An Asian Agenda for Securing the Multilateral Rules-based Economic Order (Summary)

Introduction

East Asia has always been a dynamic region both politically and economically. With its growing importance in the region and increasing influence on the world as a whole, there is a need for all relevant stakeholders to work together to confront the major challenges here now and those that lay ahead. One such challenge is securing the multilateral rules-based economic order. What role can regional partnerships and institutions such as ASEAN and APEC play in maintaining and enhancing such a system? What can we learn from existing agreements like RCEP and the CPTPP? How can we deal with the current issues including de-risking, economic coercion, and the strategic competition between the U.S. and China?

This joint symposium hosted by RIETI and the ANU will explore such topics under the theme, “An Asian Agenda for Securing the Multilateral Rules-based Economic Order,” and attempt to answer such pertinent and timely questions. The symposium will begin with a keynote speech from a top official of Japan’s METI, and lead into a panel discussion of experts with both practical experience and academic engagement in terms of regional policy, economy, security, and cooperation.

Welcome Remarks

URATA Shujiro (Chairman, RIETI/ Professor Emeritus, Waseda University/ Senior Research Advisor, ERIA)

East Asia stands as the center of global economic growth and international economic interdependence and has gained tremendous benefits from the rules-based economic order orchestrated by institutions such as the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC), yet it is grappling with geopolitical and economic fractures that make the region susceptible to the end of such an order.

We are convened here today to ponder some important and difficult questions. How should the nations of East Asia cooperate to maintain a free and open trade environment? What role is the most appropriate for the Association of Southeast Asian Nations (ASEAN) and APEC? How should members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) like Japan and Australia engage with membership applications from China and Taiwan? What strategies might we employ to counter economic coercion, and mitigate geopolitical risks? The symposium today endeavors to engage with these urgent topics and aims to find guidance for future policies, drawing upon the collective wisdom of participants from the region.

Keynote Speech

YOSHIDA Yasuhiko (Consulting Fellow, RIETI/ Deputy Director-General for Trade Policy, Trade Policy Bureau, METI)

Within the Indo-Pacific area, there has been much division politically and economically, as well as various risks related to the supply chain and issues related to globalization. There is intensifying competition within trade, investment, technology, and information. The international political situations which have a major impact on the regional economy are highly obscure, the centrality and unity of ASEAN is now a subject of discussion, and the trade order within the region is now being tested.

At the Group of Seven (G7) Trade Ministers’ Meeting in Osaka in October in 2023, how to maintain and develop the rules-based international trade order based on the WTO will be discussed. In order to ensure economic security, we need to strengthen the global supply chain and make it more resilient, and counter unilateral attempts to alter the status quo through economic coercion. At the G7 Hiroshima Summit in May 2023, a very strong message for cooperation against economic coercion was conveyed, and “principles on resilient and reliable supply chains” were newly announced. We encourage all states to support these principles.

In light of these situations, international economic cooperation between like-minded countries will become increasingly important in the future. The Indo-Pacific Economic Framework for Prosperity (IPEF), which was launched in 2022, is a framework for discussing economic cooperation in the region under the four pillars of trade, supply chains, clean economy, and fair economy. It is the first multilateral agreement to define specific procedures for cooperation in the event of supply chain disruptions. The CPTPP and the Regional Comprehensive Economic Partnership (RCEP) are both networks of free trade agreements (FTAs) and economic partnership agreements (EPAs) that include ASEAN. We expect these frameworks to enhance the economic cohesion of the region.

This year marks the 50th Year of ASEAN-Japan Friendship and Cooperation. In a market of a combined 800 million people, we aim to co-create innovation and grow together for the next 50 years based on the trust we have built over the past 50 years. The final version of the ASEAN-Japan Economic Co-Creation Vision was recently announced, consisting of the four pillars of achieving sustainability that strikes a balance between diversity and inclusiveness, promoting open innovation across borders, strengthening cyber and physical connectivity, and building an ecosystem for co-creating vigorous human capital. An action plan has been formulated to realize this vision, and we are currently working with ASEAN countries to realize specific co-creation proposals.

In addition, the ERIA Digital Innovation and Sustainable Economy Centre (E-DISC) was recently launched to strengthen human networks among industry, government, and academia; and promote research and studies on decarbonization, data utilization, and circular economy toward the realization of the Asia Zero Emission Community (AZEC) and energy initiatives led by Japan.

