The idea that regional architecture in Asia and the Pacific is not up to the tasks it now needs to serve has been around for some time. It has been inspired in part by worries about the untidiness in the competing structures — across the Pacific, of APEC, and within East Asia, of ASEAN +3 and the East Asia Summit (EAS). There has also been a hankering after ‘robust’ regional institutions modelled on the arrangements in Europe or North America, however unsuited they are to Asia Pacific circumstances.

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What is different about the thinking that led to Prime Minister Rudd’s Asia Pacific Community proposal is that these worries are incidental to its main strategic motivation. The Rudd idea is grounded in the reality of the big shifts taking place in the structure of regional and world power. These shifts in the structure of power have two main implications.

First, Asia’s growth is changing the structure of the world economy and shifting global economic power, and ultimately, strategic weight towards Asia, in particular China and India. Economic and political changes in Asia and the Pacific challenge the primacy of some dimensions of American power. These developments underline the gap in the framework for regional political and security dialogue in Asia and the role that such dialogue could play in helping to manage the long-term change in the structure of Asian economic and political power and political security relations between Asia and America.

Second, the scale of Asia’s impact on the global economy means that there is urgency in energising regional efforts to deliver on Asia’s global responsibilities – in the financial and macro-economy, in trade policy and on climate change – and how that might be assisted through regional structures.

Until the collapse of world financial markets and world trade in the global financial crisis, the East Asian region, including Australia, was preoccupied with managing all aspects of the China boom – the pressure on energy, resource and food markets, the macroeconomic pressures, the looming foreign direct investment and commercial presence – and beginning to think about its long-term political consequences. India too was more and more caught up in the wave. All was premised on the continuing strength of North American and European markets.

East Asian economies should have been more conscious of their role on the world stage and the need to reposition quickly to manage the global system consequences of their own economic success and the dangers presented to its sustainability that the huge imbalances had created on the way. East Asia bore no responsibility for America’s squandering the beneficence of East Asia’s success – the apparently never-ending supply of cheap credit negligently guarded by the private and public custodians of the developed world’s financial system. But in this and in many other global system-making or system-destroying economic and political affairs, East Asia had significant prudential responsibility and it failed collectively at every stage to exercise it.

The reason for this failure is simple.

Despite the emergence of East Asia as a major economic force in the world – China, Japan and the rest of East Asia through to Australia and New Zealand reaching out to India – the East Asian economies collectively could not step up to the mark because regional structures were still not up to the task of effective global participation. The stage was still set for the wrong play – reactive responses to regionalism in other parts of the world, the trivia of regional FTAs and ‘mickey mouse’ financial cooperation – and there was no platform on which to perform globally.

In East Asia, like elsewhere in the world, the risks that we now face in recovery from the global financial crisis, not only economically but also politically, are a consequence of failure in the architecture of governance, including regional architecture, that frustrated a coherent East Asian and international response to the big problems of the day in their global context.

The global financial crisis and the emergence of the G20 has changed all this dramatically and propelled the G20′s Asian members to assume a new role and their proper responsibilities in managing the world economic order. ASEAN is the fulcrum of Asian cooperation arrangements, including APEC, ARF, ASEAN+3 and the East Asian Summit (EAS) but, with the rise of the bigger powers in Asia, and the G20, this is changing.

How can regional architecture be restructured to relate effectively to the new global arrangements?

The starting point is to understand that, while they may have failed to connect Asia’s regional with its growing global interests and responsibilities and they have other weaknesses, the regional arrangements we have in place are huge assets in going forward. APEC is entrenched as the primary trans-Pacific arrangement. ASEAN+3 and the East Asian Summit have assumed an important role in developing the Asian regional agenda. APEC, in its first twenty years, has provided a workable strategy in trade and economic diplomacy in East Asia and the Pacific supporting policies of liberalisation and structural reform, organised around the principle of open regionalism (a strategy well suited to the development, objectives and diversity of the Asia Pacific region). But after the Asian financial crisis and the global financial crisis, these regional arrangements (APEC, ASEAN +3, ASEAN+6) must now relate more strategically to the global arrangements (the G20 group). And there is a whole new political and security agenda to navigate within the Asia Pacific region.

Clearly, the Asia Pacific Community idea needs to relate to these established regional structures – APEC and East Asian arrangements – if it is to be both accepted and serve its underlying political-security purpose. It will only be worthwhile and practical if it limits dialogue to the major players. Hence, although it cannot encompass all APEC’s membership, or all the membership of EAS, a dialogue on political and security affairs needs to represent both as they are presently constituted. It needs to link to, be coordinated with, and draw on the base of all of the established trans-Pacific and East Asian arrangements.

While none of the existing regional institutions addresses all of the key dimensions of regional cooperation that they now need to – providing a collective forum for regional leaders to address the full range of regional and global issues; dealing effectively with the consequences of economic integration, particularly its trade and investment but also its financial and macro-economic dimensions; addressing issues of political change and security; and educating the public and opinion leaders about the region – nor should any one organisation need to perform all these roles. Each of these forums has evolved to serve some or other of these roles and they can all make an input across the range of issues that are now important.

This points to the need for a new heads of government meeting that transcends APEC and EAS (encompassing the Rudd and Hatoyama proposals) that can address the full range of regional and global issues, including issues that might arise in APEC, EAS, ARF or other regional forums and feed into the G20 and other global processes. This summit could eventually constitute an Asia Pacific Council, underpinning the continued development of the regional community. It would not need its own secretariat but draw on APEC and the ASEAN-based groups to develop issues for consideration.

There may be sensitivities in creating a new summit involving a limited number of countries, the ‘larger’ players in Asia and the Pacific. But so long as it is structured so that it is representative of all the regional arrangements, these sensitivities need not be important. The most practical proposal and most logical starting point is that this summit should begin by including the Asia Pacific members of the G20, and meet adjunct to the APEC summit. A dialogue among these countries does not entail creating an additional institution as G20 leaders will continue to meet beyond the current financial crisis, encompass the core players in APEC and EAS and meet in conjunction with the annual APEC summit . These are all  important considerations in taking the next steps towards realising vision of an Asia Pacific and East Asian Community.

The clear message is that ‘no one wants more meetings’ and that there is ‘no appetite for additional institutions.’ But there is strong support for developing more effective alignment of regional strategic purpose, a sentiment that is at the core of the idea of an Asia Pacific Community.

If this is an idea that seeks to anticipate and shape our regional political and economic future, it is an idea that cannot be put on hold, take a decade to implement or wait until the United States signs on to EAS, an ASEAN-based, primarily Asian-oriented and still nascent grouping.

The next APEC meeting in Japan, provides an excellent opportunity to convene a side-dialogue of this group, including India, on these issues, likely just prior to the G20 meetings in Seoul, to lay the foundations for a representative Asia Pacific Council that can give leadership to taking the Asia Pacific Community idea forward.

