Archive for the ‘Economy’ Category

As Hong Kong dims, Asia can learn much from Singapore, East Timor and Bhutan

October 3, 2017

Curtis S. Chin (Asia Development Bank, 2007-2010; Asia Fellow, Milken Institute)

Cross posted from the South China Morning Post

—–

Twenty years ago in Asia – as Hong Kong returned to China under the “one country, two systems” formula, there was hope that the former British colony would set an example for a freer, more progressive China.

Those days, for now, seem past as China cracks down on dissent in the run-up to a landmark Communist Party congress, and as Hong Kong jails democracy campaigners over anti-China protests. Hong Kong may no longer be the role model it once was, should Beijing’s moves, unintentional or not, transform this economic showcase into “just another Chinese city”.

Yet, at a recent Milken Institute Asia Summit that looked back 20 years to 1997 and ahead 20 more to 2037, I found hope that, amid the diversity of Asia, there remain numerous examples of a way forward for all of the region.

The story of Asia today remains very much one driven by its largest nations and economies. An increasingly assertive China, a slow-growing Japan, a rising India and a still emerging Indonesia dominate the headlines, along with mounting tensions from the Korean peninsula. Yet, all of “Asia rising” can take a lesson from some of the region’s smallest countries.

From three small countries come three big lessons for a greener, more representative and more transparent Asia. My hope for Asia 2037 is that these small nations – Bhutan, East Timor and Singapore – can inspire and show the way.

“Going green” is a phrase that has been thrown around for many years by both countries and companies. But despite the rhetoric, Asia is increasingly polluted, with man-made forest fires and smog-enveloped cities an annual occurrence. At least one Asia-Pacific nation, however, both talks the talk and walks the walk.

The small Himalayan kingdom of Bhutan – 790,000 people in a nation of 38,000 sq km – offers an example that its much larger neighbors (China to the north and India to the south) can learn from.

Bhutan’s leaders have put conservation at the heart of their environmental agenda, pledging to keep the country carbon neutral and writing into their constitution the requirement that 60 percent of the nation must remain forested. Other initiatives include bans on plastic bags, restrictions on private vehicles in the capital Thimphu, and a commitment to become the world’s first 100 percent organic-farming nation.

Money can’t buy you happiness

All this is in line with the philosophy of a “gross national happiness” index, as advocated by the fourth king of Bhutan, Jigme Singye Wangchuck. This approach to development goes beyond traditional economic measures, such as the gross national product, which only captures the economic value of goods and services produced. In addition to environmental conservation, the Gross National Happiness Commission also considers sustainable and equitable socio-economic development, the preservation and promotion of culture, and good governance.

East Timor votes in presidential election, signalling age of stability in Asia’s youngest nation

Another of Asia’s smallest countries, East Timor, with 1.2 million people and 14,875 sq km, offers an example of how people can move forward post conflict and take control of their own destinies, when given the chance.

I returned recently to this former Portuguese colony located on the eastern half of an island shared with Indonesia. The trip was as part of an international election observation mission from the Washington-based International Republican Institute. The East Timor government had invited observers to monitor the first parliamentary elections administered without UN oversight since the country regained independence in 2002 from Indonesia. The results were a peaceful and powerful example to many nations, big and small, still struggling to put the power of the vote in the hands of their citizens.
East Timor votes in presidential election, signalling age of stability in Asia’s youngest nation

While significant economic challenges continue, the people of this newest of Asian nations deserve praise as they progress from decades of conflict and centuries of colonialism. East Timor was ranked first in the Economist Intelligence Unit’s Democracy Index 2016 for Southeast Asia and fifth in Asia, behind the well-established democracies of Japan, South Korea, India and Taiwan.

Why Hong Kong can never be Singapore: just blame history

The densely-populated city state of Singapore, 5.6 million people on an area of only 719 sq km, is perhaps the leading example in Asia of a small nation that thinks big – and succeeds big. With one of the highest per capita gross domestic products in the world, Singapore showcases the economic benefits of transparency and the rule of law. Its neighbors would do well to adopt this nation’s embrace of free markets and free trade in their own search for drivers of growth and foreign direct investment.

Understandably, the pushback was significant when Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, recently argued that small states “must always behave like small states”, in remarks that were perceived to be a criticism of Singapore’s recent foreign policy.

Singapore did not succeed by thinking small, nor has it reached global prosperity by conforming to “small-country guidelines”. Having developed from a fishing village to a first-world country in just a few generations, Singapore also has become the leading finance and trade hub in Southeast Asia and a role model for rule of law. This prosperous Lion City is now ranked the second-easiest place in the world to do business in the World Bank’s “Doing Business 2017” report, behind New Zealand, and the seventh least-corrupt economy in the world, according to Transparency International’s Corruption Perceptions Index 2016.

As a small state, should Singapore hide when ‘elephants’ fight?

Being ambitious is not a bad thing. Small in geography need not mean small-country mentality and policies.

Over the past 20 years, I have seen first-hand the accomplishments and continuing challenges of Bhutan, Singapore and East Timor. Still, as small fish in the big pond that is Asia, these three nations have futures that are by no means certain.

In the two decades ahead, Asia will continue to transform. According to United Nations estimates, India will trade places with China six years before 2030 to become the world’s most populous nation, en route to 1.66 billion people by 2050. Wealth and inequality are likely to grow, as will the risk of military conflict amid competing demands for energy, water and other resources. Paradoxically, a more populous Asia dominated by large nations might also prove “smaller” as trade and technology further link the ­region.

All share a vision for an Asia-Pacific that is prosperous and at peace in 2037. Much, though, will depend on the world’s biggest powers and the region’s largest nations.

Here’s a prediction. Large countries will seek, in the years ahead, to apply economic or military pressure to shape their smaller neighbors’ behavior and policies – no different than today. Asia and the Pacific, however, will be better off if all nations adopt some modern-day, “small state ideas” offered up by Bhutan, East Timor and Singapore – namely, the embrace of a greener, more representative and more transparent future for all their citizens. That ideally will ring true in both Hong Kong and Beijing one day.