In order to promote free trade and ensure economic security, we have to pursue and develop all three IPEF, the CPTPP, and RCEP frameworks. With the highly uncertain future of the world and the region, it is important to do so not on a bilateral basis, but as a region.

Panel Discussion

Shiro ARMSTRONG (Visiting Fellow, RIETI/ Associate Professor, Crawford School of Public Policy; ANU; Director, AJRC; Director, EABER)

ARMSTRONG:
We chose the theme because of the deep interdependencies in this part of the world and the complex supply chains that depend on an open rules-based economic order more than anywhere else in the world. As such, a breakdown in that system will damage the economies in this part of the world more than any other region in the world. In this panel discussion, we would like to think through the major challenges for the regional economy and for the multilateral system.

Speech 1

Rebecca Fatima STA MARIA (Executive Director, APEC Secretariat, Singapore)

The notion of ASEAN centrality is affirmed in the ASEAN Charter. It calls for members to maintain the centrality and proactive role of ASEAN as the primary driving force in its relations and cooperation with its external partners in a regional architecture that is open, transparent and inclusive.

Politically, ASEAN has more or less upheld “centrality” with its focus on the principles of sovereignty, equality, territorial integrity, consensus, and unity, but critics are quick to point out that it should be more assertive in dealing with members that violate human rights. Likewise, on the economic front, it has played a leadership role in RCEP, but it has been less impressive in terms of “proactive,” evident in its weak voice at the WTO.

Given that ASEAN member states are at different levels of development, ASEAN centrality means that there will be support for each other within the group. The Initiative for ASEAN Integration (IAI) was put in place to support equitable development and narrow the development gap, but I am not sure how effective it has been. Nevertheless, ASEAN is expected to provide a platform for regional dialogue to take a collective position in the interest of regional peace and stability. In that sense, ASEAN matters.

The numbers speak for themselves. ASEAN is home to almost 10% of the global population and 3.7% of global gross domestic product (GDP). It has already overtaken China in terms of greenfield foreign direct investment (FDI), is a key player in many sectors, and has a noticeably higher share of foreign value-added in gross exports compared to other economies.

These developments give ASEAN an interest in keeping the region free and open, but it can do more. There has to be structural change in ASEAN in order to strengthen the conversation among its three “communities” to achieve “Community.” This will enable ASEAN to formulate a more cohesive voice on the global stage and emphasize the importance of ASEAN centrality.

Speech 2

KUNIMATSU Maki (Professor, Faculty of Global Management and Associate Director, International Center, Chuo University)

Today, ASEAN faces a number of challenges in areas such as the energy transition, supply chains, digitalization, environmental issues, and economic integration. It is important to utilize all of the economic frameworks in a multi-layered manner while paying attention to their differences in terms of function and membership. Of these, the WTO and FTAs are the cornerstones for maintaining the multilateral rules-oriented economic order. In order to keep them functioning, there are four main necessary elements, namely: rule-making, monitoring, dispute settlement, and cooperation.

With regard to the formation of new rules through negotiations, the WTO has actually not been functioning very well since the Doha Development Agenda went into deadlock, but within the CPTPP and IPEF, new economic rules for digital, the environment, and labor are expected to be developed.

For dispute settlement, the Appellate Body of the WTO suspended its functions in 2019. In view of the situation, some members launched the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) the following year. While Australia, China, and Japan are already participating countries, only Singapore from ASEAN. It would be beneficial to encourage their participation. Furthermore, the use of dispute settlements under FTAs should be considered as well.

Managing and monitoring the application of existing rules has implications on economic coercion which has been on the rise since 2010. Measures related to economic coercion and security should be closely monitored in accordance with the rules of WTO agreements, and countermeasures should always be consistent with the rules. In addition, the use of FTA rules is also an effective option. As much as possible, it is better to follow processes in a rule-oriented manner.

Finally, while international cooperation has many dimensions and objectives, cooperation based on trade agreements should be seen as strengthening the rules-based economic order. It should be upgraded through individual dialogues to find more inclusive and diverse forms of cooperation.

