(1) China Challenges ASEAN with Land Fills in South China Sea Read Here
(2) ASEAN Connectivity and China's 'One-Belt, One Road' Read here
(3) Is ASEAN still Relevant? Read here
(4) ASEAN shouldn't get hung up on the AEC deadline Read here
For ASEAN and Myanmar, an opportunity not to be missed
10 November 2014
10 November 2014
Author:
Giovanni Capannelli, ADB (click here to read the original article)
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| Photo from Prokerala News |
The 25th ASEAN Leaders’ Summit will be held in Naypyidaw this week back-to-back with related meetings of the East Asia Summit and other groups, bringing world leaders to Myanmar. For some of them it will be the first time in the country and for Myanmar a unique occasion to show its commitment to complete the country’s transition to democracy and ‘normalisation’ with the international community, after decades of difficult political and economic relations.
Attracting foreign capital that is in line with Myanmar’s growth and development strategy is an important task for President Thein Sein and his country’s management team. To be effective, they must convince world leaders of their determination to introduce structural reforms that improve income distribution and provide equal opportunities to everyone, not only elites. Enhancing the country’s human rights record, which continues to be negatively affected by ethnic, religious and communal violence issues, is another priority.
The theme chosen by Myanmar to mark its first ASEAN chairmanship is ‘Moving Forward in Unity to a Peaceful and Prosperous Community’. The aim is to promote regional solidarity and progress towards a more closely integrated community based on maintaining peace and security among its members — and with the rest of the world. With the ambitious commitment to establish the ASEAN Community by the end of 2015, this summit is expected to adopt resolutions that accelerate the implementation of the blueprints for the Community’s three pillars: political security, economic and socio-cultural.
On some fronts, notably on security issues, Myanmar has been able to strike a fairly good balance against contrasting interests. This is evident, for example, on the South China Sea issue, where Myanmar has managed to maintain internal cohesion among ASEAN members, while continuing to constructively engage with both China and the United States.
Significant progress was also made in the socio-cultural sphere. Regional cooperation initiatives have seen progress in human development, social welfare, and environmental sustainability. An ASEAN Institute for Green Economy is expected to be established in Yangon soon. ASEAN leaders will also be adopting a Joint Statement on Climate Change at the upcoming summit.
On the economic front, progress is encouraging but insufficient, especially with regard to completing the ASEAN Economic Community (AEC). While member countries have already adopted more than 80 per cent of all measures that were to be introduced before the end of 2015, what remains is the hardest part. It will take several more years to have the AEC fully in place. Major delays in policy implementation are due to difficulties with the ratification of signed agreements and their alignment with national laws. A significant lack of coordination among national and regional agencies is another major problem. And given the pronounced intraregional development gap, a few countries also lack the technical, regulatory and financial capacity to fully implement some of the measures needed to complete the AEC.
While the elimination of non-tariff barriers — including anti-dumping provisions and sanitary regulations — is the crux of the problem, countries must also reinforce food security and cooperation in agriculture and forestry; adopt bold trade facilitation measures to further reduce costs; strengthen investment policies; improve the business climate; and encourage capital mobility with other ASEAN members while watching against possible sudden reversals in short term flows.
Progress in promoting the free flow of skilled labour is also slow. Labour market regulations are yet to be fully harmonised across countries. There needs to be easier access to visas and employment passes for workers engaged in cross-border trade and investment. Introducing a region-wide definition of core competencies for job and occupational skills is also important, especially for services. Even though mutual recognition agreements have been signed in eight occupational categories, actual progress has only been observed for engineers, with almost 1,700 registrations to date in the ASEAN Association of Engineers Organisation — although those registered still need to pass a local exam to become certified engineers in the countries they intend to provide their services.
While the ASEAN Summit may be unable to significantly speed up the AEC implementation, leaders are expected to contribute to shaping ASEAN’s post-2015 vision, to be endorsed next year. There are two areas of utmost importance. First, is a renewed focus on connectivity through significant infrastructure investment and the complete elimination of non-tariff barriers in goods, services and investment. Second, is an agreement on bold institutional reform to enhance the efficiency of ASEAN governing principles, including on decision-making systems and financial contributions, reflecting the group’s expanded economic agenda. Moreover, as current AEC provisions for skilled labour mobility only cover a tiny share of the region’s total migrant workers, ASEAN leaders should start discussing ways to manage unskilled labour mobility at least in key sectors such as construction, garments, fishing, plantations, and tourism.
While the presence of many world leaders in Naypyidaw and global media attention will add to Myanmar’s existing logistical challenges, the summit will mark a success for the country’s first ASEAN chairmanship. President Thein Sein’s ability to introduce significant progress toward enhanced internal cohesion and renewed group centrality in Asia’s architecture for cooperation has been remarkable. The next chair, Malaysia, should thank Myanmar for the good work it has done this year.
Giovanni Capannelli is Principal Economist in the Central and West Asia Department of the Asian Development Ban
Brunei Takes on the Challenges
of Chairing ASEAN in 2013
By Murray Hiebert, Jeremiah O.
Magpile
Feb 22, 2013
Retrieved on February 28, 2013
from https://csis.org/publication/brunei-takes-challenges-chairing-asean-2013#sthash.q43l6nwx.dpuf
Brunei Darussalam, the smallest
country in Southeast Asia with a population of only 400,000, faces some
daunting challenges this year as it chairs the 10-country ASEAN grouping.
For starters, Brunei must help
manage tensions regarding the strategic South China Sea following last year’s
acrimony after then-chair Cambodia, a major recipient of assistance from
Beijing, twice sought to limit discussion of China’s assertive actions in the
disputed sea. This prompted protests from several Southeast Asian countries.
Second, with the group’s goal of
achieving an ASEAN Economic Community (AEC) by the end of 2015, Brunei will
need to press its neighbors to get cracking on implementing the agreed-upon
economic road map.
A third task will involve
keeping China and the United States engaged in the East Asia Summit (EAS). Many
Southeast Asians wonder what impact the departure of Secretary of State Hillary
Clinton and Assistant Secretary of State for East Asia and the Pacific Kurt
Campbell will have on the U.S. rebalance to Asia and U.S. relations with ASEAN.
Brunei has chosen as the theme
for its chairmanship “Our people, our future together.” The sultanate will
organize some 400 meetings throughout 2013. These will include two ASEAN
leaders’ summits in April and October, the ASEAN Regional Forum attended by the
foreign ministers of 27 Asia Pacific countries in June, and the 18-member East
Asia Summit, which brings together ASEAN and its most important partners,
including the United States, in October.
Bruneian officials say one of
their priorities for 2013 will be enhancing the role of ASEAN youths in order
to promote a region-wide sense of belonging. Other themes will include
discussing environmental issues like climate change and natural disasters,
tackling food and energy security, and addressing poverty eradication,
sustainable development, and closing the income gap within ASEAN.
Without a doubt, Brunei’s
biggest challenge will be to lower the rising nationalist sentiments in the
South China Sea disputes. Since ASEAN last discussed the competing claims at
the EAS last November, claimants have continued to trade barbs over the issue,
and the Philippines has filed a motion to bring China’s claims before a UN
arbitration tribunal. China appears to see this latest move as a challenge to
its new leadership and it may look for ways to respond, perhaps by refusing to
join talks with ASEAN on a long-awaited binding code of conduct for parties to
the disputes.
Although Brunei is a claimant in
the South China Sea, many observers give the oil-rich nation at least a shot at
lowering the temperature in the disputed region because of its normally low-key
international diplomatic stance. China is a major trading partner of Brunei,
buying mainly oil and gas products, but it is not Brunei’s only partner, making
Brunei less vulnerable to economic pressure than Cambodia was.
How well Brunei performs will
depend at least in part on the diplomatic skills of its Foreign Ministry.
Foreign Minister Prince Mohamed Bolkiah advocates what he calls “defense
diplomacy,” a doctrine that promotes regular and frequent dialogue and personal
relations among the parties. It is these skills that the foreign minister will
try to use to tamp down the dispute.
Economic integration is a
potentially huge opportunity for ASEAN because it will reduce barriers to trade
and the movement of capital and labor, which would promote economic growth. But
most ASEAN countries are still far behind schedule in implementing their
commitments, which has already forced the group to delay the launch of the AEC
from the beginning of 2015 until the end of the year.
Despite the leaders’ declared
goals of establishing an economic community, the interests of individual
nations still often trump regional interests. At the end of 2012, ASEAN
countries said they had implemented 75 percent of their goals toward achieving
the AEC, up from 67.5 percent in 2011. Brunei’s objective this year will be to
prod its fellow ASEAN members to step on the gas to implement the reforms to
which they have already committed.
Brunei is under the gun to make
progress on both the South China Sea and economic integration. Next year,
Myanmar will serve as ASEAN chair. Despite its recent political and economic
reforms, and efforts to normalize relations with the United States and Europe
following five decades of diplomatic isolation, the country suffers from a
shortage of the experienced officials necessary to resolve the complicated
maritime disputes and press its neighbors to complete their AEC commitments.
Myanmar’s chairmanship will likely be more successful if ASEAN and China can
take steps this year to draft a code of conduct and if ASEAN countries can make
progress in moving closer to the AEC.
Asians will watch carefully in
the early months of the year to see if the U.S. rebalance toward Asia changes
in the second Obama administration. Will newly appointed Secretary of State
John Kerry, a Vietnam veteran who played a key role in the U.S. normalization
of relations with Vietnam in the 1990s, visit Southeast Asia early in his
tenure and attend the ASEAN Regional Forum in June? Will the presumptive
secretary of defense, Chuck Hagel, another Vietnam veteran, participate in the
ASEAN Defense Ministers Meeting-Plus in Brunei in May and the Shangri-La
Dialogue in Singapore in June? Southeast Asians assume that President Barack
Obama will attend the Asia-Pacific Economic Cooperation summit in Bali and the
East Asia Summit in Brunei in October.
Some ASEAN countries have
expressed concerns that the U.S. rebalance to Asia so far has focused too much
on security and not enough on economics. President Obama at his summit with the
ASEAN leaders in Cambodia last November unveiled two new programs that should
help boost U.S. economic cooperation with the Southeast Asia countries. The
first is an energy initiative that will provide $5 billion to the U.S.
Export-Import Bank and $1 billion to the Overseas Private Investment
Corporation to help U.S. companies sell American energy products in the region.
The second, the Expanded
Economic Engagement or E3, will seek to boost the economic capacity of the
ASEAN countries that have not joined the Trans-Pacific Partnership trade talks.
This initiative will seek to promote trade facilitation for the movement of
goods across borders, develop principles to encourage investment, and boost the
digital economy, or e-commerce. U.S. officials hope that capacity building in
the region under the E3 will make it possible eventually for the United States
and ASEAN to negotiate a free trade agreement.
(This Commentary originally
appeared in the February 21, 2013, issue of Southeast Asia from the Corner of 18th & K Streets.)
Murray Hiebert is deputy
director and senior fellow of the Sumitro Chair for Southeast Asia Studies at
the Center for Strategic and International Studies in Washington, D.C. Jeremiah
O. Magpile is a researcher with the Sumitro Chair.
Commentary is produced by the Center for Strategic and International
Studies (CSIS), a private, tax-exempt institution focusing on international
public policy issues. Its research is nonpartisan and nonproprietary. CSIS does
not take specific policy positions. Accordingly, all views, positions, and
conclusions expressed in this publication should be understood to be solely
those of the author(s).
© 2013 by the Center for
Strategic and International Studies. All rights reserved.
