On the surface the general election of 3 July 2011 may look like any other Thai election, but both its timing and context set it apart as historically significant.

Incumbent Prime Minister Abhisit Vejjajiva called for elections on 11 March 2011, even though his government had until the year’s end to finish its term. Reports indicate that Abhisit believed going to the polls early would be more advantageous to his party. Crucially, he also wanted to avoid further confrontation with red shirt demonstrators, whose anger and frustration over his role in the April–May 2010 brutal crackdown and its stalled investigation remained. This is the context in which July’s election took place, with wounds still fresh and society deeply divided by years of political turmoil.

Although several civilian governments had taken office since the 2006 coup, the military continued to play a dominant role in the country’s political system, and a series of mass protests on both sides of the political divide disrupted economic activity and made it difficult for governments to implement important reforms. Against this background of continuous crisis, many observers questioned the election’s potential to bring peace and stability. Some thought it would exacerbate the conflict and lead to even more violence. Tellingly, members of the Election Commission asked the caretaker government to declare a state of emergency to cover the election campaign, as they expected violence of a kind that would be impossible to manage within the regular legal framework.

Yet the 3 July election was one of the most peaceful elections since Thailand’s process of democratisation began in the 1970s. There were a few incidents of violence and a number of people were killed and injured, but the numbers were significantly lower than any election since the 1980s.

The July election witnessed a number of positive developments which suggest that electoral democracy is healthy. Voter turnout was 75 per cent — the highest in history. And voter enthusiasm was strong even in the troubled south, which suffers from insurgent violence. A high degree of electoral participation was also seen in the thousands of citizens who volunteered to observe and monitor the electoral process to guarantee it was free, fair and peaceful. Many civic organisations launched public campaigns and rallies encouraging all stakeholders to campaign peacefully and accept the electoral results. This phenomenon is unprecedented in modern Thai elections.

The nature of the electoral contest between the political parties provides a final example of the significant progress made in July. Previous elections were notoriously tainted by fraud, intimidation and vote-buying. These malpractices remain, but their effect on the electoral outcome has substantially diminished. Party performance, policy packages and political ideology were the dominant influences on voting behaviour this time round, and evidence suggests that parties and candidates who employed dirty tactics performed poorly in the polls.

It is also clear that polarisation and ideological politics benefited the two major parties — the Democrats of Abhisit and the Pheu Thai Party of Yingluck Shinawatra — and hurt smaller parties. Since the 2001 elections, in which party policy and campaigning started to matter more than sheer force of personality, the majority of voters have opted for one of the two main parties. From 2001–07, for example, the two major parties won between 75 per cent and 95 per cent of parliamentary seats. The 2007 coup-installed constitution tried to reverse this trend by changing the electoral system and weakening political parties, but this attempt at institutional design had only minor effects on voting patterns. The Thai people have shown they know how to use their votes to obtain political stability and effective policy implementation.

While the July election does not solve Thailand’s underlying problems, it has brought the country out of a protracted crisis and the threat of deadly outcomes. Moreover, it has proven that parliamentary democracy could be re-established and has not been rejected by the majority of Thai people, even while they hold different ideologies and values.

Yet the risk of democratic breakdown and instability continues. A tiny but powerful royal-military-bureaucratic alliance still wants to return the country to an old model of ‘semi-democracy’, in which the bureaucracy and military dominate politics under the auspices of the monarchy. This alliance does not accept the basic democratic principle of ‘one man, one vote’, as it supposedly goes against Thai society’s traditional hierarchical structure. This conservative force is not willing to compete in electoral politics but still controls critical parts of the state apparatus, such as the army, courts and some parts of the bureaucracy. Consequently, it still has the capacity to destabilise elected government. While this state of affairs persists, a coup or some other form of political intervention from the traditional elites cannot be ruled out. A big challenge for Thailand is to convince all sides to acknowledge the equal political rights of Thai citizens and to uphold democratic ideals.

If traditional political forces are unwilling to play within the democratic rules, Thailand will continue to face uncertainty and instability in years to come.

Prajak Kongkirati is a scholar at the Department of Political and Social Change, the Australian National University. 

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

1. Thailand: politics of a flood
2. Do Thais lack spirit for democracy?
3. Ongoing struggles in Thailand

How does a Cold War organisation like the OECD respond to the end of the Cold War? Does it try to hang on to its former identity? Or does it embrace the new ‘age of globalisation’?

The end of the Cold War in 1989 represented a victory of values and ideology — the triumph of pluralistic democracy, respect for human rights and the market economy — for the OECD and its member countries. At the time, Asian economies were also emerging rapidly, based on a complex cocktail of export promotion, strong state intervention and non-democratic politics.

Before the fall of the Berlin Wall, a number of these Asian economies were ‘economically qualified’ for OECD membership in terms of GDP per capita. But politically, there was never any suggestion that they might join.

Politics has always trumped economics at the OECD, even though economics is its core business. In the 1990s, for example, four central European countries were rushed in as members (following Mexico’s 1994 membership), while they were still fledgling market economies and democracies. They were the lost sheep of the North Atlantic community, having been occupied by the Soviets, and Western Europe and the US strongly supported their membership ambitions.

But Korea’s membership was very much a different case in point. It was economically better qualified, with a GDP per capita more than 60 per cent higher than the other five new members. It was perhaps even more qualified politically. Nevertheless, it is widely recognised that the OECD went soft on Mexico and the central European countries during the membership process, and went much tougher on Korea.

