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 11 th. 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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