2021/163 “Digital Commitments in ASEAN’s Free Trade Agreements” by Tham Siew Yean

 

Representatives of signatory countries are pictured on screen during the signing ceremony for the Regional Comprehensive Economic Partnership (RCEP) trade pact at the ASEAN summit held online in Hanoi on 15 November 2020. Photo: Nhac NGUYEN, AFP.

EXECUTIVE SUMMARY

           

  • Digital commitments in trade agreements have evolved over time to include market access, and rules and regulations that seek to govern the movement of digital goods and services across borders as well as to facilitate trade.
  • ASEAN’s commitments in terms of the number of provisions in e-commerce have increased over time, but the expansion in coverage may not necessarily mean deeper commitments.
  • The disparity within ASEAN  member states (AMS), alongside national policies and ambitions to develop the domestic digital economy, have contributed to the slower pace of attaining binding commitments in trade agreements.
  • Moving forward, upgrades in e-commerce commitments in the AANZFTA can be expanded, guided by the RCEP commitments.
  • However, advancing towards a framework for an ASEAN Digital Economy, which requires committing to even more provisions, will require more and better empirical evidence on the impact of digital commitments on the domestic economies of AMS for decision-making in each country’s cost-benefit analysis of these commitments to be properly informed.

* Tham Siew Yean is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute and Professor Emeritus, Universiti Kebangsaan Malaysia. The author thanks Sharon Seah, Cassey Lee,  Siwage Dharma Negara, Jay Menon and Aidonna Jan Ayub for their useful comments and suggestions. The usual caveat applies.

ISEAS Perspective 2021/163, 15 December 2021

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INTRODUCTION

The growing importance of, and interest in the digital economy has led to an increasing inclusion of digital provisions in free trade agreements, be it at the multilateral, regional or bilateral level. At the multilateral level, 86 members including six from ASEAN, are currently engaged in World Trade Organization (WTO) negotiations on a Joint Statement Initiative (JSI) on trade-related aspects of e-commerce. The JSI is a plurilateral negotiating tool which aims to have a substantive agreement on these aspects at the WTO’s 12th Ministerial Conference (MC12) scheduled to take place from 30 November to 3 December 2021 but which has been postponed indefinitely due to the announcements of travel restrictions and quarantine requirements in Switzerland and many European countries.[1]

Digital provisions can be traced back to the inclusion of paperless trading in the early part of 2000 and the subsequent emergence of e-commerce chapters in trade agreements in 2003.[2] This pattern has escalated over time; 69 Regional Trade Agreements (RTAs) were identified with a standalone e-commerce chapter or article(s) between 2001 and 2016.[3] There were also 21 other RTAs that had provisions addressing paperless trading, digital rights management or general promotion, but without a dedicated e-commerce chapter.

Digital commitments can be divided into three types, namely market access (MA), Rules and Regulations (R&R) and Facilitation (F). Provisions or commitments on MA cover a wide range of issues such as customs duties, valuation issues, movement of natural persons (as service providers), and access to data.[4]  R&R cover different issues including intellectual property rights (IPRs), protection of personal information and consumer protection competition. Finally, facilitation commitments include paperless trade, e-signatures and digital authentication.

This paper maps the digital commitments of ASEAN in relevant agreements on e-commerce to show the evolving nature of these commitments. It covers the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), ASEAN Agreement on Electronic Commerce, Regional Comprehensive Economic Partnership Agreement (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It also seeks to explain why these commitments vary and list the challenges that ASEAN will face as it moves towards negotiating an ASEAN Digital Economy Framework by 2025, as announced in the 53rd ASEAN Economic Ministers (AEM) in September 2021.[5]

ASEAN COMMITMENTS IN E-COMMERCE

AMS have made commitments in four agreements that have e-commerce provisions (see Table A1 in Appendix for the details).[6] The AANZFTA, ratified in 2010, is the first agreement with a Dialogue partner to have an e-commerce chapter. The next agreement on e-commerce is the ASEAN Agreement on Electronic Commerce, which was signed in 2019 and expected to enter into force in 2021. The RCEP is the latest agreement with AMS as parties, which has an e-commerce chapter. It was signed in 2020 and will enter into force on 1 January 2022. Lastly, the Comprehensive and Progressive Treatment for Trans-Pacific Partnership (CPTPP), which has four AMS as parties to the agreement, entered into force in 2018.[7]

Figure 1 shows the e-commerce commitments in each of these agreements and the similarities and differences from each other.

AANZFTA (2010) and ASEAN Agreement on Electronic Commerce (2019)

It is not surprising that the AANZFTA has the smallest number of provisions, being the oldest agreement; a government’s ability to address the various issues that emerge from the rapidly changing digital environment usually lags behind the innovative changes happening in the real world. Thus while the AANZFTA and the subsequent ASEAN Agreement on Electronic Commerce contain provisions that address cooperation, paperless trading, electronic authentication and electronic signatures, online consumer protection, online personal information, the domestic regulatory environment and dispute settlement, the newer ASEAN agreement has six additional provisions. These are the scope of the agreement, cross-border transfer of information, location of computing facilities, cyber-security, electronic payment and logistics. While this may demonstrate an expansion of ASEAN’s commitments to include other pertinent issues that are critical for e-commerce, a closer investigation of the additional commitments indicate that except for the provision on data localisation (which is inapplicable to financial services), the use of best-endeavour clauses such “encourage” the use of safe and secure, efficient and interoperable e-payment systems and “endeavour” to lower the cost of logistics, indicate that these are weak provisions. Likewise, member states are “working towards eliminating or minimising barriers to the flow of information across borders” while the provision on cybersecurity merely focus on building on the capabilities of national entities and the use of existing collaboration mechanisms to cooperate on matters related to cybersecurity.

RCEP and CPTPP

Moving on to the RCEP, the commitments expanded to include provisions on customs duties, unsolicited commercial electronic messages, and non-discrimination of digital products. The CPTPP, though an older agreement, has four more provisions compared to the RCEP, namely, non-discrimination of digital products, source code, principles on access and use of the internet for electronic commerce and internet interconnection charge sharing. Further analysis reveals that the provisions in RCEP, though similar, are much weaker than those in the CPTPP.[8] Take for example, customs duties. In the RCEP, the maintenance of the current practice of not imposing customs duties on electronic transmissions between Parties (Article 12:11) is linked to the WTO’s moratorium on customs duties. Should the moratorium be discontinued, a RCEP party may unilaterally adjust its practice. Thus, while the CPTPP states that the exclusion of customs duties shall not preclude a Party from imposing “internal” taxes, fees and other charges on content transmitted electronically, provided that such taxes, fees, or charges are imposed in a manner consistent with the agreement, the same clause in the RCEP has excluded the term “internal” from the text, thereby implicitly allowing external taxes or duties to be imposed should the WTO moratorium be discontinued. 

This is unlike the CPTPP (Article 14.3) which states clearly that no party shall impose customs duties on electronic transmissions, including content transmitted electronically, between a person of one Party and a person of another Party.

Another example is the use of the dispute settlement mechanisms (DSM). RCEP’s Article 12.17 on DSM, specifically excludes the use of Chapter 19 of the agreement for the settlement of disputes on e-commerce so that DS in e-commerce is confined to consultations; and if that fails to resolve the differences, then the matter may be referred to the RCEP Joint Committee in accordance with Article 18.3, but not to the DSM of the agreement. The DSM in the CPTPP, on the other hand, states only the exceptions given to Malaysia and Vietnam.

It should be noted that besides the provisions in the CPTPP, other agreements with e-commerce commitments have included additional provisions specifically on barriers to trade, private sector participation, and the liability of intermediary service providers.[9]

In summary, the digital commitments of AMS have expanded over time, in keeping with changes in the digital realm and increasing commitments in other agreements. But the expansion in coverage may not necessarily mean deeper commitments, as seen in the specific examples illustrated above.

CHALLENGES TO DIGITAL COMMITMENTS

Generally, ASEAN’s economic integration is affected by the different stages of development within ASEAN and the need to balance national ambitions and regional integration. Thus the pace of integration is often determined by the lowest common denominator or the slowest member.[10] Likewise, ASEAN has to constantly find a balance between national and regional priorities, through consensus-seeking.[11]

This is also found to prevail in the e-commerce space, as shown below, indicating that these two factors can also be used to explain the slower pace of digital commitments within ASEAN.

Disparity within ASEAN: ASEAN Digital Integration Index

In August 2021, ASEAN launched its own ASEAN Integration Index to ascertain the status of digital integration in its member countries. The Index is constructed as a weighted index of six pillars of digital integration, namely digital trade and logistics, data protection and cybersecurity, digital payments and identities, digital skills and talent, innovation and entrepreneurship and institutional infrastructural readiness. Of the six pillars, ASEAN’s average score is highest in institutional and infrastructural readiness, and lowest for digital skills and talents.

In Figure 2, comparing the older AMS and the CLMV countries with the ASEAN average clearly shows the disparity across these two groups of countries. Brunei, Malaysia and Singapore have scores above the ASEAN average for all six of these dimensions. Thailand is above the ASEAN average for all but one of the dimensions (namely, digital skills and talent). Indonesia is below the ASEAN average for digital trade and logistics and digital skills and talent, while the Philippines is below the ASEAN average for digital payments and identities and innovation and entrepreneurship.

On the other hand, Cambodia, Laos PDR and Myanmar are below the ASEAN average for all six dimensions while Vietnam is below the ASEAN average for digital skills and talent, innovation and entrepreneurship and institutional infrastructural readiness (Figure 2).

The disparity within the AMS reflects the different stages in their development and implies that the pace and willingness of each member country to make binding commitments will differ as well. 

National Initiatives

The importance accorded to digital developments is reflected in the numerous digital economy plans in all ten AMS (Table 1). AMS are keen to develop their info-structure by improving on broadband provision and costs. The interest on getting micro, small and medium enterprises (MSMEs) in ASEAN member states to make use of digital initiatives is due to the prevalence of these enterprises in ASEAN as well as the need for enhancing inclusiveness. Likewise, there are concerns to develop digital entrepreneurship and start-ups, which has the second lowest score for ASEAN in the Digital Integration Index. There is also a specific focus on e-commerce for four of the AMS.

Table 1. Common Themes in Digital Plans in ASEAN Member States

ThemesBNCAMINDLAOMMYRPHLSGTHVN
Infrastructure: BroadbandXXXXXXXX
MSMEs, including their digital transformationXXXXXX
Digital Entrepreneurship and Start-upsXXXXXXX
E-commerceXXXX

Notes: BN: Brunei, CAM: Cambodia, IND: Indonesia, M: Malaysia, MYR: Myanmar, PHL: Philippines, SG: Sinapore, TH: Thailand, VN: Vietnam

Source: Compiled from World Bank 2019[12], Erh 2021[13]

The interest in developing their respective national digital economies contribute towards the preference for building national capacities before digital integration. Enabling clauses that emphasise cooperation for capacity building and technical assistance are preferred, compared to hard commitments on market access, rules and regulations and even facilitation.

GOING FORWARD: DEEPENING DIGITAL COMMITMENTS IN ASEAN

Upgrading of ASEAN-Plus Agreements

ASEAN is in the midst of negotiating upgrades in several of its agreements with its Dialogue partners, including the AANZFTA, as announced at the 53rd ASEAN Economic Ministers’ Meeting (AEM) in September 2021.[14] E-commerce is one of the eight key trading areas that will be focussed in the upgrading negotiations for the AANZFTA.[15] This is not surprising given the increasing importance of e-commerce and the fact that Australia and New Zealand have achieved higher scores for their digital integration index compared to the ASEAN average, as shown in Figure 4; this indicates that they will be more willing to embrace more and deeper digital commitments in trade agreements.

Figure 4. ASEAN Digital Integration Index, ASEAN, Australia and New Zealand, 2021

Moreover, the existing commitments as shown in Figure 1 fall far behind the current commitments of ASEAN, as at 2021. Since Australia and New Zealand are also members of the RCEP, an upgrading in e-commerce commitments can certainly strengthen digital trade ties if it aims to go beyond the current RCEP commitments. It may however be difficult to achieve the same degree of commitments as in the CPTPP since not all AMS are parties to that agreement, although some AMS have expressed an interest in joining the agreement.[16]

Likewise, should ASEAN FTAs with other Dialogue partners move towards upgrading, adding e-commerce provisions, similar or close to the RCEP commitments, is unlikely to meet resistance.

Towards an ASEAN Digital Economy Framework

The shift towards an ASEAN Digital Economy Framework will constitute a big shift since so far among the AMS, only Singapore has signed a Digital Economy Partnership Agreement (DEPA) with Chile and New Zealand, and a Digital Economy Agreement with Australia (SADEA), both in 2020.[17]

Analysis in the World Economic Forum in 2020[18] clearly shows that the digital provisions in both the DEPA and SADEA far exceed that of the CPTPP (See Appendix 2). The 11 additional provisions are electronic invoicing, electronic payments, cooperation on competition policy, submarine telecommunications cable, location of computing facilities for financial services, data innovation, open government data, digital identities, standards and conformity assessment for digital trade, artificial intelligence, and fintech cooperation. Given the current disparity and focus of AMS on developing their respective national digital economies, adding more and importantly, meaningful provisions can be an uphill task.

While the provision of empirical evidence may help nudge AMS towards making more and deeper commitments, there are in fact very few studies on the impact of digital commitments, primarily because such commitments are relatively new and the data needed for robust testing are sparse. A recent study indicates that Preferential Trading Arrangements (PTAs) with robust e-commerce chapters, and chapters in goods and services can increase trade in goods, services and digital services among member countries. However, the number of comprehensive agreements in the dataset is small while the time series is short. Hence, the evidence must be deemed to be preliminary.[19]

Empirical work tends to focus on the impact of data restrictions, mainly in developed countries and in large developing countries such as China, India and Indonesia. These do indicate that data restriction policies can affect the local economy negatively through its impact on the productivity levels of local companies, while the policies are neither able to create the new jobs expected nor develop the local industry in data-intensive sectors.[20] The construction of the data restrictiveness index for 46 OECD countries in a 2021 study and the use of this to measure its impact also shows that data restrictions can reduce trade, reduce productivity and increase prices for affected industries.[21]

What is needed to move forward is for ASEAN to build up a body of evidence that can help AMS make more informed decisions on more digital trade commitments. In particular, what is needed is a cost-benefit analysis of the impact of such commitments. For example, on the issue of customs duties, the WTO Programme on Electronic Commerce shows that while the removal of the moratorium may increase tax revenues, as argued by some developing countries, the costs in terms of gains foregone on consumer welfare and export competitiveness may outweigh the gains in tax revenues. At the same time, there are other options for raising domestic taxes internally.[22]

CONCLUSION

Digital commitments in trade agreements have evolved over time as in other types of trade commitments. As in the case of trade in goods and services, digital commitments do not just cover market access but also rules and regulations governing the movement of digital goods and services across borders, as well as trade facilitation measures. 

ASEAN’s commitments in terms of the number of provisions in e-commerce have increased over time but this does not necessarily mean that the provisions have deepened. The disparity within ASEAN, alongside national policies and ambitions to develop the individual AMS’s domestic digital economy, have contributed towards the slow pace of commitments.

Upgrades in the e-commerce commitments in the AANZFTA can be expanded, guided by the RCEP. However, in advancing towards negotiating a framework for an ASEAN Digital Economy, additional provisions are needed. This requires a greater focus on gaining better empirical evidence so that AMS can make reliable cost benefit analyses on these commitments.

Appendix

Table A1. E-commerce Provisions in ASEAN Agreements

E-commerce ProvisionsAANZFTA (2010)ASEAN Agreement on E-commerce (2021)RCEP (2022)CPTPP (2018)
Objectives of ChapterArt. 10.1Art. 1Art. 12.2None
Scope of chapterNoneArt. 3Art. 12.3Art. 14.2
DefinitionsArt. 10.2Art. 1Art. 12.1Art. 14.1
Relation to the FTAs other chaptersNoneArt. 4Art. 12.3Art. 14.2
CooperationArt. 10.9Art. 6Art. 12.4Art. 14.15; 14.16
TransparencyArt. 10.3Art. 13Art. 12.12None
Stakeholder EngagementArt. 10.10Art. 11Art.12.16None
Paperless tradingArt. 10.8Art. 7.1Art. 12.5Art. 14.9
Electronic authentication and electronic signaturesArt.10.5Art.7.2Art. 12.6Art. 14.6
Online consumer protectionArt. 10.6Art. 7.3Art.12.7Art. 14.7
Online personal information protectionArt.10.7Art. 7.5Art. 12.8Art. 14.8
Domestic Regulatory FrameworkArt. 10.4Art. 12Art. 12.10Art. 14.5
Dispute SettlementArt. 10Art. 15Art. 12.17Art. 14.18
Electronic PaymentNoneArt. 9NoneNone
LogisticsNoneArt. 10NoneNone
Cross-border transfer of informationNoneArt. 7.4Art. 12.15Art.14.11
Location of Computing FacilitiesNoneArt. 6Art. 12.14Art. 14.13
CybersecurityNoneArt. 8Art. 12.13Art.14.16
Customs DutiesNoneNoneArt.12.10Art. 14.3
Unsolicited Commercial Electronic MessagesNoneNoneArt. 12.9Art. 14.14
Non-discrimination of digital productsNoneNoneNoneArt. 14.4
Source CodeNoneNoneNone 
Principles on Access to and Use of the Internet for Electronic CommerceNoneNoneNoneArt. 14.10
Internet Interconnection Charge SharingNoneNoneNoneArt. 14.12

Source: Author

Table A2. Key Digital Trade Provisions in Selected Trade Agreements

Key issuesCPTPPDEPASADEA
Elimination of customs dutiesYYY
Non-discriminatory treatment of digital productsYYY
Electronic authenticationYYY
Paperless tradingYYY
Domestic e-transactionsYYY
Online consumer protectionYYY
Personal information protectionYYY
Measures against spamYYY
CybersecurityYYY
Cross-border transfer of informationYYY
Prohibition of data localizationYYY
Cross-border transfer & localization for financial servicesNNMY
Liability of intermediary service providersNNMNM
Non-disclosure of software source codePNMY
Open government dataNYY

Notes: Y = included; P = partially included; N = not included; NM = not mentioned.

Sources: Lovelock (2020, 31-52)[23] and Asian Trade Centre (2020).[24]


ENDNOTES

[1] See https://www.wto.org/english/news_e/news21_e/mc12_26nov21_e.htm <Accessed 1 December 2021>.

[2] See Weber (2015) as cited in Lee (2020), “E-commerce and Trade Policy”, Chapter 4 in Lee, C. and Lee, E. (eds.), E-commerce, Competition and ASEAN Economic Integration. Singapore: ISEAS.

[3] Wu, Mark. 2017. Digital Trade-Related Provisions in Regional Trade Agreements: Existing Models and Lessons for the Multilateral Trade System. RTA Exchange. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and the Inter-American Development Bank (IDB). www.rtaexchange.org/ <Accessed 22 November 2021>

[4] Ibid, 12.

[5] See https://asean.org/wp-content/uploads/2021/09/AEM-53-JMS_FINAL_ADOPTED.pdf <Accessed 22 November 2021>.

[6] It should be noted that e-commerce provisions can also be found in specific and non-specific articles, annexes and side letters in some FTAs. However these are relatively small compared to the provisions in a standalone e-commerce Chapter. For further discussions, see José-Antonio Monteiro and Robert Teh (2017). “Provisions on Electronic Commerce in Regional Trade Agreements”. WTO Working Paper ERSD-2017-11. https://www.wto.org/english/res_e/reser_e/ersd201711_e.htm <Accessed 23 November 2021>.

[7] Note that Malaysia has yet to ratify the agreement as at November 2021.

[8] See https://www.bilaterals.org/?important-differences-between-the and Leblond, P. (2020). “Is RCEP WTO’s Future?” https://www.cigionline.org/articles/digital-trade-rcep-wtos-future/ <Accessed 22 November 2021>.

[9] Ibid Monteiro and Teh (2017), p. 14.

[10] See Hill, H. and Menon, J. 2010. “ASEAN Economic Integration: Features, Fulfillments, Failures and the Future”. ADB Working Paper Series on Regional Economic Integration, No.69, December. https://www.adb.org/sites/default/files/publication/28551/wp69-hill-menon-asean-economic-integration.pdf <Accessed 1 December 2021>.

[11] See Kurus, Bilson, 1995. “The ASEAN Triad: National Interest, Consensus-seeking, and Economic Cooperation”, Contemporary Southeast Asia, 16(4): 404-420.

[12] The World Bank 2019. The Digital Economy in South-east Asia: Strengthening the Foundations for Future Growth. https://openknowledge.worldbank.org/bitstream/handle/10986/31803/The-Digital-Economy-in-Southeast-Asia-Strengthening-the-Foundations-for-Future-Growth.pdf?sequence=1&isAllowed=y <Accessed 23 November 2021>.

[13] Erh, Joey 2021. Assessing Digital Economy Policies in Six Southeast Asian Countries. Perspective. ISSUE: 2021 No. 50. /wp-content/uploads/2021/03/ISEAS_Perspective_2021_50.pdf <Accessed 23 November 2021>.

[14] See https://asean.org/wp-content/uploads/2021/09/AEM-53-JMS_FINAL_ADOPTED.pdf <Accessed 23 November 2021>.

[15] See https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/asean-australia-new-zealand-free-trade-agreement-aanzfta/upgrading-aanzfta/ <Accessed 23 November 2021>.

[16] These are reportedly Indonesia, and the Philippines. See https://www.bangkokpost.com/opinion/opinion/2203475/coming-clean-on-cptpp <Accessed 23 November 2021>.

[17] See https://www.mti.gov.sg/Improving-Trade/Digital-Economy-Agreements/The-Digital-Economy-Partnership-Agreement  and  https://www.mti.gov.sg/Improving-Trade/Digital-Economy-Agreements/The-Singapore-Australia-Digital-Economy-Agreement <Accessed 23 November 2021>.

[18] See WEF 2020. Advancing Digital Trade in Asia: Community Paper. https://www3.weforum.org/docs/WEF_GFC_Advancing_Digital_Trade_in_Asia_2020.pdf  <Accessed 23 November 2021>.

[19] See Suominen, Kati 2021. “Do CPTPP-Style Digital Trade Rules Add New Value?”  https://www.csis.org/analysis/do-cptpp-style-digital-trade-rules-add-new-value <Accessed 23 November 2021>

[20] Ferracane, Martina, F. 2021. “The Costs of Data Protectionism”, In M. Burri  (ed). Big Data and Global Trade Law (pp.63-82). Cambridge: Cambridge University Press. https://www.cambridge.org/core/books/big-data-and-global-trade-law/costs-of-data-protectionism/A97AC3D1E4EAD2A8B90F33EEF605D672 <Accessed 23 November 2021>

[21] Cory, Nigel and Dascoli, Luke 2021. “How Barriers to Cross-Border Data Flows Are Spreading Globally, What They Cost, and How to Address Them”. https://itif.org/publications/2021/07/19/how-barriers-cross-border-data-flows-are-spreading-globally-what-they-cost <Accessed 23 November 2021>

[22] See https://sdg.iisd.org/news/wto-members-highlight-benefits-and-drawbacks-of-e-commerce-moratorium/ <Accessed 23 November 2021>

[23] Lovelock, Peter 2020. Chapter 2: The New Generation of ‘Digital’ Trade Agreements: Fit for Purpose? https://www.pecc.org/state-of-the-region-reports/287-2020-2021/888-chapter-2-the-new-generation-of-digital-trade-agreements-fit-for-purpose <Accessed 1 December 2021>.

[24] ATC 2020. Unpacking the Digital Economy Partnership Agreement. (DEPA). http://asiantradecentre.org/talkingtrade/unpacking-the-digital-economy-partnership-agreement-depa <Accessed 1 December 2021>.