By 2007 when it came to inviting other countries to join the OECD, none of the most interesting possible members — Brazil, China, India, Indonesia and South Africa — had expressed interest in joining. They were offered and accepted a program of ‘Enhanced Engagement’, which was designed to prepare them for possible future membership.

Today the OECD finds itself with 34 members, with some 24 from Europe and only two from Asia. In contrast, the WTO’s list of the world’s 34 leading exporters includes 10 Asian economies. Many of these Asian countries are also internationally significant in areas such as investment, finance and carbon emissions — and school students from Shanghai now outperform all OECD countries in the organisation’s Programme for International Student Assessment, which measures literacy, numeracy and scientific ability. But while the Enhanced Engagement countries participate in a wide array of OECD activities, none of them are interested in membership. A very senior OECD official once described this program as a ‘one-way love affair’.

So the OECD, which has sometimes called itself a ‘hub of globalisation’, seems destined to have a membership which accounts for an ever-declining share of the world economy. It stands at a crossroads, bypassed by Asian-led globalisation at a time when the G20 has more member countries from Asia than Europe.

What are the main problems and solutions?

Even though it is essentially an economic organisation, the OECD has retained a strong North Atlantic political identity. This is partly because it is governed by foreign ministries and also because of the US’ dominant role. And as the recent UN vote on Libya showed, there are still vast political gulfs between the Enhanced Engagement and OECD countries.

New members are also forced to accept and align their policies with a now vast array of instruments and conditions they had no role in creating. From an OECD point of view, this means becoming a ‘responsible stakeholder’. From an emerging country point of view, it means being a ‘rule-taker’, that is, swallowing an OECD agenda now increasingly questioned in light of recent financial crises.  The OECD also has too many European members.  Something must be done about this ‘eurocentricity’, such as establishing constituencies, to improve the organisation’s effectiveness.

Overall, the OECD must adapt much more radically to the changed world and offer a more flexible and pragmatic approach to the application of its values and instruments through its membership. It must then launch a major campaign to recruit the Enhanced Engagement countries as members. The OECD Secretariat and its membership have not yet managed to convince emerging Asian economies of the organisation’s manifest benefits. But the OECD is still in many ways the best idea in town, with its excellent analysis and opportunities for policy dialogue. And emerging Asia has much to learn from the OECD experience in many areas, like developing social safety nets, economic upgrading, dealing with ageing populations, and public-sector reform.

As well as revitalising the OECD, this strategy could contribute to improving relations between the two major blocs which divide the world today — the OECD countries and the Enhanced Engagement countries.

John West is Editor-in-Chief at MrGlobalization.  This article is based on his paper ‘The OECD and Asia: Worlds Apart in Today’s Globalization’, published in Revista de Economia Mundial No. 28 (2011), 67–92.

1. OECD policy brief on emerging economic giants
2. Engaging Central Asia: the EU-Shanghai Cooperation Organisation (SCO) axis
3. The South Asia Cold War ‘quadrilateral’ redux?

Last year proved a tipping point for China’s approach to the world. The confluence of Europe’s debt crisis and America’s contracting defence budget has created rising expectations that China will shoulder ever greater power burdens for international stability.

No longer can it keep a low profile in international strategic and economic affairs. Could it join America as a world policeman sooner than expected?

Beijing’s push outwards has happened faster than its most ambitious leaders could have expected. But as it extends its reach to diversify investments, protect oil interests, patrol shipping lanes and support overseas workers, it risks unexpected ripostes. Every superpower eventually faces blowback.

A honeymoon decade of frictionless business expansion worldwide is over. Already China is embroiled in skirmishes and politicking on new frontiers. After the murder of 13 Chinese sailors on the Mekong river in October, China dispatched armed patrols into Burma, Laos and Thailand, the unruly states forming the notorious Golden Triangle. China is now the Mekong’s de facto river cop.

To predict the outcome of this, consider how Chinese investments were a contested issue in the recent election campaign in Zambia. Even in China-friendly Burma, a giant dam project orchestrated by a Chinese company was just shelved due to local popular opposition.

As China increases its commercial presence in resource-rich countries, such scenes will play out more often. The number of Chinese workers abroad expands by the day. In Libya, more than 35,000 Chinese workers had to be evacuated in March. The combination of search and rescue operations with interests in natural resources can thrust substantial burdens on a nation. Great powers have often been moulded by events rather than grand strategy. The commercial adventures of the East India Company compelled the British state to intervene in China, sparking the opium wars.

China’s traditional inclinations have been to work directly with other governments and demand assurances of protection for Chinese interests, while also freeriding on the security provided by western players, as in Afghanistan. But the absence of credible government in Somalia, for example, has forced China to contribute more heavily to anti-piracy operations in the Gulf of Aden. While it is still reluctant to vote in favour of interventions such as in Syria, that could change. China has more blue helmets UN peacekeepers worldwide than other Permanent Security members.  Much as western powers have long used the UN’s legitimacy as cover for their own interests, China could do the same.

The west should view this as an opportunity, not a threat. China should be encouraged to move from hands-off non-interference to engage, as it has done over Iran, North Korea and Sudan. The Mekong river incident and the rescue operation in Libya reveal how China has launched its own ‘responsibility to protect’ doctrine, at least concerning its citizens and workers abroad.