Advertisements

Back to the Future: Reagan, Trump and Bipartisan Tax Reform

September 29, 2017

Stuart E. Eizenstat (Ambassador to the European Union, 1993-1996)

Cross posted from The Hill

—–

With the startling, positive outreach to the congressional Democratic leadership to forge an agreement on short-term funding of the government to avert a shutdown, increasing the debt ceiling and funding Hurricane Harvey relief, followed by further efforts to enlist Democrats on immigration reform and tax reform, the door is now more open than seemed possible for President Trump to create a bipartisan coalition for tax reform and tax cuts, just as Republican icon Ronald Reagan did in 1986. While Trump in 1991 told Congress the 1986 tax act was an “absolute catastrophe” because it closed real estate loopholes important to his business, as president he has warmly endorsed it.

The 1986 Tax Reform Act, signed by President Reagan almost exactly 31 years ago, was the first across-the-board tax reduction for everyone since the Kennedy tax cuts, and there have been none since. President Carter tried and failed to pass a comprehensive tax reform bill in 1978-’79, even with a heavily Democratic Congress.

The essence of the Reagan plan, embraced by the Democratic leadership that controlled the Congress, was to create a fairer, simpler tax system, with lower rates and fewer tax breaks for the wealthy and corporations, that did not inflate the budget deficit. By appealing to Democrats with the liberal idea of closing tax loopholes, shelters and deductions for the wealthy, with the conservative Republican philosophy of lowering tax rates, he forged a bipartisan coalition.

The act lowered personal and corporate tax rates, while remaining revenue neutral by broadening the tax base through eliminating tens of billions of dollars in tax loopholes for the wealthy and corporations. It also lowered the capital gains rate from 20 percent to 28 percent, agreeing with Democrats that capital gains generally benefiting the wealthy should be taxed at the same rate as ordinary income from workers — the heart of Reagan’s and now Trump’s blue-collar support. Reagan said in championing the bill that he wanted to “close the unproductive loopholes that allow some of the truly wealthy to avoid paying their fair share.”

It exempted millions of low-income families from a federal income tax by expanding the standard deduction, personal exemption and earned income tax credit; it drastically reduced the number of tax brackets, with the top rate for individuals cut from 50 percent to 28 percent; and it slashed corporate tax rates from 48 percent to 34 percent, paid for by eliminating or reducing corporate tax breaks.

Since the 1986 act, presidents and successive Congresses have eroded some, but not all, of its benefits. Scores of special, targeted tax breaks and shelters have been passed. The top tax rate for individuals has now increased to 39.6 percent, and the number of brackets has jumped to six.

For sure, President Trump is in the Oval Office in a different era: the middle of American politics has eroded; both parties are more partisan, less willing to compromise, and more subject to pressures from their left and right flanks. Yet even liberal champion Sen. Ted Kennedy (D-Mass.) voted for the 1986 Act.

Trump’s approval ratings are under 40 percent — far below Reagan’s. It will be harder to close loopholes to offset the revenue loss from tax cuts, and congressional Republican leaders seem less interested in doing so, relying upon “dynamic scoring” — that somehow tax cuts will produce so much more economic growth, tax revenues will magically close the deficit, something which has never been shown to happen.

The Republican leadership is so anxious to pass a tax bill by the end of the year, it will leave little room for the kinds of reforms Reagan and the congressional Democrats achieved to earn the tax cuts. If there is a 2017 tax bill, it is likely to be almost all tax cuts, with no tax reforms to broaden the base.

Still, there are important lessons to be learned from Ronald Reagan’s approach.

He announced his intention for comprehensive tax reform in his 1984 State of the Union message, almost a year before he submitted his proposals, so it was well thought through, and went through a lengthy odyssey in Congress, with full hearings, markups and deliberation. While Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn have been assiduously working on a tax bill for several months, speed seems to be a key goal for both the administration and the Republican leadership, to have one major victory before the end of the first session. This will almost certainly lead to cuts without Reagan-type tax reforms.

Ronald Reagan also courted Democrats, including Speaker Tip O’Neill (Mass.), Ways and Means Committee Chairman Dan Rostenkowski (Ill.), and Rep. Richard Gephardt (Mo.) and Sen. Bill Bradley (N.J.), who already had a similar bill in the hopper, working with the politically gifted Treasury Secretary James Baker. Trump got off on the wrong foot by threatening Missouri Democratic Sen. Claire McCaskill to support the principals of the tax proposal he presented in her home state. But he has recently rectified this with a sincere outreach to a number of key Democratic leaders, as Ronald Reagan did.

There are substantial hurdles to forge a bipartisan consensus: Democrats are insisting that most of the individual tax cuts be focused on the middle class, and that deep tax reductions be paid for by loophole closings; Republicans are intent on deep corporate and upper income individual tax cuts, with little reforms to pay for them. The nonpartisan Tax Policy Center indicates the Trump plan could add over $3 trillion to the deficit in the first 10 years alone, and that 40 percent of the cuts would go to the top 1 percent of earners.

But still, as in 1986, there is broad, bipartisan recognition that:

  • our tax system is too complex and unfair;
  • that reducing high marginal tax rates can encourage taxpayers to lessen reliance on tax shelters;
  • that our corporate tax system in the globalized world economy leaves U.S. corporations at a competitive disadvantage, with the highest marginal tax rates among OECD countries — although far lower actual rates, with all the special tax breaks — encouraging them to invest in low tax states abroad;
  • that U.S. corporations should be encouraged to bring back the more than $2.5 trillion they have parked abroad and make job-creating investments rather than use them for stock dividends and share buybacks;
  • that individual tax brackets should be narrowed; and
  • that the tax code favors debt over equity, by allowing deductions for interest but double-taxing corporate equity income.

The most important lesson from 1986 is that Ronald Reagan showed consistent leadership at key points when the bill seemed doomed, going to Capitol Hill, writing letters to wary Republican members, and using his bully pulpit to stay on message about its importance to audiences around the country. This will be a major test for President Trump, to see if he has absorbed Reagan’s lessons. By indicating to Democrats that he does not want to focus his tax cuts on the wealthy, he is sending a powerful signal. The tax debate is also a test for the Democratic leadership to rise to the occasion, as they did in reaching agreement with Ronald Reagan three decades ago.

Tea Leaves: Progress on the Bumpy Road to Democracy

September 1, 2017

Curtis S. Chin (U.S. Ambassador to the Asian Development Bank, 2007-2010; Asia Fellow, Milken Institute)

Cross posted from the Nikkei Asian Review

—–

A decade ago, I traveled to East Timor, also known as Timor-Leste, to look at the condition of roads and other infrastructure in Asia’s newest country. I was working with the Asian Development Bank at the time, and returned in 2010 for a follow-up visit. It was not until July this year that I returned again — this time as an independent election observer, to witness firsthand the country’s ongoing journey to democracy.

