Assessing the ASEAN Economic Community


March  24, 2017

Assessing the ASEAN Economic Community

by Somkiat Tangkitvanich and Saowaruj Rattanakhamfu

http://www.eastasiaforum.org

Image result for asean economic communityMaking Progress Slowly–The ASEAN Way

East Asia continues to sustain a high level of economic integration, yet a significant proportion of intraregional trade is still uncovered by agreements to guard against current and possible future protectionism. Without multilateral movement under the World Trade Organization, further regional integration can proceed only through agreements that reduce trade barriers within the region.

ASEAN appears to be leading the Asia Pacific in FTA formation. The ASEAN Free Trade Area was implemented in 1993 and the ASEAN Economic Community (AEC) was officially launched in late 2015. The AEC aspires to go beyond typical trade agreements, aiming to create a single market and production base with equitable development across its 10 member countries.

 

ASEAN will celebrate its 50th anniversary in August, 2017. While ASEAN has made some significant political achievements during the past five decades, its economic integration project is still very much a work in progress, and could remain so for many years or even decades to come.

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The ASEAN Secretariat claims that the implementation of the AEC Blueprint 2015 — the community’s formal agenda — has been substantively achieved in many areas. In reality, the levels of integration vary greatly by sector. The only clear success ASEAN can claim is the reduction of tariffs among member countries. Since the implementation of the Common Effective Preferential Tariff agreement in 1990s, about 99 per cent of tariff lines between member countries have been reduced to zero.

Still, the free flow of goods among ASEAN member countries continues to be hindered by the use of non-tariff measures (NTMs). These may have adverse consequences on the sourcing decisions of firms and the structure of trade and related industries.

Countries such as Indonesia or Malaysia that employ active ‘industrial policy’ apply more NTMs. Car assemblers in Thailand, for example, have long complained about Malaysia’s restriction of the number of cars imported into Malaysia.

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While minimising non-tariff barriers is an action target in the AEC Blueprint, ASEAN has relied on a voluntary approach to reduce them — with very limited success. Under the voluntary approach, member countries can have an adverse incentive to under-report the barriers they are using. What’s more, there is no effective monitoring system to keep track of the changes of NTMs among member countries.

ASEAN has been negotiating services liberalisation since the creation of the ASEAN Framework Agreement on Services in 1996. The AEC Blueprint has established clear targets to remove all restrictions on trade in services by 2015. But some ASEAN countries, including Thailand, the Philippines and Indonesia, could not meet their targets by the deadline.

Critically, service liberalisation under ASEAN contains no commitment to address behind-the-border issues, such as interconnection for telecom services or access to ATMs for banking, which are crucial to the creation of competitive markets. The difference in laws and regulations among member countries is also problematic.

Service liberalisation under ASEAN in its current form would fail to create a single service market. Thailand, the Philippines and Indonesia, still could not meet the targets by the 2015 deadline. Indonesia and Thailand’s specific commitments under the latest offer contain many services that are inconsequential or even useless.

In terms of promoting cross-border movement of labour, ASEAN has achieved very little. From an economic development perspective, the opening up of unskilled labour markets through FTAs would be a useful policy option, given the relative abundance of unskilled labour in many ASEAN countries, but the AEC Blueprint attempts to facilitate only the mobility of skilled professionals, currently comprising just eight professions. The arrangement to facilitate the movement of these professionals is also problematic. In the case of Thailand, for example, the requirements imposed on ASEAN professionals are the same as those of the non-ASEAN countries.

To critical observers, ASEAN integration has so far produced very few tangible results. The Asia Trade Centre’s Deborah Elms concludes that ‘ASEAN officials shifted the rhetoric as the deadline loomed to argue instead that the AEC itself should be viewed as process and not a destination’. In September 2016, The Economist mockingly wrote that ‘[w]hen it comes to elevating form over substance, and confusing a proliferation of meetings and acronyms for a deepening of ties, ASEAN is the Zen master’.

