Since China’s reform and opening-up policies began in the 1970s, the country’s average annual economic growth rate has hovered around 10 per cent.

Currently, China’s gross domestic product is second only to the United States; it is the world’s largest exporter and importer and the largest holder of foreign exchange reserves. Along with China’s remarkable economic rise comes an increase in China’s role in both regional and global development and governance.

With the economies of the US, the EU and Japan reeling from weak growth and burdensome debt levels, China is a key driver of global economic growth, contributing, along with other major emerging economies, nearly two-thirds of new global economic output. According to many projections, China will surpass the US as the largest economy in the world by 2030.

As its power emerges China will naturally become a more important player in shaping regional and global development and governance. Likewise, with its economy moving into a new phase through steady technological innovation and an explosion of domestic demand, China will play a bigger role as a major market and capital resource for regional and global economic growth.

China’s economy is highly integrated into the global market, so the country should participate actively in initiatives to reform the international economic system. While a stable and evolutionary reform process is important to China, the desired outcome should see structural changes that produce a new, more effective international system.

China is active in promoting efforts to improve regional governance through various forums involving the Asia Pacific region as a whole, East Asia, Central Asia and Northeast Asia. The goal is clear: to help create a favourable environment for economic cooperation, enhanced political trust and regional security.

It is significant that China’s strategy is focused broadly, encompassing more than just economic issues. An important part of these efforts are free trade agreements, whether bilateral or sub-regional, such as the FTA between China and the Association of Southeast Asian Nations (ASEAN). They are different from market-driven integration, because in addition to being compliant with the rules of the World Trade Organization, they provide a broader framework for cooperation among governments of different countries. Experience shows that FTAs can have a profound impact on improving governance in individual economies and regional systems.

In the past decade, China took the initiative to establish the China-ASEAN Free Trade Agreement (CAFTA) and played a leading role in the feasibility study for the East Asia Free Trade Agreement. China also actively sought to promote trilateral cooperation with Japan and South Korea. For China, CAFTA is more than just a trade agreement. It helps to provide a comprehensive framework for cooperation between China and the ASEAN countries. China is now the largest market for ASEAN exports, but relations go well beyond trade to include infrastructure, connectivity and capacity building for human development.

Although China participates in all regional arrangements, it views ASEAN +1 as its core regional relationship followed by ASEAN+3. China worries that the recent enlargement of the EAS from ASEAN+6 to include the US and Russia may weaken the cooperative spirit of East Asia because of different strategic interests.

Recently, the Trans-Pacific Partnership (TPP) led by the United States has received a lot of attention. Although China is the second-largest economy in this region, it is excluded from the TPP negotiations. China’s view is that the Asia Pacific Economic Cooperation (APEC) forum is the more appropriate for regional issues of the kind envisioned for the TPP.

While the United States is touting the TPP as a kind of high-level FTA for the 21st century, it will fundamentally change the nature of the APEC approach to regional relations. It can also be seen as a move by the United States to weaken East Asian integration and co-operation. This should worry ASEAN for two reasons. First, many member states aren’t included in the TPP. And second, it could have a negative impact on ASEAN’s central role in building an East Asian community.

In this context, a great concern is how China manages its relations with the US. That relationship today encompasses both economic prosperity and political security. By focusing on common goals such as global growth and prosperity, China and the US can establish and promote a partnership that will benefit both countries, as well as the rest of the world.

But promoting economic interdependence requires creating common interests and reducing incentives for conflict or instability. This is difficult in the current climate, where structural trade imbalances between China and the US are fuelling tensions. The US is pushing hard for China to allow the renminbi to appreciate quickly, while China is insisting on a gradual appreciation of the currency. With the US now part of the East Asia Summit, hopefully the two countries can use this framework to manage their interests and relations in a collaborative way.

The rise of China will end the current Western-dominated world order, but it will not end the Western world, as some alarmists in the West fear. In a highly interdependent world, human society’s future rests on true co-operation from all sides.

Zhang Yunling is Professor of International Economics, and Director of International Studies, Chinese Academy of Social Sciences.

1. Asia’s global responsibilities: Delivering through global and regional arrangements
2. A regional solution to global imbalances: We need a Beijing Accord
3. China’s Soft Power v America’s Smart Power

On the evening of 25 October 2011 the southern Thai town of Yala was shaken by a string of 30 explosions that caused great terror and loss of life. The following day the neighbouring province of Narathiwat saw a similar wave of attacks.

