The Sixth East Asia Summit (EAS) will convene on 19 November in Bali, with the US and Russia as full members.

Yet doubts remain over the Summit’s prospects as a high-impact forum, and its likely contributions to East Asia’s peace and prosperity.

Indeed, the institutional architecture of East Asia has come under intense scrutiny recently. At issue are the architecture’s incoherence and its apparent inefficacy in response to an increasingly complex, uncertain and challenging regional environment. What is required, as US Secretary of State Hillary Clinton noted in 2010, is an architecture that is relevant to East Asia’s ‘new landscape’.

What will this new architecture look like, and under what conditions might it succeed in delivering the peace and prosperity dividends desired by its stakeholders? At least three visions, or unofficial ‘schools’ of thought, are in contention in the region.

The first of these is the ‘Canberra School’. Related to former Australian leader Kevin Rudd’s Asia Pacific Community initiative, it promotes a ‘command’ or centralised brand of regionalism which argues the need, in Asia, for an overarching institution, fully empowered and equipped with a comprehensive agenda. Two Australian scholars have further prescribed that the architecture should be intelligently-designed and functionally-oriented. Regional architecture as such should be streamlined, its component institutions reformed and their roles and remits clarified, and underperforming institutions discarded. Asia ‘has too many organisations, yet they still cannot do all the things we require of them’, laments Allan Gyngell, a leading Australian strategist.

At a Sydney conference in 2009 to promote the Rudd initiative, participants proposed that the region be co-managed by a concert of powers comprising the Asia Pacific’s G20 members (the US, Australia, China, India, Indonesia, Japan, Russia and South Korea), but with no visible role for ASEAN. Following cool reactions from China and the US and strong objections from some ASEAN countries — as well as a number of Australian intellectuals — the Rudd initiative was revised. ASEAN was included, while the newly enlarged EAS was presented as the logical expression of Rudd’s idea of an apex institution.

The second model is the ‘Washington School’, which promotes a functional or results-based approach to regionalism. Its proponents appeal for effective and relevant regional institutions that could deliver the desired dividends. As Clinton recently noted: ‘It’s more important to have organisations that produce results, rather than simply producing new organisations’. Functionalists see neither the need for overarching institutions nor the discarding of inefficient institutions; the challenge is in ensuring they work. Nor do they reject an ad-hoc approach since they welcome functionally oriented coalitions of likeminded countries that collaborate on specific interests.

Crucially, functionalists acknowledge the need for a strong ASEAN as the core of a balanced and peaceful architecture. They seek to minimise the overlap of roles and responsibilities among component institutions, and, where possible, ensure a division of labour. In this regard, Washington’s prescription that the EAS focus on security concerns partly addresses disputes over whether ASEAN+3 or EAS is the more apposite vehicle for East Asian economic integration. Whether such functional distinctions can be successfully maintained remains to be seen.

A third perspective is offered by the ‘Singapore School’, whose vision of architecture is relatively ‘laissez-faire’ in orientation. It sees the existing architecture, despite its flaws, as fundamentally sound and still relevant to its stakeholders. Though its proponents accept that some reform is required, they do not see reform as urgent so long as regional structures and conventions do not constrain the pursuit of national interests. Nor are they averse to constructing more arrangements if needed. This was exemplified by Singapore’s proposal for an ‘ASEAN+8’ forum in place of an enlarged EAS out of concern that the US president may not commit to annual visits to East Asia. Ultimately, laissez-faire regionalists seek to preserve the default centrality of ASEAN in East Asian regionalism. In contrast to the Canberra School, they believe a concert of powers in Asia would be inimical to the interests of smaller Asian countries.

The three visions are primarily concerned with regional architecture broadly conceived. But the EAS looms large against that policy debate, not least because Canberra-School proponents see the expanded EAS as the overarching institution for which they have lobbied. Yet if privileging the EAS means sidelining other regional institutions, neither ASEAN nor countries that enjoy inordinate influence in the latter — China in ASEAN+3, for example — are likely to support such a move.

Nor is it certain that the EAS’ more powerful members would commit to a concert arrangement, or that the Summit would survive should an exclusive concert emerge from within it. If anything, many East Asians enjoy the strategic flexibility afforded by the region’s variable geometry, which increases their policy options and reduces the likelihood for zero-sum outcomes.

Nonetheless, the Washington School’s wish for a neat division of labour among the component institutions of regional architecture is similarly unlikely to be fully realised since, with the exception of the EAS and the ASEAN Defence Ministers’ Meeting+8, no two institutions in East Asia share the same membership. Hence, despite nominal differentiation by function, East Asian institutions are likely to include in their agendas concerns and issues beyond their respective institutional remits (as in the APEC trade forum’s interest in counter-terrorism).

The third option, the ‘if it ain’t broke, why fix it?’ outlook of the Singapore School, is untenable in the long term, because ASEAN understands its centrality in East Asian regionalism is no longer guaranteed and has embarked on a process of institutional reform in order to stay relevant.

The probable outcome for regional architecture in the foreseeable future will combine attributes promoted by the Washington and Singapore Schools. The EAS will likely become an integral piece of the region’s architecture, but not the region’s alpha institution. That said, all three schools will no doubt see in the Summit something for which they could claim credit.

Tan See Seng is Deputy Director and Head of Research at the Institute of Defence and Strategic Studies, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University.  He previously headed the RSIS Centre for Multilateralism Studies.

This article first appeared here as RSIS Commentary No. 164/2011.

1. Competing Asian Communities: What the Australian and Japanese ideas mean for Asia’s regional architecture
2. The ASEAN Charter and remodeling regional architecture
3. Positioning Asian regional architecture internationally

Whatever is done to re-position Asian regional architecture, it needs to take account of Asia’s new role in global economic governance.

It needs to attend to the implications of Asia’s rise for political and security affairs. And it needs to build on the foundations of established regional structures — APEC and East Asian arrangements. It will sensibly coordinate with, and draw on the base of, all of the established trans-Pacific and East Asian arrangements.

ASEAN is still the fulcrum of Asian cooperation arrangements, including APEC, the ASEAN Regional Forum (ARF), ASEAN+3 and the newly expanded East Asian Summit (EAS). But with the rise of the bigger powers in Asia and the emergence of the G20 after the global financial crisis and the role of the Asian 6, including Australia, within it, this seems destined to change. And there is a new and immense fluidity in the shape of regional architecture despite the recent initiative to include the US and Russia in the EAS dialogues.