Dr Hadi Soesastro is a senior economist with CSIS in Jakarta and Peter Drysdale is Emeritus Professor in the Crawford School of Economics and Government at the Australian National University. The original version of this essay was submitted as background to the Asia Pacific Community Conference held in Sydney at the instigation of Australian Prime Minister, Kevin Rudd, 3-5 December 2009.

1. Special Editorial – What Prime Minister Rudd’s Asia Pacific Community Conference delivered
2. Rudd in Singapore on the Asia Pacific Community idea
3. Realizing the Asia Pacific Community: geographic, institutional and leadership challenges

Climate change is perhaps the most controversial international issue today. The scientific debate on the need to limit GHGs (green house gases) that are responsible for global warming has not ended, but it is no longer the main issue at this point in time. The Declarations of both the G8 and the Major Economies Forum (MEF), held in L’Aquila (Italy) in July 2009, stated the leaders’ agreement [pdf] with ‘the scientific view that the increase in global average temperature above pre-industrial levels ought not to exceed 2 degrees celcius’.

The real issue is how this would be achieved. As of today, the planet is already 0.8 degrees celcius warmer than at pre-industrial time, and the rise in the world’s average temperature has continued to accelerate. Establishing an international climate regime is seen as necessary to deal with this global problem. This effort began with the agreement in 1992 of the UN Framework Convention on Climate Change (UNFCCC) that led to the adoption of the Kyoto Protocol in 1997 and its entry into force on 16 February 2005.

The first commitment period of the Kyoto Protocol that started in 2008 will end in 2012. It is not likely going to deliver much as the world’s largest emitter, the United States, has not ratified it, essentially because developing countries were exempted from commitments. To produce an improved, successor agreement to the Kyoto Protocol in Copenhagen at the end of this year, parties to the UNFCCC have entered into a full negotiating mode in 2009, particularly since the second session last June in Bonn to be followed by three other sessions. An improved agreement is understood to be one that is seen as fair by all parties and goes beyond the narrow focus on mitigation.

President Obama has pledged to provide U.S. leadership within the multilateral effort to produce a new international climate agreement. The U.S. House of Representatives has recently passed the American Clean Energy and Security Act, and the U.S. Senate is developing its own bill, the American Clean Energy and Leadership Act, to tackle climate change. It remains to be seen whether the final legislation will help or hamper the US to effectively play that role. Many developing countries are now giving greater attention to the issue of climate change mitigation and adaptation and are participating more actively than before in the global negotiations, as they have better appreciation of the risks of climate change. These are positive developments.

The economic crisis could have some positive effect if it leads to the adoption of ‘green’, low-carbon growth strategies in pursuing economic recovery and beyond. But it could negatively affect the negotiations that are currently underway as governments tend to hold back on their climate agenda. The crisis has weakened the resolve in many developed countries to introduce meaningful GHG emissions reduction measures as concerns are mounting that these could further erode the international competitiveness of their industries. This is especially so, since major emerging developing economies are not seen to be willing to make similar commitments. The UNFCCC commits developed countries to ‘move first’, justified on the basis of their ‘historical responsibility’. In the recent G8 Summit developed countries failed to agree on specific targets to reduce GHG emissions in the near term (2020). The G5 leaders that met in parallel have urged developed countries [pdf] ‘to pledge to fulfill quantifiable, ambitious and comparable goals to reduce emissions, through the reduction of their combined emissions in 2020 to a level that is at least 40 per cent lower than those of 1990’, as proposed by the Intergovernmental Panel on Climate Change (IPCC).

The crisis also affect the ability, if not the willingness, on the part of developed countries to provide substantial resources to finance the efforts by developing countries to undertake meaningful mitigation and adaptation efforts. The UNFCCC also commits developed countries to compensate developing countries for ‘the agreed full incremental costs’ that they will bear for any action they should choose to take to mitigate climate change (Article 4.3). China, for instance, has argued [pdf] in its May 2009 submission to UNFCCC that developed countries should provide funding, mainly through the public sector, of 0.5 to 1 per cent of GDP on top of existing ODA. Without securing such a commitment from the developed countries, the developing countries are not likely going to make a major move.

If anything, the crisis merely reinforces and accelerates a trend that is already happening, that is the decline in the ability of key developed countries (the US, the EU, and Japan) to lead in the crafting of new global agreements, whereas the newly emerging economies (China, India, and Brazil) that aspire to play a greater role in global governance are not ready as yet to make the big leap and to take on a greater share of the responsibility in accordance with their increased international profile. They conveniently place one foot within the grouping of developing countries (G77) to avoid having to make binding commitments by using UNFCCC’s principle of ‘common but differentiated responsibility’. They are holding on to this as a first principle for fear that making binding commitments could obstruct economic growth, the catching-up process and poverty reduction efforts.

The US position is that all countries should be put on an equal footing. Going into the negotiations, developing countries have pledged to take mitigation measures, but will do this on their own, and they have agreed to submit so-called nationally appropriate mitigation actions (NAMA). The US and other developed countries no longer insist on binding emission targets for developing countries but demand that the actions (instead of the outcome of actions) be made binding, and that they are transparent, subject to measurement, reporting and verification.

Four months into Copenhagen, there are some improvements in the negotiations agenda, such as the inclusion of deforestation issues which was previously left out in Kyoto. Yvo de Boer, Executive Secretary of UNFCCC has outlined [pdf] four ‘political essentials’ to unleash action that will ‘make or brake’ a deal. They are, clarity about: (a) willingness of developed countries to reduce their GHG emissions; (b) willingness of major developing countries such as China and India to limit the growth of their emissions; (c) availability of financing from developed countries to assist developing countries in mitigating emissions and adapting to climate change; and (d) the governance (institutional) framework to deliver the support for mitigation and adaptation.

The negotiations have hardly moved beyond statements by leaders and ministers as expressed in the media. It seems that the situation has become very polarized. Todd Stern, the US climate envoy, sees this divide between the developed countries and the developing countries as ‘deeply woven into the fabric of climate change diplomacy’.   Some have described this situation as the ‘climate trap’.

The outlook is not promising. But perhaps there is a way out of this trap.

Major emerging economies have placed only one foot in the G77. The other foot is still stepping and tapping on different stones to explore options for moving ahead outside of the UNFCCC. Here, China is clearly at the forefront. It is trying to develop a strategy to overcome its dilemma. Since its ability to make binding commitments under the UNFCCC is limited, it will need to demonstrate real efforts to respond to the challenge of global warming. It has embarked on ‘unilateral actions’ involving major economy-wide efforts to improve energy efficiency and to increase the use of renewable energy resources. As a member of the G5, China actively participates in the efforts to promote cooperation with G8 members, in a somewhat awkward ‘minilateral’ setting, in such areas as energy technology transfers, R&D, and the development of biofuels, through the Heiligendam process. China is also a party to an ad-hoc multilateral process, the Asia Pacific Partnership on Clean Development and Climate, launched in 2006, which focuses on the development of less carbon-intensive technologies.

