The muddy floodwaters in Thailand having receded, one of the truths to emerge will be just how important the Thai economy is in both regional and global terms.

Thailand is a manufacturing powerhouse. Countless small and large factories churn out a broad range of finished consumer goods for export, as well as component products vital to global supply chains.

But, as an exception to broader regional attitudes toward Thailand, Australian business has largely failed to recognise the importance of the Thai economy to international commerce. Instead Thailand is seen through the narrow prism of beaches and bars. The US, China, Japan and Korea — among others — have all moved past this perception, and for them Thailand is now a serious business destination.

While the worst of the Thai floods has passed — and putting aside the tragic human toll — the disaster’s economic impact is becoming clearer. The central bank slashed economic growth expectations for 2011 from 4.1 percent to 2.6 percent. Despite frantic efforts to protect the many purpose-built industrial parks dotted around the country (which are largely the product of Thailand’s highly effective Board of Investment promotion activities), many remain inundated. An estimated 1,000 factories are submerged in a quagmire the size of Australia’s island state, Tasmania, or otherwise shut down due to supply-chain shortages, labour absences, transport roadblocks or other flood-related factors. Approximately 20,000 businesses and 780,000 jobs within Thailand are said to be affected. And there are many top-tier multinationals among them, highlighting Thailand’s quiet emergence into the word economy. Overseas, big-name buyers from Thai factories have been hit by supply shut-downs, including Hewlett Packard, Dell and Apple. Global output of hard drives, for example, is projected to fall by 30 per cent.

Equally, with Thailand manufacturing over 1.6 million vehicles in 2010, the floods are expected to induce a production drop of between 6,000 and 10,000 units per day — not to mention dramatic shortages of auto component parts for export. The latter has seen production delays in Japan, the United States, the United Kingdom, the Philippines, and elsewhere. For both Thailand’s export-dependent economy and in the current international economic climate this latest blow to the region is an unwelcome setback. And that some analysts are comparing the Thai floods’ economic impact with that of the Japanese tsunami is hardly surprising.

Australia will celebrate its 60th anniversary of diplomatic relations with Thailand next year, a feat which underscores the relative stability of Thailand’s place in the region and relations with its allies. But while the Australian diplomatic presence in Thailand is one of the largest globally, the same cannot be said for the business relationship with its Southeast Asian partner. Merchandise trade is strong — Thailand is Australia’s sixth-most-important merchandise trading partner — but investment tells a different story. Thailand’s A$4.99 billion of investment in Australia in 2010 was almost two and half times greater than the A$1.9 billion flowing the other way. The disparity can partly be explained by several large one-off Thai investments, but this tells only part of the story.

Each year there are over 700,000 Australian visits to Thailand. Yet some estimates put the Australian business community’s visits there at less than 3,000. To be fair, Thailand’s protectionist tendencies — particularly the Foreign Business Act — stymie participation in areas where countries like Australia excel, such as professional services and mining. And corruption, political instability and graphic scenes of violence in Bangkok do not help investor confidence. But many other nations have chosen to focus instead on Thailand’s strengths. As a place to do business Thailand offers a strategic location, world-class infrastructure, cheap business inputs and a cost-competitive labour force with good skills potential. And the World Bank has positioned Thailand 17th in ease of doing business — only Singapore ranks higher in Southeast Asia.

The US, China, Japan, Korea and increasingly others have identified Thailand’s commercial potential. They have invested significantly and — despite the floods’ heavy toll — stand to make a very positive return. 

Thailand’s economic fundamentals remain strong despite suggestions that the floods reveal an infrastructural weakness. But such suggestions ignore the fact that these floods are a one in 50 year event. And given the huge amount of water this year, the fact that Thailand’s infrastructure — and logistics — has stood up so well says a great deal. Also, the eastern seaboard, where much of the heavy manufacturing occurs, has not been affected by water at all. Any shut-downs or reductions in that area have been because of supply shortages from factories up north. Some of the major roads are also designed to be flood barriers and have worked very effectively. Other major highways are raised completely.

Thailand’s role as a production base is certain to increase, and bold infrastructure projects (largely financed by overseas interests) are set to take advantage of Thailand’s central geography. It has great potential as a transport and logistics hub for goods moving south from China into Southeast Asia and the Pacific. And with modest Burmese overtures to normalisation there is increased potential for an East-West economic corridor through Thailand.   

Australian companies have been slow to identify the business prospects in Thailand, and for them the receded floodwaters should reveal a new terrain of opportunity.

Mark Carroll is Executive Director of the Australian-Thai Chamber of Commerce, Bangkok.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Where is Thailand Headed’.

1. The Japan-Thailand economic partnership agreement: Utilization and implementation issues from the perspective of Thailand
2. Australia’s floods and farming
3. Thailand, a nation caught in the middle-income trap

On 30 April, the Democratic Party of Japan’s ‘Reconstruction Vision Team’ delivered its preliminary report to then-Chief Cabinet Secretary Yukio Edano.

The report set out in general terms a range of potential mid to long-term measures to reinvigorate the local economy and improve food and energy security in Japan’s Tohoku region in the wake of the 3/11 earthquake.In addition to proposing options such as the establishment of a special corporate tax-free economic zone (the foundations for which were set out in the Reconstruction Basic Law passed in June [and referred to in Gerald Curtis’ post of 14 August]), the report urged the reconsideration of the relationship between national and local governments more generally, including ‘keeping in sight a future State’ for the region.

