ASEAN Roundtable Series: South China Sea ruling and repercussion: How geopolitics impact ASEAN integration

Published on 4 November 2016

Professor Anthony Milner

Visiting Professor, Centre for ASEAN Regionalism, University of Malaya Professorial Fellow and International Director, Asialink (University of Melbourne) Advisor, CIMB ASEAN Research Institute

Anthony Milner is an historian specializing on Southeast Asia (particularly Malaysia and Indonesia) and regional relations. He was Director of the Australian Academy of the Social Sciences project on ‘Australian-Asian Perceptions’ and spent ten years as Dean of Asian Studies at the Australian National University. He is Co-Chair of the Australian Committee of the Council for Security Relations in the Asia Pacific and International Director and Board Member at Asialink (University of Melbourne). He is a Visiting Professor at the University of Malaya.

He has held visiting appointments at The Institute for Advanced Study, Princeton, the National University of Singapore (as Raffles Professor), Tokyo University of Foreign Studies, Humboldt University, Kyoto University, the National University of Malaysia and ISIS Malaysia (as Tun Hussein Onn Chair). He has served on a range of Australian government advisory councils and is a frequent media commentator on regional issues.

Professor Dato’ Dr. Zakaria Ahmad

Deputy Vice Chancellor, HELP University

Dato’ Dr. Zakaria Bin Ahmad is the Deputy Vice Chancellor of HELP University. He started his career at the Malaysian Ministry of Foreign Affairs in 1970, upon graduating from the University of Singapore with a Bachelor of Social Science (Honours) He was a teaching fellow at McMaster University, Canada from 1970-1971, where he completed his Master’s degree. Dr Zakaria joined Universiti Malaysia after completing his Master’s degree. He later taught at the University of Malaya from 1972-1973. Subsequently he entered the Massachusetts Institute of Technology (MIT) to pursue his PhD. Upon completion of his PhD, Dr. Zakaria was appointed Head and Associate Professor of the Department of Political Science at Universiti Kebangsaan Malaysia between 1978-1983. From 1983-1985 Dr. Zakaria was Deputy Director-General (Studies) at the Institute of Strategic and International Studies (ISIS) in Malaysia. In 1987 he returned to Universiti Kebangsaan Malaysia. Dr Zakaria was the incumbent of the Tun Abdul Razak Chair in Southeast Asian Studies at Ohio University from 2001 to 2003.

Bunn Sri Na Nagara

Senior Fellow, The Institute of Strategic and International Studies (ISIS) Malaysia

Mr. Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia, a press columnist and a commentator on contemporary strategic issues. He was Associate Editor and Foreign Editor of Star Publications (Malaysia), Consultant Editor at Moderation Monitor journal, Senior Analyst and Visiting Fellow at ISIS, Research Fellow at ISEAS (Singapore) and ASEAN Fellow at the Japan Institute of International Affairs (Tokyo). He held senior editorial posts at New Straits Times and New Sabah Times newspapers as well as TV3 News, was Editor of New Voice of Asia journal, Contributing Editor of South Review magazine, analyst at Malaysian Industry and Asian Defence Journal as well as ABC (Australia) Radio, and guest commentator on Asiaweek magazine and Aljazeera television. For covering the 1986 People Power Revolution in the Philippines, he received an NUJ citation and a Medal of Honor nominated independently by Philippine media and church leaders.

Mr. Nagara has published in Race and Class, The Indonesian Quarterly, Contemporary South-East Asia and Thinking ASEAN journals besides the Asian press. He co-authored Agents of Peace: Public Communication and Conflict Resolution in an Asian Setting (Jakarta, 2004), Regional Order in East Asia: ASEAN and Japan Perspectives (Tokyo, 2007), and The Rise of China: Perspectives from Asia and Europe (New Delhi, 2008).

He has contributed to undergraduate, civil/public service and journalism courses and served as tutor and lecturer at the Malaysian Armed Forces Defence College. He graduated from Southampton University and obtained a Post-Graduate Diploma from Uppsala University. He is a life member of the Malaysian Social Science Association and the Malaysian Association for American Studies. His research interests cover South-East Asia, ASEAN Community, South China Sea, national/regional security and defence issues, East Asian integration, China, developing world, Gulf region, global power blocs and major power relations.

Tan Sri Dr. Munir Majid

Chairman, CIMB ASEAN Research Institute President, ASEAN Business Club

Tan Sri Dr. Munir is the Chairman of CIMB ASEAN Research Institute (CARI) and the president of ASEAN Business Club (ABC). He is also the Chairman of Bank Muamalat Malaysia Bhd, and has been on its board since 2008. He obtained his B.Sc (Econ) from the London School of Economics and Political Science in 1971, and his PhD in International Relations in 1978. He taught at the Department of International Relations in LSE from1972-1975, and was an analyst for Daiwa Europe NV in London from 1975-1978.