China has crept into the superpower league by deftly building friendly ties with regional powers. While it may seek to avoid choosing sides between various rivals, it will inevitably suffer repercussions as its influence grows. Just as few predicted five years ago that China’s navy would be patrolling the Gulf of Aden, we could one day witness Beijing demanding action in the UN for crisis intervention in a resource-rich country, such as Angola, where it has big interests.

This might not fit with the ‘responsible stakeholder’ mantra promulgated in western capitals several years ago, but China can be motivated to collaborate through self-interest. As the US and Europe have learnt in the Arab spring, China is taking note that negotiating solely with regimes is inadequate. The Lancang-Mekong navigation route could be the Gulf of Aden or the Katanga copper belt of Africa as resource corridors open, they become not only channels of commerce but also conduits for warlords and hijackers. To ensure long-term access to resources, China will have to make friends across the spectrum beyond the Gaddafis and Mugabes.

If it pursues this proactive strategy, China can leapfrog centuries of imperialist missteps and avoid blowback. After all, China has to date not been conquering colonies but rather buying them. This may sound optimistic. But while many in the west tend to quail at the thought of an increasingly interventionist China, it is just possible that an assertive Beijing protecting its interests could also be good news.

Parag Khanna is a Senior Research Fellow at the New America Foundation, Senior Fellow at the European Council on Foreign Relations, and Director of the Hybrid Reality Institute.

 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. The original version of this paper was posted pm the Financial Times and can be accessed here. 

1. A regional solution to global imbalances: We need a Beijing Accord
2. Need for a paradigm shift in Mekong management
3. Sino-Indian relations: Beijing muffs its hand

The manufacturing sector plays a significant role in the global trading system, accounting for more than half of the world’s industrial output in 2010.

Around 30 per cent of this trade relates to the exchange of intermediate inputs and goods for processing. Globalisation allows goods to be processed and manufactured in different geographical areas according to their comparative advantage. In most cases, trading activities are carried out by the same multinational enterprise: one enterprise imports raw materials, then exports the goods to contracting parties and subsequently has the goods imported back for labelling processes. When a product says ‘Made in China’, then, this is not the whole truth — perhaps only 30 per cent of the value-added activity was carried out in China. The WTO’s ‘Made in the World’ initiative proposes labelling products as ‘Made in the World’ instead of ‘made in a single country’ in order to capture this new reality of international trade relations.

The WTO launched the idea at the WTO Public Forum 2011, held in Geneva from 19–21 September, where it was also one of the sub-themes. Pascal Lamy, the WTO’s Director-General, came up with the catchphrase, which has since become a handy tool to explain the global trading system’s current situation.

Trade based on regional differences in competitive advantage of the value-added part of the production network has been going on for a long time. But given the complexity of the current global rules-of-origin regime, it is hard to give a fair share of recognition to countries who contribute to the manufacturing process in this way. It is hoped that the distorted trade imbalances caused by the current global value chain measurement will be readdressed through this initiative. This would benefit the many developing countries that possess relatively small manufacturing sectors. Or, in Lamy’s words, it would help achieve ‘the right statistical bridges between the different national accounting systems’.

By implementing the ‘Made in the World’ initiative, developing nations who do not have as many resources as others can easily enter the global trading stage through value-adding activities. This initiative could potentially also lower tariffs incurred by goods moving across borders several times during production. If the current trade measurement continues, it will not just provide incomplete statistics; the analysis may also be flawed, which could in turn lead to the adoption of misguided policy measures. The current method does not effectively measure competitiveness: when offshoring and outsourcing are prevalent, considering wage costs per unit gives only an approximate idea of the country’s real cost-competitiveness. Having the right tools to measure trade is essential, as the real calculation of national, regional and global trade is a fundamental tool in designing trade policy. This closely relates to domestic policy, where the government can make calls on protectionism, investment and other related matters.

Developing nations could also benefit from sectoral comparative advantages, as the value-added activities can be carried out based on sectoral origin. Each sector in a country could be maximally developed and exploited based on its comparative advantage, such that each region would not need to be self-sufficient or well established in multiple sectors. The other benefit for developing nations is the decrease in regionalisation which may occur when trade is measured in value-added terms. This new method reduces the importance of regional trade, since the alternative, vertical trade, is more frequently performed at the local level and thus reduces transportation costs.

The challenge lies in convincing WTO member states’ political leaders and trade ministers to adopt this initiative. Although implementation might not be easy, greater recognition of ‘trade in value-added’ will benefit all in the long run.

Natasha Ardiani is a Master of Public Policy student at the Crawford School of Economics and Government, the Australian National University.

Ardiani attended the WTO Public Forum 2011 in Geneva as a prize for winning the WTO Video Contest 2011.

1. G20 infrastructure initiative: Keynesianism going global
2. APEC and the new dynamics of world trade
3. Are the Philippines equal before the Chiang Mai Initiative?

The G20 Summit in Cannes probably made its most important contribution to global financial stability and economic growth before it even commenced.

The summit, held 3–4 November, became a deadline for European leaders to deal decisively with the economic and financial crises in the euro zone.

Europe is experiencing at least four deep, structural, overlapping and mutually reinforcing crises: a crisis of institutional design; a fiscal crisis; a crisis of competitiveness and a banking crisis. None of the four crises can be solved in isolation, and there does not currently seem to be any single comprehensive solution that will end the crisis promptly.