The merger of Japan’s 47 prefectures into a dozen or so larger, semi-autonomous ‘states’ has been proposed since the immediate post-War era, but has only gathered steam since the 1990s. This owes mainly to the fact that decentralisation reforms since this time have largely bypassed the prefectures, instead directly devolving national powers to municipal-level governments. Following several recommendations by the Prime Minister’s Research Council on Local Governance during the early 2000s for the creation of a ‘State System’ or ‘doshusei’, Prime Minister Shinzo Abe introduced the State System Special Zones Promotion Law in 2006. He established a pilot quasi-federal power-sharing program with Hokkaido prefecture, and appointed the Chief Cabinet Secretary as special ‘State System Minister’ to oversee it. A more comprehensive State System Promotion Bill is due to be submitted to the Diet at the end of the pilot program in 2015.

But there is also nothing to prevent the creation of ‘states’ (in the sense of larger units of local government) in the meantime. Amendments to the Local Autonomy Law in 2004 made it easier for prefectures to merge, and such merged entities would be eligible to receive a small number of devolved national powers (albeit temporarily) under the Special Zones Promotion Law.

The Tohoku prefectures have been for a long time considered the most likely candidates for such a merger. Even before the earthquake, Japan’s demographic crisis was most pronounced in the north of the country, with gradual depopulation and economic stagnation affecting most towns and cities. The creation of a ‘super-prefecture’ was seen as a way to rationalise public service costs and boost competitiveness in attracting external investment. Previous governors of the three northern-most prefectures (Aomori, Iwate and Akita) had committed to a merger by 2010, but this movement lost impetus due to a reluctance by Iwate and Akita to financially support ailing Aomori. Attention instead shifted to the longer-term goal of a six-way merger taking in Miyagi, Fukushima and Yamagata prefectures.

The aftermath of the Tohoku earthquake now seems an obvious catalyst for such a merger, particularly as the government moves to create a special economic recovery zone among the east-coast prefectures.

A merger at the prefectural level could draw ample precedent from the more-than 1000 municipal governments that have merged in the past decade under a Koizumi-era program, many of them in the Tohoku region. It is likely that there will ultimately be further municipal mergers among those towns and villages with the greatest population losses, or in the area surrounding the Fukushima nuclear plant, where entire populations are being evacuated for up to the next 30 years. (Indeed it seems that plans for such a merger are already afoot.)

The creation of a single Tohoku state will now depend on west coast prefectures deciding that the short-term costs of rebuilding the east-coast prefectures is outweighed by the benefits of merging, including devolved central government powers and better economies of scale. Government expenditure and already-announced stimulus measures such as a moratorium on social security contributions in the east coast prefectures will no doubt assist in this decision.

A merger in Tohoku would inevitably lead to similar mergers elsewhere in the country, most likely in Kyushu, where prefectures have already harmonised a number of local ordinances. And in the Kansai area, where Governor Toru Hashimoto, a supporter of a state system, is simultaneously pushing on with his proposal to merge the Osaka prefectural and city governments into a single Osaka metropolis. But as with all local-government reform in Japan, any move towards an eventual Tohoku state is likely to be as slow as the recovery effort itself.

Joel Rheuben is a solicitor pursuing postgraduate studies at the University of Tokyo, Faculty of Law. An earlier version of this piece appeared here on the Japanese Law and Asia-Pacific blog.

1. After the Tohoku earthquake, Japan’s new beginning
2. What’s really at stake with rising local government debt in China?
3. Political reform in China: Wen will it happen and Hu will lead it?

The results of Singapore’s 27 August Presidential Election were a cliff-hanger.

In the four-way contest, the government’s preferred candidate, former Deputy Prime Minister Tony Tan, won 35.2 per cent of the valid votes after a recount. That represented a razor-thin victory of 0.34 of a percentage point over his nearest contender, former Member of Parliament Tan Cheng Bock. Both were previously members of the ruling People’s Action Party (PAP). The third contestant, former civil servant Tan Jee Say, took a quarter of the vote, and the last contestant lost his election deposit after having obtained only 4.9 per cent of the vote.

The break-up of votes is an interesting throwback to the results of the General Election held in May 2011. Then, the PAP secured 60.1 per cent of the vote in what was seen as a setback for the party, particularly since it lost a Group Representation Constituency for the first time as well. The thin margin of Tony Tan’s victory in the Presidential Election suggests that the anti-incumbency factor was at play, for Tan Cheng Bock ran on a platform distancing him from the government.

The substantial 25 per cent of votes that went to Tan Jee Say, who had contested the General Election as a candidate for the opposition Singapore Democratic Party, reinforced the sense of anti-incumbency sentiments. In a first-past-the-post system, a victory by even one vote is a victory: Tony Tan’s margin was 7,269 votes. Critics of the government, however, were quick to point out that almost 65 per cent of Singaporeans did not vote for him.

