Given President Duterte’s striking display of prescience in his early foreign policy pivot towards regional integration with Southeast and North Asia, his chairmanship of the Association of Southeast Asian Nations (ASEAN) when it turns a half-century in 2017 couldn’t have come at a more fortuitous time for this regional bloc amid the likelihood of its chief security and economic ally of choice—the United States—going isolationist and inward-looking under a Donald Trump presidency.
ASEAN member-states that have already cast their lot with the Trans-Pacific Partnership (TPP) are facing an uncertain future as this US-led trade deal looks virtually dead in the water given Trump’s “America first” policy pronouncements during the recently-concluded US presidential campaign.
Hence, the China-led Regional Comprehensive Economic Partnership (RCEP) appears as the ideal and lucrative market bloc for Southeast Asia at this point to sustain its economic expansion, now that President Obama himself appears to have all but given up on his pet initiative TPP following Trump’s upset victory.
And who else is better suited for this job of leading the ASEAN into this new strategic partnership beginning in 2017—just as Trump takes over the White House in January—than Mr. Duterte who had presciently shown to his fellow ASEAN leaders the way to such a pivot with his successful trip to Beijing last month.
As jointly announced by Finance Secretary Carlos Dominguez III and Socioeconomic Planning Secretary Ernesto Pernia while Duterte was still in China, the Chief Executive has rebalanced Philippine foreign policy by ordering his Cabinet to move quickly towards regional economic integration with ASEAN and North Asia’s powerhouses–China, Japan and South Korea.
“President Duterte’s early moves on the foreign policy front thus makes him the right person to chair the ASEAN as it turns 50 next year against the backdrop of fresh challenges attending the advent of an apparently new global order shaped in large part by the new relations of the US and China with the rest of the world,” Dominguez said.
In an online report by The Edge Markets, it quoted Citi analyst Kit Wei Zheng as saying that the pivot to China within the ASEAN countries will continue to pick up speed.
“With current account surpluses under pressure in some countries, Chinese savings may become increasingly key in financing ASEAN’s investment cycle, particularly in Malaysia and Indonesia, where improvements in basic balances this year were dominated by the surge in Chinese foreign direct investments (FDI),” said Kit, adding that Philippines could stand to benefit in the future.
Kit said the uncertainty now surrounding the TPP under a Trump presidency could affect markets that rely heavily on US demand.
“Dependence on China to plug external financing gaps will only accelerate if protectionist trade policies in the US keep current account surplus of Malaysia, Philippines and Vietnam under pressure,” he said.
Citi said Singapore would be the hardest hit among ASEAN countries as its estimates show that 8.4 percent of that country’s gross domestic product (GDP) is exposed to the US, particularly in the services trade.
Vietnam would also be affected as it has an 8 percent exposure, followed by Malaysia with a 6.3 percent exposure, although the latter also relies heavily on China.
Even before an impending pivot to China, ASEAN has already seen increasing FDIs from the Asian economic giant.
FDIs from China and Hong Kong into the ASEAN-4 (Philippines, Malaysia, Indonesia, Thailand) totalled $9.4 billion in the first quarter of 2016, accounting for 36.9 percent of total FDI inflows, according to The Edge Markets report.
“That was nearly as high as the cumulative $10 billion from 2013 and 2015, and is far ahead of the $919 million in FDI from the US in the same period,” it added.
Even before the victory of Trump, who had bashed the TPP during the US presidential campaign, Dominguez already said that the Duterte administration was keen on joining RCEP rather than the US-led trade pact, which is being championed by outgoing President Obama.
With the TPP’s uncertain fate, President Duterte’s China pivot could not have come at a better time, especially with the Philippines chairing the ASEAN next year on its golden anniversary as a regional trade bloc.
In accepting the Philippines’ chairmanship of the ASEAN during the 28th-29th ASEAN Summits in Laos last September 6-8, Duterte said the Philippines was ready to do so and that, “We will highlight ASEAN as a model of regionalism and a global player, with the interest of the people at its core.”
Dominguez said the Philippines is more than ready to chair the ASEAN in 2017, which coincides with the 50thanniversary of the founding of the 10-member regional bloc, as President Duterte had apparently foreseen correctly the need to turn ASEAN’s attention toward China, the world’s second largest economy that wants to establish a larger economic presence in the Asia-Pacific region.
The Philippines’ hosting of the ASEAN summit in 2017, with the theme “Partnering for Change, Engaging the World,” is the third time for the country after it was held in Manila in 1987 under the late President Aquino and in Cebu in 2007 under then-President Arroyo.
Dominguez recalled how Duterte had come under heavy fire for his sharp foreign policy turn, earning harsh criticism from certain sectors in the process, only to be now seen as the leader who had presciently seen that a timely pivot to China is in the best interests, not only of the Philippines, but of ASEAN as a whole.