Just like the country’s roads, that voyage remains a work in progress, undoubtedly with more bumps and twists along the way. But in a world awash with cynicism, and with democracy under pressure in so many countries, I found hope in this young nation of some 1.2 million people.

The parliamentary election that I observed and a presidential poll held in March were the first run without international assistance since a United Nations mission left in 2012. A Portuguese colony for 273 years until 1975, East Timor was forcibly occupied by neighboring Indonesia until 1999, and regained its independence only in 2002 after a transition administered by the U.N.

My election day began before dawn, to the sound of roosters, in the small mountain town of Ainaro, where I stayed in a guesthouse a short walk from a beautiful colonial church. For most of the day, with my interpreter Arianto, our driver Angelo and a smartphone app that showed polling stations, I traveled on roads good and bad, and crossed rivers on bridges new and old, throughout the region.

Ainaro district, some 4-5 hours’ drive from the capital Dili, is a special place. Here, Xanana Gusmao, who would become the first president of East Timor, spent many years directing resistance to Indonesian occupation. During World War II, Ainaro was where Imperial Japan’s efforts to conquer this region came to an end.

In contrast to the mayhem and violence back then, the scenes I saw were festive and peaceful. Voters waited quietly at polling stations that opened promptly at 7 a.m. Until the polls closed early afternoon I saw voters coming on foot, by motorcycle and by bus or truck to cast their votes. Young or old, each showed a voter identification card, had his or her name confirmed on voter rolls and entered an election booth to mark a choice from some 21 political parties. A nail was provided to punch a hole in the ballot. Afterward, each voter dipped an index finger into a well of indelible ink to help prevent double voting.

Weeks later, national pride in what happened on that sunny Saturday election day can still be sensed, even as political parties jockey for position in the formation of a new government. “Once again, we have shown the world that Timor-Leste is a democratic country,” my interpreter, and now friend, Arianto Martins de Jesus told me. “The election has brought new hope for Timor-Leste’s people, no matter who leads the government.”

As with all governments — democratically elected or not — a key challenge will be delivering on people’s hopes. Running an election can be the easy part, in contrast to forming a government and running a country. But hope there is, even if at first glance East Timor is struggling on several fronts. Poverty remains high, as does youth unemployment. Oil and gas reserves, the government’s primary source of revenue, could well be depleted by 2022.

Yet notable strides have been made in the last decade to improve living conditions and increase economic opportunities. The Dili I visited in July is a far cry from the one I first saw a decade ago. Plans for East Timor’s first internationally branded hotel, a Hilton, have just been announced, and the international franchises Burger King and Gloria Jean’s Coffees are already in Dili. The infant mortality rate has almost halved since East Timor regained independence, and malaria cases have declined dramatically. Although not all in the region yet agree, East Timor’s accession to the Association of Southeast Asian Nations is richly deserved, and would help to lock in progress.

Before making the long road trip back to the capital after election day, I stopped in the old church in Ainaro and caught the start of Sunday service. Much was in the local language, but now and then I heard the word “Alleluia.” Praise and celebration were certainly in order. There may be challenging times ahead for East Timor, but the country’s commitment to the rule of law, peace and democracy bodes well for its future. This tiny young nation is an example to much larger neighbors which are still struggling, or even stalling, on their own bumpy paths to democracy.

NAFTA 2.0: Let the ‘Games’ Begin

August 25, 2017

Antonio O. Garza (U.S. Ambassador to Mexico, 2002-2009)

Cross posted from Ambassador Garza’s website

—–

The NAFTA talks kicked off this past week in Washington DC, with negotiators from the three countries outlining their visions for improving trilateral trade. While the mood appeared to be generally constructive, tensions surfaced as U.S. Trade Representative Robert Lighthizer repeated the Trump administration’s focus on reducing trade deficits. The negotiators will sit down next in Mexico City on September 1st to continue hashing out the details on this point and others, but even if they can successfully produce a NAFTA 2.0 by early next year they may still face the biggest challenge of all. As I wrote about for Texas Monthly, the toughest part of redesigning NAFTA may not be determining the agreement’s content but managing the political risk both during and after the process.

With the 23-year old NAFTA in a vulnerable position, it’s worth taking a step back and remembering what is at stake. While far from perfect, the trade agreement guides the cross-border exchange of billions of dollars in agricultural products, motor vehicles, and appliances. It underpins millions of jobs from California to Kansas to Maine, and is the framework for entire industries’ business models. If NAFTA suddenly disappears, it would be impossible for the three region’s economies to exit unscathed. The disruptions that come from businesses’ reshuffling their operations and absorbing higher costs would cause some to shut down and others to pass along the costs to consumers through higher prices. There are ways to gradually adjust the agreement to make it work better for all parties, but this requires using proverbial scalpels to adjust, finesse, and stabilize the agreement, rather than a hammer to smash the parts that aren’t working quite right.

Yet in Mexico, the NAFTA talks are only one of the big news stories, as the country is already beginning its 2018 presidential and congressional election preparations. While the campaigns don’t kick off until next year, Mexico’s National Electoral Institute and Congress have allocated funding for political parties (unlike the United States, Mexico uses public funds for campaign financing), capping off campaign financing at the highest levels ever. There is a general sense that Ándres Manuel López Obrador is the frontrunner, but the jockeying among presidential hopefuls in the PRI and PAN parties is just beginning. For those reading the political tea leaves, changes in President Enrique Peña Nieto’s PRI will now allow individuals from outside the party to become a presidential candidate, in a move that would appear to favor the current Finance Minister Jose Antonio Meade. But with just under a year to go and a deep bench of contenders, there surely will be many twists and turns to come.

For those of you in South Texas or interested in local border issues, it’s worth tuning in to two upcoming construction projects. The first project is for a section of border wall that will cut straight through cross-border Santa Ana Wildlife Reserve and the second are LNG export terminals set to be constructed in the Port of Brownsville. These projects raise significant economic and environmental issues, and unfortunately—as I write about here—local residents’ voices and concerns have so far been given short shrift.

