1) Brina Seideland Laurence Chandy, “Donald Trump and the future of globalization”, Brookings, 18 November 2016,
2) Kati Suominen, Peerless and Periled: The Paradox of American Leadership in the World Economic Order (Stanford, CA: Stanford University Press, 2012), p. 243.
3) Douglas Bulloch, “Protectionism May Be Rising Around The World, But In China It Never Went Away”, Forbes, 12 October 2016,
4) “Protectionism: The Hidden Persuaders”, The Economist, 12 October 2013,
5) Geoffrey Gertz, “What will Trump‟s embrace of bilateralism mean for America‟s trade partners?” Brookings, 8 February 2017,
6) David Ignatius, “Trump moves slightly toward pillars of traditional foreign policy”, USA Today, 13 April 2017,
7) Greg Jaffe and Joshua Partlow, “Trump phone calls signal a new transactional approach to allies and neighbors”, The Washington Post, 2 February 2017,
8) Lexington, “A coldly transactional China policy: Donald Trump‟s first meeting with Xi Jinping was all about business”, The Economist, 8 April 2017,
9) Robert Kagan, “Trump marks the end of America as world‟s „indispensable nation‟”, The Financial Times, 20 November 2016,
10) Ross Garnaut, Open Regionalism and Trade Liberalization: An Asia-Pacific Contribution to the World Trade System (Singapore: ISEAS Yusof Ishak, 1996).
11) Amitav Acharya, “Ideas, Identity, and Institution-building: From the „ASEAN Way‟ to the „Asia-Pacific Way‟?”, The Pacific Review, Vol. 10, No. 3 (1997), pp. 319-346.
12) Malcolm Cook and Nick Bisley, “Contested Asia and the East Asia Summit”, ISEAS Perspective, No. 46, 18 August 2016.
13) Hal Hill and Jayant Menon, “Asia‟s new financial safety net: Is the Chiang Mai Initiative designed not to be used?”, Vox, 25 July 2012,
14) See Seng Tan, “The Institutionalisation of Dispute Settlements in Southeast Asia: The Legitimacy of the Association of Southeast Asian Nations in De-securitising Trade and Territorial Disputes”, in Hitoshi Nasu and Kim Rubenstein, eds., Legal Perspectives on Security Institutions (Cambridge: Cambridge University Press, 2015), pp. 248-266.
15) WSim, “Australia, Japan lobby for TPP-11”, The Straits Times, 21 April 2017, “’TPP 11′ to Washington: We’ll keep your seat warm”, Nikkei Review, 16 May 2017,
16) Shefali Rekhi, “Will RCEP be a reality by the end of 2017?” The Straits Times, 23 April 2017,
17) Eric Johnston, “16-nation RCEP talks resume in wake of TPP‟s demise”, The Japan Times, 27 February 2017,
18) Mireya Solís, “China flexes its muscles at APEC with the revival of FTAAP”, East Asia Forum, 24 November 2014.
19) Parthapratim Pal, “Regional Trade Agreements in a Multilateral Trade Regime: A Survey of Recent Issues”, Foreign Trade Review, Vol. 40, No. 1 (2005), pp. 27-48.

* This is a presentation manuscript in the panel “Regionalism After Liberalism”, Jeju Forum, 31 May 2017.

Trump EAS Philippines Miss: Does It Matter for US Asia Policy?

October 27, 2017

Trump EAS Philippines Miss: Does It Matter for US Asia Policy?

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Earlier this week, reports begun surfacing that U.S. President Donald Trump, while preserving his ambitious inaugural five-country trip to Asia next month, would cut short his trip and miss out on some mulled engagements including the annual East Asia Summit (EAS) in the Philippines. Though Trump missing the EAS would unquestionably be an unfortunate development, it also needs to be put into proper perspective within the broader context of U.S. Asia policy and where this new administration is.

Trump’s EAS Philippines miss would no doubt be both an unwelcome challenge and a missed opportunity, as I have argued before (See: “Why Trump Should Go to EAS and APEC in the Philippines and Vietnam”). Even though he may only be missing some of the engagements on his trip, given the skepticism surrounding whether or not the administration would follow through with its announced visit in May, any deviation from the schedule was almost sure to exacerbate uncertainties about a new administration’s commitment to multilateralism in general and in ASEAN in particular. Trump will also have lost a valuable chance to personally show up and advocate for the kind of more action-oriented EAS that Washington has been pushing for over the past few years.

