What's happening in Intra Asia





In the eye of eagle, has the dragon changed from a force for good into something else entirely?

When US Vice President Mike Pence talked about US relations with the "Indo-Pacific" in Port Moresby, he suggested a growing American presence in the region to counter Chinese diplomatic and naval activism and a wider scope of operations than has been specified before.

One sensed that there was a time when the United States recognised Chinese communism as an evil, but one that seemed to be finding its way to the uplands of peace and prosperity as it distanced itself from total state control as it moved ever closer to rule of law.

But that no longer appears to be the case. It now appears that China is returning to its earlier Marxist Maoist roots of stricter population control to produce a well-upholstered Orwellianism world where Big Brother is always watching, noting whether citizens are naughty or nice.

Mr Pence was at once conciliatory and yet decidedly less so in his speech to the Asia-Pacific Economic Cooperation meeting. There was the use of the term "Indo-Pacific" rather than the more conventional "Asia Pacific". If that wasn't enough, after describing his country as an Indo-Pacific nation, he saw America extending its influence to the farthest reaches of the Indian Ocean. That's Africa.

He also sought to be reassuring. "There a concern that the competition will hurt the region economically or that South China Sea developments will increase military tension," he said.

"So let me be clear: The United States seeks a better relationship with China, based on fairness, reciprocity, and respect for sovereignty," he said, perhaps referring to China's seizure of the Spratly Islands, some falling into the exclusive economic zones of Vietnam, the Philippines, Malaysia and Brunei, retained despite a judgment against the seizure from the Permanent Court of Arbitration in the Hague.

Said Mr Pence: "The difficulties that the United States and other nations face with Beijing have been well documented by our administration. China knows where we stand. But as President [Donald] Trump has said, we want to strengthen the relationship between our two countries and improve the lives of our citizens.

"But let me be clear again: China has an honoured place in our vision of a free and open Indo-Pacific if it chooses to respect its neighbours?sovereignty; embrace free, fair, and reciprocal trade; uphold human rights and freedom. The American people want nothing more; the Chinese people and the entire Indo-Pacific deserve nothing less," Mr Pence said.

While that sounds welcoming and conciliatory, it also contains the seeds of an ultimatum, because it is clear that China will not be bound to "respect its neighbours?sovereignty; embrace free, fair, and reciprocal trade; uphold human rights and freedom" as Mr Pence demands.

The opening salvos have long been fired in an exchange of tariffs called the trade war. This ill wind was expected to bring some benefits to countries of south and southeast Asia as multinationals with factories in China moved out and set up elsewhere in a combination of nearshoring and reshoring in whatever way best fitted marketing their product lines.

But great expectations have not panned out. First there was a long period - not completely over - when every hope was pinned on the trade war coming to an end with an amicable settlement. There was also a long period between the time the tariffs were threatened, but didn't bite.

Multinationals were slow to change manufacturing bases before tariff implementation particularly if there was a chance that the United States and China would kiss and make up. Given that, the strategy shared by most was to ramp up production as American consumer spending was high and unemployment was at historic lows.

This brought about a false buoyancy to transpacific China trade on both sides of the ocean. But Chinese factories and US Asian import ports never had it so good. So while some firms exited, Korea's Samsung among them. More than 50 multinationals have announced plans to move manufacturing out of China, or are considering to do so, according to reporting from the Nikkei Asian Review. Google, Nintendo and Dell, among others, are trying to avoid the import penalties on US$250 billion in Chinese goods. But note the word "considering". Comparitively few have taken the plunge.

So why hasn't the ASEAN Economic Community benefited from the US-China Trade War bonanza, asks seemingly bewildered Shah Suraj Bharat, a fellow at ASEAN Studies Centre, Gadjah Mada University, East Java, Indonesia.

"The trade war has generated discussion in Southeast Asia about which countries will benefit from multinational companies moving production out of China, yet there has been a strange silence on the opportunities for the ASEAN Economic Community (AEC)," he said.

