South China Sea Dispute and Institutional Balancing: ASEAN, TPP and AIIB
Total Page:16
File Type:pdf, Size:1020Kb
South China Sea Dispute and Institutional Balancing: ASEAN, TPP and AIIB Takashi Terada (Doshisha University) Introduction China, the largest trading partner for more than 125 nations in the world, is in the position to uses its economic clout to realise its political and strategic interests. Economic interdependence, chiefly intensified by China’s trade and aid growth in the region, can thus act as a means of achieving China’s national interest, including its assertion in the South China Sea, as seen in China’s massive flow of aid to Laos and Cambodia that has been instrumental in dividing ASEAN members on the South China Sea dispute. Therefore, deepening interdependence does not lead to the political stability in East Asia. It appears imperative for the other claimants in Southeast Asia, as well as the United States and Japan, which also have condemned China’s aggressive and illegal actions in the South China Sea including the construction of artificial islands. ASEAN has, however, failed to take an effective means against these Chinese maritime behaviors, casting a stronger doubt on the organization’s usefulness for the regional security. It has been growingly difficult for any nation, which has increased their trade and, for some, aid, reliance on China, to pass strictures on China’s policy approach, and China has capitalized on the economic influence over some members for manipulating moves concerning the South China Sea in ASEAN-sponsored meetings. Accordingly, it appears rational to diversify trade and aid destinations of ASEAN member states if ASEAN can become more an effective institution for the contested maritime issues. Identifying excessive economic interdependence with China as a major source of its influence over ASEAN, this paper examines potential roles which regional economic institutions, especially the TPP, can play in terms of reducing the regional economic dependence on China. It argues that if implemented, TPP’s substantial liberalisation, mostly via high standards for trade and investment can depicted as catalysing interconnections in pursuit of common markets and shared economic rules that would ultimately reduce export dependence on China, a key factor in making many states susceptible to Chinese political influence. 1. Regionalism and soft institutional balancing The balance of power is one of the tenets of realism in international relations theory, and realists consider that states largely take a hard-balancing act, such as military build-ups and alliance formation, so as to preserve their survival and sovereign independence in the international system, and so as not to permit the emergence of preponderant states (Paul, 2005: 51). However, states in the Asia-Pacific region have not adopted such hard-balancing strategy neither against the United States, the preponderant state (Pape 2005, Paul 2005), nor China, the rising state (He and Feng 2008), in the post- Cold War era. Rather, regional states have tended to take a ‘soft’-balancing act against their pressures or potential threats, by way of, for instance, institutional balancing, which refers to “the activity of restraining a dominant country and reining in its activities in a multifaceted manner by engaging in the establishment, formation, or development of rules, international institutions, and forums of various kinds” (Tokyo Foundation 2011: 34). It is neo-liberal institutionalism that emphasises the need of policy coordination to manage the political complexities arising from growing economic interdependence, and that stresses the importance of international institutions to promote the process towards mutual gains. Yet, regional institutions also encourage a separation of inner and outer status and this network externality causes an unease to outer countries, and some states become tempted to capitalise on this discriminatory nature of regional institutions for its own interests, so realists can also see international and regional institutions as a potential significant tool in power-based international relations. Institutional balancing takes the form of inclusive or exclusive approach, depending on whether states’ balancing acts include a target state within the institution or excludes it from the institution. Inclusive institutional balancing means ‘states practice norm/rule-building to constrain other states’ behaviour or control and manipulate agendas to address issues related to their interests in multilateral institutions’, while exclusive institutional balancing implies ‘states consolidate their political and economic unity to resist pressures from outsiders’ (He 2008). In short, institutional rules can become a balancing device, particularly if member countries seek to use them in order to shape a regional order and set common rules, which the targeted state finds difficult to accept or involve. A key mechanism in institutional-balancing, especially designed to exercise an influence on the targeted states through economic agendas is trade diversion from the exclusive nature of Free Trade Agreements (FTAs). Benefits brought to a party to an FTA, such as the elimination of tariffs, generally victimise a third country not included in the agreement. This means a third country’s products that are more competitive in terms of quality and price will be replaced by the FTA country’s less competitive products thanks to the FTA, which will negatively affect consumers of the FTA countries, while exports from the third country to the FTA countries will be blocked and reduced. While tariff-free privileges will be granted to companies in the FTA countries, third country companies will be placed at a competitive disadvantage. The crux of this argument is the difference in economic power of FTA negotiating countries. As Bhagwat (2008: 43-48) indicates, all countries do not wield an equal amount of power; one country may be a major power in a military or economic sense, and thus have greater influence on another, so we often see a pattern where FTAs move forward due to the interest and influence of such hegemonic powers. In the case of FTAs signed by powerful countries, since certain third countries will have their market access inhibited, trade diversion concerns become clearer, which motivate another country to conclude an FTA with the same major power. In this sense, even if small and medium-sized countries conclude an FTA together, this will not necessarily cause trade diversion concerns, and even if a major economic power were inhibited as a third country, this major power can be said to have few motivations to conclude FTAs with these small and medium-sized countries. In other words, trade institutional-balancing effect would be more influential only when a large-economy takes an initiative. The following sections examine ASEAN, TPP, AIIB and RCEP as an institutional- balancing function, while China has capitalised on its economic prowess for its political and strategic purposes. 2. China’s economic strategy in relation to the South China Sea The 2000s witnessed China’s charm offensive diplomacy in Southeast Asia, as seen in its engagement in the signing of the ASEAN+1 Free Trade Agreement (FTA) and ASEAN’s Treaty of Amity and Cooperation (TAC) ahead of any other regional country, laying the foundation for China to exercise its economic influence subsequently. In fact, the influence of China’s charm and amicable diplomacy in East Asia made a conspicuous difference compared to Japan’s regional diplomacy, which primarily evolved around the alliance with the United States, especially when Koizumi and Abe were prime ministers (Terada 2010). China’s chief motive behind such an active ASEAN diplomacy lay in its effort to remove the threat perception towards its regionally expanding military and economic influence; a desecuritisation of its rise (Goh 2007). According to Khoo (2011), the extremely high level of precaution against China’s military rise exists as fait accompli in East Asia as a whole, and he concludes that the regional countries’ anxieties on how China would use its growing military capabilities encouraged their support for US continued presence in the region. Another motive behind China’s active ASEAN diplomacy is seen in its commitment to ASEAN’s economic development to help narrow the developmental gap, then called “ASEAN divide”, between under-developed Indochina counties and the original members of ASEAN. For instance, China, especially Yunnan Province and the Guangxi Zhuang Autonomous Region, engaged in the “Greater Mekong Sub-region Economic Cooperation Program”, with four Indochina countries and Thailand, and actively delivered aid to the advancement of infrastructure and transportation sectors in the region. Consequently, China accomplished the deepening economic interdependence with and the region, as seen in the trade volumes of the two provinces of China soaring 5-fold with Myanmar, 11-fold with Laos, and 6.5-fold with Thailand (Su 2012). China also endeavoured through its active good neighbourhood diplomacy to make Southeast Asia a cordial region for China, serving as a shield from pressures exerted by other great powers, especially the United States (Zhang and Tang 2005). Any effort to promote economic ties in ASEAN was viewed as one of the essential approaches for this goal. Former Deputy Assistant Secretary of State, Ellen Frost (2007), coined China’s economic diplomacy as “commercial diplomacy”, arguing that the purpose was to increase its influences on the non-economic sectors, including security, through the exercise of economic power that would provide the access to foreign markets. In fact, the trade dependence on China among US allies in East Asia has skyrocketed. For instance, whereas Japan’s trade with the US decreased from 27.1% to 13.7% between 1999 and 2009, the trade with China rapidly surged from 9.1% to 20.5%. Likewise, China’s trade proportions in South Korea increased from 8.6% to 20.2%, and in Australia from 5.7% to 19.7%, while the US presence in South Korea declined from 20.7% to 9.6%, and in Australia from 15.8% to 8.1% (Yamamoto 2012). In other words, the trade situation of major US allies in the region reversed between China and the US in 10 years in the 2000s.