The Geo-Political & Economic Implications of the ASEAN-China Free Trade Agreement


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Presentation for our International Policy & Politics course in Carnegie Mellon. Analyzes broader geo-political implications of deeper economic integration between ASEAN and China.

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  • Chinese called them Xisha Group (West Sandy Islands) and Nansha Group (South Sandy Islands)Vietnamese called it East Sea and named them differently.English names are given by European voyagers.
  • Chinese used to group it with Spratlys.
  • Not all of them have structures. Some just have flags or marks. In fact many are too small to hold any meaningful structure.China and Taiwan always have a united front on this issue.
  • Oil reserve: 7.7 billion barrels (proven), 28 billion (estimate). Chinese consumption of oil: 7.8 million barrels per day. Source: US Energy Information Administration. < /China/Oil.html>; 50% of the world’s annual merchant fleet tonnage pass through this area, including China’s import and export. Since the archipelagoes are documented in Chinese ancient history and geography books, the Chinese government can hardly convince the people of giving up the territories, which was the cause of revolutions in the early 20th century.Nationalism also exists in other countries. The governments of Philippines and Vietnam faced the same problem.UNCLOS – counting 200 nautical miles from the “baseline” which is the low water mark of a piece of land. If China has the right to occupy ItuAba, (the biggest island in the Spratlys occupied by Taiwan for half a century and with documentary prove of Chinese presence for hundreds of years) can the distance be measured from there? Source: UNCLOS <>; <>
  • China has softened its stance on bilateral negotiation.But its stance is still clear that parties not having a dispute in the area should not be involved, e.g. USA.Officially, ASEAN held the same stance. USA’s involvement was declined.
  • Difficulties faced by the countries (same for everyone):A soft stance will benefit all, say if there is oil, it can be exploited by joint venture.But nationalism prevents that from happening as it mean giving up part of the country’s resources to foreigners.The Joint Marine Seismic Undertaking Accord among China, Philippines and Vietnam was the first cooperative effort under the Declaration of Conduct.It was however stalled because the Filipinos found that the arrangement made by their president was unconstitutional. (a) The undertaking was made secretly.(b) It involved an area which should be territories of the Philippines.(c) It violated the rule that any partner of a joint venture for exploitation of natural resources must be 60% Filipino owned.Source: <>Nationalism always pushes for a hard line. But a hard line will mean conflicts which is not the governments want to see.
  • What would you do if you were the ASEAN governments?What would you do if you were China?What would you do if you were USA?
  • 1- Indonesia has just taken delivery of the last of six Russian fighter jets worth $300 million. Thailand has received the first of 96 Ukrainian armored personnel carriers ($125 million), with the first of six Swedish fighter jets and two other aircraft ($574 million) arriving in early 2011. Singapore will soon launch the second of two Swedish attack submarines ($128 million), while Malaysia has already spent $1 billion on two Franco-Spanish subs of its own. IMPLICATIONS: The acquisition of sophisticated weapons indicates two things: First, that Southeast Asian nations are more wary of each other than fraternal declarations at ASEAN meetings suggest. Second, that a region that publicly welcomes China's soft power is also quietly tooling up for the hard version. i.e. they are wary of China’s assertiveness in the region. 2- US Defense Secretary Robert M. Gates went to Vietnam where he held private talks with his Vietnamese counterpart during a conference of defense ministers from across the region. KEY ISSUES DISCUSSED: How to manage China’s expanded claims of maritime rights in the South China Sea. China has backed those claims with threats of economic retaliation against some nations in the region. 3- This is an excerpt from THE MAINICHI DAILY NEWS which reports that many Asia-Pacific countries have benefited from U.S interest in the South China Sea and its commitment to keeping sea lanes open to enable free trade and commerce. The news highlights the conflict of U.S “national interest” vs. China’s “Core Interest” in the region. Huntsman, U.S ambassador to China, touched on sensitive issues like “resuming U.S-China military-to-military ties” which were suspended earlier this year as a result of US $6.4billion arms sales to Taiwan. He also spoke about the recent awarding of the Nobel Peace Prize to imprisoned Chinese activist Liu Xiaobo signifying it as an important gesture to freedom and democracy.
  • 1- In private, officials from the Philippines, Malaysia, and Vietnam, among others, all have pushed the United States to weigh in much more heavily on the South China Sea disputes. Vietnam, in particular, has sought a closer security relationship with the United States as a balance to China. The United States and Vietnam have launched an annual defense dialogue between the Pentagon and Hanoi's defense ministry, and the United States may be about to embark upon a deal to share nuclear fuel and technology with Hanoi. In fact, while the Obama administration came into office planning to make a drastically upgraded relationship with Indonesia the center of its Southeast Asia initiative, it may turn out that its greatest legacy in the region is a new security relationship with Vietnam that eventually could be on the level of the U.S. relationship with Singapore--not a treaty ally, but virtually one. US should also engage its multilateral organizations to seek projects viz-a-viz the USAID. This would further its aim and ambitions to increase its engagement in the region. 2-In the short term, the United States, China, and the key Southeast Asian nations could quietly agree to tamp down rhetoric over the South China Sea, keep the South China Sea off the agenda of regional meetings in the near term, and utilize track-two diplomacy to explore durable solutions.3- One which underscores the U.S strategic interest in Southeast Asia in general and in assuring a peaceful settlement of any South China Sea dispute in particular.
