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A Public Forum on “The Mekong Mainland: Axis of Prosperity, Security and Competition”

 A Public Forum on “The Mekong Mainland: Axis of Prosperity, Security and Competition”

Tuesday, 2nd December 2014 at 08.30 – 11.30 a.m.

The Chumbhot-Pantip Conference Room, 4th Floor Prajadhipok-Rambhaibarni Building

Faculty of Political Science, Chulalongkorn University

 

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           Programme

                                             

           Opening Remarks              

                                             Assoc. Prof. Dr. Ake Tangsupvattana
                                             Dean, Faculty of Political Science
                                             Chulalongkorn University

                                             Mr. Tetsuya Iguchi 
                                             Editor-in-Chief, Editorial Headquarters for Asia

                                             Nikkei Inc.

 

                                             Speakers:

                                             Dr. Ulrich Zachau
                                             Country Director, South East Asia
                                             World Bank Group

                                             Assoc. Prof. Dr. Ruth Banomyong
                                             Head Department of International Business, Logistics and Transport
                                             Thammasat Business School
                                             Thammasat University

                                             Mr. Akira Murakoshi
                                             President, Mitsubishi Company (Thailand) Ltd.

                                             Assoc. Prof. Dr. Thitinan Pongsudhirak

                                             Director, ISIS Thailand

                                             Faculty of Political Science, Chulalongkorn University

 

                                             Moderator:

                                             Ms. Gwen Robinson
                                             Senior Asia Editor, Nikkei Asian Review
                                             Senior Fellow, ISIS Thailand

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Videos: The Mekong Mainland:  Axis of Prosperity, Security and Competition


The Mekong Mainland:  Axis of Prosperity, Security and Competition 1/3: www.youtube.com/watch

The Mekong Mainland:  Axis of Prosperity, Security and Competition 2/3: www.youtube.com/watch

The Mekong Mainland:  Axis of Prosperity, Security and Competition 3/3: www.youtube.com/watch

 

 

If you wish more detailed information concerning this seminar please click 
http://www.facebook.com/ISISThailand

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Introductory Remarks - Assoc. Prof. Dr. Ake Tangsupvattana:

 

The title may seem like misplaced. How can a river like the Mekong can be placed next to the Mainland?  In fact, the title is intentional. The focus today is on mainland Southeast Asia, a clutch of countries and economies that revolve around the Mekong River.

 

There are different ways to conceptualise the Mekong region. Over the past two decades, these countries – namely, Myanmar, Laos, Thailand, Cambodia, Vietnam, and Yunnan and Guangxi in southern China – are known as the GMS, or Greater Mekong Subregion. However, geography tells us that these countries also comprise the mainland half of Asean, referring to Cambodia, Laos, Myanmar, Vietnam, and Thailand. The mainland countries, specifically Cambodia, Laos, Myanmar, and Thailand, or CLMT, are also seen as coming under China’s influence as opposed to the maritime Asean countries that have had territorial tensions with Beijing. So there are distinct differences between mainland and maritime Southeast Asia, and our focus today is the mainland.

 

The Mekong region is a fascinating axis of economies that have been expanding at impressive growth rates. In fact, the growth trajectories of these countries are likely to go up for at least the foreseeable decade. Yet the security environment of the Mekong region is fraught with uncertainty, especially with the conflicting interests of upstream and downstream countries and the increasing concerns over environmental degradation. In addition, we are interested in the Mekong region because of the growing geopolitical competition among the major powers.

 

Mr. Tetsuya Iguchi


Some economies in Asia, particularly in Japan, are suffering from a disease which can be termed “Population Shrink Syndrome”. Once contracted, a country with “PSS” is likely to suffer from low economic growth and deflation. Government debt piles up as they inject cash into the economy, often to no avail. This disease is likely become more common in Asia as the working age population starts shrinking. Japan’s working age population started shrinking in 1996, and soon after its nominal GDP peaked 1997, and deflation began in 1999.

 

The next countries at risk of falling ill to this economic disease are China, South Korea and Thailand. The working age population of these countries is projected to start decreasing by 2020, and will limit their economic growth. To treat this disease, Mr. Tetsuya recommends these countries start opening their economies to the region (a prescription that Japan has yet been able to take). This involves encouraging the movement of skilled workers into a country, but also having good connectivity and supply chains beyond national borders.

