The Globalization of Our Discontent


December 8, 2017

The Globalization of Our Discontent

by
http://www.project-syndicate.org

Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US in recent years has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

Image result for globalization and its discontents stiglitz

NEW YORK – Fifteen years ago, I published Globalization and Its Discontents, a book that sought to explain why there was so much dissatisfaction with globalization within the developing countries. Quite simply, many believed that the system was “rigged” against them, and global trade agreements were singled out for being particularly unfair.what’s come apart in the past year, and anticipate what will define the year ahead.

Now discontent with globalization has fueled a wave of populism in the United States and other advanced economies, led by politicians who claim that the system is unfair to their countries. In the US, President Donald Trump insists that America’s trade negotiators were snookered by those from Mexico and China.

So how could something that was supposed to benefit all, in developed and developing countries alike, now be reviled almost everywhere? How can a trade agreement be unfair to all parties?

Image result for joseph stiglitz

Columbia University’s Dr. Joseph E. Stiglitz, Nobel Laureate in Economics

To those in developing countries, Trump’s claims – like Trump himself – are laughable. The US basically wrote the rules and created the institutions of globalization. In some of these institutions – for example, the International Monetary Fund – the US still has veto power, despite America’s diminished role in the global economy (a role which Trump seems determined to diminish still further).

To someone like me, who has watched trade negotiations closely for more than a quarter-century, it is clear that US trade negotiators got most of what they wanted. The problem was with what they wanted. Their agenda was set, behind closed doors, by corporations. It was an agenda written by and for large multinational companies, at the expense of workers and ordinary citizens everywhere.

Indeed, it often seems that workers, who have seen their wages fall and jobs disappear, are just collateral damage – innocent but unavoidable victims in the inexorable march of economic progress. But there is another interpretation of what has happened: one of the objectives of globalization was to weaken workers’ bargaining power. What corporations wanted was cheaper labor, however they could get it.

This interpretation helps explain some puzzling aspects of trade agreements. Why is it, for example, that advanced countries gave away one of their biggest advantages, the rule of law? Indeed, provisions embedded in most recent trade agreements give foreign investors more rights than are provided to investors in the US. They are compensated, for example, should the government adopt a regulation that hurts their bottom line, no matter how desirable the regulation or how great the harm caused by the corporation in its absence.

There are three responses to globalized discontent with globalization. The first – call it the Las Vegas strategy – is to double down on the bet on globalization as it has been managed for the past quarter-century. This bet, like all bets on proven policy failures (such as trickle-down economics) is based on the hope that somehow it will succeed in the future.

Image result for trumpian economics

The second response is Trumpism: cut oneself off from globalization, in the hope that doing so will somehow bring back a bygone world. But protectionism won’t work. Globally, manufacturing jobs are on the decline, simply because productivity growth has outpaced growth in demand.

Even if manufacturing were to come back, the jobs won’t. Advanced manufacturing technology, including robots, means that the few jobs created will require higher skills and will be placed at different locations than the jobs that were lost. Like doubling down, this approach is doomed to fail, further increasing the discontent felt by those left behind.

Trump will fail even in his proclaimed goal of reducing the trade deficit, which is determined by the disparity between domestic savings and investment. Now that the Republicans have gotten their way and enacted a tax cut for billionaires, national savings will fall and the trade deficit will rise, owing to an increase in the value of the dollar. (Fiscal deficits and trade deficits normally move so closely together that they are called “twin” deficits.) Trump may not like it, but as he is slowly finding out, there are some things that even a person in the most powerful position in the world cannot control.

There is a third approach: social protection without protectionism, the kind of approach that the small Nordic countries took. They knew that as small countries they had to remain open. But they also knew that remaining open would expose workers to risk. Thus, they had to have a social contract that helped workers move from old jobs to new and provide some help in the interim.

The Nordic countries are deeply democratic societies, so they knew that unless most workers regarded globalization as benefiting them, it wouldn’t be sustained. And the wealthy in these countries recognized that if globalization worked as it should, there would be enough benefits to go around.