At the Cannes summit, euro zone leaders agreed on a new set of measures to try and tackle these problems. Though inadequate in scope to bring the crisis to an end and calm financial-market volatility, these measures will help prevent further economic deterioration in Europe. Consequently, the risk of catastrophic spillovers from Europe to the rest of the G20 was reduced.

Ahead of the G20 Summit, euro zone leaders agreed on three principal strategies to contain the crisis: reduction of Greece’s debt; a bank recapitalisation target and new options to leverage the European Financial Stability Facility (EFSF).

First, the planned debt reduction takes the form of a voluntary bond swap with private holders of Greek government debt, resulting in a 50 per cent reduction in the nominal value of their debt. While urgently needed, this will not independently restore Greek fiscal solvency, and additional financial support for the country will be needed. As future support will undoubtedly involve the IMF, G20 members will also have the opportunity to discuss potential approaches to restoring Greece’s fiscal solvency. This voluntary debt swap is unlikely to trigger sovereign default swaps, and it removes a potential short-term source of dislocation in the financial markets. But the lack of payout after a 50 per cent reduction in debt may ultimately lead to the demise of sovereign credit default swaps — at least for industrialised nations — which may lead to increased financial-market volatility.

Second, euro zone leaders agreed to raise capital requirements in banks to 9 per cent Tier 1 equity, and adjust for the effects of market prices of sovereign debt. Although superficially helpful, the imposition of a capital ratio target runs the risk that banks will shrink their lending to businesses (due to denominator effects), rather than raising new capital. Regulators must be vigilant to avoid aggravating a building credit crunch.

Third, two options were agreed on to boost the financial firepower of the EFSF. Both are almost certain to fail. Option one, providing credit enhancement to new state-issued debt, is meaningless; the significant overlap between the insurer and the insured in the euro zone means any stability the measure achieves will be minimal. Option two foresees attracting investments from private and public financial institutions and investors. But few, if any, such investors exist — and possess the willingness and ability to make a material difference for European financial stability.

Fortunately, this does not matter, as both options are a smokescreen to provide cover for the European Central Bank (ECB) to remain directly involved in stabilisation measures. This is critical, as ultimately it is only the ECB, as a central bank with the ability to create new money, that commands the financial resources to stabilise Europe. By creating a distraction in the form of a ‘leveraged EFSF’, the ECB can continue intervening directly in the European debt markets to avoid a catastrophic rise of Italian and Spanish interest. Ironically, by supporting this ruse, G20 leaders will reduce the need to offer money themselves by helping the ECB keep the spread between, on the one hand, Italian and Spanish interest rates, and on the other hand German interest rates.

Usually, international gatherings like the G20 Summit in London in April 2009 deal with large crises by restoring confidence through the credible commitment of large sums of government money. Europe cannot do this. As was evident ahead of Cannes, Europe and the ECB rely on the economic pressure exerted by financial markets to push reform-reluctant leaders into ‘doing the right thing’.

Indeed, were the ECB to publicly declare its intention to act as a ‘lender of last resort’ for Europe, or the G20 to cobble together €2 trillion for the EFSF, the financial market pressure on such leaders to implement reforms would abate. Paradoxically, with Europe’s fundamental economic problems requiring years of tough reforms, Europe can only ultimately solve its economic crisis by prolonging it.

This logic will easily trump anything in the G20 Communiqué calling for enhanced global financial stability and strong balanced global growth. Instead, we can expect high levels of uncertainty and volatility.

Jacob Kirkegaard is a Research Fellow at the Peterson Institute for International Economics, and a Senior Associate at the Rhodium Group.

1. European debt crisis: European fragmentation?
2. China into the European breach, but not just yet
3. The Greek tragedy: Global debt crisis and balance sheets

The 2008 global financial crisis catalysed a long-overdue transformation in the oversight of global affairs, bringing large emerging Asian economies to the G20 table.

A transition in the role of Asian countries at the G20 — from cautious and sometimes defensive to visionary and exemplary — was expected to unfold slowly, possibly taking a decade or more. Yet the renewed threat to recovery arising from the self-created problems of the US and EU has created an urgent demand for Asian leadership in 2011.

As in 2008, the world is looking to the G20 to deal with the renewed threat of recession.

The US and EU are certainly not going to boost global demand. Asian and other emerging economies have some scope to stimulate domestic demand, but not nearly as much as in 2008. By the time G20 leaders met in France in November 2011, the short-term prospect was, at best, to avoid recession in the US and EU.

Such an outcome may be adequate for one year but risks the future of the G20. Continued stagnation of mature economies will accelerate the ongoing shift of economic power and influence towards emerging economies. Economies with growing shares of wealth and dynamism will be blamed for not doing more. But aggressive attempts to attribute blame to dynamic economies, China in particular, just makes it politically harder for these economies to implement reforms.

To avoid falling into a swamp of unproductive recrimination, the G20 needs to find a strategy to stimulate effective demand which all its members can support.

At a time of deficient global demand, substantial savings generated by emerging economies are locked up in excessive foreign exchange reserves alongside vast potential for investment in economic infrastructure. Much of the vast unmet demand for infrastructure is in the emerging economies of Asia, which are also the source of much of these savings.

Asian governments have recognised the costs and risks of continuing to accumulate reserves. Those risks include significant capital losses, ongoing blame for inadequate global growth, and the costs of prolonged weak global demand on their own economies.

