CAFTA Angst, Indonesian Strength, and the Mekong Drip

CAFTA: This site recently discussed the growing angst of citizens in several Southeast Asian nations in regard to CAFTA.  Asia Times is currently running an article addressing some specific areas of contention in detail.

Touted as the world’s biggest free-trade area, CAFTA will bring together 1.7 million consumers with a combined gross domestic product of US$5.9 trillion and total trade of $1.3 trillion. Under the agreement, trade between China and Brunei, Indonesia, Malaysia, the Philippines, Thailand, and Singapore has become duty-free for more than 7,000 products.

Vietnam, Laos, Cambodia, and Myanmar are not scheduled to fully join CAFTA until 2015, due to the fact their economies are less developed than the older ASEAN members.  Although China has been a major boon for Southeast Asia since 2003, at least in the aggregate.   Low wages are attracting factories and investors away from the region, right into China.  In total, FDI (Foreign Direct Investment) is down in SE Asia about 30% since the 1990’s.  China’s currency manipulation also makes it more competitive against Southeast Asian exports. Still, Beijing seems to expect that SE Asia can absorb up to 8% of its exports.   Some argue, that as America and the EU become more protectionist, China is also, despite Beijing’s constant promoting free trade.   So it appears to many that free trade from the Chinese perspective is  “buy whatever China wants to sell you”.

As China starts moving up the high tech export ladder it is hard to see what industries SE Asia will have a competitive advantage in.  It appears that if the region wants to continue the economic growth it has seen in previous decades,  SE Asia will need to push for more access to the Chinese market by collective bargaining, instead of allowing China to continue to  divide and conqueror.  It would also be beneficial to do as  Switzerland does with the nation’s around it, focus on niche industries, namely agricultural and manufacturing  (such as coffee in Vietnam and Rubber in Malaysia).  They need to not only grow these products but also process them in a way that adds value.

Indonesia:  Here is an interesting editorial in the Sydney Morning Herald concerning what Indonesia can teach Myanmar.  The author does make some assumptions, some of which are not well founded.  Namely that ASEAN was never meant to be the SE Asian EU; it was created as a mutual security organization during the Cold War by newly independent nationalist states that had a mutual fear of communist insurgents in the region inciting revolution.  In recent years,  it has begun to morph into an promising economic block.   Human rights has never been a primarily concern of the group, it was (and is) a primary concern of certain Western interests groups.

That being said, the article does discuss Indonesia’s growing international profile, with its membership in the prominent Group of 20 and its frustration in being one of many, in consensus driven ASEAN.  The author then goes on to make some valuable comparisons between the former military dictatorship of Indonesia and the current regime in Myanmar, coming to the conclusion that democratization is often unpredictable, something I disagree with.  Myanmar is a long way from where Indonesia was in terms of civil society, stable middle class, and education levels on the eve of its democratization.

Although Indonesia is indeed taking a more active role in the Myanmar situation, it is unlikely they can accomplish much, as they just do not have the leverage China or the United States.

Southeast Asia:  There has been an upswing in criticism from Laos and Thailand over Chinese hydro-power dams upstream on the Mekong River.  Both nations are claiming that the Chinese dams are causing low water levels in their nations.  However, some experts and the  Chinese government contend that the overall problem is not the dams, but the drought affecting southwestern China.

The Mekong River Commission (MRC), an inter-governmental body (members: Thailand,  Cambodia, Laos and Vietnam) believes otherwise, but it has no enforcement ability.  Still, it did send an unprecedented official letter of complaint to Beijing through the U.N.

This issue is not just an environmental and fishing problem:

According to Chiang Saen’s customs department, an estimated $4.6 million worth of cargo has been left stranded on the river. To bypass the dried-up Mekong, shippers have turned to the recently completed Route 3 roadway, which links Jinghong with northern Thailand through northwestern Laos. As many as 50 trailer trucks per day are now using the road when just a few months ago that number was around 50 per month.

It has also affected the availability of water for drinking and crop irrigation in Laos.   However, likely due to less economic dependence on China, Thailand has been the most ardent critic of China.   China currently claims, it too is suffering from serious drought hurting  its own precious water supplies.

China’s Ministry of Agriculture announced on Sunday that the drought had affected 4.09 million hectares of farmland by March 5. About 2.20 million of those hectares have been seriously affected. Although the area is not a major grain-growing region, it is China’s second-largest producer of rubber and sugarcane. Government figures say the drought could reduce sugar production by 12% this year, leaving an amount insufficient to meet China’s domestic demand. Preliminary government estimates indicate that the drought has caused $1.4 billion in losses.

While some claim that China  damming water in reservoirs for use during the dry season could actually help ease pressures down stream during this time.  Thailand is not buying this argument,  and due to lack of Chinese transparency, no one knows exactly how much water China is currently retaining with its damns. China considers such information a national security issue.