Why Timor-Leste Deserves to Join ASEAN

August 23, 2017

Curtis S. Chin (U.S. Ambassador to the Asian Development Bank, 2007-2010; Asia Fellow, Milken Institute)

Cross-posted from The Japan Times

—–

Fifty years since its establishment, it is time for the Association of Southeast Asian Nations to welcome another member into its midst—with Japan’s support.

The recent meeting of Southeast Asian foreign ministers in the Philippines drew more attention than usual to its concluding communique. More so than in past versions, this year’s ASEAN concluding joint statement made clear the grouping of 10 nations’ hopes for a demilitarized South China Sea. In one paragraph, the communique also noted “the importance of maintaining and promoting peace, security, safety and freedom of navigation in and over-flight above the South China Sea.” While not explicitly named, China was very clearly the focus of attention.

Garnering much less attention was the single paragraph that “noted Timor-Leste’s application for ASEAN membership and looked forward to the continued discussion” about reports and capacity building regarding that small Southeast Asian island nation’s longstanding efforts to join the regional bloc.

That’s unfortunate. ASEAN should welcome the accession of Timor-Leste, just as Laos and Myanmar were welcomed in 1997, and Cambodia in 1999.

I had the privilege of serving as an election monitor for Timor-Leste’s recent parliamentary election as part of the International Republican Institute’s (IRI) election observation mission. I was struck by the passionate commitment of the Timorese people to the democratic process, and inspired by their optimism about their country’s future. I believe that the country is in a strong position to continue progressing in its own development and make a positive contribution to the development of Southeast Asia. Timor-Leste deserves ASEAN support for its efforts to further integrate and engage with the wider region.

After regaining independence from Indonesia in 2002, Timor-Leste declared its desire to join ASEAN and applied for membership in 2011. While its ultimate accession is likely, there is a chance that the delays that have arisen over the past six years may persist indefinitely. Such a development would not only deprive the Timorese of a chance for further development; ASEAN would forgo an opportunity to welcome a country that can serve as a valuable example of a successful democracy to fellow members.

Over the past 15 years, Timor-Leste has grown into a well-functioning democracy where citizens actively engage with their government. The country was ranked as the most democratic in Southeast Asia by the Economist Intelligence Unit’s 2016 Democracy Index, and 43rd in the world—an impressive feat given the country’s traumatic experience during the 24-year Indonesian occupation.

One of the important ways Timor-Leste has been able to deliver sustainable democratic reforms has been through its openness to regional and international support. To this end, organizations like IRI have worked with civil society, government bodies and political parties to help them represent Timorese citizens responsively and effectively. IRI has worked in the country since 2002, and its assistance has been an important contributor to the country’s democratic consolidation.

Likewise, when I served as the U.S. ambassador to the Asian Development Bank and traveled to Timor-Leste in years past, I saw the importance of regional and international economic assistance to this and other developing countries first-hand. The ADB has supported infrastructure expansion, macroeconomic capacity-building and community-based development in Timor-Leste, and is well-positioned to assist not just in improving the country’s roads, but also its water supply and sanitation systems. I grew to appreciate the complementary nature of different types of development assistance, and found that the aid provided by the ADB complements the assistance provided by groups like IRI, and vice-versa.

As ASEAN continues to grow in importance, it is vital that its members collectively pursue policies that advance the region’s development in a sustainable manner. At a time when democracy is backsliding in the region, Timor-Leste’s accession to ASEAN would provide the region with a valuable example of how citizen-centered democracy can deliver a more prosperous and stable future.

Additionally, Timor-Leste’s accession to ASEAN would be economically beneficial to the region. Despite its small size, Timor represents a relatively untapped market for Southeast Asian trade; likewise, the region represents a largely untapped market for Timorese goods. In short, this would be a win-win situation for the region, and an important example for how inclusive economic development can sustain growth that benefits all.

During the lead-up to the election, election administrators, political parties and other stakeholders worked collaboratively to ensure a credible electoral process. This commitment to the rule of law and democratic institutions bodes extremely well for Timor-Leste’s potential as a cooperative and responsible member of ASEAN. My experience travelling through this small yet vibrant nation has driven home the benefits for all of proceeding with Timor-Leste’s accession.

Now is a time for coming together. We owe no less to the many people who across Asia’s newest nation proudly held up an indelibly-inked finger as a mark and proof of democracy in action.

The Good, the Bad and the NAFTA

July 19, 2017

Antonio O. Garza (U.S. Ambassador to Mexico, 2002-2009)

Cross posted from Ambassador Garza’s website

—–

Over the past few weeks, there has been some great news coming out of Mexico’s energy sector.

First, there was the announcement that a consortium of international energy companies had discovered enormous shallow water oil reserves in a previously unexplored bloc. These companies won the rights to explore the field two years ago during the energy reform’s first public bidding round, and it now appears that their risk will be paid off with an abundance of black gold. Yet, it’s not just the companies that will benefit, it’s a boost for the energy reform writ large and also for the Mexican government’s tax coffers (as they are set to rake in 83 percent in taxes over the project’s lifetime). This past week, I also met with U.S. Secretary of Energy Rick Perry while he was in Mexico City to highlight our strong and vitally important cross-border energy integration. As other parts of the bilateral relationship are looking tense, this is one area where the two countries are moving ever closer together.

Yet, there is still a fair share of bad news coming out of Mexico and in some cases it’s getting worse. The country’s murder rate has skyrocketed this year, with 11,155 people killed from January through May alone (a 32 percent increase from last year), including seven journalists. Corruption allegations have also shown no signs of abating. Over the past year, the federal government took the positive step of indicting several corrupt governors, but so far there have been few steps toward seriously prosecuting them or rewriting the rules to make sure that others can’t follow in their illicit footsteps. Public frustration over this combination of ineffectiveness and inaction came to a boil when the Mexican government was accused of using top-secret technology to spy on not just organized criminal groups but also public intellectuals, journalists, and human rights investigators.

Finally, there is one news item that can only be categorized by its profound uncertainty: the NAFTA renegotiations. These discussions are scheduled to begin in early fall, after the United States wraps up its 90-day notification period (it has already collected more than 12,000 public comments and held three days of public hearings). On Monday, the U.S. government published its “Summary of Objectives for the NAFTA Renegotiation,” which covers broad swaths of North America’s $1 trillion in cross-border trade. But the negotiators will have to move fast, as they’ll be under intense pressure to wrap up discussions by early 2018, before Mexico’s presidential campaigns pick up steam.

