Australia, ASEAN and the Vientiane summit, November 2004: new prospects for cooperation

Research Note Index

Research Note no. 21 2004–05

Australia, ASEAN and the Vientiane summit, November 2004: new prospects for cooperation

Dr Frank Frost
Foreign Affairs, Defence and Trade Section
29 November 2004

The ten members of the Association of Southeast Asian Nations (ASEAN) will hold summit meetings in Vientiane, Laos on 29–30 November 2004.⁽¹⁾ The summit will include discussions between ASEAN leaders and those of Japan, China and the Republic of Korea (as a part of the ‘ASEAN Plus Three’ process) and also India.

ASEAN leaders will also host a special summit on 30 November 2004 with the Australian and New Zealand Prime Ministers to commemorate 30 years of multilateral relations. This will be only the second joint meeting between an Australian Prime Minister and ASEAN leaders; the first was held on 8 August 1977 in Kuala Lumpur between Prime Minister Fraser and his (then) five ASEAN counterparts. The invitation for Australia reflects an improved climate in relations with ASEAN and offers chances for progress in both political dialogue and economic cooperation.

This research note reviews ASEAN’s directions in regional cooperation, Australia’s relations with ASEAN, and the issues arising for Australia at the Vientiane summit meetings.

ASEAN and regional cooperation

After a tentative beginning in August 1967, ASEAN has been a key factor in regional cooperation since the mid-1970s. Stimulated into more concerted action by the end of the wars in Indochina in 1975, ASEAN at its Bali conference in 1976 upgraded its cooperation efforts. ASEAN’s most important single contribution has been to contain conflict and create confidence among its own members and thus to improve greatly the basis for peace and security in Southeast Asia. ASEAN has a Secretary General and a small Secretariat but has avoided developing any large bureaucracy and, in pursuing cooperation, emphasises dialogue and consensus rather than formal or binding rules.⁽²⁾

From 1976 to the mid-1990s, ASEAN gained a substantial regional and international profile. It exercised considerable influence in efforts to resolve the crisis over Cambodia after Vietnam’s invasion in December 1978. Favourable economic performances by the individual ASEAN economies added to the prestige of ASEAN overall. Since the late 1990s, however, ASEAN has had more difficulties in maintaining credibility and a sense of direction for at least three reasons. The expansion of ASEAN’s membership to include Vietnam (1995), Laos and Myanmar (1997) and Cambodia (1999) enabled the association to represent all ten Southeast Asian countries but introduced added diversity in levels of economic development and types of political systems which made cohesion in decision-making harder to maintain. The Asian financial crisis from July 1997 compromised the association’s image as a grouping of successful economies. The financial crisis also ushered in changes in Indonesia, which has not since been able to maintain the leadership role it previously had within ASEAN. These problems have complicated ASEAN’s efforts to maintain direction in its cooperation efforts.⁽³⁾

In the early 1990s, in the wake of the fall of the Soviet Union and the end of the Cambodia conflict, ASEAN’s leaders sought to reaffirm the association’s relevance and role. To bolster regional security dialogues, ASEAN inaugurated the ASEAN Regional Forum in 1994 (which now has 24 members) and made more serious efforts at trade liberalisation, through the ASEAN Free Trade Area (AFTA), pursued since 1992.⁽⁴⁾ Since 1997, ASEAN has also moved to widen cooperation with its neighbours in Northeast Asia (China, Japan and the Republic of Korea) in the ‘ASEAN Plus Three’ process. This involves regular dialogues at many levels, particularly regional financial cooperation to strengthen communication and coordination among the major regional economies, which could help minimise the chances of another Asian financial crisis.⁽⁵⁾

ASEAN is continuing efforts to strengthen its own cooperation:

It is pursuing development of the ‘ASEAN Security Community’ to help coordinate policies and programs in areas such as counter-terrorism, and
ASEAN has also adopted the goal of establishing an ‘ASEAN Economic Community’ intended to create a single market and productions base, characterised by the free movement of goods, services, investment and capital by the year 2020.⁽⁶⁾ In line with this goal, detailed proposals are being developed for integrating production processes in certain designated key areas and for the linked development of physical infrastructure facilities, including region-wide energy networks.⁽⁷⁾

ASEAN is expected to renew its commitments to both these programs of cooperation at its meetings in Vientiane.

