U.S. President Barack Obama is open to visiting to Cuba in 2016 but first wants to see ordinary citizens there enjoy more personal freedoms, he said in an interview released on Monday. (Reuters Photo/Jonathan Ernst)

In the Great Game for Southeast Asia, Which Trade Acronym Will Take the Prize?

BY :BASTIAAN SCHERPEN

NOVEMBER 29, 2015

Jakarta. Building up disaster resilience in Indonesia should go hand in hand with economic development, and Japan is perfectly placed to help out with both, members of a high-level delegation visiting from the land of the rising sun tried to hammer home in Jakarta this week, just a month before the Association of Southeast Asian Nations (Asean) moves toward economic integration.

Japanese competition with China for influence in Southeast Asia is heating up. And apart from boosting bilateral ties, a key part of this battle revolves around which countries will join the US-dominated Trans-Pacific Partnership (TPP) and who will choose the China-backed Regional Comprehensive Economic Partnership (RCEP).

Under pressure from the pivotal Asia-Pacific powers, and facing the prospect of trade agreements that will certainly eclipse the coming Asean Economic Community (AEC), policy makers across the region now have to decide which camp to join, and whether or not it still makes sense to bet on Southeast Asia’s own project.

‘We’ll never forget’

A Japanese delegation of over 1,000 was in Indonesia this past week, led by Toshihiro Nikai, the chairman of Prime Minister Shinzo Abe’s Liberal Democratic Party's General Council, and Economy, Trade and Industry Minister Motoo Hayashi.

Nikai is one of Japan’s most powerful politicians and on Monday was awarded the Bintang Jasa Utama medal by President Joko Widodo, at the State Palace.

At a symposium on Indonesia’s disaster resilience, held in Jakarta on Tuesday, the LDP executive stressed how much Japan appreciated Indonesia’s help after the devastating March 11, 2011, earthquake and tsunami.

Indonesia sent a team of 15 rescue personnel.

“We will never be able to forget that,” said Nikai, speaking through a translator, adding that boosting disaster resilience should always take place within the framework of international cooperation.

Hayashi, the economy minister, said that “economic development and national resilience are two sides of the same coin.”

Southeast Asian integration

The high-level Japanese visit came as Asean prepares to take its next step toward regional integration, with the AEC set to come into effect at the end of the year.

In the meantime, the United States and its long-time strategic partner Japan are promoting the TPP, which is broadly regarded as a mechanism aimed at diminishing China’s influence in the Asia-Pacific region. China is not included in the TPP and has instead been pushing the RCEP, which includes the ten Asean member states as well as China, Japan, South Korea, India, Australia and New Zealand.

Insiders say the AEC cannot be compared with steps Europe has taken, as the Asean project is more of a blueprint than a legal framework, but a senior Indonesian official says it is “a reality now.”

Speaking in Jakarta on Thursday, at a forum discussion on economic integration in East Asia, Deputy Minister of International Economic Cooperation Rizal Affandi Lukman said that even though the AEC is “not an overnight process,” Indonesia is fully committed.

Rizal said the government is working hard to lower business and logistics cost by building infrastructure and improving connections between the various regions in the vast archipelago, besides streamlining bureaucratic procedures.

However, international law professor Simon Tay, chairman of the Singapore Institute of International Affairs, remains skeptical about the political will in countries like Indonesia and India to embrace inevitable change in the regional economic architecture.

“Free trade reform and FDI link together,” Tay said, arguing that Joko’s administration and that of Prime Minister Narendra Modi need to be serious about liberalization if they want to attract more foreign investment.

Tay also warned that “negative competition” between China and Japan has already led to money being spent on the wrong projects in Southeast Asia.

Ultimately, the professor said, the countries in the region need to embrace economic change, “whatever acronym we use.”

Who’s taking the lead?

Vo Tri Tranh, vice president of the Vietnamese government’s Central Institute for Economic Management, says there is a major problem with regional integration in Southeast Asia: “Asean has set very ambitious objectives, but we have very little money.”