Elections are divisive by nature. What matters now is whether Tony Tan can unite the people behind him. Here, there is reason to believe that the new president can do so. His long years in Parliament have given him an instinctive understanding of what unites citizens over and above the necessary divisiveness of democratic politics. He realises that he has to reach out to the 65 per cent who did not vote for him because he is their president as well. He has promised not to be an ivory-tower president, just as his predecessor, President S R Nathan, was not. Charitable and other projects were an area in which President Nathan made his mark. Tony Tan will no doubt do the same.

This is not to say that Tan will be the kind of interventionist president that the other three candidates, in different degrees, offered to be. Singapore has an elected presidency, not an executive presidency. Tan is keenly aware of the constitutional parameters within which he must function. These restrict him from blocking actions to five key areas: the spending of Singapore’s past reserves; key public service appointments; detentions under the Internal Security Act; restraining orders under the Maintenance of Religious Harmony Act; and investigations carried out by the Corrupt Practices Investigation Bureau.

That said, the ‘new normal’ in Singapore politics will require the new president to listen more keenly to sentiments on the ground.

The next six years, in which Tan occupies the highest position in the state, will show how well he uses his power and authority to make a difference to the lives of Singaporeans, whatever their background.

K Kesavapany is the Director of the Institute of Southeast Asian Studies.

1. Singapore’s presidential election: The battle continues
2. Indonesian politics: prospects for the coming presidential election
3. Japan’s presidential election

The Japanese Earthquake and tsunami left more than 25,000 people dead or missing. It damaged or destroyed 125,000 buildings, and spread an estimated 27 million tons of debris over a wide expanse of the northeast Pacific coast.

The media and the political opposition have been unrelenting in their criticism of Prime Minister Kan. Less than 20 per cent of the public now support the prime minister. More than 70 per cent disapprove of the way he has dealt with the Great Eastern Japan Earthquake Disaster, and would like to see him resign before the end of August. But the public entertains no illusions that the political situation will improve with Kan’s resignation. With no political leader having captured the public’s imagination, support for the DPJ, LDP and other parties is in free-fall.

The Kan government’s response to the earthquake and tsunami has not been as awful as his critics argue (although the response to the crisis at the nuclear power plant at Fukushima Daiichi is another story). It was far better than the way the Bush administration dealt with the aftermath of Hurricane Katrina and compares favourably to how other governments have responded to disaster situations.

But Japanese rightfully credit the people in Tohoku and not the government for being law abiding and orderly, and for doing so much to take care of themselves and each other. They have not received the assistance from the government they should have. There are stories of elderly people who managed to survive the tsunami dying in evacuation centres from hypothermia because of delays in getting blankets and dry clothing.

Prime Minister Kan has not succeeded in convincing the public that he has a vision for Tohoku reconstruction and for Japan’s future. In the aftermath of the disaster he should have appointed a reconstruction minister immediately and tasked him or her with producing a basic reconstruction plan for urgent presentation. Instead Kan created a reconstruction commission consisting of several academics with little relevant expertise. The Commission’s final report is not due until near the end of the calendar year.

Reliance on this Reconstruction Design Council will delay decisions. The report that finally emerges is certain to be a consensus document, and will not offer the hard-hitting, bold and precedent-breaking approach that is needed.

It is impossible for Kan to come up with a meaningful reconstruction plan if he waits until a committee tells him what to think about everything that might be relevant to recovering from the disaster, from nuclear energy policy to tax policy. It is the responsibility of the Prime Minister himself to come up with a basic concept for rebuilding Tohoku and to then seek expertise from within and outside the government to translate that concept into a concrete plan of action.

The opportunity to create a new Tohoku development model exists. The key is to designate Tohoku as a special economic zone and transfer power and money to the prefecture and local governments. Domestic and foreign businesses would be offered tax holidays and other incentives to invest in the Tohoku SEZ and prefectural governments would have the authority to decide whether to apply or suspend ministerial rules and regulations and whether to impose restrictions of their own, for example on rebuilding in the tsunami danger zone.

Prime Minister Kan seems to have little idea about how to structure a coherent policy making process — and he gets no help from bureaucrats who want to see him fail. He seems incapable of delegating responsibility and the crisis spawned by the catastrophe of 11 March deprived him of the luxury of time in figuring out how to develop a sensible decision making system.

There can be no short-term remedy for Japan’s political woes so long as its parliament is divided. With their control of the upper house, the opposition parties find the temptation to block DPJ legislation irresistible.

Forming a grand coalition is not the answer to Japan’s political predicament either. In Japan, social cleavages — class, region, religion, ethnicity and so on — that help structure party systems elsewhere are weak. A grand coalition would thus signify the effective end of the existence of a major opposition party and the virtual collapse of competitive party politics. That would not produce more enlightened policies; it would only threaten Japan’s political democracy.

The Japanese public faces the dismal political reality that there is not likely to be a strong and effective government anytime soon and that the opportunity that the Tohoku tragedy presents to open a new and dynamic era will probably be lost.

Gerald Curtis is Burgess Professor of Political Science at Columbia University.

This article is a digest of a larger piece that can be found here.

1. How best to pay for Japan’s reconstruction
2. Picking up the political pieces after the Tohoku disaster
3. A hundred days after Japan’s triple disaster

Media reports indicate that after the 11 March earthquake, Japanese residents of Sendai had a 30 minute warning before the tsunami hit. In a sense, the Japanese had expected this for 30 years. The longer-term question is what will happen in the next 30 years.