Now is a good time to address a global financial market failure in order to reduce these growing risks. Bringing forward some badly needed investments in infrastructure could be a decisive circuit-breaker to spark sustained global recovery.

Asian governments can put the challenge of fixing the current massive market failure squarely on the G20 agenda. A concerted effort by all members of the G20 to gradually make better use of Asia’s huge accumulated savings will allow them to work constructively to solve a shared policy problem, rather than blaming each other for there being too little growth and too many exports.

Channelling more of Asia’s savings into productive investment in infrastructure will not happen quickly or easily. G20 leaders can challenge their officials, financial-sector managers, and international financial institutions to use their expertise to find creative ways to intermediate savings to finance more investment in infrastructure.

The Asian Development Bank (ADB) and other multilateral development banks can step up their roles. They can be sound borrowers of Asian savings; they can invest them in productive projects, including projects to improve connectivity among economies. Commercial banks can also do more in credit-worthy emerging economies.

There will be some risks. One or two governments may act irresponsibly and make a mess of some investments. But, with care, most investments in infrastructure will prove to be viable. There is a lot of international experience on designing public-private partnerships and shaping policies to set prices and contain project risks within acceptable limits. And the risk of some projects being less successful than expected is far less than the risks of prolonged recession.

An effort to create more effective demand for investment will need to be accompanied by ongoing efforts to cope with long-term problems of debt in mature economies and structural adjustment in emerging economies. These complementary efforts can restore confidence in the world economy.

In the meantime, G20 leaders might delay thinking about other significant global problems. Unfortunately, the window of opportunity to avoid disastrous climate change is closing fast, and the future of an open non-discriminatory WTO-based regime for international commerce is being undermined by misplaced faith in preferential trade deals.

It will take a long time to find consensus on how to contain, let alone resolve, such problems. In a voluntary process of cooperation like the G20, there will be no big breakthroughs in any one year. It will not be possible to deal with these big problems in sequence. A more prudent option is to start a discussion of these issues in a patient, non-confrontational manner.

Right now, the US and EU are both caught in a vicious circle of acrimony and repeated attempts to defer hard decisions. They cannot be expected to lead the consensus-building needed to deal more adequately with global warming or rescue the WTO. Nor can Asian governments rely on them to deal wisely with global issues, respecting differences and searching for consensus rather than confrontation.

At a time of weak global governance the challenge of leadership is being thrust on Asia sooner than it had hoped.

The agenda of Asian institutions for regional cooperation can move beyond preoccupation with local issues and trade negotiations to an outward-looking effort to address important matters which require global solutions. Forums like ASEAN+3 and the East Asia Summit can be used to consult on how Asia can use the G20 opportunity — an opportunity which may not be repeated — to defend, then reform, the international economic order in ways needed to complete their emergence from poverty.

Andrew Elek is a Research Associate at the Crawford School of Economics and Government, the Australian National University. 

This article was first published in the most recent edition of the East Asia Forum Quarterly, ‘Asia’s global impact’.

1. How can Asia help fix the global economy?
2. Asian leadership and the global economic crisis
3. Asia’s challenge: to rebuild the global economic order in a generation

The Trans-Pacific Partnership (TPP) trade agreement got a big boost around the APEC meeting in Honolulu. A broad framework was announced, progress highlighted, and a 12 month deadline for a deal was set.

The TPP is the first trade agreement which President Obama did not inherit from his predecessors, and it is seen as a means of keeping the US engaged in Asia. Understandably then, the pressure to show that progress had been achieved at the Honolulu summit was on everyone’s mind.

The TPP aims to be a high-quality, 21st century agreement that furthers economic integration in the Asia Pacific, with the current negotiations including Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the US and Vietnam. Prime Minister Noda’s much-anticipated announcement on Japan’s intention to join the other nine APEC economies in the ongoing TPP negotiations is another important development on this front. Japan’s decision to start consultations with countries currently negotiating the TPP in order to join negotiations certainly elevates the importance of the initiative.

But Japan’s involvement, and the recent announcement around the APEC meeting, does little to resolve the cross currents that confront East Asian regionalism and Asia Pacific economic integration.

One risk is that the APEC process could lose momentum by some of its membership getting bogged down in TPP negotiations that might well turn out to be less than fullsomely productive. Trade deals take time; and they are likely to take even longer with more parties around the negotiating table. The TPP should not be rushed, and so it is important that the success of APEC meetings should not be tied to announcable progress on the TPP. A lack of progress on the TPP is not a lack of progress in the APEC process: one should not bring down the other.

Progress on binding regional trade agreements has been difficult through APEC because of the diversity of membership and the nature of cooperation in APEC. The failure of the WTO’s Doha Round has added impetus to the TPP negotiations. Yet it is not clear the TPP is the answer to a lack of progress in a weakened global trading system.

Less than half of APEC’s member economies are committed to negotiating a TPP at this stage, but more importantly, the end agreement and design of the TPP may mean that some key economies find it difficult to join. The most important of those is China. The so-called platinum standards the US is pushing for in the TPP — stronger intellectual property rights, stronger labour and environmental standards and regulatory discipline of state-owned enterprises — will make it hard for developing countries and transitional economies to join.