This latest bombing campaign was a stark reminder from southern Thailand’s insurgency movement of the seventh anniversary of the Tak Bai massacre.

The violent conflict still ravaging southern Thailand has claimed more than 5000 lives since the eruption of violence in 2004, and is concentrated in the three Malay-Muslim majority provinces, Pattani, Yala and Narathiwat, as well as four districts of neighbouring Songkhla.

This historically rebellious region has seen waves of uprisings against the Thai state since it became part of Thailand through the 1909 Anglo-Siamese treaty. Many of the armed movements that have fought for independence over the years have emerged as reactions against recurring efforts by Bangkok to exert increased authority over the region. The 1970s and 1980s saw an extended separatist campaign by the Pattani United Liberation Organisation (PULO), which relied on traditional guerrilla warfare conducted from jungle bases. This was effectively suppressed by a combination of conventional military campaigns and amnesty programs. Following the decline of PULO, BRN-Coordinate (BRN-C) emerged as the main insurgent group, and the movement made a number of strategic shifts away from its predecessors’ failures. BRN-C also focused on initially conducting a systematic mass-indoctrination of the local southern population in order to build a solid political base before eventually launching its violent struggle.

Maintaining separate political and militant cells in villages throughout the Malay-Muslim south, BRN-C has built a strong base and effectively undermined state control in the region. Rather than relying on a regular guerrilla force, the movement relies on part-time fighters organised in autonomous cells acting in their own communities. This mode of operation provides a challenge for state security agencies employing traditional counter-insurgency tactics. The largely Thai-Buddhist police and military is simply incapable of separating friend from foe when operating in the ‘Deep South’.

The current wave of violence began in 2004 with a bold raid on the Chulaporn military camp, where the separatists made away with a large weapons cache. The security agencies initially tried to counter the insurgency using cruel repression: the infamous massacres at the Kru Se mosque and later at the police station in the small town of Tak Bai are two clear examples. While outside attention has largely focused on these symbolic events, the bulk of casualties have been caused by a drawn-out campaign of daily acts of violence using small arms, explosives and arson attacks. The security agencies’ mismanagement of the initial round of violence has also contributed to its steady escalation.

The spread of violence has pushed state power back from the south, leading to increased lawlessness and secondary violence in the form of revenge killings, settling of scores among criminals and extra-judicial executions at the hands of rogue elements within Thailand’s security agencies.

Instances of violence tend to follow linguistic and religious patterns, reinforcing the view that southern insurgents rely on ethnic and religious identities for mobilisation. While the Thai state has maintained an inclusive policy toward religious minorities, language policies are extremely conservative. Standard Thai is the sole medium of communication with government officials, for example, leaving the south’s Malay-speaking population feeling largely alienated. Economic disadvantage also adds to the sense of exclusion, as the region is among the poorest in the country, and significantly less developed than Thai-Buddhist provinces to the immediate north.

The central Thai government has been largely ineffective at handling the violence in the south. Efforts to mediate in the conflict are hampered by the hyper secrecy maintained by BRN-C leaders and the state’s unwillingness to make any concessions. Consequently, serious proposals for handling the conflict have principally been found outside this bloc, and include academic blueprints for increased self-determination. Researchers at the Prince of Songkla University in Pattani have suggested that autonomy through the creation of a Pattani Metropolitan Administration could allow space to pursue local identity within the bounds of the Thai state — and undermine local support for the armed uprising.

In the July 2011 election, several parties floated policies for autonomy or decentralisation, with the pro-Thaksin Pheu Thai Party adopting the Pattani Metropolitan Administration proposal as party policy. In the end, the pro-establishment Democrat Party triumphed in the Deep South, taking nine of 11 parliamentary seats. The party benefited from a spilt of the Malay-Muslim vote between large numbers of candidates contesting the elections after the break-up of the Wadah faction, which had dominated Malay-Muslim politics for decades.

The failure of Pheu Thai to gain any seats in the south leaves them without clear electoral support to pursue autonomy. Back-tracking on their election promises, the party has recently floated alternative ideas for preserving strong central government control over the south, even while increasing the army’s role in handling the situation. The lack of meaningful effort at decentralisation can only prolong the conflict.

Anders Engvall is a recent PhD graduate in Economics from the Stockholm School of Economics, where he is now an assistant professor.

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

1. ASEAN and the Cambodia-Thailand Conflict
2. The Japan-Thailand economic partnership agreement: Utilization and implementation issues from the perspective of Thailand
3. Silenced smiles: Freedom of expression in Thailand

The sixth East Asia Summit (EAS) and 19th ASEAN Summit were held from 17–19 November 2011.