South China Sea Row Was Elephant in Room for Kingdom’s Year in the Chair
By Shane Worrell
28 December 2012 (click here to read the original article)
In the days preceding the 20th ASEAN Summit in Phnom Penh in April – the first major event of Cambodia’s chairmanship – Chinese President Hu Jintao became his country’s first head of state to visit the Kingdom since 2000.
The enigmatic leader arrived bearing gifts – $40 million in grants, $30 million in loans and diplomatic compliments that included support for Cambodia’s UN Security Council bid and renewed talk of a $17 billion bilateral trade target by 2017.
Beneath the sweet-talking and financial splurging, Hu entered the Kingdom with another message: China wanted Cambodia to support its position on the resource-rich South China Sea.
Cambodia had been coy about whether the enduring and sometimes tempestuous dispute, which also involves Taiwan and ASEAN members Vietnam, the Philippines, Malaysia Indonesia and Brunei, would be on the summit’s agenda.
Either way, China wanted things not to move “too fast”, Jintao said, while the Philippines vowed to raise the issue in Phnom Penh whenever possible.
It was an issue that came to dominate Cambodia’s ASEAN chairmanship.
Armed soldiers patrolled the streets outside the Peace Palace in early April as Hun Sen, under the mantra of “one community, one destiny”, made an impassioned speech about regional unity to open the 20th ASEAN Summit.
Foreign ministers, greeted by dancers, singers and an orchestra, piled onto the stage to shake hands in front of a sea of cameras.
But the unity was short lived. By the end of day one, Philippines Foreign Secretary Albert del Rosario was publicly accusing Cambodia of defying the wishes of its regional counterparts and pushing for China to help ASEAN shape a draft code of conduct (COC) for the contested waters.
The extent to which the South China Sea proceeded to dominate discussions during the three-day summit came as no surprise to Carl Thayer, emeritus professor at the University of New South Wales.
“The fact the South China Sea is not for-mally on the agenda does not mean the issue will be ignored,” he said at the time. “ASEAN has a standard operating procedure to disguise controversial issues.”
At the conclusion of meetings, del Rosario said ASEAN states had agreed to decide the key elements before taking the COC to China – but no one else would confirm this.
In fact, simultaneous comments from Indonesian Foreign Minister Marty Natalegawa suggested room for Chinese involvement.
Hun Sen played down the division within ASEAN, but admitted a code of conduct remained only an eventual prospect – then turned his focus to his critics.
In a heated and bizarre closing address to the summit, the Prime Minister took aim at the myriad media reports accusing Cambodia of not only sidling up to China, but selling out to the superpower.
“Cambodia is not [being] bought by anyone,” he told a room full of hundreds of journalists.
The spectre of China loomed large again when the ASEAN Summit, including the 45th ASEAN Ministerial Meeting, returned in July.
An announcement from Kao Kim Hourn, secretary of state at the Ministry of Foreign Affairs, on the summit’s first day, mentioned China’s involvement.
“At the first meeting [on Sunday], they [senior officials] agreed that to work on the code of conduct . . . ASEAN will meet with China to discuss [it] from now on,” he said. “It is ASEAN and China.”
The words came just as a fleet of 30 Chinese fishing boats were entering a reef in the Spratly Islands, which are also claimed by the Philippines, Vietnam and Taiwan.
By the final day of the summit, del Rosario left the ASEAN Regional Forum so frustrated he refused to speak, but, as he exited, he handed reporters a statement slamming “aggressive infringement” by a “powerful country” into the disputed territory.
“If left unchecked, the increasing tension that is being generated in the process could further escalate into physical hostilities, which no one wants,” the statement read, accusing China, though not by name, of dupli-city, intimidation, threats and the use of force.
The presence of US Secretary of State Hillary Clinton was seen as the counterbalance to China’s influence in the dispute.
While China wanted bilateral talks with each individual nation claiming the waters, it was expected Clinton would push multilateral talks. Her rhetoric during a press conference lasting little more than 10 minutes was not as strong as some would have hoped, however.
The US had seen some “worrisome instances of economic coercion and the problematic use of military and government vessels in connection with disputes among fishermen”, she said, but made it clear she would not weigh into the dispute itself.
As her press conference ended, news was reverberating around the Peace Palace that ASEAN had failed to agree to a common statement, or joint communique, for the first time in its 45-year history.
“You ask the participants why it is they are not able to speak with one voice; whether it is the Philippines, whether it is the chair, Cambodia, whoever it is,” Natalegawa, Indonesia’s foreign minister, said.
“But I think it is utterly irresponsible that we cannot come up with a common statement on the South China Sea. This is a time when ASEAN should be seen to be acting as one.”
Surin Pitsuwan, the secretary-general of ASEAN, called it a minor hiccup, but it was clear to most that ASEAN was divided – and its credibility was under threat.
In a turbulent week that followed, Natalegawa jetted around Southeast Asia to unite members and salvage the bloc’s reputation.
This “shuttle diplomacy” took him to Manila, Hanoi and Phnom Penh in the space of 36 hours – and later to Singapore – and resulted in the release of a statement on the South China Sea.
“The fact is, despite suggestions to the contrary . . . ASEAN remains united, ASEAN remains cohesive and, therefore, ASEAN remains able to fulfil its role in the central and driving seat in our region,” Natalegawa said while in Phnom Penh.
The 21st ASEAN Summit that followed in November promised all the big names. Like previous summits, traffic around the Peace Palace was diverted and schools were closed. The government vowed to sweep the streets clean of beggars and street vendors.
Evictees in a village next to Phnom Penh International airport painted huge SOS letters on their roofs to attract the attention of visiting US President Barack Obama and were arrested for it. Other protests were also shut down.
Russian President Vladimir Putin and UN Secretary-General Ban Ki-moon were missing, but China’s presence was again overt – on the eve of the summit it signed off on hundreds of millions of dollars in trade agreements with Cambodia and reiterated a desire to boost bilateral trade.
For a rare moment, however, it was agreement rather than disagreement that was making headlines.
The adoption of the long-awaited ASEAN Human Rights Declaration was met with opposition from civil society groups across the region that claimed the declaration would limit, rather than enhance, human rights.
And the timing couldn’t have been more trenchant. Obama’s visit, the first to Cambodia by a serving US president, came amid a storm of criticism directed at Hun Sen’s government for rights abuses, including the imprisonment of Beehive radio owner Mam Sonando.
According to US deputy national security adviser Ben Rhodes, the US president talked tough to Hun Sen behind closed doors.
“I would say the need for them to move towards elections that are fair and free, the need for an independent election commission associated with those elections, the need to allow for the release of political prisoners and for opposition parties to be able to operate [were all raised],” Rhodes said.
Prak Sakhon, Council of Ministers secretary and Hun Sen adviser, said the Prime Minister had told Obama the state of human rights in Cambodia had been exaggerated.
“The premier stressed there are no political prisoners in Cambodia, but politicians who had abused the law must stand trial,” he said.
November’s meeting again showed that it wouldn’t have been an ASEAN summit in Phnom Penh without the South China Sea dispute taking front and centre stage.
This time, Cambodia said regional leaders were in agreement not to “internationalise” disputes within the resource-rich sea – a day later the Philippines said no such agreement had been reached.
“This was not the understanding of both the Philippines and at least one other country,” del Rosario said.
Tensions simmered, but nothing came to boiling point. ASEAN released a statement, though not without Singapore pointing out that the initial draft had misquoted its leaders.
The South China Sea dispute – and not even the dispute itself, only questions of how to approach it – dominated discussions, divided ASEAN and ultimately defined Cambodia’s year as chair.
It remains to be seen how ASEAN’s “one community”, with special guests China and the US, fares when it travels next year to Brunei – one of the countries locked in the far-from-resolved dispute.
Narrowing the Development Divide in ASEAN: The Role of Policy
By Jayant Menon
Office for Regional Economic Integration
Asian Development Bank
 |
| The 20th ASEAN Summit, Phnom Penh, Cambodia |
Abstract
ASEAN
is divided. The most striking is the development divide that separates the
newer members (the CLMV countries) from the original ones (ASEAN6). More rapid
growth in the CLV since the 1990s, driven by trade, investment and other market
reforms, have reduced these income differences. While the development divide
has narrowed, huge gaps remain. Further narrowing of these gaps will require an
increase in the speed and the breadth of policy reforms. A gaping hole in the
policy landscape in ASEAN is the failure to address labor mobility adequately.
On-going demographic transitions will result in greater labor outflow. The
current policy void on labor migration not only limits the benefits from trade
and investment liberalization, but increases the cost of structural adjustment.
Although rapid growth has resulted in convergence, it has also increased polarization
within countries. This can threaten social cohesion, as well as the
sustainability of future growth. In order to make growth more inclusive, there
is a need to invest more in education and health, and to institute land reform.
Apart from directly reducing social and asset inequities, it will produce a
workforce more able to actively participate in the growth process and adapt to
structural change.
Keywords: ASEAN;
development divide; convergence; inequality; transition economies; labor
mobility
Narrowing the
Development Divide in ASEAN: The Role of Policy
1. Introduction
Arguably the most
striking characteristic of the ASEAN region is its great diversity, probably
more so than any other grouping in the world. Indeed, its economic, political,
cultural and linguistic diversity is greater than even that of the European
Union (see Hill and Menon, 2012). Partly as a reflection of the wide range of
differences that exist, economic diversity within the region is also vast. Not
only is it the most conspicuous, especially following the inclusion of Cambodia, Lao PDR,
Myanmar and Viet Nam (CLMV) as its newest members, it is also the most worrisome. ASEAN includes
two high income countries (Brunei
and Singapore), one upper middle-income
country (Malaysia), five
lower middle-income countries (Indonesia,
Lao PDR, Thailand, Philippines, and Vietnam)
and two low-income countries (Cambodia
and Myanmar).[1]
In 2011, the per capita income of Singapore was some 50 times that of Cambodia,
40 times that of Lao PDR, and more than 35 times that of Vietnam’s[2]
(Table 1). The average for the CLMV was less than a third of ASEAN’s average.
Although these differences are less striking when measured in purchasing power
parity (PPP) terms, they remain large
(Table 2) These economic differences have come to be known as the “development
divide”.
Members have committed to realizing an ASEAN Economic Community (AEC) by
2015. The third pillar of the AEC Blueprint is on Equitable Economic
Development, which aims to “address the development divide and accelerate
integration of Cambodia, Lao
PDR, Myanmar
and Viet Nam (CLMV) through the Initiative for ASEAN Integration (IAI) and
other regional initiatives." (para 7).[3] The reality is that neither the IAI nor other
regional initiatives will have the resources, or the ability, to address the
development divide. While aid can play a part, the solution must come from
within the countries itself. This will
necessarily involve the adoption of policies that promote rapid economic
development, and economic convergence,
There is evidence to suggest that the process of convergence has started
taking place within ASEAN, as the newer members begin to catch-up to the
economic conditions prevailing in the original member countries. Strong rates of economic growth since the 1990s,
driven by trade, investment and other market reforms, have reduced
differences in per capita incomes. This rapid growth has also been associated
with dramatic reductions in poverty. Notwithstanding these achievements, there
is still a long way to go however, and much more needs to be done before the
development divide is substantially narrowed.
Furthermore, while rapid growth in the CLMV has reduced per-capita income
differentials with the other ASEAN members, the distribution of these gains
have been uneven and income inequality within these countries has worsened. It
would appear that inter-country differences in economic conditions are being
narrowed at the same time that intra-country differences are being increased. All
kinds of within-country inequities have remained stubbornly high or have
increased, including across geographical regions (rural-urban), along ethnic
lines and across gender. What is alarming is the increase in polarization, both
economic and social, in these countries. These factors can threaten cohesion,
and pose major risks to social stability. High and\or rising income inequality
can also threaten growth itself, as well as the poverty elasticity of growth.