The fact that other countries in the region have seen that China — their biggest trading partner — may find it difficult to join the TPP seems in fact to have elicited a tactical response from East Asia, re-energising cooperation in a number of ways. Long-term political rivals China and Japan elevated the urgency of the ASEAN+6 Closer Economic Partnership Agreement, which is now cast in terms of an East Asian FTA. The ASEAN response (driven by Indonesia) has been to propose an ASEAN+1 template. Given ASEAN has FTAs with each country in the plus-six grouping (Australia, New Zealand, India, Japan, South Korea and China), the idea would be to harmonise those arrangements, consolidate them, and then open the process to others (the US, for example). Although neither East Asian response is well articulated, agreed on or entrenched at this stage, they are not favourable developments for the US.

There are also signs that the TPP might turn out to be little more than a bunch of bilateral deals itself, and that won’t do much to solve the problem of overlapping FTAs in the region — one of the TPP’s core goals. Unless it is designed with uniform concessions and commitments to all members, not only will the TPP fail to overcome the ‘noodle bowl’ of overlapping FTAs in Asia, it will add another bowl of noodles within the current bowl.

Japan, in its approach to TPP membership, recognises the possibility that China will not join the TPP any time soon. Given the importance of China to Japan, both economically and strategically, Japan has signalled it will move forward on a bilateral FTA with China at the same time as it moves to join the TPP negotiations. FTAs with South Korea and the EU are also in the works.

The East Asia Summit (EAS), which the US and Russia joined last year, is seen as another way to keep the US engaged in Asia. The EAS now comprises ASEAN+6 plus the US and Russia. While any additional opportunity for dialogue in the region is welcome, it is still a young institution that has not established a strong agenda. Its focus is leaning toward political-strategic issues, which are important, but without a prominent place for positive-sum economic issues (the international financial institutions have not been invited to the Summit this year), the big powers could end up dominating the talks, focussing on zero-sum or negative-sum security issues.

East Asian economic integration has been market-driven, not institution-driven, and production networks have flourished despite FTAs in which the rules-of-origin issue complicates the sourcing of imported intermediate inputs. The Asia Pacific region, and especially East Asia, has enjoyed rapid growth of trade and development based on the idea of open regionalism.

The priority in East Asian economic integration is to promote the participation of least-developed economies in the production networks, as well as deepening the integration and specialisation of middle-income economies in those supply chains. This is an integration agenda beyond a narrow trade agenda. The TPP is not currently pointed in that direction and risks overshadowing East Asian and ASEAN-style economic cooperation within APEC — an approach which is still quietly delivering real progress in economic integration, as it has in years past.

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

1. North-East Asian economic integration: APEC or FTA games?
2. East Asian Free Trade Area: bank on it
3. A closer look at East Asia’s free trade agreements

The upcoming G20 Summit in Cannes will undoubtedly attract the world’s attention, as many look to see whether the G20 can play a positive role in the global economic recovery.

And while searching for an effective solution to the crisis, the world will also focus on China, asking whether it might become a responsible ‘leadership state’ in an emerging global governance structure like the G20. The answer, it seems, is that based on its own interests, China is choosing to become a responsible contributor to global governance and wants to become part of the solution to the current global crisis.

China has maintained a rapid growth rate and played a major role in stabilising the global economy since the 2008 global financial crisis — and it wants to remain the biggest engine of growth and the ‘stabiliser’ to the global economy into the future. This could be China’s most important commitment to the world at such a critical time, but Beijing must also be careful not to risk the stability of its own domestic economy. And while becoming a stabiliser for the global economy would clearly increase China’s weight in the G20, the world cannot expect China to assume a particularly substantial leadership role in the G20.

In the eyes of Chinese leaders and the public, China is not ready to take on such a role, as the country is limited in its strength and knowledge, and by its status as a developing nation. China’s economy is in high-speed growth, but it still faces internal social problems and difficulties with efficiency and fair distribution in its economy. Consequently, it is hard to imagine that Chinese leaders would have the legitimacy and support to help finance foreign economies.

China also believes that the global economy is a fundamentally unbalanced system, characterised by the disproportionate and unchecked role of the US dollar as the main reserve currency and the worsening of European sovereign debt. It also views reforms aimed at strengthening the international monetary system and the EU’s internal reform efforts as imperative to establishing conditions for stable, strong and balanced growth. And as for China itself, Beijing must work hard to transition from an export-driven model to one based on domestic demand.

In the meantime, the world should be paying more attention to the development interests of developing countries, in order to increase their representation in international economic institutions and to reduce the risks arising from the global market — especially the volatility of commodity prices. Achieving this goal will benefit China as well, as it is the world’s largest trading nation and needs a stable international market.

Still, China supports the objectives France has set for the upcoming G20 Summit and welcomes the leading role Europe will play. China identifies itself with Europe’s long-term goals of stabilising and reforming the international financial system. China also hopes to stabilise the European economy, which would not only help its own exports to the region, but would also help balance US power and influence in international affairs. Equally, both China and Europe support reforms to the international currency system, stabilising commodity prices and resisting protectionism. But China wants Europe to carry out a more thorough reform to protect the safety of relief funds and to further open its markets — it would be unrealistic to expect China and Europe to be fully consistent on all objectives.

The global economy would undoubtedly benefit from greater consensus building through effective global governance, and the G20 is lagging behind in effectively dealing with these challenges. Consensus is absent among key players, which only further highlights the difficulties of coordination and cooperation within the G20. In the end, China will likely play a ‘balancer’ role between the US and the EU, something which could ensure the protection of China’s own interests. But as its cooperation with France and Europe is strengthening, China does not want to overly complicate its relationship with the US either.