But China appears to put greatest emphasis on bilateral cooperation with key developed countries, in particular the United States. Indeed, there seems to be a shift towards ‘bilateralization’ of negotiations between major developing countries and developed countries on climate issues. China’s multi-pronged strategy accords with that of the United States, which is being pursued on three fronts: (a) the UNFCCC negotiations process; (b) the establishment of the Major Economies Forum (MEF) on Energy and Climate to facilitate an informal dialogue process; and (c) a focus on key bilateral relationships, especially with China. Thus the G2 is something that would seem to emerge logically, and should be seen in this light. It may, in fact, hold an important key to the crafting of an international climate regime.

In parallel to China’s efforts, other developing countries in East Asia could make similar initiatives, individually or as a group, to produce a concerted regional action plan that contributes to increasing the chances of success of the emerging multi-pronged strategy towards an international climate agreement. Elsewhere, a similar initiative has been proposed to make Asia a ‘game changer’ in global climate change negotiations. The suggestion is for the regional countries to use their national energy efficiency and sustainable development plans and targets to demonstrate initial commitments to GHG reductions.

In line with this initiative, a set of medium-sized countries in the region could come forward to agreeing on setting unilateral emissions reduction targets with a pledge to make further cuts if others follow suit. Australia has indicated its readiness to do so. Korea and Indonesia can do the same.

These initiatives will complement the many other efforts outside of the UNFCCC such as G5, G8, MEF, and G20. Climate change will become a more prominent item in the agenda of G20 as G20 finance ministers have been asked to come up with a global climate financial framework. But the East Asian initiative should primarily be seen as a strategic effort to change the international climate for global climate change negotiations.

The UNFCCC process of negotiations may indeed resemble the process of multilateral trade negotiations under the WTO. Kyoto was the first round, Copenhagen the second round, to be followed by further rounds of negotiations that hopefully will take place under a progressively improved climate for negotiations.

East Asia should help ensure that these rounds of global climate change negotiations do not end up in a Doha Round type of situation.

This piece is drawn from a presentation at the Senior Policy Seminar of the East West Center, ‘The Global Economic Crisis and Implications for Asia Pacific Region’, Honolulu, Hawaii, 3-5 August 2009

1. US: Waxman-Markey Bill changes the landscape of international climate change negotiations
2. Can China rescue the world climate change negotiations?
3. Finding a way forward to a post-Kyoto global agreement on climate change

By now a number of Indonesian polling agencies have perfected their method to do quick counts of the election results. The public has accepted their counts as being close to the official final result. In just a few hours after the closing of the voting booths Indonesians have a pretty good idea of the outcome of an election. This happened on 9 April 2009 with the legislative elections and again on 8 July 2009, the day Indonesians cast their vote to elect their President and Vice President for the period 2009-2014. This is a remarkable development.

The final, official count will be known in only about 10 days to two weeks. But at about 4pm on the day of the election, just three hours after the booths were closed in western Indonesia, it was clear that the incumbent, Susilo Bambang Yudhoyono (SBY), was the winner. By about 6.30pm when the quick counts have covered 90 to 99 per cent of the sample, there was no doubt that SBY and his running mate, the economic technocrat Dr. Boediono, won the election in the first round. There is no need to have a second round like in 2004.

It is a landslide victory. Nationally, SBY gets about 60 per cent of the votes, followed by Megawati with about 27 per cent, and Jusuf Kalla reaping the remaining 13 per cent. To win, there is also the requirement to have more than 20 per cent of the votes in 50 per cent of the 33 provinces (or 17 provinces). In all but one province (South Sulawesi, Jusuf Kalla’s stronghold), SBY has gained more than 40 per cent of the popular votes, and the simple average of the votes for him in those 32 provinces is about 59.4 per cent. His support in Aceh is as high as 94 per cent. This is a strong mandate for SBY to run the country for a second (and last) term. His campaign slogan — Lanjutkan! (Continue!) — appears to have worked. Is it because the people acknowledge his achievements? Or is it essentially his personality? Or are other factors at play: political machinery, skillful campaigns? It may well be a combination of all those.

A close observation of SBY’s style of running the country over the past 56 months suggests that he must have had the determination from the start to run the country for the maximum 10 years allowed by the Constitution. Hence his cautious stance on most issues that borders on timidity as he wants to please everyone and avoid “rocking the boat” unlike his predecessor Abdurrahman Wahid who destroyed himself in the process. SBY was accused of engaging himself mostly in a strategy of tebar pesona, namely of spreading enchantment. But his ‘politik santun’ (well mannered politics) has been praised. He has kept his good, and correct, appearance in public. These all have paid off well for him.

It is what will come next that is more important now for SBY and for the country. He should realize that he has won his re-election on his own and does not owe any political party in his formal (and nominal) coalition anything. Of course he should be thankful to several of his ministers, in particular the technocrats, who have served him well. He should also acknowledge that his Vice President, Jusuf Kalla, did a lot for him. The lesson for him is that he can count on the professionals to help him run the country but that they will have to be given full political backing. To some extent that was what Jusuf Kalla did when his was not forthcoming. Now SBY himself has to step forward to provide that political backing.

At an informal breakfast of six, including the author, the day after the G20 Summit in Washington, D.C. in November 2008, the President clearly said that if re-elected he would be more decisive. He spoke about why he had taken a cautious posture as he thought that he needed to avoid a confrontation with the parliament as it could end in a situation as experienced before by Abdurrahman Wahid. With the mandate he receives now he can exert stronger leadership. He could appeal to the people that have elected him directly in case the parliament blocks him. Some thought he should have done that before given that he also got over 60 percent support in the 2004 election. But it is important that he continuously communicates with and educate the people on key policy issues, not only during political campaigning. In addition, in his second term he could be less risk averse as he has much less to loose, except for a good legacy that will indeed be lost if he cannot demonstrate leadership.

Despite the strong mandate, SBY must uphold good governance and strengthen the democratic process. Indonesia’s democratic process has come a long way. The 2009 legislative and presidential elections attest to this. It was unfortunate that the Election Commission is so incompetent, but fortunately this could be overcome at the eleventh hour with the decision by the Constitutional Court to allow voters to use their ID in the presidential election if they encountered problems with the registration. This critical decision was greatly facilitated by the attitude of SBY’s competitors, Jusuf Kalla in particular. In fact, by having the confidence to participate in the presidential competition, Megawati and Jusuf Kalla had saved the democratic process. From the beginning of the year polls have indicated that SBY is likely going to win with a very large margin. But both Megawati and Jusuf Kalla believed in the system and were willing to give it a try. They were also serious in participating in the three rounds of debate amongst the presidential candidates. These all bode well for Indonesia’s democratic consolidation.

A lot of resources were spent for the campaigns by all three candidates. It may be wasteful but is cannot be done without. It is an interesting subject for in-depth studies whether the campaigns have made and can make a big difference. Casual observation suggests that this has not been the case. There was nothing new the public can learn from the campaigns, but the fun of it should be seen as an integral part of the process. People’s opinion, it seems, is gradually formed over a longer time period. Therefore, the incumbent has an advantage, but it depends on whether that advantage can be capitalized on. SBY had done well on this score. An important task for him now is to create an enabling environment to grooming a new generation of political leaders that will take over the leadership from him in 2014.