This paper examines the extent to which economic convergence within
ASEAN is occurring and the factors that are driving it. In analyzing the
determinants of convergence, we look closely at the role that policy has played
in the process. In particular, what are the gaps in policy that need to be
filled, and the new areas that need to be addressed, to ensure that convergence
continues? Finally, we look at whether the rapid growth required for catch-up
by the CLMV can occur without further polarization within their countries. We
begin in Section 2 with some theory, examining the conditions under which we
can expect convergence to occur. Section 3 examines the policy and the experience
relating to trade, investment and labor flows. We document the rapid growth in
trade and investment, and how they have contributed to rapid growth, and the
policies that have delivered these outcomes. The extent to which this growth
has contributed to convergence, or the narrowing of per capita incomes, is examined
in Section 4. Since the development divide is multi-faceted, we also examine
outcomes in relation to a host of other social indicators in comparative
perspective. In Section 5, we identify gaps in the reform agenda that still
require attention, and how future growth can be made more inclusive and therefore
less threatening to social harmony. A
final section concludes.
2. The Theory Underpinning
Economic Convergence
A long standing debate in economics centers on the question of whether
integrating economies necessarily converge in terms of per capita income,
productivity and technology. Some even trace this debate back to the Scottish
Enlightenment and the publication of an essay by David Hume in 1742 (Elmslie,
1995).[4]
Whatever its origin, and whenever it started, what is clear is that the debate
continues to rage and remains largely unresolved. Theory offers some insights. One
reason to expect convergence or catch-up is the difference in the marginal
efficiency of capital between poor and richer countries. With little access to
capital, workers in poor countries have relatively low levels of productivity
that can be raised substantially by increasing the amount of capital available
to them by even small amounts. Unlike countries with higher capital-labor ratios,
they have a longer way to go with capital accumulation before diminishing
returns sets in.
There is also the latecomer’s advantage hypothesis, where it is
postulated that late adopters of technology may be better positioned, because
they can avoid the mistakes, and learn and borrow in adapting technologies in a
way that benefits them more than early adopters, assuming that the technology
is available for purchase or is easily diffused. This was noted as far back as
Veblen (1915), although modernized by Gershenkron (1952) as “the advantage of
relative backwardness”. In certain instances, they are even able to leapfrog
early movers, further consolidating their advantage (for example, avoiding
costly investments in telephone lines and focusing instead on mobile telephone
infrastructure).
There is both anecdotal and empirical evidence to support these views on
convergence. It is likely that difference in the productivity of capital accounted
for some of the catch-up observed in the so-called newly Industrializing
Economies (NIEs) of East Asia –Hong Kong, Korea, Singapore, Taiwan- and when
their incomes per capita rapidly converged to those of developed countries
during the 1980s and most of the 1990s. Another oft-cited example is the rapid
growth of Japan and Germany during the reconstruction period after
the Second World War, compared with the United
States and the UK, for instance.
A common element across all of these countries is a policy framework
that was open and outward-oriented. Indeed, there is a vast body of cross-national
statistical evidence linking trade and growth, and a positive association between
economic openness and growth or convergence (Dollar, 1992; Edwards, 1998; Sachs
and Warner, 1995; Rodriguez and Rodrik; 2001; Bhagwati and Srinivasan, 2001;
Rodriguez, 2007). Greater openness appears to have played a huge role in this
growth story of convergence.
3. Trade,
Investment and Labor in the CLMV: Policy and Experience
The opening up of Cambodia, the Lao PDR, and Viet Nam to
trade and investment occurred almost concurrently in the late 1980s. Cambodia’s
government was the first to embark on a market-oriented reform process in 1985.
In the Lao PDR, the process of transition to a market-oriented economy began in
1986 with the implementation of the New
Economic Mechanism, a major program of economic reforms. The
opening of Viet Nam’s
economy to trade and FDI was part of doi moi (renovation) reforms
initiated in 1986.
3.1 Trade Policy
and Experience
Trade Policy
Although unilateral policy actions drove the reforms in the early
stages, greater economic cooperation through the GMS Program and then later
through membership of the Association of Southeast Asian Nations (ASEAN) and
its Free Trade Agreement (AFTA) also played an important role. While the GMS
program focused on the provision of much needed physical infrastructure,
membership of AFTA committed these countries to an ambitious program of tariff
reduction on trade with ASEAN members. Cambodia
and Viet Nam
became members of the WTO in 2004 and 2007, respectively, while, the Lao PDR is
at an advanced stage in negotiations for WTO accession. The most important contributions
of WTO membership were to enshrine the principles of Most-Favored-Nation (MFN)
and National treatment (NT), and to bind the reductions in tariff rates.
In all three
countries, the trade reforms focused on reducing technical barriers, mainly in
the form of tariffs, and converting quantitative restrictions into
tariff-equivalents (see Menon and Melendez, 2011, for details). Although some progress has also been made in
reducing trade costs through trade facilitation, this is where most of the
remaining barriers to trade exist.
Trade facilitation activities are taking place under the auspices of the
GMS Program and ASEAN, in addition to unilateral and bilateral initiatives. Apart
from hardware in the form of physical infrastructure, which increases
connectivity and reduces transport costs, the GMS program has also tried to
address complementary software issues by improving trade facilitation. A key
initiative towards this end is the Cross-Border Transport Agreement (CBTA), a
comprehensive multilateral instrument that supports a range of measures to
facilitate trade, which in turn promotes integration. These include: one-stop customs inspection; cross-border
movement of persons (e.g., visas for persons engaged in transport
operations); transit traffic regimes, including exemptions from physical
customs inspection, bond deposit, escort, and phytosanitary and veterinary
inspection; eligibility requirements for road vehicle cross-border traffic; exchange of commercial traffic rights; and
infrastructure, including road and bridge design standards, road signs, and
signals (ADB, 2009).
Majority of the transport-related Annexes and Protocols to the CBTA were
agreed and signed by 2004/2005, and Annex 6 on Customs Arrangements was agreed
and signed in 2007. Most of the GMS countries have also ratified the annexes
and protocols (Thailand has
ratified 14 out of the 20 annexes and protocols, while Myanmar has yet to ratify any of
the annexes and protocols).
Initial implementation of the CBTA has been achieved at various border
crossing points, and an additional agreement has been adopted on additional
border crossings for CBTA implementation, between the PRC and Lao PDR along the
North-South Corridor, and between Cambodia
and Viet Nam
along the Southern Economic Corridor (SEC). Agreement has been reached on
harmonized customs transit system (CTS), a core component of the CBTA. Implementation
of the CTS will be undertaken by a public-private partnership (particularly
guarantees by private sector organizations to customs in transit countries). A CTS
pilot project was established across the East–West corridor from Viet Nam to Thailand,
through Lao PDR, in mid-2009. Agreement has also been reached on a GMS road
transport permit system.
Apart from the CBTA, the Strategic Framework for Action on Trade
Facilitation and Investment (SFA-TFI), endorsed at the second GMS Summit in Kunming in July 2005,
likewise addresses issues in customs, sanitary and phytosanitary (SPS)
regulations and other border management concerns, and logistics development.
ASEAN has embarked
on its own set of initiatives to improve transport and trade facilitation in
the subregion. In 1998, ASEAN established the ASEAN Framework Agreement on
Facilitation of Goods in Transit (AFAFGT), which is similar to the CBTA in
intent and content. However, very little progress had been made in
implementing trade facilitation reforms up until the adoption of the ASEAN
Economic Blueprint in 2007. Included
in the Blueprint are several aspects of transport and trade facilitation,
including the harmonization and standardization of trade and customs procedures,
customs modernization, integration of national single windows into an ASEAN
single window (ASW), and harmonization of standards, technical regulations and
conformity assessment procedures. Complementing these initiatives are the ASEAN
Framework Agreement on the Facilitation of Inter-State Transport, the ASEAN
Framework Agreement on Multimodal Transport, and the Master Plan on ASEAN
Connectivity, which aim to reduce the cost of moving goods across ASEAN’s
borders.
At their 39th meeting held in
August 2007, the ASEAN Economic Ministers agreed to transform the Common Effective
Preferential Tariff (CEPT) for the ASEAN Free Trade Agreement (AFTA) into a
more comprehensive instrument and integrate ASEAN’s various trade-in-goods initiatives
under a single umbrella. This led to the signing of the ASEAN Trade in Goods
Agreement (ATIGA) in February 2009. ATIGA
addresses trade facilitation reforms by including the ASEAN Framework on Trade
Facilitation. Subsequently, ASEAN has developed the Trade Facilitation Work
Programme for 2009-2015.
These recent initiatives have provided the necessary impetus
for trade facilitation reforms to move forward. The implementation of the
AFAFGT and an ASEAN Customs Transit System (ACTS) has become a top priority and
work has since picked up speed. The Protocol to the AFAFGT has been completed,
feasibility studies have been carried out, a costing has been prepared and a
management environment has been proposed to which the Member States will
contribute staff. Nevertheless, the real test lies with actual implementation, and
ASEAN’s record is not generally good in this area.
Apart from these
initiatives under the GMS and ASEAN, CLMV countries have also been pursuing a
number of transport and trade facilitation reforms as part of their accession
to the World Trade Organization (WTO), or as parties to FTAs signed by
the ASEAN. These FTAs incorporate trade facilitation provisions and principles
which go beyond customs procedures, to include areas such the use of ICT,
adoption of international standards, and risk management, with some agreements
containing completely separate chapters or frameworks for trade facilitation
(Duval, 2011).
In addition, a number of bilateral road transport agreements have also been
adopted by neighboring countries in the sub region (ADB, 2010). The different
modalities being pursued runs the risk of duplication, inconsistencies and puts
pressure on limited human resources.
There is a need to focus on completing the multilateral framework, which
should hopefully encompass and supersede all these other initiatives.
Growth in Trade and Trade Openness
Although trade growth contracted in 2008 and 2009 as a
result of the Global Financial Crisis (GFC), in general, unilateral policy
reforms and greater economic cooperation have led to positive trade growth in
the GMS. With the exception of Myanmar,
trade openness has increased throughout the region, with trade as a percentage
of GDP above 100% in Thailand
and Viet Nam. Cambodia’s
trade openness fell sharply after the GFC, but recent data would show a marked
but slow recovery (Figure 1).
The direction of trade over the past two decades suggests an expansion
in GMS’ countries trade not only with the world, but especially among
themselves (Figure 2). Cambodia’s direction of trade may
be the only exception to this general trend. In the 1990s, Cambodia’s trade with the subregion
accounted for about one-third of its total trade, on account of log and timber
exports. However, this share has since declined, largely as a result of a ban
on log exports and the growing importance of the United States (US) and European
Union (EU) as export destinations. The PRC is also fast emerging as a major
source of imports. The increase in Cambodia’s
intra-GMS trade in the latter part of the 2000s could have been mainly the
result of falling demand for Cambodian exports in the US and the EU, as a result of the
GFC.
The larger GMS countries, Thailand
and Viet Nam,
have shown modest increases in subregional trade. As might be expected, these
countries trade predominantly with the rest of the world and therefore have
more diversified partners. Japan
continues to be Thailand’s biggest
trading partner, although Japan’s
share has been steadily declining in recent years and is likely to soon be
overtaken by the PRC. The PRC is already Viet Nam’s leading trading
partner, accounting for roughly 18% of its trade in 2010.
The share of intra-GMS trade in total trade has traditionally been higher
for the subregion’s smaller countries—the Lao PDR and Myanmar—reflecting both
transshipment arrangements and limited commercial penetration beyond the
immediate neighborhood.
