ASEAN tightens up to ride China’s rise
Asia Times | Dec 17 2008
ASEAN tightens up to ride China’s rise
By Brian McCartan
CHIANG MAI — The 10-member Association of Southeast Asian Nations (ASEAN) launched a new joint charter on Monday that establishes mutual rules and commitments, moving the 41-year-old grouping one step closer to becoming a unified economic bloc.
Unwritten in the charter’s text are hopes a more unified region will improve its bargaining position vis-a-vis China, whose rising economic might and concentrated soft-power diplomacy in the region has relied largely on bilateral rather than multilateral deals and pacts.
The new charter establishes ministerial-level councils to consider and resolve substantive matters and the stationing of a permanent representative from each member nation at ASEAN’s secretariat in Jakarta, Indonesia. Designed specifically to strengthen regional integration, the charter moves ASEAN towards a more rules-based footing, although the grouping’s famous policy of consensus-building has not been abandoned.
Greater regional integration is viewed as increasingly necessary to maintain global competitiveness as other regions of the world, including Europe and North America, have established coherent trade and investment blocs. The ASEAN charter significantly compels a regional recommitment to bring down trade barriers at a time when global economic turmoil threatens to spur a new era of global protectionism.
ASEAN secretary general Surin Pitsuwan said at the ratification ceremony the grouping had chosen to continue moving towards economic integration as the best way to deal with the global economic crisis, as opposed to heeding nationalistic calls to erect new trade barriers. The charter’s obligations put ASEAN on track to meet its stated goal of creating an ASEAN Economic Community (AEC) by 2015.
Economic integration has over the years made the most progress of ASEAN’s three pillars, which also include security and socio-cultural integration. One of the new structures created by the charter is the ASEAN Economic Community Council, which replaces the ASEAN Economic Ministers meetings. Meeting twice yearly, the new council will be responsible for coordinating the development of the AEC.
The AEC’s stated goal, meanwhile, is to promote ASEAN as one coherent market and manufacturing site that facilitates the free flow of goods, capital, services, investment and skilled labor between its members, which include an estimated population of 556 million people and a combined gross domestic product (GDP) of over US$1.17 trillion.
The core of the AEC is the ASEAN Free Trade Area (AFTA), a preferential tariff system aimed at promoting the free flow of goods within ASEAN. The free flow of investment and services, as well as the elimination of non-tariff barriers, are also included in the pact. ASEAN’s six original and more economically developed members - Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand - have agreed to reduce tariffs on almost all intra-regional imports by 2010, with the grouping’s other four nations - Cambodia, Laos, Myanmar and Vietnam - scheduled to do the same by 2015.
The administration of AFTA will be handled by each nation’s customs and trade authorities, which, while in line with ASEAN’s non-interference policy, will also leave the system open to disputes and potential abuse. Thus, while ASEAN can monitor compliance, it has no ability to enforce it. The new charter also notably fails to establish a customs union or set penalties for members which do not meet agreed timelines for implementation.
ASEAN’s attempt to build a single market without an empowered central executive or a binding body of laws and mechanisms for dispute settlement will inevitably lead to problems of non-compliance, critics contend. There has long been an institutional reluctance to strengthen or establish either, due to the grouping’s enduring commitment to non-interference and consensus in its dealings.
The tension between the perceived need to integrate to remain globally competitive and attract foreign investors who prefer the economies of scale opportunities in larger destinations such as China or India, and a reluctance to yield national sovereignty, will likely hinder the realization of the AEC’s full promise.
At the same time, governments will remain free to pursue bilateral trade and investment deals independent of ASEAN, which trade analysts note has the potential to undermine ASEAN’s goal of increasing its collective bargaining power with regard to bigger trade partners, including China.
China’s emergence as an economic superpower has served as both an incentive for ASEAN to integrate to remain competitive in luring foreign investments as well as impetus for policies of nationalistic self-interest. Analysts believe that China’s participation in more institutional frameworks for regional economic integration - such as ASEAN+3, which also includes Japan and South Korea, and the East Asia Summit, including China, Japan, South Korea, Australia, New Zealand, India and ASEAN - will over time only lead to greater economic and political interdependence between China and ASEAN nations.
The theoretical upshot of the new charter and its envisioned integrated regional economy through the AEC would be a stronger collective bargaining position vis-a-vis China than possible as individual nations. China’s much ballyhooed "soft-power" initiatives towards the region, combined with ASEAN member states’ residual preference for national policies over regional ones, could still make the AEC a non-starter.
