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.
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