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28/10/2009 | Japan's East Asian Community Proposal Steals Show at ASEAN Summit

Global Insight Staff

While the Asia Pacific Summit negotiations—centring on regional trade and global economic issues—resulted in a number of important achievements, problems continue to hinder progress in establishing a vast region-wide economic block.

 

IHS Global Insight Perspective

 

Significance: At the fourth annual Asia Pacific Summit, the 10-member ASEAN and its six Asia-Pacific dialogue partners met last weekend in Thailand with regional trade and global economic issues dominating the agenda.

Implications: Following the U.S.-led synchronised economic downturn and slowing of Asian export-driven economies, Asian leaders have increased their call to reduce dependence on Western economies. With the aim of boosting Asia's international competitiveness, the creation of a region-wide economic block was the centre of discussion. The leaders also achieved a number of significant results in other areas, such as security, human rights, climate change, disaster relief and infrastructure development.

Outlook: Despite the positive rhetoric and talk of Asian "unity", deep divisions remain regarding the region-wide block among the member countries and the intense diplomatic maneuvering behind the scenes will continue to hamper progress on this front. While both the East Asian Community and Asia Pacific community are a long way off, more subtle advancement in other areas of co-operation boosts the positive outlook in Asia.

Just over a month before the United Nations Climate Change Summit and two months ahead of the Association of Southeast Asian Nations (ASEAN) Free Trade Area finally coming into effect, the 16-nation Asia-Pacific summit over the weekend drew considerable media attention. The 10-nation ASEAN and their six dialogue partners, China, Japan, South Korea, India, Australia and New Zealand, met at Hua Hin beach resort in Thailand for their fourth annual meeting since 2005. While the main focus of this year's discussions was on regional trade and global economic issues, other timely topics such as security, human rights, climate change and disaster relief, infrastructure development and border disputes were also on the table and ignited substantial discussions and results.

The summit, which was originally scheduled for December 2008 and then moved to April 2009, took place amid high security. Over 18,000 military troops and police were deployed as a defence measure against anti-government protesters. Last April, the East Asian summit in Pattaya was cancelled due to a chaotic anti-government rally, which stormed the summit venue and forced foreign leaders to flee. This weekend's summit was considered to be very important for Thailand's international prestige and the approval of the use of enhanced internal security measures prior to the meeting was aimed at preventing a repeat of last April's embarrassing scenes. Thailand's third attempt paid off as the summit went smoothly and successfully at the nearly isolated Hua Hin.

Key Issues at the Summit

While the summit agenda included a number of topics ranging from climate change to infrastructure development, IHS Global Insight considers here three key topics that are of particular interest to investors and donors in Asia Pacific.

Deeper Economic Integration

The key debate at the Asia-Pacific Summit focused on the competing proposals to establish a vast Asian region-wide free-trade block. The two visions were Japanese Prime Minister Yukio Hatoyama's ASEAN+3 FTA (ASEAN + China, Japan and South Korea) and Australian Premier Kevin Rudd's ASEAN+6 Comprehensive Economic Partnership Agreement (ASEAN + China, Japan, South Korea, India, Australia and New Zealand). While the 16 leaders accepted both feasibility studies, paving the way for further discussions at the official level, Hatoyama's proposal dominated the dialogue. The main aim of the creation of a regional block, similar to the European Union, would be to boost Asia's international competitiveness. Amid the global economic downturn, calls for reduced dependence on Western economies in Asia have been growing.

  • Hatoyama's vision of the East Asia Free Trade Area (EAFTA) would account for half of the world's population and have a combined GDP of US$14.1 trillion.The proposed ASEAN+3 makes sense from the economic interdependence point of view as dependence on ASEAN+3 trade has risen to 35.8% for Japan, 41.5% for South Korea and 30.0% for China. In addition, a deeper economic integration would also reduce the possibility of rising tensions in conflict-prone Asia. With the realisation of ASEAN+3, India, Australia, and New Zealand would, however, be the biggest losers.
  • Rudd's competing vision of a Comprehensive Economic Partnership agreement that includes non-East Asian countries of Australia, India and New Zealand to the block would bring together a total of 3.1 billion people in the block and have the combined GDP of US$19 trillion. The Asia Pacific Community, which is a more long-term plan, would be attained by 2020 and aimed at boosting co-operation on economic, political and security matters. Given the economies of scale, the larger ASEAN+6 would be more beneficial from the economic point of view. While the East Asia Community vision has been in consideration for years, Rudd's Asia Pacific Community initiative was first presented just over a year ago in June 2008.