The lack of momentum to deepen regional integration in ASEAN is largely a consequence of most member countries’ protectionist stances, perhaps with the sole exception of Singapore. Many ASEAN countries view one another as rivals in their pursuit of exporting to the global market or attracting foreign direct investment.

Domestic political conflicts, along with a lack of strong and stable government, have led political leaders in many ASEAN countries to look inward and lose their appetite for regional integration. Without confronting the core problems of its integration project squarely and urgently, ASEAN will not realise the AEC Blueprint vision of a single market and single production base.

ASEAN prides itself on being the ‘hub’ of bilateral FTAs in East Asia. The concept of ‘ASEAN centrality’ espoused in the group’s initiatives emphasises its role in facilitating economic integration in the region. But the economic integration among ASEAN countries has so far focused on creating a more attractive package for multinationals looking to operate in the region, rather than on creating stronger bonds between member economies.

When it comes to economic integration, ASEAN has to aim at achieving critical targets while ignoring trivial ones. In other words, ASEAN needs to be much more focused than it is now. Its current agenda is overly ambitious considering its limited resources.  The AEC Blueprint has established 17 core elements and set 176 priority actions, covering the free flow of goods and capital, movement of skilled labour, equitable development and protection of intellectual property rights, to name just a few.

A sharper focus would help ASEAN to deliver meaningful and tangible results without depriving member countries, especially less developed ones, of their limited resources. This requires ASEAN to return to the core missions of an FTA: reducing barriers to trade and facilitating cross-border trade in goods, services and the movement of labour and inputs to production.

Yet the real challenge for ASEAN is not economic but political. Full national sovereignty and economic integration are incompatible. The success of the European Union’s trade integration, for example, is based on pooled sovereignty.

The idea of ‘pooled sovereignty’ is not all-or-nothing in nature. When started, the EU was a comparatively modest project. It had few members and only one policy area for pooling sovereignty: a common market for coal and steel. Only gradually did it expand its membership and its mission.

Unless ASEAN countries are willing to increasingly pool their sovereignty and meet political challenges head on, the AEC project will go nowhere and ASEAN will be little more than a talking shop.

Somkiat Tangkitvanich is President of the Thailand Development Research Institute (TDRI). Saowaruj Rattanakhamfu is a Senior Research Fellow at TDRI.

This article summarises a paper prepared for the 2016 Pacific Trade and Development Conference in Australia.

 

Malaysia-China’s Asymmetrical Partnership


March 6, 2017

Malaysia-China’s Asymmetrical Partnership

by Dennis Ignatius

Image result for Najib in China

Even the most casual observer of our nation’s politics will not fail to notice the growing influence of China in our national affairs. Not a day goes by when reports of some new investment, some new deal, some new initiative by China doesn’t make headlines. Suddenly, China is everywhere and not in a small way.

Dominant economic partner

China is already Malaysia’s dominant economic partner – it is our second largest export market, is increasingly critical to the health of our tourism industry (4 million Chinese tourists expected this year), our education sector (10,000 Chinese students currently studying in Malaysia), and the sustainability of our oil palm industry.

It will soon come to dominate our ports and railways as well as our housing and construction sectors. With the purchase of 1MDB-related Edra Global Energy Bhd. assets, it also became the second largest independent power producer in the country.

In the next decade or so, it is estimated that China will invest, lend and spend at least half a trillion ringgit on infrastructure, property development and other projects across Malaysia. Never has our country seen this much money pouring in from a single source in such a relatively short space of time.

Manna from heaven

Many, particularly those who stand to profit most from this new relationship, welcome China’s growing involvement in our country. To them, it is, of course, a once-in-a lifetime bonanza, manna from heaven, an unparalleled opportunity to make millions. They assume that what is good for them is automatically good for the nation as a whole.