Changing demand for export products has helped transform the structure of exports from the subregion. In Cambodia, Thailand,
and Viet Nam,
there is a clear shift in the export base away from primary commodities into manufactured goods. In Cambodia, this has been driven by garments
exports, which account for the bulk of Cambodia’s exports. In Thailand and Viet Nam, production fragmentation
trade has become a critical part of export dynamism, with the share of
machinery and equipment rising as a proportion of total exports.
However, while this shift towards manufactured goods has also led to a
movement up the value chain in Thailand
and Viet Nam, this has not
been the case for Cambodia,
where the garments sector remains predominantly low-skilled and
labor-intensive. Manufactured exports from Lao PDR and Myanmar likewise remain
predominantly labor-intensive and resource-based (Table 3).
3.2 FDI Policy and
Experience
FDI Policy
Prior to the
reforms in the late 1980s, all three countries shared a common distrust of FDI.
This perception has changed radically and all three are highly receptive to
FDI. Today, 100% ownership is allowed in most sectors, although each country
retains an exemption list that covers sensitive sectors. Procedures governing
the approval of investment projects have been streamlined and all three
countries provide attractive investment incentives (see Menon and Melendez,
2011, for details).
Growth in Foreign
Direct Investment
Along with trade, foreign direct investment (FDI) to the
subregion has also risen over the last two decades. In 2010, total FDI stock
amounted to $209 billion. Cambodia
and Viet Nam
have FDI stock-to-GDP ratios well above the subregional average. In contrast, Myanmar’s
openness to FDI has declined since 1998. Historically, Thailand has been the largest FDI recipient in
the region, but Viet Nam
has been catching up in the last several years (Figure 3).
The source country composition of FDI is characterized by a clear,
intra-ASEAN bias for the smaller GMS countries (Figure 4). Thailand has traditionally
accounted for the bulk of these inflows.
That trade and investment are growing hand-in-hand in the
subregion is no coincidence. Early signs of a trade-investment nexus are
emerging whereby trade not only encourages investment, but investment, in turn,
encourages trade—for instance, in Lao PDR, FDI in agriculture and forestry and
in mining and hydropower projects have contributed significantly to export
growth. This is a virtuous circle that links back to economic growth.
3.3 Labor Migration Policy and Experience
Labor Migration Policy
Unlike the reforms
relating to trade and investment, policy relating to labor flows remains
piece-meal or non-existent. Although
regional labor markets are becoming increasingly integrated, policy relating to
cross-border movements continues to lag behind. The gaps in policy relating to labor
flows exist in both sending and receiving countries, and both need to be
addressed. Therefore, the challenges for policy relate to the governance of labor migration, the protection of migrant workers, and the
harnessing of labor migration for economic development
Here too ASEAN has signed several formal
accords since 2000, including the January 2007 ASEAN Declaration on the
Protection and Promotion of the Rights of Migrant Workers, but implementation has been lackluster, to say the
least (Hill and Menon, 2012). However, intra-ASEAN labor flows occur
independently of these arrangements, and are largely market-driven, dictated by
large inter-country wage differentials and porous borders.
Labor Flows
Although
subregional labor migration has been occurring in the GMS for centuries, this
trend has increased markedly in recent years (Tables 4 and 5). It should be noted at the outset that there
appears to be significant amounts of informal flows within the region, and that
reported flows are likely to seriously underestimate the actual numbers. As
expected, Thailand accounts
for the bulk of total cross-border flows within the region, spurred by Thailand’s growing need
for low-skilled workers.
Migrant workers
are fast becoming an important resource in Thailand, with most studies
concluding that they contribute approximately one percent to GDP (International Migration Office Thailand, 2011). Again, given
apparently large but uncertain numbers of unregistered flows, this contribution
is also likely to be an underestimate. This trend is expected to increase over
time, although is it unclear what impact the establishment of the ASEAN Economic
Community (AEC) by 2015 will have on these flows as the AEC only deals with
movement of skilled labor.
In December 2009, there were 1.3 million registered migrants in Thailand from Cambodia, Lao PDR and Myanmar, accounting for roughly 42% of the total migrant population in Thailand. The majority of these migrants are male (55%) and employed in agriculture (17%), construction (17%), seafood processing (10%), and household work (10%) (Figures 5 and 6).
4. Economic
Convergence and the Development Divide in the CLMV
What is the experience in the CLMV with regard to catch-up or economic
convergence and narrowing of the development divide? Much higher rates of economic growth in the CLV compared to the rest of
ASEAN since the early 1990s has reduced gaps in real per capita incomes in PPP
terms (Table 2). Greater openness to trade and investment flows has
played a huge role in this growth story.
As Figure 7 shows, the growth in per capita incomes
in the CLMV countries has been amongst the highest in ASEAN. In 2000, the average real per capita income
of the CLMV was about a third of the average of the ASEAN6, while today it is
almost half. From Figure 8, using Thailand
as a reference point, we can see that real per capita income growth in the CLV
has been consistently higher than that of Thailand in the 2000s. As a share of
Thailand’s
real GDP per capita, we can see from Figure 9 that there has been significant catch-up
between 2000 and 2010. These data present clear evidence of economic
convergence between the CLMV and the rest of ASEAN. Despite these notable
achievements in narrowing per capita income differences, the gaps themselves
still remain quite large. In 2010, real per
capita incomes in the CLMV as a share of Thailand’s real per capita income
still ranged from around only 23% to 37%.
The rapid growth has also translated into dramatic
reductions in poverty. Irrespective of the measure of poverty, there have been
dramatic reductions across the board (Table 6). Nevertheless, the level of
poverty remains a concern in the CLMV when it has been reduced to below 10% in
the other ASEAN countries except for the Philippines
and Indonesia.
In all countries except Viet
Nam, most of the reductions in poverty have
taken place in the urban sector. By and large, the poverty challenge is one
rooted in the rural sector.
As noted earlier, the development divide is not confined to income
differentials; it covers a host of human development and social indicators.
Table 7 presents data on the human development index for about the last decade,
while Table 8 covers a range of health and education indicators, for ASEAN countries.
Again, there have been improvements in all indicators over this period in the
CLMV, and the changes have been more dramatic than in other ASEAN
countries. As with the income measures
however, and despite these dramatic improvements, differences in levels between
the CLMV and most other ASEAN countries remain stark. For instance, despite
large improvements, maternal mortality rates of close to 600 and 300 (per
100,000 live births) in Lao PDR and Cambodia, respectively, in 2008
remain a serious concern. Similarly, while literacy rates are above 90% in
almost all ASEAN countries, they remain below 80% in Cambodia and Lao PDR. In sum, while
marked improvements in living standards and human development outcomes in the
CLMV particularly over the last decade have been impressive, there is a lot of
room for improvement and challenges remain.
Various forms of inequality also characterize
the CLMV, as well as the other ASEAN countries (see Menon et al, 2011; ADO, 2012). From
Table 9, we find that income inequality as measured by the Gini coefficient
rose in the 2000s in Cambodia and Lao PDR, but fell slightly in Viet Nam. The
Gini coefficient in Cambodia has remained above 40% throughout the 2000s, a
threshold level considered to signify a highly unequal distribution. The same
is true for Malaysia, Philippines and Thailand. Both Lao PDR and Viet Nam
are not far behind, with Gini coefficients above 35%. The same pattern can be
observed for the income share held by the top 20% of the population, with Cambodia
recording the highest share in ASEAN at almost 52% of income. The income share
held by the lowest 20% fell in all three countries in the 2000s, further
accentuating polarization within these countries. The most recent data for
these countries point to the bottoms 40% of the population having between only
16% to 19% of income.
5. Remaining
Policy Challenges to Narrowing the Development Divide
It is worth reiterating that the challenge of narrowing the development
divide in ASEAN cannot be met by relying on programs of assistance alone, such
as the IAI or other regional efforts. In this regard, the recent proposal to enlarge
the ASEAN Development Fund by creating an ASEAN Convergence Fund (see ADBI
2012), still to be financed by voluntary contributions of members but managed
by so-called professionals may help but is unlikely to make a significant or
lasting difference. One reason is that unlike Europe, the better-off members of
ASEAN, from which most of the funds would presumably have to come from, are
either very small (Singapore and Brunei) or relatively small (Malaysia). The
richest country in ASEAN, Singapore,
does not even have a formal aid program. Although the CLV have received quite
substantial amounts of aid (grants and concessional lending) from both external
bilateral donors and multilateral agencies, these will begin to taper-off as
they converge anyway. In this sense, these countries are likely to be victims
of their own success, going forward. Therefore, any discernable and sustainable
narrowing of the vast gaps that continue to divide will have to come from more
rapid growth in these countries themselves.
In order to grow at a rate that allows catch-up further policy reforms
will be required. These relate to trade,
investment and labor, and each is discussed in turn, below. Finally, in order
to retain social cohesion, and ensure that future growth is sustainable,
policies that ensure greater inclusiveness need to be pursued.
Trade Policy
In relation to trade policy, there are two key outstanding issues that
need to be addressed. The first relates
to ensuring consistency in the tariff regime, while the other refers to the
need to hasten trade facilitation efforts in order to reduce trade costs. Since the first challenge has been discussed
in detail in Menon (2011) and Menon and Melendez (2011), we discuss it only
briefly here and focus on the second.
The CLMV countries, unlike ASEAN’s original members, have chosen to implement
their AFTA tariff reduction commitments on a minimalist basis, resulting in a
two-tier tariff system in each country with a different preferential and MFN
rate for each tariff line. In other words, they have chosen not to
multilateralize their AFTA preferences, and not to offer them to non-members on
a non-discriminatory basis. This not only reduces the benefits while increasing
the potential for trade diversion, it also increases the burden on a weak and
over stretched trade and customs bureaucracy. As members of ASEAN, they are
also party to at least 6 ASEAN+1 FTAs so far, with more surely to come. It is
simply fantastic to expect these countries to effectively implement a system
whereby seven or more tariff rates can apply to each tariff line, depending on
rules of origin that can also differ by source. Therefore, the CLMV countries
should follow the original ASEAN members and multilateralize their AFTA and
various ASEAN+1 preferential tariffs and the sooner the better.
Next we turn to the main challenge on the trade policy front, that of
trade facilitation. Despite the achievements on this front described in Section
3.1, a number of critical challenges continue to limit the subregion’s
potential for reaping further gains from trade. Data on trade costs and
logistics reveal considerable variation in trade facilitation and logistical
performance across the GMS countries, with Thailand and Viet Nam performing
better than the CLM countries, highlighting the need for the latter to catch up
with their neighbors (Tables 10 and 11).
The implementation of the CBTA and other such reforms continue to face a
number of challenges, such as slow progress in the exchange of traffic rights;
weak procedures for border clearance and insufficient investments in border
infrastructure for goods processing; and weak institutional mechanisms for
supporting transport and trade facilitation. Setbacks in implementing the CTS,
in particular, have been cited as an impediment to implementation of CBTA in
every country (ADB, 2010)
The need to strengthen implementation of the CBTA and other
trade facilitation reforms was highlighted at the Third GMS Summit in March
2008, where leaders called for greater focus on “softer” aspects of regional
cooperation in GMS. More concretely, in 2010, the 16th GMS
Ministerial Conference endorsed a comprehensive medium-term Program of Actions
for Transport and Trade Facilitation (TTF), encompassing both (i) transport
facilitation, by enhancing exchange and implementation of traffic rights,
improving custom transit systems, and strengthening the road transport
industry; and (ii) trade facilitation, by enhancing coordinated border
management, strengthening sanitary and phytosanitary standards, and developing
the logistics sector.