American capitalism in recent years has been marked by unbridled greed – the 2008 financial crisis provides ample confirmation of that. But, as some countries have shown, a market economy can take forms that temper the excesses of both capitalism and globalization, and deliver more sustainable growth and higher standards of living for most citizens.

We can learn from such successes what to do, just as we can learn from past mistakes what not to do. As has become evident, if we do not manage globalization so that it benefits all, the backlash – from the New Discontents in the North and the Old Discontents in the South – is at risk of intensifying.

A Rejoinder: The View From Seoul: Trump’s Visit and the ‘Illusion of Achievement’


November 23, 2017

A Rejoinder: The View From Seoul: Trump’s Visit and the ‘Illusion of Achievement’

 

https://thediplomat.com/2017/11/the-view-from-seoul-trumps-visit-and-the-illusion-of-achievement/

U.S. President Donald Trump’s brief visit to Seoul, the shortest leg on his East Asia tour, and his address at the South Korean National Assembly has led to various positive news accounts. Media reports extolled revamped U.S. policy toward the so-called “Indo-Pacific” as well as an apparent newfound flexibility on the part of Trump toward a diplomatic solution with North Korea. However, as Van Jackson, senior lecturer in International Relations at Victoria University of Wellington, noted in an email exchange: “The theme that I see emerging from the trip is ‘Illusion of Achievement,’” and “every seemingly positive story coming out of the trip is artificial and vastly overstated.”

Image result for White House Photo --Trump's Visit to South Korea

In fairness, Jackson continued, such trips usually “involve a bureaucratic scramble for deliverables, many of which were already in the works even if the trip never happened.” Trump’s apparent achievements in Seoul represent just that, namely, agreements already underway. Moreover, the visit did nothing to address and, indeed, highlighted various dilemmas faced by Seoul in relation to their American ally.

In terms of achievements already secured, most revolved around measures taken to strengthen the U.S.-ROK alliance’s defense and war-fighting capabilities. In line with last week’s security and military meetings in Seoul, Trump hailed plans for increased rotational deployment of U.S. strategic assets as part his Reaganesque effort to secure “peace through strength,” including recent deployment of three U.S. Nimitz-class supercarriers and a nuclear submarine to regional waters. In addition, Presidents Moon and Trump agreed “to push forward our cooperation at an unprecedented level to bolster Korea’s self-defense capabilities.” Again, this directly follows the 49th ROK-U.S. Security Consultative Meeting’s (SCM) Joint Communique. During the Trump-Moon Summit, both sides finalized the earlier decision to lift limits on the payload of ROK missiles. They also agreed to immediately begin negotiations on Seoul’s development and acquisition of the most advanced U.S. military surveillance assets and, potentially, nuclear-powered submarines. The latter are currently prohibited under the U.S.-ROK 123 Nuclear Agreement.

Now for the dilemmas, the first being trade. Similar to his statements in Tokyo, Trump proclaimed Seoul would order billions of dollars worth of U.S. military equipment, which “for them makes a lot of sense and for us mean jobs and reducing our trade deficit with South Korea.” Nevertheless, it is dubious that such orders will lead to an appreciable increase in jobs (so much as greater profits for a select few weapons manufacturers). Moreover, whatever the effect on the deficit, Trump’s desire to rework the KORUS FTA, a deal he said “has been quite unsuccessful and not very good for the” United States, likely will not abate. In fact, as Donald Manzullo, president of the Korea Economic Institute (KEI), notes, it seems Trump sees U.S. support for ROK security as leverage for pressure on trade, which “makes the KORUS even more fragile.” For Trump, such transactional bargaining makes sense and may also be perceived as a kind of victory at a time of historically low approval numbers, ongoing FBI investigations, and legislative difficulties at home.  Meanwhile, for Seoul, forced to make concessions to Trump’s economic nationalism in exchange for security, it appears a blithe disregard for their difficult position.