Consequently, many of our political leaders and business tycoons are falling over each other to sing China’s praises and highlight the benefits of the blossoming relationship. To them, China is a great friend, a powerful benefactor, a genuine economic partner, a benign political power. And they can’t seem to get enough of China.

The dangers of asymmetrical relationships

However, the sheer asymmetrical nature of the relationship as well as the enormous political and economic leverage that China now wields cannot but be cause for concern.

And yet, concern is the one word that is missing from the lexicon of our relations with China. In our rush to embrace China’s largesse, we are being wilfully negligent of the political, economic and security implications.

It is surely axiomatic that as China’s stake in Malaysia increases, China will be more proactive in our domestic politics if only to ensure the continuity of parties, personalities and policies that favour China.

Malaysia, is in fact, far too important to China now to be left to the vagaries of Malaysian politics and the caprices of the local electorate.

Open endorsement of UMNO-BN

 The clearest indication of this is China’s increasingly open and forthright endorsement and support of the UMNO-BN government, the most pro-China government we’ve ever had. In fact, it can be argued that China’s grand strategy vis-à-vis Malaysia is, in many respects, contingent on UMNO-BN remaining in office.

It should therefore come as no surprise that we are now seeing Chinese diplomats not only attending local party political gatherings but also accompanying UMNO-BN politicians to political events and on constituency visits.

Last year, for example, the Chinese Ambassador accompanied Defence Minister Hishamuddin Hussein, MCA Deputy President Wee Ka Siong, and MCA assemblyperson Teoh Yap Kun on visits to Hishamuddin’s Semborong parliamentary constituency and Teoh’s Paloh constituency.

ambassador-raub

Since then Chinese diplomats have been spotted with MCA Vice-President Chew Mei Fun in Raub (where she is rumoured to be the candidate in the next elections), with MCA Youth chief, Datuk Chong Sin Woon in Nilai, with MCA President Datuk Seri Liow Tiong Lai when he officiated the opening of a meeting of the Federation of Hakka Associations, and with Gerakan President Mah Siew Keong in Teluk Intan.

And this is likely only the tip of the iceberg as many other visits go unreported.

During these visits, Chinese diplomats routinely take the opportunity to praise the Najib Administration, stress the importance of the MCA and press the point that the Malaysian Chinese community has a lot to gain from the relationship with China that is now being developed.

The Chinese ambassador has also urged Malaysian Chinese to support the MCA because without the MCA, “Malaysian Chinese have no say in the government.”

Champion of Chinese education

Having cast himself as ‘lord protector’ of the Malaysian Chinese community during the Petaling Street affair in 2015 and knowing the great importance Malaysian Chinese attach to Chinese education, the Chinese ambassador has now positioned himself as a champion of Chinese education in Malaysia.

He has tirelessly criss-crossed the country, often accompanied by MCA and even UMNO politicians, visiting dozens of Chinese schools and distributing hundreds of thousands of ringgit in assistance and scholarships. He has also promised to initiate a teacher-training programme that could see PRC teachers in our schools.

MCA-BN – China alliance

 China’s unequivocal message to Malaysian Chinese, therefore, is that they must support the emerging MCA-BN-China alliance if they wish to safeguard their rights, preserve Chinese education, have a strong voice in government, profit from business with China and ensure that relations with their ancestral homeland remain strong.

It is, as well, an exhortation to Malaysian Chinese to put aside their resentment and distrust of both UMNO and MCA and vote BN for the greater good of both countries.

Clearly, if this shrewd political strategy succeeds, the main losers will be the DAP.

dap-embassy

But such is the power and influence of China in our domestic affairs that even the DAP has now been forced to moderate its hitherto principled opposition to the sheer lunacy of some of the China-related projects and make peace with the Chinese Ambassador. All that this has accomplished, however, was to vindicate, in the eyes of DAP supporters, the MCA’s collaboration with China.

