Asean Economic And Security Cooperation At The Beginning Of The 21st Century

ASEAN Economic and Security Cooperation at the Beginning of the 21st Century

15/4/05 Chris Haynes 0029115 POLI 444

As the 9th ASEAN Finance Ministers’ Meeting draws to a close in Vientiane, political, economic and security cooperation in South East Asia and integration in one of the world’s most successful regional organisations increases. The Finance Ministers discussed regional and global economic developments and the Roadmap for Financial and Monetary Integration of ASEAN. They sought to work together to minimise the damage of the tsunami of late 2004. And they made decisions about other regional initiatives from the liberalisation of financial services to counter terrorism. How did ASEAN reach a point at which some are speculating it will be the next European Union?

In Bangkok in 1967, Malaysia, Indonesia, Thailand, the Philippines and the newly independent Singapore signed an agreement to kick off the Association of South East Asian Nations, or ASEAN. Brunei joined upon its independence in 1984; Vietnam joined in 1995; Laos and Myanmar were admitted simultaneously in 1997; and Cambodia came soon after. From this point, ASEAN has been in the best position to pursue its stated mission of economic growth, social progress, cultural development, peace and stability in South East Asia. ASEAN’s 500m people enjoy a combined GDP of $737b and trade of $720b. (Secretariat)

This essay begins with a brief history of ASEAN political and economic cooperation before and after the end of the Cold War. Since there have always been external economic purposes behind ASEAN as well as political ones, this essay proceeds to draw on its economic relations with the US, and to some extent North East Asia (China, Japan and South Korea) leading up to and following the East Asian financial crisis to understand

ASEAN’s economic direction. I will also look at patterns of security cooperation since the World Trade Centre bombings of September 11 2001, specifically in the ASEAN member states most affected by terrorism, Indonesia, Malaysia and the Philippines. Analysis of these issues will help me to draw conclusions about ASEAN’s position in three aspects of the globalisation debate: models of development, international economic integration and regional security cooperation. I argue that ASEAN’s actions have been very pragmatic, with little long term vision. Sovereignty and independence have always been paramount and the East Asian financial crisis and the War on Terror both underline these premises. To open this essay, I highlight several significant points of ASEAN’s history.

History ECONOMIC COOPERATION When ASEAN was formed in 1967, its primary purpose was to foster growth through economic cooperation among the five member states. This purpose was spurred by the Vietnam War and a fear that communism in Asia was spreading. The Domino Effect was on everyone’s lips. Strong government for containment and state led, export oriented development was the norm in capitalist East Asia. ASEAN since its inception has made various achievements in affecting trade policy through bargaining as a bloc. These achievements made clear two important principles: 1. the value of uniting against a third party and 2. the utility of rallying behind the most threatened member, be it a poor or rich country. (Kurus, 823)

Transnational ASEAN economic planning has not seen a great degree of success. In 1976, ASEAN created the ASEAN Industrial Projects Schemes (AIPS). AIPS were large scale projects, one to a country, that would respond to regional demand and ensure that resources were utilised optimally. Three of the five original AIPS failed. First, most members preferred to focus on national industrial development and export more to international markets rather than just ASEAN. Second, as ASEAN members were at a similar level of development, they still produced the same tradable goods and their manufacturers were competitive rather than complementary. Third, the private sector was not interested in cooperating with the AIPS. (Tan, 936) ASEAN Industrial Complementation Schemes (AICS) were projects in the 1980s to facilitate specialisation in automotive components. Its first attempt, in 1981, was unsuccessful. AICS was replaced by the ASEAN Industrial Joint Ventures (AIJV) in 1983. AIJV’s objectives were to encourage greater investment into and within South East Asia and to increase production by pooling resources and sharing markets. Most of these schemes failed as well, because goals and guidelines for negotiation were undefined, and because red tape slowed the process. (937) The payoffs of all these ventures were not high enough because they implied only regional development, and members did not see high enough benefits from pursuing them.

