ASEAN should be friendly to all major powers & maintain strict strategic neutrality: George Yeo

Soft truths to keep Singapore from stalling.

Mothership| January 11, 10:12 PM

On Jan. 10, former foreign minister George Yeo was invited to deliver a speech at the High-Level Symposium on Intra-ASEAN Trade and Investment: 'Enhancing Intra-ASEAN Trade and Investment for a Cohesive and Responsive ASEAN', in Hanoi, Vietnam.

He spoke about Vietnam's role as the new Chairman of ASEAN, the need for ASEAN to be friendly to all major powers, and the benefits of strengthening economic partnerships with regional neighbours and major powers.

We reproduce the full transcript of his speech here.

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By George Yeo

Intra regional trade and investment in ASEAN cannot be discussed without reference to the larger world. From the earliest days, the people of Southeast Asia have been in continuous interaction with those of East Asia, South Asia and beyond.

That larger world is again in flux. Facing the prospect of a competing superpower in China, the U.S. now defines its national interest in narrower terms.

Many Americans no longer see the post-WW2 multilateral institutions which were established under U.S. leadership as serving U.S. interest unless they are radically reformed.

For example, the U.S. is increasingly unwilling to accept China’s designation as a developing country.

Since China joined the WTO in November 2001, its GDP has grown 6 times in PPP terms, 8 times in RMB terms and 10 times in USD terms.

While, with a per capita income of USD 10,000 today, China is still a developing country, in some sectors, China is already highly developed.

Under President Trump, the U.S. is forcing a certain decoupling of the global economy. This will have huge implications for all of us.

Geo-economics and geo-politics are always intertwined. Decoupling is never economic alone. Provided it does not lead to war, decoupling can however open up new opportunities for ASEAN.

Pressure to choose between China and the U.S.

It is ironic that China has now become the strongest advocate of globalisation. With a large, relatively homogenous population spread over a vast country, Chinese leaders have always been preoccupied with domestic challenges. This is not new.

From the time of the Qin Dynasty over two thousand years ago, China’s strategic posture was defensive towards the world outside. Thus, every Chinese dynasty rebuilds the Great Wall.

In his New Year’s speech, President Xi talked about building a Great Wall of steel.

For border countries like Vietnam, Myanmar and Korea, relating to every new Chinese dynastic cycle invariably involves a struggle.

First, a reunified China presses on them. This causes political and military resistance, which is then followed by peace for as long as these countries are not a threat to China or used by others to threaten China.

Despite the reform and opening up of its economy, China will never allow the country to be fully exposed to foreign influence. Industries which are strategic in nature will never be fully opened up - like finance, media, culture, education, IT and high tech.

China today has the liveliest internet space in the world but it is a relatively closed universe which is not easy for foreigners to access. This is deliberate.

In 1996, as Minister for Information & the Arts, I hosted a high-level delegation of ministers responsible for all aspects of mass communication in China led by Politburo Member Ding Guangen. In 6 days, they studied Singapore’s policies on mass media in detail.

It was only one or two months later, when China launched its new Internet policy that I realised that they were making some last minute checks on specific details.

Without that far-seeing policy shift over twenty years ago, China would be very different today without Alibaba, Baidu and Tencent. Between China’s cyberspace and the cyberspace outside, there is a great electronic wall.

In contrast, the U.S. saw itself as an open society welcoming the “tired .. poor .. and huddled masses” of the world, to use the words at the base of the Statue of Liberty.

Secure in its own system, the U.S. wanted the rest of the world to couple itself to it. Many Americans believed, with the best of intentions, that China would eventually become more like America.

Realising now that is not likely to happen, and fuelled by a growing sense of insecurity, the U.S. is making a fundamental re-assessment of how it views itself relative to China and the rest of the world.

We in ASEAN should therefore expect the coming years to be fraught. American diplomats today openly badmouth China and pressure us - sometimes openly, sometimes subtly - to make a choice between them and China. It puts us in an intolerable position.

ASEAN must maintain strict strategic neutrality

China is now the No. 1 trading partner of every ASEAN country. It is a major investor, an important source of tourists and a growing market. No one in Southeast Asia will lightly choose the U.S. over China.

Worse, any member state which takes a position hostile to China must expect a commensurate Chinese response.