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

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

In principle, the first of these issues can be remedied relatively easily. Already there are informal dialogues among Asian G20 members and participants in the EAS and other regional processes. These dialogues could be formalised so that regional input and regional initiatives are a recognised part of the G20 process and its reach.

Getting this right in practice will be more complicated than it appears in principle. It will require decisions about which regional arrangements provide the most effective link between regional and global cooperation. Many of the initiatives will sensibly require strengthening East Asian arrangements (at least within ASEAN+6), perhaps via enhanced financial cooperation through finance ministry and finance regulatory agency involvement (the idea that an Asian Financial Stability Dialogue might be established, for example, and develop an association with the G20’s Financial Stability Board). Others will benefit from participation of a broader Asia Pacific group, including the United States. Getting the connection between regional and global arrangements right will require careful attention to scheduling regional meetings and initiatives so that they can both make useful input into, and be reinforced by, the efforts in global cooperation. Success will turn heavily upon the logistical detail. There needs to be much careful thought given to this question. The legitimacy of the G20 will ultimately depend on how the interests and views of non-G20 members are brought to the G20 process. Structuring the timing of Asia’s regional meetings around the G20 to give the regional non-G20 members input and ownership of initiatives is an important start. The implication is that, while ASEAN provides a critical modus operandi for regional initiatives, the agenda and schedule for regional arrangements, if regional institutions are to remain relevant, need to be more flexible also and essentially to be driven from elsewhere.

The second issue is one that leaders throughout the region have been struggling with in different ways. Former Australian Prime Minister Kevin Rudd advanced the idea of an Asia Pacific Community to address this gap. Former Japanese Prime Minister Yukio Hatoyama’s idea of an East Asian Community sought to serve a similar purpose. At the core of both ideas was the development of a framework which might help to reduce the risk of a fracture in political confidence through political and security dialogue around the rise of China’s (and India’s) political influence alongside the established military and political power of the United States, a goal consistent with growing East Asian economic cooperation.

When the United States announced that it wanted to join the East Asia Summit, it was a move that ASEAN was strategically in no position to resist, even if it had wanted. From this year, the US and Russia are participating in the EAS meetings. For some, this development creates the framework which includes all the key players — the United States, China, India, Japan, Korea, Indonesia and the core ASEAN group, Australia, Russia — that are needed for effective political and security discussion. Of course, it also includes others who are not central to that. India is not a member of APEC, and the EAS and APEC include others that are not central to this objective.

Yet it is by no means clear that this development, in the longer or even the medium-term, will serve the political-security purpose of the Asia Pacific Community idea which Rudd had in mind. Reservations include the lack of depth of its economic agenda, the ASEAN anchor, and the breadth of membership. Should the EAS become primarily a dialogue for political affairs without the ballast of economic dialogues to which the United States can effectively relate, it would likely exacerbate rather than calm trans-Pacific tensions. There have already been signs of how this could happen.

There is hope within ASEAN that the economic agenda of the EAS might take off, with ASEAN firmly at its core, linking the ASEAN-plus trade arrangements gradually into an Asian Free Trade Area. But America now has its Trans-Pacific Trade Partnership and getting into bed with China in a free trade area any time soon is unlikely.

It would appear wise, especially from the perspective of the US or the Chinese presidents, not to put all the eggs into that one basket. A more practical strategy might be for the major players to use both the East Asian and the Asia Pacific Summit arrangements for side meetings on critical issues, fashioning over time a high-level council of the principal parties that links both structures. Specifically, it is likely to prove impractical over time for the US president to join every East Asia Summit and every APEC Summit. It would be very damaging to US and broader regional interests to ditch the economic and political asset that America has built so patiently in APEC while the prospect of building anything remotely similar in the EAS that organically involves the US is distant.

Back-to-back regional summits are a real and practical option. This might appear messy to the tidy-minded. But given the character of the region, neat and tidy arrangements are less likely to be useful than arrangements that draw the whole region together in different ways.

In East Asia, and especially in the trans-Pacific relationship, the APEC experience demonstrates that it is the economic dialogue upon which substantial cooperation has been built. In East Asia, the economics is the politics — and the positive part of the politics. Political dialogues not tightly nested in a framework of economic cooperation will quickly turn to focus on points of contention and friction. This is why APEC remains a core functioning forum that puts America in harness with Asia.

In the EAS the US will be, for some time yet, an economic visitor rather than an organic participant.

This worry recommends the need for a heads of government meeting that transcends, and incorporates, APEC and the EAS and could address the full range of regional and global issues, including issues that might arise in APEC, EAS, ASEAN+3 or other regional forums. Asian leaders who are involved in the G20 group, except India, are all currently members of the EAS and APEC. It is a group whose economic deliberations could also feed into the G20 and other global processes. And it is a group that should naturally draw in the broader regional membership of APEC and the EAS to its deliberations. The EAS group now forms the nucleus of a new political partnership with the US and Russia. US and Russian participation in EAS is another useful step in the evolution of Asian regional architecture but not the end-point.

Peter Drysdale is Emeritus Professor Economics at the Crawford School of Economics and Government and the editor of the East Asia Forum.

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

1. The ASEAN Charter and remodeling regional architecture
2. Where does Australia really want regional architecture to go?
3. EAS: calling for a new East Asian political architecture

There is still uncertainty surrounding China’s future economic, political and strategic intentions in the Asia Pacific.

Recognising a fundamental paradigm shift in the region, then-Australian Prime Minister Kevin Rudd announced on 4 June 2008 his intention ‘to begin the conversation about where we need to go’ to strengthen regional cooperation in the Asia Pacific via the idea of an Asia Pacific Community (APC).

Rudd argued that an APC should include a trinity of structural components: first, it must be ‘[a] regional institution which spans the entire Asia Pacific including the United States, Japan, China, Russia, India … [and] Indonesia’; second, the APC should be able to engage in and act upon a range of economic, political and security matters; and third, APC meetings must be held at the heads of government level.