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2021/157 “The ASEAN-China Comprehensive Strategic Partnership: What’s in a Name?” by Hoang Thi Ha

 

The ASEAN-China CSP was formally launched at the Commemorative Summit to celebrate the 30th anniversary of ASEAN-China dialogue relations, with Chinese leader Xi Jinping in attendance. In this picture, Sultan of Brunei Hassanal Bolkiah (C) takes part in the ASEAN-China Summit on the sidelines of the 2021 Association of Southeast Asian Nations (ASEAN) summits held online in Bandar Seri Begawan, Brunei, on 26 October 2021. Photo: Hakim S. Hayat, AFP.

EXECUTIVE SUMMARY

  • China’s proposal to ‘upgrade’ its relations with ASEAN to ‘comprehensive strategic partnership’ (CSP) is part of Beijing’s active neighbourhood diplomacy, which is given added emphasis and urgency by Sino-US tensions and China’s estrangement from the West.
  • The CSP proposal signals a calibrated and invested Chinese strategy to actively reshape its relations with ASEAN in China’s own image, promoting China’s status as primus inter pares among ASEAN Dialogue Partners and consolidating the centrality of Chinese leadership and influence in the regional order.
  • ASEAN does not view its CSP with China as signifying an elevated status compared to other dialogue relations. Its decision to establish CSP with both China and Australia demonstrates the grouping’s desire to maintain a state of equilibrium in its relations with all major powers and foster an inclusive multi-polar regional order.
  • Since ASEAN-China relations are defined not by its label but by its content which has both positive and contentious aspects, its future depends on both sides’ ability to bridge the dichotomy between the robust expansion of their economic-functional cooperation and the continuing lack of mutual trust.

*Hoang Thi Ha is Fellow and Lead Researcher (Political-Security) at the ASEAN Studies Centre (ASC) and Co-coordinator of the Regional Strategic and Political Studies Programme (RSPS), ISEAS – Yusof Ishak Institute.

ISEAS Perspective 2021/157, 24 November 2021

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INTRODUCTION

The 24th ASEAN-China summit in October 2021 announced the establishment of the ASEAN-China Comprehensive Strategic Partnership (CSP), adding a new nomenclature but not necessarily a new category in ASEAN’s dialogue relations.[1] The ASEAN-China CSP was formally launched at the Commemorative Summit to celebrate the 30th anniversary of ASEAN-China dialogue relations, with Chinese leader Xi Jinping in attendance.[2] Before the CSP, both sides had maintained a strategic partnership since 2003 – the most longstanding strategic partnership among all ASEAN Dialogue Partners. Does the CSP mean anything new for ASEAN-China relations and does it mean the same thing for both sides? This article unpacks the term ‘CSP’ and examines the perspectives of China and ASEAN in the establishment of an ASEAN-China CSP.

THE ASEAN-CHINA COMPREHENSIVE STRATEGIC PARTNERSHIP – WHAT’S IN A NAME?

‘CSP’ is a recent nomenclature in modern international relations. It is often associated with China’s partnership diplomacy which is defined as entailing “closer ties between states” and adhering to “a goal-driven rationale of alignment … without targeting any third party”.[3] Through this global network of partnerships, China differentiates itself from and competes with the US’ alliance system (even though Washington has also increasingly leveraged partnership diplomacy with its non-allied partners).[4] Unlike the US’ treaty-based, threat-driven and security-centric alliance system, China’s partnership diplomacy places greater emphasis on cultivating political relationships and promoting economic cooperation. It is essentially an exercise of Chinese statecraft, with ample room for diplomatic manoeuvring and semantic innovation. According to Georg Strüver, the “strong emphasis placed on partnership diplomacy in recent official discourse is unprecedented and leads to the assumption that partnerships might play an even bigger role in the structuring of China’s external relations in the years to come.”[5]

There are different levels in China’s partnership system, corresponding to the importance that Beijing attaches to each partner, the substance of China’s relations with that country/organisation and other contextual peculiarities. ‘CSP’ is considered the second-highest level of bilateral ties, above ‘strategic partnership’ and below ‘comprehensive strategic cooperative partnership’.[6] However, one should not read these terms in a strictly hierarchical order. As shown in Table 1, there are various titles describing China’s relations with the ten ASEAN member states, but they do not necessarily connote a hierarchy of importance or substance. For example, China’s “all-round cooperative partnership” with Singapore does not necessarily rank lower than its “strategic cooperative partnership” with Brunei or “comprehensive strategic cooperation” with The Philippines.

Table 1: China’s bilateral partnerships with ASEAN member states[7]

Title of China’s bilateral ties with…ASEAN member states
Strategic cooperative partnershipBrunei
Comprehensive strategic partnershipCambodia, Indonesia, Malaysia
Comprehensive strategic partnership of cooperationVietnam, Laos
Comprehensive strategic cooperative partnershipMyanmar, Thailand
All-round cooperative partnershipSingapore
Comprehensive strategic cooperationThe Philippines

A speech by then-Premier Wen Jiabao on the EU-China comprehensive strategic partnership in 2004 provides a reference for China’s broad understanding of CSP: “comprehensive” means all-dimensional, wide-ranging and multi-layered cooperation; “strategic” means long-term and stable relations that transcend differences in ideology and social system, bearing the large picture of the overall relationship; and “partnership” means equal-footed, mutually beneficial and win-win cooperation.[8] These general characteristics are, however, hard to measure and open to highly subjective application. China also does not set clear criteria for the dozens of CSP that it has established with various foreign partners. What ‘CSP’ stands for is not always clear in China’s relationship with a particular country, and it becomes even more elusive when analysed comparatively with other relations. According to a research paper on China’s partnership diplomacy, “the practice of strategic partnerships has escaped tight criteria or definitions.”[9]

Generally speaking, ‘CSP’ signifies a high level of maturity in the relationship as reflected in the breadth and depth of cooperation, shared normative frameworks and institutionalised cooperative mechanisms, and high-level political commitment and priority that both sides attach to each other. All these elements can be found in China’s relations with ASEAN as well as with its ten member states. The breadth and depth of their cooperation and exchanges at multi-levels – governmental, business and people-to-people, bilateral and multilateral – are not merely a function of geography but also the outcome of decades of diplomatic and economic relationship building, through regular high-level visits, dialogue and cooperation mechanisms in various sectors, extensive free trade agreements and deep participation in the regional production networks driven by the global supply chains.

China’s Perspective on CSP with ASEAN

China’s push to ‘upgrade’ its strategic partnership with ASEAN to CSP is part of Beijing’s active neighbourhood diplomacy, which is further emphasised during Xi Jinping’s leadership. In a foreign policy address in 2014, Xi said “we should promote neighbourhood diplomacy, turn China’s neighbourhood areas into a community of common destiny” and “conduct diplomacy with a salient Chinese feature and a Chinese vision.”[10] This activism in periphery diplomacy – befitting China’s newfound confidence as a great power and leveraging its economic gravity in the region – seeks to reshape the power relationships and renegotiate the normative content of the regional order towards a more China-centric one. China’s neighbourhood diplomacy is gaining even more prominence and urgency with the rise of Sino-US strategic tensions and China’s increased estrangement from the West.

According high priority to ASEAN in its neighbourhood diplomacy, China has been calibrating a holistic and invested strategy for the long-term development of ASEAN-China relations that fits into the Chinese vision of the regional order.[11] China’s proposal of a CSP with ASEAN is but the latest manifestation of this strategy, signalling “higher priority in foreign affairs and more extensive cooperation across multiple sectors”.[12]  Speaking at an event commemorating the 30th anniversary of ASEAN-China relations in October 2021, Chinese Foreign Minister Wang Yi stressed the importance to “draw up a new blueprint and set a new benchmark for the long-term development of bilateral relations”.[13] A CSP with ASEAN would signal such a new benchmark and set the stage for a new blueprint for the relations.

During his speech, Wang Yi proposed five points as the key thrusts of ASEAN-China CSP: (i) upholding good neighbourliness and enhancing mutual strategic trust; (ii) deepening Covid-19 response cooperation; (iii) focusing on development and fostering new growth drivers; (iv) safeguarding peace and stability, bearing in mind the larger picture; and (v) upholding solidarity and coordination in the UN system and defending justice and fairness in the global governance. Put together, they demonstrate China’s deliberate approach to not only deepen but also actively reshape relations with ASEAN and its member states in China’s own image, from a position of strength and confidence. Notably, for example, point (v) seeks to position ASEAN and its member states on the same side with Beijing in the regional and international multilateral systems.

Another underlying factor of China’s push for CSP with ASEAN is its keen attention to form and status, especially in relations with neighbouring countries over whom China’s sense of hierarchy and entitlement is more pronounced. By proposing the CSP, China was aiming to score another “first” in its relations with ASEAN – after being the first Dialogue Partner to sign the Treaty of Amity and Cooperation in Southeast Asia (2003), the first to establish a strategic partnership and launch FTA negotiations with ASEAN, and the first and only nuclear weapon state willing to sign on to the Southeast Asia Nuclear Weapons-Free Zone Treaty (SEANWFZ) with no reservations. The establishment of the CSP would further consolidate China’s status as the most advanced, most committed and most substantial Dialogue Partner in all ASEAN’s dialogue relations.

Before the CSP proposal, China since 2013 had invested its diplomatic capital in promoting the ASEAN-China Community of Common Destiny (CCD) proposal. While China has successfully socialised the CCD concept with some mainland Southeast Asian countries, the response of ASEAN as a whole has been lukewarm because the concept is ill-defined and has deterministic and exclusionary connotations.[14] Similar to the CCD, the CSP proposal seeks to enhance China’s image as primus inter pares compared to other ASEAN Dialogue Partners and consolidate China’s stature as the predominant power in its Southeast Asian periphery.

The push for CSP with ASEAN can also be seen as part of China’s efforts to strengthen its discourse power. According to a report by the Atlantic Council in 2020, one of the designated narratives for Chinese government institutions to promote China’s discourse power is “the country’s leadership prospect among developing countries” and one of the means towards this end is through “popular proposals for multilateral and bilateral cooperation”.[15] A CSP with ASEAN would serve as a propaganda instrument to amplify the positive narrative about China, especially its development and connectivity-focused diplomacy with the developing countries. The imperative for Beijing to foster this positive narrative has intensified as China’s international image in the developed world has taken sharp downturns following the Covid-19 pandemic outbreak, according to many public polls worldwide.[16]

ASEAN’s Perspective on CSP with China

ASEAN had had extensive internal debate throughout 2021 before consensus was reached on establishing CSP with China. The debate focused on two key questions.

First, what are the parameters to set CSP apart as a new nomenclature in ASEAN’s dialogue relations system? If it is meant as an upgrade from the existing ASEAN-China strategic partnership, what would be the new offerings and/or substantive concessions that China would bring to the table? Only unveiled at the last minute by Xi Jinping at the Commemorative Summit, China’s pledged support was substantial indeed, including an additional donation of 150m Covid-19 vaccine doses, additional US$5 million contribution to the Covid-19 ASEAN Response Fund, vaccine joint production and technology transfer, US$1.5 billion development assistance in the next three years and purchase of US$150 billion of agricultural products from ASEAN in the next five years.[17] These offerings are very much attuned to the top priorities of all ASEAN member states at the moment, namely effective pandemic control and accelerated post-pandemic economic rebound. 

There was also a motion within ASEAN to link CSP establishment with China’s express support for the ASEAN Outlook on the Indo-Pacific (AOIP).[18] This may not be straightforward given China’s steadfast opposition to anything ‘Indo-Pacific’ which Beijing associates with a strategy by Washington and its allies/partners to counter and contain China. However, the launch of the ASEAN-China CSP saw China overcome its visceral aversion to the term ‘Indo-Pacific’ and embrace the AOIP in the most explicit manner. The Joint Statement of the Commemorative Summit reaffirmed “the principles of the AOIP while recognising that it is ASEAN’s independent initiative” and agreed to “advance cooperation in the relevant areas identified in the AOIP to develop enhanced strategic trust and win-win cooperation”. In his speech, Xi Jinping spoke of a “prosperous home together” that includes cooperation between the Belt and Road Initiative (BRI) and the AOIP.[19] By embracing the AOIP, China has exercised a pragmatic flexibility that both pleases ASEAN and serves China’s enlightened self-interest. The Outlook indeed offers the most inclusive and China-friendly vision of the Indo-Pacific. It also contains practical pathways for economic-functional cooperation which are amenable to China’s development-based approach.[20]

Second, how is ASEAN to situate the ASEAN-China CSP in the larger picture of its external relations with other Dialogue Partners, with an eye on keeping a state of equilibrium among them? There is no denial of the fact that China is among if not the most substantive and substantial partner of ASEAN, leading the pack in many measures. ASEAN’s dialogue relations with China span across around 50 sectoral cooperation mechanisms, compared to about 20 with the US.[21] China has been ASEAN’s largest trading partner since 2009 and ASEAN became China’s top trading partner in 2020.[22] China is viewed by the majority of Southeast Asian foreign policy elites as the most influential power in the region in both political-strategic and economic terms, according to the State of Southeast Asia survey from 2019 to 2021.[23] It is exactly because of China’s growing and predominant regional influence that ASEAN has been prudent to avoid any designation that may lend the primus inter pares quality to its relations with China.

China has scored first-mover advantage in various foreign policy initiatives towards ASEAN, including establishing strategic partnership, negotiating the FTA, and signing the TAC. But ASEAN also has a track record of proliferating these initiatives to other Dialogue Partners. For example, the club of ASEAN’s “strategic partners” started first with China in 2003, followed by Japan (2005), the ROK (2010), India (2012), Australia (2014), New Zealand and the US (2015), Russia (2018) and most recently the EU (2020).  Save for Canada (and the UK who just became the 11th ASEAN Dialogue Partner in August 2021), ‘strategic partnership’ has been applied to all Dialogue Partners despite the different degrees of their regional engagement and cooperation with ASEAN. Once proliferated, the term started to lose its special shine.

Keeping to this inclusive nature of ASEAN’s external relations – and considering the merits of Australia’s engagement with the region – ASEAN also agreed to establish CSP with Australia at the first annual ASEAN-Australia Summit in October 2021. The ASEAN-Australia CSP has the same characteristics – “meaningful, substantive and mutually beneficial” – as with China. It is also noteworthy that despite concerns expressed by some ASEAN states on the recent Australia-UK-US (AUKUS) trilateral security pact, ASEAN’s decision to establish the CSP with Australia appeared to be more straightforward and less contentious than the CSP with China.[24] Canberra’s swoop for the same designation has somewhat stolen the limelight of the ASEAN-China CSP, triggering a commentary on Global Times that berated Australia’s initiative as “geopolitical backbiting” and belittled the AU$154 million package that Canberra brought to its new ASEAN initiatives.[25]

The decision to establish [emphasis added] the CSP with both Australia and China – even as Beijing-Canberra relations have hit new lows this year due to a range of political, strategic and trade tensions – is an ASEAN masterstroke of hedging and soft balancing among the major powers. It is an act of embracing and defying the gravity of Chinese influence at the same time. By doing so, ASEAN continues to follow the pathways of “omni-enmeshment of major powers and complex balance of influence”.[26] ASEAN intentionally did not use the words “elevate” or “upgrade” so as to avoid giving the impression that its relationship with China and Australia by virtue of the CSP now stands above those with other Dialogue Partners. This calibrated response indicates that ASEAN member states have conscientiously exercised their agency by leveraging this diplomatic tug-of-war among the contending partners in the ASEAN setting for their own benefit.

CONCLUSION

With the ASEAN-China CSP, China can now claim another title in its partnership system and a new achievement in its active neighbourhood diplomacy. Yet, the significance of the CSP should be put in perspective. ASEAN has adopted this new and open-ended nomenclature without giving it an elevated status compared to other Dialogue Partners. China’s CSP initiative and ASEAN’s nuanced response unveil their different visions of the regional order. ASEAN remains faithful to an inclusive multi-polar order where all major powers co-exist and compete so that regional states can diversify their options and maximise their autonomy. For Beijing, it should be an exclusionary and hierarchical order where China’s centrality in regional leadership is restored and external powers’ influence relegated to the margins. Intriguingly, in his speech, Xi Jinping spoke highly of “inclusiveness” and “open regionalism” as common values of both ASEAN and China.[27] Xi’s emphasis on “inclusiveness” and “open regionalism” can be interpreted in two ways. First, these values – which Xi said “draw[ing] wisdom from East Asian civilisation” – are framed in the narrower context of ASEAN-China relations. Second, this could be China’s tacit criticism of the more exclusionary minilateral groupings led by Washington, especially the Quadrilateral Security Dialogue (QUAD) and the recent security pact between Australia, the United Kingdom and the US (AUKUS).

The future of the ASEAN-China partnership is defined not by its label but by its content and how both sides are going to shape it. At this, it is important to acknowledge both positive and problematic aspects of the relations. China tends to amplify only the positive elements, especially in economic cooperation and “new growth drivers” such as digital and green technologies, connectivity and pandemic response, which are much welcomed and embraced by ASEAN member states. However, emphasis on the positive content alone will not remove contentious security issues that continue to undermine mutual trust.[28] These include, among others, the territorial and maritime disputes in the South China Sea where China’s assertive behaviour continues unabated regardless of its push towards early conclusion of a code of conduct in the SCS, threatening the maritime rights and interests of other Southeast Asian claimant states.[29] Going forward, a key measure of maturity in ASEAN-China relationship is the ability to bridge the emerging dichotomy between the persistent trust deficit driven by this security dilemma and the robust expansion of bilateral economic-functional cooperation.


ENDNOTES

[1] Chairman’s Statement of the 24th ASEAN-China Summit, 26 October 2021, https://asean.org/wp-content/uploads/2021/10/63.-Final-Chairmans-Statement-of-the-24th-ASEAN-China-Summit.pdf.

[2] Joint Statement of the ASEAN-China Special Summit to Commemorate the 30th Anniversary of ASEAN-China Dialogue Relations: Comprehensive Strategic Partnership for Peace, Security, Prosperity and Sustainable Development, 22 November 2021, https://asean.org/joint-statement-of-the-asean-china-special-summit-to-commemorate-the-30th-anniversary-of-asean-china-dialogue-relations-comprehensive-strategic-partnership-for-peace-security-prosperity-and-sustain.

[3] Georg Strüver, “International Alignment between Interests and Ideology: The Case of China’s Partnership Diplomacy”, German Institute of Global and Area Studies (GIGA), March 2016.

[4] See “Full Text of Foreign Minister Wang Yi’s Speech on China’s Diplomacy in 2014”, China Daily, 26 December 2014. Wang Yi said: “[W]hat makes such a partnership different from a military alliance is that it does not have any hypothetical enemy nor is it targeted at any third party, thus keeping relations between countries unaffected by military factors. It aims to handle state-to-state relations with a cooperative rather than confrontational, and a win-win rather than zero-sum approach.” At the Commemorative Summit on 22 November 2021, Xi Jinping also said: “We need to pursue dialogue instead of confrontation, build partnerships instead of alliances, and make concerted efforts to address the various negative factors that might threaten or undermine peace.”

[5] Georg Strüver, op. cit.

[6] SCMP Reporter, “Quick guide to China’s diplomatic levels”, South China Morning Post, 20 January 2016, https://www.scmp.com/news/china/diplomacy-defence/article/1903455/quick-guide-chinas-diplomatic-levels.

[7] Author’s compilation based on public sources.

[8] Speech by H.E. Wen Jiabao, Premier of the State Council of the People’s Republic of China: “Vigorously Promoting Comprehensive Strategic Partnership Between China and the European Union, 6 May 2004, http://webcache.googleusercontent.com/search?q=cache:pwWRUXFH_AIJ:www.chinamission.be/eng/zt/t101949.htm+&cd=1&hl=en&ct=clnk&gl=sg.

[9] Feng Zhongping and Huang Jing, “China’s Strategic Partnership Diplomacy”, ESPO Working Paper No. 8, 29 Jun 2014, China Institutes of Contemporary International Relations (CICIR), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2459948.

[10] Ministry of Foreign Affairs of the People’s Republic of China, “The Central Conference on Work Relating to Foreign Affairs was held in Beijing”, 29 November 2014, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1215680.shtml.

[11] Hoang Thi Ha, “Understanding China’s Proposal for an ASEAN-China Community of Common Destiny and ASEAN’s Ambivalent Response”, Contemporary Southeast Asia 41, No. 2 (2019), pp. 223–54 .

[12] Farah Nadine Seth and Sharon Seah, “The ASEAN-China Partnership: Balancing Merits and Demerits”, ISEAS Perspective 2021/120, 10 September 2021, /articles-commentaries/iseas-perspective/2021-120-the-asean-china-partnership-balancing-merits-and-demerits-by-farah-nadine-seth-and-sharon-seah.

[13] Ministry of Foreign Affairs of the People’s Republic of China, “Wang Yi Attends and Addresses the Opening Ceremony of the Conference on Celebrating the 30th Anniversary of ASEAN-China Dialogue Relations”, 28 July 2021, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1895951.shtml.

[14] Hoang Thi Ha, op. cit.

[15] “China’s Shift Toward Discourse Power”, Atlantic Council, 2020, https://www.jstor.org/stable/pdf/resrep27615.5.pdf.

[16] See: Laura Silver, Kat Devlin and Christine Huang, “Unfavorable Views of China Reach Historic Highs in Many Countries”, Pew Research Centre, 6 October 2020, https://www.pewresearch.org/global/2020/10/06/unfavorable-views-of-china-reach-historic-highs-in-many-countries; Laura Silver, China’s international image remains broadly negative as views of the U.S. rebound, Pew Research Centre, 30 June 2021, https://www.pewresearch.org/fact-tank/2021/06/30/chinas-international-image-remains-broadly-negative-as-views-of-the-u-s-rebound; Richard Q. Turcsányi, Matej Šimalčík, Kristína Kironská, Renáta Sedláková, et al., European Public Opinion on China in the Age of COVID-19, Central European Institute of Asian Studies (CEIAS) and partnershttps://ceias.eu/wp-content/uploads/2020/11/COMP-poll-report_3.pdf; Lowy Institute Poll 2020, China, The Lowy Institute, https://poll.lowyinstitute.org/themes/china.

[17] Ministry of Foreign Affairs of the People’s Republic of China,  For a Shared Future and Our Common Home, Speech by Xi Jinping at the Special Summit to Commemorate the 30th Anniversary of China-ASEAN Dialogue Relations, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1919473.shtml.

[18] Author’s interviews with ASEAN member states’ officials.

[19] Ministry of Foreign Affairs of the People’s Republic of China, op. cit.

[20] Hoang Thi Ha, “ASEAN Outlook on the Indo-Pacific: Old Wine in New Bottle?”, ISEAS Perspective 2019 No. 51, 25 June 2019, /images/pdf/ISEAS_Perspective_2019_51.pdf.

[21] Author’s estimation, based on the Plan of Action to Implement the ASEAN-U.S. Strategic Partnership.

(2021-2025), https://asean.org/asean2020/wp-content/uploads/2021/03/15.-ASEAN-US-Plan-of-Action-2021-2025-Final.pdf; and the Plan of Action to Implement the ASEAN-China Strategic Partnership for Peace and Prosperity (2021 – 2025), https://asean.org/wp-content/uploads/2012/05/ASEAN-China-POA-2021-2025.pdf.

[22] Chairman’s Statement of the 24th ASEAN-China Summit, op. cit.

[23] State of Southeast Asia Survey Reports, ISEAS-Yusof Ishak Institute, 2019-2021, /category/articles-commentaries/state-of-southeast-asia-survey.

[24] Author’s interviews with ASEAN member states’ officials.

[25] “GT Voice: Australia’s empty gestures won’t hinder China-ASEAN ties”, Global Times, 28 October 2021, https://www.globaltimes.cn/page/202110/1237565.shtml.