The MCA, for its part, increasingly behaves as if it is but an extension of the Chinese mbassy rather than a member of the ruling coalition. It recently established a PRC affairs committee as well as an OBOR centre and does more to promote OBOR than the Chinese Embassy itself. Some would argue that these actions make the MCA the main vehicle of PRC influence and propaganda in the country today.

 

Unchallenged and unchecked

And yet, these clear and troubling manifestations of foreign political interference in our domestic affairs, in contravention of established diplomatic practice, go unchallenged. That it is being done with the connivance of local political leaders does not make it any less troublesome.

One can only wonder how the UMNO-BN crowd would react if the Australian or American ambassador urged Malaysians to vote for the opposition if they wished to safeguard their democratic rights.

Once this door is open, there is no telling where it will lead to. UMNO-BN politicians make a big fuss over trivial things like the paltry sums given to a few NGOs to promote free and fair elections by the Open Society Foundation but think nothing of facilitating a far more insidious form of foreign interference that threatens to undermine what’s left of our democratic process.

Hijacked elections?

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MCA playing the China Card to enhance credibility and isolate DAP

The question now is how far China will go to protect its interests in Malaysia. Will PRC money come into play in the next elections, taking money politics to new heights? Will the upcoming elections be the first elections in Malaysia when a foreign power will be actively working behind the scenes to influence its outcome?

The next general election is already shaping up to be one of the most critical we’ve ever had. The very future of our country is at stake – whether we will remain a secular democracy or not, whether corruption and cronyism will triumph over transparency and good governance, whether our constitution itself will survive in its present form.

Certainly, too much will be riding on these elections for us to allow a foreign power to hijack them for its own purposes.

And any political party which comes to power with China’s help will undoubtedly be subservient to China’s interests. What is at stake, therefore, is not just the sale of critical infrastructure assets but possibly the sale of the country itself.

A nation at its lowest ebb

The fact that China is knocking on our doors at a time when our nation is at its lowest ebb renders us particularly vulnerable.

We are today a nation more divided than ever before – not just Malay against non-Malay but Malay against Malay, Chinese against Chinese, Indian against Indian. It’s Muslim against non-Muslim, rural against urban, rich against poor.

Nearly 60 years after independence we are still arguing bitterly about language, citizenship, education, religion and race while decades of racial and religious manipulation have left us wary and suspicious of each other.

We are so suspicious of each other that we’d rather depend on foreigners than work together to find solutions to our pressing problems; we are so busy fighting each other that there’s literally no one to guard the front door.

In the meantime, corruption and abuse of power have rendered our national institutions and our political processes weak and dysfunctional, unable to provide the essential checks and balances, the steady hand, the careful and impartial analyses, the proper legal and regulatory framework that is a prerequisite for national resilience.

When we find ourselves in a situation, for instance, where suddenly almost every single port in the country needs to be massively expanded with Chinese money or that we suddenly need not one but three, and perhaps four, expensive railway systems built by China, we have to wonder whether projects are now being driven by economic necessity or pure greed and foreign pressure.

Malaysia First

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Many will, of course, dismiss these concerns as alarmist or reject them as anti-China or anti-government rhetoric.

China’s growing influence in our domestic affairs cannot, however, be easily dismissed.It is alarming and Malaysians ought to be deeply, deeply concerned.

At the very least, we ought to have an informed discussion of what is going on so that we understand all the implications and consequences and ensure that policies and projects serve the national interests rather than undermine them. It is simply much too important an issue to be left to vested interests to decide behind closed doors.

It’s not about being anti-China but about being pro-Malaysia. It’s not about being opposed to good relations with China or being against Chinese investments; it’s about ensuring that relations with China do not come at the expense of our independence and sovereignty.

It is most assuredly not about the loyalty and commitment of any of our own citizens or about marginalizing the very real concerns they have but about ensuring that a foreign power does not exploit our internal divisions to its own advantage.

As well, this isn’t about being pro-West or pro-China but about ensuring that no country – east or west – dominates us to the point where we lose our ability to chart our own destiny.