1. Indonesia: Unsurprising election landslide, uncertain future
2. Indonesian politics: prospects for the coming presidential election
3. Indonesia’s Presidential election: Who is Jusuf Kalla?

The Asia Pacific region is fast becoming a core area, if not the core area, in the international system. A new regional architecture is required to help frame the cooperation with the Asia-Pacific core as well as shape regional strategies towards global issues. As a soon to be released PECC report suggests: ‘So long as the multilateral architecture fails to incorporate Asian economies in a manner central to systemic issues, these economies will remain secondary players on global issues and sometimes even regional issues. The world cannot afford this.’

The need to reassess Asia Pacific’s regional institutional architecture has been under discussion at the Pacific Economic Cooperation Council (PECC) since 2006. A PECC Task Force will publish a report on the subject within the next month. The relevance of this exercise was underlined by Australia’s Prime Minister, Kevin Rudd, in his address to the Asia Society AustralAsia Centre in Sydney on 4 June 2008, when he suggested a new vision for an Asia Pacific Community. Has the moment arrived for a significant transformation in Asia Pacific’s institutional architecture?

There are four basic functions that a regional architecture needs to address. These are: (a) to provide a collective forum for regional leaders to address the full range of critical regional and global issues that affect them all; (b) to strengthen and deal effectively with the consequences of economic integration, particularly its trade and investment dimensions; (c) to address issues of political change and security; and, (d) to provide a basis for educating the public and opinion leaders about the region.

None of the existing institutions in the region fulfills these needs, as Kevin Rudd also recognized. That does not mean that all functions need to be served by the one organisation. Accepting ‘variable geometry’, would seem a practical way forward. The PECC report argues for having institutions operating at the sub-regional level, particularly in East Asia where there is a legacy of historical suspicion and the need for an intensive form of community building.

There is no need to reinvent such key existing institutions like APEC and the ARF (ASEAN Regional Forum) to deal with regional economic and political security issues, respectively, but they need to be fundamentally reformed.

A renewed drive for reform will come from a clear understanding of the need to have a regional forum that can address the full range of regional and global issues affecting all regional countries. These include issues that might arise in APEC or ARF. This points to the need for a new Heads of Government meeting or Asia Pacific Summit – a forum that cannot be too large, because that would make it ineffective, but needs to be broad enough to make it representative. It would not need its own secretariat. APEC and ARF would develop issues for consideration by this new Asia Pacific Summit.

There will be sensitivities in creating a new Summit involving a limited number of countries, the ‘larger’ players in Asia and the Pacific. At one extreme is the proposal for a G2 (China and the United States), which is unacceptable even to China. The most practical proposal, and most logical, to date is that the Summit should include the Asia Pacific members of the G20. A caucus of these countries does not entail creating an additional institution as G20 leaders are likely to continue to meet beyond the current financial crisis. This should be an important consideration in making the next steps towards realizing the Asia Pacific vision.

The message coming from the consultations in the region undertaken by Kevin Rudd’s envoy, Richard Woolcott, is that ‘no-one wants more meetings’ and that there is no appetite for additional institutions.’ (see Rudd’s Shangri-La speech). That paves the way for institutional innovation built on what we already have as the PECC group suggest.

The broader strategic picture underlying this proposal is the recognition that the global economic governance after the global financial crisis, which is led by the G20 as its steering committee, needs to be supported by effective regional efforts. Regional effort helps strengthen the G20 process itself and at the same time helps ensure that decisions make by the G20 will have the support they need globally, through the ‘regional representatives.’ It is through the existing regional structures that even the smaller countries can channel their aspirations. (See my earlier piece on this).

At the recent, scheduled, but aborted, East Asia Summit (EAS) in Pattaya (Thailand), there was the plan to brief all members about the outcome of the G20 London Summit. If that briefing had taken place, it would have marked the beginning of a new process of purposeful regional-global interactions that would contribute to the strengthening of the world’s economic governance structure.
East Asia can lead the way. There is a Korean proposal to create an East Asian caucus of the G20 that would include the 6 G20 members in the region, namely Australia, China, India, Indonesia, Japan, and Korea. This proposal has received support in Korea and elsewhere in the region and its relevance is widely seen in the group’s potential to make a major contribution to the strengthening of the G20 agenda when Korea chairs G20 next year, and beyond.

This East Asian group can help establish the processes involving a larger Asia Pacific group as the core of the new Asia Pacific Summit. This G10 of the Asia Pacific includes Australia, Canada, China, India, Indonesia, Japan, Korea, Mexico, Russia, and the United States.

This G10 represents half of the members of G20 and will be able not only to make a stronger appeal at the global level but more importantly, it can make more effective contribution to the better functioning of global economic governance. This G10 needs to be integrated with the reformed and strengthened APEC and ARF processes. There is opportunity to take this proposal up in APEC, especially since the three consecutive APEC chairs, Singapore, Japan, and the United States, are capable of producing purposeful and coordinated processes under strong leaderships.

‘Architectural momentum’ is now possible in the region. But there will need to be systematic efforts to bring the wider public on board in the process, if the momentum is to be sufficient to entrench the new structure that PECC recommends.

The Rudd initiative and the support by Kurt Campbell at the confirmation hearing as Assistant Secretary of State for East Asian and Pacific Affairs for a regional discussion on institutional architecture serve to strengthen the momentum.

1. Kevin Rudd’s architecture for the Asia Pacific
2. Rudd in Singapore on the Asia Pacific Community idea
3. Realizing the Asia Pacific Community: geographic, institutional and leadership challenges

Now that the dust has begun to settle, it’s time to assess British PM, Gordon Brown’s claim that the G20 Summit saw the creation of a new world economic order.

This was a remarkable event. In less than a year the leaders of a representative group of twenty the largest or most important economies in the world met for a second time to address the challenges of global economic crisis. They and their advisers have crafted a coherent set of strategies to turn the international economy around and to deal with the structural frailties that sent world markets into free-fall.

The crisis bears sobering witness to the interconnectedness of the global economy today. Open trade and open capital markets and the break-neck speed of the flow of ideas and technologies have delivered huge benefits through globalisation and lifted millions of people, especially in Asia, from poverty to relative prosperity on a scale of which there is no historical precedent. But, as we now see more clearly, this was also a global economy fraught with system risk, without institutions and structures of governance that gave proper attention to the global impact and repercussion of national policy strategies and market failures.

There are three major achievements out of London.

The first is in world leaders’ acceptance of the reality that the global economy today is one that can only be managed successfully – with stable markets offering continuing opportunity for human development and growth – if it is managed jointly.

