Economics and finance, Trade and industry, International relations | Asia, Southeast Asia

14 November 2021

The Asian region is seeing massive shifts in its economic landscape, and it needs a better system of cooperation to manage that change, Manqing Cheng writes.

With the COVID-19 crisis having massive economic effects, the development of supply chains in Asia is changing rapidly, thrusting the region into a period of profound transition and adjustment that will require greater cooperation to navigate successfully.

The United States’ increasing presence in the region is having a serious impact on regional cooperation mechanisms in Asia. One aspect of this is how the trade tension between the United States and China continues to affect supply chains and bring enormous uncertainties to the region’s economic development.

On top of this weakening of cooperation, the economic difficulties caused by COVID-19 have caused serious issues for the region. In this context, keeping supply chains and trade flowing smoothly is the key to reviving the region’s economy.

To cope with some of this economic pressure, maintaining the integrity of regional supply chains is the focus of many countries many countries in the region. So, what stands in the way of this, and what can be done to strengthen regional cooperation in this area?

First, there is a lack of regional identity. The region has great diversity in religious beliefs, national character, and cultural perspectives, and there are geopolitical fissures across Asia that serve to undermine trust.

What that has meant is that many of Asia’s cooperative mechanisms are based on the convergence of material interests, rather than a shared identity as Asian nations.

More on this: The AUKUS alliance and ASEAN’s waning centrality

Secondly, the leading forces of Asian cooperation have been weakened by the major powers’ responses to tensions between the United States and China and the effects of the pandemic.

Third and most importantly, with intricate geopolitical issues and entanglements across the region, the Asian community cannot be dominated by big powers who are not able to contribute usefully to their resolution. Instead, it can only rely on the centrality of multilateral bodies in the region, like ASEAN.

ASEAN, while active, has been hamstrung by recent events, especially in its ability to work with the large economies of East Asia. Due to the territorial disputes and historical issues between China, Japan, and South Korea, cooperation in East Asia has been limited.

Since Japan joined Trans-Pacific Partnership negotiations in 2011, its willingness to promote cooperation within East Asia has plunged in favour of focusing on cooperation with other parts of Asia and beyond.

This has left ASEAN, whose members are much smaller than the large East Asian economies, the only hope for multilateral cooperation in East Asia.

Over recent decades, China, Japan, and South Korea have all become consumer economies, shifting their output to services. This move up the value chain has intensified competition within the region, as their enterprises are also facing fiercer competition from other developed countries like the United States. Without structures in place to manage these shifts, pre-existing linkages between the three major East Asian economies are breaking down.

More on this: ASEAN’s dilemma in the South China Sea

In turn, the lower part of the value chain, especially manufacturing, has been taken up by South Asian and ASEAN countries. These shifts throughout the region require a better system of cooperation if regional policymakers hope to maximise opportunities from theses change and minimise risks.

Multilateral cooperation is especially suited to this, despite anti-globalisation increasingly hindering a productive division of labour.

Thanks to the US-China trade war and its effects, the system of trade and investment rules in the region is undergoing profound adjustments that need to be overseen by cooperative international policy-making bodies.

At present, many arrangements in Asia are being affected by geopolitical upheaval and there is a need to institutionalise cooperation between these countries to manage this.

Facing massive shifts in Asian value chains and the effects of the trade war and pandemic, countries in the region must spare no effort to continue promoting the growth and reform of multilateral systems.

Asia has benefited enormously from globalisation and cooperation in the last five decades and it can do so again. It must reinforce existing cooperation mechanisms and build a more inclusive and multilateral region.

Currently, regional cooperation is being led by ASEAN, which standing alone has not been able to effectively contribute to regional economic growth.

This does not mean that it is not working. Rather, an organisation that does not fully represent the large economies of East Asian countries simply does not have the weight it needs to affect change in the whole region.

As such, leaders should work toward building mutual trust among China, Japan, South Korea, and ASEAN members. Rather than three ‘10+1’ models, where each nation often ends up struggling with ASEAN for its own interests, the region must look to a more balanced ‘10+3’ model, where ASEAN can work with all the countries of the region to manage the massive change it faces in coming years.

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