Australia and ASEAN since 1974

Australia was the first country outside Southeast Asia to establish a joint relationship with ASEAN, inaugurated in Canberra in April 1974. Cooperation focused initially on multilateral economic assistance to ASEAN, which became the Australia-ASEAN Economic Cooperation Program. In the 1970s, Australia and ASEAN clashed on trade issues at a time when Australia was continuing substantial protection for its manufacturing industries. In the late 1970s, however, Australia also cooperated closely with ASEAN to alleviate the serious problems posed by the large-scale departures of refugees from the countries of Indochina.⁽⁸⁾ Since 1979, Australia has participated in the consultations held after the annual meetings of ASEAN foreign ministers, when ASEAN formally consults with its dialogue partners. This has given Australia’s foreign ministers regular direct communication with all of their ASEAN counterparts.

In the 1980s, cooperation was enhanced by economic reforms in Australia (including financial deregulation and tariff reductions) and in a number of ASEAN countries. From the late 1980s, Australia also worked very closely with key ASEAN members—particularly Indonesia—to attempt to resolve the long-running Cambodia conflict. These efforts made a significant contribution to the Paris Agreements on Cambodia signed in October 1991 which led to the May 1993 elections and the formation of a new government in Cambodia.

Australia was also keen to see ASEAN enhance its role in dialogue on regional security. Australia has accordingly been an active participant in the ASEAN Regional Forum since its inauguration in 1994.

After the mid-1990s, while cooperation with ASEAN continued, Australia encountered some challenges and limitations in relations. The Asian financial crisis from mid-1997 dampened, at least for a time, ASEAN’s image as a region of economic success. Australia made major contributions towards the assistance packages pursued by the International Monetary Fund for several of the worst affected countries (especially Thailand and Indonesia), but the potential for progress in relations was impeded by the crisis.⁽⁹⁾

The financial crisis encouraged moves which had been underway since the early 1990s to develop more clearly ‘East Asia’ focused avenues of cooperation. Prime Minister Mahathir of Malaysia was a leading proponent of these moves but a major obstacle for Australia was that Dr Mahathir did not favour Australia’s direct participation in the newly emerging East Asia oriented dialogues.⁽¹⁰⁾ ASEAN from 1996 began to hold meetings with the European Union in 1996 (in the ‘Asia-Europe Meetings’—ASEM) and a further reflection of the East Asian focused cooperation approach was the advent from 1997 of the ‘ASEAN Plus Three’ process. Australia was not a part of these important new dialogues.

Australia in the 1990s also experienced some strain in key bilateral relations with ASEAN members. At a political level, relations with Malaysia were cool although economic and security relations remained close.^.(11) After the end of the Suharto regime in Indonesia in 1998, Australia’s support for moves by the United Nations (UN) to hold a ballot on East Timor's status (in August 1999) and then its major role in leading UN-endorsed stabilisation efforts helped restore security to East Timor, but also saw major strain in relations with Jakarta.⁽¹²⁾

In this regional climate, Australia after 2000 experienced some setbacks in its ASEAN relations:

Australia from the early 1990s had expressed strong interest in developing a link between the Australia-New Zealand ‘Closer Economic Relations’ (CER) agreement and the AFTA. However, in October 2000, ASEAN economic ministers at a meeting in Chiang Mai decided against pursuing any such direct linkage. Instead ASEAN ministers approved development of a useful but more limited ‘closer economic partnership’ to pursue trade facilitation and capacity building (inaugurated from 2000),⁽¹³⁾ and
Australia had a further setback in 2002 when it sought to gain participation in ASEAN’s now annual leadership meetings, held that year in Phnom Penh. Australia’s bid was not accepted. At the 2003 ASEAN summit meetings in Bali, it was reported that Australia did not renew its efforts to gain representation and that the issue of Australian representation had been dropped from the agenda for discussion and had been shelved indefinitely.⁽¹⁴⁾

2004: renewal of progress

In 2004, the climate for progress in Australia-ASEAN relations has improved significantly. In April 2004—the 30th anniversary of the first multilateral Australia-ASEAN agreement—ASEAN’s economics ministers, meeting in Singapore, made two important announcements. They would propose that the Prime Ministers of Australia and New Zealand should be invited to attend a special ‘commemorative summit’ during ASEAN’s meeting in Vientiane in November 2004. Second, they declared that it would be ‘beneficial to both regions to upgrade economic relations to the next level’ by asking for a review of the proposal for a linkage between AFTA and CER.⁽¹⁵⁾ The invitation to the summit was duly made by ASEAN foreign ministers at the end of June 2004.