The second is the crafting a coherent set of strategies to address the challenge of the crisis. Doing ‘what it takes’ in the way of fiscal expansion and monetary policy stimulus may not satisfy everyone but the political energy and will that has surrounded these commitments, and the substantial range of programs that have already been put in place around the world, will be more secure for what has been done in London. By the end of the year the concerted fiscal expansion should amount to US$ 5 trillion, lift world output by 4 per cent and lead re-structuring towards a more sustainable pattern of production. The dramatic lift in IMF funding, from US$250 billion to US$750 billion with extra provision for developing economies, the new SDR allocation of US$250 billion, an additional US$250 billion for trade financing, and an extra US$100 billion for the multilateral development banks, will boost confidence in access to liquidity for vulnerable economies and provide all up an additional US$1.1 trillion to restore the world economy. Commitment to reform the governance of the IMF and the other international financial institutions will better reflect the changes that have taken place in the world economy – including the increased stature and responsibilities of China and the emerging economies. The commitment to strengthening financial supervision and regulation includes domestic action as well as international action through the establishment of a new Financial Stability Board to improve international capital market regulation, including targeting tax havens and extending oversight over credit rating agencies. And there was re-affirmation of the standstill on trade and investment protectionism.

Third, G20 leaders agreed to meet again before the end of the year. Re-convening early is an important statement about both the priority attached to the process and the seriousness of purpose on its substance. Success in engineering a rapid and sustained recovery depends crucially on entrenching the G20 as the theatre for global economic action, building an infrastructure that will help to make its work effective and continuation of a process that must shift the emphasis over time from stabilisation to sustainability and growth.

This course represents a major step forward in reform of global economic governance and the creation of a new world economic order. It is a triumph of initiative and vision over established power and institutional atavism. But it is only the first step. There is a constituency beyond the G20 yet to be engaged. In Asia, that means bringing along and mobilising the region beyond the Asian G20 participants. In Europe that challenge is even more formidable.

The Asian participants in the G20 emerged as an important and constructive force. China stepped forward on all fronts, with the promise of a significant elevation of its role in the funding and governance of the IMF. Japan made a substantial contribution to the expansion of IMF liquidity. Indonesia pursued an effective agenda on easing the bottleneck in trade credit. Korea was a staunch advocate of the standstill on trade barriers. India pushed the expansion of credit to the developing world. And Australia played a key role in framing the entire strategy and in the diplomacy that won support for it.

Now the real job of implementing the London agreements and the G20 process itself begins. That is a task that must begin at home, in our region, to deliver on the expectation that East Asia can be at the leading edge of global recovery(see our previous posts on this here, here and here). And the Asian G6 now have a new role and responsibility in making sure the whole region’s weight is brought to bear on making that happen.

Dr Hadi Soesastro senior economist at the Centre for Strategic and International Studies, Jakarta and Peter Drysdale is Emeritus Professor and Head of the East Asia Forum and the East Asia Bureau of Economic Research in the Crawford School at the Australian National University. 

1. East Asia, the G20 and global economic governance
2. Asia and a new global order
3. Asia’s challenge: to rebuild the global economic order in a generation

The top priority of the London Summit will have to be placed on cleaning up the global financial system. This has become crystal clear as various other measures taken at the national and global levels have brought about only meager results. But keeping global trade open must be given a prominent place in the Summit’s agenda. And leaders must go beyond airing the right rhetoric, which many did. Concrete actions, which remain wanting, must follow.

Global trade has already shrunk and will continue to do so unless real actions are taken. In fact, trade could become a fundamental part of the solution to the global economic crisis. Concluding the Doha Round could amount to a significant global stimulus package resulting from a trade deal. But most importantly, it could help reverse the growing economic nationalism that is manifested in various forms of trade and financial protectionism.

Leaders must give the political push to keeping trade open. In their informal meeting at Davos recently, trade ministers shared with each other their difficulty in facing the rising political pressures at home to introduce some form of trade barriers. They also remain uncertain whether a global trade deal can be reached this year. Until then, they will find themselves fighting a battle on their own and without having an effective weapon. The Indonesian trade minister, for instance, has recently introduced domestic transparency procedures in the decision making on protection to try to minimize the damage.

The London Summit is where words must be translated into action. President Obama will be there, and he will participate with a clean slate. The many noises that have come from Washington D.C., like the ‘Buy America’ provision, have been worrying. Obama has clearly and unequivocally signaled his opposition to that provision. He also pledged to curb direct payments to agricultural producers. President Obama is the one that can provide the necessary leadership for open trade at home as well as globally. A clear signal from him at the London Summit can have a tremendous impact.

But the burden of leadership cannot be placed on Obama alone. President Obama’s leadership at home cannot be sustained if he is unable to show that others will favorably respond to his initiatives. East Asia must share this burden by making significant concessions. This is in East Asia’s self-interest as the region has a very great stake in global trade. To do so, East Asia must be organized and come up with a common stance on the key issues affecting regional and global trade and most importantly, on where they can play that shared leadership role.

Commitment on enforcing stand still must come from the highest political level. Leaders from many East Asian countries have reiterated their commitment to ‘promoting free trade’ but they have not been explicit in ‘enforcing a standstill’. East Asia can exert a credible shared leadership on trade if regional countries agree to do a number of things. East Asians should have the confidence that they can afford to do so. Japan was the first country to pledge to provide resources to the IMF. At Davos the Japanese Prime Minister made another pledge to provide aid to other East Asian countries to help overcome the crisis. China has demonstrated its ‘openness’ to trade by dispatching a trade delegation on a ‘Buy European’ campaign. But they and other East Asian countries need to focus on collective efforts to be able to exercise an effective leadership role to keep trade open.

Firstly, they will commit to use their actual tariff rates rather then their bound tariff rates as reference. This is the time for East Asia to make that move. They need not make this a part of their negotiations in the Doha Round, but they can be rest assured that this significant decision will not be left unnoticed in that Round. East Asian countries can proudly show that actual tariff rates in the region have fallen much faster than in other regions since the conclusion of the Uruguay Round. However, their bound tariff rates remain high.

Secondly, East Asian countries also need to support this move by setting up a system of monitoring compliance with their commitments. In their recent meeting in New Zealand, the APEC business advisory council (ABAC), representing the business community in the broader region – including East Asia, called for the creation of such a system. East Asian (or APEC) governments should grab this proposal and direct it back to the business community to immediately establish an ‘independent’ monitoring system. Unlike the EU, East Asia (or APEC) does not have a body such as the European Commission to undertake that task. It appears that even in Europe this cannot be taken for granted as indicated by the recent urging by the Danish premier Rasmussen to the Commission to make sure that EU rules on free trade be upheld by the members. The system must focus on protectionist measures that come in disguised forms.

It may well be that a region-wide consultation is in the offing. At the sidelines of the ASEAN Summit at end of February in Thailand, the Singapore Prime Minister, as chair of the 2009 APEC has taken the initiative to have meetings with the Indonesian President and the ASEAN Chair (the Thai Prime Minister), who will both be at the London Summit. They discussed the global crisis as well as trade issues and regional economic integration. The three leaders need to follow this up with approaches to other East Asian G20 leaders, including Australia and India. South Korea, the next chair of the G20, should immediately be drawn into this endeavor.