[26] Evelyn Goh, “Great Powers and Hierarchical Order in Southeast Asia: Analyzing Regional Security Strategies”, International Security, Vol. 32, No. 3 (Winter 2007/08), pp. 113-157.

[27] Ministry of Foreign Affairs of the People’s Republic of China, op. cit.

[28] Hoang Thi Ha, “Southeast Asians’ Declining Trust in China”, ISEAS Perspective 2021/15, 18 February 2021, /articles-commentaries/iseas-perspective/iseas-perspective-2021-15-southeast-asians-declining-trust-in-china-by-hoang-thi-ha.

[29] See “Beijing rattles oil companies in South China Sea off Vietnam”, Energy Voice, 13 August 2020, https://www.energyvoice.com/oilandgas/asia/258490/beijing-oil-china-vietnam; Samir Puri, “What the Whitsun Reef incident tells us about China’s future operations at sea”, IISS, 9 April 2021,https://www.iiss.org/blogs/analysis/2021/04/whitsun-reef-incident-china; Aristyo Rizka Darmawan, “China’s Recent Foray into the North Natuna Sea is Problematic”, Fulcrum, 22 September 2021, https://fulcrum.sg/chinas-recent-foray-into-the-north-natuna-sea-is-problematic; Amy Chew, “China harasses Malaysian oil and gas vessels on a ‘daily’ basis, Asia Maritime Transparency Initiative says”, SCMP, 25 October 2021, https://www.scmp.com/week-asia/politics/article/3153648/china-harassing-malaysian-oil-and-gas-vessels-daily-basis-asia.

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2021/120 “The ASEAN-China Partnership: Balancing Merits and Demerits” by Farah Nadine Seth and Sharon Seah

 

It was Chen Xiaodong, China’s Assistant Minister of Foreign Affairs, who proposed establishing an ASEAN-China Comprehensive Strategic Partnership (AC-CSP) in 2021. In this photo, Chen Xiaodong delivering a speech during the Middle East Security Forum at the Diaoyutai State Guesthouse in Beijing on 27 November 2019. Picture: Noel CELIS, AFP.

EXECUTIVE SUMMARY

  • An ASEAN-China Comprehensive Strategic Partnership (AC-CSP) may be on the cards, but ASEAN fears that adopting it may be construed as taking sides.
  • While a pragmatic analysis of what an AC-CSP would bring to the table across its three pillars of cooperation is needed, ASEAN should also consider the implications for the bloc’s strategic autonomy, given the political and institutional upgrading of ties involved.
  • While ASEAN may find it difficult to rebuff China’s overtures for an AC-CSP given Beijing’s expanding hegemony and the structurally asymmetrical relationship, the common challenges and aspirations shared by both parties nevertheless encourage functional cooperation. On the flip side, there is also the danger of certain presently relished benefits in the relationship being lost.
  • Thus, ASEAN must be mindful of the method and pace with which AC-CSP negotiations are conducted, and focus on expanding cooperation in mutual ‘bright spots’ in the socio-cultural realm, and allow for an implicit wait-and-see approach.
  • China and Australia’s requests for an upgrade presents an opportune window for ASEAN to calibrate its guiding principles for future upgrading of partnerships.

* Farah Nadine Seth is Research Officer at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute. Sharon Seah is ISEAS Senior Fellow and Coordinator of the ASEAN Studies Centre and the Climate Change in Southeast Asia Programme.

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INTRODUCTION

ASEAN’s relationship with China follows closely the latter’s exponential rise in importance globally in the last 30 years. China’s first official engagement with the bloc was in 1991, and it was accorded full Dialogue Partner (DP) status five years later.[1] Despite joining later than other countries,[2] China accelerated its engagement with ASEAN rapidly thereafter with China-ASEAN ties being upgraded to a strategic partnership in 2003, earlier than for other DPs.[3] Since then, China has embarked on a plethora of collaborations across ASEAN’s three sectoral pillars.

Continuing earlier calls for strengthening of ties,[4] China has been pushing for an ASEAN-China Comprehensive Strategic Partnership (AC-CSP) with the advent of the 30th Anniversary of ASEAN-China dialogue relations this year. It was Chen Xiaodong, China’s Assistant Minister of Foreign Affairs, who proposed establishing an AC-CSP in 2021.[5] This was met with a polite muted response from the bloc as seen in the Chairman’s Statement of the 23rd ASEAN-China Summit.[6] China’s desire to upgrade bilateral relations reflects ASEAN’s long-standing economic and strategic importance to Beijing, with top Chinese diplomats repeatedly emphasising that “China will always take ASEAN as a priority in its neighbourhood diplomacy”.[7] At the point of writing, discussions on a potential AC-CSP, along with Australia’s request to upgrade its relations to a CSP,[8] are ongoing.

This Perspective examines ASEAN-China cooperation across ASEAN’s three sectoral pillars before analysing the opportunities and concerns of a potential AC-CSP. We argue that while ASEAN must carefully consider the conditions for an AC-CSP, including concerns of exacerbated structural inequalities in the political-security and economic realms, the bloc might be hard-pressed to ignore China’s overtures given Beijing’s expanding regional influence and the structurally asymmetrical relationship. Nevertheless, the common challenges and aspirations shared by both parties point to potential mutually beneficial areas of functional cooperation. As such, ASEAN must be mindful of the method and pace in which AC-CSP negotiations are conducted, and focus on expanding cooperation in mutual ‘bright spots’ in the socio-cultural realm, and allow for an implicit wait-and-see approach.

MULTIFACETED COOPERATION THROUGH THE YEARS

China’s key pillar of cooperation with ASEAN is arguably economic. China was the first major power to conclude a Free Trade Agreement (FTA) with ASEAN,[9] and trade and investment between both parties has grown rapidly as a result. China has been ASEAN’s top trading partner since 2009.[10] In 2020, the bloc surpassed the EU to be China’s top trading partner.[11] Two-way trade in 2020 was valued at US$731.9 billion while foreign direct investment inflows into the region topped US$7.6 billion.[12] From their wide-ranging cooperation – spanning production capacity, communication and science technologies, transport cooperation and smart cities – connectivity has emerged as a key cooperation sector with both parties working to synergise common strategies in the Master Plan on ASEAN Connectivity 2025 and China’s Belt and Road Initiative.[13] Through the latter, China has invested significantly in various infrastructure projects region-wide, especially in the mainland ASEAN states.

Recently, collaboration under the socio-cultural pillar has gained traction and earned China more soft power. China and ASEAN have increased cooperation in public health, environmental protection, disaster management, and rural development. Furthermore, China’s COVID-19-related assistance[14] and its extensive vaccine diplomacy in the region,[15] were noteworthy, with the region recognising China as the DP that provided the most help during the pandemic, according to The State of Southeast Asia: 2021 Survey (SSEA2021).[16] Within the environmental realm, there have been growing interactions in environmental protection, climate action and eco-friendly cities.[17] The increased socio-cultural interlinkages are perhaps best encapsulated in the 30th year of ASEAN-China Dialogue Relations’ theme, “Year of Sustainable Development Cooperation”, which focused on non-traditional security and sustainable development issues.[18]

Their political and security cooperation, however, is subject to changing push-and-pull tensions. Beijing’s law enforcement-driven security collaborative efforts centre on drug trafficking, transnational crime and non-traditional security issues. Regarding defence security, China has participated in various fora within ASEAN-led mechanisms such as the ASEAN Defence Ministers Meeting Plus, ASEAN Regional Forum and the East Asia Summit. However, their political discussions largely focus on the contentious issue of territorial sovereignty in the South China Sea (SCS). Various measures to manage these increasingly tense relations have been initiated including the Declaration on the Conduct of Parties in the South China Sea (DOC) signed in 2002, and the ongoing Code of Conduct (COC) negotiations that have been underway since 2017. Progress on the COC has been slow-moving, and military incursions in the SCS are straining relations and belying the agreements made to mitigate tensions.

An AC-CSP would signal higher priority in foreign affairs and more extensive cooperation across multiple sectors. Referencing Premier Wen Jiabao’s authoritative definition on a CSP, the term ‘Comprehensive’ denotes that the partnership would involve “cooperation in the economic, technological, cultural and political fields” with multi-level diplomatic cooperation at the government and people-to-people level to deal with both bilateral and multilateral issues.[19] Beijing’s Five-Point Proposal on the future of ASEAN-China cooperation serves as a reference point for the possible areas that an AC-CSP would focus on (refer to Table 1).

Table 1: China’s Five-Point Proposal for China-ASEAN Relations

Source: Ministry of Foreign Affairs of the People’s Republic of China[20]

OPPORTUNITIES AND CONCERNS OF AN AC-CSP

Considering the longstanding cooperation between ASEAN and China, their increasingly inter-connected economies, and the crucial geopolitical space within which the ASEAN bloc resides, it is not surprising that China is pushing for a closer strategic partnership. The changing global geopolitical landscape with a stridently growing counter-China narrative and regional architecture[21] led by an assertive Biden Administration, is also a factor in driving China to strengthen its remaining bright spot in diplomatic relations.[22] China has been engaging in a charm offensive with the region with reciprocal bilateral visits between China and ASEAN countries in the last year, despite pandemic travel restrictions.[23] The series of 30th Anniversary commemorative events[24] have also allowed Beijing to repeatedly highlight enduring China-ASEAN bonds and press for an AC-CSP.

However, regional trust in China is low despite Beijing’s COVID-19 diplomacy. According to SSEA2021, China[25] recorded the lowest trust ratings of 16.5% and the highest distrust ratings of 63.0% amongst regional respondents. The top-cited concern was that China’s economic and military might may be used to threaten ASEAN states’ interest and sovereignty.[26] A potential AC-CSP would enhance fears of ASEAN’s loss of strategic autonomy given closer economic and security ties and likely increased Chinese hegemony.

Moreover, Southeast Asia is shaping into a geopolitical battleground, with the US and its allies re-focusing their attention to the region. In contrast to the previous administration’s disinterest, the Biden Administration views Southeast Asia and ASEAN as being integral to security interests in the Indo-Pacific and in countering Chinese strategic and economic influence in the region.[27] A recent ramp up in American diplomatic visits to Southeast Asia[28] with the most recent being Vice-President Kamala Harris’ visit to Singapore and Vietnam, point to US intention to revitalise their engagement with the region.

Against this backdrop, an AC-CSP may heighten ASEAN’s fears of being forced to take sides in the major power rivalry. Such a CSP would be the first between ASEAN and one of its DPs, sending an implicit signal of ASEAN tilting towards China despite its position thus far of neutrality. The traditional risk-averse ASEAN approach would be to continue hedging and to employ a wait-and-see strategy. This mode was already exhibited in the watered-down version of the final Co-Chair’s Statement on the Special ASEAN-China Foreign Ministers’ Meeting in Celebration of the 30th Anniversary of the Dialogue Relations despite China’s initial optimistic projections.[29] It is unclear, though, how long ASEAN can continue to hedge and if prolonged delay would be viewed as a rebuff to the Chinese. However, noting the glacial pace at which consensus-driven ASEAN tends to operate, especially during pandemic times, such a delay – or hedging – would not be unusual and could be a convenient excuse.

ASEAN must embark on a pragmatic analysis of what an AC-CSP would bring to the table. Closer economic ties with China have certainly benefited the region. It is unclear whether closer political-security cooperation would be a boon or bane. In areas of mutual alignment such as combatting drug trafficking and transnational crime, there are opportunities for closer functional cooperation, though mainland states may worry about the expansion of Chinese influence in sub-regional security.[30] In the SCS disputes, some supporters may see an AC-CSP as an opportunity for ASEAN claimant states to seek to resolve contested boundaries. In their Five-Point Proposal, Beijing indicated its willingness to step up resolution-driven dialogue with claimant states and to speed up negotiations on a COC that complies with international law.[31] These would be promising signs of more effective cooperation in an AC-CSP. However, China’s track record of coercive fait accompli building of artificial islands and military outposts to stake its territorial claim as well as its blatant disregard of the 2016 Tribunal ruling not in its favour[32], makes it unlikely that Beijing can be persuaded to depart from its thus far China-first doctrine even within an AC-CSP. Strengthened regional ties through an AC-CSP could put claimant states under greater pressure to resolve SCS disputes bilaterally, an avenue that China has long preferred. Similarly, non-SCS claimant states may be reluctant to include the matter of SCS concessions, those not being of concern to them in an institutional agreement.

The AC-CSP may appear to be a revival of China’s proposed ASEAN-China Treaty of Good Neighbourliness, Friendship and Cooperation, an idea that China put forward in 2013 to frame the strategic partnership. The idea of a treaty was politely and quietly shelved on concerns that it would duplicate and undermine the Treaty of Amity and Cooperation.[33] The promotion of “multilateralism with Asian characteristics” in Beijing’s Proposal suggests a desire to create a China-centred multilateral order but one which is undefined and ill-articulated. The Sino-centric world idea threatens to contradict the global international legal order which can be problematic to both sides’ stated adherence to international law, particularly in the SCS disputes. This raises a greater concern of whether strengthened ties would exacerbate the asymmetrical China-ASEAN relationship and force ASEAN to take a more China-amenable stance on other contested issues such as the Indo-Pacific or the Mekong sub-region. In essence, would an upgrade put ASEAN in danger of becoming a proxy region prone to do China’s bidding?

From an economic standpoint, an AC-CSP could enhance both the advantages and disadvantages stemming from the current relationship. For example, while trade and investment volumes may have room for expansion, existing trade deficits and negative impacts on ASEAN states’ local economies may consequently be exacerbated. Increased Chinese investment in connectivity projects, mostly in the Mekong region, while benefitting infrastructure needs, may heighten fears of increased economic dependence on China and subsequent decreased strategic autonomy.[34] These scenarios are no doubt dependent on the actual terms of the AC-CSP, but were ASEAN to decide not to accede to a CSP, it is likely that a rebuffed China would impose retaliatory punitive measures as it had done with Australia, a situation that most countries would rather avoid.[35]

The socio-cultural pillarmay perhaps be the bright spot in an AC-CSP. This year’s “Sustainable Development Cooperation” theme with its focus on expertise sharing on climate change, biodiversity, marine environment preservation, sustainable cities and clean energy, points to increased future cooperation on pressing environment-related issues. Beijing has indicated its readiness to implement the latest ASEAN-China environmental cooperation strategy.[36] Moreover, their commitment to environmental protection and innovation is underscored in the third thrust of their Five-Point Proposal on developing partnerships based on new growth drivers such as the blue and green economies. The other growth area of public health, as seen in the Proposal’s second thrust, suggests much-needed pandemic-related cooperation, moving forward. This includes joint vaccine production in ASEAN states, initial steps of which are seen in China and Indonesia’s recent cooperation pledge.[37] Functional cooperation holds promises of a “feel-good” factor and an ability to conduct arms-length cooperation without sacrificing strategic autonomy.

From an institutional standpoint, upgrading ties holds both opportunities and risks, given China’s existing bilateral relations with ASEAN states. Following Li & Ye’s categorisation of China’s partnerships into three broad categories – regular partnership, strategic partnership and comprehensive strategic partnership,[38] it is worth noting that most of China’s bilateral relations with ASEAN member states are more comprehensive than those with ASEAN as a whole, with most of them falling under the CSP grouping (Refer to Table 2). In particular, the Mekong countries of Cambodia, Laos, Myanmar, Vietnam and Thailand all have a higher level of bilateral partnerships that entered into force earlier than for those China has with their maritime counterparts. 

Table 2: Status of Bilateral Relations of ASEAN Member States with China

Source: Various Sources (Ministries of Foreign Affairs of ASEAN states and China, The Brookings Institute[39], Li &Ye, and various press releases)

These raise important considerations. Is this a critical juncture for ASEAN to upgrade its relationship with China to reflect the strengthened ties which most ASEAN states already have with Beijing? As noted in NIDS China Security Report 2019, the framework between ASEAN and China serves as a “protective wall that prevents the direct exertion of China’s massive influence on the small and medium-sized countries of ASEAN”.[40] Similarly, an upgraded relationship could provide ASEAN greater leverage and a unified voice when dealing with China on contested sub-regional matters – such as the Mekong issues – which individual states may have less authority to act on.  However, critics could argue that the converse is just as important – ASEAN as an institution should resist upgrading relations as a last ballast of regional hedging against expanding Chinese hegemony, maintain “pushback” against being drawn more into China’s orbit and attempt to preserve its strategic autonomy. These possible scenarios depend on the bloc’s objectives in an AC-CSP and critical operationalisation details.

The EU-China Comprehensive Strategic Partnership (EU-China CSP) provides a point of comparison for a potential AC-CSP. Announced in 2003, the EU-China CSP was heralded as the coming together of two “natural partners”[41] to go beyond trade and investment ties and strive towards greater “convergence around long-term economic, political and strategic attitudes and objectives”. The EU’s strategic motivations for entering into this partnership were manifold,[42] one being the desire to counteract the US’ then rapidly spreading hegemony. However, the upgraded partnership eventually amounted to merely strengthening trade and investment relations. Analysts have attributed the lacklustre strategic partnership to fundamental differences in political values, geopolitical spheres of interest as well as conceptions of world order. China’s declining strategic interest in EU, given the former’s meteoric global rise in the last two decades, also played a role.[43]

While the EU-China CSP raises the possibility that an AC-CSP could similarly amount to enhanced economic cooperation, realists would point to vital differences in the ball game between ASEAN and China: the geo-proximity of Southeast Asia, the region’s strategic space for Beijing to extend its influence vis-à-vis major power rivalry, and the greater structural asymmetry in the ASEAN-China relationship. These all suggest not only the longevity of a potential AC-CSP but also the risk of loss of ASEAN centrality in the regional architecture and a backslide in international rule of law if China’s vision of “multilateralism with Asian characteristics” were realised.

MOVING FORWARD

As discussed above, while an AC-CSP affords ASEAN some opportunities, there are areas of concern which the bloc must carefully consider. In assessing and negotiating the terms of a possible AC-CSP, the timing and operationalisation of the details of the multi-sectoral cooperation are crucial. Beijing also needs to provide more clarity on what they want to achieve in a CSP.

From a realist’s perspective, however, ASEAN may find it hard to rebuff China’s overtures for a CSP. Given Beijing’s unspoken determination to increase its economic and strategic influence in the region, as well as its well-known tit-for-tat modus operandi of punishing countries that rebuff it, the bloc may have little choice but to eventually accede. Moreover, the fact that a sizeable number of ASEAN states are dependent on China’s economic purse and political support for development projects and regime legitimation points to potential internal willingness for upgraded ties. In this regard, Cambodia recently voiced its public support for an AC-CSP at the ASEAN Post Ministerial Conference with China.[44] Furthermore, it could be argued that China is perhaps already engaging in a pseudo-CSP with ASEAN given the already broad-based and active collaborations already underway, and an AC-CSP would be but a mere repackaging exercise. 

Nevertheless, a defeatist power-driven perspective presents only a limited analysis of the relationship. Despite Beijing’s oft-cited dismissal of the bloc’s small size[45], ASEAN states and China have a shared future given their overlapping spheres of economic and geographic existence. Common challenges such as public health, climate action, post-pandemic recovery as well as common aspirations such as development-driven connectivity, highlight their semi-symbiotic relationship and point to potential areas of mutually beneficial functional cooperation.

Taking these factors into consideration, ASEAN must therefore be mindful of the method and pace with which negotiations on an AC-CSP are conducted.  The bloc could consider focusing on the expansion of cooperation in mutual ‘bright spots’ in the socio-cultural realm that have room for growth, such as environmental collaboration or pandemic-related assistance. The pace at which negotiations are conducted should also be managed, allowing ASEAN to take an implicit wait-and-see approach to see how external powers react to ongoing negotiations and to potentially extract more concessions from a China eager to finalise the partnership. Australia’s request for ASEAN to consider a CSP could well provide a good cover for ASEAN to delay a decision on the matter, although many will say that the tenor of the two relationships is vastly different. However, the case can nevertheless give ASEAN some space to consider what its guiding principles should be when upgrading partnerships.

At this point of preliminary negotiations, ASEAN should focus on the potential gains and the concerns of upgraded ties, including reconciling the different world views on both sides. It should take this valuable opportunity to calibrate its guiding principles for upgrading partnerships, moving forward, and perhaps most importantly, as the EU’s experience suggests, whether or not both sides share common multilateral values.

ISEAS Perspective 2021/120, 10 September 2021


ENDNOTES

[1] ASEAN Secretariat. (April 2020). Overview of ASEAN-China Dialogue Relations. ASEAN Secretariat Information Paper. https://asean.org/storage/2012/05/Overview-of-ASEAN-China-Relations-22-Apr-2020-00000002.pdf.   

[2] Countries such as Japan, Australia, the US, Canada and the EU had already established dialogue relations with the bloc in the 1970s. Source: ASEAN Secretariat. (2021). Overview of Dialogue Relations of ASEAN with the abovementioned countries. ASEAN Secretariat Information Papers. https://asean.org/asean/external-relations/.

[3] Other DPs which reached a strategic partnership with the bloc years later include the Republic of Korea (2010), Australia (2014), the US (2015), Russia (2018), the EU (2020). Source: ibid.

[4] China had previously proposed the development of an ASEAN-China Treaty of Good Neighbourliness, Friendship and Cooperation as well as a vision of an ASEAN-China Community of Common Destiny in 2013. Source: ASEAN Secretariat (9 October 2013). Chairman’s Statement of the 16th ASEAN-China Summit. Paragraph 10. https://asean.org/wp-content/uploads/images/archive/23rdASEANSummit/chairmans%20statementfor%20the%2016th%20asean-china%20summit%20-%20final%203.pdf; Hoang, T.H.  (August 2019). Understanding China’s Proposal for an ASEAN-China Community of Common Destiny and ASEAN’s Ambivalent Response. Contemporary Southeast Asia: A Journal of International and Strategic Affairs, Volume 41, Number 2, pp. 223-254.   

[5] National ASEAN 2020 Committee – The Sub-Committee on Communications and Culture. (1 July 2020). ASEAN, Chinese senior officials meet online. ASEAN Vietnam 2020 Online. https://www.asean2020.vn/xem-chi-tiet1/-/asset_publisher/ynfWm23dDfpd/content/asean-chinese-senior-officials-meet-online.

[6] The bloc stated that it “agreed to undertake consultations on the proposed establishment of a Comprehensive Strategic Partnership between ASEAN and China”. Source: ASEAN Secretariat. (12 November 2020). Chairman’s Statement of the 23rd ASEAN-China Summit. https://asean.org/storage/47-Final-Chairmans-Statement-of-the-23rd-ASEAN-China-Summit.pdf.

[7] This was mentioned in the Vice Foreign Minister’s speech at the opening ceremony of the 30th Anniversary of China-ASEAN dialogue relations. Source: Ministry of Foreign Affairs of the People’s Republic of China. (9 March 2021). Vice Foreign Minister Luo Zhaohui Talks about China-ASEAN Relations: Brighter Prospects after 30 Years of Thriving Development. https://www.fmprc.gov.cn/mfa_eng/wjb_663304/zygy_663314/gyhd_663338/t1859992.shtml. This was also reiterated by Foreign Minister Wang Yi during his speech at the Opening Ceremony of the Conference on Celebrating the 30th Anniversary of ASEAN-China Dialogue Relations. Source: Ministry of Foreign Affairs of the Republic of China. (28 July 2021). Wang Yi Attends and Addresses the Opening Ceremony of the Conference on Celebrating the 30th Anniversary of ASEAN-China Dialogue Relations. https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1895951.shtml.

[8] ASEAN Secretariat. (March 2021) Co-Chairs’ Summary of the 33rd ASEAN-Australia Forum – Paragraph 38. https://asean.org/wp-content/uploads/33rd-ASEAN-Australia-Forum-Co-Chairs-Summary-FINAL1.pdf.