Foreign Investment and Labor Migration Policy with
Shifting Demographics
Over a longer run
the benefits from trade liberalization will be considerably larger if
accompanied by reforms in other sectors.
For instance, if the movement of factors of production such as capital
and labor is also freed up, the gains from trade liberalization will be
magnified. This will occur as investors respond to the changed structure of
incentives with new capital investments and entirely new industries develop in
response to new opportunities (see Warr et
al, 2010).
The importance of factor mobility takes on an additional dimension in
ASEAN when we consider differences in demographic profiles. ASEAN countries are
comprised of populations that can be described as either ageing or youthful, especially
given shifts expected to occur over the next decade or so. With countries
facing an ageing population, there will be a decrease in labor supply going
forward as a result of a ‘shrinking’ labor force, while countries with a
relatively young population will experience an opposite phenomenon with a
‘bulging’ labor force. Over the next decade or so, the CLV countries will
experience bulging labor forces, as will Brunei
and the Philippines,
while the other ASEAN countries will likely experience shrinking ones. The ageing phenomenon will also characterize
the labor forces of the East Asian countries of China,
Japan and Korea (see
Menon and Melendez, 2010).
Many of the
countries facing the ‘ageing’ phenomenon are also countries that run sizable
current account surpluses, reflecting the fact that domestic savings are much
higher than domestic investment. Many of
the countries facing the opposite phenomenon of an impending bulging of working
age populations are also countries that run sizable current account deficits,
where domestic savings are insufficient to meet domestic investment
requirements.
There are benefits
to countries with both relatively high and low capital-labor ratios in encouraging
cross-border movement of factors that tend to equalize their relative prices.
Through FDI flow for instance, capital-labor ratios across so-called
‘shrinking’ and ‘bulging’ countries will adjust, as factor prices tend towards
being equalized and, in the process, promote growth in both investing and
recipient countries. It will help
overcome the labor shortage problem in ‘ageing’ countries and at the same time
help in absorbing the surplus labor in ‘bulging’ countries. This is already
happening, but the demographic changes expected over the next decade suggests
that the role that FDI could, or indeed should, play will be significantly more
important in addressing imbalances in labor markets.
As described in
Section 3.2, the CLV countries have been receiving quite substantial amounts of
FDI as their investment climates improved and their reform programs matured. There
is considerable amount of capital mobility in ASEAN already, mostly in the form
of inflow from outside the region, but both intra-regional flows and outflows
have also been growing, albeit from a
small base. The AEC also aims to further
liberalize these flows in its pursuit of a single production base. Further increases in FDI flow will probably
require significant improvements in the investment climate of the CLMV
countries from here on, further improvements will involve addressing structural
and institutional issues, such as strengthening of legal and regulatory
frameworks, improvements in governance and the protection of property rights,
deepening of financial markets, and political and macroeconomic stability. These are long-term challenges and although
the pay-off is likely to be high, they will take time.
In the interim, it
would be equally beneficial if labor could move more freely to equalize these
differences between countries with shrinking and bulging labor forces. Greater
labor mobility, if properly regulated and controlled, can be to the benefit of
both sending and receiving countries. Arguably the biggest disappointment of the
AEC blueprint is its failure to deal adequately with labor mobility. National governments also lack an adequate legal and policy framework when it comes to governing
labor flows. As a World Bank (2006) study notes, the CLMV countries lack the
capacity to effectively manage the mass export of labor and to protect the
rights of their migrant-nationals abroad. Similarly, receiving countries in
other parts of ASEAN, Malaysia
and Thailand
in particular, have fairly weak migration policy frameworks, which often have
been implemented hastily as an ‘after-the-fact’ response to the arrival of
large numbers of migrants. ASEAN governments in both sending and receiving
countries face an urgent need to adopt policies that can help manage the
increased flows in an efficient but equitable way. Therefore, improving policy
frameworks relating to labor movement, whether transitory or migratory, is in
the interest of both exporting and importing countries, and can raise the
benefits to both while protecting the rights of foreign workers and reducing
the security risks associated with unrecorded inflows of labor.
As noted, the
focus of the AEC is on liberalizing flows of skilled labor, and even here there
are difficulties in interpreting what this is likely to amount to in practice.
But most of the labor in most of ASEAN is low- or semi-skilled, and this
population has been ignored in the reform agenda. In fact, the overwhelming share of both
recorded and unrecorded labor flows within ASEAN is in low-skilled labor
(Section 3.3). This extends from domestic helpers in Malaysia
and Singapore (from the Philippines and Indonesia),
to agricultural labor in Malaysia
(from Indonesia) and Thailand (from CLM) to various service sectors
such as construction in Malaysia
and Singapore and food
processing in Thailand.
Further liberalization of official flows, combined with efforts to
control informal flows and bring them into the formal arena, can yield
substantial mutual benefits. Not only can increased labor mobility
substantially increase the benefits that can be expected to accrue from trade
liberalization, it can also reduce adjustment costs in sectors that are
negatively affected by such reforms. Restrictions on
labor mobility during period of structural adjustment or reform tend to make
individual regions\countries income per capita more divergent. As World Bank
(2011, p.48) puts it, “(i)mpediments to migration, whether ethnic, social,
economic, regulatory, or geographic, will only accentuate inequality”.
There is another aspect to the facilitating role that labor mobility can
play in the adjustment process in the CLMV. The CLMV countries face nominal
rigidities to varying degrees when it comes to having an exchange rate that can
operate as an adjustment mechanism. This
is a result of dollarization and the multiple currency systems that prevails,
to varying degrees, in these countries (see Menon, 2010). While Cambodia is almost completely dollarized, Lao
PDR is probably only half so but both baht and dollars are used in addition to the
locally-issued kip. Vietnam
has the lowest share of dollarization but exchange rate uncertainty resulting
from macroeconomic instability has resulted in a switch to gold as a store of
wealth. In Myanmar,
the government is trying to unify a multiple rate system and the first steps
towards a managed float have been implemented.
In this context, the nominal exchange rate of these
countries may not adjust fully, or quickly, to economic disturbances or shocks.
The real exchange rate movements
required to move the economy back toward equilibrium following an economic
shock will have to be induced by price changes rather than nominal exchange
rate changes. This will have to involve changes in the rewards paid to factors
of production, and it is most likely that wages will have to bear the brunt of
this adjustment (Menon, 2008).
But nominal wages may be sticky downwards. If nominal wages
are initially close to subsistence levels, then any downward adjustment in
response to an external shock will be difficult. Thus, the adjustment mechanism
that requires changes in wages instead of changes in nominal exchange rates is
a relatively inefficient instrument. It could result in social costs involving
increased unemployment of resources such as labor and capital.
Given this situation, it is even more important that there is sufficient
amount of labor mobility in order to reduce the adjustment pressures and
minimize economic and social costs. This is not to deny that labor migrant does
not involve social costs or disruption to the sending countries. The
dislocation and related costs associated with out-migration, while not
insignificant, is likely to be a lot lower than that of rising unemployment at
home.
Is convergence
with cohesion possible?
While the benefits from freeing up labor movements can be substantial,
this is not a panacea and needs to be considered as part of a broader
development program. Increasing labor mobility alone is also unlikely to
significantly reduce disparities within or between countries, and needs to be
accompanied by other policy interventions. In this regard, we, turn finally to
examining how future growth in the CLMV can be made more inclusive. As noted in
the Introduction and described in Section 4, while rapid growth in the CLMV has
reduced gaps in per-capita income in ASEAN, the distribution of these gains
have been uneven and many forms of within-country inequality have remained
stubbornly high or have worsened. What is more disturbing is the increase in
polarization in these countries, both economic and social. High and\or rising
inequality and polarization poses risks to social stability. They can also
threaten growth itself, as well as the poverty elasticity of growth. How can
these consequences of rapid growth be avoided, or at least minimized?
A good starting point in trying to answer
this question would be to identify the factors driving the inequality in these
countries. Many of the factors driving rapid growth in the CLMV can also be
linked to those driving inequality. The literature on growth and inequality identifies
three key elements that tie growth and inequality together. These are the
processes of technological change, globalization, and market-oriented reforms.
The link between inequality and growth is derived from the fact that all three
are also considered as the primary drivers of growth. ADB (2012) examines
inequality in Asia in detail, and identify these three processes as the key
drivers for the rising inequality in developing Asia. They note that these
forces have tended to favor owners of capital over labor; high-skilled over
low-skilled workers, and urban and coastal areas over rural and inland regions.
All three factors are present in the CLMV, although globalization and market
oriented reforms are the dominant ones.
Reducing growth in order to reduce inequality
is not a sensible policy option.
Similarly, reversing the trend towards greater openness and market
orientation is not the way to go in order to redress inequality, if these
factors are the main ones driving it. If convergence at the expense of internal
cohesion is seen as a hollow victory, then so too must the preservation of
internal cohesion at the expense of convergence. How can we strike a balance
between the two, where convergence can continue without further threatening
internal cohesion? In order to answer this question, it is useful to examine
the experience of some of the NIEs, Korea and Taiwan in particular, from the
1960s, when they underwent a dramatic transition. The switch from highly
interventionist import-substitution programs to more market-friendly
export-oriented reforms is a conversion that bears a lot of resemblance to that
being undertaken by the CLV countries in their transition towards market
economies. Their experience highlights what can work rather than what cannot,
since a distinguishing characteristic of the economic performance of the NIEs
is the relatively equitable distribution of gains from rapid economic growth.
The rapid and sustained growth in these economies since the late 1960s has been
accompanied not only by sharp reductions in poverty but across-the-board
improvements in living standards that significantly raised the welfare of the
majority. Income distribution has remained more equal than in other countries
at a comparable stage of development. It is widely recognized that income
inequalities remain low in the NIEs (see, for instance, Balassa and Williamson,
1987; Fei et al., 1979; Wood, 1999).
What are the factors that have produced these outcomes in the NIEs, and
what lessons do they hold for the CLMV countries? A number of key features and
policies stand out. The first
distinguishing feature of these NIEs is the initial conditions relating to a
host of social indicators, particularly education but also health. The initial
endowment of human capital is a critical factor in determining the ability of
the workforce to fully participate in the economy, and thereby share in the
benefits of growth. Although initial educational and skill levels in the NIEs
were not exceedingly high, near universal access to quality primary and
secondary education, combined with effective vocational and on-the-job training
facilities, resulted in a productive workforce. With this they were able to
avoid the skills shortage or mismatch that currently exists in the CLMV, and
other countries trapped in middle-income status. Therefore, an important
barrier to be overcome in the CLMV is the quality of primary and secondary
education, and vocational training. Increasing access to health care services
must complement these changes.
This feature of the labor force, when combined with a conducive
investment climate and sound macroeconomic fundamentals, accounts for the next
determining factor. In this environment, these countries could exploit their comparative
advantage, and benefit from opportunities arising from labor-intensive light
manufacturing activities. Given the fact that labor is the most widely
distributed factor of production in the economy, employment expansion and the
subsequent increase in real wages contributed to reductions in both poverty and
income inequality as the NIEs developed (Balassa and Williamson, 1987; Fei et
al., 1979; Athukorala and Menon, 1997). As noted earlier in discussing FDI
flows however, the longer-term institutional and structural constraints need to
be addressed in order to improve the investment climate, and thereby allow the
forces of comparative advantage to absorb the burgeoning pool of low skilled
labor.