To follow all the latest bilateral and trilateral developments, The Mexican Council on Foreign Relations, COMEXI and the Bush Center are doing an excellent job at creating smart North America focused content. In a recent report, COMEXI lays out various recommendations for “Redefining the Bilateral Relationship,” across the NAFTA negotiations, bilateral security, the border, and migration—highlighting not just policy divergences but the many areas where the United States and Mexico’s interests align. Meanwhile, the Bush Institute’s North American Competitiveness Initiative continues to be an excellent resource for in-depth context and recommendations on boosting our region’s prosperity and security.

What Are the Opportunities for ASEAN?

July 14, 2017

Curtis Chin (U.S. Ambassador to the Asian Development Bank, 2007-2010; Asia Fellow, Milken Institute)

Cross posted from Yale Insights

Asia’s importance in the world economy is large and growing; the continent already accounts for one third of global GDP, according to the World Bank. While the giant economies of China and India get the most attention, the countries of Southeast Asia are contributing to that growth as well. PwC’s Long View forecast sees Thailand, Malaysia, Vietnam, the Philippines, and Indonesia moving into the world’s 25 biggest economies, with Indonesia rising to number four globally, by 2050.

Those countries, plus Brunei, Cambodia, Laos, Myanmar, and Singapore, are part of the Association of South East Asian Nations (ASEAN), which gives them collective economic and political heft. The Council on Foreign Relations describes ASEAN as the most developed example of regional integration outside of the EU. (That isn’t to say the two unions are easily comparable. EU members share sovereignty through a strong, legally-based, central institution, while ASEAN is a consensus-based intergovernmental agency with no element of sovereignty sharing.)

In addition to providing some measure of economic integration, ASEAN provides much-needed stability to a region that was the site of war and genocide for much of the late 20th century. But that doesn’t mean that Western-style democracy is taking hold. Earlier this year, Phil Robertson, deputy director of Human Rights Watch’s Asia division, told Agence France Presse, “Human rights is in a precipitous downward spiral in every ASEAN country except perhaps Myanmar, and that’s only because military rule in that country was so horrible for so long.”

To understand the economic opportunities and development challenges facing the region, Yale Insights talked with Curtis Chin ’90, former U.S. ambassador to the Asian Development Bank and currently an Asia fellow at the Milken Institute.

Q: Can you put ASEAN in context, in Asia and the world?

When people talk about Asia, too often, they’re really just discussing China and India. Clearly those are two giant and very important countries, but there’s more to the region. Put together, the 10 nations of ASEAN have a population of 630 million people. That’s not the billion-plus population of China or India, but it’s very clearly significant. If it were a single economy, ASEAN, at $2.4 trillion, would be just the third largest in Asia. On the other hand, it would be the fifth largest in the world.

The $274 billion invested from the U.S. into ASEAN in 2015 is more than went to China, India, Japan, and South Korea combined. That may be surprising, but I think it’s testament to the tremendous opportunity that ASEAN offers whether as a production base, a market to sell services and products, or as a source of ideas and innovation for the rest of the world.

Q: What are the opportunities and challenges the ASEAN countries face?

It’s important to recognize that Southeast Asia is tremendously diverse. ASEAN includes the city-state of Singapore with its modern infrastructure, population of 5 million people, and role as a hub for financial innovation. It also includes the archipelago nations of the Philippines and Indonesia with populations of 100 million and 250 million, respectively, each spread over thousands of islands. And it includes Myanmar, which is very much finding its way forward in terms of governance and stability. The rules, laws, and structures you need to put in place to attract investment are still being developed. The other countries—Malaysia, Brunei, Thailand, Vietnam, Cambodia, and Laos—all have their own unique concerns and different levels of economic development. Leading each of these countries presents very distinct challenges.

Q: As an association of countries, how does ASEAN compare to the EU?

There’s been a lot of compare and contrast between Southeast Asia and what is going on in Europe. Critics will say the consensus-based ASEAN way is slow. The organization has existed for 50 years but only in 2015 did the countries come together to create the ASEAN Economic Community, or AEC.

The AEC is bringing down trade barriers and moving towards, not a European-style common market, but a distinctly Southeast Asian one. The AEC doesn’t mean free trade and free movement of labor, but it has meant freer trade and freer movement of labor. They haven’t moved towards a single currency, and looking at what’s happened in Europe, I don’t think that’s going to happen anytime soon in Southeast Asia. But ASEAN is still coming together, albeit slowly, step by step while the EU is facing Brexit and questions about its future.

To its great credit, Europe has come together in a way that has meant peace for seven decades. Southeast Asia, too, was a region torn by war, and ASEAN has been a tool to bring these diverse nations together in a peaceful manner to slowly build a stronger economy for them all.

Q: Are there specific examples of cooperation that you’d point to?

Examples of greater cooperation and integration would include ASEAN working to address human trafficking and the illegal wildlife trade. More needs to be done, but they are making progress. Malaysia, Indonesia, and Singapore are coming together to address the challenges of slash-and-burn forest fires that take place every year—pollution knows no borders. As an outsider—although I live in ASEAN—I want them to do more, but they are taking steps forward. It is very important that institutions get stronger, and that individual governments and companies figure out ways to better work together.

When I was the U.S. ambassador to the Asian Development Bank, many people thought that the BRIC countries [Brazil, Russia, India, and China] would really drive the next phase of global growth. In the last couple years, those economies have not grown as fast as people once envisioned. Now, when people ask me whether the next global star will come from Southeast Asia, I say that any of them could take off, but to get there they need to focus first on what I call the “little BRIC”: bureaucracy, regulation, interventionism by government, and corruption.

Clearly, government structures and regulation are necessary, but when does it go too far and reduce the incentives to start a company or hire more people? When is there too much government interventionism in an economy? When is corruption out of hand? For me, the little BRIC is the true economic constraint on growth in Southeast Asia, in ASEAN, and the world.

Q: Are there examples of countries that have found good ways to address some elements of the little BRIC?

The right balance will likely vary country to country and might change over time. As an American, I might think Singapore has too much regulation, but clearly Singapore is doing well and I know the leaders are also thinking through how to encourage more innovation and how to move to a next level of development.