Forgetting that moving work out China, where it has been done competently for years to an unknown site where people are bound to be inexperienced, is not for BCOs the cheerful prospect that it is for Mr Bharat.

While admitting "nobody wins from trade wars," Mr Bharat expects Southeast Asia to benefit from capturing value-added production moving out of China. "While ASEAN member states under the AEC would have continued to compete to attract production, the endowments of economic regionalism should have worked to make each member more attractive overall and promoted the development of regional value chains," he said.

"Yet the discussion has instead focused not on ASEAN complementation but ASEAN competition. Low-wage, high-growth Vietnam is often highlighted as the chief beneficiary of the trade war, financial hub Singapore dubbed a loser, and poorly integrated Indonesia seen as falling behind its more nimble Southeast Asian peers," said Mr Bharat.

The problem, he says, is that AEC implementation has failed. "ASEAN has a tendency to launch grand strategies and work out the details later. The AEC Blueprint stipulates gradually implementing the AEC by 2025, yet four years after the AEC was launched fundamental issues are still under discussion.

"At the 25th ASEAN Economic Ministers Retreat in Phuket in April 2019, for example, discussions continued on the ASEAN Single Window (ASW), which aims to reduce the time goods have to wait at borders from 10 to three days. Given that the AEC is supposed to promote regional value chains, the ASW should be the cornerstone of closer integration. It is thus questionable why such an important aspect of the AEC has not been agreed on," he said.

Mr Bharat said that the AEC Blueprint called for the removal of nontariff barriers, such as quotas and local content requirements. However, of the 6,000 nontariff barriers identified, not one has been removed through the AEC process.

"Counterintuitively the number of nontariff barriers has continued to grow," he said.

But the AEC suffers from structural problems that arise from norms such as noninterference in one another domestic affairs. While the SEAN way?was useful in bringing about peace to the region, for which the body was originally established, it is not suitable for cross-border market transactions involving private decisions and private money.

Suggesting the AEC is an economic community or single market is mistake. A true single market generally entails positive integration, referring to formal institutions that enforce the rules of the market, and negative integration, which encompasses far reaching cross-border liberalisation based on obligations of nondiscrimination and mutual market access.

Said Mr Bharat: "In a fully-fledged single market, market fundamentals such as competition policy are subjects of positive integration. However, the AEC stipulates 'national regulation, policy emulation and best practices' be applied. This ambiguity means ASEAN members can forego AEC commitments they find inconvenient.

"This institutional weakness is also apparent in negative integration, namely mutual market access. The movement of labour is limited to skilled labour and only provides for seven professions, while the AEC does not guarantee the right to free movement but only access to ASEAN labour markets," Mr Bharat said.

A number of speculative points arise from Vice President Pence's speech, which can be taken more seriously than the flow of angry Tweets that emanate from the White House. This is because Mr Pence is not hated nearly as much as Trump is, so his words go unnoticed, rather like the victory over ISIS in Syria and Iraq, if no useful anti-Trump negative can be wrought out of an issue or an event, it is dropped by a hostile media as unworthy of attention.

But it is important to remember that as much as Democrats hate President Trump they agree with him on China. They dare not do otherwise.

So what we have from Mr Pence is a US commitment to defend Japan, Taiwan, Australia, Indonesia and back the Philippines and forge stronger ties with India. There is massive influx of fresh investment, much of it for infrastructure, an obvious reply to China's galloping Belt and Road initiative.

Although diplomatically phrased, Mr Pence appears to be saying we would like China to be the good guy in the our movie of life, but it doesn't really look like that is likely.

So one of oldest democracies in the world, and the biggest economy, is to team-up with the world's biggest democracy - India - and together with Japan, world's third largest economy will face off in what may very well be a reset of the Cold War.

That's if things are not settled amicably.


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Other surrendering Indo-Pacific to Chinese military domination, what other options are open to the US and indeed the western world?

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Intra Asia Trade Specialists

Nippon Express (HK) Co., Ltd.
Visible & Strategic Logistics