Speech 3

WANG Dong (Professor and Executive Director, iGCU, Peking University)

According to the World Bank, from 2013 to 2021, China’s average contribution rate to global economic growth was 38.6%, exceeding that of all G7 countries combined; and between 2008 and 2021, as the world’s per capita GDP grew by 30% and China’s by 263%, China accounted for more than 40% of all global growth. Based on Bloomberg statistics, China’s slice of global GDP expansion is expected to represent 22.6% of total world growth through 2028.

In total, 75% of global growth is expected to be concentrated in 20 countries, with over half of that in China, India, the U.S., and Indonesia. Growth in the Asia-Pacific is forecasted to accelerate to 4.6% this year, with one of the main drivers being the reopening of China since COVID-19. According to the International Monetary Fund (IMF), 1% more growth in China translates into 0.3% more growth for economies connected to China.

China’s economy is closely integrated with the Asian economy. In 2013, China proposed the establishment of the Asian Infrastructure Investment Bank (AIIB), which is now the second-largest development bank after the World Bank. RCEP, for which China is a member, now accounts for 47.4% of world population, 32.2% of global GDP, and about 29.1% of global trade volume, making it the largest trade bloc in history.

In recent years, there have been some people who believe that we are now entering into a period of “de-globalization,” but I would argue that we are now entering into a new phase of “re-globalization,” which I define as upgrading and restructuring globalization in which different actors are working to rebuild the dynamics of globalization.

I would like to conclude with a quote from President XI during the recent BRICS Summit in South Africa. “A Chinese adage reads, ‘Victory is ensured when people pool their strength; success is secured when people put their heads together.’ Let us stay committed and united to build a community of shared development, and make sure that in the process of global modernization, no country is left behind.”

Speech 4

NGUYEN Anh Duong (Director, Department for General Economic Issues and Integration Studies, CIEM)

ASEAN is living in a mixture of opportunities and challenges, and we are still uncertain of their extent. It is facing an investment shift in the context of the U.S.-China decoupling. Its growing role has also been recognized by the international community after the successful hosting of major events in 2022 and 2023. In addition, there are now negotiations for the upgradation of some ASEAN-plus-one FTAs following RCEP.

Various stakeholders claimed that the 12th Ministerial Conference of the WTO, RCEP and IPEF are all lacking substance. In my view, nevertheless, they offer the chance for everyone to sit together after a tough time of uncertainty and disbelief, and that is the first important step..

In that context, we need to promote ASEAN centrality. First, we need to make ASEAN integration more relevant and meaningful through a better-capacitated ASEAN Secretariat. Second, we need collaboration in attracting foreign investment. Third, we need to foster an ASEAN perspective in various arrangements. Lastly, ASEAN needs to provide a platform for dialogues and work with superpowers on concrete initiatives beyond economic issues.

On that basis, I think we could have an adaptive approach to de-risking. We need to ensure core economic benefits for all parties, learn from past experiences with regional FTAs, and engage with foreign investors. Moreover, we can work together to incubate new ideas for collaboration, think of structural reform as an important area for collaboration, and start concrete initiatives in relatively new areas. Finally, we should consider a new role for think-tanks to foster dialogue and build connectivity.

In conclusion, we need to be part of multilateral trading systems in order to deal with de-risking and economic coercion. In doing so, we need to respect the rules and also contribute to writing the rules, while keeping the mindset of multilateralism.

Speech 5

Lili Yan ING (Lead Advisory (Southeast Asia Region), ERIA and Secretary General, IEA)

In the last five years, we have been experiencing some of the highest pressures in supply chains in history due to the combination of U.S.-China tensions, COVID-19, and the recent conflict in Ukraine, among others. Despite that, ASEAN countries did relatively well, recording an economic growth of 5.6% last year thanks to the combination of good policy and good luck.

From the perspective of “good policy,” over the last two decades, ASEAN’s economy has been able to manage relatively reasonable ratios of debt to GDP and relatively low fiscal deficits to GDP at 60% and 1.9% respectively. Turning to the perspective of “good luck,” in the last three years, ASEAN countries recorded a trade surplus and a massive increase in exports, mainly driven by increases in commodity prices and not necessarily by value added.

