26 March 2014
JUN 2ND - PECC - Student Conference - Photos by Ron Sombilon-PRINT-27-WEB

Open regionalism ... a long journey

Pacific Economic Cooperation Council leaders called for a renewed commitment to "open regionalism" at their recent meeting in Vancouver. But open regionalism is a long journey.

Pacific Economic Cooperation Council leaders called for a renewed commitment to "open regionalism" at their recent meeting in Vancouver. But while market opening has been the secret of economic success in the Asia Pacific, the laudable aspiration of open regionalism is a long journey.

Open regionalism has long been the war cry, a mantra, of leaders from the Asia Pacific through fora like PECC and APEC. And certainly openness to trade and investment, without discriminating against countries outside the region, has been a great driver of the region's extraordinary economic development.

Neither PECC nor APEC have the authority to push or keep markets open, and guard against protectionism. But they have been, and continue to be, important fora for propagating a regional philosophy which is accepted pretty much by all.

In Vancouver, PECC leaders said "... we believe that with continued, determined efforts to reduce barriers and strengthen integration through open regionalism, Asia Pacific economies can continue to grow substantially above the global average, helping to uplift the global economy."

But the need for open regionalism to go much further and deeper than in the past was clear from discussions at the excellent parallel conference "Canada-Asia 2013" organized by the Asia Pacific Foundation, also in Vancouver. In fact, open regionalism is not a destination. It is a journey, a long journey.

Why is it so important to take open regionalism to the next level?

Many economies in the region have made great progress in "catchup" or "convergence" to the world's leading economies. This means that innovation (not just absorption of international knowledge and technology) will now have to become a more important driver of development, and productivity growth. And opening markets more deeply can enable trade and investment to spur innovation, and reduce the risk of countries falling into the middle income trap.

Demographics are another reason for the region's innovation imperative. While youthful populations delivered a demographic dividend in past decades, rapidly ageing populations are now imposing a demographic tax in countries like Japan, Korea, Taiwan, and China. Last year, China's work force began to decline, an affliction from which Japan as suffered for any years now. To grow and maintain prosperity in an ageing society requires innovation and productivity growth, and hence more open regionalism.

At the same time, growth in the region is rebalancing towards greater emphasis on domestic demand and the services sector, and away from export-oriented manufactures, as US and EU markets remain sluggish. This means service sectors must be opened up to more competition and for trade and investment.

The development of "value chains" or production networks has been a key motor of economic development in the Asia Pacific. The classic example is that of the i-Phone. Invented in California and assembled in China, by Foxconn, a Taiwanese company, using components from Japan, Korea and elsewhere.

Even here, more open regionalism is critical. Successful exporters are also importers of goods which they reprocess. Further, as wages rise in China and elsewhere, staying competitive is a challenge. It is necessary to "move up the value chain" by doing higher value added activities. All the more so, as Western companies are continually evaluating the costs and benefits of production fragmentation, as evidenced by the "insourcing" or "reshoring" trend in the US.

Recent analysis by the OECD and WTO demonstrates that traded manufactured goods actually embody substantial amounts of services. This further highlights the imperative of having more open and competitive service sectors.

To date, open regionalism in the Asia Pacific has mainly focused on trade and investment for merchandise goods. As well cracking open service markets, it is now imperative to develop and open up capital markets. Economies like China, Japan, Taiwan and Hong Kong invest most of their massive surpluses in Western markets. At the same time, India, the Philippines, Burma and others have horrendous infrastructure deficits which are crying out for Asian investors.

Open regionalism must therefore focus on using Asian savings for Asian investment through further development and integration of capital markets, especially for local currency bonds.

International migration is one aspect of open regionalism not discussed by the conference, it being a thorny issue in the Asia Pacific. But the region's diverse demographics offer great opportunities for mutually beneficial migration between countries like Japan, Korea, Taiwan and China with ageing and declining populations, and those like Indonesia, the Philippines and India with young, growing populations.

Unfortunately, Asia is missing out on much of these migration opportunities due to restrictive policies. At the same time, the US, UK, Canada, Australia and New Zealand are currently blessed with a wave skilled migration from Asia, which is revitalising both their economies and societies.

Many of the Asian delegates at the conference marvelled at the Asianization of the wonderful Canadian city of Vanvouver, with 40% of its habitants being Asian. Strangely they did not seem to be struck by the irony of Canada being more open to Asian migrants than Asian countries are themselves. And that many Asians would prefer to live in Canada rather than Asia, being attracted by its open society and democratic politics.

But the irony is even deeper. In contrast to much of Asia, Canada is a country that treats its immigrants as social and cultural assets, as well as economic instruments. "Diversity is our strength", is a familiar refrain of Canadian political leaders, who regularly to turn to community events of Canadia's ethnic groups.

All of this is a far cry from the situation in some Asian countries, where migrants' rights abuses abound. Further, lower skilled migrants in Asian countries are usually not allowed to bring their families, and have virtually no hope of nationalisation, again in sharp contrast to Canada.

Thus, open regionalism must also mean openness to migration, not just trade, investment and finance. Open regionalism cannot only be a business agenda. It must be a human agenda too.

Ultimately, for the idea if open regionalism to have any deep sense, it must mean open mindsets. But nationalism is on the rise in countries like Japan and China, and border disputes are flairing up in the East and South East China seas, and across the Himilayas. Much new thinking will be required for the Asia Pacific region to live in peace, stability, security and harmony.

Is there a star on the horizon which might inspire our hopes for open regionalism, based on open mindsets?

PECC had the great wisdom to invite students from around the Asia Pacific to attend the conference, and participate in research projects, the preliminary results if which they presented to PECC delegates.

Having met all the students, and listened to their presentations, I feel confident that the future of open regionalism is in safe hands.

There is also another star in the sky. When Richard Nixon and Henry Kissinger went to China 40 years ago with open mindsets, they established effective personal relationships with Mao Zedong and Zhou Enlai, which changed the world forever. By going to California to meet with Barack Obama with weekend, Xi Jinping is similarly laying the foundation for a strategic partnership, a strategic friendship, which will be critical for the region and the global.

The Asia Pacific region must write a new answer to the age-old question of what happens when an established power and a rising power meet. The Chinese government has indeed been promoting the idea of a “new kind of great power relationship”. There is every reason to feel hopeful that Xi and Obama will combine their Chinese and American dreams into a new pacific dream, as well as a Pacific dream.


John West
Executive Director
Asian Century Institute
Tags: asia, pecc, asia pacific foundation, open regionalism, trade and investment, CanadAsia 2013

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