Several factors seem to have been important in encouraging the new and positive climate.

Australia’s regional relations have clearly been affected by the post-September 11 international climate and concerns about terrorism. From late 2001 attention has been focused on the threats posed to the ASEAN region by terrorist movements of which Jemaah Islamiyah has been the most prominent. Attention was heightened after the bombings in Bali in October 2002, at the Marriott Hotel in Jakarta in August 2003 and outside the Australian Embassy in Jakarta in September 2004.

Australia has taken a series of actions to expand cooperation on counter-terrorism, signing bilateral agreements with a number of ASEAN members and a multilateral declaration with ASEAN itself. Australia’s federal police have also engaged in very close cooperation with their regional counterparts.⁽¹⁶⁾ This has extended the sense of mutual interest between Australia and many ASEAN members. ASEAN’s Secretary General Ong Keng Yeng emphasised in April 2004 that: ‘Australia is a peaceful and stable country. It has a great influence in counter-terrorism initiatives and, in this area at least, we are working together and through that we can socialise more and be more comfortable together.’⁽¹⁷⁾

In a parallel development, key bilateral relationships have recently improved. With Malaysia, there has been a noticeable increase in warmth in relations with Australia since the retirement from office of Prime Minister Mahathir. Relations with Indonesia have also improved substantially since the chill in the period of 1999—this improvement is expected to be continued under the presidency of Susilo Bambang Yudhoyono—and was symbolised by the attendance of Prime Minister Howard at President Yudhoyono’s inauguration in Jakarta on 20 October 2004.⁽¹⁸⁾

The ongoing impact of the rise of China has been a further important factor. ASEAN members have been keenly aware that China’s continued, remarkable growth is posing challenges for the ASEAN members’ capacity to maintain economic dynamism and to continue to gain access to foreign investment. The need to achieve more concerted market integration among the ten ASEAN members to help them attract investment has been regarded as a major motivation for ASEAN in promoting AFTA and the ASEAN Economic Community. In this context, an association with the economies of Australia and New Zealand would help boost ASEAN’s access to markets and relevant technical skills to enhance economic growth and competitiveness.⁽¹⁹⁾

The rise in popularity of regional ‘free trade agreements’ is also a significant factor. With the World Trade Organisation talks moving slowly and APEC’s plans for trade liberalisation in the Asia-Pacific having lost momentum since the late 1990s, there has been a trend towards bilateral FTAs (such as Singapore-US, South Korea-Chile, Australia-Singapore and Australia-Thailand) and proposals for wider regional arrangements, most notably between ASEAN and China. Australia also concluded a FTA with the US during 2004. These developments have stimulated ASEAN to review the desirability of closer economic links.⁽²⁰⁾

Australia’s record of continuing favourable rates of growth since the early 1990s has also bolstered its relevance as a regional partner.⁽²¹⁾

New issues and future prospects

From Australia’s point of view, the recent improved prospects for relations with ASEAN are significant for at least three major reasons.

Political dialogue

First, from the early 1990s, Australia has had to remain at arms length from some of the important emerging dialogues in East Asia: as noted earlier, Australia has not gained access to the ASEM meetings and is not involved directly in the ASEAN Plus Three process. Australia is a founder member of the Asia-Pacific Economic Cooperation forum and APEC’s leaders meetings, inaugurated in 1993, have developed into an important venue for discussion on both economic issues and also security matters (as was the case in 1999 over East Timor and from 2001 on counter-terrorism issues). APEC, however, while a valuable forum, is now a diverse grouping in membership terms (including Russia and several Latin American countries) and with a coverage extending well beyond Asia.

The invitation to the 2004 Vientiane summit—while issued by ASEAN on a ‘one-off’ basis—offers the prospect that Australia and New Zealand may in the future be able to have such meetings on a regular basis. Such participation would enable Australia’s Prime Minister to interact with all ten of the ASEAN leaders on a regular basis. This would bring Australia even closer to ongoing trends and discussion about regional security and cooperation issues and would add additional depth to Australia’s perception of Southeast Asian issues and concerns.