Like other countries in East Asia, ASEAN is benefitting from globalization, and that is why it is very important for ASEAN and its member states to strengthen the multilateral trading system. In order to do that, we need to ensure that they are well-functioning and include issues related to climate change and digitalization. We also need to keep trade and investment policies open and fair prohibiting unilateral punitive actions, improve trade and investment within East Asia, and strengthen cooperation with partners.

In addition, we need to invest in developing, upgrading, modernizing, and decarbonizing logistics and maritime infrastructure to enhance supply chain resilience. This is particularly important as 90% of trade at the global level is currently conducted over the oceans.

Finally, we need to invest in digital transformation whether we like it or not, as we are already in the digital transformation era. It is important for us to optimize the use of digital technology in supply chains and facilitate the participation of firms in digitalized supply chains and improve both physical and digital infrastructure.

Q&A

ARMSTRONG:
How can economic coercion be countered and limits be put on the use of economic weaponry? How can the strategic competition between China and the U.S. avoid damaging the region’s interests? Would an anti-coercion instrument weaken the WTO in the existing system or act as a deterrent consistent with the system? Would this sort of instrument be able to be deployed against Japan, the U.S., Australia, and other countries?

STA MARIA:
I think if you want to have anti-economic coercion measures, you have to first define what “economic coercion” is. My first course of action would always be the WTO, and then defining what it is that you are hope to achieve. I think taking politics out of the equation is also very important, as well as looking at the economics of it and its impact on trade and investment. Then, after looking at things from the outside and seeing how things are developing, it is important to go back to the data and to strengthen the WTO rules. If we are looking at the middle economies, ASEAN clearly has a role here. At the end of the day, what goes around comes around, so I would be cautious in how I would approach this.

ING:
I think decoupling, de-risking, and friend-shoring are going to increase inefficiency, which will lead to an increase in prices to consumers. As for anti-coercion coalitions, we have to think about the common concerns. For example, when the G7 raises the idea of an anti-coercion coalition and has a common concern in mind, let us take a minute and put ourselves in the shoes of the rest of the world. These types of actions and definitions might backfire by reducing trust as a trade partner, so I would suggest the middle-power countries like Japan, South Korea, Australia, and ASEAN countries sit together to ensure that there are no more punitive unilateral actions, and we should put a lot of effort into strengthening the open and fair multilateral trading system.

WANG:
I think to make this concept a scientific one, it is very important to define it in a clear and scientific way. If you make it too broad, it could lead to hypocrisy. I think there is also a problem of selection bias. China is often mentioned, but there are thousands of cases where the U.S. has practiced economic coercion as well. Furthermore, it is important to not politicize this concept and use it as political rhetoric to single out certain countries or criticize certain policies. It is against the spirit of cooperation and mutual understanding.

ARMSTRONG:
What should countries do when they are hit by unilateral sanctions or protectionist measures, whether they are politically-motivated or not?

KUNIMATSU:
Everything should be dealt with through the WTO and FTA rules. As for economic coercion, in addition to the academic side and political side, I think we need to have the viewpoint from the business side because they are the most impacted.

WANG:
I think we need to play by the rules of the multilateral trading system. First of all, as a top priority for all policymakers of all countries, we need to rebuild and restore the trade disputing system at the WTO.

ARMSTRONG:
How do you look at compensating the losers from globalization, if at all?

NGUYEN:
In Vietnam, when we developed our strategy for economic integration, we included domestic consensus and capacity building in the process. One key characteristic of ASEAN FTAs is the development cooperation where a more advanced partner provides support and technical assistance to a developing country. It is also about growing together and having a win-win relationship. In addition to emphasizing capacity building, we pay attention to engaging stakeholders in the process.

STA MARIA:
We have FTAs, but we have to be very conscious of what we are doing in the process. When we talk about losers, it is important to consider engagement. While many people tend to think that what we do in APEC or ASEAN is for big businesses, there is increasingly a strong consideration in all our FTAs for development and support for small and medium enterprises (SMEs). We have to accept that FTAs are not panaceas. In this regard, business facilitation and structural reform are equally important. When it comes to ensuring that there are no losers in economic integration, we have to make sure that FDI into our economies take into consideration both environmental impact assessments and social impact assessments.

ARMSTRONG:
How can Japan balance economic security with a free trade order? Are we not headed for a race to the bottom where we are all worse off? How should we respond?