The third factor relates to distribution of land ownership and asset
inequality. Deininger and Squire (1998) show that asset inequality, more than income inequality, can undermine not
only growth but the effectiveness of pro-poor policies. Korea, Taiwan and Japan
had instituted significant land reforms which resulted in a fairer distribution
of this critical asset, especially for low income agricultural households,
before their liberalization programs began. Indeed, this was a crucial factor
that facilitated the transfer of labor from agriculture to manufacturing during
the ensuing structural transformation. This is not the case in the CLMV
countries, and land reform remains an unfinished item on the policy agenda of
these countries until today. Cambodia
presents a useful example that illustrates this general problem. The lack of land titling has resulted in
widespread deforestation as well as ‘land-grabbing’. In an ironic twist, rather
than enjoying in the benefits from the land price boom, it has often made some
of the most vulnerable worse off.
Without clear or proper titles to prove ownership, many of the poor have
been evicted or forced off their land.
The experience from the NIEs, especially Korea and Taiwan, suggests that
all of these conditions or policies need to be in place before convergence with
cohesion may be possible. It would
appear that a sub-set of the above, rather than a full complement, is unlikely
to work to produce the desired outcome. Therefore, it is important that the
CLMV pursue all of these policies in a comprehensive and simultaneous manner if
it is to achieve growth with equity. These are necessary conditions, and other
elements of inclusive growth (see Menon et
al., 2011) would also need to be incorporated in the reform program to
ensure the desired outcome.
In summary, the experience from the NIEs suggest that the rapid growth
required for catch-up by the CLMV can only occur without further polarization
within their countries if a number of necessary conditions are
simultaneously met. The first relates to
the need to invest in social infrastructure, especially education but also
health, in order to produce a workforce more able to participate in the growth
process. Second is the need to improve
the investment climate, to increase capital inflow and labor absorption, along
comparative advantage lines. Third is the need for land reform, to directly
redress asset inequality, and to enhance incentives and productivity in
agriculture, and facilitate factor transfer following structural adjustment. These
necessary conditions need to be complemented with the other elements of an
inclusive growth strategy in order to ensure convergence with cohesion.
6. Conclusion
ASEAN is divided. The most striking is the development divide that
separates the newer members (the CLMV countries) from the original ones
(ASEAN6). Although the development divide is multi-faceted, its most
conspicuous manifestation lies in differences in per capita incomes. More rapid rates of economic growth in the CLV since the
1990s, driven by trade, investment and other market reforms, have reduced
these income differences, while dramatically reducing poverty. While the
development divide has narrowed, huge gaps remain.
Further narrowing of these gaps will require an increase in the speed
and breadth of policy reforms. With trade, the focus needs to shift to
behind-the-borders measures that reduce trade costs through transport and trade
facilitation. A gaping hole in the policy landscape in ASEAN is the failure to
address labor migration adequately. Furthermore, on-going demographic
transitions will require greater capital inflow or labor outflow if massive
unemployment is to be avoided. Capital inflows will only increase if there are
substantial improvements in the investment climate. These changes will take
time and since absorptive capacity is currently nearing its limit, it is an
issue for the long run. Greater labor mobility will occur in the interim, but
will require effective policy frameworks to be developed in both sending and
receiving countries, if it is to be regulated. It would also help if a regional
agreement that also deals with low skilled labor could be struck. The current
policy void on labor migration not only limits the benefits from trade and
investment liberalization, but increases the cost of structural adjustment. For
the CLMV, the absence of a functioning exchange rate mechanism due to varying
degrees of dollarization increases the importance of labor mobility in
adjusting to economic disturbances or other shocks.
[1] This World Bank classification masks significant variation within the
groupings; for instance, Lao PDR crept in to lower middle-income status in
2010, while Vietnam did so in 2008, and both these countries are situated at
the lower end of this scale compared to the others.
[2] This multiple would be highest for Myanmar, perhaps 60 or more, but
data is particularly sketchy. Continuing with Singapore
as a reference, per capita income was five times Malaysia’s,
while Malaysia’s was four
times that of the Philippines,
while Philippines’
was about twice or more of that of the CLMV countries.
[3] While we try and cover all
four countries of the CLMV grouping as much as possible, we are sometimes foced
to omit Myanmar
and focus on the CLV when the data are either incomplete or unusually
inconsistent.
[4] Elmslie (1995) claims that the ensuing 'rich
country-poor country' debate--between David Hume on the convergence side and
Josiah Tucker on the nonconvergence side--represents one of the first major
doctrinal debates in economics.
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Strengthening ASEAN's Roles in a Difficult World
By William H. Overholt
"The secret of success for ASEAN is to be very clear about the strengths and limits of the organization, to be very clear about the great challenges of our day, and to make contributions that exploit ASEAN’s formidable, albeit subtles, strengths."
"The secret of success for ASEAN is to be very clear about the strengths and limits of the organization, to be very clear about the great challenges of our day, and to make contributions that exploit ASEAN’s formidable, albeit subtles, strengths."
It’s a great honor to speak to you today. It’s also humbling to address leaders of an organization that
has accomplished so much and whose leaders have spent many years thinking
deeply about what ASEAN can accomplish.
ASEAN’s strengths
ASEAN has of course gradually constructed an increasingly integrated zone of freer trade and freer investment—never as quickly or as thoroughly as its leaders wished, but with a degree of success that has been very valuable. That has enhanced the prosperity of Southeast Asia’s people. Just as important, over the years ASEAN dialogues have maintained a sense of regional identity, bridged potential misunderstandings, and avoided unnecessary conflicts. In subtle but decisive ways, they have prevented big power dominance of the region and enhanced the ability of the main countries to defend their territories and interests. They have made ASEAN a vital balancing force in a world of big powers, as well as a thought leader and important voice in the world’s emerging markets and in global trade talks.
ASEAN’s strengths
ASEAN has of course gradually constructed an increasingly integrated zone of freer trade and freer investment—never as quickly or as thoroughly as its leaders wished, but with a degree of success that has been very valuable. That has enhanced the prosperity of Southeast Asia’s people. Just as important, over the years ASEAN dialogues have maintained a sense of regional identity, bridged potential misunderstandings, and avoided unnecessary conflicts. In subtle but decisive ways, they have prevented big power dominance of the region and enhanced the ability of the main countries to defend their territories and interests. They have made ASEAN a vital balancing force in a world of big powers, as well as a thought leader and important voice in the world’s emerging markets and in global trade talks.
Most importantly, in my view, ASEAN’s internal dialogue has spread
the lessons of the Asian economic miracle. Indeed the ASEAN dialogue is a large part of the
reason why the successes of a few countries spread and became an Asian miracle
rather than a scant patchwork of a few successes in a quilt of failures. Now those lessons are spreading to Myanmar
and others.
The importance of this dialogue, this sharing, is often
unappreciated in the rest of the world.
For instance, during the George W. Bush administration, Washington
foreign policy leaders were dismissive of ASEAN as a “talk shop” that didn’t
set legal norms, didn’t take decisive foreign policy actions, didn’t do much
except talk. So, faced with competing
demands for their attention especially in the Middle East, they downgraded U.S.
representation. Recently that error has
been reversed, and that reversal is far more important than putting a few
soldiers in
Australia. ASEAN dialogue is
consequential for ASEAN and for the world.
The most important thing ASEAN can do to strengthen its role
is continue to reinforce its traditional missions, moving toward freer trade
and investment and more common standards,
pushing neighbors and the world to join that effort, and continually
enhancing Southeast Asia’s sense of common interests and a shared fate.
ASEAN’s Limits
ASEAN’s Limits
ASEAN’s strengths come with inherent limits. By choosing to embrace the entire region, ASEAN has chosen breadth over depth and
decisiveness. Diversity and a rule of
consensus mean that ASEAN will never be NATO or NAFTA. In many areas ASEAN members will not move at
the same pace. They will not create
comprehensive treaties. They will not
conduct controversial, decisive interventions. Acknowledging this does not mean
that ASEAN will be unimportant. The people of most ASEAN countries are more
prosperous because of the subtle, gradual sharing of lessons within ASEAN, and
as a result countries are more stable.
The international position of the region is safer. Asia and the world are different because ASEAN
has created sharing relatively subtle sharing mechanisms and has developed
imperfectly but importantly shared attitudes and postures that are not
enshrined in grand treaties.
Indeed, one secret of ASEAN’s success is that it has
implicitly accepted the consequences of its choice of breadth and diversity
rather than narrow membership and decisiveness.
The EU made the same strategic decision to choose breadth but has not
accepted the implications. The EU
decision to adopt a common currency in a region that is far too diverse
economically, and unready to unify politically, has brought Europe to the edge
of catastrophe. The European effort to
play a role in foreign affairs that they are not structured to play has
entailed repeated humiliation. This is
an important lesson for ASEAN.
Continually striving for greater unity and decisiveness is a worthy goal
and indeed a prerequisite for greater influence in the future. But it would be potentially disastrous to
make the error that the EU has made by creating policies and institutions that
are inconsistent with its structure.
Most notably in this regard, there has been an ongoing
effort, often spearheaded by one of the bigger powers, to create a common Asian
currency. The time may come for that,
but the lesson of the euro is that there are decisions which, although
admirable in intent, can easily wreck an institution. ASEAN has survived and
achieved a great deal, albeit often slowly and informally, because its policies
have embodied its strengths while recognizing its limits.
ASEAN’s New External Environment
ASEAN’s New External Environment
Like any organization, ASEAN can enhance its role only if it
has a clear understanding of the challenges it faces. ASEAN’s international environment has been
changing quickly, more quickly in my view than our understanding of it. The most prominent features of this new
environment are:
·
The Rise of China
·
The Decline of Japan
·
The Rise of Resource Issues
·
The Emergence of an Ideological United States
Let me say a few brief things about each of these
developments, at the risk that space constraints constrain elaboration of
important nuances.
The rise of China. Too much has been written about the rise of
China, but usually with insufficient nuance.
China’s success obviously enhances its military power, economic
influence and diplomatic weight. But
other, equally important things are influencing China’s role. Like Japan a generation ago, China has been
successful enough to develop a sense of hubris about being a great power, but
it still has much of the mentality of a small power. Hence, to take one prominent example, it has
more ability throw its weight around in the South China Sea, but in decisive
ways it still behaves like a small power. In particular, it does not yet accept
that a big power has a disproportionate responsibility to take leadership in
solving problems rather than just asserting claims in the same manner as
smaller powers. In this transitional
moment it combines great influence, excessive confidence and limited
willingness to accept the burdens of leadership.
Similar lags between influence and acceptance of
responsibility arise in many issues of economic policy, from currency to
intellectual property. Any emerging
power will experience such leads and lags in its international behavior, but in
China’s case the problem is exacerbated by the emerging weakness of China’s
central leadership. For the first two
decades of reform China’s leadership consistently centralized. However, the past decade has seen rising
power of big economic interests, the provinces, netizens and the military at
the expense of central decisiveness.
Moreover, when the leadership changes, there is now a terrific factional
struggle to obtain the support of such constituencies for power in the new
administration. The result is a foreign
policy that, for instance, cannot easily compromise territorial waters disputes
in the same way it was able to compromise most of its land border issues.
If China’s current behavior were a straightforward matter of
assertive expansion in the manner of Bismarck’s Germany or pre-war Japan, it
would entail equally straightforward resistance on ASEAN’s part. But the combination of power assertion,
immature power, and leadership vulnerability requires an equally complex
strategy by ASEAN countries in standing up for their own national
interests. ASEAN is much better
positioned to understand and cope with this complexity than more distant powers
like the U.S., which may be more susceptible to simplistic assumptions and
abstract realist theories about China’s behavior. By responding with more nuance, and by
serving as an intermediary, ASEAN can enhance its influence and gain the
respect of all the big powers.