The EAS in particular helped renew regional channels of cooperation, a development marked by the entry of the US and Russia into the summit. While Dmitry Medvedev did not attend the 2011 summit, the US’ participation was extremely valuable to existing regional cooperation among the EAS countries. Washington must nevertheless ascertain what level of commitment other member countries expect from it — and also what it can gain from a renewed partnership with the region.

The US has numerous close allies in the Asia Pacific region, and shares good relations with many others. Despite these traditional relations, the US’ decision to become a member of the EAS was big news. This was the first time the US had joined a multilateral platform that consists of countries which are uniquely ‘East Asian’. And though the US remains a member of APEC, some ASEAN countries are not members of this organisation, meaning the US’ presence in Honolulu had little bearing on a few ASEAN countries.

Before the sixth EAS, the summit was largely driven by ASEAN. The overall mood of the EAS was one of regional cooperation, with an overwhelmingly economics-focused agenda — even if there were underlying frictions over the mode and membership of this cooperation. And while the EAS provided a forum for ‘broad strategic, political and economic issues of common interest and concern with the aim of promoting peace, stability and economic prosperity [in East Asia]’, it was only during the last EAS that the issue of maintaining peace and enhancing security cooperation in the region was given real attention.

The adoption of the ‘Bali Principles’ at this summit also helped ensure the equal status of all member countries in all matters of strategic importance and spelt out the overarching importance of relevant international laws, especially those related to maritime matters. This was a positive move for countries previously concerned by a perceived flux between the ideal of ASEAN centrality and the reality of China’s weight in the forum. But while the US’ influence cannot be underestimated in this new development, it must be recognised that most ASEAN member countries were more than ready to welcome the US and Russia, as they realised that no amount of emphasising ASEAN centrality could make a dent in China’s growing influence — both inside and outside the summit.

The 19th ASEAN Summit saw many leaders requesting the EAS to focus on strategic and maritime cooperation in the region. Clearly, this appeal was aimed at the US’ attendance, and the EAS Chair’s Statement also shows that the participation of the US led members to agree on the ‘supremacy of principles and norms of international law’. The emphasis on equal roles for all members and the supremacy of international law has been the single most important achievement of the sixth EAS, and it would not have been possible without the anchorage and support provided by the US. Bali equally saw EAS members committing to positive multilateralism in the region, and the US can help ensure the sustainability of this multilateralism by preventing the balance of power from tilting to any one side.

But the success of Bali raises an important question: is the US willing to make this a long-term commitment? Washington will have to answer this question with unambiguous and concerted action. Its participation at the leadership level is an absolute must; attendance at the 2012 summit and its related meetings in Cambodia will perhaps provide the first test. Despite being an election year in the US, it is imperative that the US leadership attend the summit. At the very least, the US will have to bear in mind the ASEAN culture, whereby high-level representation at the summit is both desired and expected of all countries, including the US.

In terms of potential contributions, the lack of institutional support is one significant shortcoming in the EAS which may be of immediate interest to the US. So far, ASEAN members determine the EAS agenda and the admission of new members. The ASEAN Secretariat also provides support to the summit, but is otherwise beset by ASEAN’s day-to-day business, and is currently gearing up preparations for the ASEAN Economic Community. Non-ASEAN members argue that they should be able to set and contribute to the EAS agenda, and the summit’s expected outcomes have not received adequate monitoring in the past few years. The US may consider strengthening the EAS’ institutional support by establishing a lean and effective EAS Secretariat, which monitors the summit’s outcomes throughout the year.

The US’ presence in the EAS could well be a positive for both the US and other member countries. As the gravity of the world economy shifts toward East Asia, it would be worthwhile for the US to remain engaged with this region. The US will also bring with itself the equilibrium needed in the region. In this way, the newly reinvigorated EAS may turn out to be a win-win for all members and an important contributor to regional cooperation in its own right.

Anita Prakash is Director of Policy Relations at the Economic Research Institute for AESAN and East Asia.

1. The East Asia Summit: ASEAN’s forum for maintaining peace
2. The East Asia Summit and regional financial cooperation
3. The United States and the East Asia Summit: a new beginning?

As Europe continues its desperate struggle to salvage the euro and monetary union, the spotlight of regional cooperation is shifting to Asia.