To begin trade liberalisation, ASEAN launched the Preferential Trading Arrangement (PTA) in 1977. However, since their economies were not complementary, ASEAN governments were reluctant to turn ASEAN into an FTA. They were keener on protecting domestic markets than opening their economies to their neighbours. Items that fell under

the PTA were negotiated individually, and while tariffs were lowered on certain products, the most important ones went to the exclusion list. Even by the late 1980s, the PTA only covered five percent of ASEAN’s total trade. (937-8) According to Lay Hong Tan, “ASEAN ideology has emphasised national resilience, accompanied by regional resilience.” (938) The PTA failed because sovereignty and self reliance were so important to newly independent countries, and economic policies reflected these feelings. Following the Uruguay Round, ASEAN’s economic integration widened and deepened. ASEAN members were afraid of falling behind in a world that was creating trading blocs. They wanted markets to attract FDI. Moreover, many of these governments were quasi democratic and their legitimacy required their delivering on promised high levels of growth. They hoped the AFTA would help them deliver. (939)

One goal of the AFTA is intra ASEAN trade but it is a secondary goal. More important is increasing the competitiveness of individual member states internationally. Between 1993 and 1999, the value of intra ASEAN trade grew at a rate of 11.4 percent annually (although in real terms it has remained constant as a percentage of the total trade of ASEAN members). (939) A major part of the AFTA was the Common Effective Preferential Tariff Scheme (CEPT). The successor to the PTA, the CEPT took a sectoral, rather than an item by item, approach. ASEAN leaders were afraid that the slowdown of miraculous East Asian economic growth and later the financial crisis would be damaging to their countries. They accelerated the creation of the CEPT to 2002 for the first six member states, and zero tariffs by 2008 for the rest. However, to consider this a feat for free trade is somewhat misguided. Three lists of traded goods were exempt from the

CEPT. These are a) the temporary exclusion list, products for which the members are not yet ready to lower tariffs; b) unprocessed, “sensitive” agricultural products; and c) the general exception list (GEL), products permanently excluded for their qualities of national security, moral and health hazards and anything retaining artistic, historic or archaeological value. (940) Malaysia, protective of its automotive parts industry, has said that, due to the financial crisis, it will not cut tariffs on this sector until 2005. Laos and Vietnam’s GELs contain categories that include automobiles, petroleum, alcohol and tobacco. Though the GEL represents only 1.09 percent of all tariff lines in ASEAN, the vagueness of the wording of this clause (not to mention that of the previous two) enables member states to designate anything important to their national economy or sovereignty protected under this list. Full fledged free trade thus still seems a distant point on the horizon. (941) ASEAN political leaders are tolerant of these abuses, likely because they all wish to retain some measure of protection over their own economies.

While ASEAN members talk not only of free trade but of a common market by 2020, to think of ASEAN as the next EU, with supranational authorities, is to think well ahead of any of the current heads of ASEAN. Unlike in the EU, national sovereignty and non interference are sacrosanct. Moreover, treaties and declarations tend to be vaguely worded to afford members the opportunity to opt out of any of them in one way or another. Supranational authorities are not necessary because of established norms and consultative and consensus based decision making. The progress of and changes to the organisation are state led. (948) In spite of the desire for pragmatic decisions and financial independence, Tan feels that it is urgent that ASEAN progress beyond an FTA in

order to compete with China. ASEAN and China were on a par between 1989 and 1994 for inward FDI flows, but in 2001 China received three times the FDI that ASEAN received, and this trend looks set to continue. (961) Thus, for all its efforts, ASEAN’s first few decades showed “lackluster performance” in pursuing economic integration and growth. (Kurus, 819) Instead, its achievements were largely political.

POLITICAL COOPERATION While few concrete achievements were made before the First ASEAN Summit in Bali in 1976, ASEAN political leaders had already been meeting to allow ASEAN to slowly and steadily mature. This early maturation culminated in the Treaty of Amity and Cooperation in South East Asia and the Declaration of ASEAN Concord in Bali. ASEAN could then begin to be far more active as a regional organisation. (827) And it began two years later.