Image result for White House Photo --Trump's Visit to South Korea

President  Donald J. Trump– A Triumphant Pose on Visit to Asia

Next, another goal of Trump’s Asia trip is to tighten security cooperation between the United States and its allies, both to confront North Korea’s nuclear program but also promote a “free and open Indo-Pacific region.” One key element of is the enhancement of trilateral U.S.-ROK-Japan missile defense efforts as part of the larger U.S.-led regional ballistic missile defense (BMD) system. However, while strengthening such cooperation is “taken for granted in Washington,” it is not so in Seoul. Although Japan officially joined the U.S.-led system in 2006, just last week ROK Foreign Minister Kang Kyung-wha told National Assembly lawmakers the ROK was not considering any more deployments of the U.S. THAAD system, would not participate in the U.S.-led regional BMD networks, and sees trilateral cooperation solely through a peninsular lens, not as a trilateral military alliance extending beyond the North Korean threat or Korean Peninsula. In an interview last Friday, Moon reiterated Kang’s position and indicated the two rationales behind it.

Image result for White House Photo --Trump and Shinzo Abe

Golfing Buddies–Abe-San and Trump-San

First, Seoul views Tokyo’s moves to take on a bigger role in international security with skepticism. Moon does not want to see Japanese Prime Minister Shinzo Abe use the North Korea threat as “an excuse for military expansion.” As I previously noted, Pyongyang’s provocations have led to greater functional cooperation, but fears of Japanese militarization, historical animosity, and antagonistic nationalist discourses remain important obstacles. Second, and related, Seoul hopes to maintain and improve its relations with Beijing, its largest trade partner and key diplomatic partner vis-à-vis North Korea. On October 30, Seoul and Beijing agreed to move past their year-long stand-off over THAAD, with Seoul stressing it is not aimed at any third country beyond North Korea. Seoul’s insistence on not joining the U.S.-led BMD system, as well as limiting THAAD deployments and security ties with Tokyo, is part of Moon’s intention to “pursue balanced diplomacy” between the U.S.-ROK alliance and China. By enhancing the U.S.-ROK alliance but keeping it strongly focused on North Korea, Moon hopes to carve out space for solid relations with Beijing.

Officially, the United States welcomed the apparent settlement of the Seoul-Beijing THAAD dispute. Yet there are signs that Kang’s comments may have upset U.S. Forces Korea Commander General Vincent K. Brooks, who remarked after a meeting with Kang, “We have an alliance relationship and we should look very closely at the words said by the foreign ministry.” Simply stated, U.S. officials view the alliance as derivative of and embedded within a wider strategic setting; Seoul’s concerns, understandably, are narrower. This leads to the final and most importantly dilemma: the fundamental difference between Seoul and Washington’s order of preferences vis-à-vis North Korea’s nuclear weapons.

As Jackson remarked: “The press has made a big deal of Trump’s musing that it makes sense for North Korea to negotiate, but he’s made comments like that before and Kim Jong-un has no interest in negotiations if the goal is denuclearization. For those who wish for a diplomatic solution in Korea, Trump’s temperament is less important than the objective of U.S. North Korea policy.” What is the objective? The first U.S. priority has been repeatedly stated: the complete, verifiable, and irreversible denuclearization of North Korea. According to Trump and his aides, Pyongyang’s possession of nuclear weapons, particularly the capability to miniaturize and deploy warheads on ICBMs capable of reaching the U.S. mainland, is unacceptable and will not be tolerated. The problem: North Korea already has nuclear weapons, will not give them up, and appears intent on developing just such capability.

On the contrary, while Moon listed denuclearization of the Korean Peninsula as a key priority, it is not the primary one. Speaking from the same National Assembly podium a week before Trump, Moon laid out his five principles for a peaceful peninsula. The first principle and top priority “is to maintain peace on the Korean Peninsula. Thus, armed conflict must be avoided under any circumstance.” Although Moon reiterated the need to sternly respond to any North Korean provocation within a firm U.S.-ROK alliance as the fifth principle, from Seoul’s perspective, Pyongyang’s mere possession of an enhanced nuclear and ICBM capability does not in itself justify war.