In December, European leaders retro-fitted the union with fiscal disciplines which impose binding limits on national budgets and borrowing. All but Britain opted in; the UK, Prime Minister David Cameron argued, was not prepared to yield such fiscal sovereignty. Lack of fiscal integration alongside commitment to a common currency was a serious design flaw in the original European enterprise. The new fiscal disciplines will allow more room for the European Central Bank to act as lender of the last resort to European borrowers. Whether these ‘architectural’ arrangements for European cooperation will be sufficient to save the euro will finally depend, of course, on how and whether they encourage the ‘substantial’ structural reforms and adjustments necessary to restore growth momentum in the deeply indebted southern European states.

Faced with shrinking economies and rising unemployment, and lacking exchange rate flexibility to restore price competitiveness in external markets, how can the sick economies of Europe get to grow again? Without the option of deeper currency depreciation, real wage cuts and structural reform are the only way to export-oriented growth — outside the OECD economies — in emerging markets like those in Asia.

As Shinji Takagi argues, the European mess has revealed just how inept Europe’s supra-national institutions were in dealing with a regional problem of the proportion that has emerged there. Inter-governmentalism — that is, a willingness to cede position and sovereignty through decision making in the collective interest — moved centre stage as the instrument of crisis management. French President Nicolas Sarkozy and German Chancellor Angela Merkel had to call the shots for the rest of Europe. France and Germany are providing critical leadership: despite over half a century of regional institution building, the huge Brussels bureaucracy proved little more than a paper tiger. The implications for Asian regional cooperation are profound.

In Asia, a central question is whether strong growth can be maintained despite continuing weakness in the developed world. Success in avoiding that scenario also depends on whether extensive structural reform is put in place to shape the expansion of Asian investment — so that it continues to roll out in ways that ensure it is productive and that economic growth does not run into the sand.

Asia does not need a huge supra-national bureaucracy, but it does need its own measure of inter-governmental cooperation to keep growth on track. It has the architectural frameworks, in APEC and the East Asian arrangements, to give this effect — if it is so minded.

On recent evidence, emerging market economies in Asia and elsewhere might have had some reason to think that there was ‘trend decoupling’ between their growth rates and those in the old G7 economies. But events of the past six months should have dispelled that illusion, as interdependence through expectations and market sentiment, as well as more directly through trade and finance, has ensured that problems in the industrial economies wreak their havoc and uncertainty around the rest of the world. De-coupling Asia from European growth clearly has its limits.

The Asian emerging market economies are, nonetheless, in a stronger position than their industrial country partners, with demographic dividends still to reap, much lower debt ratios, and economies that enjoy the benefit of powerful ‘catch up’ to the industrial-country frontier. The potential rate of growth in emerging economies remains high because the ‘convergence gap’ — the gap between productivity levels in industrial countries and developing economies — remains large even for economies like China and India. This hasn’t changed because the rest of the world has fallen into recession.

With these assets, what’s to stop emerging economies powering the global economy from its industrial-country malaise?

Wendy Dobson in this week’s lead essay suggests that Asia’s focus should be on ‘re-balancing’ and trade liberalisation. Expectations of Asia’s role, Dobson says, are growing much faster than Asia’s capacity to meet them.

In Asia too regional architecture is required for cooperative action. And Asian regional architecture still lacks tight and effective links to emerging global architecture around the G20 process.

‘Yet with some notable exceptions’, Dobson points out, ‘Asia’s focus remains on the architecture rather than the domestic and regional economic adjustments required to sustain growth momentum in the face of potentially serious external shocks from renewed European recession and near-stagnation in the United States’. On trade liberalisation, Dobson puts faith in the recent US Trans-Pacific Partnership (TPP) initiative.

Others would prefer broader regional and continuing global efforts, given that China has not been engaged in the TPP and due to other circumstances in the international economy.

Without Chinese engagement in what is putatively Asia’s primary trade liberalisation enterprise, the TPP is unlikely to give much strength to the heart of Asian integration nor to global trade.

Peter Drysdale is Editor of the East Asia Forum

1. Will Asia step up to the global challenges of 2012?
2. Regional cooperation and national sovereignty: Asia and the euro crisis
3. The East Asia Summit and regional financial cooperation

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

South Asia is a vast region encompassing eight nations (if we include Afghanistan) and over one-fifth of humanity.

It is difficult to do it justice in this short summary of the year’s events.

Foremost among the region’s significant developments is the killing of Osama bin Laden in a US raid on 2 May. This is important not just for its effect on al-Qaeda, but because it made possible Washington’s claim that the US could now leave Afghanistan with its ‘mission accomplished’. By the end of 2014 there will be only a rump of about 20,000 NATO troops remaining.