[9] The ASEAN-China FTA took full effect in January 2015.

[10] CGTN (11 September 2018). China-ASEAN in numbers: Trade ties. https://news.cgtn.com/news/3d3d414e3145544d7a457a6333566d54/share_p.html.

[11] The State Council Information Office of The People’s Republic of China. (14 July 2020). ASEAN becomes China’s largest trading partner in H1. http://english.scio.gov.cn/pressroom/2020-07/14/content_76271598.htm.

[12] Global Times. (14 Jan 2021). ASEAN becomes China’s largest trading partner in 2020, with 7% growth.  https://www.globaltimes.cn/page/202101/1212785.shtml; Foreign Direct Investment Statistics (2020). ASEANStatsDataPortal. https://data.aseanstats.org/.   

[13] ASEAN Secretariat. (April 2020). Overview of ASEAN-China Dialogue Relations. ASEAN Secretariat Information Paper. https://asean.org/storage/2012/05/Overview-of-ASEAN-China-Relations-22-Apr-2020-00000002.pdf.   

[14] These include information and best practice sharing on epidemiological data and guidelines for epidemic control, as well as capacity building on emergency response.

[15] Zaini, K. (24 June 2021). China’s Vaccine Diplomacy in Southeast Asia – A Mixed Record. ISEAS Perspective. /wp-content/uploads/2021/06/ISEAS_Perspective_2021_86.pdf.

[16] Seah, S., et al. (2021). The State of Southeast Asia: 2021. (Singapore: ISEAS – Yusof Ishak Institute, 2021).

[17] Regarding climate change, China currently provides technical capacity-building to key ASEAN personnel on climate-related topics. It has also bilateral agreements with Myanmar, Vietnam and The Philippines on climate adaption. Source: Seah, S. (9 June 2021). ASEAN’s Climate Cooperation with China and the US: Challenges and Prospects. ISEAS Perspective. /articles-commentaries/iseas-perspective/2021-77-aseans-climate-cooperation-with-china-and-the-us-challenges-and-prospects-by-sharon-seah/.

[18] Focus areas include climate change impact mitigation, biodiversity preservation, tackling marine plastic debris, sustainable cities and clean energy promotion. ASEAN Secretariat. (5 March 2021). ASEAN, China reaffirm commitment to strong partnership. https://asean.org/asean-china-reaffirm-commitment-strong-partnership/.

[19] Premier Wen Jiabao’s speech at the EU’s Brussels office in 2004 is seen by analysts as the most authoritative definition of what a Comprehensive Strategic partnership entails. In addition to his elucidation of the term “Comprehensive”, he further explained that the term “Strategic” connotes the importance of the cooperation to both parties and that it is “stable and long-term, overcoming the differences in ideology and political systems”. Lastly, the word “Partnership” implied that both parties strove towards a “win-win relationship” based on “mutual respect, mutual trust and equality”. Source: Li, Q. and Ye, M. (2019). China’s emerging partnership network: what, who, where, when and why. International Trade, Politics and Development, Vol. 3 No. 2, pp. 66-81. https://doi.org/10.1108/ITPD-05-2019-0004.

[20] Ministry of Foreign Affairs of the People’s Republic of China. (28 July 2021). Wang Yi Attends and Addresses the Opening Ceremony of the Conference on Celebrating the 30th Anniversary of ASEAN-China Dialogue Relations. https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1895951.shtml

[21] These include Western-led alliances, such as the G7 and the resurrected Quadrilateral Dialogue, which through their joint statements, sanctions and alternative infrastructure programmes (such as the Build Back Better World) have sought to counteract and chastise Chinese-led infrastructure projects as well as their incursions and abuses in various territories.

[22] Hoang, T. H. (11 June 2021). A New Height of ASEAN-China Relations? Not Quite, Not Yet. ISEAS Fulcrum. https://fulcrum.sg/a-new-height-of-asean-china-relations-not-quite-not-yet/.

[23] Foreign Minister Wang Yi paid official visits to most ASEAN states in October 2020 and January 2021, which some countries reciprocated in April 2021 with bilateral meetings in Fujian. Sources: Chen, J. (February 2021). Resources for China–ASEAN Relations: October 2020 to December 2020. China: An International Journal, Volume 19, Number 1, pp. 204-210; Chen, J. (May 2021). China–ASEAN Relations January 2021 to March 2021: Chronology of Events. China: An International Journal, Volume 19, Number 2, pp. 178-182.

[24] These include the opening ceremony in celebration of the 30th Anniversary of China-ASEAN Dialogue Relations in March 2021, the Special ASEAN-China Foreign Ministers’ Meeting in Celebration of the 30th Anniversary of the Dialogue Relations held in Chongqing in June 2021, as well as the recent Opening Ceremony of the Conference on Celebrating the 30th Anniversary of ASEAN-China Dialogue Relations held on 28 July 2021.

[25] Perceptions of trust towards China, the US, EU, Japan and India were measured in this survey.

[26] Seah, S., et al. (2021). The State of Southeast Asia: 2021. (Singapore: ISEAS-Yusof Ishak Institute, 2021).

[27] Moriyasu, K. (7 July 2021). US does not support Taiwan independence: Kurt Campbell. Nikkei Asia. https://asia.nikkei.com/Politics/International-relations/Biden-s-Asia-policy/US-does-not-support-Taiwan-independence-Kurt-Campbell.

[28] Deputy Secretary of State Wendy Sherman’s visit to Indonesia, Cambodia and Thailand in May 2021; Defense Secretary Lloyd Austin’s visit to Singapore, Vietnam and The Philippines in July 2021, as well as the behind-doors introductory meeting between Secretary of State Antony Blinken and ASEAN Foreign Ministers in July 2021 as well.

[29] Despite Beijing’s call to explore elevating ties to a Comprehensive Strategic Partnership, the final Co-Chair’s Statement was formulated more obliquely as “Advance ASEAN-China Strategic Partnership to new heights by forging closer cooperation”. Source: Zhou, L. (12 June 2021). Why Asean is wary about stronger ties with China. South China Morning Post. https://www.scmp.com/news/china/diplomacy/article/3137025/why-asean-wary-about-stronger-ties-china. Also see: ASEAN Secretariat. (n.d.) Co-Chairs’ Statement on the Special ASEAN-China Foreign Ministers’ Meeting in Celebration of the 30th Anniversary of the Dialogue Relations. https://asean.org/storage/Co-Chairs-Statement-on-the-Special-ASEAN-China-Foreign-Ministers-Meetin….pdf

[30] China, Thailand, Laos and Myanmar have been engaging in joint patrols of parts of the Mekong River, following the 2011 attack on Chinese sailors by drug dealers in the Thai section of the river. However, Thailand has so far resisted Beijing’s pressure to allow Chinese patrol boats to go past the Thai northern border of the Mekong River, due to concerns of encroaching Chinese strategic reach into mainland Southeast Asia. Source: Hiebert, M. (22 March 2021). Upstream Dams Threaten the Economy and the Security of the Mekong Region. ISEAS Perspective. /articles-commentaries/iseas-perspective/2021-34-upstream-dams-threaten-the-economy-and-the-security-of-the-mekong-region-by-murray-hiebert/.

[31] Ministry of Foreign Affairs of the People’s Republic of China. (28 July 2021). Wang Yi Attends and Addresses the Opening Ceremony of the Conference on Celebrating the 30th Anniversary of ASEAN-China Dialogue Relations. https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1895951.shtml

[32] Zheng, S., & Zhang, R. (25 July 2021). South China Sea: calls to honour Hague ruling 5 years on, but Beijing digs in. South China Morning Post. https://www.scmp.com/news/china/diplomacy/article/3142456/south-china-sea-calls-honour-hague-ruling-5-years-beijing-digs.

[33] Hoang, T. H. (December 2018). ASEAN’s Ambivalence towards a “Common Destiny” with China. ASEAN Focus, Issue 6/2018. /images/pdf/ASEANFocus_December2018_Final.pdf.

[34] Das, S. B. (21 June 2018). Do the Economic Ties between ASEAN and China Affect Their Strategic Partnership? ISEAS Perspective. /images/pdf/ISEAS_Perspective_2018_32%4050.pdf.

[35] China engaged in economic and trade reprisals against Australia following policies that were perceived to target Beijing. Source: Meijer, E. (25 May 2021). Australia pressed to dispense ‘bitter pill’ Xinjiang sanctions. Nikkei Asia. https://asia.nikkei.com/Spotlight/Asia-Insight/Australia-pressed-to-dispense-bitter-pill-Xinjiang-sanctions.

[36] ASEAN-China Centre (28 May 2021). ACC Representatives Attended the Inauguration of 2021 ASEAN-China Year of Sustainable Development Cooperation. http://www.asean-china-center.org/english/2021-05/7942.html.

[37] Zheng, S. (7 June 2021). China pledges joint Covid-19 vaccine production plan with Indonesia. South China Morning Post. https://www.scmp.com/news/china/diplomacy/article/3136315/china-pledges-joint-covid-19-vaccine-production-plan-indonesia.

[38] Li, Q. and Ye, M. (2019). China’s emerging partnership network: what, who, where, when and why. International Trade, Politics and Development, Vol. 3 No. 2, pp. 66-81. https://doi.org/10.1108/ITPD-05-2019-0004.

[39] Ford, L. W. (September 2020). Network Power: China’s Effort to Reshape Asia’s Regional Security Architecture. The Brookings Institute. https://www.brookings.edu/wp-content/uploads/2020/09/FP_20200914_china_network_power_ford.pdf.

[40] The National Institute for Defence Studies. (2019). NIDS China Security Report 2019: China’s Strategy For Reshaping the Asian Order and its Ramifications.

[41] Solana, J. (17 September 2013). Europe’s Smart Asian Pivot. Project Syndicate. https://www.project-syndicate.org/commentary/the-eu-s-startegic-advantages-in-asia-by-javier-solana  

[42] The other key motivations included instigating social and political change in China, as well as for the EU to show its geopolitical global leadership in corralling together rising powers.

[43] Maher, R. (2016). The Elusive EU-China Strategic Partnership. International Affairs. 92. 10.1111/1468-2346.12659.

[44] Khmer Times. (5 August 2021). Cambodia supports elevation of ASEAN-China ties to Comprehensive Strategic Partnership. Khmer Times. https://www.khmertimeskh.com/50908932/cambodia-supports-elevation-of-asean-china-ties-to-comprehensive-strategic-partnership/

[45] Then-Foreign Minister Yang Jiechi infamously stated at the 2010 ASEAN Regional Forum that “China is a big country and other countries are small countries, and that’s just a fact.” Source: Chang, F. K. (17 June 2021). ASEAN’s Search for a Third Way: Southeast Asia’s Relations with China and the United States. Foreign Policy Research Institute. https://www.fpri.org/article/2021/06/aseans-search-for-a-third-way-southeast-asias-relations-with-china-and-the-united-states/.

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2021/111 “The Role of Export Diversification in ASEAN’s Trade with China” by Phi Minh Hong

 

The participation of China and its suppliers in the Global Value Chains has shaped a new North-South model of trade where exports from a developing economy (China) to advanced economies are affected by the trade it has with other developing countries. This aerial photo taken on 22 June 2021 shows cargo containers stacked at Yantian port in Shenzhen in China’s southern Guangdong province. Photo: STR/AFP.

EXECUTIVE SUMMARY

  • The participation of China and its suppliers in the Global Value Chains has shaped a new North-South model of trade where exports from a developing economy (China) to advanced economies are affected by the trade it has with other developing countries.
  • Due to this pattern of trade, a real appreciation in the Renminbi (RMB) decreases China’s imports from its trading partners, instead of increasing imports, which is commonly accepted in conventional wisdom.
  • For ASEAN, a real appreciation in the RMB by 1% decreases China’s imports from the region by 0.35%, whereas in its traditional trade with the US as importer, a stronger USD by 1% induces an increase by 1.06% in the US’s imports from ASEAN.
  • China’s policy of product diversification along with a policy of commercial partnership and cooperation with its regional partners (particularly focused on standardising tariffs in Developing Asia) is part of a premeditated strategy of resilience in the face of the real appreciation of its currency.
  • Export diversification by ASEAN economies has proven to affect the responsiveness of China’s imports from these countries to the change in the RMB. The more ASEAN economies diversify their exports, the more China’s imports from these countries (or their exports to China) become resilient to changes in the relative price.

* Phi Minh Hong is ASEAN Graduate Fellow at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute and Lecturer, University of Rouen Normandie (France) and Foreign Trade University Hanoi (Vietnam).

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INTRODUCTION

In the traditional trade model, the leading economy is an advanced country, and final goods are exported directly to it from developing economies. However, the growth of Global Value Chains (GVCs) has shaped a new model of North-South trade involving “Factory Asia”. This model is shaped by how the exports to advanced economies by a developing country—China—are based on South-South trade. In this pattern of trade, the effect of a change in the Chinese currency (the Renminbi, hereafter, RMB) on the exports of its suppliers deviates from popular thinking. In this regard, in addition to examining the impact of RMB fluctuations on China’s trade relations with ASEAN, this Perspective highlights the importance of export diversification carried in ASEAN economies in ensuring the resilience of China’s imports in the face of RMB fluctuations.

THE RMB AND ASEAN-CHINA TRADE

With growing participation in the GVCs, ASEAN, a part of “Factory Asia”, has become an important player in international trade. Indeed, ASEAN, as a group, is the US’s fourth largest trading partner (after Canada, Mexico and China) and the EU’s third largest trading partner outside Europe.[1] The most recent statistics point to ASEAN having surpassed the EU to become China’s largest trading partner in 2020.[2] China has in fact been ASEAN’s largest export market since 2009. That year, the value of ASEAN’s exports to China was US$195.7 billion, accounting for 14% of ASEAN’s total exports. The US was ASEAN’s second largest export destination in 2019, involving a value of US$182.6 billion which accounted for 13% of ASEAN’s total exports.[3]

China and the US are thus ASEAN’s two largest trading partners, but they follow two different patterns of North-South trade. In the traditional North-South trade pattern, ASEAN exports directly to the North (the US). The new North-South trade pattern, however, is based on South-South trade; which means that intermediate goods are exported from ASEAN to China to be processed and then exported to the rest of the world.

As shown in Figure 1, intermediate goods exports accounted for a large part of total exports from ASEAN to China (more than 80%) over the period 2012-2018. This ratio was about 55% of the exports from ASEAN to the US.

Despite their extensive exports of intermediate goods to China, export structures vary across countries depending on the processing category. Figure 2 depicts the shift in ASEAN countries’ bilateral exports to China broken down into processing and end-use categories.[4] During the period 2012-2018, there was a transition in intermediate goods exports from primary to processed goods from ASEAN economies. Some countries in the bloc recorded a significant increase in the share of exports of intermediate goods. Among them, the proportion of Vietnam’s intermediate products in overall exports increased the most, rising from 36.9% in 2012 to 72.8% in 2018 and the country accounted for the largest exports of processed intermediate goods in the bloc (39 billion USD in 2018). The second largest rise in the share of processed intermediate goods exports belonged to Cambodia, up 20% in the given period (from 22% to 42%). Although there were changes in the export structure of intermediate goods, Laos’ and Brunei’s shares of primary intermediate goods in exports remained the highest in the bloc (69.5% for Brunei, 62% for Laos). Their increasing reliance on intermediate goods implies that ASEAN countries, particularly developing economies, are deeply integrated into a complex subcontracting network. Hence, exports from those countries can be seen to be complementary to, rather than in competition with, those of China (Hooy et al., 2015).[5]

The new triangular trade structure, with China serving as an intermediary, may have repercussions on the factors affecting these participant countries’ export performance. One of them has been the impact of the Chinese currency on these economies’ exports. Through the GVCs, changes in the RMB, which affects China’s trade performance, also influence the trade performance of its suppliers.

A quick investigation gives us a broad picture of the bilateral real exchange rate and bilateral trade between China and ASEAN economies. Figure 3 depicts real RMB appreciation against the currencies of the region’s most advanced economies (Brunei, Singapore) and upper middle-income economies (Indonesia, Malaysia, The Philippines and Thailand).[6] The RMB has depreciated versus the Lao Kip but remains relatively constant against the Vietnamese Dong and the Cambodian Riel over this period. Since 2000, Vietnam’s exports to China have increased more steadily than those of other ASEAN economies (Figure 4), with the nation being the second largest exporter to China after Malaysia in 2019 (Figure 5). While bilateral exports from the least developed nations have been gradually increasing since 2010, bilateral export growth from more advanced economies appears to have been constrained.

Several studies show the conventional impact of a rising RMB on China’s exports, namely that a real appreciation in the currency implies a decrease in China’s exports. However, the impact on the import side is still being debated. From a theoretical standpoint, a strong domestic currency increases the country’s imports because of improved domestic purchasing power.

But since a large part of China’s imports is further processed into finished goods that are then exported, the conventional impact of a rising RMB on China’s imports may not be robust. Given that an appreciation of the RMB decreases China’s exports, since the latter contain value added of imported parts and components, China’s imports from its supply chain partners would decrease as well.

Phi and Tran (2020) in their work highlight the difference in the impact of importers’ exchange rates on their imports between the two North-South trade models mentioned above.[7] In the long run, while conventional wisdom persistently holds for the US (an appreciation in the real effective exchange rate of the US dollar increases the US’ imports), the reverse impact is reported in the case of China. This result coincides with previous studies that confirm this negative impact of the RMB’s appreciation on China’s imports, regardless of the fact that those imports are ordinary or processed (Garcia-Herrero and Koivu (2008), Cheung, Chinn and Fujii (2010)).[8]

For ASEAN alone, a quick regression following the work of Phi and Tran (2020) confirms the difference between the two patterns of trade. While the US’s imports from ASEAN respond highly to a change in the USD, there is only a slight change in China’s imports following a change in the RMB. Accordingly, a USD strengthened by 1% induces an increase of 1.06% in the US’s imports from ASEAN, whereas a real appreciation in the RMB by 1% decreases China’s imports from the region only by 0.35%. The latter result supports the finding of Hooy, Law and Chan (2015) on the negative impact of an appreciation of the RMB on ASEAN’s exports to China. The authors also divide disaggregated exports into categories based on usage (basic products, parts, and components) and technological levels (high-tech, medium-tech, low-tech, resource-based, primary products). According to their calculations, a positive reaction to RMB depreciation is mostly attributable to the dominance of ASEAN high-tech and medium-tech finished products exports, as well as low-tech and resource-based exports of parts and components to China. However, the degree to which ASEAN’s exports to China respond to a change in the RMB varies across disaggregated exports categories. For instance, the impact of the change in RMB value on medium-tech exports is lower than on high-tech exports. A depreciation of 1% of the RMB raises medium-tech exports by 0.66% and high-tech exports by 1.53%. At the same time, changes in the RMB appear to have little influence on ASEAN’s low-tech manufacturing, resource-based manufacturing and primary product exports.

WHEN EXPORT DIVERSIFICATION MATTERS

The results from Hooy et al. (2015) suggest that spreading suppliers’ exports across different categories of goods may affect the sensitivity of China’s imports to changes in the RMB. In other words, export diversification may affect China’s import price elasticities (the volume of imports’ response to the change in prices). As discussed above, imports from China which employ Asian-made parts and components decline as the real exchange rate rises. The impact of an RMB appreciation on Chinese commerce has been noticed in the context of GVCs. Currency appreciation diminishes China’s demand for imports from other Asian economies by decreasing China’s export production. As a result, an appreciation of the RMB might harm Asian producers of intermediate goods. Therefore, China’s policy of product diversification along with a policy of commercial partnership and cooperation with its regional partners (particularly focused on standardising tariffs in Developing Asia) is part of a premeditated strategy of resilience in the face of a real appreciation of its currency. For China’s partner economies, including ASEAN, the diversification of exports, especially bilateral exports to China, keeps these economies’ exports to China less volatile than the rate of change in the RMB. This is because each type of imported products has a different response to the change in the RMB: a high response to a real change in the RMB of high technology goods imported, for example, will be offset by the low one of medium- or low-tech manufacturing goods imported, as shown in Hooy et al. (2015)’s work.

This intuition is confirmed in the empirical analysis by Phi and Tran (2020). For lower- and middle-income countries in the Pacific Rim, including the developing ASEAN economies, China’s imports from them become less sensitive to changes in the RMB when they have a higher degree in either export diversification in destinations or bilateral export diversification with China. More specifically, the more China’s suppliers diversify their exports, the less China’s imports from those countries decrease following an appreciation of the RMB.

Most ASEAN countries maintain a high degree of export diversification, as reflected in the lower value of the Herfindhal-Hirschman index (hereafter, HHI).[9] From 1995 to 2019, the HHI of those countries ranged from 0.008 to 0.52 for products and from 0.046 to 0.45 for partners. Following the reasoning in Phi and Tran (2020), we replicate the effect of the change in the RMB on China’s imports response to the change in the RMB (China’s import price elasticities) in ASEAN countries for the given period; the results are illustrated in Figure 4. The blue areas correspond to the HHI range for ASEAN (Table A1).[10]

Overall, the response of ASEAN’s exports to a change in the RMB is minor, ranging from 0.2% to 0.4% (in absolute value) for 1% of change in the RMB. Besides, the more an ASEAN country diversifies its exports (either bilateral with China or global), the less their exports to China change following a change in the RMB. However, there is a turning point in HHI through which the effect direction would change from positive to negative. At this level of export diversification, ASEAN’s exports to China become the most “resilient” to the change in the RMB. For instance, for countries that have a bilateral HHI greater than 0.19, an appreciation in the RMB raises China’s imports from the country. This pattern follows the conventional wisdom discussed above. In most ASEAN economies (except Brunei and Laos) where the average bilateral HHI is lower than 0.19, a stronger RMB will slightly decrease ASEAN’s exports to China instead. For the HHI in products and in partners, the turning points are 0.21 and 0.38 respectively. In sum, the results highlight the importance of the export diversification strategies of ASEAN economies in making China’s imports from the region more resilient to changes in the relative price.

With the goal of promoting trade and economic growth throughout Asia and the Pacific, the Regional Comprehensive Economic Partnership (RCEP) assembles leaders from 16 countries, namely the 10 ASEAN countries as well as the six countries in the region that currently have bilateral FTAs with ASEAN. It has been argued that the RCEP will help China to consolidate its resilience in the face of a real appreciation of the RMB. Indeed, Phi and Tran (2020) find that trading with RCEP members lessens China’s import sensitivity to any change in the RER. When the Chinese currency appreciates by 1%, imports from RCEP members would decline by 0.113%, lower than imports from non-RCEP economies in the Pacific Rim area. As China plays an intermediate role in the Global Value Chains, the RCEP will make export flows from ASEAN developing economies to China and then to the final destinations smoother. On the other hand, the Covid-19 pandemic highlights the need for diversifying sourcing to help reduce supply chain volatility. This will be an opportunity for ASEAN countries to diversify not only their bilateral exports to China but also their exports to other RCEP member countries, and hence lower the impact of changes in the RMB on ASEAN’s exports.

Considering the US as an importer for comparison, we observe that the response of ASEAN’s exports to changes in the USD is higher than for China as importer, even with a higher degree of export diversification (or low HHI) of ASEAN economies (Figure 7). Spreading ASEAN’s exports across products when trading with the US helps to decrease the response of their exports to a change in the USD. However, neither ASEAN’s export diversification in products nor in partners has an impact on the US’s import price elasticities.

CONCLUSION

The expansion of product fragmentation trade in Asia has prompted a re-examination of the influence of China’s currency on the exports of its suppliers, especially from ASEAN member states (particularly the newer members) that have actively engaged in GVCs. Because a real RMB appreciation reduces Chinese exports, it lowers imports from ASEAN, rather than increase them, as conventional wisdom would suggest. When considering the United States as an importer, this effect is much smaller than the reaction of bilateral ASEAN exports to USD changes.