Herein lies the crucial and seemingly widening gulf between Seoul and Washington. Historically, for the United States, the standoff on the Korean Peninsula has been one of extended deterrence, meaning deterring an attack against its distant Korean ally. Yet, with Pyongyang’s dogged pursuit of nuclear equipped ICBMs, the confrontation is transforming into one of immediate deterrence, putting U.S. territory directly at risk. This does not, in essence, change the existential nature of the North Korean threat for Seoul, but it does change the strategic dynamic for Washington, which has demonstrated it does not respond well to real or even perceived threats. Indeed, the qualitatively new reality has already produced an ever-growing drumbeat of war, with U.S. policy elites calling for preventative strikes based on distorted historical analogies and an apparently unmitigated faith in surgical U.S. strikes.

The bottom line: Trump’s hyperbolic rhetoric aside, articulated U.S. policy and the growing support for precipitous military actions among the DC beltway crowd is sufficient enough evidence for Seoul to wonder whether or not, when push comes to shove, it will be sacrificed to save Seattle.

 

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.”

Image result for Boris Johnson, the Foreign Secretary, and Michael Gove

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.

Image result for brexit and the future of  London as a financial center

 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.

Image result for 2nd brexit referendum

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.

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?

http://www.jpi.or.kr/eng/regular/policy_view.sky?code=EnOther&id=5325–www.eastasiaforum.org

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.

Image result for Asia's New Champion China's President Xi

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)

Image result for America retreat from Asia under Trump

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.

Image result for Xi and Hun Sen

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.

Footnotes:

1) Brina Seideland Laurence Chandy, “Donald Trump and the future of globalization”, Brookings, 18 November 2016,
https://www.brookings.edu/blog/up-front/2016/11/18/donald-trump-and-the-future-of-globalization/
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,
https://www.forbes.com/sites/douglasbulloch/2016/10/12/protectionism-may-be-rising-around-the-world-but-in-china-it-never-went-away/#359ae9bc73da
4) “Protectionism: The Hidden Persuaders”, The Economist, 12 October 2013,
http://www.economist.com/news/special-report/21587381-protectionism-can-take-many-forms-not-all-them-obvious-hidden-persuaders
5) Geoffrey Gertz, “What will Trump‟s embrace of bilateralism mean for America‟s trade partners?” Brookings, 8 February 2017,
https://www.brookings.edu/blog/future-development/2017/02/08/what-will-trumps-embrace-of-bilateralism-mean-for-americas-trade-partners/
6) David Ignatius, “Trump moves slightly toward pillars of traditional foreign policy”, USA Today, 13 April 2017,
https://www.usatoday.com/story/opinion/columnists/2017/04/13/trump-moves-slightly-toward-pillars-traditional-foreign-policy/100413776/
7) Greg Jaffe and Joshua Partlow, “Trump phone calls signal a new transactional approach to allies and neighbors”, The Washington Post, 2 February 2017,
https://www.washingtonpost.com/world/national-security/trump-phone-calls-signals-a-new-transactional-approach-to-allies-and-neighbors/2017/02/02/dcb797fa-e989-11e6-b82f-687d6e6a3e7c_story.html?utm_term=.97755b835303
8) Lexington, “A coldly transactional China policy: Donald Trump‟s first meeting with Xi Jinping was all about business”, The Economist, 8 April 2017,
http://www.economist.com/blogs/democracyinamerica/2017/04/coldly-transactional-china-policy
9) Robert Kagan, “Trump marks the end of America as world‟s „indispensable nation‟”, The Financial Times, 20 November 2016, https://www.ft.com/content/782381b6-ad91-11e6-ba7d-76378e4fef24
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, http://voxeu.org/article/chiang-mai-initiative-designed-not-be-used
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, http://www.straitstimes.com/asia/east-asia/australia-japan-lobby-for-tpp-11 “’TPP 11′ to Washington: We’ll keep your seat warm”, Nikkei Review, 16 May 2017,
http://asia.nikkei.com/Politics-Economy/International-Relations/TPP-11-to-Washington-We-ll-keep-your-seat-warm
16) Shefali Rekhi, “Will RCEP be a reality by the end of 2017?” The Straits Times, 23 April 2017,
http://www.straitstimes.com/asia/se-asia/will-rcep-be-a-reality-by-the-end-of-2017
17) Eric Johnston, “16-nation RCEP talks resume in wake of TPP‟s demise”, The Japan Times, 27 February 2017,
http://www.japantimes.co.jp/news/2017/02/27/business/16-nation-rcep-talks-resume-wake-tpps-demise/#.WR1RaU21v3g
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.