When Vietnam invaded Cambodia in 1978, ASEAN members feared a domino effect and they crafted a response. Indonesian Foreign Minister Mochtar Kusumaatmadja, on behalf of ASEAN, decried the invasion and called on the UN Security Council to do something to stop it. Unfortunately for ASEAN, a draft resolution to demand the immediate withdrawal of Vietnamese troops from Cambodia was blocked by the USSR. Later, ASEAN wielded its regional power in the International Conference on Kampuchea. The organisation worked through the UN to enhance its regional and international position and demonstrate its relevance. This move was one of security, to prevent the spread of communism in the region and more immediately, to protect the borders of one of its members, Thailand. ASEAN proved itself an effective in “managing the external relations

of the individual member states by determining common attitudes on key issues such as Indochina.” (Kurus, 821-2)

Members see benefits with little cost, most importantly, they do not give up any sovereignty. (820) ASEAN provides a network of support for its members. ASEAN members need not feel isolated, and therefore have not had to worry about some of the patron client relationships other countries lost their autonomy over during the Cold War. The great powers were not competing in the ASEAN region. Thailand, for example, benefited from the other ASEAN members’ support in recognising its front line status in the Vietnamese invasion of Cambodia during the conflict. (824) And because of China’s interest in South East Asia, China compromised with ASEAN on a UN settlement for Cambodia. (825)

Bloc politics have enabled ASEAN states to “assert their position as subjects, rather than objects of international politics and as full participants in regional and global affairs…. It is an approach that is vital to a diverse group of states in a strategic and volatile region.” (825) One Foreign Minister of Singapore described one of the benefits of ASEAN cohesiveness as accommodating other member states’ policies instead of pursuing “competitive interference.” Such cooperation has made internal relations possible in such a motley group of nations with different economies and political cultures. (825)

The creation of ASEAN was a significant achievement in diplomacy. It occurred at the end of the confrontation between Indonesia and Malaysia and helped normalise relations

between them. It has helped ease the disagreement between Malaysia and the Philippines over Sabah. ASEAN members’ political and military leaders cooperate and share information regularly, and interaction among states has gradually increased over time. Thus, despite the great diversity of the region, ASEAN minimises conflict and facilitates cooperation in South East Asia. Four ground rules for cooperation that insure sovereignty is protected: 1. non interference in the internal affairs of other members. 2. peaceful dispute resolution. 3. respect for each other’s independence. 4. respect for each other’s territorial integrity. These rules safeguard the supremacy of the state over the Association by providing the good fences necessary to be good neighbours. (826) For example, until UN action was taken, ASEAN maintained that the human rights abuses in East Timor were an internal affair of Indonesia and did not interfere. (827) ASEAN members have found security in numbers in the face of external threats. But while they have followed their own rules, they have never proposed giving up their sovereignty to supranational institutions in the manner of the EU, and instead decide matters among states on a case by case basis. External economic relations present a different and equally revealing look at ASEAN’s purpose through its international relations functions.

External Economic Relations ASEAN has commanded internaional respect, given its members confidence and promoted amity in South East Asia. These achievements have created an attractive destination for foreign investment and trade. Member states have seen high growth rates, before and since the financial crisis. (Kurus, 828) Furthermore, they have been able to concentrate spending on the civilian sector rather than military. While the benefits of

ASEAN surely played a part in denecessitating military spending, US Cold War strategy has done so as well. Stephen Gill and Richard Higgott, among others, remind those who speak with wide eyes of what the World Bank calls “miracle economies” that the economic miracles were realised by authoritarian governments in East Asia who were propped up by the US to contain communism. South East Asia, China’s backyard, was a key strategic point of the Cold War. Thailand even provided to US troops the origins of today’s infamous sex trade. (Gill, 3) During the Cold War, the US supplied capital aid and opened its markets to the one way flow of exports in order to support the economies of South East Asia. (Higgott, 255)