Myanmar and Human Rights

The 16 leaders attending the summit also welcomed the major increase in U.S. engagement with the military-ruled Myanmar and called Myanmar to secure a fair general election in 2010. Myanmar is set to hold its first general election since the 1990 nullified election in May 2010. The 1990 election saw the pro-democracy opposition win a massive landslide victory, but they were never allowed to govern. In their final declaration yesterday, the ASEAN+6 countries urged Myanmar to hold "fair, free, inclusive and transparent" elections. The devoted space on Myanmar in the nine-page final declaration was however just three lines and made no mention of the country's detained pro-democracy leader Aung San Suu Kyi, who has spent 14 of the past 20 years in detention. Despite this somewhat positive rhetoric, this unsurprising lack of true pressure on Myanmar signals that no major policy shift can be expected from the fellow Asian states ahead of the May 2010 election. ASEAN has traditionally pursued a policy of "constructive engagement" with the regime rather than isolation, and there are increasingly moves to attempt to improve the country's economic standing, through which it is hoped that other reforms, namely in the political sphere, will follow. This is regardless of sporadic divisions in the group's attitude regarding policy toward Myanmar. While the Thai, Singaporean and Malaysian leadership hold some influence over the regime among ASEAN leaders, the real actor is China. Economically and politically powerful China is Myanmar's main military patron and increasingly interested in Myanmar's energy sector. As both China and ASEAN leaders are more interested in maintaining regional stability, and now in particular after the United States' softening stance towards the regime, the politically tricky Myanmar question will remain at the sidelines of Asia-Pacific relations. This is also set to be the case for the newly created regional human rights body, the ASEAN Intergovernmental Commission on Human Rights (AICHR), that was launched on Friday.

China-India Border Dispute

Chinese Premier Wen Jiabao and his Indian counterpart Manmohan Singh agreed to increase trust between the two countries following a spike in tension over an unresolved border dispute on the sidelines of the ASEAN summit in Thailand. The Chinese state-run news agency, Xinhua, reported that both countries had agreed to hold talks on the issue. However, Indian officials have yet to confirm the agreement. The issue of Arunachal Pradesh continues to dog relations between the two countries, with New Delhi incurring the wrath of Beijing following a recent trip by Singh to the region, as well as a planned visit there next month by the Dalai Lama. Officials in Beijing oppose these events for two reasons. Firstly, the Beijing government considers Arunachal Pradesh as part of its own territory. Secondly, the leadership sees the Dalai Lama as a terrorist, engaging in separatist activities. In recent years, the two nations have held 13 rounds of talks but have failed to make concrete progress on the border problem. The latest meeting between Wen and Singh underscores a growing desire on both sides to defuse the issue amid rising friction between the two Asian giants during recent weeks.

Key Results of the Summit

ASEAN

ASEAN signs six FTAs with China, South Korea, Australia and India (trade & economy);

ASEAN pledges to implement the US$120-billion Chiang Mai Initiative with China, Japan, and South Korea by 2009 (trade & economy);

ASEAN promises to establish high-level task force to create infrastructure development fund.

China

Promises to contribute US$10 billion to the China-ASEAN fund on Investment Cooperation Fund;

US$15 billion pledged for commercial credit to ASEAN countries, and US$40 million special aid to its less-developed members;

US$200 million contribution under the Asian Bonds Market Initiative;

US$100,000 pledge to the ASEAN Foundation for the promotion of people and cultural ties;

300,000 tonnes of rice for the East Asia dialogue partners.

India

Promised to give US$50 million to the ASEAN-India Cooperation Fund and ASEAN Development Fund.

Japan

New contribution of US$13 million under Japan-ASEAN Integration Fund for co-operation in disaster management and emergency response.

South Korea

Promised to allocate US$100 million to the East Asia Climate Partnership Initiative and disaster management.

Source: ASEAN

Outlook and Implications

Wide Divisions Hinder Progress on Region-Wide FTA

While the Asia-wide free-trade block stole the show last weekend, the actual negotiations to establish a regional trade block are, however, set to progress slowly as a fully-fledged commitment is lacking and the most powerful states prefer to act independently. There are four main issues that are set to hinder the development. Firstly, given the fierce strategic and political rivalry and historical mistrust between China and Japan, the two most obvious leaders of the regional block, intense diplomatic manoeuvring is already taking place. The strained political relations will undeniably present a significant challenge for realising a region-wide trade block. While recent FTAs have proliferated rapidly between ASEAN and other Asia-Pacific countries, the trade negotiations between China and Japan, and Japan and South Korea are at an impasse. Economic relations between the Asian power houses are, however, excellent. As the trade between China, Japan and South Korea accounts for the largest flows in the region, dropping of tariff barriers between these countries would offer the highest benefits for investors and countries alike. Secondly, the large economic diversities and varieties in market openness also pose a serious problem for region-wide liberalisation. In addition, both the proposed trade blocks exclude countries that are both World Trade Organization (WTO) members as well as an integral part of East Asia—Hong Kong, Macau, Taiwan, Mongolia and North Korea (not a WTO member)—while including those that are not an integral part of the region—Australia, India, and New Zealand. As the decision of which economies are included and which are not is mainly political and strategic, not economic, the effects for those economies not included would be detrimental. Taiwan, specifically, as an export-dependent economy would be the main loser in both ASEAN+3 and ASEAN+6 agreements. Thirdly, while intra-regional trade has increased over the years, the bilateral trade ties with the United States and the European Union remain crucial for Asian countries. As such the role of the United States is key in any region-wide arrangement, but also the source of intense disagreement that is set to complicate the progress on this front further. Fourthly, the proposals presented at the summit did not outline how the agreements would actually be implemented, demonstrating the complexity of actually agreeing on the small print of the region-wide block.

Other Important Issues

The East Asian summit resulted in a number of significant pledges and contributions that are set to boost ASEAN and Asia-Pacific economic integration further and also bring benefits for the individual countries in their efforts to tackle poverty reduction, climate change, and infrastructure development, among other issues. While the Asia-wide free-trade block stole the show at the summit, the most significant results were definitely in these other areas, and this should also be the main focus for investors when following Asia-Pacific affairs.

Global Insight (Reino Unido)

 


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Center for the Study of the Presidency
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