An East Asian role in the global context helps to strengthen its own regional endeavors, including deepening regional economic integration. East Asia can also demonstrate to the world the real meaning of ‘open regionalism’, namely to organize the region for the well-being of the region and the world at large.

This post is adapted from Hadi Soesastro’s contribution to a Vox Ebook, entitled The collapse of global trade, murky protectionism and the crisis: recommendations for the G20, which can be found here.

1. President Obama, the TPP and U.S. leadership in Asia
2. The de facto ‘free trade area’ in East Asia
3. Hatoyama’s East Asia Community and regional leadership rivalries

East Asian members of the G20 must participate strategically in this emerging global forum. They need to make sure that the G20 can produce policies and actions that will help bring the global economy out of the current crisis as soon as possible. Existing international institutions have been helpless in dealing with the issues the world now confronts and are in dire need of major reforms. There is now no better forum than G20. Essentially, it will act as a ‘steering committee for the world economy’, as Barry Eichengreen aptly said of the G20, and this forum should now replace the G7 or G8 for good.

Yet the G20 is still very fragile. In part, this is due to its ad hoc nature. But it also suffers from problems of legitimacy in respect of how its membership is being determined. The problem has deepened with the inclusion of a few additional participants at the coming London Summit: why they and not others? The European members of the G20 are facing the greatest challenge from fellow Europeans on this issue although the EU already has a seat at the table. 

East Asian members of the G20 will need to adopt a pro-active role to voice the concerns of, and to propose ideas, coming from the region. They already missed a good opportunity to do so when East Asian leaders met at the sidelines of the Asia Europe Meeting (ASEM) in Beijing about three weeks before the first G20 Summit in Washington, D.C. Their preoccupation has been narrowly focused on the establishment of a regional emergency fund, based on the bilateral swap arrangements known as the Chiang Mai Initiative (CMI). This idea has been aired for some time before there was any sign of the current crisis, and efforts were stepped up after October 2008, but the fund will become operational only in April or May 2009. 

This single focus from East Asia is far from adequate. Peter Drysdale suggests that East Asia might be performing in the ‘wrong play’. The key issues for East Asian members of the G20 are how measures for global recovery can be crafted collectively, what role the region can play to ensure a sustained and effective recovery, and how can the G20 be mobilized to re-shape global economic governance. 

The crisis has created an opportunity for new players to bring their plight, interests and aspirations to bear towards more inclusive global efforts to resolve it. Dani Rodrik suggested that developing countries should seize this opportunity.  This will be important to a sustained recovery, but it is not clear how best developing countries can undertake the task. Should big developing countries like China, India, and Brazil represent the developing world? 

Regional or sub-regional arrangements provide an alternative as they can be used to facilitate stronger voice and sense of ownership among smaller countries. Regional arrangements also include a mix of developed, emerging market, and less developing countries. The new global economic governance structure will need to be based on representative institutions. 

There are demands to reform existing institutions to reflect the changing economic weight of emerging economies in the global economy. There is also the idea that these reformed institutions (the IMF and the World Bank) should be supervised by an over-arching and inclusive global institution, such as the United Nations global economic and social council as proposed by Germany’s Chancellor Angela Merkel. But such a global organization is likely to become rather unwieldy. The better alternative would be to have networks of regional arrangements play into the global forums. East Asia’s emergency fund, namely the multilateralized CMI, for instance, would be more meaningful if it also constituted a part of a network of monetary funds. 

East Asia needs to be better coordinated if it is to develop a coherent regional agenda to contribute to resolving the global crisis. Meetings of East Asian leaders (ASEAN + 3 and the East Asia Summit) are scheduled to take place in April 2009 after the London Summit. Leaders can agree to direct their finance ministers to have regular ‘strategy meetings’ to strengthen East Asia’s engagement in formulating G20 policies and actions towards the recovery of the global economy and in shaping global economic governance.

In early March 2009 finance ministers and central bank governors from 19 Latin American countries convened a meeting in Portugal to demand a bigger say in global economic governance. Earlier, Russia also took the initiative in bringing together governments from the Commonwealth of Independent States (CIS) to present the group’s interests in the G20. Such initiatives can only strengthen the G20 by increasing its legitimacy. 

East Asia’s strategic participation in the G20 is aimed not only at securing its role in global economic governance but also at increasing its effectiveness in projecting the region’s strategic efforts towards global economic recovery. 

East Asian countries overcame one major financial crisis a decade ago and undertook a raft of measures to reform and strengthen their financial sector with a good deal of success.  Moreover, they have not taken measures that backtrack on their commitment to promote regional financial and economic integration. Presenting these ambitions through the G20 can also help sharpen the focus in the region in undertaking regional infrastructure development projects that could help stimulate the regional economy and recycle the region’s huge reserves as well as promote structural adjustments to redress the global financial imbalance. 

The region can also more effectively exert leadership on the trade front to keep global markets open, one of East Asia’s top priorities in the G20. The others are: ensuring adequate financial flows for development; and purposeful coordination of their economic stimulus packages. 

East Asia’s strategic participation in the G20 provides a framework for China to play an increased role – as a key member of the regional community – in the recovery of the global economy and in shaping global economic governance. In the Chinese language, the word ‘crisis’ is made up aptly of the characters for ‘danger’ and ‘opportunity’.  Opportunities provided by the crisis need to be fully exploited by East Asia to help avert the dangers that continue to loom large, for the region and for the world, unless a strong framework for collective action can be fashioned through the G20.

1. Reshaping global economic governance and the role of Asia in the G20
2. East Asia and the global financial crisis
3. East Asia and the Crisis in Global Governance

Indonesia entered 2008 on a note of optimism. In the previous year, the economy grew by 6.3 per cent, better than its neighbours (with the exception of Vietnam and China). The government aimed at achieving 6.5 per cent growth in 2008. While, at the end of 2008, there are a great many anxieties about the impact of the global financial crisis on Indonesia and the region, the latest estimates suggest that Indonesia could still grow by 6 per cent in 2008. It could end up being a star performer in the region. This, the minimum growth rate to produce sufficient jobs, may be difficult to maintain in 2009.

Indonesia is an open economy, and must remain open. Although its banking system is much stronger than a decade ago, the economy remains vulnerable to a sudden halt and reversal of external financial flows.

Fortunately, the country faces this economic challenge with a much improved political situation at home. In 2008, Indonesia is entitled to celebrate a decade of democratization. It has undergone a remarkable political transformation. It successfully conducted democratic elections in 1999 and 2004 at the national level and, since 2005, has seen over 450 local elections take place without major incident. The fourth most populous country, home to the world’s largest Muslim community can also pride itself on being the world’s third largest democracy. It is fitting that in December 2008, through its initiative, Indonesia hosted the Bali Democracy Forum, attended by 32 Asian countries (including Australia), with the aim of fostering democracy in the region. This was a major initiative that provided an opportunity for regional countries with different political systems to talk about a subject that is considered sensitive. At the end of the Forum, participants agreed to strengthen democratic systems in Asia and to hold annual meetings at the ministerial level in Bali. This will likely boost Indonesia’s international standing, at least in the politico-diplomatic realm. As Time magazine observes (22 September 2008), Indonesia ‘has emerged as Southeast Asia’s unlikely star.’