On his return to Malaysia at the end of 1978, Tan Sri Dr. Munir joined The New Straits Times Press (NSTP) as a lead writer and progressed to become its Group Editor. He left The NST in 1986 to become the CEO of a small merchant bank, Pertanian Baring Sanwa (PBS), which then became Commerce International Merchant Bankers, the genesis of today’s CIMB Group. He left CIMB in 1993 at the invitation of the Government of Malaysia to set up the Securities Commission and became its first Executive Chairman until 1999. He continued with his illustrious career, serving in various capacities, including as Chairman of both Celcom and Malaysia Airlines System at different times. He was the founder and President of the Kuala Lumpur Business Club (2003-2008), and was the chairman of its Advisory Council. Dr. Munir, an Honorary Fellow, is Visiting Senior Fellow at LSE IDEAS (Centre for international affairs, diplomacy and strategy).

EDITOR’S NOTE 1
The SCS issue has evolved since the following discussion was held. In October 2016, President Duterte paid a high profile visit to China and announced ‘separation’ of the Philippines from the U.S. The impact of this pivot towards China has changed the relations between the two nations.

There was consensus that economically and diplomatically, China and Asean are constantly evolving and the issues of the South China Sea (SCS) will unlikely be resolved in the near term.

While the SCS issue will test “the Asean way” of decision making, an additional layer of complexity arises from the fact that the economic influence of China is one that cannot be ignored. China is the largest trading partner to the Asean block (15.2% of total trade) and represents a major source of foreign direct investment (FDI) to Cambodia, Laos, Vietnam and Myanmar. Complexity arises from the varying levels of economic dependencies of Asean members with China. The different degrees of “cheque book diplomacy” results in coming up with a multilateral solution to addressing relationships with China challenging. Most Asean member states will want to maintain a good relationship with China however the prospect of a united approach does not seem likely. Vietnam and Philippines² have exhibited a higher degree of assertiveness while Malaysia has been largely muted. There is a possibility that both the response to the SCS issue and the incentives from economic ties with China will create a divide among the Asean members if members are not able to find a solution which balances both national interests and regional interests. In addition, there already seems to be more “integration” happening on mainland (peninsular) Asean driven by China and Thailand as compared to the other maritime Asean economies.

The heterogeneous nature of Asean – stage of development, size, political landscape – means community building goals will be a slow and long process. The SCS issue forms only one part of Asean’s concerns, but will nevertheless play a role in the community building culture and future of Asean integration.

¹ Mainland Asean refrs to Thailand, Cambodia, Laos, Vietnam, Myanmar, Maritime Asean refers to Malaysia, Indonesia, Brunei, Singapore and the Philippines.
² Refer editor’s note 1

There was debate on how the present “Asean Way” can effectively deal with the SCS issue and ultimately integration efforts. On one hand, it was commented that upholding Asean unity at all costs meant pursuing a smart accommodative stance (given the divergent views within Asean) as opposed to an assertive united muscular push back. It was noted that such policy direction may not be well understood by Western commentary, and thus labeled inefficient or a form of set-back to integration efforts in lieu of a strong united stance. However, it was debated that there is a historical tradition of dealing with international relations in Southeast Asia which is less confrontational and more resourceful and adaptive in nature – colloquially akin to a resourceful mousedeer; there has sometimes been an emphasis on power balancing, but the idea of moral balance – particularly a desire to avoid taking sides in struggles between major powers – has also been influential. Asean members may well work around an issue like the SCS disputes as opposed to dealing head-on with the matter to avoid any breakup within Asean. In this regard, Asean will have its own definition of success on the issue.

On the flip side there was argument that the lack of coordinated response to the SCS issue is an outright red flag that Asean is disunited. The overall objective of Asean in this matter is unclear to some and hence difficult to evaluate if the lack of a united stance is a failure of Asean or an end to a means to avoid a breakup. But more importantly, it was argued that this is a reflection of a lack of leadership at the regional level and political will. To an extent, domestic political issues in most Asean economies have taken precedence and priority. As a result, Asean disunity has made a compelling case for China to resolve the SCS issue on a bilateral basis.

China’s response to the SCS ruling was predictable, and historically typical of any superpower. Looking at a larger historical perspective, the key question posed was – does China subscribe to the Western thinking of sovereignty and will it adhere to a rule base international order? It was argued that China may have a looser definition of sovereignty compared to the Anglo-American definition, which would be consistent if one views China as a civilization state as opposed to a nation state. The “dash” in nine dash line suggests some further investigation is needed to truly understand the consequences. In addition, questions were raised on the limitations of solutions when working only within the structure of Western thinking, for example, must there always be a balance of power, or is the Asian region likely to be relatively comfortable with a hierarchical structure?