And in terms of corruption, Singapore is among the 10 least corrupt countries on Transparency International’s Corruption Perception Index. The U.S.is only in the top 20. Unfortunately, for a number of ASEAN countries, corruption is an area where there is tremendous need to improve.

Q: In addition to the AEC, there are a number of trade deals that do or may involve ASEAN, including the TPP and RCEP. What’s happening with trade in the region?

China is central to that question. How does China deal with the rest of Asia, and how does the rest of Asia deal with China? That’s critical both economically and militarily, especially with tensions in the South China Sea.

When I think of the alphabet soup of trade deals or potential trade deals, overall integration is a wonderful thing. But we also have to recognize that the consequences of trade have not been equally distributed. Thus the pushback in Europe in the United States, and also in Asia. As we develop trade deals moving forward, countries and companies will need to think through how their citizens or employees will benefit, and if they are going to be hurt by a trade deal, what needs to be done to address that.

If we’re going to have greater free trade, if we’re going to have greater fair trade, more needs to be done to communicate the pluses and minuses of each deal. That will let people make an informed decision, whether it’s the right way to go, or not. And we need to figure out what will ensure that prosperity goes beyond a very small group of people.

Q: What is happening with the digital economy in ASEAN?

When people think of ASEAN, they often think about it as a source of natural resources—the tremendous oil and gas reserves in part of the region—or they’re thinking about ASEAN as production-based: the value of the labor of the people of the Philippines, Indonesia, or Thailand. But ASEAN today shouldn’t be thought of only in those terms. ASEAN today should be looked at as an opportunity even in areas like high-tech and the digital economy.

I saw an interesting statistic, which was that even though ASEAN might only have 630 million people, there are 700 million digital consumers. Clearly many individuals are using multiple devices, but it shows ASEAN’s digital economy is growing in leaps and bounds and will continue to do so. That sector is projected to grow 500%, to $200 billion, by 2025.

Q: What about infrastructure?

There is still tremendous need in areas like power, water, sanitation, and roads throughout much of the region. By one estimate the need is more than $22 trillion through 2030, but there is a significant infrastructure financing gap.

Beyond simply finding the funding, I think that approach needs to be refocused. Too often, development is simply about building. We need to also think through how we maintain and update what is being built.

When I sat on the Asian Development Bank’s board, I became, some would say notorious—I would like to say helpful—in underscoring what I called the three Ps of responsible development. That is, people, planet, and partnership. Responsible development takes into consideration the people that are being impacted by a project, the impact on the broader environment, and the reality that there isn’t enough capital at the ADB, World Bank, or even now the new Asian Infrastructure Investment Bank. The reality is that for the region to move forward, these countries need to encourage their private sectors.

At the end of the day, Asia’s way forward must include a thriving private sector in each country because government cannot be the driver of job creation. Even in China, we’ve seen the government thinking through how they can use the private sector to move their economy forward, to increase growth. There just isn’t enough money to build an economy on state-owned enterprises.

Q: How does that dovetail with your work as the inaugural Asia Fellow at the Milken Institute?

The Milken Institute is a nonprofit, nonpartisan economic and policy think tank that focuses on increasing prosperity. These are questions that are very much on the minds of the leaders of Southeast Asia: “How do we get economies to move forward? How do we get there to be more growth and more evenly spread growth?”

For the Milken Institute, capital market development is key. Without capital to allow for implementation, even the best idea remains simply an idea. What’s critical for the countries of ASEAN is that they need to bring together their own private sectors, public sectors, and civil societies to develop strategies to increase access to capital. As the nations of Asia-Pacific address this little BRIC, foreign direct investment is more likely to come in, which will drive job creation.

And today there are many different ways that countries and companies can access capital. It’s no longer a loan to the government from the World Bank or a business loan from a local bank. There are lessons from the United States, from Europe, and from around the world that I think countries of ASEAN will increasingly want to adopt.

Why a Re-Balanced State Department Budget Should Include Support for Cultural Diplomacy

June 14, 2017

Curtis S. Chin (Asian Development Bank, 2007-2010)

Cross posted from Ambassador Chin’s LinkedIn Page.

______

GWANGJU, SOUTH KOREA – From here on a Korean peninsula split between North and South, to Capitol Hill in Washington, D.C., where U.S. Secretary of State Rex. W. Tillerson recently testified before a Senate Appropriations Committee on the FY 2018 State Department Budget Request under U.S. President Donald J. Trump, our world remains as divided as ever.

Tillerson made clear that the Fiscal Year 2018 budget request of $37.6 billion “aligns with the [Trump] administration’s objective of making America’s security our top priority.” While there would be “substantial funding for many foreign assistance programs,” he said, other initiatives would see reductions. The State Department and USAID budget, he noted, had increased more than 60 percent – a “rate of increase in funding [that] is not sustainable” – from Fiscal Year 2007, reaching an all-time high of $55.6 billion in Fiscal Year 2017.

“While our mission will also be focused on advancing the economic interests of the American people, the State Department’s primary focus will be to protect our citizens at home and abroad,” said Tillerson in his prepared remarks introducing the budget request.

Time to Get Creative with Diplomacy

Yet, with disruption and division haunting our world, the United States needs to get creative and double down on diplomacy in all its forms. This can be done cost-effectively and in a way that showcases America at her best.

This is particularly important in places such as South Korea and elsewhere in Asia and the Pacific – a region that continues to be a key driver of global economic growth. Much of the region remains worried about an increasingly aggressive China and would welcome strengthened U.S. engagement.

Certainly, there is no substitute for the “hard power” of a strong military and a willingness to deploy and use military assets. U.S. engagement in Asia will benefit from an America that is stronger both economically and militarily.

That was clear when former U.S. President Barack Obama’s failure to act after his “red line” was crossed in Syria unintentionally undermined his much publicized “U.S. pivot to Asia.” That Obama-era initiative came to be seen by many in the region as more rhetoric than reality and, as I argued on CNN, “more bark than bite.”

Soft Power Has Its Advantages

But “soft power” too has its advantages. This must be kept in mind both by the U.S. president and the leadership of the U.S. Congress as work moves forward on an overall FY 2018 budget that gets spending under control while advancing American interests.

Trump should be applauded for not shying away from the hard work of seeking more balanced economic and trade engagement, and more sustainable, if not yet balanced, budgets.