But there are two distinct characterisations of an APC that warrant examination: a de facto and a substantive version. A de facto APC would be realised when the trinity of explicit, but not implicit, components of an APC is adopted or adapted into the region’s multilateral architecture — either adopted through a new institution or adapted into an existing one, such as an enlarged East Asia Summit (EAS). A de facto APC in this mould would remain a talk-shop in keeping with the ASEAN Way: regional cooperation guided by a preoccupation with process as opposed to outcomes, consensus-based decision making and non-interference in other member states’ affairs.

A substantive APC could be accomplished when, in addition to the trinity of explicit structural components, Rudd’s implied fourth limb of an APC materialised. That is, an institution that became the region’s premier one-stop-shop for fostering the habits of cooperation and not resorting to conflict. An APC Way of regional cooperation would not seek to undermine ASEAN’s role as the principal driver of Asia Pacific regionalism (as Rudd pointed out). Rather, an APC Way would catalyse the process of spurring ASEAN norms of unstructured, ritualistic meetings with a more muscular — or crisis-ready — modus operandi of regional cooperation. This would be manifested in more robust ex ante and ex post crisis mitigation and management practices than is evidenced by the status quo.

The announcement of the APC in 2008 was marred by failures of preparation and presentation. Only after a series of speeches throughout 2008 and 2009 did Rudd better articulate what the APC was and was not, as well as its rationales. From the outset, the APC concept was not restricted to being an institution per se. It simply represented these four components, which if adopted or adapted — at either the de facto or substantive level — would to varying degrees address design flaws present within the region’s current multilateral architecture. Rudd’s approach sought not to preclude any other existing regional institution from taking the lead in adopting the principles that characterise an APC.

In 2010 the EAS announced that the next summit, to be held in Indonesia in November this year, would expand to 18 members so as to include the United States and Russia. At a de facto level, it can be argued that an APC has taken shape. But whether an APC will be realised at a substantive level does not just depend upon fulfilment of the structural and membership requirements. It also depends on whether both the structure and the substantive spirit of an APC can be achieved. That is, an enlarged EAS must be recognised by its stakeholders as the region’s premier one-stop-shop multilateral institution.

For an APC to wield influence, credibility and ultimately utility, it would need China’s support. The nature of China’s future regional projection is difficult to forecast with any certainty — a dilemma compounded by a schism of views within China about its appropriate role in the region. This is exacerbated by China’s perceived double-bind dilemma, or shuangchong zhiyue 双重制约: China is damned if it does and damned if it doesn’t take an active regional role. When China is active in the region, influential Chinese figures argue that China-threat theorists attack an increasingly assertive China as undermining regional stability. But when China is passive, it is perceived to be shirking the responsibilities that its status as a major power now requires. China’s double-bind will intensify as its foreign policy increasingly moves from ‘biding one’s time and hiding one’s capacities’, taoguang yanghui 韬光养晦 to the latter half of Deng’s guiding foreign policy maxim, ‘to really become something’, or yousuo zuowei 有所作为. As China naturally seeks to preserve or enhance its growing interests abroad, China’s foreign policy behaviour will accordingly resemble that of a proactive regional player. Mitigating these anxieties and maximising the chances of China’s positive-sum integration within the region is now an urgent task.

Dialogue and policy cooperation can help reassure the region that China will not become a revisionist state while easing China’s double-bind more effectively than through the existing hodge-podge of regional institutions.

Despite premature speculation that Rudd’s APC was dead in the water, the region could instead be about to witness the green shoots of his APC. Only time and the will of the region’s great powers — especially China — will tell to what extent this de facto APC, through an enlarged EAS, will prove a pyrrhic victory or a meaningful success in activist Australian middle-power diplomacy. What is certain is that Rudd deserves to be congratulated for beginning the conversation about where we need to go.

Henry Makeham is a Founder of the Australia-China Youth Dialogue. He will be joining international law firm Davis Polk & Wardwell LLP in Hong Kong in 2012 as a trainee solicitor.

1. Squaring the Japanese and Australia proposals for an East Asian and Asia Pacific Community: is America in or out?
2. Rudd in Singapore on the Asia Pacific Community idea
3. Realizing the Asia Pacific Community: geographic, institutional and leadership challenges

Much was made (in tax treaty circles, at least) three years ago when the OECD included in its model tax treaty a provision requiring arbitration.

The controversial provision (Article 25(5) of the OECD Model Tax Convention on Income and on Capital (2003)) requires states to arbitrate tax disputes arising under the treaty if they remain unresolved after two years of negotiation between the competent authorities. While arbitration is a generally accepted facet of international commercial dispute resolution worldwide, dispute resolution under bilateral tax treaties is relatively undeveloped. But there are now signs of change.

Under the standard ‘mutual agreement procedure’ (MAP) found in most current tax treaties, taxpayer claims that they are being taxed not in accordance with the treaty require that the two competent authorities ‘endeavour’ to resolve the dispute through bilateral negotiation. The major weaknesses of the MAP are that it better serves the competent authorities than taxpayers, does not require resolution of the dispute, and is cumbersome and wasteful. Indeed, it was pressure from the international business community that was largely the impetus for the OECD’s work in this regard.

The growing acceptance of arbitration in tax treaties is at odds with a long-held and deeply-engrained resistance to ceding fiscal sovereignty, especially over tax policy matters. The OECD’s early view on mandatory arbitration in tax was that it ‘would represent an unacceptable surrender of fiscal sovereignty.’ Perhaps for this reason, the model tax treaty arbitration provision differs from other commercial arbitration in that there is greater control given to the competent authorities (at the expense of the affected taxpayer). The competent authorities appoint the arbitrators, determine the questions to be resolved, and have significant control over the arbitral procedure. In short, to the extent possible, even the arbitration provision itself addresses sensitive concerns regarding fiscal sovereignty.

The provision and its early adoption in tax treaties, particularly between states with close relationships (for example, Australia and New Zealand, US and Canada), can be explained by the widely-held view that the provision’s real effect will be upon the competent authorities’ negotiations pursuant to the MAP in which the arbitration is embedded. States are so averse to submitting to arbitration (especially in the rare case involving tax policy rather than transfer pricing) that they will earnestly endeavour to resolve international tax disputes through negotiation.