The SCS is only part of the larger balance of power puzzle in Asia – the rise of China and the challenge of US supremacy. China has shown it seeks a place in the sun, at least in Southeast Asia, but it has not shown that it wants to challenge US supremacy in the region. No conclusive views if war will be a reality although that remains a key question. The US’s economic supremacy is being challenged more than its military dominance although it could be argued that a provocation on the military front is ultimately to strain the US’s economic capability. How the US will respond will likely depend on the outcome of the American presidential election – some view that Hillary Clinton will likely exert greater US military supremacy in the region if she wins while others view the U.S. to have other military priorities (For example, in Africa and Ukraine). Japan will inevitably want to ensure its economic position and accessibility of the SCS for its trade activities.

EDITOR’S NOTE 2
The following conclusion was made prior to the visit of President Duterte to China in October.

The SCS issues will unlikely cause a break-out of hostilities. However, there is danger of playing “game of chicken”. The uncertainty over the dispute will dampen business and investment confidence. In terms of whether there will be quietening down of the issue, there are some positive signs from both China and claimant states on containing any hostility. In this regard, the arbitration from the Hague provided for some pause and sobering up amongst all involved. Going forward, it is unlikely that the dispute settlement will be totally resolved in the future, however, containment of the dispute is necessary. Therefore, the Code of Conduct in the South China Sea, and subsequently co-operative development in the SCS is essential.

1. Overview	According to a document released by the US Department of Defence, Navy Adm. Harry B. Harris Jr. was quoted saying that 30 percent of the world’s maritime trade of $5.3 trillion transits the South China Sea annually The economic impact to ASEAN can materialize in the form of Disruption or reduction in trade activity along the SCS trade route, especially energy trade to/from East Asia; Impacted trade relations with China; Reduced foreign direct investment from China; and Inability for countries to undertake economic activities in the disputed area (mainly fishing and in the future, oil extraction and exploration).

2. Trade routes and trade with China – significant impact from disruption to trade routes, however, impact from China’s economic slowdown will likely materialize first	A sizeable 40% of ASEAN trade (Appendix 1 for details) is with East Asia¹ and is shipped through the SCS, thus any disruption to the trade route will be significant. Trade disruptions will have repercussions on the whole of ASEAN (not just the 4 countries in dispute with China) given the export oriented nature of most ASEAN economies. Trade to GDP ratios² (2015): Malaysia: 135%, Singapore: 326%, Brunei: approx. 107%, Vietnam: 179% Philippines: 61%, Indonesia: 42%, Thailand: 132%, Laos: 79%, Cambodia: 142%. However, it is argued that the busiest shipping routes³ for ASEAN countries are mostly coast hugging ASEAN-China trade which is geographically outside PRC’s nine-dash-line area. Trade routes to Korea/Japan will be most affected, in particular energy trade as SCS routes account for roughly⁴ 85%–90% of Japan’s and South Korea’s oil imports, and 33% of Japan’s and South Korea’s LNG imports. Aside from intra ASEAN trade, China is the largest trading partner to the ASEAN block (15.2% of total trade) and will pose a significant impact should trade relations change. However, it is likely that the Chinese economic slowdown and structural change in its supply chain will have a larger impact on the region’s trade China’s slower economic growth, transition from investment led to consumption led growth, and move up the production value chain translates into lower imports – Imported parts and components have become a much smaller share of Chinese merchandise exports, going from over 50% at the start of 2000 to close to 35% today

3. FDI – Limited impact, but some economies will be more affected	While increasing, China’s share of total FDI inflows to ASEAN is modest at 6.8%. Intra ASEAN FDI remains the largest source of FDI in the region (18.5% of FDI inflows). Myanmar, Laos, Vietnam will be more affected by reduced FDI from China given China is a major source of FDI for these economies (See Appendix 1 for details).

4. Economic activities – fishing and oil & gas to be affected	Overfishing, destructive fishing practices and artificial island building by China has already negatively impacted fishing ecosystem in the SCC. Territorial disputes will further exacerbate the situation. SCS is the top 5 most productive fishing zones in the world⁵ – estimated 12% of the world’s total fishing catch, worth US$21.8 billion – where 55% of the world’s fishing vessels operate in. Fishing employment at 3.7million people estimated in the SCS – with China (0.7 million), Vietnam (0.5 million) and Philippines (0.6 million) having the bulk of fishing employment. Estimated reserves⁶ of 11 billion barrels of oil and 190 trillion cubic feet of natural gas in the SCS disputed areas. Vietnam may be the most affected given that the nine-dash-line extends into its exclusive economic zone (EEZ) where it has off shore deep water activity.