The Belt and Road Initiative and Asia’s changing order


November 18, 2017

The Belt and Road Initiative and Asia’s changing order

by Nick Bisley, La Trobe University

In the two days of meetings from 8 November between President Donald Trump and President Xi Jinping in Beijing on Trump’s first state visit, it appears that they did not talk at all about the Belt and Road Initiative (BRI). Trump’s tour reflected the tendency of his administration to see Asia entirely through the lens of bilateral ties and crises. US Secretary of State Rex Tillerson and Trump have stated that the United States seeks to sustain and protect a free and open Indo-Pacific, but the inability to match that concept with either a meaningful strategic vision or substantive policy was plainly on display.

Image result for one belt one road

 

This absence of strategic thinking about the region is a key reason for the neglect of China’s BRI. It is a policy that is monumental in scale, highly strategic in its outlook and reflects Xi’s confident and ambitious vision of China’s global role. If the United States and its allies want to maintain the underlying economic and strategic status quo in Asia, they need to recognise that they will be doing so at the same time that China is forging ahead with its BRI plans.

The initiative was first announced in a pair of speeches given by Xi in 2013 in Kazakhstan and Bandung, setting out a sweeping but vague vision for improved connectivity between China and the former Silk Road Corridor. At the recent 19th National Congress of the Chinese Communist Party (CCP), the initiative was written into the party’s constitution. It is without question the most important element in China’s international policy.

At its core, the BRI is about the practical business of connecting peoples and markets through infrastructure. But it also has at least five different strategic functions.

Image result for one belt one road

 

Perhaps the most immediate of these is that it is a means to drive economic growth in China’s deprived southern and western provinces. The aim is both to reduce the huge economic inequalities between the Chinese hinterlands and the coast and to provide a social developmental anchor for parts of China that the CCP has long seen as restive and resistant to Beijing rule. A more prosperous Xinjiang is, from this view, less likely to be susceptible to the allure of ‘terrorism and separatism’.

But huge investment in infrastructure is not just about leveling out economic prospects within China: the initiative also aims to improve economic development prospects in China’s western periphery. The China–Pakistan Economic Corridor — a sprawling program of pipelines, dams and development projects in Pakistan — is not so much about bringing hydrocarbons from the Arabian Sea to Xinjiang. Rather, it is about improving Pakistan’s welfare. A well-off Pakistan is a better market for Chinese goods, a more reliable partner to balance Indian influence and is less likely to be a source of radical Islamist inspiration. That the economic improvement among China’s neighbours would also align those countries’ interests with Beijing’s is an added bonus.

This will also help create more developed markets to consume the higher-end manufactured goods that China’s economic reformers aim to create. Importantly, as those markets  along the Belt and Road are developed they are also intended to have Chinese industrial standards to become internationalised, further entrenching China’s economic advantage. As the United States knows, countries that build infrastructure also set the standards.

A fourth motive — and perhaps one that has been the most prominent in the minds of China hawks — is the BRI’s geopolitics. China’s dependence on its maritime approaches and their vulnerability to US power has long been a source of concern for the Party leadership. The US navy’s submarine fleet is likely to ensure that even if China were to ‘leapfrog’ aircraft carrier development, the country would remain susceptible to US naval predation. By pivoting west and being able to access markets via continental means, China can overcome the maritime choke points that create submarine vulnerability, thereby gaining much needed strategic depth.