The decline of Japan. Japan’s decline is creating problems just as
difficult for smaller Asian countries to manage as China’s rise. Japan has experienced two lost decades
economically and, with the exception of the Koizumi era, almost two lost
decades of political leadership. To
recover, Japan needs a major restructuring of its economy to achieve more
competition at home and greater globalization of its trade, investment, labor practices
and regulatory standards. Any potential
leaders who would move Japan in this direction, for instance by liberalizing
and modernizing Japan’s agriculture policies, are blocked by powerful interest
groups. On the other hand, any leaders
who do not progress toward recovery are rejected by the public. The result of this contradiction is
protracted economic decline and annual turnover of political leadership.
Blocked from moving forward, Japan’s leadership predominantly looks to the
past. The reactionary right wing
nationalists exemplified by Prime Ministers Abe and Aso seeks restored national
dignity by reinterpreting past history in a way that offends the sensibilities
of neighbors who were invaded and mistreated by Japan. In a very different way, the DPJ’s first
Prime Minister, Hatoyama, looked backward by rejecting globalization proffering
a view of an idyllic village to be Japan restored by wasteful subsidies for
unneeded rural post offices and
infrastructure. In a
country with some of the best education, technology, organizations, and
standards of civility of any nation in human history, not one top political
leader has offered the Japanese people a positive, reformist vision of the
future.
This syndrome of decline hurts not only Japan but also its
neighbors. The historical revisionism
stirs up old resentments with neighbors.
The right wing nationalism, which seems to be reviving after losing
favor in the first decade of this century, gratuitously exacerbates territorial
conflicts with Korea, China and Russia, and it renders politically unthinkable
any compromise solutions.
In addressing this troubled Japan, China is stuck in a mood of populism, nationalism and leadership weakness; Russia has tried several times to compromise and has given up in frustration; and Korean nationalism has been provoked. The U.S. is stuck in Cold War attitudes that lead it to blame everything on China, even when Japanese unwillingness ever to compromise, together with its gratuitous reopening of old wounds (Shimane province’s assertions over Tokdo/Takeshima,, Maehara’s decision to prosecute Japanese fishermen under domestic law, Ishihara’s decision to purchase the Senkakus) are at least as problematic. ASEAN subtlety and complexity could offer a more effective way to deliver a message to Japan that the path to national success lies through the kinds of reforms that many ASEAN members have undertaken, often in the face of serious domestic political difficulties, and that historical revisionism, diplomatic rigidity and gratuitous conflicts will just worsen Japan’s problems.
In addressing this troubled Japan, China is stuck in a mood of populism, nationalism and leadership weakness; Russia has tried several times to compromise and has given up in frustration; and Korean nationalism has been provoked. The U.S. is stuck in Cold War attitudes that lead it to blame everything on China, even when Japanese unwillingness ever to compromise, together with its gratuitous reopening of old wounds (Shimane province’s assertions over Tokdo/Takeshima,, Maehara’s decision to prosecute Japanese fishermen under domestic law, Ishihara’s decision to purchase the Senkakus) are at least as problematic. ASEAN subtlety and complexity could offer a more effective way to deliver a message to Japan that the path to national success lies through the kinds of reforms that many ASEAN members have undertaken, often in the face of serious domestic political difficulties, and that historical revisionism, diplomatic rigidity and gratuitous conflicts will just worsen Japan’s problems.
The rise of resource issues. New technologies have made it easier to exploit
seabed resources while rising demand from China and India has provoked fears
that needed resources might become unavailable.
The new technologies do force us
to answer the question of who will have the right to exploit the resources. But the conflation of resource availability
with ownership reveals dangerous confusion.
Resolving this confusion may reduce the risk of conflict.
First, there is little likelihood of any prolonged physical
scarcity of energy or any other major resource.
Historically, proven reserves have continually expanded even while
resource usage grew enormously. Prices
may rise sharply. Military interdiction
may interrupt supplies for a time. But
in the absence of major war, absolute scarcity of any vital resource is
unlikely. In peacetime the key to
availability is having the money to pay the current price. In wartime, vulnerability to military
interdiction of supply lines has no connection to ownership.
Ownership of resources is not automatically linked to
availability. When China bought rights
to oil in Angola, it initially assumed that it would just load the oil into tankers
and send it to China. But Angola said,
no, ownership conferred a right to an appropriate share of the profits from
selling the oil, not necessarily a physical right. Ownership mainly affects profit or loss, not
access. On the other hand, if a country
owns resources that are part of its own territory, then it would have the
theoretical right to refuse sales of those resources to some other country,
just as for instance India and Indonesia have temporarily prohibited exports of rice. Short of general war, for most resources
exercise of that right would at most cause a temporary price rise or momentary
inconvenience. Exceptions would be a few
extreme cases, such as rare earths, where China controls most of the world
supply. For oil or iron, the buyer
would simply buy on the world market. If there were a war, once again vulnerability to
interdiction would have little connection to ownership.
In short, disputes over ownership of seabed or territorial
waters resources mainly affect profit or loss, or ability to manage resource
conservation, rather than vital availability.
Recognizing this does not solve any of the disputes, but it means the
stakes at issue are mostly financial, not national security. Prior to resolution of the sovereignty
issues, ASEAN could press beyond joint exploitation to an agreement that
resources would be sold on the open market.
Ultimately the most serious threat to resource availability is
a protracted era of confrontation over resource ownership in the South China
Sea. It is therefore strongly in
everyone’s interest to see these conflicts resolved, and it is
counterproductive to embrace rigid positions that ensure the perpetuation of
conflict.
ASEAN can play a huge role in defusing these resource
conflicts by speaking clearly about the
difference between ownership and availability and by adopting policies that
enhance the distinction.
The emergence of a more ideological
United States. During most of the Cold War era,
the U.S. was a highly pragmatic power while China was a highly ideological
power. Cold War imperatives forced the
U.S. to be pragmatic, for instance accepting the authoritarianism of Park Chung
Hee and Chiang Kai-shek because they stabilized their countries, and cutting a
deal with Mao Zedong in order to counter-balance the Soviet Union. Moreover, U.S.domestic politics was relatively centrist, with the
leaders of both the Republican (Eisenhower and Rockefeller Republicans) and
Democratic parties coming from their centrist elements. China under Mao pursued highly ideological
policies at home and proselytized its form of communism through subversive
movements all over the world.
Today China’s policies are highly pragmatic, following Deng
Xiaoping’s maxim that it doesn’t matter
whether a cat is black or white, only whether it catches mice. China does not proselytize its communist model
anywhere in the world, but the U.S. and EU proselytize democracy intensely ,
arguing that U.S.or European style democracy provide the only appropriate forms
of government in virtually all circumstances.
Aid and political support are increasingly tied to this criterion. The governments that saved South Korea,
Taiwan and Indonesia from instability and potential collapse would have far
greater difficulty obtaining aid and political support today, even though in
the cases of Indonesia and South Korea the early democracies proved fatally
flawed. While U.S. presidents have so
far continued to come from relatively centrist tendencies, demographic and
electoral district changes have combined to bring to power far more ideological
Congressional leaderships in both parties and have virtually eliminated
centrist leaders. The ideological
strain in U.S. policy has many consequences, but is perhaps best typified by
the period of intense anger toward China because of its investments in Sudan
and trade with Iran, while India continued to be praised despite virtually
identical policies. (The “Chinese” oil company
in Sudan is a joint venture with India, and India has done far less than China
to support humanitarian efforts in the country.)
Ideological leaders left and right in Congress share
antagonism toward China to a degree that conflicts with the centrist policies
that, since Nixon, U.S. presidents of
both parties have consistently pursued.
So far, presidential policy continuity has prevailed but it is under increasing
challenge.
The rising influence of more ideological forces has
reinforced by other tendencies. The
post-World War II consensus on liberal trade and investment policies is under
greater threat than at any time since the 1940s. Excessive fears of rising Asian powers now
focus on China. Books on themes like
“The Coming War With Japan” from a generation ago have given way to “the Coming
War With China,” but now those fears are not offset by military alliance
against a common enemy. Although U.S.
presidents emphasize that China is not an enemy and we should not treat it like
one, the U.S. military does in fact plan
against China as if it were an enemy and it engages in highly provocative
surveillance that induces strong feelings of enmity. These U.S. trends challenge ASEAN interests
in a workable U.S.-China relationship and also create an opportunity for ASEAN
to moderate U.S.-China rivalries.
U.S.-China rivalry. ASEAN countries’ input into American and Chinese
policy is extremely important. The
counsel of countries like Singapore and Indonesia offsets ideological thinking
and policies based on realist theory rather than factual analysis. Again, ASEAN’s role here is never likely to
consist of unanimous declarations or clear stands on particular issues, but
discussion among ASEAN countries and limited coordination of advice to the U.S.
based on detailed knowledge can substantially influence U.S. policy.
There are two areas where U.S.-China rivalry risks becoming
unnecessarily intense and where ASEAN could have decisive input: Myanmar and
disputes in the South China Sea.
In Myanmar, the U.S. has often had an exaggerated view of
Chinese influence over the country’s politics, while conversely China has sometimes
had an exaggerated view of U.S. influence over the recent liberalization of
politics and the country’s rejection of, for instance, quasi-colonial dam
projects. (Some Chinese military
officers have for instance alleged that the change was based on a U.S. plot to
gain military bases in Myanmar, a charge that has no basis in fact.) ASEAN countries can help limit U.S.-China
rivalry here in two ways. One is by
serving as an intermediary, providing interpretation and facts that reduce
exaggeration and paranoia on both sides. More importantly, ASEAN can
contribute, as it has already begun to do, to Myanmar’s successful
development. Nothing will contribute
more to the reduction of gratuitous U.S.-China rivalry than the transformation
of Myanmar from a near-failed state into a successful emerging nation that is
clearly in charge of its own destiny.
In addition to general development advice, and the opening
of trade and investment that is already occurring, ASEAN countries can
potentially help on the issue that is likely to prove decisive in Myanmar’s
success or failure, namely ethnic rivalries.
Without decisive action to overcome these deep-seated rivalries, today’s
political liberalization, economic acceleration and ethnic cease-fire will
ultimately fail. So far, there are many
good intentions and a few helpful policies at the margin but nothing
decisive. ASEAN studies of Indonesia’s
success in creating a nation out of even more diverse ethnic groups, of
Malaysia’s parallel successes, of northern Thailand’s largely successful
integration into the Thai nation, and of protracted difficulties in places like
the southern Philippines, could provide vital perspectives for Myanmar’s
development. As in other areas, ASEAN’s
input would not take the form of declarations or pressures or unanimous advice,
but rather of systematic information collated and recommended in privately by
several leaders in the most diplomatic possible way.
In the South China Sea, ASEAN faces its most complex
challenge. On one hand, key ASEAN
members, most notably the Philippines and Vietnam, feel that core national
interests are being threatened by China and are successfully seeking U.S.
support. At the same time, ASEAN as a
whole faces a dilemma: Chinese behavior in the South China Sea is not different
in kind from Chinese behavior; it’s just that China is bigger. And it is not in
the interest of ASEAN or of any individual ASEAN country for U.S.-China
contention over this issue to evolve into military confrontation or some kind
of mini-Cold War. In the past, ASEAN
management of this issue, led particularly by Indonesia, has managed the
delicate balances. At the moment, the
balances are not working, and here again subtle ASEAN management, counseling
all sides to avoid spirals into unnecessary confrontation, offers the best hope of avoiding the bad
outcomes.