KUNIMATSU:
The context of the balance is very difficult. Is it an economic, political, or philosophical balance? Nevertheless, Japan’s Economic Security Promotion Act is very consistent with the WTO. Regarding subsidies, we have the WTO’s Agreement on Subsidies and Countervailing Measures, but there is still a lack of interpretation, so we should discuss and elaborate the rules.

NGUYEN:
In the past, Japan and Vietnam worked together on a joint industrialization strategy based on the practical needs of Vietnam and the interests of foreign investors. It was the first time we had the Japanese embassy and investors sitting together with Vietnamese stakeholders and policymakers in the same room at the same time. During the process, the first important thing was capacity building in industrial policymaking. The second was fostering the trust of countries in the region, ensuring all sides that work was being undertaken to safeguard both investor interests and supply chain resilience.

WANG:
There is a concept in international relations called “securitization.” It is very easy for policymakers to overstep and for it to become “over-securitization.” While a lot of countries are putting more and more emphasis on economic security, I think more theoretical studies are needed on how to balance the idea of security with the multilateral trading system. In addition, I believe the WTO may be insufficient in designing mechanisms and rules in regulating the policy behavior of countries in terms of their industrial policy. In that regard, we can improve or negotiate better mechanisms and rules under the WTO by distinguishing between legitimate and illegitimate industrial policies. There is the danger of all countries racing to the bottom because there are no WTO rules regulating that. We can start thinking in theoretical terms and then see how we can move gradually to policies.

STA MARIA:
The WTO is not an amorphous being. We are the WTO. If we are not in the room helping to make and correct the rules, do not blame it on the organization. Unfortunately for ASEAN, conversations are limited to the pillars. There are no cross-community conversations in which the political security apparatus can talk to the economic apparatus when they are talking about trade liberalization and globalization. That is why we get the impression that the WTO, ASEAN, or APEC is not effective. Therefore, we really need to think about it differently, as well as the roles and structures within our organizations that need to change.

ARMSTRONG:
The security imperative has led to a technology decoupling between China and the U.S., and other countries willingly joining or being pressured to join this endeavor, but at what cost? Is climate change a potential issue for which we can regionally and globally find a framework for the U.S. and China to actually cooperate?

ING:
I think it is important for the U.S. and China to sit together on climate change and digital transformation as they require global efforts. On the other hand, I think the role of middle power countries is also important because we are now living in a multipolar world. Let us not get dragged down with the U.S.-China decoupling strategies. Each superpower has their own interests and agendas. It is important for the middle powers to not take sides, but rather to mobilize power to ensure that the focus is on resolving the truly important issues and strengthen the multilateral system.

WANG:
I think it is going to add huge costs and it is becoming increasingly unsustainable. As for the middle power countries and choosing sides, the very last thing we should do is to force the international community to do that. In theory, if we can strike a balance, it would be the most ideal, but in real policy terms, there are a lot of dangers that we could easily overstep, making it counterproductive.

NGUYEN:
I think the smaller economies are concerned. We all agree that there is a need for digital transformation and green transition, but we are also concerned about the standards for this process, because choosing standards can also be seen as choosing sides. Furthermore, we need to keep the mindset favorable for international collaboration because the context may change and the players may change. Finally, there is growing room for the middle economies to start off with some soft instruments such as the Digital Economy Partnership Agreement (DEPA).

Concluding Remarks

Shiro ARMSTRONG (Visiting Fellow, RIETI/ Associate Professor, Crawford School of Public Policy; ANU; Director, AJRC; Director, EABER)

It seems like we are moving into a world of clubs. We have to ensure that these clubs are open and contribute to the multilateral system. I think it is important for ASEAN to speak with one voice. We need a multilateral rules-based order that is built on equal treatment for smaller countries to compete and survive. As for the WTO and the MPIA, the ASEAN member states need to join and stand up for the rules. I think this is where we need some leadership from this part of the world.

If we talk about de-risking, we have had a really long period where risks were mitigated and managed under a multilateral rules-based system. Now, with new areas where we do not have multilateral rules, if we do not collectively manage and mitigate all of the risks, de-risking is going to turn into decoupling, and it will not be just between the U.S. and China, but a big fracture down the middle of our region. Overall, I think there is a call to action for countries to stand up for the multilateral system and to actually do something about it.