  • The Geo-Political & Economic Implications of the ASEAN-China Free Trade Agreement

    1. 1. Shanghai, China Junaid Haq Elvin Ivan Uy James YeungInternational Policy & Politics 21 October 2010
    2. 2. Kuala Lumpur, Malaysia Overview of ASEAN By the Numbers: China & ASEAN The ASEAN-China Free Trade Agreement Disputes in the South China Sea Implications for the U.S. Concluding Thoughts Questions for Discussion 2
    3. 3. Total Population (2009) China 1.33 Billion Myanmar 60M Laos 6M Thailand 67M Vietnam 87M Philippines Cambodia 92M 14M 592 Million Brunei Malaysia 0.4M 28M Singapore 5M Indonesia 232M 3
    4. 4. Nominal GDP (2009) China $4.98 Trillion Myanmar $34B Laos $6B Thailand $264B Vietnam $93B Philippines Cambodia $161B $11B $1.49 Trillion Brunei Malaysia $10B $193B Singapore $182B Indonesia $539B 4
    5. 5. Bangkok, Thailand  Established by Indonesia, Malaysia, Philippines, Singapore, Thailand in August 1967  Brunei (1984), Vietnam (1995), Lao PDR & Myanmar (1997), Cambodia (1999) joined later  Aims & Purposes: – Economic growth, social progress, cultural development – Regional peace & stability  Fundamental Principles: – mutual respect & non-interference on internal affairs – Peaceful settlement of disputes – Effective cooperation  A diverse grouping of countriesSource: ASEAN. (n.d.) About ASEAN. 5
    6. 6. China ASEAN Total Population (2009) 1,334Mn 592Mn 1,926Mn GDP (nom, 2009) $4.98Tn $1.49Tn $6.47Tn Export to (2008) $107.1Bn $85.6Bn ASEAN Total Trade & Net Import with China ($Mn) Top Trade Partners: Tota Trade Net Import 1. Japan 50,000 192,672 200,000 171,118 2. E.U. 40,000 139,961 160,000 3.China 30,000 113,394 120,000 4. U.S. 89,066 21,557 20,000 15,228 80,000 8,879 9,941 10,000 6,362 40,000 - - 2004 2005 2006 2007 2008Source: Population & GDP data from IMF, ASEAN-China trade data from ASEAN 6
    7. 7. High quality 1 of life Australia Japan U.S. 0.95 Singapore 0.9 Size of bubble based on GDP per capita Human Development Index 0.85 Malaysia 0.8 growth rate from 2000-2009 Thailand China 0.75 Philippines Indonesia Vietnam 0.7 0.65 Lao PDR 0.6 Cambodia 0.55 0.5 24 29 34 39 44 GINI Index High economic inequalitySource: Gini Coefficient & HDI data from UNDP, GDP per capita growth rate data from World Bank 7
    8. 8. Ilocos Norte, Philippines  China part of ASEAN+3 (with Japan & South Korea)  Closer ties post 1997 Asian Financial Crisis  Increased need to trade with China due to Japan’s “lost decade”; diversification for ASEAN  Complementary with SG (e.g. services), competitive with others (i.e. export-oriented labor intensive manufacturing industries)  Trade in goods signed on 2004, in services on 2007  ASEAN exports mostly raw materials (e.g. rubber, metals), energy products (e.g. oil), agricultural produce (e.g. rice, coffee) to China  China exports textile and electronics, invests in countriesSource: Gao, H. (2009, Dec). China’s Strategy for FTA: Political Battle in the Name of Trade. Singapore Management University. 8
    9. 9. Angkor, Cambodia  3rd largest FTA by GDP, largest by population  11 parties constitute 13.3% of global trade, half of total trade in Asia (2008)  “mutually dependent & beneficial relationship”  China’s growth a plus for ASEAN  ASEAN to be supply chain for China’s economy  A net positive for all countries – “more jobs, more spending power, greater synergies”Source: ASEAN (2010, Jan). ASEAN-China Free Trade: Not a Zero-Sum Game. Image from here 9
    10. 10. Bali, Indonesia  ASEAN signed framework agreement on Nov 2002  Phased implementation: – 1st with ASEAN-6 (BR, ID, MA, PH, TH, SG), came into force Jan 2010 – Next with ASEAN-4 (CM, LA, MR, VN), not until 2015  Negotiations with ASEAN-6 began in 2005  Drop in tariffs on Chinese imports from 5 to 0% for more than 7,000 types of productsSource: Severino, R. C. (2008, Apr). ASEAN-China Relations: Past, Present and Future. Institute of Southeast Asian Studies. Image from here. 10
    11. 11. Vientiane, Lao PDR  China growing at the expense of ASEAN – TNCs moving operations from SEA to China  Devalued yuan a greater pull for FDI vs. SEA currencies  Problem of smuggled Chinese goods (e.g. VN shoe industry, PH shoe & vegetable industries)  Thai “Early Harvest” debacle – China’s “half open model”: free trade for exports, protectionism on imports  Do ASEAN countries have competitive/comparative advantage in any good/service? For how long?  Reproducing old colonial division of labor arrangement?Source: Bello, W. (2010, Jan). The China-ASEAN Free Trade Area: Propaganda and Reality. Philippine Daily Inquirer. Image from here. 11