And though Bill Clinton, George W. Bush, and even Barack Obama have all canceled Asia engagements before as well, there arguably could not be a worse time for such an unwelcome challenge and missed opportunity. This year marks both the 50th anniversary of ASEAN’s founding and the 40th anniversary of U.S.-ASEAN relations. And with Chinese President Xi Jinping coming off the high of the 19th Party Congress, the sensationalist headlines about Chinese inroads in Asia in the face of U.S. uncertainty would write themselves. Though the actual picture is far less dire and much more complex, this would not be the first time that perceptions have created their own reality (See: “China: New White Paper, Old Asia Conundrum”).

At the same time, the significance of Trump missing this year’s EAS in the Philippines also needs to be put into proper perspective that takes into account the wider progress the United States has made on multilateralism in its Asia policy over the years, the broader shape of the Trump administration’s commitment to the region to date, and the challenges inherent scheduling U.S. presidential travel to Asia under the unique set of circumstances the Trump team faces.


Understanding the Historical Context 

First, Trump’s EAS miss should not detract from the wider progress made in terms of where the United States stands on multilateralism in its Asia policy. For decades, Southeast Asian officials had to live with episodic U.S. attention to and involvement in regional multilateral institutions as a fact of life, with U.S. officials not only missing parts of ASEAN summitry but even privately and at times publicly chiding the slow pace of their development. This tendency was rooted not just in a series of scheduling difficulties, but ambivalence by Washington about the extent to which it wants to prioritize multilateral approaches relative to bilateral alliances and partnerships as well as those that lie in between these two extremes, including minilateral ones.

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Though that debate continues today, the Obama administration deserves credit for significantly narrowing its contours by institutionalizing some U.S. commitments to multilateralism (See: “Why the US-ASEAN Sunnylands Summit Matters”). Joining the East Asia Summit and annualizing U.S.-ASEAN Summits effectively added an annual Southeast Asia visit to the calendar of the U.S. president, settling a contentious issue over whether Washington would ever agree to arguably the most valuable indicator of high-level commitment to multilateralism: the president’s time. The tradeoff, recognized even then by U.S. and ASEAN policymakers, was that there would essentially be an annual debate about whether a sitting U.S. president would and could follow through on this commitment, grafted on to the U.S.-China scorecard that has tended to dominate the headlines over the past few years.

That is a tough bar for a president to clear, as even Obama discovered when he had to miss EAS once back in 2013 in the wake of a government shutdown. Trump’s miss no doubt carries greater weight given his personal skepticism about multilateralism at the outset and the fact that this is his first Southeast Asia voyage. But the silver lining is that as a result of the Obama administration’s institutionalization of this commitment, it now allows Southeast Asian officials greater room to hold Washington accountable for a single miss rather than it simply being dismissed as a scheduling problem as it had been prior to that, and to keep it engaged subsequently.

As a case in point, visiting Singapore’s Prime Minister Lee Hsien Loong, in his appearance at the Council on Foreign Relations (CFR) on Wednesday in Washington, D.C., politely framed Trump’s EAS miss in terms of this annual institutionalized commitment, noting that he hoped that the Trump would attend next year. Though whether this will occur or not is still unclear, Trump’s acceptance of a visit to Singapore in 2018, the miss this year, and the centrality of Singapore to wider U.S. Asia policy, would seem to suggest that the odds are quite good on the face of it, which would at least be a corrective for the miss this year (See: “What’s Next for US-Singapore Ties Under Trump?”).

The Evolving Shape of Commitment

Second, Trump’s EAS miss should also take into account that the U.S. president’s visits and engagements therein are just one manifestation of any administration’s commitment to multilateralism and Asia more generally. Given the doomsday scenarios set out by naysayers at the outset of the Trump administration, the level of engagement with Southeast Asia and ASEAN has actually been quite good, with four Southeast Asian leaders given White House meetings in under a year, a Special U.S.-ASEAN Ministerial convened in Washington, D.C. in May, and key U.S. officials including Secretary of State Rex Tillerson and Defense Secretary James Mattis emphasizing the importance of ASEAN to Trump’s Asia policy while out in the regions (See: “The Truth About Trump’s Asia Commitment Problem”).