The East Asian financial crisis revealed the weaknesses of Asian regional institutions. It showed that ASEAN does not contain provisions to prevent such crises in future. (Tan, 952) It could, however, encourage East Asian regional cooperation in the wake of the perceived failure of the open capitalist model offered by the US and the IMF. (Higgott, 254) The causes of the crisis are not as easy to discern as one might think. Kishore C. Dash describes two views of the subject. Pragmatic liberals see the crisis as a liquidity crisis. To this school of thought, the IMF should have aided the supply of liquidity so that investors did not lose confidence in the capacity of countries to pay back their liabilities. Market fundamentalists, on the other hand, see the crisis as one of bank insolvency, brought on by poor structural policies from cronyist and non transparent governments that should have let markets work unrestricted. They believe the IMF should not have intervened to bail out governments with failed policies. (Dash, 280-2) Either way, the integrity of the Western capitalist model has suffered.

Higgott calls the financial crisis “part of the first crisis of post Cold War globalisation.” (255) Though a realist, Higgott echoes marxist views that the US and IMF want to impose a Western model of liberalisation on South East Asia. They see East Asia as having vestiges of outdated state led capitalist growth and urge states to abandon them. The financial crisis could make these countries more averse to change and could see them turning inward to greater East Asian economic cooperation at the expense of the US. (255) The financial crisis brought demands for more economic autonomy for states and the region in general. Japan was the proposed leader of an Asian Monetary Fund, to complement, not replace, what many in East Asia see as an inherently biased International Monetary Fund. But the US, due to its interest in maintaining its influence through IMF superiority in the region, scuttled the plan. (256) The US believes that an AMF would slow down Asian financial market liberalisation. (258) In the 1990s, with the threat of communism all but extinguished, trade liberalisation and financial deregulation became the priorities. (255) In fact, these two policies have been the US reply to the crisis as well—the same priorities as before the crisis. For this reason Asians are likely to view them with suspicion. (258) APEC’s champions wanted to see more open liberalism in East Asia, more access to East Asian capital and financial markets. But APEC has gone largely unused and the Bush Administration has shown no real interest in maintaining it for purposes other than fighting terrorism. (Capie, 239)

The crisis even prompted ASEAN members to do something that flies in the face of regional norms: they agreed to a mutual surveillance of each other’s economies. The

purpose of this unusually sensitive decision was to promote financial stability and regional cooperation. Although the AMF fell through, monitoring each other’s economies follows the IMF framework. Higgott feels that it is time to reconsider the non interference rules of ASEAN. He also believes that the East Asian community may introduce strong regional institutional mechanisms to manage such financial problems. (Higgott, 257) Doing so would certainly enable better competition with the US and the EU. While I agree in principle, I argue that, had ASEAN members been serious about actually intervening into their economies, they would have created a supranational institution charged with doing so. As interdependent as ASEAN’s economies may be, not one of its members is about to break the rules of sovereignty and stop any other government’s action.

ASEAN’s leaders have employed populist rhetoric to nullify criticism. They blame the financial crisis on “neoimperialism” and other poorly defined evils. An implication of such denigration of the Anglo American capitalist model is that it could be reversed. The long run could see an increased suspicion of market discipline and tighter controls. Alan Greenspan disagrees. He said in 1998 that the financial crisis will lead East Asian states to closer practice and integration with the US. (259) For the same reasons ASEAN’s norms put up barriers to interference in the internal affairs of its members, they resent the seemingly unnecessarily broad and sweeping IMF readjustments in the wake of the financial crisis. The US has shown itself to be insensitive to South East Asian concerns and as such, “liberal economic internationalism is on trial in Asia at the end of the twentieth century.” (260) The limits of APEC to enhance cooperation and even act as a

decision making body were exposed by the crisis and subsequent retreat to regional economic cooperation through the East Asian Economic Caucus and discussion on the still prospective AMF. (261) Along with greater financial monitoring, Higgott believes that the US’s role in South East Asia will be more firmly tied to that of the regional powers than ever before. Japan must reform its economy to continue to exert its will, and the US is generally seen as a buffer to China, (262) who wants to be the hegemon that Japan never was. The threat of terrorism since September 11 th have brought international security to the political fore and South East Asia’s responses to US policy in the region, although they have varied by country, have been another instructive link to ASEAN’s wider purpose.