 

Thailand is surrounded by countries with young populations that are still growing, hence why it is crucial for Thailand to have strong relations with its fellow Mekong countries. By deeply integrating in the Mekong Mainland, Thailand has the opportunity to avoid the same trap as Japan of contracting the “Population Shrink Syndrome”.

 

 

Dr. Ulrich Zachau

The Mekong Region is the fastest growing in the world, although Thailand is one of the poorer performers growing at around 1.5% this year and no more than 3.5% in 2015. Japan is struggling with its working age population and Europe is threatening to go into deflation and the global economy is struggling, but East Asia as a whole is doing quite well. This region is growing fast, but has a chance to grow even faster through integration.

 

Dr. Zachau explained that among the objectives of the World Bank group are poverty reduction, and sharing prosperity with economic growth that benefits all. Historically, inequality in this region has been high, but has started to come down, particularly in Thailand. The Mekong region will continue to clock strong growth, but the challenge is to ensure the spoils of that growth are shared equally.

 

To meet this challenge, the World Bank Group identifies three key areas of attention, the first of which is “Openness and Integration.” Integration is not a goal or an end to itself. Integration is good and widely supported because it raises incomes and reduces inequality in the long-term. The second pillar is “Inclusion,” which refers to deliberate policies and efforts that governments make to ensure that benefits do not just accrue to a few people, but are distributed to everybody. Part of this is making sure that there are equal opportunities for all to receive a good education. This is critical throughout the region, particularly Thailand which has been talking about education reform for decades but is yet to see much progress on the agenda. The third pillar is “Jobs.” While its economic importance is in relative decline, improving agricultural productivity is essential for job creation and SME growth. The key message is that openness and integration are good for people in the Mekong region, but in order for them to reap the benefits it is important that there is inclusion and the provision of jobs.

 

On trade, tariffs have come down significantly since the 1990s, but increase in Non-Tariff Measures in ASEAN still impedes trade in ASEAN. NTMs are restrictions on trade other than tariffs, such as only placing limits or conditions on imported goods. There are still 3500 different NTMs in ASEAN. Often countries balance the removal of tariffs with the implementation of NTMs.

 

Energy integration in ASEAN is still in its infancy. An energy network would create efficiencies for both consumers and producers, and would increase reliability. So far a more integrated energy network has fallen short because of a lack of investment and political hurdles between countries in the region. Road connectivity faces similar hurdles. The bulk of the transportation infrastructure is still stuck in planning stages. Almost 40% of the suppliers operating in developing countries in ASEAN consider the weakness of the region’s transport infrastructure a critical constraint for them to move up the value chain.

 

Integration can improve the lives of people, raise incomes and can reduce inequality and poverty in the region.

 

 

 

Mr. Akira Murakoshi

Looking at the countries in the Mekong Subregion – Cambodia, Laos, Myanmar, Thailand and Vietnam – each country has limitations in terms of working age populations. However, Mr. Murakoshi pointed out that if we gather the populations of the countries, the Mekong region suddenly becomes enormous and a very attractive proposition for investment. Hence, Mitsubishi will continue to emphasise and make investments in this area.

 

The ASEAN Economic Community, while promising, still faces several barriers for its implementation. The only other comparable regional institution to ASEAN and the AEC is the European Union. The earliest precursor of the EU was the European Coal and Steel Authority established in 1951, which then became the European Community. Mr. Muakoshi hopes that the same kind of gradual integration can occur in ASEAN. In a more integrated region, Thailand has the capacity to become the “Germany of ASEAN,” meaning it can be the economic and institutional powerhouse of the region, sacrificing some of its own growth for the good of the region and its neighbours. To achieve this, Thailand will have to open its doors to neighbouring countries, including Japan, to facilitate trade and exchange of labour. This is important for Thailand to ensure it remains the number 1 country in the region.  Thailand has a high concentration of industry, improving productivity and skilled labour, and at the centre of the region it will remain a more attractive proposition for investment than some of its neighbours.

