Globalism is at a crossroads. It is time for Asia to stand up for free and fair trade, reap the full benefits of globalisation, and shape the new global agenda.

SPEECH BY EMERITUS SENIOR MINISTER GOH CHOK TONG AT THE 23^RD INTERNATIONAL CONFERENCE ON THE FUTURE OF ASIA: “GLOBALISM AT A CROSSROADS – ASIA’S NEXT MOVE”

5 JUNE 2017

“SHAPING ASIA’S FUTURE – WHO WILL TAKE THE LEAD?

1                Globalism, loosely defined as taking into account the interests of the world and not just a nation’s own, is at a crossroads.  There are strong forces pushing back globalism and free trade in the US, the UK and other parts of Europe.  Deep-seated anger over growing income inequality, unemployment, and the influx of immigrants – both legal and illegal – have come to a boil.  America’s withdrawal from the Paris Accord on Climate Change aggravates the divide over the status quo.  This shift away from globalism is not in Asia’s interest. 

So I ask two questions: what can Asia do and who will take the lead in shaping Asia’s future?

Global Context – Setting the Scene

2                The benefits of free trade are widely seen and felt.  However, insufficient attention was paid to the tail risks of globalisation.  These risks include the loss of jobs and wage stagnation for large segments of the population, and widening income inequality.  These pains have been exacerbated in recent years by financial crises, sluggish and uneven growth in developed economies, and disruptive technologies.

3                US President Donald Trump’s campaign slogan of putting “America First” resonated with many in the context of this social and economic fallout.  Many voters firmly believed that globalisation was working only for the established and not for them.  They bought the populist rhetoric that competition from lower-cost emerging economies stole their jobs and depressed their incomes.

4                The “Me First” phenomenon is not necessarily inward-looking, protectionist or anti-free trade.  But it is a fundamental shift away from multilateralism towards bilateral engagement.  At its heart, is a hub-and-spokes strategy which enables a big economy to bilaterally exercise its bargaining power over smaller economies.  It is like a yokozuna, a grand champion sumo wrestler, taking on smaller-sized wrestlers one at a time.

5                When global leadership goes missing, the “Me First” attitude in international relations may mutate into a “Me Only”. 

If that happens, it unravels international cooperation needed to address transboundary challenges such as financial crises, money laundering, climate change, public health epidemics and terrorism. 

The outcome is anarchy and failure of the international system as we know it.  The last time this happened, we had two world wars.

6                This brings me to my next point – what can and will Asia do? 

Will Asia stay the course and fly the banner of globalisation, free trade and economic integration? 

Can Asia spin a multilateral web of free trade agreements and achieve better outcomes than a bilateral hub-and-spokes approach in growing economies and building a better world?

Asia’s Next Move

7                Asia has benefited immensely from an open and inclusive international economic order.  Trade has benefited our people.  Reduced barriers to trade opened up foreign markets, leading to rapid economic growth.  Foreign investments provided much-needed jobs.

8                Greater interdependence amongst countries produce peace and balanced benefits through mutual cooperation. 

In a hub-and-spokes relationship however, the benefits are likely to be asymmetrical. 

For Asia, whose tumultuous history and consequent trust deficit sometimes impede bilateral working relationship, multilateralism fosters peace and a shared prosperous future. 

An interdependent, multilateral web of countries will require respect for one another, the rule of law and give-and-take cooperation, as opposed to a hub-and-spokes arrangement where might, i.e. the hub, calls the shots.

9                In my opinion, Asia is well placed to champion free trade and further integration.

Free Trade Agreements

10                A number of high-profile free trade agreements are on the table.  The most ambitious is the Trans-Pacific Partnership (TPP).  It is a high-quality agreement that would raise the standards for trade and investment, strengthen trade linkages, promote growth and create jobs in all TPP countries.  However, the US has withdrawn from it.  While the remaining TPP-11 Parties are naturally disappointed, given that the agreement had represented a carefully negotiated balance of benefits, we hope to welcome the US back when it is ready.  Meanwhile, Japan, as the largest remaining economy in the TPP, has stepped forward to work with other like-minded TPP members to explore ways to carry the initiative forward.

11                There is also the Regional Comprehensive Economic Partnership (RCEP).  Broadly, the RCEP differs from the TPP in two dimensions –membership and aspiration.  The RCEP will bring together ASEAN and its six FTA partners, namely Australia, China, India, Japan, New Zealand, and the Republic of Korea.  Together, these 16 countries encompass 45% of the world’s population and a third of the global GDP.  Compared to the TPP, the scope of the RCEP is narrower.  But the agreement is nevertheless ambitious.

Asian Leadership

12                Now comes the crucial question.  Who in Asia will champion free trade and economic integration? 

As two of the world’s largest economies, the responsibility naturally falls on Japan and China.  But they must lead in tandem and not as rivals.

Japan

13                Historically, opening up has not been an easy process for Japan.  It started only in 1853, with the arrival of US Commodore Matthew Perry’s “Black Ships” in Tokyo Bay seeking trade between the US and Japan.  Fleets from other Western countries followed suit.  Although Japan was reluctant at the time, it proved to be a master at reinventing itself and turning a seemingly adverse situation to its advantage.  The Meiji Restoration girded Japan’s industrialisation.  Foreign trade took off in full force.  This same openness and resilience enabled the Japanese people to rebuild their country from the ashes of the Second World War.  Japan’s rapid development spurred growth in the broader Asia-Pacific region, providing not only foreign direct investment but ideas and inspiration on how Asian countries could achieve industrialisation and economic development.