In 1980, the Japanese government adopted ‘comprehensive national security’ (‘sogo anzen hosho’) as its security doctrine, and comprehensive security stepped outside US military-centric thinking for the first time. The concept’s distinctive dimension was the prioritisation of non-military over traditional military threats. It was articulated as a merger of three concepts — self-defense, non-military diplomacy and natural disaster response. From today’s perspective, the most interesting aspect of comprehensive security was the inclusion of natural disasters as a major threat. At the time, many observers scratched their heads at the inclusion of earthquakes in a national security doctrine, but today, natural disasters, climate change and pandemics constitute part of the pantheon of non-traditional security threats. Japan now appears to have been ahead of the curve.

Although Japan’s comprehensive national security doctrine faded away, the experience at Fukushima may be a source of new direction and insight for the re-emergence of an updated doctrine. Fukushima has shown the potential depth of the US-Japan relationship, and may initiate a renewed emphasis on resource diplomacy, civil-military diplomacy, and a new political approach to managing crisis.

One of the more striking images coming out of Sendai is the partnership between the Japanese Self Defence Force (SDF) and the US military in ‘Operation Tomodachi’ (‘Operation Friendship’), emerging on the heels of recent military exercises. This joint approach was initially envisaged as a response to a military attack on Japan. Instead, natural disaster has brought the two forces together. Although cooperation is strong now, questions arise as to whether the SDF’s attention will turn inward, and away from Operation Tomodachi, and perhaps whether the US will need to take a stronger lead role, which may lead to bilateral friction. But the original comprehensive security concept reflected, in part, Japanese concern over a perceived slippage in American military power after the fall of Saigon, with a sense that the US would not be eager to come to Japan’s aid. This recent cooperation may have set aside any current doubts.

Comprehensive national security included a focus on ‘resource diplomacy’ (exercised through foreign aid), and the search for alternative energy sources, following the 1974 OPEC oil shock.

Fukushima has already touched off a global debate over nuclear energy. This wrangling may cast fossil fuels from the Middle East in a new light. Japan may have to become more engaged in that region’s diplomacy, especially since its main relationships had been forged with the regimes now being shaken. Resource diplomacy with Africa and other regions may also become more significant. The relationships may be defined by competition with China — which is exercising its own resource diplomacy in Africa through generous foreign aid. This competition for resources may define Japanese foreign policy, with China joining the US as formative twin pillars.

Perhaps the most unexpected outcome of comprehensive security might be the emergence of Japanese-type civil-military diplomacy as an outgrowth of the SDF’s performance in Fukushima. For a self-defined pacifist country with a culture of anti-militarism, this might seem like a major transformation. Actually, the SDF’s role in Sendai, a combination of a US-type Army Corps of Engineers and the National Guard, has been seen overseas paired with civilian relief operations since the late 1990s. The SDF mandate also incorporates international peacekeeping and peace-building, and in Iraq, Japan dispatched a Civil-Military (CIMIC) operation that was neither disaster relief nor peacekeeping. The SDF lessons from Fukushima can potentially find their way to other countries in the future.

Comprehensive national security called for effective crisis management of earthquakes. So far, the political response has been mixed. Prime Minister Naoto Kan deemed Fukushima the greatest calamity since World War II, but he may not survive this crisis politically. The opposition Liberal Democratic Party is thus far rejecting Kan’s effort to create a bipartisan approach. This crisis poses a test for the political system as well as political leaders.

Maybe there was a reason why the comprehensive national security vision came not from political leaders but from an outside commission. This time, without effective leadership, the crisis may have long-term ripple effects on Japanese political culture and result in a new doctrine — comprehensive national insecurity.

Dennis T. Yasutomo is Professor of Government and East Asian Studies at Smith College, Northampton, Massachusetts.

1. Nuclear power in Asia after Fukushima
2. Rethinking nuclear power in Asia after Fukushima
3. Life after Fukushima: the future of nuclear power in East Asia

The Chinese Communist Party (CCP) has been extremely combative ever since the Nobel Peace Prize panel identified Liu Xiaobo, serving a prison sentence for inciting subversion, as this year’s Nobel Peace Laureate.

He was chosen in recognition of ‘his long and nonviolent struggle for fundamental human rights in China.’ The CCP responded with its usual attacks on free press, democracy, and the West. Liu’s wife has been put under house arrest. Trade negotiations with Norway have been put on hold. Also, China tried hard to convince other countries to skip the award ceremony. Not surprisingly, countries like Iran and Sudan readily agreed.

All this was expected. However, on the eve of the award ceremony, a Chinese NGO that allegedly works closely with the Ministry for Culture added a new dimension to China’s propaganda by creating the Confucius Peace Prize, the Chinese version of the Nobel Peace Prize, ‘to promote world peace from an Eastern perspective’. Lien Chan was awarded the first Confucius Prize. Chan, a former Taiwanese vice-president, has made a significant contribution to bridge the Sino-Taiwanese chasm. Incidentally, Chan was not aware of the award beforehand. He only had ‘second-hand information from journalists’ and did not attend the award ceremony.