I believe that a final, negotiated FY 2018 budget request for the State Department should include continued funding – if not a gradual increase – of what has been a relatively small amount of money allocated every year to the soft power of “cultural diplomacy.”

Roughly defined as the use of an exchange of ideas, traditions and values to strengthen relations and encourage engagement, cultural diplomacy is perhaps most easily seen in the use of music, arts and sports to build cross-cultural understanding.

Beyond “Ping Pong Diplomacy” in Asia

Famously, in the early 1970s, an exchange of table tennis players between the United States and China helped pave the way for a visit to Beijing by then President Richard Nixon. Then, it was “ping pong diplomacy.”

Today, it could well be the power of American football or music that helps America and Americans to better connect abroad – and that includes with counterparts in long-time allies, such as here in South Korea. Likewise, the power of South Korea’s culture from its rich traditions to the new wonders of K-pop and Korean TV dramas are advancing South Korean interests and “brand Korea.”

This February at the Asia Culture Center in the South Korean city of Gwangju, I was honored to join our U.S. Charge d’Affaires Marc Knapper from our embassy in Seoul to support American cultural diplomacy in action. Some 100 participants and their families and communities in Korea came together with a team of dancers from the Battery Dance Company in New York to help build understanding and bridge divides. Gwangju is the 6th largest city in South Korea and the birthplace of that nation’s modern democratic movement.

“Inclusion is the name of the game,” said Battery Dance Company founder and director Jonathan Hollander to me, “with disabled students working with high school dance majors; Filipino young women and a high school hip hop dance club; North Korean defectors; middle-aged ladies from a community dance group; and the Gwangju Ballet.”

Cultural Diplomacy at Work: Dancing to Connect

I first came to know Hollander when I served some 15 years back on the bipartisan Advisory Committee on Cultural Diplomacy under U.S. Secretaries of State Colin Powell and Condoleezza Rice. That committee was authorized by the U.S. Congress and established in the aftermath of the 9/11 terrorist attacks, as security concerns led to increased restrictions on travel and greater scrutiny of visitors from some Muslim-majority countries.

I now serve on the Battery Dance international advisory board as part of my own efforts to encourage cultural exchange – and build understanding of the United States.

“Cultural diplomacy becomes a real live thing when you get diverse people into a space together and differences are erased, borders crossed, preconceptions challenged [and] cooperation engendered,” said Hollander. “Both the US and Korea are experiencing social upheaval at the same time. Tensions are high. What does the future hold?”

Perhaps, we should once again look to the past to answer that question amidst new U.S. restrictions on visas and potential temporary travel bans from some countries.

Nearly 12 years ago, in September 2005, the eight-person Advisory Committee on Cultural Diplomacy issued a report to the then-U.S. Secretary of State underscoring the importance of strengthening U.S. engagement internationally as positive perceptions of the United States fell, particularly in the Arab and Muslim world.

Our committee included Republicans and Democrats in the world of academia, culture, business and government.

The Linchpin of Public Diplomacy

In our report, “Cultural Diplomacy: The Linchpin of Public Diplomacy,” we urged the then-Secretary of State to consider a number of recommendations that would strengthen America’s soft power in the ongoing battle of ideas, and create a cultural diplomacy infrastructure and policy for the 21st century.

As I found later through the Battery Dance Company and other organizations, whether supported by the U.S. government or U.S. businesses abroad as part of their corporate social responsibility efforts, sometimes it is not the career diplomats who are our best American representatives. Indeed, everyday Americans as well as American businesspeople, athletes, entertainers and performers are often best positioned to convey the vibrancy, the innovativeness and warmth that is also the United States.

While the mandate and work of our bipartisan advisory committee finished long ago, here are two recommendations we made that are worth revisiting even as U.S. State Department and USAID budgets are possibly reallocated and reduced.

First, we recommended providing advanced training and professional development opportunities for U.S. Foreign Service Officers who are public affairs officers and have responsibility for public diplomacy and cultural diplomacy through their careers. This would include particular attention to upgrading their ability to use research, polling, and new media, including social media. This cannot be “your grandfather’s State Department.”

Second, we recommended expanding international cultural exchange programs. We sought to underscore the power of open, not closed, doors. At that time, we focused on inviting more Arab and Muslim artists, performers, and writers to the United States, and sending their American counterparts to the Islamic world.

Today, the need for smarter, enhanced U.S. engagement extends around the world, including to the Asia and Pacific region. As China continues to militarize “islands” it builds in the South China Sea – through which much of U.S. trade with the region transits – an opportunity exists for the United States to positively raise its profile through diplomacy as a more responsible power and partner in the region.

Enhancing Security through Cultural Diplomacy

Back in 2005, the advisory committee wrote that “cultural diplomacy can enhance our national security in subtle, wide-ranging, and sustainable ways,” and underscored that such diplomacy efforts require a generational commitment of funds, expertise, courage and time. Those words still ring true.

In 1848, the British statesman Lord Palmerston is said to have commented that nations have no eternal allies or permanent enemies, but only eternal and perpetual interests. Working to win the hearts and minds of reasonable people everywhere remains very much in America’s interests.

Certainly, the challenges of budgets and bureaucracy remain, but it is time for the United States to recommit to diplomacy – cultural, commercial and educational. As Trump and Tillerson disrupt the staid halls of the U.S. State Department, there should be no ignoring that robust, strengthened diplomacy is good for American security and also makes long-term economic sense.

Mexico: Off to the Races

June 2, 2017

Antonio O. Garza (U.S. Ambassador to Mexico, 2002-2009)

Cross posted from Ambassador Garza’s website

___

The U.S.-Mexico relationship is once again back in the headlines and this time it’s not just changing, it could be completely redefined. After months of anticipation, U.S. Trade Representative Robert Lighthizer submitted a two-page letter to Congress on May 18th, which announced the Trump administration’s intent to renegotiate NAFTA. The letter spurred the U.S. government into action, triggering the start of a consultation process—where businesses, industry groups, and private citizens can submit comments—and public hearings scheduled for later this summer. By early fall, negotiators from all three countries will begin sitting down together to hash out the details, with the goal of wrapping up the negotiations in early 2018.

To put it simply, reshaping NAFTA—an agreement that underpins over a trillion dollars in trade and that touches every major sector of the three countries’ economies—in only a few months is remarkably ambitious. While Mexican officials would like to end the process before the start of their presidential campaign cycle in early 2018, delays seem not just likely but inevitable. Throughout the process, expect to see a renewed focus on the trilateral relationship, which we are already witnessing through cross-border events and publications, as civil society groups and businesses seek to share their opinions and insert them into the negotiations.