14                Today, Prime Minister Shinzo Abe is leading Japan to assume an increasingly proactive role on the global stage.  In what will prove to be another historic milestone for Japan, PM Abe overcame domestic reluctance to make the bold and visionary decision to join the TPP.  He wants Japan to maintain an outward orientation, and will play a crucial leadership role in pushing forward the TPP.  Besides this, Japan has prioritised efforts aimed at boosting physical and economic connectivity in Southeast Asia and the Indo-Pacific, for example with its Partnership for Quality Infrastructure initiatives and Free and Open Indo-Pacific Strategy.

China

15                For some parts of its history, China too was reluctant to open up.  China then considered itself the centre of the world, self-sufficient and not needing much investment from others.  During the Qing Dynasty, Emperor Qianlong rebuffed England’s attempts to engage China in trade.  He rejected the bountiful gifts of English products and labelled them as “tribute” instead.  It took several centuries, and a far-sighted and courageous leader like Deng Xiaoping, to open China to the outside world in 1978.  That decision changed the course of China and Asia.

16                Now, China has become a vocal proponent of free trade.  President Xi Jinping gave an impassioned defence of the liberal international economic order in his keynote speech at the World Economic Forum in Davos earlier this year.  Through initiatives such as the “Belt and Road” and the Asian Infrastructure Investment Bank, China has expressed willingness to lead global economic integration.

17                Is the Belt and Road another hub-and-spokes strategy?  Is it a “China First” strategy?  Chinese leaders have made it clear that it is not their intention.

18                At the Belt and Road Forum last month, President Xi summed up very aptly the call for Asia’s future.  He said, “We should embrace the outside world with an open mind, uphold the multilateral trading regime, and advance the building of free trade areas.”  To this end, the Belt and Road Initiative provides the physical connectivity that will support the overarching free trade agreements in the region and beyond.  Put simply, the Belt and Road together with free trade agreements can potentially advance multilateral trade and globalisation.  It integrates the region, as opposed to dividing it.

 Important Relationships

19                The most important relationships in Asia are between China and the US and Japan and the US.  But I think a third relationship, namely Japan-China, is just as important. 

If Japan-China relations can move towards greater trust and cooperation, there will be a mutually-reinforcing effect on the other key bilateral relationships in the region.  It will pave the way for the Japan-China-US trilateral relationship to become one of the world’s most important.  A strong trilateral relationship would be an important force for stability and a driver of continued economic growth and prosperity for both the region and the world.

20                It is hence important that Japan and China lead Asia in tandem towards greater integration. 

It will not work as well if only one country leads the charge.  If both countries provide competitive but divergent leadership, it will be destabilising.  It is far better to spin an interdependent multilateral network, a web, with many paths connecting different points.

21                Of course, the US’ continued engagement of Asia is integral to the region’s prosperity.  It has been in the region for over 70 years as an Asia-Pacific power.  I am heartened that the Trump Administration has signalled its continued strong commitment to the region – not just Northeast Asia, but Southeast Asia and ASEAN as well.  President Trump’s attendance at the APEC Economic Leaders’ Summit, East Asia Summit and ASEAN-US Summit later this year, will build on the region’s ties with the US.

22                There is also India, soon to have the world’s largest population.  It has a young population.  It has opened its economy since the early 1990s.  It is reforming its economy and has been growing by more than 7 percent per year in recent years.  If it continues with its reforms, it has the potential to be another mega economy.  India is a member of RCEP.  It can contribute to the integration of Asia by actively supporting an early conclusion of RCEP.

Negative Consequences of Globalisation

23                However, even as we push for economic integration, Asia must learn from the populist and nationalistic sentiments that we are witnessing today in the West.  Such sentiments arising from the negative consequences of globalisation may one day reach Asia.

24                For now, Japan’s low income inequality, and its society’s relative homogeneity and strong national and cultural identity, serve as buffers.  As for China, although inequality is relatively high, the risk is offset by good growth prospects and the emergence of a new middle class.  National governments will have to ensure that benefits from globalisation are distributed equitably and inclusively.

 ASEAN and the Asia-Pacific

25                Small countries too can play an important catalytic role in advancing globalisation and free trade.  They are non-threatening.  They are outward-looking in order to remain relevant to the world.  They can propose creative ideas without raising suspicions of an ulterior motive.  But they need to advance their interests based on principles and not take sides based on a patron-client relationship.

26                Back in 2002 at the APEC Summit in Mexico, three small countries, Chile, New Zealand and Singapore agreed to launch the Pacific-3.  Three years later, Brunei joined to form the P4.  P4 provided the foundation for the TPP.

27                As an aside, I claim credit for having persuaded then-Japanese Finance Minister Kiichi Miyazawa on the value of free trade agreements for Japan, and to negotiate the Japan-Singapore Economic Partnership Agreement with us.  This Agreement, signed in 2002, was Japan’s first free trade agreement.  It is time to upgrade the Partnership Agreement to ensure that it remains relevant to businesses from both sides.

28                ASEAN, of course, will play its part to further economic integration in the Asia-Pacific region.  ASEAN celebrates its 50^thanniversary this year.  It is intensifying efforts to achieve deeper economic integration through the ASEAN Economic Community (AEC).  This has reduced barriers to trade and promoted economic growth for the member countries.  ASEAN is also committed to achieving a high-quality RCEP agreement that will bring substantive economic benefits for the region.  ASEAN is not stopping here – it is looking to deepen integration even further, looking at cross-border and emerging issues ahead of the AEC blueprint in 2025.

Conclusion

29                Ladies and Gentlemen, globalism is at a crossroads.  It is time for Asia to stand up for free and fair trade, reap the full benefits of globalisation, and shape the new global agenda.

30                Asia needs to do its utmost to take our prosperity to the next level.  With strong leaders working together, we can achieve this.

                Thank you.