There is little doubt that China hopes to develop a greater platform for contributing to international governance, through which it can safeguard its interests. China would like to see reforms to the current system of global governance, including a reduced dependence on the US dollar as a reserve currency and reforming the IMF to make it more representative. Beijing’s policy is clear: it does not want to overthrow the current system of global governance; it wants to reform it. In this way, China will ultimately play the role of ‘responsible contributor’ — and this role is only set to strengthen as China grows into the future.

Wang Yong is Director at the Centre for International Political Economy, Peking University.

1. Hu visit ends any dream of a US-China duopoly
2. The values dimension of Southeast Asian development and the rise of China
3. Bush, the G20 and China

Asian institutions for regional integration have proliferated since the 1998 financial crisis. They range from highly formal to very informal.

Most were not based on a grand design or mission but were responses to key issues. Some institutions evolved according to the needs of the market, and their final form owes much to pragmatism and flexibility. Others were established following formal agreements: the top-down approach. These institutions have served well to date, but more needs to done to effect region-wide integration.

Thanks to the many initiatives undertaken by ASEAN, the pace of sub-regional integration is fastest in Southeast Asia. By contrast, Northeast Asia is hardly active, and South Asia has a number of slow-moving initiatives.

ASEAN is moving towards more integration through its community initiatives — in economic, political and security, and social and cultural fields. The grouping is also the central force in East Asian integration, which is driven by its initiatives — ASEAN+1 free trade agreements (FTAs), ASEAN+3, the East Asia Summit (ASEAN+6) and the expanded East Asia Summit (ASEAN+6 plus the US and Russia).

Asian countries have also signed many bilateral FTAs. Trans-regional cooperation promoted by APEC is important but its proposal for an Asia-Pacific FTA is a long-term target. On the other hand, trans-regional integration, albeit selectively, is moving faster through the Trans‑Pacific Partnership (TPP), partly because the US indicated this initiative is its preferred route for integration.

Besides these established institutions Asia is also seeing the emergence of a cooperation mechanism, and institutions that could be a major influence on the direction and structure of regional integration. A trilateral FTA between China, Japan and South Korea may be possible because these three countries have a very close economic and business relationship. The Greater Mekong Sub-region Economic Cooperation Program is focused on building connectivity, competitiveness and a sense of community among its member states. East Asia has tested a number of mechanisms such as the Asian Bond Markets Initiative and ASEAN Infrastructure Fund to recycle its massive savings for the benefit of the region, but success is still elusive. Another effort is the establishment of mechanisms to help the region avoid and respond better to the next crisis, namely the ASEAN+3 Macroeconomic Research Office (AMRO) and the Chiang Mai Initiative Multilateralism (CMIM).

The various integration efforts continue to serve the region well. Growth is robust and there is a reasonable degree of integration among regional economies, with increased intra-regional trade and investment. The East Asian manufacturing sector is also tightly linked by the regional production network, and East Asian countries kept their economies open during the recent crisis. Growth was able to take place because there is peace and stability.

Yet region-wide integration remains elusive because growth is still dependent on demand from outside the region and the outcome of bilateral FTAs is unclear.

More than ever, comprehensive regional integration is crucial. Without it, Asia will not be able to become the third global node of growth because it will not be able to ensure existing liberalisation commitments are implemented uniformly across the region. Comprehensive integration would also ensure the region is compatible with the global economic system.

Existing and new regional mechanisms must help Asia manage future economic and financial crises, especially if they are caused by massive capital flows that can destabilise markets and exports. Regional integration will also have to narrow the development gaps between Asian member countries.

Achieving economic integration alone is not sufficient — in the future the region needs to build an Asian community. Even the economic challenge of responding to the shifting of the centre of economic gravity to Asia has become more daunting because growth now has to come from domestic demand. A strong response from Asia requires physical connectivity. The biggest challenge is to persuade member countries to give up some of their sovereignty so that decisions can be made at the regional level for faster implementation.

Can Asian institutions produce the desired regional integration, and can they deal with the new issues facing the region? In the past, issues have determined the type and structure of integration institutions. But the recent proliferation of institutions and regional architecture for integration, and the increased complexity of emerging transnational challenges, may require different kinds of institutions and players.

But what is the best way to proceed? With so many institutions already active or planned, should Asia create new ones, strengthen existing ones or even consider consolidating some? How can Asia strike a balance between structure, flexibility and dynamism? Now is an opportune time for Asia to answer these questions and establish the best way to approach regional integration.

The ‘looseness’ of the Asian integration process has been touted as the most suitable ideology for institutions, as it can take into account the wide variety of developmental, social and political systems. But there is a growing call for structured and institutionalised integration that will accelerate progress.

Nonetheless, Asian integration is likely to continue as an agglomeration of many frameworks and agreements and not follow a ‘grand design’. In all these configurations, the most pressing question is whether Asian countries are prepared to give up some of their sovereign powers that will be vested instead in a region-wide institution.

Mahani Zainal Abidin is the Chief Executive of the Institute of Strategic and International Studies (ISIS), Malaysia.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Asia’s global impact‘.

1. Osaka’s grand political design
2. Where is the East Asian Community going?
3. Realizing the Asia Pacific Community: geographic, institutional and leadership challenges

According to the Asian Development Bank (ADB) study Institutions for Asian Integration: Toward an Asian Economic Community (2010), Asia is supported by a dense web of 40 overlapping regional and sub-regional institutions that promote regional cooperation and integration at the intergovernmental level.