The War on Terror Unlike many countries, ASEAN members have not simply hopped onto the anti terror bandwagon, nor have Islamic South East Asian states rejected any cooperation with the US. ASEAN member governments have maintained close bargaining and cooperative relations with Washington while criticising American foreign policy in front of their nationalist and Islamic groups. They have thus generally taken a pragmatic approach to their dealings with both of these groups, US pressure and domestic pressure, (Capie, 224) which goes along with my conclusions about their economic and political decisions. The US has been asserting its hegemony more dogmatically since Sept 11th. George Bush is regularly quoted as telling the world “either you are with us or you are with [the terrorists],” and a US official in South East Asia has gone so far as to say “it is not enough to be with us [quietly] in the war on terrorism,…you have to trumpet it.” (225)

Some theorists believe that governments will wish either to balance US power or to bandwagon it. However, it seems more beneficial in the case of ASEAN to take a more varied and cautious approach. Based on South East Asia’s unique historical relationship with the US, there is little reason to expect them or believe it is in their interests to either blindly accommodate and follow US pressures or outright reject them. These theorists, I believe, simplify matters by explaining motivations in terms of perceived external threats, civilisational ties or domestic political pressures. (225) But while one might argue that Canada, for instance, based its War on Terror related actions on domestic politics, ASEAN members base their decisions on all three of these concerns.

INDONESIA Former President Megawati Sukarnoputri pledged her support and sympathy for the US immediately after the terrorist attacks. Indonesia would take a firm stance on terrorism. But as the Islamic extremist tide and popular dissent from US actions rose in her country, she criticised the US’s use of violence and refused to take action against the suspected al Qaeda cells in Indonesia. Cracking down on Islamicism could have destabilised both the domestic security of Indonesia, through any perceptions of unjust and US influenced violence against Muslims, and Megawati’s 2004 electoral campaign, for which she would need the Muslim vote. (228) Likewise, when the US invaded Iraq and called on Indonesia to help, the government called the invasion “an act of aggression” and called on the UN to stop it. (229)

MALAYSIA

In response to September 11th, former Malaysian Prime Minister Mahathir Mohamed visited the US embassy to sign a book of condolences. This move was warmly welcomed in Washington. Malaysia wanted to repair relations that had been harmed by acrimony in the 1990s. Most importantly, however, Malaysia’s government was using the US’s tough talk on terrorism and weak talk on human rights to legitimise the repression of political opponents under the Internal Security Act. It found an opportunity. But as US actions in Afghanistan stoked Malaysian unrest, Mahathir called US military actions as an excuse to kill Muslims. (230) In February 2003, on the eve of the invasion of Iraq, he said “it is no longer a war on terrorism. It is in fact a war to dominate the world.” Mahathir’s talking out of one side of his mouth may cool domestic anger, but the government’s military and intelligence cooperation with the US belie populist rhetoric. Already highly cooperative on issues of defence, the two governments have increased cooperation since the World Trade Centre bombing. (232)

THE PHILIPPINES With confirmed al Qaeda operations in the south, a majority Christian population and close historical ties with the US, the Philippines has supported the War on Terror more strongly and consistently than its ASEAN neighbours. The US has responded with considerable funding and advice for combating terrorism. In November 2002, the two countries signed the Mutual Logistics Support Agreement (MLSA), which gives the US the right to store equipment and weapons on Philippine soil. This move is useful to the Philippine government in its fight with terrorist groups, particularly Abu Sayyaf, in Mindanao. (233) The transfer of weapons and equipment is not only a move against

terrorists but also a boon to the Arroyo government in strengthening its ties with the military, a perennially important actor in Philippine politics. But crucially, a stronger military translates to an increased ability to counter the rise of China’s power in East Asia. The MLSA mitigates Manila’s concerns about Chinese encroachments on the islands in the South China Sea that are disputed territories. The Philippine armed forces see US policy as helping to contain China and would rather be aligned with the US than China. (234) Popular protest (which has been known to bring down governments in the Philippines) and argument in the legislature in opposition to the war in Iraq failed to stop the Philippines’ signing on to the Coalition of the Willing. The country sent workers to help rebuild Iraq and received benefits from it in the form of more economic and military aid. (235)