If the provision’s primary effect is to improve MAP outcomes without actual resort to arbitration (as appears likely to be the case), it could indeed facilitate the resolution of a specialised but important class of international tax disputes. (The overwhelming majority of cases submitted for resolution under MAPs involve transfer pricing disputes.) Perhaps more importantly, however, the mechanism might also suggest an alternative way forward in the seemingly stalled discussions about a ‘top-down’ Asia Pacific community. The emerging dispute resolution paradigm for tax treaty arbitrations points to an interesting hybrid model for the many sovereign states that make up this particular regional community.

Japan has begun to embrace international tax arbitration in its recent treaties. With little fanfare, in August 2010 Japan signed its first double tax treaty to include mandatory arbitration with the Netherlands. The Hong Kong–Japan tax treaty, signed in November 2010, also includes the provision. Japan has recently been negotiating amendments to its tax treaty with the United States, and it is believed that mandatory arbitration under the MAP is being discussed. Such actions can be interpreted as Japan signalling to its trading partners (and their tax-resident multinational enterprises) that it is committed to resolving international tax disputes, even at the cost of putting jealously-guarded tax sovereignty on the line. Willingness to cede fiscal sovereignty would seem necessary for the creation of a robust regional arrangement.

Australia also recognises the importance of a modern treaty network to its aspirations of becoming a regional hub for multinational companies, and does not want to discourage Asian economies from competing for its resources. To date, Australia’s only tax treaty to include an arbitration provision is the Australia–New Zealand treaty signed in 2009. It is too early to tell how Australia will approach tax treaty dispute resolution going forward with Asian and other trading partners. Australia’s ambivalence towards tying its own hands when resolving trade and especially investment disputes may suggest a broader, more sceptical attitude towards arbitration of international disputes where firms are concerned.

As the web of bilateral tax treaties between the states of the Asia Pacific inevitably grows, the inclusion of the ‘hammer’ of mandatory arbitration would refocus the emphasis on bilateral negotiation between the two competent taxing authorities in resolving international tax disputes pursuant to the MAP. The growing number of transfer pricing (and other) disputes arising under MAPs — evident also from the latest Annual Report of Japan’s National Tax Agency (2010, p40) — and the growing acceptance of the model arbitration provision in tax treaties mean there will be more occasions for disputes to arise. They will increasingly highlight the importance of sovereignty concerns underlying international tax arbitration.

Dispute resolution in this area can be an indicator and determinant of the cohesion of any meaningful Asia Pacific community. Such a community will be forced to take account of the glorious variety of (sometimes neurotic) attitudes toward sovereignty exhibited by the regional powers. Tax treaty arbitration provides one interesting avenue for doing so.

Micah Burch is Senior Lecturer at Sydney Law School. This article was originally published here and draws on the research project, ‘Fostering a Common Culture in Cross-Border Dispute Resolution: Australia, Japan and the Asia-Pacific’, funded by the Australia-Japan Foundation which is part of the Department of Foreign Affairs and Trade.

1. What future for investor-state arbitration provisions in Asia Pacific treaties?
2. Australia’s less lethargic law reform? International arbitration in the Asia-Pacific
3. How novel is the Asia Pacific community?

ASEAN’s function is often described as being limited to a ‘talk shop’ that merely provides venues where ministers and leaders from larger states join together to exchange views on regional security and economic issues.

So long as the so-called ‘ASEAN Way’ — which informally stipulates non-intervention, non-binding and consensus-based decision-making approaches to regional cooperation — is maintained, ASEAN’s major role will not go beyond hosting the ‘talk shop’. Yet the talk shop’s value could be enhanced if delegates discussed the hard issues, regardless of whether any binding obligations ensued.

The recent series of ASEAN foreign ministers’ meetings, including the ASEAN Regional Forum (ARF) held in Bali last month, proved that ASEAN’s talk shop function is still of some value. Three factors highlighted this.

First, the meetings were held in the midst of growing tensions between China and some ASEAN members, such as Vietnam and the Philippines, over maritime territorial disputes in the South China Sea. And although China is yet to show any intention of making a compromise — insisting on bilateral negotiations with other claimants as the only way to resolve the disputes rather than utilising multilateral meetings such as the ARF to broker a resolution — the ASEAN meetings this year have confronted the issue in a more serious manner.

Second, the US’s increased engagement in Southeast Asia, including President Obama’s scheduled participation in the East Asian Summit (EAS) later this year, has given renewed significance to the ASEAN ministerial meetings. The Obama administration’s commitment to the region, epitomised by the slogan ‘The US is back in Asia’, is in sharp contrast to the apathetic attitude of the Bush administration as evinced by former US Secretary of State Condoleezza Rice’s two absences from the ARF in just four years. Through the Obama Administration and its participation in the ASEAN meetings we are seeing the first serious US engagement in Southeast Asia since the end of the Vietnam War.

Finally, the ‘talk shop’ provides an opportunity for Southeast Asian states to display leadership. This year Indonesia has assumed the chairmanship of ASEAN, and has been under pressure to host meetings successfully after failure to find a solution to the border dispute between Thailand and Cambodia undermined confidence in its leadership. That leadership will continue to be tested as Indonesia is set to host more meetings, including the EAS.

Prior to the Bali meetings, ASEAN had never successfully acted as an effective shield to protect the interests of its members in territorial disputes. However, the US, playing a key role in placing the disputes on the recent ARF agenda, has confronted China over the territorial disputes in the South China Sea. Of significance was the US claim that both parties should provide ‘legal evidence’ to support their territorial claims. This legal-based approach to the territorial disputes, initially promoted by the Philippines, is something China has previously not paid serious attention to.

The US engagement in Southeast Asia and its planned participation in the EAS this year have also helped settle another debate over Asian regionalism: arguments over the most effective framework for regional cooperation.

The options available include ASEAN+3, the EAS, and the Asia Pacific Economic Cooperation (APEC). Finding an answer does require clarification as to what ‘cooperation’ implies; but US engagement in ASEAN regionalism has contributed to reducing competition and clarifying the division of labour. The US push for the development of a Free Trade Agreement in the Asia-Pacific (FTAAP), and initiatives for the negotiation of a Trans-Pacific Partnership as a first step towards the formation of FTAAP, has given APEC its status as the most advanced institution for market integration. The global financial crisis has resulted in increased calls for regional financial cooperation. In this area, ASEAN+3, which has developed the Chiang Mai Initiative (CMI) since 2000, is considered the most effective regional financial cooperation mechanism. With regard to regional security issues, the EAS — whose stature has been boosted as the US and Russia are set to join this year — has emerged as the most useful framework.

