ASEANs Third Way?

Theres growing recognition that ASEANs practice of convening public-private dialogues has encouraged confidence building and problem solving that in turn has helped reinforce the prospects for the creation of the ASEAN Economic Community. Contrary to the traditional one-way street of governance, ASEAN policymakers have made it standard operating procedure to consult stakeholders across the public-private spectrum prior to devising or revising regulatory policies. Through Track 1.5 diplomacy, ASEAN policymakers can pinpoint stakeholder concerns and address them if necessary, while encouraging horizontal coordination among relevant ministries. These efforts have given the global business community and other stakeholders greater avenues of access for helping shape a more efficient marketplace, as well as avoiding the bane of perfect hindsight. ASEAN leaders are well aware of their growing role as the nucleus of the Asian Century and have consistently demonstrated their determination to create one Southeast Asia via the ASEAN Way of musyawarah (consultation) and muafakat (consensus). In this respect, the formal inclusion of the private sector in shaping the ASEAN Economic Community (AEC) is well-acknowledged in its Blueprint for organization. Line 28, for example, calls for a more transparent, consistent and predictable investment rules, regulations, policies and procedures in consultation with ASEAN private sectors to facilitate investment. While ASEAN as a collective may know what it wants, these consultations help the group ascertain how to get there. So what, you may ask? In geopolitical terms, ASEAN, when measured as a single market, can be viewed as an equal partner to many larger, more powerful Asia-Pacific economies, such as China, India, Japan, Australia, and South Korea, and a part of the world that is currently leading the global economic recovery. The process of public-private consultations spurs the creation of an open, outward-looking, inclusive, and rule-based Southeast Asian political economy. By deepening the conversations between ASEAN public and private sectors, particularly in new public policy areas such as competition policy, ASEAN can introduce consistent ground rules for B2G/G2G/G2B interactions, as well as a stable and predictable investment climate in Southeast Asia. The global private sector is in the midst of a shift from the antagonistic public vs. private to a more collaborative public-private approach to doing business. Its against this backdrop that there is a growing level of trust in ASEAN institutions and its leaders as they enhance levels of transparency and mutual accountability while gradually tackle potential political risks, such as the fear of ASEAN governments self-aggrandizement. Still, taking a step down to individual ASEAN member states, there are some serious challenges. Given that regional economic integration is one of ASEANs key strategic priorities, much work remains to be done, including institutionalizing efficient consultative processes and expanding them to all ten ASEAN nations. This should increase opportunities to improve economic policy formulation and implementation processes. For example, in recent years, as ASEAN launched an effort to establish a regional framework in the new area of competition policy, ASEAN seemed to place a higher value on disseminating information to the private sector on the proposed framework (after it was developed) as opposed to involving the private sector as a stakeholder in the process of developing a framework. Looking ahead, as ASEAN seeks to establish the ASEAN Economic Community by 2015, one thing that would enhance ASEANs global competitiveness in the eyes of both foreign and ASEAN private sectors would be for each country to recognize and adopt the best practice principle of notice and comment as a minimum standard for any regional or domestic regulatory or policy formulation process.

While such public-private conversations are by no means a guarantee for always achieving the best results possible, they are critical in pressing both public and private sectors to take shared ownership in making ASEANs regional economic landscape truly world class. If ASEAN is successful, and if it can continue to move improving greater public-private dialogue, it could help create an Asian middle ground approach in the current debate over global economic reform.

Daniel Wu is the Manager for Malaysia and Brunei affairs as well as the Financial Services Working Group at the US-ASEAN Business Council. The views expressed here are those of the author and do not necessarily reflect those of the US-ASEAN Business Council or its members. He can be reached atdwu@usasean.org

Obamas Vital Asia Trade Mission If Barack Obama wants to ensure opportunities, jobs and a safer world for the United States then theres nothing more important than his trade mission to Asia.

Asia is now home to more than 50 percent of the worlds economic activity, a long-anticipated benchmark vastly accelerated by Chinas stunning, swift economic growth and its overtaking Japan as the planets second-largest economy. Asias dynamism is transforming the world, its institutions, and U.S. strategy.Secretary of State Hillary Clinton has described the shift to Asia as a strategic pivot. But while U.S. foreign policy and security leadership are aptly refocusing on Asia, more needs to be doneand fast. This is particularly the case on trade.