There is the view that Indonesia must play a more pro-active role in its own immediate neighborhood, through ASEAN. It must, therefore, provide a leadership role in faithful implementation of the ASEAN Charter in accordance with the spirit that emanated from the ASEAN Bali Concord II of 2003 that aimed at creating an ASEAN Community. This was the condition under which the Indonesian parliament ratified the watered-down ASEAN Charter. It remains to be seen how committed Indonesia will remain in reality –rather than in rhetoric—to ASEAN as it may have already outgrown ASEAN. By becoming a member of G-20, it will have to take up additional responsibilities to help shape global solutions to global problems.

Be that as it may, a great deal of Indonesia’s attention still has to be devoted to its internal development. Poverty and growing inequalities continue to be the main problem. Fortunately, domestic socio-political conditions have seen steady improvements that will enable the country to better organize itself in dealing with those challenges. Major social conflicts have been resolved in many parts of the country. Pluralism, reflecting the society’s underlying social diversity, remains largely intact, although this cannot be taken for granted.

The country is entering an election year (2009) and a lot of political maneuvering is already taking place. This tends to complicate and frustrate policy making that already suffers from the devolution of power to local governments under the policy of decentralization and regional autonomy implemented since 2001. Corruption has become even more widespread as social control in the regions is still weak. President Yudhoyono (SBY) has launched his anti-graft policy since taking office, but the task remains enormous. He has maintained credibility in his anti-corruption campaign by allowing an in-law to be jailed on corruption charges.

Economic reform could suffer in an election year. In May 2008 the government has laid down a comprehensive economic reform package (Presidential Instruction No.5/2008) that incorporated the measures to implement Indonesia’s commitments under the ASEAN Economic Community Blueprint of deeper regional economic integration. The global financial crisis and its impact on Indonesia could threaten the implementation of these reforms. But the President pledged at the G-20 Summit, as well as at the APEC leaders meeting in Peru last month, that the country will not raise trade barriers. He will have to make sure that the bureaucracy takes these commitments seriously: the record on this score has not been all that good.

To sum up, Indonesia in 2008 has laid sufficient groundwork to move ahead in the years ahead. The key challenge is to build on the achievements by further implementing the reform plans and measures to which commitment has been made. Mechanisms are often not there, capacity is frequently absent and leadership may not be forthcoming. Being an open economy, and given its active engagement in various regional and global forums, Indonesia will have to make its own efforts to overcome those shortcomings; hopefully with a little encouragement from abroad.

–

Hadi Soesastro is the Executive Director as well as a senior economist at CSIS. He was a member of the National Economic Council, an advisory council of President Abdurrahman Wahid, from December 1999 to September 2000. Dr Soesastro is also a member of the international advisory boards of various international institutions, including The Asia Society, New York.

This is part of the special feature: Reflections on developments in Asia in 2008 and the year ahead

See also Indonesia’s coming out party and other posts on Indonesia

1. Indonesia steps onto the world stage
2. New ideas on chronic poverty for Indonesia
3. Clinton’s visit to Indonesia

In East Asia, Korea was the first to be hit by the global crisis. A report by Citibank in early October 2008 showed that the Korean economy was the most vulnerable to external financial shocks in the region, in terms of both the risk of sudden stop and the risk of sudden reversal of financial flows.

Having experienced the 1997-98 financial crisis, the region has established a currency swap arrangement, known as the Chiang Mai Initiative (CMI), to help each other in the eventuality of another such crisis. Eight years have elapsed, and a crisis is looming, but what remains uncertain is how these arrangements can be invoked and what would trigger their use. Korea has not even attempted to make use of the CMI to prevent a crisis from unfolding. Under the CMI, Korea can exchange a mere $17 billion with Japan and China, and perhaps hardly anything significant with the other ASEAN countries. In view of the magnitude of the potential problem, the size of the CMI is too small. The reality is that the CMI is still ‘an initiative’.

Instead, Korea’s President turned directly to Japan and China. In early October, he proposed a trilateral meeting of finance ministers of the three countries to coordinate policies to cope with the global financial crisis. He also proposed the holding of a summit among the three countries on the crisis, suggesting that ‘the three countries can wisely overcome the financial crisis if they join forces’. The most concrete and immediate swap of any significant amount ($30 billion) was provided to Korea by the US Federal Reserve. East Asia itself has accumulated international reserves of close to $4 trillion, but it was still talking about creating a regional fund of sorts. In May 2008 ASEAN+3 finance ministers agreed to transform CMI into a much stronger CMIM (Chiang Mai Initiative Multilateralization) that can act as a ‘firewall’ in the event of a regional financial crisis. They suggested that CMIM should at least be boosted to $80 billion, with 80 per cent contributed by China, Japan and Korea, and the remaining 20 per cent by ASEAN countries. This ‘fund’, as already envisaged in 2007, should be a ‘self-managed reserved pooling’ arrangement that governed by a single contract.

At the sidelines of the 7th ASEM in Beijing, leaders agreed to create an $80 billion regional, multilateral fund, based on the CMIM. A technical working group meeting was held in Manila on 20 November, followed by a meeting of deputy finance ministers in Hakone on 28 November, to work out on the details of the fund. Their recommendations were prepared for a meeting of finance ministers, originally scheduled for mid December, before the ASEAN+3 Summit, with the expectation that leaders’ would endorseme the fund’s becoming operational in May 2009.

The Summit has been postponed to 24-26 February 2009. A finance ministers meeting will be held on 16 January. Their decisions will have major implications for the institutionalization of cooperation arrangements in East Asia. To make the fund operational requires a political decision, and they will have to settle the following important issues. First, they must decide on the size of the fund, going beyond the initial suggestion of $80 billion. Proposals that have been aired range from a fund of $120 billion (the amount required during the 1997-98 Asian crisis) to 10 per cent of the total amount of international reserves in the region.

Second, they need to agree on how to quickly disburse the fund and minimize conditionalities, for instance, by increasing CMI’s 20 per cent quick disbursement component to 50 per cent. Third, a strong regional surveillance mechanism will be required for the fund to be able to function. Who can organize an independent and credible surveillance mechanism? Fourth, and an equally important question, is the desirability of expanding the fund’s purpose beyond providing emergency liquidity in case of a foreign exchange crisis to providing liquidity support for (recapitalization of) financial institutions as well as to purchase toxic banking assets. There are other pending issues about the pooling structure, escape clause, as well as the inclusion of Hong Kong SAR into the scheme.