The engagement record extends to the ASEAN chair and EAS host the Philippines as well, which is now being led by President Rodrigo Duterte (who himself has not exactly been a huge fan of multilateralism) (See: “The Truth About Duterte’s ASEAN South China Sea Blow”). Though challenges remain and uncertainty over the potential fallout from a Trump-Duterte summit lingers, U.S.-Philippine ties themselves appear to be on a relatively more stable trajectory due to some hard work done at the working level since the rocky start when Dutere first came to power (See: “What Will US-Philippines Military Exercises Look Like in 2018?”).

Keeping a single engagement in perspective is important not only get a broader sense of the administration’s commitment to multilateralism so far, but also to hone in on the more serious limitations beyond a visit. As I have been arguing for months, the chief challenge for the Trump administration’s approach to Asian multilateralism is not the absence of individual engagements, but how these will fit into a more coherent strategy that has a broader role for ASEAN (See: “The Ticking Clock on Trump’s Asia Strategy”). To its credit, the administration appears to have recognized this, with ASEAN increasingly being incorporated into a wider conception of a rules-based order in the Indo-Pacific which Trump is expected to outline in Vietnam.

To be sure, this approach to multilateralism pales in comparison to both the breadth and depth of the engagement we saw under the Obama administration. But it is worth emphasizing that it is still early days. As I have noted before, though administrations are often caricatured as being “bilateral” (George W. Bush) or “multilateral” (Barack Obama), in practice these are not as mutually exclusive as they are portrayed and all presidents tend to find their own balance of different approaches over time. Bush, for instance, started with securitizing APEC and selective attendance at ASEAN meetings but ended by knitting bilateral trade deals into the Trans-Pacific Partnership (TPP) and paving the way for greater U.S. diplomatic engagement with ASEAN that deepened far more under Obama, a nuance often missed in some superficial accounts.

The Dynamics of Presidential Travel

Third and finally, those familiar with the planning around U.S. presidential travel know that any assessment of the significance of a Trump EAS Philippines miss needs to take into account the unique set of circumstances that this new administration finds itself in along with the personality of Trump himself. Given the Trump administration’s lack of progress on its domestic agenda with the 2018 midterm elections looming and with so many challenges in a tumultuous and fragmented world – including a weakened but still dangerous Islamic State, simmering Middle East, resurgent Russia, and a frail Europe – some were surprised when the White House unveiled earlier this month that Trump would be spending nearly half a month – from November 3 to November 14 –on a crammed five-country trip across Northeast and Southeast Asia. For perspective, Obama, a bigger fan of these sorts of overseas trips and likely a performer at ASEAN-led summits than Trump, had even his longer Asia voyages last around just a week.

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Beyond the length of the trip itself, U.S. presidential trips are scrutinized all the way down to particular legs or engagements, and this one is no exception. Even when the White House had announced the schedule earlier this month, some had already begun to worry that one of the Southeast Asia legs would end up being cut entirely, that there would not be enough time for some of the bilateral engagements, and that Trump might be too worn out to last through some regional meetings (a true test of stamina, as those who have attended them know well). Seen within this context, if Trump ends up just missing EAS, preserving some of the other existing engagements that are encouraging including the delivery of a strategy speech in Vietnam and bilateral meetings in the Philippines and Vietnam (the latter requires additional travel from Danang where APEC is held), that would actually still be quite a strong message of U.S. commitment to Southeast Asia given the circumstances.

Trump missing the EAS would unquestionably be an unfortunate development for his administration’s evolving approach to multilateralism and overall Asia policy. But a true and fair assessment of its significance so early on in a new and unconventional administration is also not possible without sufficient attention to historical context, wider current developments, and the structural constraints of policymaking.

Are Minilaterals the Future of ASEAN Security?

October 2, 2017

Are Minilaterals the Future of ASEAN Security?

by Grace Guiang, Asia Pacific Pathways to Progress Foundation Inc.

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The Indonesia–Malaysia–Philippines Trilateral Maritime Patrol (Indomalphi) implemented its first joint patrol in June 2017. Almost a year since signing the trilateral framework in August 2016, the recent attack by the Maute group in the Philippines emphasised the urgent need for cooperation. With a growing number of common threats, how will trilateral or minilateral arrangements such as Indomalphi contribute to ASEAN security? And what are the implications for ASEAN security cooperation?