    12. 12.  Archipelagoes with different names  3 groups, claimed by – China – Taiwan – Vietnam – Philippines – Malaysia – Indonesia – BruneiSource: Pham, N. (2009, Nov). Scholars meet to discuss South China Sea disputes. BBC. 12
    13. 13.  30 islets, sandbanks, reefs  15,000 km2 of sea  China, Taiwan, Vietnam  War in 1974Images (from top, clockwise) from here and here. 13
    14. 14.  A lagoon of rock protrusion of 0.5m – 3 m high  150 km2 of sea  China, Taiwan, PhilippinesImages (left to right) from here and here. 14
    15. 15.  750 islets, sandbanks, reefs  425,000 km2 of sea  China, Taiwan, Vietnam, P hilippines, Malaysia, Indo nesia, Brunei  Mischief Reef incident in 1995Images from here. 15
    16. 16. Current situation at SpratlysImage from here. 16
    17. 17.  Recorded in ancient Chinese history since 2 BC (Han Dynasty), then Yuen, Ming, and Ching Dynasties  In Chinese maps of 18th and 19th centuries  In Vietnamese map in 19th century • 1933, French weather stations on Spratlys (Itu Aba), found Chinese, protested by ROC (Taiwan) • WWII occupied by Japan, everything grouped together • Sovereignty after WWII…..Sources: 維基文庫武經總要 (WuJingZongYau) 17
    18. 18. Oil Strategic Important Neighborhood Sea Route Position Relations Historic External: Internal: Expansionism Nationalism BurdenImage from here. 18
    19. 19.  China: territorial issues are bilateral  ASEAN: resolve it multilaterally  1995: Philippine & China reached a Code of Conduct to resolve their dispute peacefully  2002: Declaration of the Conduct of Parties in the South China Sea between ASEAN & China – UNCLOS – Refraining from inhabiting on presently uninhabited islandsSource: ASEAN (2002, Nov). Declaration on the Conduct of Parties in the South China Sea. 19
    20. 20.  2003: China signed the Treaty of Amity and Cooperation in Southeast Asia  2005: Joint Marine Seismic Undertaking Accord, but ended due to nationalism  2008: Chinese submarine base at Hainan  2009: Vietnam tried to revive the proposal for a code of conduct, involving US? With only the Declaration of the Conduct, peace can only rely on self-restraint…Sources: Chinese Embassy in Australia. BBC in Mandarin. ASEAN Treaty of Amity. Federation of American Scientists. 20
    21. 21. Everyone stepped up construction of structures on islands already occupied What is the Way Out?Images (from top, clockwise) from here, here and here. 21
    22. 22. Yangon, Myanmar  Military Maneuvers (Sept 27, 2010)  In Vietnam, Gates to Discuss Maritime Claims of China (Oct 10, 2010)  Region benefits from U.S. interest in South China Sea: envoy (Oct 19, 2010)Sources: Marshall, A. (2010, Sep). Time; Shanker, T. (2010, Oct). New York Times; The Mainichi Daily News. (2010, Oct). Image from here.
    23. 23. Singapore  Positive role in the multilateral process  Keep South China Sea off agenda of regional meetings in near term – track-two diplomacy  More proactive in promoting direct dialogue among the claimantsSources: Kurlantzick, J. (2010, Sep). Avoiding a Tempest in the South China Sea. Council on Foreign Relations; Cossa. R. A. (1998, Mar). Security Implications of Conflictin the South China Sea: Exploring Potential Triggers of Conflict. Pacific Forum CSIS. Image from here.
    24. 24. Hanoi, Vietnam  China treats SEA as its own backyard, will continue to expand political & economic clout  The U.S. will continue to serve as counterweight  Increased trade between parties preserves status quo with regard to SCS disputesImage from here. 24
    25. 25. Goodwood, Adelaide1. If China supplants Japan & EU (as projected), will this be a net positive for ASEAN?2. Will ASEAN increasingly be seduced, and eventually follow, the ‘Beijing Consensus’?3. Is China really a benign power in the region?4. How does ‘tough talk’ in the U.S. shift stance of ASEAN economically & politically? “..even under the most crushing state machinery, courage rises up again and again for fear is not the natural state of civilized man.” – Aung San Suu Kyi 25