And if standing up against corruption, mismanagement, the abuse of power, the lack of transparency and the deliberate neglect of vital national interests makes one anti-government, than so be it.

The greatest challenge

If China turns out to be unique among the big powers for its beneficence, munificence, generosity and respect for smaller states, well and good; but if not, then at least we’ll be better prepared to face the challenges ahead.

Our nation now faces one of the greatest external challenges it has ever faced. The dangers are real. The stakes are high. There will be no winners save the corrupt, and a foreign power, if we fail to successfully manage this great challenge that lies before us.

APSIA Conference 2017 Keynote Address by Singapore’s DPM


March 5, 2017

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APSIA Conference 2017 Keynote Address by Singapore’s DPM Tharman Shanmugaratnam at LKY School of Public Policy

COMMENT:

Geo-Politics, Disruptive Social Developments and Technological Change: Has the Game Changed? Yes, that is easy part of the answer.  How we wish that life is simple and outcomes are predictable. But it is not. I  have been grappling a few questions. I asked myself questions like What has changed? How it has changed?  What is driving the change?What this change means to us in Asia.

China, North Korea, Islamic and Christian evangelism, terrorism and so on are making the headlines.I  also see increasing polarisation and the need for understanding and rebuilding trust. I expect our politicians to reconnect with people they are mandated to serve and  want leaders to lead with integrity, honesty and hope. Listen to DPM Tharman Shanmugaratnam for some insights.–Din Merican

 

 

Saudi King Salman’s Mission to Malaysia, China and Indonesia


March 4, 2017

What Saudi King Salman wants from his tour of China, Malaysia

Ignore the theatrics, the multibillion-dollar investment deals and even the uncertainty over US hegemony – when the leader of the House of Al Saud is in town, Iran, Islamic State and ultra-conservatism are never far from the surface.

By James M. Dorsey

http://www.scmp.com/week-asia/geopolitics/article/2075774/what-saudi-king-salman-wants-his-tour-china-malaysia

The spectacle of Saudi King Salman’s tour of Asia is matched by its significance. Attention has focused as much on his 1,500-strong entourage and their 459 tons of luggage – roughly the weight of two Boeing 787 Dreamliners – as it has on expectations of billions of dollars in investment.

To be sure, economics is high on the Saudi leader’s agenda. Salman is looking at both strategic investments in Asia as well as Asian investments in the kingdom that will help it diversify its economy and strengthen ties to China and major Muslim nations in an era of uncertainty about the United States’ place in the world.

Yet Salman’s geopolitical concerns go far beyond whether the US remains a reliable guarantor of regional security. Saudi Arabia is locked into a global battle with Iran for dominance in the Muslim world. For the Al Sauds, the kingdom’s ruling family, the struggle with the Islamic republic is existential in nature.

A policeman prepares his patrol car ahead of Saudi King Salman’s visit to Bali. Photo: AFP

Iran not only represents an alternative form of Islamic rule that recognises a degree of sovereign legitimacy and was established by a popular revolt. It also has assets the kingdom lacks that are key to sustaining regional hegemony: a large population, a huge domestic market, an industrial base, a battle-hardened military, geography, and a deep-seated identity grounded in a history of empire.

An epic battle

The epic battle between Saudi Arabia and Iran is being fought not only on the international and Middle Eastern stage but domestically in Muslim and non-Muslim nations that span the globe. Saudi Arabia’s soft power effort, possibly the single largest public diplomacy campaign in history, has aligned itself neatly with Muslim governments that opportunistically play politics with religion and Muslim communities that embrace Saudi-style Sunni ultra-conservatism in lieu of feasible alternatives.

Singapore’s bid to outshine Hong Kong with Saudi Aramco bid is a pipe dream

Saudi King Salman with Chinese President Xi Jinping in Riyadh in 2016. Photo: AFP

China may not have a seriously sizeable Muslim community, yet the lure of ultra-conservatism has made its mark among Hui Muslims and Uygurs alike. Chinese concern about the impact of ultra-conservatism coupled with Iran’s strategic advantage has shaped Chinese policy even if Saudi Arabia is a major oil supplier and commercial partner as well as a military ally.