 

Japanese investment throughout all countries in the Mekong region has expanded in recent years. Mitsubishi, for example, has seen a ten-fold increase in the number of workers in its facilities in Myanmar. Similar trends have also been recorded in Vietnam and Cambodia. Investment in Indonesia has also become larger than in Thailand because of oil, attractive policies and its large market.

 

 

Assoc. Prof. Dr. Ruth Banomyong

From a logistics perspective in the Mekong region, much of Assoc. Prof. Ruth’s work has looked at how integration in the region can be improved. Currently, there is a new buzzword in ASEAN, “Connectivity.” The main focus for connectivity in the Mekong region is its physical connectivity; building roads and bridges. However, building roads in itself is not enough to foster connectivity. There is also a need for “enabling software.” Flows of goods, people and goods across the various borders in the Mekong require institutional infrastructure in addition to physical infrastructure. So far, progress on physical links have far outstripped progress on the enabling software.

 

In reality, logistics is a micro, firm level problem. But countries commonly like to talk about logistics at the macro level. There are four dimensions to logistics, the hardware (tangible, physical aspects), the software (institutional framework, rules, regulations and agreements that will either facilitate or impede flows across borders), the role of the service providers (there is a lot of confusion among these service providers), and traders and manufacturers (who need access to efficient logistics problems).

 

In ASEAN, there are three major transport facilitation agreements. First, there is the ASEAN Facilitation of Goods in Transit, which was signed in 1998. Second, the Multimodal Transport Agreement was signed in 2005. Third, Agreement on Interstate Traffic was signed in 2009. ASEAN has these trade network agreements, but so far none have been implemented.

 

In the Mekong region there is the Cross-Border Transport Agreement, which talks about single stock and single window inspections. This has also not been implemented, largely due to some opposition from Thailand. The reality on the ground is that there is a reliance on bilateral agreements, but still there are great challenges in building the institutional software to facilitate cross border movements. This is cumbersome for service providers as they may have to apply for a very limited number of permits, or they have to move their stock from truck-to-truck increasing time and risking damage. The official at the border will also need to deal with either ASEAN documents, GMS documents or bilateral documents to determine the validity of cross-border transit. It costs twice as much money to move a container from Rotterdam to Singapore than to move it through the GMS itself.

 

The impact of the ASEAN Economic Community will not impact all ASEAN countries equally. On the 1st of January 2015 nothing will happen, but by 2030 there may be vast changes. Looking at two scenarios, the first being that ASEAN member states do not enter into the AEC and the second being that all ASEAN countries are able to fulfil their AEC commitments. According to economic modelling, countries at the periphery of Thailand (especially Myanmar) are likely to benefit the most by fully implementing the AEC. Cambodia, however, will actually decline between 1-2%. However, most parts of the region grow, some areas by up to 25%, but the changes are uneven.

 

Infrastructure is important, particularly with road transport in “continental Southeast Asia.” However, cross-border transport remains incredibly difficult due to the lack of “software” to facilitate trade.

 

 

Assoc. Prof. Dr. Thitinan Pongsudhirak

Mainland Southeast Asia is a compelling region. It has a growing market of more than 300 million potential consumers, a combined GDP of more than US$1 trillion, the borders dividing the region are becoming increasingly irrelevant, and the region is no longer ideologically driven as it was in the Cold War. Taking a long-term view of the region’s development, within 50-80 years the region will likely be deeply physically, institutionally and economically integrated (perhaps more than ASEAN itself.)

 

When the Japanese and the ADB conceived the Greater Mekong Subregion (GMS) which includes Yunnan and Guanxi, they did not foresee how successful the concept would become. Nor did they foresee the eventual dominance of China in the Mekong region. Another way to conceptualise the region is as “Mainland Southeast Asia,” comprised of Cambodia, Laos, Myanmar and Thailand as opposed to Maritime Southeast Asia. This Mainland SEA is increasingly under China’s orbit. A third way of looking at the region is as an axis of competition, or Great Game between the different powers of the region. China is largely dominant in the Mainland, but the United States has had some influence in Myanmar’s democratic transition as well as kick-starting its own Lower Mekong Initiative.  The US has not ignored Mainland Southeast Asia, but it has not been sufficiently successful and on par with China in engaging with the region. The US is not a resident superpower in the Mainland, whereas China is. Looking at the regional dynamics, the US is more engaged and pivotal in Maritime Southeast Asia, China is engaged in the Mainland while Japan is in between.