At the same time, no member state wants to be too dependent on China either. All of us in ASEAN want China’s friendship but fear China’s dominance. Our instinct is therefore to diversify.

We want our account with China to grow because that is good for our people but we want at the same time for our other accounts to grow in tandem.

Japan understands this and positions itself in ASEAN as an additional and, in some ways, a superior partner. We should work hard to persuade the U.S. that that too is the best stance for the U.S. to take in Southeast Asia.

China understands ASEAN’s position. During the signing of the Framework Agreement for an ASEAN-China FTA in 2002 in Phnom Penh, Chinese Premier Zhu Rongji made two important points to ASEAN’s leaders.

First, he affirmed that China did not seek for itself an exclusive position in ASEAN. This means China has no objection to our having multiple partners. Indeed it has no right to.

Second, Premier Zhu also said that if after 10 years the FTA was lopsided in China’s favour, we should re-negotiate the terms and achieve balance. I do not believe China’s position has changed since then.

ASEAN should therefore be friendly to all major powers and maintain strict strategic neutrality. This is not a static position. Sometimes, to achieve balance, we may have to lean further in one direction or another but the overall objective is always to maintain balance.

In addition to the U.S., China and Japan, we should also strengthen our links to Europe and India. It is easier for us to find manoeuvring space in a multi-polar world.

For many U.S. companies, China is a larger market or potential market than the U.S.

All this is only possible if the ten member states are united. Political words alone are hollow if they are not matched by economic and social reality. ASEAN as a credible political grouping is only as strong as its economic integration.

Physical connectivity within ASEAN and between ASEAN and the rest of the world is improving year by year but not fast enough. Border crossings are easier but not efficient enough. Non-tariff barriers have increased and are a major source of friction.

We need greater coherence and better coordination in the setting of standards and regulations. Logistics cost in archipelagic Southeast Asia is still much too high.

The ASEAN Economic Community needs a fresh political push to seize the opportunities which decoupling has brought to our doorsteps.

In the last two years, many MNCs have come under great stress because of the trade war. At any one time, hundreds of thousands of containers are being transported across the Pacific without certainty of tariff rates on arrival.

Many companies in China - Chinese and non-Chinese - are seeking to domicile outside China to be free of U.S. sanctions.

For many U.S. companies, China is a larger market or potential market than the U.S. Some will want to decouple from the U.S. Capital naturally flows to where the returns are highest and the risks are least.

The countries of ASEAN are good alternative production bases for global MNCs which are re-assessing their supply chain configurations. Each of us is more competitive if we are able to take advantage of the combined strengths of ASEAN.

Vietnam is a major beneficiary but already facing rising costs, partly due to lack of qualified manpower and inadequate logistics. If Laos and Cambodia become part of the equation, more and higher-quality investments will flow into Vietnam.

Between Thailand and Myanmar, the border crossings need to be much better improved so that their combined comparative advantages can be brought into full play.

In archipelagic Southeast Asia, relaxation of cabotage can lower logistics costs significantly and energise the economies of otherwise isolated island groups.

ASEAN should engage China, but bring in other organisations as well

I would like to propose as a conceptual idea the establishment of ASEAN FTZs and Associated Border Crossings.

For designated qualifying industries and products, these FTZs should operate as if they belong to a common economic space. Transportation of goods between ASEAN FTZs should be facilitated at airports, ports and land border crossings. It is for each member country to designate FTZs for inclusion under this scheme.

In this way, the MNCs which investments we are seeking will see ASEAN as a whole and not just as separate parts. We can start by concentrating on relatively simple manufacturing. In a small way, we already have an illustration in the ASEAN immigration lanes at airports.

The devil is in the details. For the scheme to work, ASEAN member-states’ economic agencies will have to sit down with the private sector and work out simple, practical arrangements. Member-states which are unable or unwilling to take part now can join later.

Let the success of a few initial projects lead the way. In this way, the ASEAN FTZs will sharpen a leading edge for ASEAN’s further economic integration.

However, a precondition for such progress is better physical infrastructure.

China’s Belt and Road Initiative offers us a golden opportunity to revamp the connectivity map of ASEAN. Those of us who visit China regularly can see how highways, high-speed rail and airports have enabled hundreds of millions of people to join the global economy and be lifted out of poverty.

We should have similar ambitions for Southeast Asia.