In any case, the idea of Confucian values being distinct from the universal values that influenced the Nobel Prize panel’s choice reminds me of a short story for children. The story is about an emperor of China who went on a hunting expedition and lost his way. While trying to find their way back, his entourage came across a hermit. The hermit did not pay attention to the royal entourage, which enraged the emperor. The emperor told the hermit that he was the ruler of the world and the world’s most powerful man and asked the hermit to identify himself. The hermit mocked the emperor and said he was amused to learn that the world’s most powerful man needed an army for his personal security. The emperor immediately realised his mistake and the hermit showed him the way to his capital. Towards the end of the story, the readers were told that the hermit was none other than Confucius. The king in the story had not only lost his way but had also forgotten the conduct expected of those in power.

The story is probably apocryphal. But it is revealing that the story identifies fearlessness as the foremost virtue for the common man and the capacity for admitting arrogance and being open to counsel as necessary virtues for those in power.

If fearlessness in face of brute force is the prime Confucian value then Liu Xiaobo deserves the first Confucius Peace Prize as well. It is a different matter that the modern Chinese emperor not only finds it impossible to tolerate those who fearlessly express themselves but also sends them to education camps.

Vikas Kumar is an independent researcher based in Bangalore.

1. China’s ‘unwanted’ Nobel Prize and the future of democratisation
2. China’s quest for a suitable Nobel
3. Liu Xiaobo and universal values

There are a couple of certainties about Cancun. It will not bring a global deal. The US will try to focus the agenda on a lack of transparency in China’s emissions control efforts — to cover the fact that the US also brings nothing substantial to the table and is stuck in an anachronistic, fuel-guzzling economy and mindset. Chinese negotiators will arrive with their usual arguments, but equipped with better PR techniques for making sure they aren’t seen as the game stopper — the real lesson they took away from Copenhagen. The poorer countries will clamour for more aid for both mitigation and adaption to climate change. The EU’s credibility among other key players will be slightly dented by its current internal skirmishes on moving from 20 per cent to 30 per cent reductions by 2020. At the end of these two weeks in Mexico, those who aspire to a global deal will be directed towards 2011 and South Africa, and few will believe that it can happen there either. Finally, the summit will be a lot warmer than Copenhagen, and the general world temperature will continue to rise, as the scientists keep telling us.

The conclusion is that big global deals are off – at least for the time being. That’s the short, and somewhat depressing, summary. Yet Cancun doesn’t have to finish up before we can start looking at where we go next. Nor are huge international summits the only way forward. For Europe, if the road to a global deal is blocked, there are other routes to take. The EU can make progress on climate change without the entire world’s simultaneous agreement, and should not stay purely on the multilateral track that is leading to the same dead end as the WTO-negotiations on the Doha-round. This is where the EU, which is in itself the world’s biggest multilateral adventure, has to demonstrate ingenuity and innovation. Bilateral agreements with nation states outside Europe and cooperation with non-state actors are two ways forward.

In the absence of a worldwide deal, the EU should pursue climate change agreements with countries like China, India and Brazil that can be initiated bilaterally and then feed into the global system. These should be based on joint reduction-settings, and include EU soft loans for buying energy efficiency and renewables. A similar approach is already working in the arena of free trade; having recognised that global free trade talks were stalled, the EU has bilateral trade agreements in the pipeline with several Asian countries. These might prove to be the stepping stone for returning to a global agreement. Likewise, bilateral climate change deals could be the building blocks that later allow the EU to return to the multilateral table, bolstered by new partners who support a global deal.

Let us examine the potential for greater EU engagement with China on climate change. This is not to point an environmental finger at Beijing. The US is a much larger per capita emitter than China, but is gridlocked internally and with the likes of Sarah Palin talking about a climate change ‘hoax,’ any deal with Washington seems unlikely in the near future. Meanwhile, China is the world’s largest emitter, albeit with lower per capita levels, and climate change is already a major priority in EU’s relations with China.

We shouldn’t underestimate the EU’s influence. Copenhagen is perceived as a disaster for the EU yet many concrete Chinese projects like carbon-free cities are developing because of the EU not the US. The EU should enhance that and develop a concrete partnership with China based on the latter’s own ambitions relating to energy efficiency. The next key phase is the current elaboration of the new Five Year plan in March 2011. China wants to achieve sustainable growth. The EU should be plugged even further into this. In this area, existing networks with internal Chinese actors will also an asset, and there are huge economic possibilities for the EU. As a study by the HSBC bank concludes, the low carbon energy market in the European Union and China already makes up half the global market; this proportion is projected to grow further by 2020. The EU should, however, remember to push for reciprocity. For example, Europe could seek to include in any energy efficiency deal measures that would gradually see China’s national aims become binding targets for a multilateral solution. The EU would only bring its valuable technologies to the table if China also was willing to gradually re-commit to higher multilateral targets.

The EU must also expand its policy options by examining the potential of bottom-up approaches and cooperation with non-state actors. Just as the EU itself is a multi-layered civilian power, with interplay between nation-states, civil society groups and citizens, the new world order is not only about power shifts to the emerging BRIC powers. It is also about the development of a flat, inter-wired world with non-state actors influencing global governance. It is these transnational networks of business, industry and citizens that EU should cooperate with in curbing climate change. It is business that will produce the new innovative solutions to climate change – not the dictates of government. It is citizens and groups that demand that their pension funds orient their investments in a climate friendly direction. And finally it is individual decisions that make people change lifestyle and reduce their carbon footprints. Look at the newspaper ads leading up to Cancun in the UK by a group of companies lobbying for stricter corporate reporting on carbon emissions! If such initiatives spread to Chinese and American companies, that would influence their government and could strengthen the push for climate change far more than international pressure at global summits.