On the sidelines of the ASEAN Defense Ministers Meeting in Laos in May 2016, Indonesia, Malaysia and the Philippines agreed to pursue trilateral patrols in the Sulu and Celebes Seas. Despite the increase since then in crimes committed at sea such as kidnapping, piracy and smuggling, the agreement did not have the momentum for an immediate launch until the Marawi siege on 23 May in the Philippines.

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Not surprisingly, the consultations on crafting the standard operating procedures stalled due to sovereignty issues. The customised standard operating procedures allow the military personnel of the contracting parties to enter each other’s waters in times of emergency with prior knowledge of the state being entered. This is only applicable at sea and does not apply if the chase reaches land.

Aside from patrols and communication hotlines, the three countries will establish military command centres for intelligence sharing in Tarakan in North Kalimantan, Tawau in Sabah and Bongao in Tawi-Tawi. They further agreed to establish transit corridors for commercial activities. In July, Indonesia and the Philippines created new shipping routes connecting the cities of Davao, General Santos and North Sulawesi Province.

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Foreign Ministers and Defence officials of Malaysia,  Philippines and Indonesia agreed to work together to share information, track communications and crack down on the flow of arms, fighters and money, amid what experts says is the biggest security threat facing Southeast Asia in decades.

Security cooperation such as joint maritime patrols and the exchange of information is not new for these littoral states. The Philippines and Indonesia, who signed a pact on boundary delimitation in 2014, have been jointly patrolling the Celebes Sea since 1986. The two navies traditionally carried out drills in communications, replenishment of logistics at sea, medical missions by military personnel and joint search and rescue operations. Malaysian and Philippine navies also conduct coordinated patrols twice a year. And Kuala Lumpur has been working with Manila on anti-smuggling since 1967 and with Jakarta on avoiding incidents at sea since 2010.

But bilateral arrangements are no longer enough to address the convergence of challenges. First, the environment in this part of the region is characterised by porous borders and governance difficulties, which allows extremists, including supporters of the so-called Islamic State, to easily coordinate and transact with contacts around the area — creating networks and strengthening terrorist groups’ foothold in Southeast Asia. The terrorist threats the three states are confronting are clearly transnational in nature, thus requiring wider and deeper coordination among them.

Second, the growing threat raises questions regarding the capabilities of regional navies and coast guards, their resources and the effectiveness of existing bilateral cooperation in maritime law enforcement. While it has been argued that the tri-maritime patrol is asymmetric in terms of the needs, capabilities, political will and priorities of each state, the inadequacies of each party could instead be seen as an opportunity for cooperation, helping each state to develop their own capabilities.

Considering the success of the Malacca Straits Patrol (MSP) in deterring piracy since 2004. And now this newly launched Indomalphi, minilateral arrangements seem to have become a promising model for maritime cooperation compared to ASEAN-wide cooperation. The approach is specific to states that are directly involved in the problem, making it fast, flexible and feasible.

This arrangement is not necessarily exclusive to littoral states. Thailand became a party to MSP in 2006, while Vietnam and Myanmar are observers. Meanwhile Singapore, Brunei and Thailand have been invited to be Indomalphi observers.

On one hand, with the littoral states taking the lead and neighbours being invited to observe or participate later, minilateralism advances ASEAN security by testing the waters and preparing states for regional cooperation — sometimes called the bottom-up approach.

On the other hand, minilateralism challenges ASEAN to address issues collectively. It tests how ASEAN will manage to make this kind of arrangement beneficial for the entire region. For instance, the region has several bodies of water shared among its member states, including the complex South China Sea. Indomalphi demonstrates that cooperation can be done even with territorial disputes, political differences and reservations on sovereignty issues.

If ASEAN wishes to maintain its centrality and leadership in the region, it must recognise that the threats to the security of its member states are ever-evolving. If minilateralism demonstrates that it can work effectively, then ASEAN should use it to push for broader regional security cooperation mechanisms.

Grace Guiang is Research Assistant at the Asia Pacific Pathways to Progress Foundation IncA version of this article was first published here in APPFI.