The value of this framework is underscored by the comments of Kevin Rudd, former Australian Prime Minister and currently Foreign Minister, who called for an Asia Pacific Community a few years ago. A major rationale behind his proposal was a belief that there was no Asian regional institution that had ‘the ability to deal comprehensively with all of the economic, political and security issues’. None of the existing institutions brought together all of what he called essential participants, which includes the US, China, Japan, India, Russia and Indonesia.

However, the EAS is now going a long way toward fulfilling this role, having emerged as a comprehensive regional institution with 18 participants, including all those essential nations. One of the key agenda items at the upcoming EAS in Jakarta will be the territorial disputes in the South China Sea, as President Obama declared during his visit to Indonesia last year.

The US engagement remains a key factor for maintaining and enhancing ASEAN’s talk shop function. But, to continue enhancing ASEAN’s function, the traditional anxiety that ASEAN’s institutional significance would be diminished if a larger arrangement such as the EAS or APEC developed should be abandoned. The first EAS with 18 leaders to be held in November in Jakarta will act as a litmus test of ASEAN’s determination to challenge this mindset.

Takashi Terada is Professor of International Relations at the Organization for Asian Studies, Waseda University.

1. ASEAN and American engagement in East Asia
2. How the US plays into the East Asia Summit for ASEAN
3. The ASEAN Charter and remodeling regional architecture

There is a palpable nervousness in the security communities in countries around the region about China’s rise and what it means strategically.

To those who have lived through the early phases of the Cold War, the mood is frankly a mite scary, and without substantial rational base. It is a nervousness based not so much on ignorance of China’s strategic potential in the long term, although there is undoubtedly some of that too, but on ignorance of the interaction between economic, social and political development and, simply, just what is going on in China. This is not, of course, entirely the fault of outside observers, but there is no doubt that they are hugely under-invested in readily available and accessible knowledge of what is actually going on in China, and without excuse.

One of the more hairy ideas that have been put on the table in recent years is that the United States should enhance its defence capacities already in Australia, by deploying forward marine and other forces there.

This week’s lead essay by Ron Huisken provides a critique of the latest salvo that urges this course.

The suggestion is that the US should opt for a string of bases and facilities in the East Asian littoral beyond the range of current and prospective future Chinese conventional military capabilities. This is what makes Australia strategically attractive. Moreover, bases and facilities in Australia would have a sense of permanence or strategic depth that is lacking with alternative, or rather supplementary, locations like Guam and Diego Garcia. The argument acknowledges that Australia’s attractiveness is qualified by its distance from the regions of primary strategic interest. Surges in US military interest in Australia in the past have foundered on the question of costs and the poor response time given the distances to places of probable interest. The contention, however, is that the China factor has changed the balance of costs and benefits.

As Huisken suggests, what’s wrong with this idea is really beyond the scope of conventional military analysis. Specifically, this choice would risk ‘conveying what at this time would be precisely the wrong political signals. If Washington conveys the impression that it is circling the wagons and building a fall-back perimeter beyond the reach of projected Chinese military power it will set off reassessments by allies and friends within the perimeter that will prove very difficult to contain. The H W Bush and Clinton administrations discovered this when the US simultaneously left its bases in the Philippines in 1992 and announced major reductions in its forward-deployed forces as a post-Cold War peace dividend’.

The idea of US force bases in Australia is absolutely unnecessary at the present time. China’s power and influence appears to be surging relentlessly and that is no illusion. But there are many constraints upon how it may morph into and be deployed as military power any time soon.

As Huisken says, ‘the US, China and the other regional states have scarcely begun to test the opportunities to adjust the rules of the game in East Asia to suit the interests of all’. The US has a fistful of friends in the broader Asian region that want it to remain comprehensively engaged. China does not have such partners. There are conflicting signs of whether it wants ‘to nurture international relationships characterised by genuine and broad rapport’.

‘The key point’, Huisken argues, ‘is that we still have the opportunity to try to establish the peace and stability of East Asia securely on a new and broader power structure. An enhanced US presence is essentially more of the same and at this point is likely to exacerbate not ameliorate security costs and concerns. Instead, conveying a sense of something qualitatively new — like a watershed in US thinking about its posture toward Asia — could be sensible’.

China may be learning that it cannot separate its international persona from the shadow of its arrangements for internal governance. And it should be encouraged in that direction, not locked out of the process.

It is in Australia’s deep national strategic interests to take this opportunity to forge a new strategic environment, together with China, the US and or regional partners, in East Asia. That was the substance behind former Prime Minister Rudd’s Asia Pacific Community idea. The US and Russia joining the East Asia Summit process is one small step towards its fruition. It could still go seriously awry. But it is worth every effort building on this initiative as one element in setting a new strategic course in East Asia.

Peter Drysdale

1. US military bases in Australia: Don’t circle the wagons yet
2. Australia has a valuable role in the “great balancing act”
3. Gillard-Obama meeting gets into alliance management

The horror and devastation of the earthquake, tsunami and nuclear disaster in Japan continue to stun people all over the world — nowhere more so than in Japan itself, of course, where continuing anxiety is mixed with the numbness that such tragedies suffuse over the human psychology.

This is an awful period for the nation, picking itself up after being partially flattened. It is a period of helpless acceptance of loss. It is a period of struggling to find reasons where there are none. It is also a time of searching for scapegoats, as the hapless officials and workers at Tokyo Electric Power Company (TEPCO) battle like latter-day samurai warriors to get control of a disaster that their predecessors (and the geo-scientific advice on which they and insurers drew about the probability of these events in this region) failed hopelessly to predict.

Recovery and the massive clean-up will itself take a year or two, not to mention managing the fallout from the Fukushima nuclear power crisis. This is an immense national task for Japan. The supposedly selfish younger generation has demonstrated particular selflessness, pitching in to help the afflicted and volunteer in the heartbreaking effort to clean up the mess. Happily the recovery is being assisted by the international community on a scale unprecedented in Japanese history, with teams coming from the United States, Europe, China, Australia and other countries. And ordinary communities in Australia and all over the world have volunteered funding and held poignant services to commemorate their universal human loss.