President Xi Jinping’s (習近平) visit to the Middle East last year, the first by a Chinese leader in seven years, saw the signing of billions of dollars’ worth of agreements with Saudi Arabia and a ten-fold expansion of trade with Iran over the next 10 years. The significance may go far beyond commerce as Chinese interests align more with Iranian interests than those of Saudi Arabia.

From Riyadh, Xi went to Iran to become the first foreign leader to do so following the lifting of international sanctions against the Islamic republic. Saudi leaders could not have been pleased.

Back to the future: Chinese President Xi Jinping’s Middle East visit … and his Middle Kingdom dream

Xi’s determination to gain a first mover advantage in Iran at a time that Saudi Arabia was seeking to increase rather than reduce the Islamic republic’s international isolation suggested that more than commerce was at play.

Chinese President Xi Jinping meets Iran’s supreme leader Ayatollah Ali Khamenei in Tehran. Photo: AFP

Xi’s visit to the kingdom was accompanied by talk of brotherly relations and strategic cooperation. The rhetoric, however, did little to mask serious differences on issues ranging from Syria – with Chinese support for President Bashar al-Assad – to Saudi propagation of ultra-conservatism and a relative decline in Chinese reliance on Saudi oil.

“Our biggest worry in the Middle East isn’t oil – it’s Saudi Arabia,” a Chinese analyst told the Asia Times. Religious affinity is not something China has to worry about with Shiite-majority Iran, which has long projected itself as a revolutionary rather than a sectarian power.

Consequently, China remains reluctant to clearly articulate its strategic interests or intentions in the Middle East and North Africa beyond its drive to secure resources, investments and people, and expand its influence through economic ties and its “One Belt, One Road” initiative to link economies into a China-centred trading network. As a result, China’s strategic dialogue remains focused on free-trade agreements with the six-nation, Saudi-led Gulf Cooperation Council (GCC) rather than the forging of broader strategic partnerships that go beyond economics.

China has also long sought to tread carefully in its for now limited military contacts.

China was, for example, slow to engage in its security cooperation with Saudi Arabia that started in secret in 1985, five years prior to the establishment of diplomatic relations between the two countries. In a deal that was only disclosed three years later, Saudi Arabia in its first weapons deal with China bought in 1985 for US$3.5 billion 36 Chinese CSS-2 East Wind intermediate range ballistic missiles even though they were known to be highly inaccurate in conventional use.

Saudi Arabia’s King Salman is driven around in a golf cart by Indonesia’s President Joko Widodo in the presidential palace in Jakarta. Photo: AFP

The deal said much about the attitude of Saudi Arabia towards China. Saudi Arabia saw the deal as a way to counter Iran’s missile strength that in a twist of irony was built on Chinese technology and design, and as leverage to persuade the US to be more forthcoming with weaponry that had offensive capabilities. In a further indication that China was making only limited inroads and that Saudi Arabian arms purchases remained focused on Western suppliers, Saudi Arabia – even while engaged in a massive weapons buying spree – waited 30 years to acquire a more up-to-date Chinese missile system, the DF-21 East Wind ballistic missile.

A frontal assault

Ultra-conservatism – which complicates communal relations, changes policies towards minorities, and alters local culture as well as Saudi efforts to forge an anti-Iranian military alliance – loomed even larger in Malaysia and during the current Indonesian leg of Salman’s tour. In Malaysia, a supposedly pluralistic nation that bans Shi’a Islam, ultra-conservative Islamic scholars legitimise the United Malays National Organisation (UMNO), the country’s ruling party, raising concerns about a more intolerant society despite its multi-ethnic composition.