The EU should not give up on global multilateralism — its own raison d’etre. While pursuing bilateral deals, there is also room for joining forces with other states and regional groupings. For example, although the EU acting alone has had little success in its attempts to pressure China into greater commitment to the multilateral track, the solution could be for Europe to cooperate with others in influencing Beijing through Climate Change agreements. Likewise, the bottom-up approach to multilateralism that engages business and civil society has the potential to succeed where efforts to persuade governments have failed. While it waits for the world to inch towards a global deal, the EU can take positive strides in other directions using the best of its own peculiar form of transnational network and civilian engagement.

Jonas Parello-Plesner is a Senior Policy Fellow at the European Council on Foreign Relations. He has worked as senior advisor with the Danish government on Asian affairs. He is on the board of editors of the Danish magazine Raeson.

1. Copenhagen to Cancun: Where is climate change policy going internationally?
2. Dispelling illusions on China and climate change
3. Roadmap for US-China cooperation on climate change

It is the biggest multilateral event this side of the G20, including the leaders of India, China, Japan, Korea, Indonesia and Australia. On Saturday the 30th of October the 16 leaders of the East Asia summit will gather in Hanoi, with special representation for both Russia and the US. Secretary Clinton is joining as the latest leg of her impressive Asia-Pacific trip. From Russia, Lavrov, is flying in. The EU, however, is conspicuously absent.

During the Bush-administration there was no American interest in joining the East Asia Summit, perceived as another talk shop with concrete results. The Obama administration reversed all that. It both signed up for Asian multilateralism – the Treaty of Amity and Cooperation with ASEAN – and made sure it brought something to the negotiation table. At the Asian Regional Forum in Hanoi in May – normally a dull meeting (including the EU) with minimal impact on global headlines – the US, backed by the countries of South East Asia, brought up the South China Sea issue with China. The ripples of that encounter are still lapping up against the shores around Asia.

Russia first pushed itself into the East Asia Summit at the original 2005 gathering in Kuala Lumpur, where Putin showed up as a special guest of the chair. Since then, Russia has shown its consistent interest in being involved, and signed the treaty of Amity and Cooperation. That paid off, and Russia will – like the US from 2011 onwards – be joining at the top-level.

The story of EU involvement, unfortunately, is a sad one. Originally there were differing views inside the EU on whether to try to join the East Asia Summit when it was set up in 2005. There were also differing views whether the EU should sign the admission ticket, which is the treaty of Amity and Cooperation with ASEAN. The treaty is generally speaking a peace treaty. It is also a treaty steeped in the language of its birth years, the 1970s, and replete with language on non-interference and sovereignty. Consequently, it’s not quite a mirror image of the EU’s values.

The EU decided to sign up collectively in late 2006, and it was ASEAN’s turn to be bureaucratic. It demanded a treaty change, as the EU is not a state entity. That, and other national concerns, prompted France to go it alone and sign up individually. The UK government proposed to follow suit but never found a suitable occasion to take matters further. Germany stayed with the common European platform. Since then, the ASEAN amendment was completed in May this year, and the EU is potentially (finally) in a position to be invited to join the East Asia Summit.

But there are still questions to answer before the EU decides that it should join (or before it would be allowed to join) the East Asia Summit.

First, who will be Mr. or Mrs. Europe? At the moment, Asians are probably – and rightly – worried that inviting the EU would entail a huge delegation: It could turn into a combination of the two Presidents, Barroso and van Rompuy (as in the European set-up for the G20), tailgated by the still-functioning rotating Presidency. Add to that Asian uncertainty about whether the big EU countries that signed up bilaterally would also demand an individual seat. That makes the lack of an Asian invitation to the EU quite understandable.

Europe is no longer a particularly compelling world power, with a natural right to occupy several seats just to satisfy questions of internal coordination and the big-power aspirations of individual member states. The fact that there are many Europeans in the negotiating rooms also doesn’t bring better results (as the negotiations in Copenhagen last year demonstrated). The EU must wake up to a new reality, particularly in Asia, where it doesn’t have an automatic seat at the table. Accordingly, the EU should show up with its president, and make it clear to the Asians that, if invited in 2011, Europe will be a one-person show, roughly equivalent to Obama and Medvedev.

Secondly, the EU needs to bring clear priorities to the negotiating table. When Clinton brought up the South China Sea in May, she was rightly addressing worries of the South East Asian states. The message was clear and it had resonance and impact. If the EU had been present tomorrow in Hanoi, its strong priorities would be free trade and the demand for a genuine and concerted push in completing WTO-free trade negotiations. The recently completed free trade agreement with South Korea would match the EU’s continued free-trade credentials. Free trade is an area where the EU currently has a more coherent position than the US, which remains hampered by Congress and a blind-eyed focus on the appreciation of the renminbi as the only international cure to trade issues. The Asians would listen and appreciate to a European message. Another priority area could be climate change.