Deft deployments
China’s deft deployment of bilateral aid, loans, investments and trade deals has become an integral part of Beijing’s broad strategy to create a regional structure in Southeast Asia that is more in line with China’s strategic interests. While the United States still bases much of its regional engagement through security mechanisms aimed at containing China’s supposed threat, many in the regional now view Beijing as a power that needs to be courted rather than repelled.
Indeed, many ASEAN countries remember that China resisted devaluing its fixed currency
during the 1997-98 Asian financial crisis, allowing regional countries to depreciate their local units and export themselves back to financial health. The gesture was in sharp contrast to Western governments’ approach, including demands for economic and financial reforms to pave the way for greater foreign participation in their debt-ridden economies.
China’s foreign policy towards the region has often played on this sympathetic theme, presenting itself as a willing provider of no-strings-attached assistance, while the West appends conditions of democracy, rapid economic liberalization and good governance on its aid. China’s outright donations are still small compared to many Western donors.
But when its wide range of assistance, including low-interest loans and trade and investment privileges are taken into account, Beijing is one of the largest bilateral donors to the region. It has also generated much goodwill throughout the region with symbolic assistance, in the form of financing Chinese-language schools, scholarships to study in China, study tours for government officials and frequent well-publicized diplomatic visits by ranking officials.
When the AEC takes force in 2010, the China-ASEAN Free Trade Agreement (CAFTA), first agreed to in 2004, will simultaneously come on-line. The free trade zone will encompass a population of some 1.8 billion people with an expected annual trade volume of US$1.2 trillion by 2010 - the third largest global trade group behind the European Union and the North American Free Trade Agreement.
CAFTA, China’s first free trade agreement, will initially take effect for China and the initial six ASEAN nations in 2010 and expand to include all ASEAN members in 2015. Trade volume between China and ASEAN is already fast growing, up from US$105.9 billion in 2004 to US$202.5 billion in 2007. In the first nine months of this year, trade reached US$180.4 billion - a 23% year on year increase that made China the grouping’s fourth largest trade partner. Those trade ties will improve when the various road, rail, water and pipeline projects designed to link ASEAN to China are completed.
Some analysts fear that China’s growing influence over ASEAN has come at the expense of the United States and Japan, and that China may have longer term ambitions of creating a sphere of influence akin to the US’s Monroe Doctrine over South America. While this may seem far-fetched at the moment, analysts have taken particular note of China’s patronizing role in ASEAN’s four least-developed members - Cambodia, Laos, Myanmar and Vietnam.
China is widely considered to be the primary economic patron of the three, excluding Vietnam, and all have authoritarian regimes that are to varying degrees at odds with the US. The greater geopolitical competition between the US and China for regional influence could create spheres of influence where the authoritarian states hide behind Chinese protection from US and Western criticism. A belief among some Myanmar analysts is that the US did not commit to an intervention in the military ruled country after Cyclone Nargis out of fear of antagonizing China.
For now, though, most analysts view China’s regional ambitions as mostly economic. A US Congressional Research Service (CRS) report from January 2008 noted that China’s trade with ASEAN had risen rapidly and was expected to exceed that of the US in 2007. China’s exports to ASEAN have risen from $12.7 billion in 1997 to $71.3 billion in 2006, the CRS report noted.
Meanwhile, China’s imports from ASEAN have also risen even more sharply, up from US$12.4 billion in 1997 to US$89.538 in 2006. ASEAN is the only region in the world where China runs a trade deficit rather than surplus. These trends are only expected to intensify when trade ties are further promoted through the CAFTA. The CRS report noted that "as ASEAN economies become more dependent upon and integrated with China, its influence through ’soft power’ is also expected to grow".
That trend will likely accelerate with the US and Europe’s gathering economic and financial collapse. Trade analysts note it took decades before Europe became truly economically integrated, and there is still widespread clamor about the impact of NAFTA in the US.
As such, it may be unreasonable to expect ASEAN to emulate either in a much shorter time frame, particularly in light of the various internal disputes and prejudices between its member states. Which likely means, even with a new integration-promoting charter, ASEAN countries will continue to be drawn to China’s bilateral allure.
Brian McCartan is a Chiang Mai-based freelance journalist. He may be reached at brianpm@comcast.net.