Reconstruction requires focus on the future, a future that is difficult even to begin to ponder at this stage. There is natural paralysis in thinking beyond the present calamity. The immediate effect of the triple disaster is to put thinking about Japan’s reform and international agenda on the back burner. When farmers in the heartland of one of Japan’s main granaries are on their knees, how is it possible to contemplate prosecuting agricultural reform through commitment to comprehensive trade liberalisation within the proposed Trans-Pacific Partnership? It was a long shot anyway, but now it seems even more remote.

Yet focus on the future is exactly what is needed now, both inside Japan and out. It is the therapeutic and practical thing that needs to be done.

How should Japanese leaders and the Japanese people — and how should we — begin to think about Japan’s future now?

Japan must deal with a disaster, the longer-term consequences of which have to be managed from now. And in the overall scheme of things it is problem that can be managed, though it may be managed more or less well.

One issue is how to pay for rebuilding the assets destroyed by the earthquake, the tsunami and the nuclear accident. The estimates of these costs have been steadily growing — the highest estimate I’ve seen put them at US$600 billion; the official estimate is US$309 billion, around 6 per cent of GDP, including guesses at dealing with radiation damage; and more cautious figures put the costs at under US$200 billion including costing the loss of human capital embodied in around 30,000 souls who have lost their lives.

Even the upper estimate of capital loss represents perhaps only 1 to 2 per cent of Japan’s physical capital assets. At the end of World War II, a disaster with which the current one has been compared, Japan was left with merely one third of its (much lower) physical capital assets, not to mention the millions who’d lost their lives.

This week Nobu Yamashita and Sisira Jayasuriya review the debate that gathered pace in Tokyo last week on how to pay for recovery. They identify four options for financing reconstruction: diverting spending from current programs; introducing new taxes to raise revenues; borrowing from the public; and ‘monetizing the debt’ by direct purchase of government bonds by the Bank of Japan.  They conclude that ‘Japanese bond yields have in fact continued to fall even after the disastrous events of March 2011 and that there are no signs of any inflationary pressures. In the current circumstances, after two decades of battling deflation and a stagnant economy, more reliance on monetizing the debt is likely to maximise the stimulus effects of reconstruction while alleviating the pressures on currency appreciation. Some inflation may be a welcome thing in Japan and economic growth will itself tend to lower government debt’.

Another issue is how to think about the strategic international dimensions of securing Japan’s future. No country, perhaps, has greater interest in this, or more obligation to work the issue through jointly with Japan than Australia, with its critical role in underpinning the international dimension of Japan’s food, resource and energy security. Australia supplies over half of all Japan’s strategic raw material needs and, even though it’s not a supplier of oil, a quarter of Japan’s energy requirements — more than Saudi Arabia or any other oil producing state.

Good fortune, which has been in short supply in recent times, has Australian Prime Minister, Julia Gillard, visiting Tokyo in just a few weeks. As Jenny Corbett notes this week, she will be the second foreign leader of a major state (after President Sarkozy of France) to visit Japan since 11 March. This will be a time for expressing the solidarity of the Australian people and the international community with Japan. It will be a time for reviewing progress with recovery. Australia was among the first with commitments to the recovery effort on the ground. Ms Gillard will need to visit Sendai, however tight her schedule. But more than all of that her visit to Japan will be a time for her to set out a long-term vision of the comprehensive security partnership that Australia and our region will want to strengthen further with Japan beyond the immediate crisis.

The disaster in Tohoku has knocked out a sizeable slice of Japan’s food supply chain for some time, if not forever. This is a time for quietly explaining the huge advantage of reliable international (institutionally guaranteed) food security. That needs to be — and can be — articulated with effect. It is a time to explain quietly that the idea of a high food self-sufficiency ratio for Japan is not necessary or productive. A new Economic Agreement between Australia and Japan will contribute to providing the institutional guarantees. International markets cushion Japan against the shortages and escalating prices of food and other essential materials that otherwise would put added burdens upon the Japanese people. Nothing will be quite the same in the Sendai region, or in Japan, again.  Infrastructure won’t be rebuilt in the same way without private funding as Corbett says. Australia is already working with Japan on new models of infrastructure financing, for their own countries and across the region. The pace of that work together must now accelerate.

Ms Gillard’s visit will be a time to lay out, with feeling and sensitivity to the lonely position in which Japan now confronts its vulnerabilities, a forward-looking vision of the reliability of Japan’s partnership with Australia and with the Asia Pacific region — a vision that draws on the assets in the bilateral relationship and regional associations that have been put in place together over years.

1. Gillard to Japan: Friends in deed
2. The Trilateral Summit: a new era in China-Japan relations?
3. Japan now needs a credible fiscal plan

Australia continues to enjoy markedly better economic performance than most other wealthy countries. But problems are accumulating.

The 2010 federal election yielded a hamstrung, minority government. Neither of the major parties shows any real appetite for large-scale policy reform. One of the few areas of policy progress is on the international front, particularly Australia’s regional engagement.

Viewed from outside, Australia must appear to be enjoying ongoing prosperity and good fortune. And indeed it is, with a long boom that began under former Liberal Prime Minister John Howard, and has continued under Labor leaders Kevin Rudd and Julia Gillard – interrupted by only a brief dip in growth for the global financial crisis. It is a trajectory unmatched over the past decade among OECD countries. It reflects the fruits of policy reform back in the 1980s, sound economic management and conducive international conditions – especially in Asia.

Viewed from within, the scene is much less comforting. With a handful of exceptions, there is little real progress in addressing serious policy challenges facing the country. Major economic reform has stalled. Large-scale water management reform and preparation for possible climate change have been derailed. Comprehensive tax reform has been mooted and abandoned, and coordination between the federal and state governments on healthcare reform is a fading dream.

Part of the explanation for the policy malaise is the divided condition of the Australian Parliament. The federal election this August (following Kevin Rudd’s being dumped as party leader a month earlier) left Labor in power, but dependent on a handful of party independents and a member of the Greens for its survival, to say nothing of the passage of legislation through the upper house. While Gillard appears to have succeeded in crafting a political alliance that will likely see Labor hold power for a full term, the capacity for legislative action has been acutely constrained.