However, while the upcoming NAFTA negotiations might be tough, the even more game-changing process in Mexico is going to be tackling the country’s rule of law challenges. On this front, 2017 has been a grim year, with setbacks for the recent anti-corruption reforms, fugitive corrupt governors, and the highest homicide rate for a first-quarter in the last two decades. Among those killed since January were six journalists, a particularly dark stain on an already bleak record. As I wrote for USA Today earlier this week, making improvements in protecting journalists and human rights defenders is not just going to be good policy, it will be the substance of strong leadership and presidential legacy.

Finally, for those of you keeping an eye on Mexican politics, this Sunday, June 4th marks the governor races in the State of Mexico, Coahuila, and Nayarit. Of the three, the State of Mexico race is the one to watch, as President Enrique Peña Nieto’s PRI party has not lost the state in a century. The latest polls, however, show the PRI candidate Alfredo del Mazo to be neck and neck with the leftist Morena candidate Delfina Gómez. While the PRI’s success at holding the state and Morena’s ability to pull in voters with its anti-corruption, populist message is expected to provide a sneak-peek for next year’s presidential elections, the fact that the race is so close (after the PRI won this governorship by 20+ percent in previous years) is already a strong indicator of the state and country’s political mood.

Treat Mexico as a Strategic Partner

February 21, 2017

John D. Negroponte (Mexico, 1989-1993)
James R. Jones (Mexico, 1993-1997)
Jeffrey Davidow (Mexico, 1998-2002)
Antonio Garza (Mexico, 2002-2009)
Carlos Pascual (Mexico, 2009-2011)
Earl Anthony Wayne (Mexico, 2011-2015)

An edited version of this piece appeared in The Washington Post.

______

Mexico is of enormous importance to the United States. We have strong strategic interests in a relationship of respect and collaboration with Mexico while we work through differences on trade, security, and migration.

US-Mexico relations touch the daily lives of more Americans than ties with any other country, whether through culture, commerce or travel. US prosperity and the security of our homeland are deeply affected by the type of relationship we have with our southern neighbor.

Much can be improved between Mexico and the US for the good of both countries, but tackling these challenges need not be a win-lose proposition. Both countries can gain security and prosperity. Reviving the animosity and “distance” that characterized our relationship in the seventies or eighties is dangerous and runs counter to our interests.

The six of us have served as U.S. Ambassadors to Mexico, managing the ever-improving relationship across Democratic and Republican administrations since the late eighties. We have seen firsthand the strategic value of working cooperatively with Mexico to tackle common problems, including crime, terrorism and global economic competition. Along the way, Mexico has become a more democratic and prosperous country, making it a better and more reliable partner.

We are now deeply concerned to see this foundation shaken. Public attitudes in both countries are being soured by exaggerated public accusations. Mexicans believe that their national “dignity” has been insulted. Champions of closer cooperation with the US are on the defensive. Nationalist voices are gaining traction. This is not in America’s long-term interest.

The United States and Mexico started our modern journey to closer partnership with the 1993 North American Free Trade Agreement. Collectively, the six of us have worked through every stage of NAFTA. This is not a perfect agreement, but neither is it the job killer some have construed. Since NAFTA was signed in 1993, U.S. jobs linked to trade with Mexico grew from 700,000 to 4.9 million. The value of our two-way trade has grown six fold, reaching $584 billion in 2015. Mexico is now the second largest market for US exports, larger than our exports to China, Japan, and Germany combined. Mexico is the third largest buyer of US agricultural products. We build many things together, with parts crossing borders in both directions – so much so that finished Mexican manufactured exports were found to have 40% U.S. content.

US jobs moved to Mexico, but others were created by NAFTA. A 2013 study estimated that the US is $127 billion richer each year because of extra NAFTA trade. New studies have made clear that the big causes of US manufacturing job losses are automation and trade with China, not NAFTA. NAFTA can be improved to help boost the US economy in such areas as “rule of origin,” services, e-commerce, border inefficiencies, and labor standards. Those are the issues that should be negotiated based on facts to strengthen a long-term relationship that makes both countries more competitive.

Energy deserves special mention. Under NAFTA, Mexico’s nationalized energy sector was still off limits to US companies. In 2013, Mexico opened investment and trade in oil, natural gas, electricity, renewables, and refined fuels to US and other companies. Today, the US exports more natural gas and gasoline to Mexico than to any country. In December, major US companies won licenses to develop Mexico’s oil reserves, while others are partners in new pipelines. These openings make North America more energy secure.

The US deficit with Mexico gets more public attention than it deserves. Mexico represents 8% of our deficit. Our deficits with China, the EU and Japan are larger. The deficit with Mexico declined by over 40% between 2010 and 2015, even as our trade grew 35%.

A sharp point of contention has been over the border wall and migration. The great irony is that today there are 1.1 million fewer undocumented Mexicans in the US than in 2007. Apprehensions of Mexicans at the border have reached the lowest levels of this century. Mexico has joined us to manage the surge in migrants from Central America, deporting over 165,000 from its southern border in 2015, more than the United States did. Publically demanding that Mexico pay for a wall that Mexicans don’t think is needed has fueled anti-American nationalism. That limits the capacity of Mexico’s government to work with us to find solutions.

Common borders also made Mexico and the United States partners in national security. Ever since 9/11, Mexico and the US have worked closely to stop potential terrorists from entering the US. We also work to improve the fight against illicit trafficking. The trafficking of heroin and other drugs into the US and the smuggling of weapons and drug profits into Mexico fuel violence, corruption, and deaths in both countries. Still, during the years of our collective service, law enforcement officials have built trust, competency and legal channels to act against criminal networks. That cooperation needs to be strengthened, not undermined.

Together, the authors have witnessed profound and positive changes in the US-Mexico relationship over the last quarter century. We urge that the US engage in serious, fact-based negotiations over differences on trade and other issues. Intimidating or denigrating remarks make it harder to reach outcomes that support American economic and security interests and fuel anti-Americanism in Mexico. Workers, companies, and communities of both countries will prosper with a long-term strategic partnership between the US and Mexico. Let’s keep building it.