In short, it could be done with a compelling and coherent voice that would be listened to by the rest of the summit. But back to reality. The EU is not present at the East Asia Summit. It should be. With one president.

Jonas Parello-Plesner is joining the European Council on Foreign Relations as Senior Policy Fellow. He has worked as senior advisor with the Danish government on Asian affairs. He is on the board of editors of the Danish magazine Raeson.

This article was first posted here on the European Council on Foreign Relations website.

1. The East Asia Summit: ASEAN’s forum for maintaining peace
2. The United States and the East Asia Summit: a new beginning?
3. Will the US commit long term to the East Asia Summit?

In this week’s feature essay, based on his keynote speech to the 12th East Asian Economic Association conference in Seoul last week, Peter Drysdale argues that Asia can no longer expect a free ride on global public goods in trade or finance and that the time is past due to deliver on its global responsibilities. Success in this, he says, requires strengthening regional institutions and architecture, and the G20 provides the platform to relate these to global initiatives.

While there are many in the region that push for de-linking regional cooperation from global cooperation, such as the Chiang Mai Initiative from the IMF, the region should not become inward looking. ‘Asia is already too prominent a part of the global system’ and Asia needs to engage and play a role in shaping and strengthening global cooperation.

Asia has assets going forward in APEC for trans-pacific cooperation and the East Asian processes of ASEAN+3 and the East Asia Summit (ASEAN+6). They are not without their weaknesses but, despite some gaps, they serve the region well and have important and complementary purposes. They are also evolving, rapidly.

One gap is that the region does not yet encompass the political and security dialogues that are a necessary anchor in managing the impact on political and security affairs of the huge changes in the structure of economic power that are taking place in the region. ‘The United States has pre-empted this issue by announcing that it wants to join the East Asia Summit’, Drysdale says, and ‘ASEAN, strategically, was in no position to resist’ such an initiative. Yet, he cautions, ‘it is by no means clear where this development will eventually lead nor that it will serve to mitigate the possibility of growing political tensions across the Pacific’.

APEC, which includes the United States and the major Asian states except India, has worked around the unique characteristics and diversity in the region to contribute to regional economic as well as political security because it is founded on strong and mutual economic interests. Drysdale warns that ‘Should EAS become primarily a dialogue for political affairs without the ballast of economic dialogues to which the United States can effectively relate, that would likely exacerbate rather than calm trans-Pacific tensions’.

On that issue there ‘needs to be much careful thinking and more dialogue on this and on the evolution of regional arrangements, beyond the Washington beltway, across the whole East Asian and Pacific region’.

A prompt we should not take lightly.

Shiro Armstrong is a Research Fellow at the Crawford School of Economics and Government at the Australian National University and Editor of the East Asia Forum.

1. Asia’s global responsibilities: Delivering through global and regional arrangements
2. Asian leadership and the global economic crisis
3. China-Japan-Korea trilateral cooperation and the East Asian Community

In East Asia, as elsewhere in the world, the risks that we continue to face in recovery from the global financial crisis, not only economically but also politically, are a consequence of past failure in the architecture of international 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 gives the region as a whole, and the G20’s Asian members in particular, the opportunity to assume a new role and their proper responsibilities in managing the world economic order.  Korea has peculiar responsibility in the exploitation of this opportunity as host of the first G20 Summit in Asia in November 2010.

Asia now has a platform at the global level to deliver on its growing international responsibilities, in the form of the G20 process. The G20 includes China, Japan, Korea, India, Indonesia and Australia. But it is not clear how or whether established regional arrangements can relate to that process and be engaged to strengthen the region’s role in the international economic system.

How well can the established arrangements for regional cooperation in Asia be co-opted to support Asia’s participation in building a global economic system that is more capable of dealing with the big policy problems at the heart of Asia’s global and regional interests today?

The enduring characteristic of the Asia Pacific region is its continuing economic and political transformation. Asia Pacific strategies toward regional cooperation need to be based on an understanding that this change will continue, that it is positive, and that choking it off will damage the prospects for prosperity and the region’s and the world’s political, as well as economic, security. It is an approach to international cooperation that encourages accommodation of emerging economies within the global system.

The model is an asset which Asia now brings to global cooperation in the G20 which must be managed without deep institutionalisation and the supranational legal authority that ensures that member and non-member nations follow through on commitments. Do the unique modalities of East Asian and Pacific cooperation mean that its effect on member economies is not significant? There is ample evidence that suggests otherwise.

What needs to be done now?

On the economic front, the areas in which there is an immediate priority in strengthening institutional arrangements and policy strategies that connect more effectively regional action to global action are in financial cooperation and in trade policy.

On the issue of financial cooperation, an inward looking set of financial cooperation arrangements that are de-linked from global institutions are not in Asia’s interest, although some advocate delinking to intensify regional cooperation. Asia is already too prominent a part of the global system. The region does not have either the technical capacity or the political trust necessary for effective surveillance, monitoring and credible implementation of large scale support programs. The EU, where surveillance, cooperation and analytic capacities are well developed, cooperates closely with the IMF in rescue packages for European economies.

The IMF is undergoing reform and Asia should push the process forward. The G20 allows this.