Besides, ASEAN’s export diversification policies have been shown to have impact on the responsiveness of their exports to RMB appreciation. Keeping a high degree of export diversification creates greater resilience to changes in relative prices for ASEAN countries’ exports to China.

ISEAS Perspective 2021/111, 20 August 2021

APPENDIX


ENDNOTES

[1] https://ustr.gov/countries-regions/southeast-asia-pacific/association-southeast-asian-nations-asean,

https://www.csis.org/analysis/us-southeast-asia-trade-relations-age-disruption,

https://ec.europa.eu/trade/policy/countries-and-regions/regions/asean/

[2] https://www.globaltimes.cn/page/202101/1212785.shtml

[3] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=ASEAN-EU_-_international_trade_in_goods_statistics#ASEAN_countries_trade_in_goods_with_main_partners

[4] We use the BEC Rev. 5 classification to distinguish product categories.

[5] Hooy, C. W., Siong-Hook, L., & Tze-Haw, C. (2015). The impact of the Renminbi real exchange rate on ASEAN disaggregated exports to China. Economic Modelling47, 253-259.

[6] An increase in the bilateral RER indicates an appreciation in the Renminbi. In Figure 3, we excluded Myanmar’s currency for better scale. The RER of Myanmar kyat is represented in Figure A1. The kyat was devalued largely in 2012, when the foreign exchange rate reforms occurred. The official pegging of Myanmar’s currency to the special drawing right (SDR) was annulled in April 2012. The Central Bank of Myanmar then introduced a managed floating exchange rate system. The previous peg is the reason why the kyat was overvalued before 2012 (https://www.imf.org/external/pubs/ft/scr/2013/cr1313.pdf).

[7] Minh Hong, P., & Thi Anh-Dao, T. (2020). Should I stay or should I go? The role of the renminbi in trade partnerships in the Asia-Pacific region. Post-Communist Economies32(8), 1062-1088.

[8] Herrero, A. G., & Koivu, T. (2008). China’s exchange rate policy and Asian trade. Économie internationale, (4), 53-92.

Cheung, Y. W., Chinn, M. D., Fujii, E., & Frankel, J. (2010). 7. China’s Current Account and Exchange Rate (pp. 231-278). University of Chicago Press.

[9] /articles-commentaries/iseas-perspective/2021-80-the-importance-of-export-diversification-for-developing-asean-economies-by-phi-minh-hong/

[10] For bilateral export diversification, we represent the HHI range from 0.02 to 0.6 instead of from 0.02 to 1 because only in the case of Brunei does bilateral HHI approximate to 1 while other ASEAN economies have relatively low bilateral HHI.

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2021/93 “Unpacking China’s Merchandise Trade with ASEAN during the Global Pandemic” by Xiaojun Li

 

According to the World Trade Organization, global merchandise trade flows decreased by 5.3% in 2020. Against this backdrop, however, bilateral trade between China and ASEAN bucked the trend and reached $684.6 billion, a 6.7 percent increase from 2019. An aerial photo taken on 22 June 2021 shows cargo containers stacked at Yantian port in Shenzhen in China’s southern Guangdong province. Picture: STR/AFP.

EXECUTIVE SUMMARY

  • While the global merchandise trade shrank by 5.3% as a result of the Covid-19 pandemic, bilateral trade between China and ASEAN increased in the meantime by 6.7%, thanks not only to a steady increase in bilateral trade but also to the relative decline of trade between China with its other major trading partners. Since January 2020, cumulative trade between China and ASEAN has maintained positive year-on-year growth, while cumulative trade between China and the European Union, the United States and Japan contracted for the first three quarters of last year.
  • The increase in bilateral trade was largely driven by the ASEAN-6 countries, which accounted for the lion’s share of both imports and exports with China. The negative impacts of pandemic-induced measures on bilateral trade were temporary. Countries relatively unscathed by the pandemic such as Thailand and Vietnam recorded positive year-to-date changes in trade with China for nearly every month of the year. Most other ASEAN member states saw either imports or exports with China dip in the first half of 2020 but rebound in the second half. Laos was the only country whose imports and exports with China both shrank.
  • The pandemic expanded the extensive margins of China’s exports (i.e., the range of traded goods) to ASEAN with substantial increases in products related to medical supplies and ‘work-from-home’ as well as capital goods. In the meantime, intra-industry trade between China and ASEAN declined due to the disruption of global production networks and lower demand, while China’s exports with high foreign value added decreased.

* Xiaojun Li is Associate Professor of Political Science at the University of British Columbia. He was a Wang Gungwu Visiting Scholar at ISEAS – Yusof Ishak Institute from 1 March 2021 to 30 June 2021.

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INTRODUCTION

The Covid-19 pandemic since early 2019 has drastically disrupted economic activities throughout the world. According to the World Trade Organization, global merchandise trade flows decreased by 5.3% in 2020.[1] Against this backdrop, however, bilateral trade between China and ASEAN bucked the trend and reached $684.6 billion, a 6.7 percent increase from 2019. This propelled ASEAN to dethrone the European Union as China’s largest trading partner for the first time, while making China ASEAN’s largest trading partner for 12 years in a row.[2]

But there is more going on beneath the surface. The purpose of this Perspective is to move beyond the aggregate trade measures to uncover additional patterns in China’s trade with ASEAN countries during the global pandemic. Using monthly export and import data disaggregated by country and commodity, released by the General Administration of Customs (GAC) of China,[3] this Perspective seeks answers to the following questions: (a) What factors contributed to ASEAN becoming China’s number one trading partner? (b) How did the pandemic and related measures imposed by governments affect bilateral trade between China and ASEAN member countries? (c) What has or has not changed in the trade pattern between China and ASEAN as a result of the global pandemic?

CHINA’S TRADE WITH ASEAN VERSUS OTHER MAJOR ECONOMIES

We start by looking at overall trade between China and its top four trading partners—the European Union (EU), ASEAN, the United States and Japan.[4] The EU took the honour of being China’s top trading partner in 2019 with $707 billion in total imports and exports, narrowly edging out ASEAN at $644 billion. That same year, ASEAN also overtook the United States for the first time, after being China’s third trading partner for the previous eight years.

In 2020, ASEAN passed the EU to take the number one spot right off the bat. As can be seen in the top panel in Figure 1, in eleven of twelve months, bilateral trade between China and ASEAN was higher than that between China and the EU. The only exception was in May when EU logged about $2.5 billion more trade with China than ASEAN.

Figure 1: China’s Overall Trade with Top 4 Partners in 2020

Note: The top panel plots overall trade in billion USD and the bottom panel plots the year-to-date percent change in percentage points, which are calculated using cumulative trade from January up to that month. The data for the first two months are customarily combined due to the Chinese New Year. Source: GAC of China.

From the top panel in Figure 1, it appears that the pandemic did not hugely impact China’s trade as situations in the country were quickly contained. After a big dip in March, trade rebounded for the EU and the United States and later for ASEAN and Japan as well. However, if we look at year-on-year change in the bottom panel in Figure 1, it is apparent that ASEAN is the only one that has maintained a positive year-to-date change every month. In contrast, EU’s trade with China in the first eight months decreased from a year ago. The United States and Japan took even longer to post a year-to-date increase. In other words, ASEAN’s emergence as China’s top trading partner is a combination of the steady increase in bilateral trade and the relative rather than absolute decline of other major trading partners.

Figure 2: China’s Import and Export with Top 4 Partners in 2020

Note: This figure plots China’s monthly exports and imports in billion USD with its top four trading partners in 2020. The data for the first two months are customarily combined due to the Chinese New Year. Source: GAC of China.

Additional patterns emerge when total trade is broken down into exports and imports in Figure 2. China’s imports follow a similar, slightly increasing trend and the ranking remains the same—ASEAN, the EU, Japan and the United States. This is in contrast to exports where the ranking of the top three trading partners changes from month to month, with the U.S. taking the overall top spot of the year with $452 billion, followed by the EU ($392 billion) and ASEAN ($385 billion).

Using data from Figure 2, we can additionally calculate the differences between imports and exports (see data appendix A), which show that China ran a trade surplus against its top three trading partners (i.e., ASEAN, EU, and US), though the sizes of the surplus varied over time. Strikingly, China’s surplus with the United States remained large despite ongoing economic and political tensions between the two countries.

CHINA’S TRADE WITH ASEAN MEMBER COUNTRIES

While ASEAN as a whole became China’s top trading partner during the pandemic, there is a wide range of variations across ASEAN member countries. Figure 3 ranks the ten ASEAN member countries according to their imports, exports, and total trade with China in 2020. The ASEAN-6 countries (Vietnam, Malaysia, Thailand, Singapore, Indonesia and The Philippines) accounted for the lion’s share (94.8%) of ASEAN’s total trade with China. In particular, Vietnam surpassed Australia for the first time to become China’s seventh largest trading partner. On the other hand, the trade volumes between China and the four smaller ASEAN economies—Brunei, Laos, Cambodia and Myanmar—were substantially smaller.

Figure 3: China’s Trade with ASEAN Countries in 2020

Note: Export and import values (in billion USD) may not add up to total trade values due to rounding. Source: GAC of China.

The rankings of countries are similar when we look at imports and exports separately. One notable exception is Singapore, which ranked second for exports and fifth for imports. This resulted in a trade deficit of $26.4 billion with China, second to Vietnam’s deficit of $35.3 billion. Only three out of the ten ASEAN member countries’ exports to China exceeded their imports from China—Brunei, Laos, and Malaysia. While trade surpluses were small for Brunei ($1 billion) and Laos ($0.6 billion), Malaysia’s trade surplus with China reached $17.8 billion, mostly driven by exports in electrical and electronics products, rubber products, and palm oil and palm oil-based agriculture products, all of which were important raw materials and intermediate goods that saw a surge in demand as production capacities returned to pre-pandemic levels in China.[5]

Comparing trade figures in 2020 with just a year ago reveals that the pandemic has had divergent impacts on ASEAN member countries. Figure 4 displays cumulative year-on-year changes in both exports and imports and shows how pandemic-induced government measures such as lockdowns and circuit breaks affected trade negatively. In particular, China’s exports to almost all ASEAN countries were negatively affected in the beginning of 2020 when China entered into lockdown. Despite the pandemic, China’s imports from Indonesia, Malaysia, and Vietnam grew stronger (driven mostly by integrated circuits), which likely contributed to the overall positive growth observed in Figure 1.

Figure 4: Monthly Year-to-Date Percentage Change in China’s Exports and Imports with ASEAN Member Countries

Note: This figure plots the monthly YTD percent changes in China’s exports (top panel) and imports (bottom panel) with ASEAN countries. Underlying data for the figure can be found in Data Appendix B. Source: GAC of China.

In the second quarter of the year, many ASEAN member countries such as Cambodia, Myanmar, The Philippines, and Singapore implemented lockdown measures of varying intensity, and coincidently, their trade with China suffered consequently (as represented by the “V” shape in Figure 4). When such measures were gradually eased in the second half of the year, bilateral trade rebounded for most ASEAN member countries, with positive year-on-year changes in both imports and exports being recorded for Cambodia, Malaysia, Thailand, and Vietnam by the end of the year. Not all countries were able to fully recover though. China’s exports to Brunei, Indonesia and Laos and its imports from Laos, The Philippines and Singapore contracted from a year ago. Laos was the only country that saw both its imports and exports with China shrink by 4.3% and 15.2%, respectively.

SHIFTING TRADE STRUCTURE IN THE PANDEMIC

Did the global pandemic affect what was being traded between China and ASEAN? Table 1 shows China’s top 20 export and import products in terms of value (in billion USD) and percentages (of total imports and exports) with ASEAN in 2020 and 2019 (see Data Appendix C for the descriptions for all product chapters).[6]

On the import side, there are remarkable similarities before and after the pandemic. Only one product category (HS code 3) in the top 20 list of 2019 failed to make it to the same list of 2020. In addition, the value and percentage of these imports are comparable between the two years, resulting in a similar ranking with just a few exceptions (HS code 71, 72, and 98).[7] On the whole, the pandemic did not affect China’s imports from ASEAN in terms of both the type (i.e. extensive margin) and value (i.e. intensive margin) of goods—the top 20 product categories accounted for 91.7% and 91.1% of total imports in 2019 and 2020, respectively.

The picture is dramatically different on the export side with significant reshuffling of the top 20 list.[8] Half of the product categories in the 2019 list were replaced by new ones in 2020. Not surprisingly, these included products related to medical supplies (e.g. surgical masks and protective gears under HS 62 and 63), products with a higher ‘work-from-home’ share such as “furniture; bedding; stuffed furnishings; lamps and lighting fittings” (HS 94), and capital goods such as “iron and steel articles” (HS 73), for which long-term planning implies a different reaction to the temporary shock due to the pandemic.[9]

Furthermore, unlike the imports where the top 20 list before and after the pandemic added up to roughly the same level, China’s top 20 exports to ASEAN in 2020 accounted for 78.3% of all exports, compared to 91.8% in 2019. In other words, China exported a wider range of products to ASEAN, suggesting that the negative effects of the pandemic were concentrated on the “intensive margin”, i.e. the value of traded goods; a pattern that mirrors what happened during the “great trade collapse” following the Global Financial Crisis of 2008.[10]

Examining imports and exports in the same year exhibits another major change between the two years. Over the last few decades, bilateral trade between China and A    $SEAN saw steady increase in intra-industry trade through which China and ASEAN are linked to the larger global production networks.[11] One prime example of this is electronic integrated circuits under HS code 85 (“electrical machinery and parts”), the top product category whose combined imports and exports make up over half of the bilateral trade in both years. In 2019, the top 20 import list largely mirrors the top 20 export list, suggesting a high degree of intra-industry trade. In 2020, as the pandemic disrupted global supply chains, intra-industry trade between China and ASEAN declined substantially, which is indicated by the divergence of the top 20 lists for imports and exports.

The impact of the global pandemic on the structure of bilateral trade is also evident in the changes of foreign value added in China’s exports to ASEAN.[121] Foreign value added (FVA) is the foreign content such as raw materials and intermediate goods imported from other countries that is embodied in exports. As such, FVA is a measure of vertical specialization as it captures the extent to which a country is integrated into global production networks through the use of imported intermediates.[13]

Figure 5 plots the foreign value added embodied in China’s exports to ASEAN for 97 HS-2 digit product categories against the export value on the logarithmic scale.[14] Each dot in the figure represents one product category. The dashed lines are the locally weighted regression smoothing curves. In 2019, FVA values were positively correlated with exports, suggesting that China’s exports to ASEAN were highly integrated in the global production networks. In 2020, when global supply chains were disrupted and demands were suppressed in countries heavily hit by the pandemic, there was virtually no relationship between FVA and export values for products with higher foreign value added (> 20%). As a matter of fact, exports in 2020 decreased from 2019 for eight of the ten product categories with the highest FVA in 2020.

Figure 5: Foreign Value Added in China’s Exports to ASEAN in 2020 and 2019

Source: GAC of China.

CONCLUSION

A deeper dive into the disaggregated bilateral trade data between China and ASEAN countries in 2020 reveals a number of new patterns. They suggest that the repercussions of the pandemic on other trading partners of a country, and on its own demand for imports from a specific country, will depend not only on pandemic-related measures in the respective countries, but also on the demand and supply of third countries in the global production networks.

In the first quarter of 2021, ASEAN remained China’s top trading partner,[15] but the gap has been narrowing, and may soon be edged out by the EU again, as many ASEAN countries are now struggling with new waves of Covid-19 variants.[16] What’s more interesting and potentially will be of greater significance is the shifting trade structure and the drop in intra-industry trade. Some of these changes certainly can be attributed to the pandemic, but it remains to be seen whether or not these new patterns will persist as firms reorganize and relocate their supply chains in the post-pandemic world.

Note: Trade values in billion USD. A positive trade difference indicates China running a surplus with the partner. All changes are year-to-date percent changes ending at the specific month. Source: GAC of China.

Note: Trade values in billion USD. A positive trade difference indicates China running a surplus with the partner. All changes are year-to-date percent changes ending at the specific month. Source: GAC of China.

ISEAS Perspective 2021/93, 15 July 2021


ENDNOTES

[1] https://www.wto.org/english/news_e/pres21_e/pr876_e.htm.

[2] http://asean2.mofcom.gov.cn/article/chinanews/202101/20210103031104.shtml.

[3] The advantage of using the GAC data is that they are available for all ASEAN member countries at the product and month levels. Such disaggregate data are not available for Brunei, Laos, Myanmar and Vietnam in commonly used databases such as the International Trade Centre (ITC). It should be noted that trade data reported by China may not align with those reported by its partner countries. Such statistical discrepancies are well documented and difficult to overcome. See, for example, Javorsek, Marko. Asymmetries in international merchandise trade statistics: A case study of selected countries in Asia and the Pacific. No. 156. ARTNeT Working Paper Series, 2016. Thus, results reported in this Perspective should be interpreted with this caveat in mind.

[4] All data on trade in merchandise goods used in this paper are obtained from the GAC. http://english.customs.gov.cn/statics/report/preliminary.html.

[5] As mentioned above, these results are based on China’s trade data and the conclusion may be different if we use data from the trading partner. For example, according to data from the ITC, Malaysia has a trade deficit of about $3 billion with China in 2020 (down from $8.7 billion in 2019).

[6] Exports in 2019 only cover the first eleven months of the year due to errors in the data released by the GAC. The product codes are based on the Harmonized System (HS), a standardized numerical method of classifying traded products arranged in 99 2-digit product categories. See UN Trade Statistics, “Harmonized Commodity Description and Coding Systems”. https://unstats.un.org/unsd/tradekb/Knowledgebase/50018/Harmonized-Commodity-Description-and-Coding-Systems-HS.

[7] Notably, China’s imports of “iron and steel” (HS code 72) more than doubled in 2020, from $4 billion to $10.6 billion.

[8] Products related to vaccines (e.g. freezing equipment) likely contributed to the substantial increase in exports of HS 84.

[9] https://voxeu.org/article/2020-trade-impact-covid-19-pandemic

[10] Behrens, Kristian, Gregory Corcos, and Giordano Mion. “Trade crisis? What trade crisis?.” Review of economics and statistics 95, no. 2 (2013): 702-709.

[11] Tan, Day-Yin, and Mui-Yin Chin. “ASEAN-China trade flow: a study on intra-industry trade in manufacturing sector.” Advanced Science Letters 23, no. 4 (2017): 2691-2694.

[12] These measures are constructed using the input-output tables of both China and its eight top trading partners (EU, US, ASEAN, Japan, Korea, India, Australia, and New Zealand) from 2010-2017.

[13] Hummels, David, Jun Ishii, and Kei-Mu Yi. “The Nature and Growth of Vertical Specialization in World Trade.” Journal of International Economics 54, no. 1 (2001): 75–96.

[14] Data for product-level exports are not available for Brunei, Laos, and Cambodia. Foreign value added for the products are drawn from Ministry of Commerce’s 2017 Report on Global Value Chains and China’s Value Added Trade, available at http://images.mofcom.gov.cn/www/201811/20181130164119212.pdf.

[15] http://www.xinhuanet.com/english/2021-04/13/c_139877286.htm.

[16] https://www.straitstimes.com/asia/se-asia/asian-nations-face-new-infection-waves-as-covid-19-variants-wreck-attempts-to-stem.

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Malcolm Cook, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

 

2021/85 “Trade and Environmental Disputes May Persist Despite Promising Leaders’ Summit on Climate” by Melinda Martinus and Qiu Jiahui

 

The recent Leaders’ Summit on Climate Change, organised by the Biden Administration, signalled the US return to the Paris Agreement after years of neglect. In this picture, US President Joe Biden delivers remarks during Day 2 of the virtual Leaders’ Summit on Climate at the East Room of the White House on 23 April 2021 in Washington. Photo: Anna Moneymaker – Pool/Getty Images/AFP POOL/GETTY IMAGES NORTH AMERICA/Getty Images via AFP.

EXECUTIVE SUMMARY

  • The recent Leaders’ Summit on Climate Change convened by the Biden Administration signalled the US’ return and major powers’ unwavering commitment to tackling climate change.
  • Four of ten ASEAN leaders — Indonesia, Singapore, The Philippines, and Vietnam — were invited to the summit and announced their newest goals and initiatives, which include renewable energy acceleration, decarbonisation practices, and pathways to net-zero emissions.
  • One key emphasis shared by several ASEAN leaders’ speeches is the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) which recognises differentiated levels of economic development between states in response to climate change.
  • Some ASEAN thought-leaders have recently expressed a growing concern about the Carbon Border Adjustment Mechanism (CBAM), introduced by the European Union (EU), functioning as trade protectionism or discrimination which could threaten the exports of developing countries.
  • The themes and issues raised by some ASEAN leaders at the summit are a harbinger of climate negotiations to come. Can developed and developing countries find a balance between heightened climate ambition and the spirit of CBDR-RC?

* Melinda Martinus is Lead Researcher (Socio-Cultural Affairs) at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute, and Qiu Jiahui is Research Officer at the Climate Change in Southeast Asia Programme.

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THE LEADERS’ SUMMIT ON CLIMATE: AN INSIGHT

The recent Leaders’ Summit on Climate Change, organised by the Biden Administration, signalled the US’ return to the Paris Agreement after years of neglect. The US and 40 world leaders restated their commitment and highlighted their countries’ efforts to limit global warming to 1.5-degree Celsius, and most importantly, demanded more concrete actions from the United Nations Climate Change Conference (COP 26) to be held in November 2021 in Glasgow.

To observers, the summit showed a glimmer of hope that two major powers, the United States and China — despite their belligerent relationship in trade and strategic affairs — are approaching climate challenges with the same urgency. As major carbon emitters, both countries agreed to ramp up efforts to combat rising temperatures and strengthen international institutions in meeting this challenge.

In his opening remarks, President Biden spoke about economic opportunities from climate actions which include job creation, clean technology and infrastructure renewal. The US’ climate plans also call for decarbonising the US power sector by 2035 and achieving net-zero emissions by 2050.

The Biden Administration recently introduced a US$2 trillion plan to overhaul the country’s infrastructure and boost the US economy’s competitiveness. The plan emphasises the need to accelerate renewable energy adoption, provide ubiquitous charging stations for electric cars, and invest in public transportation. While Republicans and Democrats are still deeply divided on the matter, Biden’s pragmatic and economically opportunistic approach to climate change exhibits a strategic bid to win bipartisan support.

President Xi Jinping, in much the same way, has reiterated China’s commitment to green development. China has vowed a technological revolution, industrial transformation, and innovation to achieve carbon neutrality before 2060 — the country is to begin phasing down coal in the period of 2026-2030. Unlike the US, China has in recent years been looking to build a global coalition. On several occasions, Chinese leaders pledged their commitment to green initiatives to benefit all Belt and Road (BRI) partner countries. Chinese investment has brought capacity-building opportunities and technology transfers which are much needed for sustainable development in these developing countries.

Similarly, other major economies are adopting the premise of green transformation to revive their economies after the Covid-19 crisis. The European Green deal, an ambitious plan to make Europe carbon neutral by 2050, is one example. President Macron of France has suggested an overhaul of the global financial system, bringing together sovereign funds, asset managers, and private equity firms to integrate climate risks in the investment calculation. Likewise, Chancellor Merkel of Germany has reiterated the need to establish a robust market system to stymie carbon emissions. As one of the global leaders on climate action, Germany has been fairly successful in implementing carbon pricing. Early this year, it introduced a €25 (US$30) per ton carbon tax on the transport and heating sectors.[1]

CONTENTIOUS ISSUES

Four of ten ASEAN member states—Indonesia, Singapore, the Philippines, and Vietnam—were invited to the summit, where they announced their newest goals and initiatives. President Joko Widodo announced that Indonesia is piloting a net zero emissions development project called the Indonesia Green Industrial Park, and that it will rehabilitate 620,000 hectares of mangroves up to 2024. Philippine Secretary of Finance, Carlos G. Dominguez III, shared that The Philippines’ first NDC had just been submitted. Prime Minister Lee Hsien Loong announced the Singapore Green Plan 2030, a living plan with climate and sustainability targets across sectors such as energy, green finance, transport, waste and adaptation. He also shared that Singapore will quadruple its solar energy production by 2025. President Nguyen Xuan Phuc highlighted new targets of increasing the share of renewables in the primary energy supply by 20% by 2030 and 30% by 2045, and reducing greenhouse gas intensity by nearly 15% and methane emissions from agriculture by 10%.