The United States has lost ground in Southeast Asia over the last decade. In 2004, the United States was the Association of Southeast Asian Nations largest trading partner, with total trade valued at $192 billion. Today, China, a non-consequential partner for ASEAN in the early 1990s, is the regions largest trading partner, with two-way trade totaling $293 billion in 2010. Over the past 10 years, ASEAN has inked free trade agreements (FTAs) with China, Japan, Korea, Australia, New Zealand, and India. The United States has only one FTA in ASEANwith Singapore. The result has been a ceding of market share and presence in the worlds fastest growing and most dynamic markets. No wonder U.S. economic growth has suffered. Ignorance and relative neglect of Southeast Asia have cost the United States jobs, growth, and influence. Thats why the CSIS-U.S. ASEAN Strategy Commission has recommended that the Obama administration put a stake in the soil when the president travels to Indonesia for his third U.S.-ASEAN Leaders Meeting and first East Asia Summit. He should tell the region that the United States wants to negotiate a U.S.-ASEAN FTA. The signal would resonate loudly in capitals around the Asia Pacific. It would demonstrate that the United States is back, serious, and committed to reasserting its role as an economic leader in Southeast Asia. Theres a real competition under way to define how economic integration of Asia will proceed. The stakes are high. The winning model will determine standards and rules, and will define the pace of trade and investment and support a move toward either global free trade or a return to regionalism and nationalism. Those left out of the predominant structure will experience slower growth and face grinding competition to engage from outside. The two competing models are those of the U.S.-led Trans-Pacific Partnership (TPP) and the China-led ASEAN Plus Three ASEAN plus China, Japan, and South Korea. Competition for economic integration is good for Asia. It should sharpen the sense of urgency for governments to move faster and more decisively. The TPP model is one based on a high-level U.S. FTA standard thats comprehensive and binding. The Chinese ASEAN Plus Three model puts geopolitical concerns above specific trade and investment rules and links countries together through a lowest-common-denominator formula thats very effective and has a high impact in the short term. Trade expands rapidly as tariffs are reduced, but binding rules on investment, procurement, intellectual property, environment, and labor provisions arent addressed. In sum, the U.S.-led model is deep and requires massive political commitments by governments to legally bind themselves and reform current regulations and practices. The China-led model is relatively shallow and easier for governments to join. Its high-profile, with nonbinding agreements expressing general intent and some specifics around tariffs, but it includes little on other commercially important rules and regulations. Fortunately, Obama and the United States have begun to address the lack of leadership on trade that has resulted in the serious loss of U.S. market share in Asia. Congress recently passed the Korea, Colombia, and Panama FTAs and will announce, with the eight other negotiating partners, a significant framework agreement for the TPP, signaling that the talks are progressing well toward an agreement. Passing the U.S.-Korea FTA convinced Asia that the United States is putting presidential political capital behind trade again. That factor was a game changer and has resulted in Japan, Canada, Mexico, and Korea indicating serious interest in joining the TPP, making progress toward the vision of a Free Trade Area of the Asia-Pacific seem more compelling and achievable.

Prime Minister Yoshihiko Noda has recognized that Japan cant survive if it sits on the sidelines while Korea moves ahead with its FTAs with the European Union and the United States. Japanese economic intelligence was spot on when it advised its government that South Korea would move to join the TPP as soon as Seoul passes the U.S.-Korea FTA. Progress on the TPP makes the China-led ASEAN Plus Three model look less compelling than even two months ago. The ASEAN Plus Three has its own secretariat, in Seoul, and has delivered extensive, if shallow, trade integration in East Asia. Chinas partners in the ASEAN Plus Three are among the strongest proponents for competing trade and economic architecture. The rest of Asia wants to trade with China and to receive its investment and low-cost loans for infrastructure development, but it doesnt want to be dominated by China. Much of Asia also rejects the idea of Chinese governance even in the commercial and economic spacea phenomenon that has been strengthened during the last year and a half as China has tested whether it could turn the screws on its Asian neighbors over questions of sovereignty in the South China Sea by leveraging its new economic dominance. Thrusts by Beijing have been parried. Strategically, the table is set for Obama to suggest a U.S.- ASEAN FTA. This move would send the signal that the United States is willing to invest over the long term in strengthening ASEAN as an institution. It would provide a much-needed carrot to help drive political and economic reform in Burma, enhance economic capacity and reform in less-developed economies such as Laos and Cambodia, and move forward immediately with ASEAN nations willing and able to embrace a structure that would be fully compatible with and complementary to the TPP. At the same time, it would strengthen ASEAN as the fulcrum of regional economic and security architecture for Asia. The end game is to present a compelling case to China to join in the more comprehensive and inclusive economic integration model for the Asia-Pacific and to abandon its efforts to put its eggs only into forums that it can dominate, a behavior that sets up eventual structural conflicts in Asia that could divide and destabilize the Asia-Pacific region down the road. Bringing China aboard and allowing it a leadership role, but convincing it to play by rules that it and its neighbors around the Pacific and Indian oceans define multilaterally, is the surest path to regional peace and prosperity. Theres no mission more important if Obama is to achieve his goal of ensuring that the American people have opportunities, jobs and a safer world to live in. Ernest Z. Bower is a senior adviser, director of the Southeast Asia Program, and director of the Pacific Partners Initiative at the Center for Strategic and International Studies in Washington, D.C. This article was originally published as a CSIS commentary here.