Saudi King Salman and Indonesian Parliament Speaker Setya Novanto in Jakarta. Photo: EPA

The state of Johor’s straight-talking Sultan, Ibrahim Ismail Ibni Sultan Iskander, didn’t mince words last year when he decried what he described as creeping Arabisation of the Malay language. He insisted that Malaysians use Malay rather than Arabic words when referring to religious practices and Muslim holidays.

Mahathir versus the sultan: How Chinese investment could sway Malaysian election

In a frontal assault on Saudi-inspired ultra-conservatism, Ibrahim advised his people who “If there are some of you who wish to be an Arab and practise Arab culture, and do not wish to follow our Malay customs and traditions, that is up to you. I also welcome you to live in Saudi Arabia. That is your right but I believe there are Malays who are proud of the Malay culture. At least I am real and not a hypocrite and the people of Johor know who their ruler is,” the Sultan said.

Saudi King Salman and Indonesian President Joko Widodo in Bogor, West Java. Photo: AFP

Both Malaysia and Indonesia have been reluctant to become too involved in a 41-nation, Saudi-led military alliance headquartered in Riyadh that officially was created to combat political violence and the Islamic State (IS). Many fear the alliance is also intended as a military bloc against Iran that would also bolster Saudi Arabia’s campaign in Yemen – where it is fighting Houthi militia and loyalists of the former president, Ali Abdullah Salleh, allegedly supported by Iran.

Ultra-conservatism

Saudi influence was nonetheless evident when Malaysian Defence Minister Datuk Seri Hishammuddin Hussein last year, to the consternation of his ministry’s civilians, agreed to let 300 Malaysian paratroopers participate in a 20-nation military exercise in the kingdom. Malaysia currently has up to 100 military personnel and C-130 Hercules transport planes in Saudi Arabia that provide the alliance with logistical support.

The Indonesian military, like its Malaysian counterpart, regularly trains with Saudi officers to counter IS. Nawaf Obaid, a Saudi policy analyst with close government ties, described last year’s exercise as a preparation for possible Saudi military intervention in Iraq and Syria.

King Salman and Malaysian Prime Minister Najib Razak in Putrajaya, outside Kuala Lumpur. Photo: AFP

Critics in the ministry were taken aback when Hishammuddin obliged them weeks later to endorse Saudi funding for the King Salman Centre for Moderation (KSCM). Under the auspices of the ministry’s think tank, the Malaysian Institute of Defence and Security (MIDAS), would seek to counter jihadist messaging in Southeast Asia. An internal ministry memo said MIDAS had a “strategic interest to be collaborating with various institutions internationally particularly from Saudi Arabia”.

A joint communique at the end of Salman’s visit described political violence as the most important issue discussed between the king and Prime Minister Najib Razak. Najib backed Saudi concerns about Iranian interference in the internal affairs of Arab countries and called on the Islamic republic to respect the sovereignty of regional states.

The two leaders also announced the establishment of the King Salman Centre for International Peace (KSCIP), a collaboration of Saudi and Malaysian defence institutions as well as the Muslim World League, a prime Saudi vehicle for the propagation of ultra-conservatism. It’ not clear if KSCM and KSCIP are separate institutions.

An Indonesian honour guard waits for the arrival of Saudi Arabia’s King Salman at the presidential palace in Bogor. Photo: AFP

In Indonesia, a country that prides itself on its tolerant interpretation of Islam, Saudi-style ultra-conservatism is similarly making itself felt. Major Islamic organisations with a history of opposition to Wahhabism, the ultra-conservative world view that governs the kingdom, see Shiites, who constitute 1.2 per cent of the population, and Iran as threats to national security. A former deputy head of Indonesian intelligence goes as far as describing Shiites as the foremost domestic threat to national security.

The plight of Chinese Indonesians: distrusted in Jakarta, forgotten in China

Saudi media reported that King Salman hoped during his visit to lay the ground for the opening of more Arabic-language Islamic schools in Indonesia. They said the king would also be increasing the number of scholarships available to Indonesians for study in Saudi Arabia. Many of those who return after completing their studies are imbued with Saudi-style ultra-conservatism.