One key emphasis shared by several ASEAN leaders’ speeches is the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC), which acknowledges that the non-polluters of yesterday should not bear the cost of climate consequences today. Often brought up by developing countries to call for assistance in achieving their climate goals, this sentiment was echoed at the summit by Indonesia, The Philippines and Vietnam, as well as China.

In particular, President Xi Jinping used this principle to discourage developed countries from enacting green trade barriers, and instead called for them to support developing countries in finance, technology and capacity building to help transition to low carbon-development. President Joko Widodo approached the same topic from the angle of multilateralism, warning that applying trade barriers under the pretext of environmental issues would undermine a real global partnership. These arguments highlight a growing concern about green trade barriers threatening exports from developing countries where environmental regulations may be less stringent, and are perceived as trade protectionism by developed countries.

In March 2021, the European Parliament backed a Carbon Border Adjustment Mechanism (CBAM) proposal, which, if implemented, would impose a carbon price on certain carbon-intensive imports into the European Union (EU), including cement, steel, aluminium, oil refining, paper, glass, chemicals, and fertilisers, whether embedded in intermediate or final products.[2] The CBAM is applied to extend the geographical reach of EU’s carbon price in order to more accurately reflect the carbon content of imports.[3] This mechanism aims to mitigate longstanding concerns about carbon leakage or the relocation of emissions from the EU to non-EU countries due to the high carbon price imposed within the EU. Without such a mechanism, a reduction in overall global emission is impossible to achieve.

Some critical points have been emerging against the CBAM proposal, however, chief of which being the unfair impact it will have on developing countries’ exports. If such a law is imposed to all imports currently covered by the EU’s Emission Trading System, up to US$16 billion of exports from developing country to the EU could face an additional charge, thus making them less competitive in the EU market.[4] This could undermine the principle of CBDR-RC embraced by the Paris Agreement that forms the basis of agreement that developing countries should not share the same burden as those of the rich. Under such a principle, the global community has acknowledged that rich countries must bear the cost of climate change, as they have historically contributed a larger share of carbon emissions.

Further, there is concern about the technical aspects of the carbon tax on imported goods. Currently, the EU favours limited implementation on some carbon-intensive goods. However, drawing distinctions between targeted and non-targeted sectors is extremely challenging since the supply chain of goods production has now become highly complex. Companies tend to object to disclosing location details of their supply chains, often considering these to be trade secrets.[5] Companies could also re-route their products from countries that impose carbon tariffs over to unregulated markets.[6] Calculating the total carbon content of a certain good will also be a huge challenge. For instance, a car might be made of components from many countries with different climate and energy policies.[7] To be sure, more robust rule of origins control in a Free Trade Agreement (FTA) would help importers determine the country of origin and carbon content of a product.

Likewise, the implementation of the CBAM is politically costly for the EU. Some countries have raised concerns over the CBAM to the World Trade Organisation (WTO), particularly on how the EU may use the mechanism as a revenue raising tool and to favour their domestic resources rather than as a means of addressing climate change.[8]

WHERE DOES ASEAN STAND?

Generally, the EU’s CBAM is viewed by its global counterparts as a protectionist and unilateral approach to trade and environmental protection. EU officials have however frequently affirmed that such an approach is necessary and that the absence of climate actions by other countries could derail the decarbonisation progress made so far by the EU.

As the third largest trading partner and one of the largest exporters of machinery and transport equipment, agricultural products, and textile and clothing to the EU, ASEAN is generally not expected to favour such a mechanism. Yet, a recent survey report on the Perception of the Planned EU Carbon Border Adjustment Mechanism in Asia Pacific from Konrad Adenauer Stiftung captures nuanced perceptions among three ASEAN member states thought-leaders; Indonesia, Singapore, and Thailand.[9]

The survey report highlights that Indonesia, for instance, fears that the CBAM would damage its palm oil sector as the European Commission labels palm oil as high-risk commodity based on the indirect land use changes that result from its production. On the other hand, because Indonesia has not yet established its carbon pricing mechanism, the CBAM could be a trigger for Indonesia to adopt more ambitious climate policies. Experts also suggest that such a mechanism could become acceptable to Jakarta if the revenue generated from the CBAM is used to help Indonesia develop its decarbonisation pathway.

It should be noted though, that smoother environment-related trading interactions are possible. Experts cite the case of EU-Indonesia cooperation on certified timber. The EU, acknowledging Indonesia’s particular challenges, provides assistance in capacity building and developing monitoring systems for its timber exports. This allows Indonesia to adhere to the EU’s regulations and upgrade its own national timber legality assurance system. In this case, close understanding and support not only help avoid disputes, but also assist Indonesia in improving the robustness of its own environmental framework. Experts thus recommend a similar approach for implementing the CBAM and other environmental trade mechanisms that still manages to maintain good trade relations and empower Indonesia to heighten its climate ambitions.

Thailand, despite concerns over the technical aspects of the implementation and the potential disadvantage these hold for developing countries, views the CBAM as a positive step in mitigating change climate impact. The country is in the process of developing its compulsory emissions trading scheme, and the CBAM could in that context encourage businesses to enhance their decarbonisation efforts and meet the country’s climate pledges.

Singapore, meanwhile, expresses little concern about the CBAM as long as it complies with international rules and agreements. Singaporean experts suggest that the EU could start with small steps, for instance, only taxing heavy polluting industries before gradually moving towards other industries.

Indonesia and Malaysia – two of the most vocal opponents of the CBAM in ASEAN – recently protested against the EU’s 2018 decision to ban palm oil imports for biofuel claiming how the industry contributes to deforestation, peatland degradation and resulting emissions. The Indonesian government claimed that it was a protectionist move to favour European rapeseed.[10] Both initiated WTO dispute complaints against the EU in 2019 and 2021 respectively, claiming that the EU’s measures violated international trade agreements. The two cases are being heard, even as the EU and Indonesia continue to negotiate a free trade agreement. Similarly, at the second Seoul Summit of Partnering with Green Growth and the Global Goals 2030, Prime Minister Hun Sen of Cambodia called for a commitment to globalisation through multilateralism and international trade openness as a means for strengthening climate actions.[11]

Earlier this year, ASEAN and the EU initiated the first joint group meeting on palm oil.[12] Indonesia’s Foreign Affairs Deputy Minister, Mahendra Siregar asserted Indonesia’s willingness to improve sustainability practices in the palm oil industry, citing Indonesia’s moratorium on new logging and plantation permits which successfully dwindled deforestation by 75% within the 2019-2020 period. At the same time, Indonesia demanded a fairer and transparent assessment from the EU.[13] Other vegetable oils such as rapeseed and soya plantations cultivated in the EU also contribute to pollution on soils, rivers and seas due to the use of pesticide. Mahendra also noted that another ASEAN country, The Philippines, had also expressed concerns about coconut oil being increasingly rejected by the EU market. These environmental trade regulations and disputes are likely to be a source of climate conundrum of the future.

CONCLUSION

The issues raised by leaders at the Summit are a harbinger of climate negotiations to come. Whether developed and developing countries can find a balance between heightened climate ambition and the spirit of CBDR-RC bears monitoring, especially for developing Southeast Asian countries that are vulnerable to environmental trade regulations.

At COP26, the world will observe the US’ return to its leadership role in international climate negotiations, the effects of net-zero commitments from major economies, and a new urgency for a green recovery from the COVID-19 pandemic. Much has changed since 2019, while the clock keeps ticking for the environment.

ISEAS Perspective 2021/85, 23 June 2021


ENDNOTES

[1] DW, “Merkel Pushes for Carbon Pricing ‘worldwide’ at Final Climate Conference,” DW.COM, May 6, 2021, https://www.dw.com/en/merkel-pushes-for-carbon-pricing-worldwide-at-final-climate-conference/a-57451959.

[2] European Parliament, “Towards a WTO-Compatible EU Carbon Border Adjustment Mechanism,” 02 2021, https://www.europarl.europa.eu/doceo/document/A-9-2021-0019_EN.html.

[3] M. Mehling and R. Ritz, “Going beyond Default Intensities in an EU Carbon Border Adjustment Mechanism,” Cambridge Working Papers in Economics, Cambridge Working Papers in Economics (Faculty of Economics, University of Cambridge, September 16, 2020), https://ideas.repec.org/p/cam/camdae/2087.html.

[4] Sam Lowe, “The EU’s Carbon Border Adjustment Mechanism: How to Make It Work for Developing Countries” (Centre for European Reform, April 22, 2021), https://www.cer.eu/publications/archive/policy-brief/2021/eus-carbon-border-adjustment-mechanism-how-make-it-work.

[5] Ben McWilliams and Georg Zachmann, “A European Carbon Border Tax- Much Pain, Little Gain,” Policy Contributions, Policy Contributions (Bruegel, March 2020), https://ideas.repec.org/p/bre/polcon/35218.html.

[6] McWilliams and Zachmann.

[7] The editorial board, “EU’s Carbon Border Tax Plan Is Risky but Needed,” Financial Times, January 29, 2020, https://www.ft.com/content/28bbb54c-41b5-11ea-a047-eae9bd51ceba.

[8] Lowe, “The EU’s Carbon Border Adjustment Mechanism.” and WTO, “Brexit, EU’s Carbon Border Adjustment Mechanism Take Centre Stage at Market Access Committee,” accessed June 1, 2021, https://www.wto.org/english/news_e/news20_e/mark_16nov20_e.htm.

[9] Konrad Adenauer Stiftung, “Perception of the Planned EU Carbon Border Adjustment Mechanism in Asia Pacific — An Expert Survey” (Konrad Adenauer Stiftung, March 2021), https://www.kas.de/en/web/recap/single-title/-/content/perception-of-the-planned-eu-carbon-border-adjustment-mechanism-in-asia-pacific-an-expert-survey.

[10] Verdinand Robertua, “ENVIRONMENTAL DIPLOMACY: CASE STUDY OF THE EU-INDONESIA PALM OIL DISPUTE,” July 10, 2019.

[11] Xinhua, “Cambodian PM Renews Call for Freer Int’l Trades, Adherence to Multilateralism,” accessed June 6, 2021, http://www.xinhuanet.com/english/asiapacific/2021-06/01/c_139982475.htm.

[12] ASEAN, “First Meeting of the Joint Working Group on Palm Oil between the European Union and Relevant ASEAN Member Countries,” ASEAN | ONE VISION ONE IDENTITY ONE COMMUNITY, February 1, 2021, https://asean.org/first-meeting-joint-working-group-palm-oil-european-union-relevant-asean-member-countries/.

[13] Jayanty Nada Shofa, “Asean Leads by Example in Sustainable Vegetable Oil: Indonesia,” Jakarta Globe, accessed June 1, 2021, https://jakartaglobe.id/business/asean-leads-by-example-in-sustainable-vegetable-oil-indonesia.

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Malcolm Cook, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

 

2021/69 “The Mekong River Ecosystem in Crisis: ASEAN Cannot be a Bystander” by Hoang Thi Ha and Farah Nadine Seth

 

The Mekong River ecosystem is on the verge of irreversible collapse due to the accumulative effects of climate change and increased numbers of upstream dams as well as other human-made activities such as deforestation, sand mining, extensive irrigation for agriculture and wetland conversion. In this picture, fishers pull in their fishing nets as the sun rises over the Mekong River in Phnom Penh on June 9, 2020. Photo: TANG CHHIN Sothy, AFP.

EXECUTIVE SUMMARY

  • Despite being the premier regional organisation in Southeast Asia, ASEAN remains a bystander in the imminent collapse of the Mekong River ecosystem which runs through five of its member states.
  • ASEAN’s compartmentalised sub-regional approach characterises and justifies its heretofore indifference to Mekong environmental woes despite their impact on the region’s food security and climate change action.
  • The successful mainstreaming of transboundary haze pollution in ASEAN’s legal and institutional frameworks should be an instructive example for invigorating ASEAN’s engagement in the Mekong issues.
  • Most ASEAN member states remain reluctant to place Mekong issues on the regional agenda due to their sensitivity towards China and their reluctance to be embroiled in geopolitical competition in the Mekong basin. 
  • To stay relevant and central to the region, ASEAN needs to recognise its stakes in the Mekong basin by overcoming its current sub-regional mentality and by embracing Southeast Asia in its totality as a strategic theatre.

* Hoang Thi Ha is Fellow and Lead Researcher (Political-Security Affairs) and Farah Nadine Seth is Research Officer at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute.

INTRODUCTION

The Mekong River runs from the Tibetan Plateau through China, Myanmar, Laos, Thailand, Cambodia and Vietnam before discharging into the South China Sea. The territory of Laos covers 25% of the Mekong basin, followed by Thailand (23%), China (21%), Cambodia (20%), Vietnam (8%) and Myanmar (3%).[1] The Mekong basin is one of the richest areas of biodiversity in the world, sustaining around 66 million people, i.e. 10% of ASEAN’s total population, including “most of the population of Laos and Cambodia, one-third of Thailand’s 65 million, and one-fifth of Vietnam’s 90 million people.”[2]

ASEAN’s expansion to include all Southeast Asian mainland states in the 1990s brought the Mekong region well within the grouping’s geographical coverage. Upon its enlargement, ASEAN’s focus was not on the river system itself but on narrowing the development gap between the old and the new member states, namely Cambodia, Laos, Myanmar and Vietnam (CLMV). In 1996, ASEAN established the ASEAN-Mekong Basin Development Cooperation (AMBDC), which included China among its members. One of the AMBDC’s objectives was to “strengthen the interconnections and economic linkages between the ASEAN member countries and the Mekong riparian countries”.[3] The AMBDC, however, gradually lost its momentum and became inactive, with no ministerial meeting convened since 2014. ASEAN’s well-intentioned developmental approach that focused on connectivity and trade with the Mekong sub-region never quite took off because the grouping did not have the economic mass to finance its initiatives. The AMBDC’s flagship project Singapore-Kunming Rail Link (SKRL) made little headway and headline for two decades until China made a splash in recent years with a number of high-speed train projects under its Belt and Road Initiative (BRI).

ASEAN’s approach towards the Mekong region has thus far been consigned to the sub-regional category that receives ASEAN’s implicit blessing but does not fall under its active institutional purview. These sub-regional frameworks cover both maritime and mainland Southeast Asia, including the Brunei-Indonesia-Malaysia-Philippines-East ASEAN Growth Area (BIMP-EAGA), the Riau islands Indonesia-Malaysia-Singapore Growth Triangle, the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), the Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS), the CLMV Cooperation, and the Cambodia, Laos, Vietnam Development Triangle Area (CLV), among others. These frameworks have a development-connectivity focus with a view to linking “geographically proximate areas with different factor endowments, and hence different comparative advantages, to form an economically dynamic sub-region”.[4]

Although this sub-regional approach makes economic sense, it is often used to excuse ASEAN from taking a more proactive role where Mekong-related issues are concerned.[5] As the regional grouping, ASEAN remains a marginal player with regard to a multitude of environmental challenges and geopolitical developments unfolding in the Mekong basin. As ASEAN continues to stand on the side-lines, other Mekong-related frameworks initiated by various major powers have sprouted up, in keeping with the growing economic, environmental and strategic importance of the sub-region. These include, among others, the China-led Lancang-Mekong Cooperation (LMC), the Mekong-US Partnership (expanded from the earlier Lower Mekong Initiative), the Mekong-Republic of Korea Cooperation (Mekong-ROK), the India-led Mekong-Ganga Cooperation (MGC), the Mekong-Japan Cooperation (MJC), and most recently the Japan-US Mekong Power Partnership (JUMPP).

In 2020, Vietnam tried to utilise its ASEAN chairmanship to bring Mekong issues into ASEAN’s agenda, but with very limited success.[6] Hanoi’s attempt to mainstream the Mekong into the ASEAN-wide discourse met with reservations from some maritime and mainland Southeast Asian states for different reasons.[7] For maritime ASEAN states, the Mekong issues are viewed from the sub-regional lens – i.e. they affect only the mainland states and should be best addressed through their existing sub-regional frameworks.

This Perspective challenges this sub-regional approach to the Mekong issues on two accounts: (i) The impact of the environmental crisis in the Mekong River ecosystem goes beyond the sub-regional confines and affects ASEAN’s food security and climate change action as a whole; and (ii) The transboundary haze pollution provides an instructive precedent in mobilising ASEAN frameworks for an essentially sub-regional problem. This article also examines the geopolitical considerations that underlie the reluctance of most ASEAN member states to include Mekong issues in ASEAN’s agenda, hence their default relegation to sub-regional mechanisms.

THIN LINE BETWEEN ‘SUB-REGION’ AND ‘REGION’

In the final passage of his book “Last Days of the Mighty Mekong” published in 2019, Brian Eyler highlights the concept of connectivity – i.e. “the river itself doesn’t have an Upper or Lower Mekong. The system is one” – as the most potent paradigm shift to save the drying Mekong River.[8] The connectivity concept should likewise apply to lift ASEAN out of its “bystander” mode with regard to the unfolding ecological and environmental crisis in the Mekong basin which has taken on an unprecedented level of urgency in recent years.

The Mekong River ecosystem is on the verge of irreversible collapse due to the accumulative effects of climate change and increased numbers of upstream dams as well as other human-made activities such as deforestation, sand mining, extensive irrigation for agriculture and wetland conversion. In 2019, severe droughts caused water levels in the river to drop to their lowest in more than 100 years.[9] Low inflows from the Mekong and its tributaries in the summer of 2020 sent the water volume of Cambodia’s Tonle Sap Lake down to a “very critical situation”, according to the Mekong River Commission (MRC).[10]

The changing hydrological conditions of the Mekong River with unpredictable droughts and floods and reduced river sediments have wreaked havoc on agricultural production and inland fishery. Tonle Sap Lake accounts for two-thirds of Cambodia’s fish-catch – the main source of its population’s protein intake. Yet, increasing numbers of local fishers have reported dwindling fish catches. In December 2020, Cambodia’s Ministry of Agriculture, Forestry and Fisheries announced that the freshwater fish catch among some of the country’s licensed fishers dropped by 31% compared to 2019.[11] In the first quarter of 2021, freshwater fisheries along the Tonle Sap river yielded 1,310 tonnes, a decrease of 190 tonnes while freshwater products caught by families were 56,800 tonnes, a decrease of 12,600 tonnes.[12] Meanwhile, in early 2020, Vietnam’s Mekong Delta suffered its worst drought and saltwater intrusion which affected 42.5% of its land area, or 1,688,600 hectares, a steep increase from 2016’s 50,376 hectares.[13] The river sediment reaching the delta is estimated to be a third of what it was in 2007, critically impacting the country’s agricultural production.[14] The delta produces more than 50% of Vietnam’s rice output and 60% of its total fishery.[15]

According to the State of Southeast Asia: 2021 Survey Report by the ASEAN Studies Centre of ISEAS – Yusof Ishak Institute, many Southeast Asians are concerned about the Mekong’s environmental problems and their impact on regional food security, which underlie their support for ASEAN to pay greater attention to the Mekong. 72.2% of the survey’s 1,032 respondents agreed that ASEAN should include Mekong River issues in its agenda. This sentiment was not only pronounced in the downstream riparian states, namely Vietnam (92.6%), Thailand (87.8%) and Cambodia (73%), but also in maritime Southeast Asian states such as Singapore (74%), Malaysia (67.5%) and the Philippines (67.2%).[16] The survey results demonstrate that food security challenges in the Mekong basin are a cause for region-wide concern because these riparian countries are among the world’s biggest rice exporters, including to maritime ASEAN states (Table 1).

Given the transboundary impact of the Mekong environmental degradation, especially on regional food security systems and forced migrations to urban centres and neighbouring states, ASEAN needs to revisit the arbitrary distinction between ‘sub-region’ and ‘region’ that has characterised and justified its heretofore indifference to the Mekong problems. Apart from food security, the Mekong ecosystem is an indispensable part of ASEAN’s climate change action going forward. The climate change impact and adaptation measures by the Mekong riparian states should be synergised with similar undertakings in other parts of the region. One example is the recommendation that the Mekong basin climate monitoring system set up by the MRC to disseminate data on the hydrological conditions of the river be built upon for extension in the Philippines and other southern parts of Southeast Asia.[17]

TRANSBOUNDARY HAZE POLLUTION: FROM A SUB-REGIONAL PHENOMENON TO THE REGIONAL AGENDA

ASEAN set a precedent when it mainstreamed transboundary haze pollution into its regional agenda. Before the 1990s, haze pollution caused by land and forest fires in Indonesia had been largely dealt with at the sub-regional or bilateral levels between directly affected countries, namely Brunei, Indonesia, Malaysia and Singapore.  However, dangerous levels of smoke haze blanketing maritime Southeast Asia in the mid-1990s transformed the largely sub-regional transboundary pollution issue into an ASEAN-wide concern.

As the most seriously affected countries, Singapore and Malaysia took the lead in regionalising the haze problem and pushing forward a coordinated ASEAN approach in this respect. In 1994, Malaysia and Singapore’s joint proposal for a regional early haze warning system was adopted at the First Informal ASEAN Ministerial Meeting on the Environment in Sarawak, Malaysia. In 1995, ASEAN passed the Cooperation Plan on Transboundary Pollution with haze mitigation as one of its central tenets. Shortly after, the Haze Technical Task Force (HTTF) was established. These initiatives set out measures for expertise-sharing and capacity-building between ASEAN countries to mitigate haze and forest fires, while strengthening haze monitoring and warning systems.[18]

Following the dangerous haze pollution which blanketed maritime Southeast Asia for months in 1997, the ASEAN Ministerial Meeting on Haze was established, according transboundary haze a position of importance under a dedicated ASEAN ministerial body.[19] The signing of the ASEAN Agreement on Transboundary Haze Pollution (AATHP) in 2002[20] was the culmination of decade-long efforts by the affected states in leveraging ASEAN frameworks to address the transboundary haze issue. Such efforts are attributed to these states’ realisation that a multilateral ASEAN approach was needed due to limited levers at the domestic level to counter the transboundary pollution and the need for burden-sharing in mitigation actions.[21]

Having ASEAN in the game levelled up the peer-group pressure and the effect of suasion vis-à-vis Indonesia, the source country of the haze but also a big neighbour with which Singapore must handle bilateral ties with care. In this regard, ASEAN was considered “the best platform for Singapore to channel pressure and help to Indonesia, without seeming overly condescending”.[22] Although it has been rightly pointed out that haze management in ASEAN has been less effective given the constraint of the ASEAN Way,[23] the achievement of a common regional approach to haze should not be underestimated. As in the case of many other regional challenges, ASEAN is not meant to be the solution but part of the efforts towards reaching a solution. As remarked by the late Southeast Asia scholar Michael Leifer, “regionalism is not a ready-made panacea for security and prosperity but merely an approach to such ends with possibilities for success.”[24]

Given the precedent set with the mainstreaming of the haze issue in the region-wide agenda, consigning the Mekong environmental crisis to a sub-regional category to justify ASEAN’s non-engagement does not hold water. Mainland ASEAN states rose to the call when its maritime counterparts pushed for a more regional approach to the haze problem. Myanmar, Thailand and Vietnam joined Singapore, Malaysia and Brunei in ratifying the AATHP early to enable its entry into force in November 2003. Given the urgency of the Mekong ecosystem’s imminent catastrophe, it is time that maritime ASEAN members revisit their detached approach now when it is mainland Southeast Asia that “catches fire”.