At the same time, the raid also triggered a marked deterioration in the US-Pakistan relationship, already troubled by the Raymond Davis affair. The net result is that although the impetus on the US to leave Afghanistan has increased, the prospect of an orderly departure and satisfactory final outcome has declined.

The introduction of a ‘strategic’ element to the India-Afghanistan relationship during President Karzai’s New Delhi visit in early October and the NATO attack on a Pakistani border post in November — in which 24 Pakistani soldiers were killed — further diminished prospects for a peace based on compromise. Following the incident, Pakistan boycotted the vital Bonn conference on 5 December and closed the Pakistan-Afghan border to NATO supplies. Pakistan’s uncertain role was highlighted by President Zardari’s failure to return from Dubai in a timely manner following medical treatment.

In the worsening climate, Pakistan drew still closer to China. Islamabad not only assessed that the US relationship is a political millstone round its neck, but also that the US is a diminishing regional power — at the same time as China is rising.

On a brighter note, in early November Pakistan agreed to grant India most favoured nation status in trade, which India accorded Pakistan some years ago. Trade is still miniscule, and given cross-border tensions is unlikely to lift significantly in the near future. But the decision is symbolically important.

In India, growth slowed and inflation soared, exacerbated by a steadily falling rupee, such that by year’s end, there was a risk that India — which is heavily dependent on foreign capital to support its twin deficits — might become caught up in the investor caution now affecting Europe.

Politically too the Indian National Congress-led United Progressive Alliance has suffered from the widespread perception that it is even more corrupt than previous Indian governments. The massive 2G telecommunications scam was central to this perception. The corruption issue has paralysed the operations of Parliament at a time when urgent economic reforms are needed — for example, derailing efforts to introduce a 51 per cent FDI regime in retailing.

This highly negative climate for the government is background to the state-level elections in Uttar Pradesh, scheduled for 2012. These elections in India’s giant state are considered a bellwether for national elections in 2014.

India’s troubled relationship with China has not significantly improved over the year. Following New Delhi’s decision to allow the Dalai Lama to speak at a conference in the capital, China cancelled the 2011 border talks, scheduled for 28–29 November. Despite this, military-to-military relations are to resume, following India’s previous decision to cancel ties over the Kashmir visa issue.

Meanwhile, Nepal has bowed to Chinese pressure and is now allowing far fewer Tibetans to cross the border. The Maoists and their moderate opponents also failed to reach a compromise in the stalemate over the induction of an estimated 19,000 Maoist fighters into the army. Until Nepal overcomes this stalemate, it will continue to delay the long-awaited new constitution, instability will persist and the economy will languish.

Despite the fact that the normally pro-India Awami League is currently in power in Bangladesh, water continues to be a sensitive issue between Dhaka and New Delhi, primarily owing to the traditional row over sharing the Ganges’ water, but also because of Indian proposals to build a dam in Manipur. Bangladeshi irrigators are suspicious that the run-of-river hydro scheme will diminish their access to water, and the issue has become highly sensitive for the ruling party, often accused by the opposition of ‘selling out’ to India.

Against this troubled background in South Asia, Sri Lanka has had a relatively stable year. The Rajapaksa government continues to tighten its hold in the aftermath of the civil war, shrugging off international efforts to draw attention to alleged human rights abuses. They are assisted at home by the fact that Sri Lanka’s economic position is enviable, with an estimated growth rate this year of 8.5 per cent.

Sandy Gordon is a Visiting Fellow at RegNet, College of Asia and the Pacific, the Australian National University.

This is part of a special feature: 2011 in review and the year ahead.

1. The South Asia Cold War ‘quadrilateral’ redux?
2. US-India relations: Problems posed by Afghanistan and Iran
3. Some thoughts about the South Asian ‘region’

The weather was awful outside the WTO Ministerial Conference in Geneva last week, but there was some sunshine within the convention centre.

Russia acceded as a member, along with Samoa, Montenegro and Vanuatu (the club still attracts new members, and as one minister said: ‘as far as I know, nobody has asked to leave’).

The Plurilateral Government Procurement Agreement was revised — after 10 years of negotiations — further opening up procurement markets to give foreign economies better access. China is also en route to joining, having agreed to do so on its accession to the WTO, after further negotiations took place.