Yet with few formal or explicit commitments from members of these institutions, Asia remains ‘institution-light’.

The Association of Southeast Asian Nations (ASEAN) clearly plays a unique and leading role in building a strong economic and financial architecture in Asia, as all major regional and interregional forums gravitate around it. Moving towards its goal of creating an ASEAN Economic Community by 2015, ASEAN has forged a series of free trade agreements (FTAs) — called ASEAN+1 FTAs — with its dialogue partners, while non-ASEAN members have also implemented various FTAs. As a result, the number of FTAs in Asia has surged over the last 10 years, creating an Asian ‘noodle bowl’ situation.

To tackle the Asian noodle bowl, numerous proposals have been made to consolidate overlapping FTAs into a single regional FTA, like an East Asia Free Trade Area (EAFTA) among the ASEAN+3 countries — the 10 ASEAN members plus the People’s Republic of China (PRC), Japan and the Republic of Korea — or a Comprehensive Economic Partnership in East Asia (CEPEA) among the ASEAN+6 countries — also including Australia, India and New Zealand. These initiatives may be seen as a first step towards the creation of a region-wide economic community. A large region-wide FTA would also stimulate the growth of regional demand and the rest of the world’s exports, thereby contributing to the reduction of global economic imbalances.

The realisation of a single regional FTA in Asia would require both a trilateral FTA among the PRC, Japan and Korea and its integration with the existing ASEAN+1 FTAs. The biggest challenge lies in summoning the political will of these countries not only to liberalise trade in goods and services and investment, but also to reduce behind-the-border barriers, harmonise rules, regulations and standards, and pursue further domestic reforms. Deeper trade and investment integration at the regional level would serve the interests of firms and consumers, regionally as well as globally, and be highly complementary with World Trade Organization (WTO) liberalisation which does not require deep integration.

Does the Trans-Pacific Partnership (TPP) agreement, which is considered an early step toward a larger APEC-wide FTA, impede Asia-wide trade integration? The answer is no. While some Asian countries might decide to join the TPP for security and geopolitical reasons as it strengthens ties with the United States, the TPP would make any Asian member a more open economy. Institutional competition created by the TPP process would force some countries, notably the PRC, to accelerate the process of forging an Asia-wide FTA. In fact, the PRC and Japan are together now more aggressive in promoting an EAFTA/CEPEA. In this sense, the two processes are not mutually exclusive and can be complementary and create synergy.

On the financial front, the ASEAN+3 countries have strengthened regional financial and monetary cooperation following the Asian financial crisis. Important recent progress includes the multilateralisation of the Chiang Mai Initiative (CMIM), the establishment of the ASEAN+3 Macroeconomic Research Office (AMRO) in Singapore, and the creation of the Credit Guarantee and Investment Facility (CGIF) as an ADB-based trust fund in Manila under the Asian Bond Markets Initiative.

The CMIM needs improvements if it is to become a full-fledged regional facility and promote regional financial stability. First, at US$120 billion it is too small and needs to be substantially expanded. Second, a new precautionary credit facility should be introduced to prevent a crisis from developing, because the current arrangement is designed to address crises only after they occur. Third, the CMIM should be delinked from International Monetary Fund (IMF) programs. Fourth, the AMRO needs to acquire sufficient resources and staffing to support its surveillance capabilities and to facilitate policy dialogues among the finance ministers and central bank governors. Once these shortcomings are addressed, the CMIM and AMRO can be transformed into a de facto Asian monetary fund, and the principles governing their cooperation with the IMF in providing liquidity assistance can be determined.

Regional financial stability requires further institutional support. For example, Asian financial authorities — including finance ministries, central banks, and financial supervisory and regulatory agencies — could choose to establish an ‘Asian financial stability dialogue’ to complement efforts by the Financial Stability Board at the global level. Such a dialogue would bring together all the financial authorities in the region to discuss regional financial market vulnerabilities, regional financial and capital flows, common issues affecting financial sector supervision and regulation, and efforts to strengthen regional financial integration.

Asia’s regional institutions can complement and work with global institutions in a number of functional areas. In the area of development finance, regional development banks already exist alongside the World Bank, and the challenge is to improve the division of labour between regional and global development banks. In other areas where global institutions exist but regional institutions do not, there is substantial scope for creating new regional institutions — to promote trade and investment expansion, and economic and financial stability as international public goods — and for redesigning the prospective division of labour between global and new regional institutions, based on the principle of subsidiary.

The development of effective regional institutions in Asia in support of global governance can be hugely beneficial, not only for Asia, but also for the global community as a whole. It would result in Asia acting more responsibly, with greater accountability in its management of regional and global issues, and the provision of international public goods. It can also give Asia a bigger voice and result in a more effective Asian input in the global governance system. Regional institution-building should not be considered an end in itself and should further the shared goals of all countries, both within and outside the region.

Masahiro Kawai is Dean of the Asian Development Bank Institute (ADBI) and previously served as a Special Advisor to the ADB President responsible for regional economic cooperation and integration. Before joining ADBI he was Professor of Economics at the University of Tokyo.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Asia’s global impact‘.

1. Asia’s evolving economic institutions: Roles and future prospects
2. Positioning Asian regional architecture internationally
3. A three-tier approach to Asian regional architecture