Asia could also make a positive contribution by establishing a functioning Asian Financial Stability Dialogue (AFSD) that draws in the whole region and complements the work of the Financial Stability Board (FSB). A question is whether this can or should be effected under the aegis of the East Asian Summit or the APEC Finance Ministers’ process.

A second important component is exchange rate policy and greater exchange rate flexibility. Increased exchange rate flexibility is necessary in order to encourage relative price shifts between tradable and non-tradable activities and economic rebalancing. Exchange rate flexibility will assist in shifting the economy towards more productive use of resources and make it easier to control inflation and to manage external shocks. Asian experience in the 1980s and the 1990s shows that major Asian economies have a strong national interest in deploying increasingly flexible exchange rate adjustment for these tasks along with supportive monetary policy. The structure and timing of such reforms will depend on each country’s economic circumstances and institutions and is correctly a matter for national policy decision.

On the issue of trade strategy, East Asia’s deep specialisation in the international economy, most efficiently and intensively with other economies in the region but importantly also through access to global markets, was a necessary condition for successful East Asian modernisation and industrialisation.

Asia’s position in the world trading system now puts it in the spotlight in terms of what is at stake in managing the global trading system and who needs to shoulder the responsibility. Not so long ago, Asia could afford to be a free-rider in trade policy leadership. This is no longer the case. China is now the largest exporter and second largest trader in the world, largest destination for foreign direct investment and the sixth largest source of foreign direct investment. Asia is already the second largest centre of world trade; by 2020 it will likely be the largest.

A key issue in international economic policy today is the re-balancing of growth in the global economy. It is an issue that is fundamental to the sustainability of successful regional development in a global economy that can welcome and accommodate the scale of what is required to lift the next 2 billion people in our region out of poverty, as we have done with three-quarters of a billion over the past 30 or 40 years.

Behind the push for re-balancing regional and global growth is the recognition that continuation of ‘growth as usual’ will no longer deliver on these objectives. The old open trade, open investment strategy is not enough. Global markets will find it very hard to absorb the pressures of Asia’s growth. The pressure of current account imbalances is only one dimension of this, a symptom of the problem and not the most important dimension that needs to be dealt with in achieving a better balance in regional and global growth.

The imbalances that have emerged in our economies, at their core, are a product of the whole range of structural and institutional impediments to efficiently mobilising resources for production and investment and delivering output so that the benefits of growth are spread widely across our communities; they are not the product of savings imbalances or exchange rate misalignments but they underlie them.

On both these issues − how to re-position trade negotiation strategies to serve both regional and global objectives and how best to make progress in opening markets through regulatory and institutional reform −  Asia will be expected to deliver.

Asia can show leadership, through commitment to reform of the WTO, through further opening up its markets, helping to conclude the Doha round, connecting and ‘multilateralising’ its web of FTAs, and promoting the structural reform agenda. Asia now has the forum at the global level, in the G20, to display this leadership.

Whatever is done to re-position Asian regional architecture so that it takes more account of, and connects with, Asia’s new role in global economic governance, as well as the implications of Asia’s rise for political and security affairs, needs to build on the foundations of established regional structures – APEC and East Asian arrangements.

There are two big gaps in the structure and operation of regional architecture. The first is its failure to connect to evolving global arrangements, including the G20 process. The second is that it does not yet encompass the political and security dialogues that are a necessary anchor in managing the impact on political and security affairs of the huge changes in the structure of economic power that are taking place in the region.

Success will turn heavily upon the logistical detail. Indeed, the legitimacy of the G20 will depend on how the interests and views of non-G20 members are brought to the G20 process. Structuring the timing of Asia’s regional meetings around the G20 to give the regional non-G20 members input to and ownership of initiatives is an important start.

The second issue is one that leaders throughout the region have been struggling with in different ways. At the core of this issue is the development of a framework which might help to reduce the risk of a fracture in political confidence around the rise of China’s (and India’s) political influence alongside the established military and political power of the United States, consistently with growing East Asian economic cooperation.

The United States has pre-empted this issue by announcing that it wants to join the East Asia Summit and that is a move that ASEAN, strategically, was in no position to resist. Let me say bluntly, that it is by no means clear where this development will eventually lead, nor that it will serve to mitigate the possibility of growing political tensions across the Pacific. Should EAS become primarily a dialogue for political affairs without the ballast of economic dialogues to which the United States can effectively relate, that would likely exacerbate rather than calm trans-Pacific tensions. That ballast is currently lodged in APEC and that is not going to be changed quickly. There needs to be much careful thinking and more dialogue on this and the evolution of regional arrangements, beyond the Washington beltway, across the whole East Asian and Pacific region.

Developing these structures right so that they are representative of, and connect to, all the regional arrangements, and carry Asian interests constructively into the G20 process will be crucial to whether Asia becomes a pillar for entrenching the G20 process or eventually comes to tear it apart.

Peter Drysdale is Professor Emeritus at the Australian National University, Head of the East Asian Bureau of Economic Research and Editor of the East Asia Forum.

An earlier argument along these lines is set out in detail in a forthcoming Asian Economic Policy Review paper. See the working paper version.

1. Connecting Asian and global cooperation
2. Global financial crisis and Asian responsibilities
3. Asian Regional Financial Arrangements and the IMF