All in all, Salman’s Asian official visit-cum-holiday is likely to reverberate far beyond the billions of dollars in economic and commercial agreements he signs. The visit also solidified cooperation between Asian nations and Saudi Arabia in the fight against IS. This, despite the fact that IS and the kingdom have the same ideological roots, even if the jihadists accuse Saudi Arabia of having deviated from the true path of Islam. At the same time, the tour could also well embed sectarian aspects of Saudi’s Arabia’s epic struggle with Iran ever deeper in the social and political life of the continent’s Muslims.

Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies

Policy uncertainty threatens trade growth, says World Bank


February 22, 2017

Policy uncertainty threatens trade growth, says World Bank

Warning on protectionism and threats to trade agreements in Trump era

https://www.ft.com/content/9d49b092-f859-11e6-9516-2d969e0d3b65

Image result for global trade under trump

Political uncertainty is slowing trade growth, a World Bank report has concluded, indicating that the rise of Donald Trump may already be casting a shadow over the global economy.

Major international institutions such as the IMF, the OECD and World Bank have recently upgraded their forecasts of global economic growth largely due to expectations that tax cuts, rising infrastructure spending and a wave of deregulation will boost the US economy under the new president. But the report by World Bank economists, released on Tuesday, highlights the fragile state of one historically important engine of global growth — trade.

To the extent that the policy uncertainty will remain high we should continue to expect [global] trade growth to be subdued. Michele Ruta, World Bank report co-author

The study avoids naming Mr Trump, but highlights rising protectionism and threats to unwind trade agreements — such as those made by the president. It also raises the prospect that attempts by the Trump administration to force companies to repatriate global supply chains to the US could undermine efforts to boost lagging productivity growth. To the extent that the policy uncertainty will remain high we should continue to expect [global] trade growth to be subdued Michele Ruta, World Bank report co-author International trade has been growing below historic trends for the past five years. The 1.9 per cent growth recorded in 2016, according to the team at the bank, was the slowest since the 2009 collapse in commerce that followed the global financial crisis.

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Prime Minister Justin Trudeau meets with U.S. President Donald Trump in the Oval Office at the White House–The Future of NAFTA

The team found that some of the reasons for the anaemic trade growth, which affected both developed and developing economies, were broader trends such as slow economic growth around the world and a collapse in commodity prices. But in 2016 the principal change was a surge in uncertainty about economic policy. According to the World Bank’s calculations, such uncertainty was responsible for 0.6 percentage points of the 0.8 percentage-point fall in trade growth between 2015 and 2016. The team at the bank based their figure on a study of the relationship between trade and economic policy uncertainty in 18 countries over three decades. They added they expected the impact to continue in 2017. “To the extent that the policy uncertainty will remain high we should continue to expect [global] trade growth to be subdued,” said Michele Ruta, one of the authors. The World Bank team also sought to quantify the impact of trade agreements on global trade growth. World trade grew at an annual rate of 6.53 per cent between 1995 and 2014, they calculated. Had no new members — including China — joined the World Trade Organisation or no new trade agreements been signed, international trade would have grown at just 4.76 per cent annually, they found.

One of the big consequences of the explosion in trade deals in recent decades has been the emergence of global supply chains. Such chains are widely seen by economists to have made businesses more efficient and boosted productivity. But Mr Trump and his administration have said they want to unwind those international supply chains and bring them home. “It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” Peter Navarro, one of the president’s top trade advisers, told the Financial Times last month.

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According to the World Bank team such a move, coupled with unwinding existing trade agreements that have encouraged the establishment of international supply chains, would hurt productivity growth. “Preserving and expanding the reach of trade agreements, rather than backtracking on existing commitments, would help to sustain the growth of productivity,” the bank’s economists wrote.

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/