Image result for one belt one road

 

Finally, in developing the BRI’s US$1 trillion infrastructure program that binds states and economies into a China-centred economic and strategic system, China is aiming to weaken existing strategic and institutional structures. In short, the BRI is a crucial part of China’s incremental and non-threatening construction of a new regional order. The symbolism could not be clearer from Beijing: we are building bridges, ports and pipelines while you, the United States, are building walls.

More than 60 countries have signed memorandums of understanding with China about the BRI, yet many others (particularly those close to the United States) remain sceptical. Australia seems genuinely perplexed as to how to respond, while Japan’s recent cautious approval is the public face of a very sceptical Japanese government. This uncertainty is understandable.

From a US ally point of view, the BRI is a genuinely puzzling program. The region badly needs infrastructure investment and China has the capital, experience and capability to drive this forward. But the initiative will almost certainly increase China’s relative strength and further erode the old regional order. As a project in which the geopolitical cannot be disentangled from the economic, it also frustrates more conventional approaches to international policy.

The BRI’s close association with President Xi means that it is going to be the most important component of China’s international policy over the coming decade. Equally, as it unfolds it will significantly alter strategic and economic relationships in the region. More broadly, the BRI reflects an ambition to fill in the missing piece of the connectivity puzzle that will create a more China-centred regional order. The question is whether the United States will contest China’s efforts or be too busy with its own travails to even realise that there is a competition. If Trump’s first nine months in office are any indication, China has the field wide open.

Nick Bisley is Executive Director of La Trobe Asia and Professor of International Relations at La Trobe University. You can follow him on Twitter at @NickBisley.

The 2017 APEC Summit: A Game Changer for the Asia-Pacific?


November 16, 2017

Image result for asia-pacific bulletin
Number 405 | November 15, 2017

ANALYSIS

The 2017 APEC Summit: A Game Changer for the Asia-Pacific?

By Le Dinh Tinh

One of the most important diplomatic, political, and economic events for the Asia-Pacific region this year – the APEC Summit – was held in Da Nang, Viet Nam (November 6-11, 2017). Amid the fast changing geostrategic context and domestic situation in a number of countries, the APEC Leader’s week may have been a game changing moment for the Asia-Pacific region for a number of reasons.

First, APEC is the premier forum in the region to facilitate the realization of the development goals set forth by the United Nations. Home to around 2.8 billion people, approximately 59 percent of world GDP and 49 percent of world trade, APEC includes the world’s biggest economies, such as the US, China, Japan, ASEAN, and thus has the potential to make important economic contributions to the region – and the world. APEC could help to promote economic development in the region in many important ways. Even though the Asia Pacific is the fastest-growing region at a time when the world economy is witnessing positive growth, there are lurking risks such as inward-looking policies of many countries, aging populations, as well as traditional and emerging security challenges. With the focus on “creating new dynamism, fostering a shared future,” the 2017 APEC under the host of Viet Nam proposed four areas for cooperation: a) sustainable, innovative and inclusive growth; b) regional economic integration and connectivity; c) dynamism for micro, small, and medium-sized enterprises (MSMEs) – a key driver of the region’s growth; and d) food security and achieving sustainable agriculture. Topics of discussion also included improving work force skills to meet the new demand for the fourth industrial revolution, reducing income gaps and, and promoting inclusive and equitable development. The Danang Declaration – unanimously adopted at the Summit – reaffirmed all these and called them “long-standing commitments” by all member economies. Similarly, the dramatic revival of the Trans Pacific Partnership Agreement talks (now changed to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) after intensive negotiations in Danang has helped tighten an embrace of “high-stardard,” “balanced,” “free,” and “fair” game of trade for concerned stakeholders.