But there were some strange decisions, like giving countries the option to waive most favoured nation (MFN) provisions, so as to allow least-developed countries preferential access to services markets. It is not yet clear how this will happen or how it would help resolve constraints in developing countries, which hinder reforms in their own service sectors. There were some non-decisions as well. No conclusion was reached on a set of principles for food security, for example, although the WTO’s Director-General rebutted a protectionist report from a UN official.

Why the lack of progress at this year’s Ministerial Conference? Here are five suggestions.

One factor is that ‘development’ has been mixed with trade. On the face of it, having a ‘development round’ seems positive, but lumping these two areas together complicates the process, and introduces new items for debate. The WTO should remain focused on the resource allocation gains from international business.

Another reason for the lack of progress is that the WTO cannot deal with the barriers that have now become relatively more important to business. This includes the rules and processes affecting international business which are not managed at the border. These barriers create significant rents — and those who currently gain from the arrangements resist their removal. Analytical work on these barriers is more and more important.

The third factor involves the uncertainties faced by policy makers when removing such barriers. Some were put in place for genuine public policy purposes, and policy makers are not confident about the likely consequences of their removal. Capacity building programs focused on this issue could help address the problem, and the EU and APEC, in particular, could work well together on this.

Fourth, the use of preferential agreements does not make the process any easier. Rents are created for local business, which are then shared with a state’s ‘favourite partners’ when preferential trade agreements find a way of allowing market access. In this way, the grand bargain once represented by the WTO has been diminished.

The US is the fifth reason why progress has stalled, although the US would likely say that other leading members were the problem. The US wants to create more domestic jobs — and good ones — which it associates with more market access, especially in countries like India, China and Brazil. These economies are not offering enough, and the US is therefore pursuing other options like the Trans-Pacific Partnership, or negotiations with the EU, to flush out some response from recalcitrant members. Meanwhile, this tactic promotes the use of FTAs and depreciates the political capital available to the WTO.

What will happen now?

Within the WTO, fundamental principles including MFN provisions and the ‘single undertaking’ will be challenged in the name of pursuing more-achievable — or less-ambitious — goals. Australian Minister for Trade Craig Emerson said the situation ‘argues for breaking the round into its component parts … instead of waiting for some grand bargain, magically, like a bolt from the blue, to strike us from the sky’.

Tension will be regarded as a plus, and created by excluding trading partners from special deals. Plurilaterals will proliferate, both within and without the WTO. We will move to a world in which there are clubs within clubs, and in which they all overlap. There is also the possibility of great tension in the Asia Pacific as ‘a line is drawn down the middle of the Pacific’.

It is not clear what the circuit breakers will be in this situation. Whatever happens, small group negotiations within the WTO could be okay if guided by the right principles. Some will call for new leadership at the top, in order to consolidate and multilateralise small groups outside the WTO. Others hope that the situation will be resolved from below, via competition; some clubs will exit (in effect, if not in name) or amalgamate, and what remains will be (hopefully) efficient. 

Our best chance is to build confidence in reform led from within economies. This requires transparency and benchmarking (via strong trade-policy reviews in the WTO, good peer reviews in APEC and clones of Australia’s Productivity Commission). It will also require us to demonstrate the real linkages between policy and performance, and the ability to translate that work into compelling public commentary. We then have to think through where world trade policy is at now, and develop a new, more coherent global strategy.

Christopher Findlay is Executive Dean at the Faculty of the Professions, University of Adelaide.

1. Implementing the G20 commitment to World Trade Reform
2. World trade policy in crisis
3. Trade policy needs to go global

With the conclusion of the APEC meetings in Honolulu in November, another yearly cycle is about to draw to a close.

Soon all eyes will turn to Russia as the next host, with the 2012 summit scheduled for early September in Vladivostok. Leading APEC will be Russia’s most significant multilateral undertaking since hosting the G8 in 2006. Observers are curious to see what a Russian agenda will entail and what goals will be set for APEC in 2012. Adding to this significance, APEC is the first — and only — major Asia Pacific forum where Russia can hold the chair.

The WTO Ministerial Conference is expected to confirm Russia’s accession to the organisation before the year’s end. By securing WTO membership just prior to hosting APEC, Russia appears to be taking a big step toward fully fledged integration into the global economy. With strong support from the US and the European Union, accession to the WTO will finally enable Russia to speak the common language of trade liberalisation with its Asia Pacific partners. Yet there is evidence to suggest that Russia may be unlikely — or unable — to fully capitalise upon the benefits that chairing APEC provides the host economy, partly as a result of Russia’s weak economic engagement with the Asia Pacific region.