Observers have long argued that the underfunded and understaffed Asean Secretariat in Jakarta will not be able to drive regional integration on its own.

“Everyone recognizes Asean centrality,” Vo said, “but the question is: what do we mean with this centrality?”

Vietnam, Singapore, Malaysia and Brunei have already signed up for the TPP, and Thailand also expressed interest this week. And, although some say it will likely turn out to be a pipe dream, Joko told his US counterpart Barack Obama in late October that Indonesia would join, too.

Regardless of the more comprehensive trade agreements currently under consideration, Asean — and thus the AEC — stands or falls by Indonesia’s support. The country represents 40 percent of the region’s population and also 40 percent of its GDP. Without Jakarta’s leadership, experts say, there is no Asean.

Indonesians themselves, however, remain skeptical about opening up to foreign influences and many in the archipelago nation of over 250 million see economic integration more as a threat than as an opportunity, fearing that the country will merely become a giant market waiting for exploitation. That popular belief will remain a major obstacle if the AEC is ever to become more than a blueprint for integration.

One Belt, One Road

Geopolitical considerations form another challenge looming large in any discussion on Asia-Pacific economic integration.

Beijing claims almost the entire South China Sea, putting it at odds with Asean members such as the Philippines and Vietnam.

These waters, as well as the remainder of archipelagic Southeast Asia, play a key role in President Xi Jinping’s vision of a Maritime Silk Road, which along with the land-based Silk Road Economic Belt, is meant to project Chinese power well beyond the country’s shores and borders.

The Asian Infrastructure Investment Bank (AIIB), Beijing’s answer to the Japan-dominated Asian Development Bank (ADB) and the Washington-based World Bank, is one of the initiatives to support this vision.

However, a recent trip through waters claimed by Beijing by a US Navy destroyer was a strong signal that the Americans are not willing to give China free rein just yet.

Zhenyu Wang, the director of the China National Committee for Pacific Economic Cooperation, remains optimistic and says it is clear that the RCEP trade deal “represents the future.”

Wang says he is not worried about cooperation in the region, arguing that even though it is “natural” that “big powers have big interests,” at least there is now constructive dialogue.

Pointing to the presence of China’s Prime Minister Li Keqiang alongside other Asia-Pacific leaders at the East Asia Summit in Kuala Lumpur this month, Wang stressed: “Competition is manageable.”

Much to lose

Like China and the US, Japan has also opted for a more prominent presence in the region, with Prime Minister Abe working hard to boost defense ties with various Southeast Asian nations.

The Japanese are also investing heavily in infrastructure development in mainland Southeast Asia and the ADB has announced it wants to scale up its funding initiatives drastically, ahead of the AIIB’s expected start of operations next year.

In Indonesia, Japanese companies, unlike their Chinese counterparts, have long had a prominent presence, especially in the energy and transportation sectors. But that could change.

Indonesia has been happy to work together with just about anybody in recent years, which may indicate that the “million friends, zero enemies” foreign policy paradigm initiated during the presidency of Susilo Bambang Yudhoyono in many ways still holds sway.

On the security front, Indonesia works together with both Russia and the US, while it is also a key investment destination for a wide array of countries. The top investors in Indonesia are Singapore and Japan, followed by South Korea, the United Kingdom, the US, Malaysia and the Netherlands, but China is on the rise.

Trade agreements can be complementary but investment in Indonesia is, to a certain extent, a zero-sum game, as Japanese officials found out much to their displeasure earlier this year when China won a hard-fought tender for a new rail connection between Jakarta and Bandung, the capital of West Java province.

Japan is not giving up, however, and because of its long presence has a strong vantage point in Indonesia.

National Development Planning (Bappenas) Minister Sofyan Djalil told the mostly Japanese delegates at the disaster resilience symposium this week — to a loud round of applause — that Indonesia has an excellent relationship with Japan and that he was sure it would continue to improve.

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