Of note, ASEAN’s region-wide instruments on haze action do not supplant but supplement and support existing sub-regional arrangements. There are two Sub-regional Ministerial Steering Committees on Transboundary Haze Pollution (MSCs) for the southern circuit (maritime states plus Thailand) and northern circuit (CLMV plus Thailand). These MSCs meet annually and discuss practical actions that are tailored to their sub-regions, and then report back to the Conference of the Parties (COP) to the AATHP.[25] This regional–sub-regional synergy is instructive for ASEAN to step up its engagement on the Mekong. 

GEOPOLITICS AND ASEAN’S QUEST FOR ‘ONE SOUTHEAST ASIA’

   

ASEAN’s approach to the transboundary haze pollution provides an instructive precedent to help overcome the sub-regional mentality in addressing transboundary issues in the region. However, geopolitics sets the Mekong River apart and makes it far more complicated and difficult for ASEAN to take a forward-leaning approach. The transboundary haze issue is confined to ‘low politics’ and can be neatly placed under the environment sector. The Mekong issues represent a cocktail of low and high politics that involve water resources management, energy development, food security, economic connectivity as well as geopolitical competition.  For the haze issue, one mainly has to deal with non-state actors, e.g. plantation owners clearing forests for commercial use and small farmers doing slash-and-burn agriculture. For the Mekong challenge, one has to live with an ascending great power which not only controls the river’s headwaters but also wields predominant economic and strategic influence over all ASEAN member states, especially those in the mainland. 

With the exception of Vietnam, most Southeast Asian states remain reluctant to put the Mekong issues onto ASEAN’s agenda for fear of displeasing Beijing. China has built 11 dams in the Upper Mekong and Chinese companies are involved in numerous hydropower projects downstream, especially in Laos. The most recent study of these upstream dams’ impact on the Mekong’s natural flows is The Eyes on Earth report from April 2020. The report concludes that “the severe lack of water in the Lower Mekong during the wet seasons of 2019 is largely influenced by the restriction of water flowing from the Upper Mekong during that time.”[26] China has since disputed the findings of the report. The MRC also released a critique of the report and appealed to the Mekong countries to share data and information on water use and infrastructure operation.[27] The Vientiane Declaration of the third LMC Leaders’ Meeting in August last year hardly addressed the damming issue other than with a fleeting mention of “dam safety”. The document instead focused on climate change, cross-border trade and inter-regional connectivity including power connectivity and power trade.[28]

The increased interest and involvement in the Mekong basin by other major powers, especially the US, also add to this sensitivity of the ASEAN states. Most do not want to be embroiled in another arena of major power competition over yet another body of water apart from the South China Sea. On top of that, there is a competitive dynamic at play as some maritime ASEAN states would not want to see external attention and resources flow into the Mekong basin at the expense of their own sub-regional frameworks such as the BIMP-EAGA. Keeping the Mekong issues within the confines of sub-regional frameworks therefore conveniently justifies ASEAN’s detachment from Mekong geopolitics.

This apathy toward the Mekong issues, especially on the part of non-riparian ASEAN states, represents “a narrow transactional approach” that fails to grasp “Southeast Asia holistically as one strategic theater”, according to Bilahari Kausikan.[29] The coming together of ‘one Southeast Asia’ with ASEAN being its premier regional organisation has become even more fraught with the return of major power rivalry and the deepening of political-strategic incoherence within ASEAN. From the South China Sea issue to the ongoing Myanmar crisis, ASEAN is becoming increasingly divided along the maritime-mainland bifurcation.[30] ASEAN’s reluctance to raise its stakes in tackling the Mekong challenge will further deepen this fault line in both geography and geopolitics. While the geography of Southeast Asia and its inherent diversity may be structural, ASEAN’s unity and relevance are also a function of agency. For its centrality to Southeast Asia and to the lives of the people inhabiting across the region, ASEAN should raise its stakes in the Mekong. To do that, its member states must, first of all, overcome the sub-regional mentality and embrace the region in its totality.

ISEAS Perspective 2021/69, 19 May 2021


ENDNOTES

[1] CGIAR – Research Program on Water, Land and Ecosystems, “Mekong River Basin”, https://wle-mekong.cgiar.org/changes/where-we-work/mekong-river-basin.

[2] Brian Eyler, Last Days of the Mighty Mekong (London: Zed Books, 2019).

[3] Basic Framework of ASEAN- Mekong Basin Development Cooperation, Kuala Lumpur, 17 June 1996, https://www.asean.org/storage/images/2013/economic/mbdc/basic%20framework%20of%20ambdc.pdf.

[4] Sree Kumar and Sharon Siddique, Southeast Asia: The Diversity of Dilemma (Singapore: Select Publishing 2008), p. 39.

[5] The Mekong issues refer to a host of intertwined environmental, ecological, developmental and strategic challenges facing the Mekong riparian states. 

[6] Hoang Thi Ha, “Flying the ASEAN Flag in a Pandemic Year: Vietnam’s 2020 Chairmanship”, ISEAS Perspective 2020, No. 137 (3 December 2020), /wp-content/uploads/2020/11/ISEAS_Perspective_2020_137.pdf.

[7] Author Hoang Thi Ha’s interviews with ASEAN member states’ officials 2020.

[8] Brian Eyler, op. cit.

[9] Stefan Lovgren, “Mekong River at its lowest in 100 years, threatening food supply”, National Geographic, 31 July 20219, https://www.nationalgeographic.com/environment/article/mekong-river-lowest-levels-100-years-food-shortages.

[10] Sao Da, “Water volume in Tonle Sap Lake at dangerous levels”, Khmer Times, 21 August 2020,  https://www.khmertimeskh.com/50755781/water-volume-in-tonle-sap-lake-at-dangerous-levels.

[11] “Cambodia’s Tonle Sap shows what’s at stake in the Mekong’s dam-fueled decline”, ASEAN Today, 28 December 2020, https://www.aseantoday.com/2020/12/cambodias-tonle-sap-shows-whats-at-stake-in-the-mekongs-dam-fueled-decline.

[12] “Waning fish-catch in Cambodia’s Tonle Sap region”, The Star, 8 April 2021,  https://www.thestar.com.my/aseanplus/aseanplus-news/2021/04/08/waning-fish-catch-in-cambodia039s-tonle-sap-region.

[13] “Đợt hạn, mặn nghiêm trọng nhất trong lịch sử ĐBSCL”, Nhân Dân Điện tử, 20 June 2020, https://nhandan.com.vn/chuyen-lam-an/dot-han-man-nghiem-trong-nhat-trong-lich-su-dbscl-475180.

[14] Hiebert, M., “Upstream Dams Threaten the Economy and the Security of the Mekong Region”, ISEAS Perspective 2021, No 34 (22 March 2021), /wp-content/uploads/2021/02/ISEAS_Perspective_2021_34.pdf.

[15] Cosslett, Tuyet L., Cosslett, Patrick D., Water Resources and Food Security in the Vietnam Mekong Delta (London: Springer, 2014), p. xiv.

[16] Seah, S. et al., The State of Southeast Asia: 2021 (Singapore: ISEAS – Yusof Ishak Institute), /wp-content/uploads/2021/01/The-State-of-SEA-2021-v2.pdf.

[17] Mely Caballero-Anthony, Paul Teng, Goh Tian, Maxim Shrestha, Jonatan Lassa, “Linking Climate Change Adaptation and Food Security in ASEAN”, ERIA Discussion Paper Series, 2015, https://www.eria.org/ERIA-DP-2015-74.pdf.

[18] Muhamad Varkkey, H., “Addressing Transboundary Haze Through ASEAN: Singapore’s Normative Constraints”, Journal of International Studies, [S.l.], v. 7, pp. 92, (Jan 2011); Nguitragool, P., Environmental cooperation in Southeast Asia: ASEAN’s regime for transboundary haze pollution (New York: Routledge, 2011), p. 58-59.

[19] Heilmann, D., “After Indonesia’s Ratification: The ASEAN Agreement on Transboundary Haze Pollution and its Effectiveness As a Regional Environmental Governance Tool”, Journal of Current Southeast Asian Affairs, 34, 3, p. 101, (2015), https://journals.sagepub.com/doi/pdf/10.1177/186810341503400304.

[20] ASEAN Agreement on Transboundary Haze Pollution, https://haze.asean.org/asean-agreement-on-transboundary-haze-pollution.

[21] Paruedee Nguitragool, Environmental cooperation in Southeast Asia : ASEAN’s regime for transboundary haze pollution (Routledge, 2011), p. 66.

[22] Muhamad Varkkey, op. cit.

[23] Heilmann, op. cit.

[24] Michael Leifer, Selected Works on Southeast Asia, compiled and edited by Chin Kin Wah and Leo Suryadinata, (Singapore: Institute of Southeast Asian Studies, 2005), p. 97.

[25] https://asean.org/asean-socio-cultural/cop-to-aathp-conference-of-the-parties-to-the-asean-agreement-on-transboundary-haze-pollution.

[26] Basist, A. and Williams, C. (2020); Monitoring the Quantity of Water Flowing Through the Mekong Basin Through Natural (Unimpeded) Conditions, Sustainable Infrastructure Partnership, Bangkok, https://data.opendevelopmentmekong.net/dataset/monitoring-the-quantity-of-water-flowing-through-the-upper-mekong-basin-under-natural-unimpeded-con/resource/8433a305-8c7a-49d0-af8b-8778ec289b46.

[27] The Mekong River Commission, Understanding the Mekong River’s hydrological conditions, 2020, https://www.mrcmekong.org/assets/Publications/Understanding-Mekong-River-hydrological-conditions_2020.pdf.

[28] Vientiane Declaration of the Third Mekong-Lancang Cooperation (MLC) Leaders’ Meeting, Xinhuanet, 24 August 2020, http://www.xinhuanet.com/english/2020-08/24/c_139314536.htm.

[29] Bilahari Kausikan, “Why Asean should treat the Mekong like the South China Sea”, South China Morning Post, 17 July 2020, https://www.scmp.com/week-asia/opinion/article/3093546/why-asean-should-treat-mekong-south-china-sea.

[30] Vietnam is the exception because the country has national interests at stake in both the South China Sea (maritime) and the Mekong river (mainland).

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2021/64 “Facilitating Investment in Southeast Asia: ASEAN and WTO Initiatives” by Tham Siew Yean

 

The Association of Southeast Asia Nations (ASEAN) is proposing an ASEAN Framework Agreement on Investment Facilitation (AFAIF) as part of its regional economic recovery plan. In this picture, the ASEAN secretariat building in Jakarta, Indonesia, taken on April 20, 2021. Picture by BAY ISMOYO, AFP.

EXECUTIVE SUMMARY 

  • While investment facilitation is part and parcel of investment treaties and trade agreements, current WTO Investment Facilitation for Development (WTO IFD) negotiations include far more dimensions than those in existing ASEAN agreements.
  • ASEAN is proposing an ASEAN Framework Agreement on Investment Facilitation (AFAIF) as part of its regional economic recovery plan.
  • Although ASEAN has included investment facilitation in its internal and external agreements for more than a decade, the associated action plans indicate that implementation is left at the unilateral level.  
  • Measurements of investment facilitation show that ASEAN member states lag behind their Plus partners in the domestic adoption of investment facilitation measures.
  • Therefore, ASEAN should consider a regional investment facilitation action plan besides pushing for an AFAIF.
  • Such an action plan would allow ASEAN member states that are participating in an AFAIF and a WTO IFD to avail of the WTO IFD’s development provisions to meet overlapping commitments in both agreements.

* Tham Siew Yean is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute and Professor Emeritus, Universiti Kebangsaan Malaysia.

INTRODUCTION

Globally, the volume of foreign direct investment (FDI) has been on a downward slide since 2015. The Covid-19 pandemic’s negative impact on the 2020 earnings of multinationals (MNCs) will worsen the decline, especially since more than 50 percent of global FDI are reportedly financed by reinvested earnings. Based on UNCTAD,[1] global FDI fell by 42 percent from USD1.5 trillion in 2019 to an estimated USD859 billion in 2020. This is 30 percent lower than the investment after the global financial crisis in 2008. Inflows of FDI into the Association of Southeast Asian Nations (ASEAN) are likewise affected, shrinking by 31 percent to USD107 billion. The effects of the pandemic on global FDI are expected to persist as investors continue to adopt a cautious attitude towards committing to new investments overseas. Enhancing investment facilitation to improve investment retention and re-investment are key strategies for countering the slowdown in global FDI as it plays an important complementary role to investment promotion.

According to the World Trade Organisation (WTO),[2] investment facilitation aims to ease the conduct of business and investments of domestic and foreign investors by making the business climate more transparent, efficient and predictable. Essentially, investment facilitation strives to remove investment impediments that arise from unnecessary red tape, bureaucratic overlap or out-of-date procedures. Similar to trade flows, simplifying, speeding up and coordinating processes in investment approvals can potentially lead to an expansion of investment flows, ceteris paribus. Empirically, the World Bank’s Global Investment Competitiveness (GIC) Survey of 2,400 companies in 2019, from ten countries, support extant empirical literature which indicates that a transparent and predictable regulatory environment is crucial for attracting new investments and retaining existing ones.[3] Not surprisingly, investment facilitation is an important component of investment treaties and agreements, be it at the bilateral, regional and multilateral level. These commitments, being binding and irreversible, provides stability and predictability in terms of future policy directions valued by investors, especially as uncertainty in the global economic climate increases.[4]

This paper maps the items in the proposed WTO Investment Facilitation for Development (IFD) with existing initiatives in ASEAN to explore possible synergies between the two.

WTO: PROPOSED INVESTMENT FACILITATION FOR DEVELOPMENT (IFD)

In 2017, encouraged by the entry into force of the WTO Trade Facilitation Agreement (TFA), some WTO members proposed for a multilateral initiative on investment facilitation, leading to a call for “structured discussions with the aim of developing a multilateral framework on investment facilitation”.[5] Subsequently, formal negotiations on a multilateral framework on Investment Facilitation for Development (IFD) started in September 25, 2020 with 106 members, with the aim of achieving a concrete outcome by the 12th WTO Ministerial Conference (MC12) in November 2021.[6] Out of the 106 participants in the WTO negotiations for IFD, seven are AMS[7], and all the Plus partners in RCEP-15 are involved as well. The goal of the negotiations is to agree to a framework of rules that will promote transparency and predictability by requiring participating members to publish investment laws and regulations, and provide information about their investment authorisation procedures; introduce certain minimum standards in countries’ administrative procedures and requirements; and encourage international cooperation, information sharing, and exchange of best practices.

Despite not having an agreed definition on investment facilitation, different WTO members have submitted various proposals for a multilateral initiative, with differing elements.[8] These include definitions of investment facilitation, regulatory transparency and predictability, streamlining and simplifying the administrative process, non-discrimination, single-window processing, e-application, protection of confidential information, facilitation of outward investment, appeals and reviews of administrative decisions, national institution arrangements, multilateral institution arrangements, institutional cooperation, special and differential treatment, technical assistance, corporate social responsibility, dispute prevention and/or dispute settlement, as well as future disciplines on market access and treatment.[9] Subsequent additional proposals include authorisation fees in the financial sector; “firewall provisions”, which aim to insulate the future investment framework from international investment agreements; and revised proposals for a single portal, domestic supplier databases and investment facilitator.[10]

Importantly, three key disciplines on investment are excluded from the current negotiations, namely market access, investment protection and Investor-State dispute settlement (ISDS), which allow companies to seek damages from governments.[11] Investment promotion is also deemed as separate from IFD in these negotiations, with the former linked to image building and marketing of a country/region as an investment destination.

The measures under current negotiations are summarised in Table 1. They cover seven key dimensions: transparency, streamlining and speeding up administrative processes and requirements, contact point, development, sustainable development, cross cutting issues, institutional and final provisions as well as “firewall” provisions, based on the list of proposed measures from different WTO members.[12]

However, investment facilitation is not a new issue in trade and investment agreements as it is covered in numerous international investment agreements (IIAs) as well as ASEAN’s trade and investment agreements.

ASEAN AGREEMENTS

The idea of investment facilitation in ASEAN has a long history. It was first mooted in the 1998 Framework Agreement on the ASEAN Investment Area (AIA) as one of the objectives. The agreement aimed to progressively reduce or eliminate investment regulations and conditions which may impede investment flows and the operation of investment projects in ASEAN.[13] Schedule 1 of the Framework Agreement has a cooperation and facilitation programme whereby individual member countries intend to: (i) increase transparency of Member State’s investment rules, regulations, policies and procedures through the publication of such information on a regular basis and making such information widely available; (ii) simplify and expedite procedures for applications and approvals of investment projects at all levels; and (iii) expand the number of bilateral Double Taxation Avoidance Agreements among ASEAN Member States.

In the subsequent ASEAN Comprehensive Investment Agreement (ACIA)[14] that replaced the earlier AIA Framework as well as the Investment Guarantee Agreement (IGA) signed in 2009 and ratified in 2012, investment facilitation is explicitly included as an article in the agreement. Five other elements in the discussions in the WTO IFD are also found in the ACIA. These are: transparency; development, as in the provision of Special and Differential Treatment (SDT) for newer ASEAN members which includes technical assistance; cross-cutting such as the facilitation of entry and stay of business persons for investment purposes; and dispute settlement, as shown in Table 2. Since the exact provisions in the proposed WTO IFD are still under negotiation, Table 2 is merely illustrative and not comprehensive in coverage.

ASEAN-Plus agreements such as ASEAN-Japan Comprehensive Economic Partnership (AJCEP) agreement, ASEAN-Korea Investment Agreement and ASEAN-Australia-New Zealand Free Trade Agreement, which were signed prior to the signing of the ACIA in 2009 do not have provisions on investment facilitation. However, they may include some of the other provisions in the ACIA. Although the ASEAN-China Investment agreement included investment facilitation, there are no provisions for SDT for the newer ASEAN member states. In contrast, the ASEAN-Plus agreements signed and ratified after the ACIA tend to follow the provisions of the ACIA.

It should be noted that while some of the provisions may not be in the investment chapter, they can be included in other parts of an agreement with partner countries. Notably, the entry and stay of business persons for investment purposes may be included in a trade in services agreement under Mode 4 or a separate agreement on the movement of natural persons (MNP). The Regional Comprehensive Economic Partnership (RCEP) which has been signed but not ratified at the time of writing, is an example. While specific provisions are made for investment facilitation, the other provisions are not in the investment chapter, but there are related dimensions in other chapters (Table 2).

Compiled by Author [15]

COMPARING THE PROPOSED WTO TFA AND ASEAN AGREEMENTS

When comparing the provisions in ASEAN (Table 2) with the proposed elements under discussions  at the WTO (Table 1), one sees that the four common provisions for investment facilitation in ASEAN agreements (Appendix 1) do cover some aspects in the proposed provisions for a WTO IFD. These are streamlining and simplifying procedures for investment applications and approvals and contact/focal point as in the establishment of one-stop centres. The RCEP also contains additional provisions for the focal point such as addressing investor aftercare by providing assistance in the resolution of conflicts and grievances, which is in fact another aspect covered in the on-going WTO negotiations.

In the ACIA, investment facilitation is expanded to cover three additional elements, namely: (i) strengthening databases on all forms of investments for policy formulation to improve ASEAN’s investment environment, (ii) undertaking consultation with business community on investment matters; and (iii) providing advisory services to the business community of the other member states. These correspond with the proposed elements of the WTO on transparency requirements and contact point (Table 1).

As can be observed from Chart 1, there are overlaps between ASEAN and some of the ASEAN Plus agreements, and the proposed WTO IFD. These pertain to the elements on transparency, streamlining, contact point, development and cross-cutting issues. However, the discussions at the WTO include additional aspects within these elements, which exceed those in the existing ASEAN and ASEAN Plus agreements. Importantly, ASEAN’s commitments in investment facilitation are especially lacking in terms of  provisions for sustainable investments as well as “firewall” provisions.

OPPORTUNITIES AND CHALLENGES

Despite ASEAN’s long-standing interest in investment facilitation, the Investment Facilitation Index, developed by The German Development Institute indicates relative shortfalls for ASEAN member states. The Investment Facilitation Index aims to measure the scope of investment facilitation measures used domestically.[16] It is a weighted average of measures taken along six policy areas: transparency and predictability, electronic governance, cooperation, application process, outward investment and focal point review. The index can range from a minimum score of 0 to a maximum of 2, with 0 denoting no implementation, 1 for planned or partial implementation and 2 for full implementation. As shown in Chart 2, there is a clear difference between ASEAN member states, including Singapore which has the highest score for ASEAN, and most of its Plus partners, namely Australia, New Zealand, Korea, Japan, and China. The index therefore shows that AMS have fewer investment facilitation measures in place compared with these Plus partners.

The results are not surprising since investment facilitation in ASEAN has focused on improving transparency through largely unilateral actions, despite the commitments in existing agreements. It can be clearly seen in ASEAN’s Consolidated Strategic Action Plan 2025,[17] where the main focus is on investment peer review, policy dialogues, databases, sharing of knowledge and best practices, with no substantive ASEAN-wide Action Plans for investment facilitation. This is very different from ASEAN’s trade facilitation initiatives which have several ASEAN-wide action plans to reduce trade costs such as the ASEAN Trade Repository, ASEAN Single Window and ASEAN Customs Transit System as well as the development of a databank of non-tariff measures (NTMs) at the ASEAN level. Hence, even though ASEAN has negotiated and listed investment facilitation in ASEAN’s internal and external agreements, it lacks concrete initiatives in terms of ASEAN-wide action plans.

Nevertheless, the Implementation Plan for the ASEAN Comprehensive Recovery Framework, 2021 has proposed a new ASEAN Framework Agreement for Investment Facilitation (AFAIF). It is part of ASEAN’s initiatives for maximising the potential for an intra-ASEAN market and broader economic integration, including attracting more FDI to the region to support economic recovery from the Covid-19 pandemic.[18]

POLICY IMPLICATIONS FOR ASEAN

A meaningful AFAIF will enhance ASEAN’s relevance in this important issue. The AFAIF should therefore go beyond the existing provisions in the ACIA and other ASEAN external agreements. Chart 1 indicates there is room for extending and deepening provisions in the five existing overlapping elements with the proposed WTO IFD, namely, Transparency, Streamlining, Contact Point, Development, and Cross-cutting issues. However, since not all AMS are parties to the current negotiations on a WTO IFD, it is unlikely that the provisions in an AFAIF will match all the proposed provisions in the WTO IFD, especially for non-overlapping elements such as sustainable development.

AMS that commit to both an AFAIF and a WTO IFD can potentially utilise both agreements synergistically, especially in the development dimension. This dimension is based on the WTO Trade Facilitation Agreement (TFA) which is the first WTO agreement to allow members to determine their own implementation schedule, with technical and financial support linked to the implementation of the core provisions. AMS that are also members of the WTO TFA are able to draw upon technical and financial support from the WTO TFA for the implementation of their ASEAN commitments in trade facilitation,[19] thereby killing two birds with one stone. ASEAN’s trade facilitation has specific ASEAN-wide initiatives to reduce trade costs such as the ASEAN Single Window, ASEAN Trade Repository which links the National Trade Depositories in one web-site, and ASEAN Customs Transit System. Since all AMS are also members of the WTO TFA, AMS can tap on technical support from the WTO TFA to fulfil ASEAN’s action plans in some of these areas.