The Diffusion of Leadership. Stepping back from the detailed issues, Asia is experiencing a broad diffusion of leadership. Japan, once an economic model, regional economic manager, and positive source of political leadership, is no longer able to manage itself effectively and is becoming more a source of regional economic and political problems than solutions. The U.S. no longer has a clear vision; its global and regional leadership on trade and economic liberalization has lapsed and politically it is stuck in a Cold War mentality. China has lost Deng Xiaoping’s clear vision of peaceful rise and has become a big power without yet accepting a big power’s responsibility to provide leadership.
The Diffusion of Leadership. Stepping back from the detailed issues, Asia is experiencing a broad diffusion of leadership. Japan, once an economic model, regional economic manager, and positive source of political leadership, is no longer able to manage itself effectively and is becoming more a source of regional economic and political problems than solutions. The U.S. no longer has a clear vision; its global and regional leadership on trade and economic liberalization has lapsed and politically it is stuck in a Cold War mentality. China has lost Deng Xiaoping’s clear vision of peaceful rise and has become a big power without yet accepting a big power’s responsibility to provide leadership.
ASEAN cannot fill the vacuum created by the big powers’
abrogation of leadership responsibilities, but it can make a vital difference
in ensuring that conflicts do not spin out of control (e.g., in the South China
Sea and Myanmar) and in coaxing cooperative efforts forward. Nowhere is the latter more important than on
trade. The Doha Round has died. The big powers have provided a degree of
support to contradictory programs for, most notably, bilateral free trade
agreements, TPP and a Korea-Japan-China
free trade agreement. While each of
these approaches has important flaws, ASEAN can use the negotiations to enhance
the prospect of expanding future trade and investment, and to reduce the risk
of a spiral of protectionism. By
strengthening its own trade and investment regime, and at the same time
supporting other trade and investment proposals, ASEAN can create a competitive
environment that keeps both big powers
and small powers moving toward an improved regime. ASEAN’s goal should be to keep each country
afraid that, if it does not move forward, it will get left behind by agreements
being made by others.
Such contributions by ASEAN will be subtle, in style the
polar opposite of dramatic NATO decisions and interventions. But the issues mentioned here are among the
greatest issues of our times, and ASEAN can be important and even decisive on
many of these great issues. The secret
of success for ASEAN is to be very clear about the strengths and limits of the
organization, to be very clear about the great challenges of our day, and to
make contributions that exploit ASEAN’s formidable, albeit subtles, strengths.
21st ASEAN Summit, 7th East Asia Summit, and Related Meetings
ASEAN Business Summit held in Cambodia to Broaden the Bloc's Investment Opportunities
PHNOM PENH, Nov. 17 (Xinhua) -- More than 800 government officials, business executives, international institution representatives, and academia from the Association of Southeast Asian Nations (ASEAN) gathered here on Saturday to discuss ways to broaden business and investment opportunities in the ten-nation bloc.
Speaking at the opening of the 10th ASEAN Business and Investment Summit 2012, Cambodian Prime Minister Hun Sen, Chair of ASEAN in 2012, said that the Summit was a good opportunity to discuss and strengthen cooperation and partnership between the governments and private sectors in order to promote business and investment in industries.
He said that ASEAN has been playing a more important role in the region and the world and the bloc's economies grew well in recent years despite the impacts of economic and financial crisis in Europe and the United States.
The premier also urged ASEAN to expedite efforts to deepen regional integration toward building an ASEAN community by 2015.
Speaking on the business and investment climate in Cambodia, Hun Sen said, situated in the Greater Mekong Sub-region and ASEAN, Cambodia is an integral part of the process of creating one of the world's largest consumer markets, which will enable all of Southeast Asia to enter a new era of cooperation and prosperity to the benefit of societies.
"Moreover, Cambodia has a incentive policy and preferential atmosphere for businessmen and investors, so I'd like to appeal to private sector to come to Cambodia for exploring investment possibilities," he said.
He believed that the two-day Summit would produce fruitful results in making better the business and investment opportunities in ASEAN and Cambodia.
Cambodia's Minister of Commerce Cham Prasidh said that over the course of two days, there would be a business-to-business dialogue, a governments-to-business dialogue and international organizations, governments to business dialogue, back to back with the 21st ASEAN Summit in Phnom Penh.
"The Summit will certainly add a significant dimension to the ASEAN Summit as it will provide a platform for leaders and ministers to directly engage with business leaders, and for business leaders to be better informed about the policy agenda and to profile their interests," he said.
Kith Meng, president of Cambodia's Chamber of Commerce and chair of ASEAN Business Advisory Council in 2012, said that this was the first time the Business Summit has been held in Cambodia and it was also the right time for businessmen to explore Cambodia, a country of pro-business policy and economic stability with the annual growth rate of 7.1 percent last year and a projected growth of 7 percent this year.
"The Summit aims at promoting private sector growth in one of the most prosperous region in the world, as well as socializing the dreams of an ASEAN Economic Community by 2015," he said.
The Summit will look into the four of the most crucial areas that will determine the future of ASEAN businesses, he said. Those are the potential of renewable energy in ASEAN, capitalizing ASEAN connectivity, accessing capital for growth and innovation.
Kith Meng said ASEAN sits at the very heart of Asia. If ASEAN were a single country, it would be the 9th largest economy in the world, with close 10 percent, or 600 million, of the world's population, with a combined GDP of 1.9 trillion U.S. dollars.
"ASEAN is both a market for the developed world's products and the location of their production facilities," he said.
Founded in 1967, ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
ASEAN Investment Promotion Agencies to Intensify Concerted Efforts to Promote The Region as a Single Investment Destination
The ASEAN Heads of Investment
Agencies (AHIA) have agreed to work out a common theme to promote and
encourage investments that would benefit the region - specifically
investments with potential for supply chain. They highlighted ASEAN’s
diversity which makes it seemly for such investments and therefore
should capitalize on it. Further, they recognized that promotion of
ASEAN as a whole would be very advantageous to all.
The AHIA also decided to ensure better coordination of promotion activities in order to attract more investments.
Publications Launced to Help ASEAN Outreach to Businesses
on Monday, 19 November 2012. Posted in 2012, ASEAN Secretariat News
As
part of an initiative to conduct outreach to the business sector for
the ASEAN Economic Community (AEC) building efforts, it could not have
happened at a more opportune time that ASEAN Secretariat launched two
business publications; the ASEAN Economic Community Handbook for
Business 2012 and the Directory of Innovative SMEs in ASEAN 2012. This
message was conveyed by the Secretary-General of ASEAN, Dr Surin
Pitsuwan, through his keynote speech at the gatherings of over 900
business leaders and executives at the ASEAN Business & Investment
Summit (ASEAN-BIS) 2012 from 17-18 November in Phnom Penh, Cambodia.
Aptly named AEC Handbook for Business 2012
the first publication provides the business with the progress,
achievements on ASEAN’s agreements, arrangements, and decisions as well
as key challenges facing all the sectoral bodies under the purview of
AEC in a reader-friendly and handy format. With proper, concise and
timely updates, businesses can strategise to fully benefit from the
progress that is taking place.
The second publication entitled Directory of Innovative SMEs in ASEAN 2012,
is a product of close collaboration with the ASEAN SME Agencies Working
Group (SMEWG). It seeks to acknowledge and support SMEs that are
creative and innovative in the region. This Directory aims to provide a
platform to showcase and publicise approximately 330 innovative
ASEAN-based SMEs. Besides the listing of innovative SMEs in ASEAN, the
Directory also provides information on SME incubation centers and
contact details of the offices of ASEAN Intellectual Property (IP)
agencies in ASEAN Member States. Soft copies of both publications are
available for download from the ASEAN Secretariat’s website (www.asean.org).
Successfully convened for the past nine
years, the annual ASEAN-BIS continues to serve as a prime platform for
the business community, policy makers, political leaders as well as
academia in exchanging best-practice experience, opportunities,
challenges, and engaging in business networking within the region and
with dialogue partner countries. Discussion themes at the ASEAN-BIS
2012 included: renewable energy, capitalising on ASEAN connectivity,
creating more opportunities for SMEs, socialisation of the ASEAN
Comprehensive Investment Agreement (ACIA), promoting good corporate
governance, innovation in a dynamic market, and accessing capital for
SMEs in ASEAN.
The ASEAN-BIS 2012 was co-organised by
the Cambodian Ministry of Commerce, the Ministry of Foreign Affairs,
ASEAN Business Advisory Council (ASEAN-BAC) and the Cambodia Chamber of
Commerce.
ASEAN Plus Three (ASEAN+3)
World’s Biggest Consumer Market Deepens Commitment with Latest Protocols between ASEAN and China
The world’s biggest consumer
market received another boost in the arm, after the Economic Ministers
of ASEAN and China signed two Protocols to amend the Framework Agreement
on Comprehensive Economic Co-operation between the Association of
Southeast Asian Nations and the People’s Republic of China, and the
Trade in Goods Agreement under the said Framework Agreement. The signing
ceremony was held on the sidelines of the 15th ASEAN-China Summit in
Phnom Penh, Cambodia.
“These protocols signify ASEAN and
China’s continuous effort in ensuring the smooth implementation of
commitments under the Agreement and that the regional trade pact remains
relevant to businesses,” said Dr. Surin Pitsuwan, Secretary-General of
ASEAN.
The Third Protocol to Amend the
Framework Agreement on Comprehensive Economic Co-operation between the
Association of Southeast Asian Nations and the People’s Republic of
China effectively establishes the ACFTA Joint Committee as the permanent
body to oversee, supervise, coordinate and review the implementation of
the various Agreements related to the ASEAN-China Free Trade Area
(ACFTA). Aside from this, the Third Protocol also provides for the
explicit legal linkage between the Framework Agreement and the various
Agreements under the Framework Agreement.
The Protocol to Incorporate Technical
Barriers to Trade and Sanitary and Phyto-sanitary Measures into the
Agreement on Trade in Goods of the Framework Agreement on Comprehensive
Economic Co-operation between the Association of Southeast Asian Nations
and the People’s Republic of China, on the other hand, is aimed at
facilitating the movement of goods within the free trade area by
providing for certain disciplines in the application of technical
barriers to trade (TBTs) and sanitary and phyto-sanitary (SPS) measures.
“The ACFTA which entered into force in
2005 has played an important role in the impressive growth of trade and
investment. China is now the leading trading partner of ASEAN,”
highlighted Dr. Surin Pitsuwan.
China has been ASEAN’s largest trading
partner since 2009 attributable mainly to the 17.1% annual average
growth in ASEAN-China bilateral trade within the first six years of the
ACFTA’s implementation. China has also maintained her position as the
second biggest destination for ASEAN exports for two consecutive years.
According to Chinese statistics for 2011, ASEAN is currently China’s
third largest trading partner, stepping up from fourth place in 2010.
Meanwhile, foreign direct investment flow from China to ASEAN increased
significantly by 116.7% from US$2.8 billion in 2010 to US$6.0 billion in
2011.
The ACFTA boasts of having the largest
consumer market size with 1.9 billion consumers with a combined GDP of
US$9.4 trillion. As of 1 January 2012, approximately 93% of tariff lines
could be traded duty-free between ASEAN 6 (Brunei, Indonesia, Malaysia,
the Philippines, Singapore and Thailand) and China.
- Phnom Penh Statement on the Adoption of the ASEAN Human Rights Declaration (AHRD)
- ASEAN Human Rights Declaration (AHRD)
- Press Release, Outcomes of the 21st ASEAN Summit, Phnom Penh, 18 November 2012
- ASEAN Leaders' Joint Statement on the Establishment of an ASEAN Regional Mine Action Centre (ARMAC)
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