East Asia will need to act quickly and forcefully. At the ASEAN+3 Summit in February 2009, leaders will need to agree on the operation of the CMIM and a series of coordinated actions, including on the implementation of counter-cyclical fiscal measures. They can invite other members of the East Asia Summit (EAS) to participate in many of their proposed actions.

These courses of action will have wide-ranging implications for regional cooperation arrangements in East Asia. Regional ambitions to develop various cooperation schemes are often hampered by the hard facts of deep-seated, narrowly defined sovereignty issues.

China, Japan and Korea organized their first self-standing trilateral summit in Fukuoka on 13 December. This is a welcome development. In their Joint Statement they reiterated a commitment to work with ASEAN members to expedite the process of CMIM and strengthen the regional surveillance mechanism. Most importantly, a regular trilateral summit could gradually eliminate the deep-seated reservations amongst the big three in the region. They have been an obstacle to the speedy progress with regional cooperation.

The other obstacle is lack of coherence in ASEAN. Independent, track-two regional policy research projects of institutions, like ERIA (Economic Research Institute for ASEAN and East Asia), may be useful in preparing studies that help overcome this problem.

1. East Asia and the global financial crisis
2. Global response to economic crisis in the works
3. East Asia, the G20 and global economic governance

G20 countries must exercise leadership to wrap-up the Doha Round, fight unemployment with macroeconomic policies and strengthen safety nets to minimize calls for protection. A fund should also be created to assist emerging and developing countries in undertaking counter- cyclical fiscal measures. Regional surveillance processes, as in the 1997 Asian Crisis, could help support politically difficult policy measures.

Protectionist pressures around the world are on the rise. G20 leaders have made a strong commitment to maintaining an open global economy and to resisting the temptation to resort to protection in these difficult times. Yet one participant at the G20 Summit argued for an extensive increase in the common external tariffs of the regional trade arrangement it is a party to.

This sort of protectionism can be contagious. To halt this, world leaders should take three steps.

1) Make solid progress in the Doha Round

A successful Doha Round is the best insurance policy against increased protectionism. Last July, the mini-Ministerial WTO meeting could have succeeded in concluding a deal on the critical first stage of negotiations (known as ’modalities’). With a push from the leaders, ministers that will be dispatched to Geneva this December could finally seal that deal.

National leaders will have to keep a close eye on the negotiating process to ensure that their political commitments are not undermined by the negotiators. The remaining hurdles include the special agricultural safeguard mechanism for developing countries, the treatment of sensitive farm products in industrialised countries, the sectoral tariff elimination in non-agricultural market access as well as some unfinished business like the issue of cotton and some TRIPS-related issues.

These hurdles can only be overcome with the personal and collective attention of G20 leaders.

National leaders must stay engaged in the Doha talks

G20 countries must lead by demonstrating their willingness to make th necessary compromises. This cannot be left to negotiators because many of the solutions available to national leaders lie outside the narrow WTO negotiations. To make the necessary compromises, leaders must be able to ensure their domestic constituents that they will implement a comprehensive and effective policy package at home to overcome the crisis.

More flexibility from the US and India

Greater flexibility must be shown by the two largest holdouts in July’s negotiation –the US and India. The Bush Administration is eager to have an agreement before its term ends. It does not have a negotiating mandate from the Congress and it cannot assure that the incoming Administration will stand by what it agrees. But the US administration should take this risk, and others should support them. An accord reached by the 153 countries in the WTO could in fact help the Obama Administration focus on this matter soon after the inauguration.

India is facing national elections in May 2009 and therefore may not want to compromise on what their politicians consider as the main safeguards for the livelihood of its subsistence farmers. However, India today is in a much better position than a decade ago or so. It now has the means to use measures other than trade barriers to overcoming the problems facing its poorest farmers. Indian corporate leaders at the 24th India Economic Summit held recently in New Delhi have also spoken unambiguously about the need for all to reject protectionism.

2) Keep the economy growing and strengthen safety nets

Protectionist pressures at home tend to increase with a rise in the feeling of helplessness that overcomes the population in an unfolding economic crisis. To be able to maintain open economies policies governments must show that they have sufficient instruments and resources to keep the economy growing at a reasonable rate and that, especially in developing economies, effective safety nets are in place.

Small open economies are not likely to resort to protectionist measures that would be suicidal given their reliance on trade. They have few options other than strengthening their safety nets to minimise the suffering of its populace. It is the larger economies that could be tempted to turn inward by raising their trade barriers.

To reduce protectionist pressures at home, governments of larger economies should find ways to stimulate their domestic market through monetary and fiscal measures. Several larger emerging economies in East Asia should and could do so. Collectively they could play an important role as an engine of growth for the recovery of the global economy. As such they bring an added benefit in the form of reduced protectionist pressures in other countries.

However, it will not be easy to stimulate the domestic market at a time of financial crisis as the world is facing today. Only emerging economies with huge reserves can readily do so. Others, like Indonesia, will have to make special efforts to mobilise additional external funding since it can no longer rely on international bond markets.

At the G20 Summit in Washington DC, the Indonesian President made a case for setting up a special fund for such a purpose. This was favourably greeted by the World Bank, but further work will be required to make the concept operational. Whatever form this fund takes, its purpose should be to assist emerging and developing countries to undertake counter-cyclical fiscal measures.

In many emerging and developing countries existing safety-net programs provide the most immediate channel for disbursing the resources. However, safety-net programs in many countries need to be become more effective. These efforts should become an integral part of a comprehensive policy package that must be in place in order for governments to be able to effectively resist protectionist pressures at home. An effective safety net program should be seen as a necessary feature in the age of globalisation.

3) Make effective use of regional cooperation arrangements

Regional arrangements can help defuse protectionist pressures. Collective actions in a regional setting can often be useful in supporting individual governments in their efforts to implement politically difficult policy measures.

The ASEAN Surveillance Process as an example

At the time of the 1997/98 Asian financial crisis, ASEAN economic and finance ministers were forceful in opposing inward-looking policies. Several agreements were made to strengthen regional financial cooperation, including the development of an ASEAN surveillance process. It was significant that the crisis was used by the group as a reason to accelerate the implementation of the ASEAN free trade area. They also worked together to ensure that trade financing, which collapsed during the Asian crisis, was quickly restored with the assistance of the international community. As a group, the ASEAN countries also agreed to look into the strengthening of their safety net programs.

The APEC leaders meeting that took place in Peru one week after the G20 Summit have reinforced point 13 of the G20 Washington Declaration on refraining from taking protectionist measures and on working towards a successful conclusion of the Doha Round. This is also a significant development. Apart from the eight overlapping members, APEC has 13 other members from the Asia-Pacific region. Together they should further strengthen the APEC structural reform programs focusing on ‘‘behind-the-border’’ and capacity-building issues. This will be a major effort to help reduce protectionist pressures in the region over the longer term.

This piece originally appeared in A VoxEU.org Publication: What world leaders should do to halt the spread of protectionism

1. Sliding back towards protectionism?
2. Big government and protectionism threaten world trade regime
3. 1970s Déjà Vu: Creeping protectionism is on the rise