Infrastructural development has big network benefits and need an ASEAN-wide perspective. It is right that we worry about the cost-benefit of specific projects and our ability to service debt. ASEAN should engage China on the BRI and bring in others like ADB, AIIB and WB to work with us.

This will help overcome the concern of some ASEAN countries that they may become too dependent on China. We should of course welcome the participation of other countries like Japan, Korea, Australia and the US.

The financing of major ASEAN infrastructural projects should tap the capital markets. Qualifying infrastructural projects can issue long-term ASEAN infrastructural bonds with appropriate political guarantees. These bonds will be attractive to insurance companies and pension funds.

They know that, by 2050, ASEAN’s GDP is likely to rank fifth after China, the U.S., India and Europe, meaning the risks are therefore low.

Regional and global economic partnerships are vital

This high-level symposium marks the beginning of Vietnam’s chairmanship of ASEAN this year. It is a critical year with exciting possibilities for ASEAN. Vietnam has chosen the theme “Cohesive and Responsive” for the coming 12 months. It is most appropriate.

The global strategic environment is changing dramatically. The technological revolution, especially in the digital economy, is both a threat and an opportunity.

We must respond in a timely way as an ASEAN grouping. We can only do so if we are cohesive and united.

Vietnam is well-qualified to provide the necessary leadership. No one can accuse Vietnam of being too close to either China, with which it has a historical love-hate relationship, or the U.S., with which it fought a long, brutal war to achieve national independence.

Vietnam’s economy has also taken off, benefiting from strong economic fundamentals, the reform measures of recent years and the outflow of investments from China.

For the economic agenda to make good progress, the political and social agendas must be complementary.

It is imperative to bring calm to the South China Sea and transform it from a zone of competing claims to one of cooperation. Whether or not the Code of Conduct (COC) between ASEAN and China can be signed in Brunei next year depends a great deal on the progress made this year under Vietnam’s chairmanship.

No country can abandon its territorial claim but all of us can work towards greater economic cooperation. Dialing down the temperature will spur cooperation. Promoting peace and stability in this strategic waterway benefits all users.

Historically, the South China Sea has been the link between Southeast Asia and China, Korea and Japan. The Sea connected us; it never divided us. An idea for ASEAN to consider is the incorporation of all or part of Hainan Island into a South China Sea economic cooperation area once the COC is in place.

This is not difficult to achieve because China has already designated Hainan as an FTZ. It is already a separate customs area.

Hainan’s climate, geography and culture are similar to those of Southeast Asia. When I was in the Singapore Armed Forces many years ago, I learned that the Japanese Imperial Army rehearsed its troops on Hainan Island before invading British Malaya on Dec 8, 1941.

In order to limit the negative effects of decoupling, ASEAN should work hard to strengthen regional economic arrangements and partnership with major economies. On the CPTPP (Comprehensive and Progressive Agreement for the Trans-Pacific Partnership), we should do two things.

First, we should work to bring the remaining ASEAN countries - Thailand, Philippines, Indonesia, Cambodia, Laos and Myanmar - into the CPTPP. This is important to maintain ASEAN centrality.

Second, we should encourage China to join the CPTPP. This will put pressure on the U.S. to rejoin. We should contrive it such that both China and the U.S. join at the same time. With China and the U.S. in, the CPTPP will cover some two thirds of the global economy and pull the WTO along.

Such a CPTPP will prevent decoupling from going too far and help avert any slide into war.

It is not good that India has temporarily opted out from the RCEP (Regional Comprehensive Economic Partnership). We can understand India’s reasons because the Indian economy is going through a rough patch. India will recover its poise and its economy, which is still growing organically, will surge again.

India will always be an important ASEAN partner.

We should also begin the process of negotiating an FTA with the European Union. European MNCs are similarly affected by decoupling and looking at ASEAN as an alternative to China. The more we are able to strengthen intra-ASEAN trade and investment, the greater will be our attractiveness to Europeans too.

For the social agenda, we need Vietnam to give a further push to ASEAN’s joint bid for the Soccer World Cup in 2034. Preparation for it will capture the imagination of a younger generation of ASEAN citizens. No other country in ASEAN celebrates soccer victories the way Vietnam does.

It remains for me to wish Vietnam great success in its Chairmanship of ASEAN this year and join everyone here in pledging our full support.

Top image from George Yeo's Facebook.