This is a far cry from the situation in Britain, where an unlikely coalition arising from a similarly divided election outcome has yielded extraordinarily decisive government. Inevitably, this invites questions about the calibre and competence of the current Australian government. But a growing number of seasoned commentators are digging deeper to make sense of the lack of commitment to ambitious policy reform. Some link it to an apparent decline of ‘values politics’ – of elected representatives driven by a commitment to advance a given agenda. Attention has focused on a narrowing of the parliamentary gene pool, with MPs and Senators coming not from across the spectrum of society, but increasingly from within their party apparatus or the union movement.

I would add one other underlying factor: a complacency that has crept into Australian society as a result of prolonged prosperity. Australian is no longer seized by the imperative of reform to secure international competitiveness as it was in the face of much more stringent conditions in the 1980s and early 1990s. While it may be comforting to blame a particular crop of politicians, in the end our parliamentary representatives are reflecting the level of commitment to reform that exists across society. As often happens, complacency is the fruit of prolonged good times.

Of course, not everything is adrift. There is significant action on some policy fronts. The most notable domestic example is the planned National Broadband Network. While there is intense controversy about aspects of the design of this massive undertaking, it is proceeding and signals a return of a national appetite for large public infrastructure initiatives of the sort not seen since the 1950s.

Although not well appreciated within Australia, there has also been progress on the international front – particularly with enhanced regional engagement. Kevin Rudd’s Asia-Pacific Community initiative has come to life – in the form of the expanded East Asian Summit – with the emergence of US support for it and ASEAN countries taking ownership of it. Progress with multilateral initiatives of this sort is inherently difficult, but it has come to pass. It remains now to be seen what supporters of the framework – such as Australia – can do to enhance the region through it.

Australia has also forged remarkably effective bilateral links with a surprising but effective trio of collaborators: Indonesia, Korea and Vietnam. Despite very sharp bilateral political disagreement between Australia and Japan over whaling, there has been progress made on strengthening defence collaboration between Australia and Japan.

Perhaps the most intriguing recent regional initiative from Australia relates to Prime Minister Gillard’s pursuit of a ‘regional solution’ to the steady flow of asylum seekers – legitimate and otherwise. Gillard has been widely ridiculed for her proposal for a regional processing centre in East Timor. There is no question that the idea has been presented in an artless, clumsy manner. The Government will, legitimately, continue to attract barbs for this. But that does not mean the underlying instinct – that a regional, rather than national solution must be found – is wrong-headed. The key to this, for Australia, is Indonesia and ASEAN more broadly. No country can handle this problem on its own. Australia’s geographic circumstances demand that it do so in concert with the countries to its north. As a recent and productive Australia-New Zealand-ASEAN Dialogue revealed, there is potential for a real strengthening of collaboration on this front.

While the good times continue to roll, unfortunately, Australia is likely to continue to experience domestic division and drift on many policy fronts. If so, let’s hope there is improvement on the regional front.

Andrew MacIntyre is Dean of the College of Asia and the Pacific at the Australian National University.

This is part of a special feature: 2010 in review and the year ahead.

1. Australia gets a Labor government and a more certain foreign policy
2. Kevin Rudd, Australian foreign policy and Asia
3. Seeing Indonesia as a normal country

Australia’s recent proposal for an Asia-Pacific Community (APC) is fostering some positive debate. By generating some ‘big picture’ thinking about Asia’s future, it also helps to reaffirm the importance of international institutions in solving security dilemmas.

The proposal also stresses to ASEAN elites that their current centrality to the process of ‘architecture-building’ is not beyond challenge. In many ways, the APC concept embodies regional cooperation with a new urgency.

Yet the APC is not a wholly novel idea: the proposed APC and existing ASEAN institutions share a similar framework, are directed toward the same professed goal and share the same elite participants. It is because of these similarities that the APC cannot be a panacea for entrenched regional problems.

A similar framework – the same problems

There are two options for dialogue and action in a regional context. The first is a direct approach, where economic cooperation is pursued in tandem with explicit efforts to resolve security disputes. The second is an indirect approach, which prioritizes economic cooperation and assumes that economic interdependence will create security interdependence and hence prevent conflict. The APC proposal is an example of this direct approach. ASEAN, and other regional institutions like APEC and the APT, are examples of the indirect method.

The indirect and direct methods are, however, two sides of the same damaged coin. Neither approach can completely solve long-standing disputes in the Asia Pacific.

Dealing first with the indirect approach, ASEAN’s economic cooperation has indeed produced cooperation on security issues such as transnational crime and terrorism. Yet it has failed to address some of the more fundamental roadblocks to East Asian regionalism; territorial disputes in particular remain latent sources of instability.

Similarly, the direct approach will not help in the face of outstanding territorial disputes. In 2008, Australian Prime Minister Kevin Rudd made the case for the APC and included India as a potential member. According to Prime Minister Rudd, Kashmir, like Taiwan and the Korean peninsula, is a ‘flashpoint’ that could be solved by the formation of a comprehensive institution prepared to directly tackle regional tensions. However, despite pressure from the UN, the world’s pre-eminent multilateral institution, India remains attached to the resolution of Kashmir on a bilateral level. Similarly, China will continue to resist any direct multilateral attempts to intervene in disputes involving the Taiwan Straits and the South China Sea.

The same end goal – the same associated problems

ASEAN and the APC share an ultimate end goal: to produce a pan-Asian identity to prevent inter-state conflict. Some commentators argue that a sociological ‘community of states’ is a better way to achieve this goal than ASEAN’s ‘soft’ interstate cooperation. This proposition is not tenable.

A security ‘community’ essentially involves a cognitive transition among state elites that produces a ‘we feeling’ and makes war unthinkable. Yet the formation of ASEAN has already produced this ‘we feeling’ among elites, and is unable to prevent increased military spending in the region. Re-badging a tattered idea cannot hide conceptual cracks in the framework. Despite the use of the term ‘community,’ the APC will have to grapple with the same tensions that ASEAN and associated institutions have been tackling for decades.

Identical elites – identical problems

Like ASEAN (and related institutions), the APC will necessarily involve state elites who are, to varying degrees, conditioned by realpolitik. Realpolitik sees states as engaged in a zero-sum competition for power. According to this world-view, states must focus upon their narrow self-interest, which is defined in competition to other states. Realpolitik has presented a problem for ASEAN, notably it has precluded the imposition of ASEAN-wide sanctions on Myanmar as states such as China have attempted to preserve their own security interests. It will also present a problem for the APC.