First, Russia is not an intrinsic part of the region’s complex production networks, also known as supply chains. Unlike many other APEC economies, Russia does not add value to the variety of manufactured goods circulating throughout the region. Accordingly, its trade agenda is limited to boosting exports of raw materials and energy products directly to consumer countries, primarily China, the US, Japan and South Korea. Russia’s role in supporting sophisticated supply chains throughout the Asia Pacific in the form of services trade or investment is also negligible. In other words, Russia is not really a part of the de facto economic integration in the region.

Second, Russia is excluded from de jure economic integration in the form of trade agreements in the Asia Pacific. Although Russia has never explicitly articulated its trade policy, a set of old-generation FTAs exists with all Commonwealth of Independent States (CIS) members. Outside of the CIS, FTAs are largely ignored as a trade policy tool. Only recently in 2010 did Russia begin to show interest in FTA negotiations with the European Free Trade Area, made up of Iceland, Liechtenstein, Norway and Switzerland; and in early 2011, Russia started FTA negotiations with New Zealand. The Russian government perceives both of these endeavours as ‘pilot negotiating projects’. A feasibility study of an FTA with Vietnam is also in progress but the expected outcome is unclear. APEC economies may expect announcements of Russia’s intention to negotiate more agreements in 2012, but further opening up of the Russian market to the industrialised economies of the Asia Pacific may prove difficult.

Finally, throughout its 13 years of APEC membership, Russia has failed to clearly outline the economic interests it wishes to pursue with its regional APEC partners. Nor has it utilised numerous APEC opportunities to articulate its strategic trade vision. This is well indicated by its limited participation, and lack of submissions, to APEC committees and groups, including an indifference toward the agendas of important APEC fora such as the Economic Committee and the Committee on Trade and Investment. The only APEC forum with which Russia has recorded engagement is the Counter-Terrorism Task Force, further indicating that Russia’s participation seems not to be driven by economic considerations.

Consequently, Russia will likely focus on a number of more narrowly defined initiatives in drafting the 2012 APEC agenda. Russian President Dmitry Medvedev’s remarks in Honolulu and a recent APEC meeting in St.Petersburg suggest the topics of interest will be energy, transport and food security. Russia apparently sees APEC as an opportunity to assert its role as a premier energy supplier, a transport ‘bridge’ between the Asia Pacific and Europe and a competitive food exporter to the region. This self-perception is not new and rests partly on domestic assumptions that the Trans-Siberian Railway and the Northern Sea Route will be feasible alternatives for commercial cargo travelling between the Asia Pacific and Europe. In order to fulfil at least some of these ambitions, huge investment in the physical infrastructure of Russia’s Far East is required. Translating these complex and mostly unilateral interests into the APEC language of concerted multilateralism will require a lot of creativity.

In the absence of any real business interests to fuel the agenda for the Asia Pacific, APEC 2012 may exemplify Russia’s imaginary engagement with the region. Hence, APEC deliverables for next year are likely to draw substantially on the contributions of the previous chairs — Japan and the US. There is no strong reason to expect that Russia will seize the opportunity and reinvent itself as a contributing actor in the region. The underlying fact is that Russia remains outside the Asia Pacific’s real process of economic integration.

Kirill Muradov is Research and Education Programs Coordinator at the International Institute for Education in Statistics, Higher School of Economics, National Research University, Moscow.

An earlier version of this article was first published here on the East-West Center website.

1. Russia in Asia and the Pacific
2. Institutional architecture in Asia: Challenges for the US and Russia
3. APEC to tackle the Doha round?

Still months out from Russia’s March 2012 presidential election and it is virtually certain that Vladimir Putin will return to the presidency.

Significantly for Asia, Putin called for the creation of a Eurasian Union shortly after announcing his intention to run. The plan, unveiled in a newspaper article on 4 October, is to achieve EU-style economic integration based on Russia’s customs union with Kazakhstan and Belarus that would eventually encompass the whole Commonwealth of Independent States (CIS).

But it must be noted that Russia is currently experiencing conflict, mistrust or friction in its relations with Ukraine, Uzbekistan, Tajikistan and Moldova. Georgia withdrew from the CIS after fighting a war against Russia; Azerbaijan and Turkmenistan are increasingly taking independent stances from Russia. Putin’s recent remarks, which suggest his intention to annex South Ossetia and establish a Soviet-style alliance with Belarus, provoked a local backlash. Given the current state of affairs, Putin’s plan for the Eurasian Union should be taken more as a reflection of his political ambition to re-establish Russia’s leadership in the former Soviet Union region than as a realistic economic objective. It is also an expression of his wish to revive the Russian-led CIS as a potential rival to the EU and China. That is why Russia’s move is being criticised as imperialistic both within and outside the country.