 

China is increasingly “stepping up its game” to finance regional development, with the BRICs development bank, the Asian Infrastructure Investment Bank and the New Maritime Silk Road. These endeavours are enough to make Japan feel nervous about its investment in Mainland SEA. It also signifies China’s desire to have a leadership role in the region befitting its size and importance. If China is allowed this regional leadership position, it might be more inclined to “play by the rules.” Currently, China does not abide by the rules, norms and institutions in the region. If China does not play by the rules then how we manage regional development? China tends to be a ‘transactional’ power; relations for them are based on input-output.  Currently they don’t have the ability to be a true superpower because they lack the wherewithal to sacrifice and provide the kinds of public goods that the US has provided in the past. However, Dr. Thitinan believes that this is changing; in China there seems to have been a collective decision taken at the top to engage in more soft power projection. If China’s new approach is rejected based on bad or lack of good will, then the Chinese will become our worst fears incarnate; belligerent and aggressive. But if they are respected and recognised with this new role and leadership ambition, China might play by the rules more.

 

Domestic politics in Mainland Southeast Asia is impinging on regional relations and development. Next year, Myanmar will be problematic due to the race for the Presidency and the risk of back-sliding. Thailand also has problems; electoral rule may be returned by the first half of 2016, although that is not guaranteed. The new Constitution may not be accepted, the same people may win the election with similar policies, losers may not accept the results and Thailand could end up back in the cycle of political conflict. Laos is the fastest growing in the region. There are growing challenges for the Lao Communist government and retaining the emerging vibrancy of its economy. Hun Sen has a weaker hand than ever in Cambodia’s political scene, but the opposition is growing. Vietnam, like Laos, is facing a problem balancing modernisation with demands for democratisation. So domestic politics are unruly in each country, hence the cooperation that is required in the region will be hard to come by.

 

The growth trajectory for the region should be around 4-6% for the next decade. Laos is not going to contract, and Myanmar, coming from a very low base, can clock growth in excess than 5%. Thailand, despite shooting itself in the foot yet again, can still see 3-4% growth next year depending on external conditions. There are many problems in the region, (geo-political, domestic, environmental, and logistical) but the increased integration in Mainland Southeast Asia will ensure that the region continues its strong growth.

 

 

Public Participation:

 

Moderator: Japan was fundamental to this region, but Dr. Thitinan suggested that there might be a sense that Japan is slipping in importance in the region. To Mr. Murakoshi, are Japanese businesses and the government aware of this?

 

Mr. Murakoshi: Japanese companies have a strong and long track record of being reliable, long-term and value adding investors in the region. China does not. So Chinese companies are not yet realistic competitors to Japanese companies.

 

Public Question:  There are still concerns about who is benefitting from this integration. So far the social and environmental impact of regional integration have not been discussed. The labour that is moving across borders in the region is unskilled labour. This labour is exploited and there are many rights abuses. Ethnic communities in border areas are facing unprecedented challenges to their lives. The informal economy, which is much larger than the formal economy (correction: it is not), has not been touched upon. You cannot have distribution of benefits and poverty reduction without looking at the social and environmental impacts of growth.

 

Dr. Ulrich Zachau: The informal economy is not larger than the formal economy, however there is no doubt that the informal economy remains important. The large majority of people in the region are going to be affected by issues of logistics, moving across borders and infrastructure projects. That doesn’t mean that challenges faced by ethnic and religious minorities aren’t important, but it’s probably good to put them in perspective.

 

Another question to ask is, who is benefitting from integration and investment? Looking at other examples around the world there is an average net gain for most people. However, there are winners and losers within and across countries. Countries that benefit the most tend to enforce policies of social inclusiveness and environmental protection.

 

Thailand has been exploiting its comparative advantage in cheap unskilled labour, both from within the country but increasingly from abroad. Looking at its long-term comparative advantages, it will have to come from more skilled labour sources. The challenge for Thailand is how it will develop those sources of skilled labour.

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