Indeed, Australia’s attempts to promote the establishment of the APC are already illustrating the problems with realpolitik. Extensive diplomatic parleys are met with remarks of a ‘lack of appetite’ for new institutions and calls to strengthen existing institutions. Even the European Union, the best example of an international community of nation-states, was driven primarily by realpolitik calculations. The Second World War, unity forged by anti-communism, the Franco-German rapprochement and the creation of NATO enabled a certain resolution of realpolitik concerns, allowing for an effective regional community.

Proponents of the APC claim it is essentially a new idea that improves upon existing bodies. The three concerns raised here belie this claim to novelty. Even if the APC provides a source of rich deliberation over the future of Asia, its narrative of innovation is beset with limitations.

Deepak Nair is a research associate at the Institute of Southeast Asian Studies, Singapore.

1. Realizing the Asia Pacific Community: geographic, institutional and leadership challenges
2. Kevin Rudd’s multi-layered Asia Pacific Community initiative
3. The Asia Pacific Community: objectives, not institutions

Speaking at the Asialink/Asia Society National Forum last week, Australian Prime Minister Kevin Rudd welcomed ASEAN’s desire to encourage deeper United States and Russian engagement in the evolving regional architecture. Mr. Rudd also noted the suggestion that these states meet with the current members of the East Asia Summit (ASEAN, China, Japan, South Korea, India, Australia and New Zealand). ‘This is what we are seeking’, he said, ‘engagement in a cooperative institution of all of the key players in the region.’

Does this suggest that Australia will now be giving less attention to advocating their Asia-Pacific vision for the region, and will work more closely with East Asian or Asian regionalism?  The distinction matters.

‘Regional architecture’ is often discussed in the language not of the architect but of the engineer: a language of interlocking mechanisms, instruments, functional needs, design faults and structural untidiness (to cite some terms used in recent writings). The real architect prefers a more holistic, grounded vision – integrating structures within their environmental and sociological contexts. Designing institutions to address practical, transnational problems makes sense. In counter-terrorism, organised crime, trade facilitation, health security and many other areas, there are increasing numbers of issues that require inter-state cooperation – something that is often achieved more easily on a regional rather than a global scale.

The Australian Prime Minister expressed a functionalist view of regionalism when he proposed an Asia Pacific Community in 2008. He suggested it was necessary to establish a community with a ‘regional institution that spans the entire Asia-Pacific region’ and ‘is able to engage in the full spectrum of dialogue, cooperation and action’ on economic, political and security issues. But in a less frequently quoted sentence – one more sociological or architectural in its concerns – he also stressed the need to develop a ‘genuine and comprehensive sense of community’.

Bringing about a real regional community, as many at the Asialink Forum argued, is a demanding task: it means serious engagement in the region’s art world, developing regional research collaboration, bringing about large-scale student exchange schemes, and building health and disaster-relief networks. It also means fostering a sense of ‘We-ness’.  In Australia’s case all of these objectives would require a huge advance in our national community’s Asia literacy.

How the terms ‘region’ and ‘regional community’ are understood in Asian countries is something requiring close attention. In some cases, thinking about community seems to involve notions (often vague) of family sentiment, or at least the suggestion of some common historical experience, and of that feeling of ‘We-ness’. It seems significant that recently departed Japanese Prime Minister Hatoyama invoked the Asian/Western opposition when advocating his East Asian Community. In what sense is his community to be Asian? Defining the region is one obvious area in which sociological and cultural substance matters. An important question for Australians concerns how the idea of an Asia-Pacific region is understood in different parts of Asia: what it means for them to belong to such a community?  Does the term ‘Asia-Pacific’ possess any potential emotive resonance in Asian societies?

Australia has been promoting Asia Pacific architecture for decades – going back to the Asia-Pacific Economic Cooperation, which commenced in 1989, the Pacific Economic Cooperation Conference (1980), the Organisation for Pacific Trade and Development (advocated through the 1970s), and the Asian and Pacific Council (founded in 1966). Insisting on an Asia-Pacific scope makes sense for Australia; it signifies a regionalism in which the United States and other non-Asian Pacific states, including Australia, can be influential insiders. Australia and the Australia-United States alliance fit comfortably here. Advancing Asia Pacific architecture, however, has often been a tough task. It must compete with the more narrow East Asian (or sometimes Asian) form of regionalism present, for instance, in the formation of the Association of Southeast Asian Nations in 1967, in Malaysian Prime Minister Mahathir’s advocacy of an East Asian Economic Caucus in the early 1990s and the establishment of ASEAN + 3 (plus China, Japan and the Republic of Korea) in 1997. The last decade or so has been especially difficult for APEC – with its loss of prestige during the Asian financial crises of 1997-1998, and the damage done to the United States in the Global Financial Crisis and Iraq. Chinese success, by contrast, has helped to drive the East Asia project.

What are the prospects for Australia in this alternative regional venture? It is a venture that has at times demonstrated a capacity for openness. It happens that Australia was involved in the Asian Relations Conference back in 1947, and in 1974, Australia became ASEAN’s first Dialogue Partner. Foreign Minister Evans was praised for being sensitive to Asian viewpoints in the early 1990s, in his efforts to promote a broad security organisation, which became the ASEAN Regional Forum. Australia’s last Coalition government responded with warmth to the creation of ASEAN + 3, recognising its Asian ownership.  That grouping then demonstrated the East Asian potential for inclusiveness by initiating the East Asia Summit in 2005, and inviting Australia (along with India and New Zealand) to join.

The issue to consider now – if we are true institutional architects and not mere engineers – is whether regional objectives will be advanced best by the continued advocacy of Asia-Pacific projects, or by an attempt to align Australia more closely with East Asia regionalism. Each course is challenging and they both require us to understand that regionalism is only partly about achieving structural tidiness in economic and security cooperation.

Anthony Milner is Basham Professor of Asian History at ANU and Professorial Fellow at the University of Melbourne.

1. Realizing the Asia Pacific Community: geographic, institutional and leadership challenges
2. Kevin Rudd’s architecture for the Asia Pacific
3. Lee Kuan Yew on Asia Pacific arrangements