Second, the APEC Summit provides an opportunity for regional economies to make their priorities better known to each other, thus boosting trust and cooperation. Through high-level interaction, the US and China, whose relationship is a crucial factor shaping the region’s geopolitical landscape, identified measures to address new realities. On the one hand, US policy toward the Asia Pacific, despite a rough start, has gained clarity, especially on the security-defense side. Soon after his arrival in Danang, President Trump delivered a speech promoting the idea of a “free and open Indo-Pacific”, with significant implications both for the regional architecture and the US future ties with allies and partners. On the other, China has become more confident internationally owing to its rise in both capacity and determination. Many argue that China has eased and even dropped the long-time brake on its strategy of “tao guang yang hui” (hide one’s capabilities and bide one’s time). An American scholar Michael Pillsbury has gone further by stating that China’s international strategy is already effective both at present and in the longer term. President Xi called globalization an “irreversible historical trend”, affirming China’s place as a leader in the trend. Japan, South Korea, and Australia – important members of APEC – have recently played more active roles in regional affairs. These new-found strategic contours give birth to a hope that following the meetings in Viet Nam, the United States, China, and other powers will be able to make necessary adjustments to their new postures for the larger interests of the region.

Third, at the APEC Summit, for the first time ASEAN leaders had a dialogue with APEC members’ heads of delegation. This is a testament to both ASEAN and APEC’s continued aspirations for a wider community of cooperation. APEC, like ASEAN, constitutes a significant building block for the region’s deeper integration and connectivity. ASEAN has endeavored to keep its centrality in the regional architecture, one with values shared by APEC, such as open regionalism and inclusiveness. The Association is however facing new challenges. ASEAN fears of a regional lack of unity are starting to become a reality. The principle of consensus that has helped ASEAN in the past now raises questions about the organization’s effectiveness. The last ASEAN Foreign Ministers meeting in Manila, for example, showed that to a certain extent reaching unanimity on vital issues like the South China Sea has become harder. Against this backdrop, the 2017 APEC, with its agenda on practical cooperation and community-building, and its multilateralism, should be a naturally complementary process for ASEAN.

For all of these reasons the November 2017 APEC Summit came at a critical time and has the potential to make important contributions. Da Nang – a beautiful coastal city in central Vietnam – provided an ideal venue for dialogue between leaders from member economies. In early October, advance teams from 21 economies expressed their satisfaction with Vietnam’s preparatory work. This same positive feeling was also witnessed when the Summit’s most important moment – the Leaders’ Meeting Retreat – ended on November 11. US President Donald Trump’s attendance bodes well for regional cooperation, and adds clarity to US policy toward the region. Unlike many past US presidential trips to Asia, President Trump’s took place in the first year of his administration. Chinese President Xi Jinping also drew a lot of attention because the meeting took place not long after China’s 19th Party Congress. The region wanted to know Beijing’s major policy lines for the new term as could be seen in President Xi’s numerous sideline meetings, and Vietnam was the first foreign country President Xi visited. Russia, Japan, Canada, South Korea, and Australia (an APEC founding member) certainly took APEC seriously with their respective agreement on the host country’s proposed agenda. As for ASEAN, with the presence of Secretary General Le Luong Minh, it was able to seize the opportunity to cement its solidarity and the working principles that have brought about its successes in the last five decades.

The 2017 APEC Summit presents a key medium for regional stakeholders to tackle current problems and promote better understanding. APEC’s consensus-based approach, broad inclusiveness, and efficient platform for numerous multilateral and bilateral meetings make the venue important. Cooperative programs within the APEC framework may be either substantive or symbolic, but given all the present challenges and needs, both  are valuable for the region.

About the Author

Le Dinh Tinh, PhD, is a Senior Fellow at the Diplomatic Academy of Vietnam. He can be contacted at tinhiir@gmail.com.

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

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

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

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

APB Series Coordinator: Peter Valente, East-West Center in Washington

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

For comments/responses on APB issues or article submissions, please contact washington@eastwestcenter.org.

East-West Center | 1601 East-West Road | Honolulu, HI | 808.944.7111

East-West Center in Washington | 1819 L Street, NW, Suite 600 | Washington, DC | 202.293.3995

East-West Center in Washington, 1819 L Street, NW, Suite 600, Washington, DC 20036