The US has pushed ASEAN to develop a standard security policy. In 2002, ASEAN foreign ministers proposed a counter terrorism action plan, and signed a joint declaration to fight terrorism with the US. (238) However, while some measures are being taken in practice and on paper on behalf of the US to strengthen ASEAN’s security, the US is generally keener on bilateral agreements. Evidentially, US relations with Vietnam, Laos, Cambodia and Myanmar have not changed much since September 11th because dangers in those countries are not as apparent and US interests are not as threatened. (240)

Conclusions DEVELOPMENT MODELS

Experiments with state led capitalist growth may not be too popular in US policy making circles, but they seem to have produced some results in South East Asia. The fiascoes of the regional development initiatives of the 1970s and 80s and the success (albeit a tilted success because of US strategic priorities) of export oriented industrialisation show the potential for success of the open capitalist model. ASEAN’s ability to create an environment conducive to FDI and trade has made exemplars of many of its members and their paths to modernisation. But the apparently miraculous success of ASEAN to attract trade and investment was based largely on its alignment in the Cold War; and with a rapidly industrialising China with the advantage of being one state with common policies, it is difficult to make a case that ASEAN’s former rapid growth will continue or that ASEAN provides a paradigm to other regions of the world for state led capitalist growth.

INTERNATIONAL ECONOMIC INTEGRATION It is difficult to judge if the US will get its way because of the advent of the indefinite War on Terror and the backseat status economic matters are being accorded in US policy. But dogmatic attempts to impose changes on others tend to lead to resentment. Nevertheless, too much retreat from US investment would be pernicious to emerging markets and could just amount to populist rhetoric. To retain a competitive edge, ASEAN should coordinate its policies more within the Association and with the rest of East Asia. It should also create regional institutions to insure against future crises. While they may not want to open their doors completely to foreign investors, although I believe in revitalising APEC, ASEAN members should at least accelerate free trade among their

members. One benefit of ASEAN is that it opens up closed borders. If poor ASEAN members, such as the communist Indochinese states, open up their trade to sympathetic ASEAN neighbours, they are more likely to develop robust economies while protecting their sovereignty that they hold so dear. As they develop, they can choose to open up more to global markets and gain greater benefits later on. Confiding in the amity of ASEAN is the first step toward greater openness, and without the stability ASEAN promises, it is unlikely these countries would have opened up much until the next generation or beyond.

REGIONAL SECURITY COOPERATION The case by case basis of which I spoke when describing ASEAN’s response to Vietnam’s invasion of Cambodia is the best way member states have found for ASEAN to manage its affairs. Given the importance of independence, especially in security matters, ASEAN will take a variety of political matters into consideration before making its decisions. South East Asia is an ethnically and ideologically diverse region of the world, like other regions of Asia, Africa and Europe, and the difficulties in regional security cooperation could be at least as great in other parts of the world. The sensitive and variable nature of security in South East Asia holds ASEAN members back from a supranational institution. Big decisions aside, however, ASEAN members have long recognised the benefits of amity and have been sharing military intelligence data for a long time. But a predilection for independence in security decisions has led to a preference for bilateral security agreements within ASEAN and with the US. What reactions to US foreign policy tell us is that a) ASEAN does not uniformly respond to

security threats that do not directly affect one of its members; and b) ASEAN member states make decisions, at least in security matters if not many others, in the face of a number of factors and are not easy to manipulate. Based on what we know about ASEAN’s history, and if the EU provides any evidence, a standard ASEAN policy for external security cooperation and pooling of military resources will, for a long time, be extremely difficult. ASEAN has benefited from reliance on the US for regional security but may soon be placed between the War on Terror rock and the Rise of China hard place and be forced to make tough choices. In the meantime, ASEAN will continue to look to the US to provide some security to balance China.

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