“No one seems to be raking President Duterte over the coals nowadays with the unexpected triumph of Trump, who won on a campaign message of US protectionism and scaling down American engagement in international trade blocs in order to save jobs in the US,” Dominguez said.
President Obama had framed the TPP as the centerpiece of America’s “pivot to Asia,” but the pact excludes China.
The TPP was supposed to “write the rules for global trade” to “help increase Made-in-America exports, grow the American economy, support well-paying American jobs, and strengthen the American middle class,” by eliminating more than 18,000 taxes and other trade barriers on US products across the 11 countries in the trade bloc, according to the website of the Office of the US Trade Representative.
The TPP includes 12 participants: the US, Australia, Canada, Japan, Chile, Mexico, Peru and New Zealand plus four ASEAN members—Singapore, Malaysia, Vietnam and Brunei.
RCEP, on the hand, is a proposed 16-nation free trade area comprising all 10 ASEAN member-nations—the Philippines, Malaysia, Singapore, Brunei, Thailand, Indonesia, Laos, Cambodia, Myanmar and Vietnam—along with their six key trading partners China, South Korea, Australia, India, Japan and New Zealand.
The RCEP was conceptualized about a decade ago but was launched only in November 2012. Its membership of 15 Asian countries account for almost half of the world’s population, almost 30 percent of the global GDP and over a quarter of the world’s exports.
In terms of merchandise exports, RCEP is larger than the TPP, as China’s exports of $2.3 trillion alone as of 2014 are larger than the combined exports of the US ($1.6 trillion) and Canada ($474 billion), the two lead members of the TPP.
The RCEP covers trade in goods and services, investment, economic and technical cooperation, intellectual property rights, competition policy, and dispute settlement, among other issues. It does not cover labor, environment and state-owned enterprises.
Dominguez has said in previous interviews that the Duterte administration is more open to the RCEP than TPP, given its new policy of moving the country swiftly towards economic integration with its fellow-members in the ASEAN and major trade partners in Asia and the Pacific.
“I personally would like to look at RCEP more closely because that’s the 10 ASEAN countries, I think. That one, we are more open to. With regard to TPP, that’s being reviewed all over, including in the US (United States). So maybe we’ll put that in the back burner,” Dominguez said, weeks before the likelihood of Trump upending Washington’s trade commitments with its allies in the Asia-Pacific and elsewhere with his electoral victory.
A media report said that another Asian economic powerhouse—Japan–is also leaning towards the RCEP.
Prime Minister Shinzo Abe was quoted as saying in Tokyo: “It’s safe to say we will shift focus to RCEP should the TPP not go ahead.” But Abe said he would also like to discuss free trade with Trump in an attempt to make a last-ditch pitch for the TPP.
When President Duterte made his four-day state visit to China in October this year, the Chinese government pulled out all the stops to give him a grand welcome, a sign of the resumption of warm ties between Manila and Beijing, which underwent a tense period during the previous Aquino administration.
Mr. Duterte was received by Chinese President Xi Jinping at the Great Hall of the People, a magnificent structure reserved exclusively for events that China deems of high importance.
It was during his state visit where Duterte announced that he was recalibrating Philippine foreign policy towards China and the region, a declaration that was eventually met by public criticisms from quarters that want the government to preserve Manila’s economic and security ties with Washington.
China responded in kind to Mr. Duterte’s announcement by bringing $24 billion-worth of investment pledges for the Philippines on the table. According to Trade Secretary Ramon Lopez, China will provide $9 billion in soft loans, including a $3 billion credit line with the Bank of China, while economic deals including investments would yield $15 billion.
The multibillion-dollar pledges from China were not merely empty promises. A few weeks after Duterte concluded his state visit, a powerhouse delegation from the National Development and Reform Commission, China’s chief state planning and strategy agency, arrived in Manila to hold talks with Philippine economic officials, including Dominguez, on how to move ahead on the proposed ventures.
NDRC Deputy Chairman Ning Jizhe said the purpose of his trip to Manila was to bring the various Memoranda of Understanding (MOUs) signed during President Duterte’s state visit to China, “to reality,” particularly the deals involving investments and infrastructure.
“Developing the economy and promoting people’s livelihood will be the foundation of our governments’ cooperation,” Ning said in his meeting with Dominguez and other Philippine officials.
President Duterte’s pivot to China, once harshly criticized and even ridiculed, is now seen as the right move at the right time.
With the TPP now apparently dead in the water and a growing resurgence of protectionism in the US, Manila’s recalibration of its foreign policy would benefit not only the Philippines, but would also help the rest of ASEAN move closer to China and its vast trading market, a task greatly eased as the chairman of next year’s ASEAN Summit is no other than President Duterte.