How will all this affect Putin’s policy toward Asia, particularly Japan and the rest of the Far East? The most pressing issues facing Russia’s Asia policy are the following: first, restoring Russia’s political, economic and military presence in the Asia Pacific, which was lost after the collapse the Soviet Union; second, building cooperative relations with China while hedging against future threats; and third, making effective use of a ‘US card’ to play against China’s military build-up and aggressive maritime moves, while countering the deployment of US missile defence systems. Stemming from these strategic calculations is a cautious view within Russia about America’s declining presence in the Asia Pacific region.

Also notable is Medvedev’s effort to improve economic and military relations with North Korea. Through a trilateral project to construct a gas pipeline that would pass through North Korea to South Korea, Russia is determined to reinforce its presence on the Korean Peninsula and in East Asia on the back of energy resources. The project also serves Russia’s efforts to manipulate China, where talks on gas prices are stalled. But whether the project will come to fruition remains to be seen, given that it entails similar risks to those exposed in the Russia–Ukraine gas disputes. North Korea is counting on the Russian-led project to reduce dependence on China — thus the project is a way for North Korea to manipulate China as well.

Putin tried to redress the balance against China by emphasising the progress made in bilateral political and economic cooperation when he visited Beijing on 11–12 October. It was his way of using the ‘China card’ against the West. But neither does Moscow conceal its vigilance against China, as was demonstrated by Russia’s announcement several days prior to Putin’s visit that a Chinese spy had been arrested. Russia’s military build-up in Asia is evidently targeted at the US, but it has increasingly taken on a counter-China aspect in recent years as well. If China continues its expansionism and military build-up, there will come a time when Japan and the US seriously consider making use of the ‘Russia card’.

As for relations with Japan, Medvedev has taken a hardline stance on the Northern Territories despite reputedly being on the liberal side of the political spectrum. The Japanese government was baffled when its optimistic expectations were betrayed. In an effort to erase his negative image as a ‘weak leader’, Medvedev sometimes resorts to tough measures to court the Silovik (politicians from the security or military services). This has given rise to an optimistic view within Japan that the dispute over the Northern Territories will develop to Japan’s advantage if Putin replaces Medvedev.

This is nonsense.

It should not be forgotten that Putin rejected traditional peace treaty negotiations in 2005 by stating that the Southern Kuril Islands had become Russian territories as a result of World War II and that this was recognised under international law. When it comes to dealing with issues pertaining to national sovereignty, Japan needs to be prepared to fight a long battle. But it is still highly likely that Putin will choose to visit Japan soon after the presidential election next spring, in order to turn around soured Japanese public opinion for the sake of advancing bilateral economic cooperation.

Shigeki Hakamada is Professor of Russian Studies at Aoyama Gakuin University, Tokyo.

A version of this article first appeared here on the Association of Japanese Institutes of Strategic Studies website.

1. Fukushima’s implications for Korea’s nuclear dilemmas
2. Russia’s strategic objectives in Asia
3. Implications for Asia in Japan’s economic decline

In Washington and Beijing last week there were important meetings that are likely to be influential in where the Trans-Pacific Partnership (TPP) negotiations on regional trade arrangements lead down the track.

In Washington, the US administration called in ambassadors from the eight negotiating partners to up the ante on an early deal. USTR Ron Kirk had declared on 30 November that the US wants a deal by the end of next year, much to the incredulity of Washington observers who doubt that the White House will want a full-on debate about the TPP and the necessary Trade Promotion Authority in the middle of an election year. Now Congressman Kevin Brady, Chairman of the Subcommittee of Trade of the House Committee on Ways and Means, has called Hearings on TPP from Wednesday, 14 December, saying that ‘it is vital that we complete an ambitious and comprehensive 21st century agreement as quickly as possible’.

China has not been invited to join the negotiations; Indonesia sees the risks of regional division and does not want to. In the end this may not matter, and both China and Indonesia have cause to be relaxed since, given the way it’s being prosecuted, the TPP may not have a substantial impact after all.

Peter Drysdale is the Editor of the East Asia Forum

1. Are there real dangers in the Trans Pacific Partnership idea?
2. The India-China Strategic Economic Dialogue
3. China and global economic governance: History matters