The development dimension in the proposed WTO IFA indicates the possibility of using the SDT provisions in the agreement for implementing reforms to meet the commitments of such an agreement. If these commitments overlap with those in an AFAIF, ASEAN can potentially benefit from committing to a plurilateral agreement and an ASEAN-wide agreement on investment facilitation. For this to be possible, drawing on the example of the WTO TFA and ASEAN’s initiatives on trade facilitation, ASEAN will need to embark on a regional action plan for facilitating investment.

CONCLUSION

While investment facilitation is part and parcel of investment treaties and trade agreements, current negotiations for a WTO IFD have included in it far more dimensions than found in existing ASEAN agreements. In particular, the current negotiations have included sustainable investment, which is not part of any of ASEAN’s internal and external commitments in investment facilitation. Advancing towards an AFAIF that extends and deepens provisions beyond that found in current ASEAN agreements will nurture economic cooperation to further strengthen the region’s attractiveness for FDI. This will facilitate regional economic recovery from the Covid-19 pandemic.

Although ASEAN has included investment facilitation in its internal and external agreements for more than a decade, the action plans indicate that the implementation of investment facilitation has been left at the unilateral level. It is  therefore not surprising to find that recent measures of investment facilitation in AMS show scores that are lower than the Plus partners.

Having a regional action plan in investment facilitation means that AMS that are participating in an AFAIF and a WTO IFD will be able to tap on the proposed development provisions of the WTO IFD to meet overlapping commitments in both agreements. ASEAN should therefore consider including a regional action plan in investment facilitation besides pushing for an AFAIF. The lack of region-wide action plans in investment facilitation in ASEAN means that ASEAN will not be able to obtain mutual gains from regional and multilateral/plurilateral commitments, as in the case of trade facilitation.


ISEAS Perspective 2021/64, 7 May 2021


ENDNOTES

[1] UNCTAD, 2021. “Global foreign direct investment fell by 42% in 2020, outlook remains weak”. https://unctad.org/news/global-foreign-direct-investment-fell-42-2020-outlook-remains-weak <Accessed 1 April 2021>.

[2] See WTO, 2020. “Negotiations on an investment facilitation agreement show high level of engagement”. https://www.wto.org/english/news_e/news20_e/infac_09oct20_e.htm <Accessed 1 April 2021>.

[3] See World Bank, 2020. Global Competitiveness Report 2019/20. https://pubdocs.worldbank.org/en/314571591134463825/211536-Chapter-1.pdf  <Accessed 1 April 2021>. The ten countries covered in the survey are Brazil, China, India, Indonesia, Malaysia, Mexico, Nigeria, Thailand, Turkey, and Vietnam.

[4] See World Bank, 2020. Op cit. p. 43.

[5] See Zhang, Joe, 2018. Investment Facilitation: Making sense of concepts, discussions and processes. https://blogs.die-gdi.de/longform/investment-facilitation-for-sustainable-development <Accessed 2 April 2021>.

[6] See WTO 2020. “Structured discussions on investment facilitation for development move into negotiation mode”. https://www.wto.org/english/news_e/news20_e/infac_25sep20_e.htm <Accessed 2 April 2021>.

[7] Brunei, Thailand and Vietnam are not part of the current negotiations.

[8] These are proposals submitted by Russia (30 March 2017), MIKTA (4 April 2017), China (21 April 2017), Friends for Investment Facilitation (FIFD) (21 April 2017), Argentina and Brazil (April 24 2017) and Brazil (13 December 2017).

[9] Zhang, op cit. p.6.

[10] See WTO structured discussions on investment facilitation for development negotiating meeting held on 7 and 8 December 2020, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/INF/IFD/R19.pdf&Open=True <Accessed 15 April 2021>

[11] Locatelli, Claudia, 2021. “Negotiations on Investment Facilitation for Development (IFD) at the WTO.” https://www.unescap.org/sites/default/d8files/event-documents/Session%203_Claudia%20L_IF%20for%20Development_1.pdf  <Accessed 2 April 2021>.

[12] This is to prevent spillover effects from similar provisions in the proposed WTO IFA with existing international investment agreements (IIAs). For more details, see Chi, M., 2020. Insulating a WTO investment facilitation framework for development from international investment agreements. International Trade Centre, Geneva, Switzerland. https://www.intracen.org/uploadedFiles/intracenorg/Content/Redesign/Events/Insulating%20an%20IFF4D%20from%20IIAs%20(Final)_as%20of%20Dec%2023%20FV%20.pdf <Accessed 2 April 2021>.

[13] See https://cil.nus.edu.sg/wp-content/uploads/2019/08/2.5-1998-Framework-Agreement-on-the-ASEAN-Investment-Area.pdf  <Accessed 1 April 2021>. The other three objectives are: (i) substantially increase the flow of investments into ASEAN from both ASEAN and non-ASEAN sources; (ii) jointly promote ASEAN as the most attractive investment area, and (iii) strengthen and increase the competitiveness of ASEAN’s economic sectors.

[14] See ACIA at http://investasean.asean.org/index.php/page/view/asean-comprehensive-investment-agreement-acia—section-a/view/799/newsid/834/article-25–facilitation-of-investment.html <Accessed 2 April 2021>.

[15] I would like to thank Ms. Aidonna Jan Ayub, Deputy Director, Research at Khazanah Research Institute for her useful comments on improving this table.

[16] For more details, see https://blogs.die-gdi.de/longform/investment-facilitation-for-sustainable-development <Accessed 2 April 2021>.

[17] See ASEAN Economic Community 2025 Consolidated Strategic Action Plan. https://asean.org/storage/2012/05/Updated-AEC-2025-CSAP-14-Aug-2018-final.pdf <Accessed 2 April 2021>.

[18] See Implementation Plan for ASEAN Comprehensive Recovery Framework at https://asean.org/storage/ACRF-Implementation-Plan_Pub-2020.pdf <Accessed 6 April 2021>. Page 31.

[19 See Tham Siew Yean, 2017. “Trade Facilitation: Exploring Synergies between WTO and ASEAN initiatives”, Perspective 2017, No. 4. /wp-content/uploads/2015/07/ISEAS_Perspective_2017_47.pdf <Accessed 6 April 2021>.

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Malcolm Cook, Lee Poh Onn, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

 

2021/61 “Is the East Asia Summit Suffering Erosion?” by Hoang Thi Ha and Malcolm Cook

 

Vietnam’s Prime Minister Nguyen Xuan Phuc (top 2nd R) addresses his counterparts at the ASEAN-East Asia (EAS) Summit of the Association of Southeast Asian Nations (ASEAN) summit being held online in Hanoi on 14 November 2020. Photo: Nhac NGUYEN, AFP

EXECUTIVE SUMMARY

  • Over the last decade, the East Asia Summit has established itself at the peak of the ASEAN-led regional architecture and key to ASEAN’s broader centrality aspirations.
  • ASEAN has however had difficulties improving the institutional efficacy of the EAS and lifting it out of its default ‘talk shop’ mode.
  • ASEAN dialogue partner developments also pose an EAS erosion threat. These include the deterioration in China’s relations with the Quad members, and the recent elevation of the Quadrilateral Security Dialogue to a regular leaders-level forum.
  • Leveraging the EAS to address the aftermath of the Myanmar coup and to engage with the Quad Vaccine Partnership could help the EAS bolster its ability to deliver concrete results on pressing Southeast Asian issues.

* Hoang Thi Ha is ISEAS Fellow and Lead Researcher for Political-Security Affairs in the ASEAN Studies Centre, and Malcolm Cook is ISEAS Visiting Senior Fellow at ISEAS – Yusof Ishak Institute.

INTRODUCTION

All inter-state organisations are shaped and challenged by the changing engagement of their major stakeholders, the difficulties associated with consensus-based reform and consolidation, the inevitable gap between expectations and feasible delivery, and the evolving strategic environment within which they exist.

Where ASEAN is concerned, the mutually reinforcing effects of such challenges will test the East Asia Summit (EAS) and threaten its peak position in the ASEAN-led regional architecture in the coming years. How ASEAN member states and ASEAN itself respond will help determine the EAS’ future status.

Three developments illuminate these more challenging times. On 12 March, the Quadrilateral Security Dialogue (the Quad) was elevated from an informal discussion forum among the US, Japan, India and Australia to the inaugural Quad leaders’ summit; this presents a direct challenge to the EAS’ peak position. If the second Quad leaders’ summit that is to be held in-person by the end of 2021 takes place, likely before the EAS, this challenge will become clearer.[1]

Second, the 1 February military coup in Myanmar and its bloody aftermath are being viewed by many as an “existential crisis” for ASEAN intramurally and for ASEAN’s broader agenda.[2] ASEAN-led mechanisms that include Myanmar junta representatives could lead to some dialogue partners choosing to stay away or to use their presence to call for an immediate return to democracy in Myanmar.

Finally, the Covid-19 pandemic that continues to spread in many ASEAN member states has shown the EAS’ functional limitations. The smaller, more established and more functionally-oriented ASEAN+3 mechanism has been much more active and effective in addressing the pandemic in Southeast Asia.[3] The Quad may achieve the same with the launch of the Quad Vaccine Partnership at its inaugural summit.[4] Over the last decade, the EAS, by default and by ASEAN’s design, has been the peak mechanism in the ASEAN-led regional architecture. Keeping it so will not be easy.

EAS IDENTITY ISSUES

For all the acclaim of its premier status in the ASEAN-led regional architecture, the EAS has not yet settled on its own identity. It has its genesis in the ASEAN+3 process and the latter’s goal of building an East Asian community for East Asians. In its 2002 report assessing the establishing an EAS, the East Asia Study Group emphasised the “need for clarity of objectives and issues which the EAS should pursue.”[5] Yet, much of the diplomatic wrangling leading to the EAS’ inaugural meeting in 2005 was about which ASEAN dialogue partners to invite, and not.[6] The EAS did not become an “ASEAN+3 transformed”. The EAS’ broader original membership and subsequent addition of the US and Russia in 2011 give it a more “open, outward-looking and inclusive”[7] character. Neither were its objectives or its path forward clearly defined, making it “unclear to most what exactly the raison d’être for the inaugural meeting of the EAS was.”[8]

This continuing lack of a clear purpose is reflected in the mismatch between the broad strategic agenda at the leaders-level and the evolving seven priority areas of EAS cooperation involving multiple government ministries, namely energy, education, finance, global health including pandemics, environment and disaster management, ASEAN Connectivity and maritime cooperation. On the one hand, this Janus-faced identity allows for flexibility. China and its like-minded EAS partners can promote functional and development cooperation, while the US and its partners can raise traditional security issues including the South China Sea disputes and the Korean Peninsula. Individual EAS leaders have the prerogative to raise any issue of specific interest or concern to them.

On the other hand, it creates the dilemma of preserving the broad, free-flowing and informal nature of the leaders’ dialogue while enhancing the EAS’ institutional capacity to deliver concrete results. Last year, the EAS was almost invisible in initiating any specific collective action to tackle the COVID-19 pandemic, despite “global health including pandemics” being a priority area for cooperation.

The EAS Leaders issued their Statement on Strengthening Collective Capacity in Epidemics Prevention and Response only in November 2020,[9] and no concrete action to implement the statement under the EAS framework has been reported since then. Instead, the region is witnessing vaccine nationalism and competitive vaccine diplomacy among the major powers who are EAS members. This is not unexpected, as Southeast Asia is a frontline region for China’s vaccine diplomacy,[10] and the focus for the Quad Vaccine Partnership.[11] However, it shows that while the EAS assembles the main characters, the real action is elsewhere.

There has been no shortage of effort to strengthen the EAS’ efficacy and efficiency over the past 15 years, especially around milestone anniversaries. During the EAS’ tenth anniversary year in 2015, there was a major stock-taking and review of the EAS with active participation. Of innovative inputs coming from the EAS’ dialogue partner members, only a few of have been implemented, such as the establishment of the EAS Unit within the ASEAN Secretariat[12] and the EAS Ambassadors Meeting in Jakarta (EAMJ)[13] to facilitate coordination within the EAS on a regular basis. Other efforts to strengthen the EAS’ institutional capacity include the setting up of the EAS Foreign Ministers Meeting and EAS ministerial mechanisms in the economic, finance, energy, environment and education sectors.

However, these institutional reinforcements have had little impact in lifting the EAS out of its default leader-level ‘talk shop’ mode. So far, there has been no serious attempt to overhaul the EAS structure to preserve its “Leaders-led” nature and to manage overlaps with other ASEAN-led mechanisms in functional cooperation, including the ASEAN+3, ASEAN Regional Forum (ARF) and ASEAN Defence Ministers Meeting-Plus (ADMM-Plus).

As the only multilateral platform that brings together the leaders of Southeast Asian countries and other major powers to discuss issues of strategic significance to the region, the EAS’ leaders-led nature is highly prized by all of its members. However, while EAS leaders’ discussions can be frank and heated at times, it is also true that the leaders often read their set-piece talking points and hardly engage in interactive dialogue. Related to this is the persistent concern on a yearly basis over the attendance of the US president at the EAS. Washington’s presence adds critical strategic weight to the forum, but US presidents’ sporadic engagement has time and again raised legitimate questions about US commitment to ASEAN multilateralism and doubts about the relevance and credibility of the EAS itself.

DIALOGUE PARTNER DEVELOPMENTS

President Donald Trump’s decision not to attend any EAS plenary session deepened these latter concerns over the last four years. White House confirmation that President Joe Biden will attend the 2021 EAS would be most welcome. The almost complete absence of Russia’s and China’s top leaders[14] from the EAS has not triggered such criticism and concern, suggesting either the paramount importance of the US to the EAS or what increasingly looks like a double standard on the part of ASEAN with regard to these major powers.

Under President Vladimir Putin and President Xi Jinping, political power in Russia and China has become increasingly personalised, and each leader looks likely to remain in their current positions for the foreseeable future. Hence, the Russian prime minister/foreign minister and Chinese premier are increasingly less suitable representatives at the “leaders-level” EAS. Putin and Xi’s continued absence, combined with their regular participation in APEC Economic Leaders Meetings and G-20 Summits, threatens to erode ASEAN centrality claims and the EAS’ peak position in the regional strategic architecture.

The changing nature of relations between ASEAN dialogue partners in the EAS pose two more concerns that challenge both faces of the EAS’ identity. Relations between the US, Russia and China are increasingly defined by contestation and confrontation, not cooperation, as are China’s relations with Japan, India, and Australia. At the same time, relations between Russia and China have become more defined by cooperation in their overlapping rivalries with the US specifically, and with “the West” more generally.[15]

This greater Russia-China cooperation and China’s more confrontational relations with the US, Japan, India and Australia are already undermining the ASEAN-led architecture with the EAS at the peak along with its constituent units. In 2015, the ASEAN Defence Ministers’ Plus, a ministerial-level structure in the ASEAN-led regional architecture with the same membership as the EAS, failed to release its planned joint statement due to US-China disagreements over the mention of South China Sea disputes.[16] In 2020, Russia and China’s opposition to the term “Indo-Pacific” – including even reference to the ASEAN Outlook on the Indo-Pacific (AOIP) – was a key stumbling block in the drafting of the Hanoi Declaration on the 15th Anniversary of the EAS.

Putin and Xi’s respective hold on political power in Russia and China, and deepening public concern in the US, Japan, India and Australia with regard to China’s international behaviour make this unpeaceful strategic environment likely to persist. ASEAN’s commitment to open inclusive regionalism and “neutrality” in the deepening and more active rivalries among ASEAN dialogue partners in the EAS risk the EAS leaders-level meetings becoming more adversarial, and therefore less interactive and cooperative. This would further undermine the EAS’ ability to provide concrete outcomes for shared concerns.

These same growing major power rivalries make smaller, more exclusive leaders-level and ministerial-level arrangements among like-minded or like-threatened states more attractive. The revival of the Quad at the senior officials’ level in 2017, its elevation to a meeting of foreign ministers in 2019, and its further elevation to the same leaders’ summit level as the EAS in 2021 provide the best but not only example of the less inclusive but more responsive diplomatic architecture that is being built and retrofitted outside of the ASEAN-led multilateral one.

Other structures in this alternative architecture include the elevation and broadening of the Five Eyes intelligence sharing network between the US, Great Britain, Canada, Australia and New Zealand,[17] and discussions on expanding the Group of Seven (G7) leaders-level forum to include India, Australia and South Korea. The threat posed by Russia and China’s more aggressive international behaviour clearly provides many of the building blocks for this emerging architecture that does not include any ASEAN member state. The growing strategic partnership between Russia and China illuminated by the growing interaction between Putin and Xi is another, and the Shanghai Cooperation Organization that includes Cambodia as a dialogue partner could become one as well.[18] Russia and China’s growing rivalries with the US specifically and “the West” more generally provide many of the building blocks for these latter two.

LEADERS-LED TO WHERE?

As the architect and the driver of the EAS, ASEAN needs to face up to the erosion challenges facing this Leaders-led forum position “at the apex of the ASEAN-centred regional architecture”.[19] Simply repeating this tired mantra barely helps the EAS respond to the sharpening and broadening geopolitical rivalries among its dialogue partner members and address human security challenges such as the COVID-19 pandemic. To maintain the EAS’ relevance going forward, the EAS’ capacity to deliver results through concrete actions needs strengthening. It needs to go beyond being simply “Leaders-led” in order to answer the central question that has dogged it since inception: “Leaders-led to where?”.

For this, ASEAN’s comprehensive approach to security is instructive. The distinction between political-security and economic-development issues has become less clear-cut as all issues from health security to supply chain resilience, infrastructure development and energy security now affect both political power at home and geopolitical influence abroad. This provides a fitting vista for ASEAN – as the agenda setter – to present a more focused and action-oriented EAS agenda that corresponds to prevailing regional and global challenges. Instead of drafting multiple statements with only aspirational objectives and general prescriptions, ASEAN’s diplomatic capital should be better invested in mobilising collective action that delivers regional public goods. One recent example of this capability was the launch of the Regional Comprehensive Economic Partnership (RCEP) negotiations at the 7th EAS in November 2012 (although the RCEP is not an EAS process per se, given the absence of the US and Russia, and India at its later stage).

ASEAN should send a strong message to its dialogue partner members – especially the US, China and Russia – that they must live up to their statements of supporting ASEAN’s centrality with actions, not simply words. These actions include not only their participation in the annual EAS at the highest level but also their active support for ASEAN initiatives.

The EAS needs to function as an arena where the major powers compete when they must and collaborate when they should and could, especially on shared human security concerns. As such, the next critical test is for ASEAN to leverage the EAS – which comprises all the major powers that have influence on Myanmar, namely China, Russia, India and Japan – to persuade the Tatmadaw (Myanmar’s armed forces) to stop violence and resolve the country’s political crisis through dialogue and peaceful means.

More ambitiously, ASEAN should engage with the emerging alternative architecture, rather than consider the ASEAN-led architecture in exclusive and solely defensive terms. In 2005, the ASEAN Secretariat signed a memorandum of understanding with the Secretariat of the Shanghai Cooperation Organisation despite this body’s clearly anti-US potential. ASEAN could likewise engage with the Quad Vaccine Partnership and its strategic perception of Southeast Asia. If ASEAN fails to do so collectively, individual Southeast Asian states should not miss this opportunity to increase their access to badly needed Covid-19 vaccines. This splintering would not bode well for ASEAN centrality and the EAS.

ISEAS Perspective 2021/61, 3 May 2021


ENDNOTES

[1] Quad Leaders’ Joint Statement: ‘The Spirit of the Quad’, 13 March 2021, https://www.pm.gov.au/media/quad-leaders-joint-statement-spirit-quad

[2] Thitinan Pongsudhirak, “Asean’s Myanmar crisis out of control”, Bangkok Post, 26 March 2021, https://www.bangkokpost.com/opinion/opinion/2089727/aseans-myanmar-crisis-out-of-control

[3] Jusuf Wanandi, “ASEAN-China cooperation in time of COVID-19 pandemic”, Jakarta Post, 16 March 2020, https://www.thejakartapost.com/academia/2020/03/16/asean-china-cooperation-in-time-of-covid-19-pandemic.html

[4] Quad Summit fact Sheet, 12 March 2021, https://www.pm.gov.au/sites/default/files/files/quad-summit-fact%20Sheet.pdf

[5] Final Report of the East Asia Study Group at the ASEAN+3 Summit, 4 November 2002, https://www.mofa.go.jp/region/asia-paci/asean/pmv0211/report.pdf

[6] Rodolfo C. Severion, Southeast Asia in Search of an ASEAN Community: Insights from the former ASEAN Secretary-General, 2006 Institute of Southeast Asian Studies, Singapore, pp. 269-273

[7] Kuala Lumpur Declaration on the East Asia Summit, 14 December 2005, https://www.mofa.go.jp/region/asia-paci/eas/joint0512.html

[8] Ralf Emmers, Joseph Chinyong Liow and See Seng Tan, The East Asia Summit and the Regional Security Architecture, Maryland Series in Contemporary Asian Studies, Number 3 – 2010 (202), https://digitalcommons.law.umaryland.edu/mscas/vol2010/iss3/1

[9] East Asia Summit Leaders’ Statement on Strengthening Collective Capacity in Epidemics Prevention and Response, 14 November 2020, https://asean.org/storage/2020/11/32-EAS-Leaders-Statement-on-Strengthening-Collective-Capacity-in-Epidemics-Prevention-and-Response-FINAL.pdf

[10] Koya Jibiki and Tsukasa Hadano, “China pushes ‘vaccine diplomacy’ in Southeast Asia”, Nikkei Asia Review, 16 January 2021, https://asia.nikkei.com/Spotlight/Coronavirus/China-pushes-vaccine-diplomacy-in-Southeast-Asia

[11] US Embassy in Malaysia, Fact Sheet: The Quad Vaccine Partnership, 12 March 2021, https://my.usembassy.gov/fact-sheet-the-quad-vaccine-partnership

[12] This EAS Unit comprises one Assistant Director (who covers also the ASEAN Plus Three and ASEAN’s dialogue relations with the Plus Three countries), two Senior Officers and one Technical Officer, all of whom must be Southeast Asian nationals.

[13] Kuala Lumpur Declaration on the 10th Anniversary of the East Asia Summit, 22 November 2015, http://eastasiasummit.asean.org/wp-content/uploads/2018/02/Kuala-Lumpur-Declaration-on-The-Tenth-Anniversary-of-The-East-Asia-Summit.pdf

[14] The division of labour of Chinese leadership in foreign relations portfolio has the President attend the APEC Economic Leaders’ Meeting, and the Premier attend ASEAN-related summits. Except in 2018, Russia has never been represented at the EAS at the highest presidential level.

[15] Andrea Kendall-Taylor and David Shullman, “Navigating the deepening Russia-China partnership” CNAS, January 2021, https://s3.us-east-1.amazonaws.com/files.cnas.org/documents/CNAS-Report-Russia-China-Alignment-final-v2.pdf; “China-Russia cooperation has no upper limits”, Global Times , 22 March 2021, https://www.globaltimes.cn/page/202103/1219115.shtml  

[16]  “No joint statement as US, China clash over wording on South China Sea”, Today, 5 November 2015, https://www.todayonline.com/world/no-signing-joint-declaration-asean-defense-forum 

[17] Ben Scott, “Five Eyes: Blurring the lines between intelligence and policy”, 27 July 2020, Lowy Interpreter, https://www.lowyinstitute.org/the-interpreter/five-eyes-blurring-lines-between-intelligence-and-policy

[18] Alexander Lukin, “Shanghai Cooperation Organization: looking for a new role, Valdai Papers, 9 June 2015, https://valdaiclub.com/a/valdai-papers/valdai_paper_special_issue_shanghai_cooperation_organization_looking_for_a_new_role

[19] Ha Noi Declaration on the 15th Anniversary of the East Asia Summit, 15 November 2020, https://asean.org/storage/2020/11/29-Ha-Noi-Declaration-on-the-15th-Anniversary-of-the-EAS-FINAL.pdf

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Malcolm Cook, Lee Poh Onn, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).