Second, such Australian participation in regional leadership discussions is particularly relevant now. Southeast and Northeast Asian countries are exploring new avenues of cooperation, particularly through the ASEAN Plus Three process. While much of this cooperation is focusing on specific economic and functional issues, in a broad sense the cooperation is helping to develop new frameworks for an East Asia which incorporates the growing power and influence of China. A number of areas of discussion and policy development are being pursued simultaneously, such as the ASEAN Plus Three programs to develop currency swap arrangements and an Asian bond market. Australia has been involved in some of these efforts at a specialised level (for example the Australian Reserve Bank has participated in the early development of the Asian bond program).⁽²²⁾

However, Australia’s capacity to understand and to contribute to new and emerging avenues of East Asian cooperation would certainly be assisted by regular dialogue at leadership level. For Australia, this would provide a new ‘window’ on emerging regional relations. Leaders can set directions in ways which technical and specialist representatives are not usually in a position to do. Regular dialogues can help Australia deepen its constructive role in regional cooperation programs.

Economic cooperation

The third significant issue is the potential specific benefits for Australia, New Zealand and ASEAN, which may be gained from a closer economic association.

The ASEAN countries, as a grouping of 500 million people with a combined GDP of $US 676 billion, are already important economic partners for Australia. ASEAN is a major market for Australian exports, purchasing 11.2 per cent of exports in 2003, placing it on a similar economic footing with other major markets such as the European Union (14.1 per cent), the US (8.8 per cent), China (8.4 per cent) and New Zealand (7.6 per cent). The rate of growth in Australia’s merchandise exports to ASEAN (9.7 per cent annually over the past decade) exceeds that of any other market except China. Australian exports account for only about 2 per cent of ASEAN imports but they dominate the market in some individual sectors. ASEAN is also an important focus for Australian services exports, taking 15 per cent overall in 2003; Australia is an important destination for ASEAN students and tourists. ASEAN is a much less significant focus for Australian investment—an area that could be improved by closer economic cooperation.⁽²³⁾

A study of a possible AFTA-CER agreement prepared by the Centre of International Economics (CIE) in Australia in 2000 concluded that there could be net gains of $US 48 billion over the period 2000–2020—the gains would amount to about 0.3 per cent of additional GDP for both AFTA and CER by 2010. These benefits would also be likely to stimulate additional inflows of foreign investment.⁽²⁴⁾ Linkage would have other benefits. The CIE study noted that ‘As economies integrate, so contacts, networks and trust grows so that confidence in business relationships follows’. An AFTA-CER link could also have a useful effect in encouraging further liberalisation in APEC overall. ⁽²⁵⁾

Clearly the detailed impact of a closer economic association will need to be re-examined. Australia has already concluded free trade agreements with Singapore and Thailand and scoping studies are underway on a possible agreement with Malaysia. Indonesia’s new Minister for Trade, Dr Mari Pangestu, has also expressed interest in a bilateral trade agreement.⁽²⁶⁾ These existing and potential agreements might reduce somewhat the net additional benefits which may be provided by an overall agreement with ASEAN (which were modelled in 2000)—but significant benefits are nonetheless envisaged.

Australian, New Zealand and ASEAN officials have held four meetings so far since April 2004 to discuss avenues towards a possible agreement. There are clearly some complex issues to address in negotiations. One issue is that Australia and New Zealand have not so far engaged in a joint negotiation for a free trade agreement; they have negotiated such arrangements separately. ASEAN may face challenges in conducting detailed negotiations and in representing the interests of its diverse member economies. ASEAN also has ambitious goals to develop trade agreements with other parties, especially China—which is likely strain the capacities of negotiators. Nonetheless, the revived interest in what could ultimately become an ‘ASEAN-Australia-New Zealand Free Trade Agreement’ seems to offer both specific potential trade and investment benefits and a valuable additional source of support for trade liberalisation in East Asia overall.

Developments in both Australia and in the ASEAN region have reaffirmed the relevance of the Australia-ASEAN connection. The 30^th anniversary of relations and the Vientiane summit seems an auspicious time to deepen both political dialogue and economic cooperation for the benefit of all the parties.

ASEAN’s members are Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Laos, the Philippines, Singapore, Thailand and Vietnam.
On ASEAN’s development from 1967 to 1997 see Frank Frost, ‘ASEAN at Thirty: Enlargement, Consolidation and the Problems of Cambodia’, Parliamentary Library, Current Issues Brief No 2, 1997–98, 25 August 1997.
Richard Stubbs, ‘ASEAN Plus Three: Emerging East Asian Regionalism?’, Asian Survey, Vol. XLII, No 3, May–June 2002, pp. 440–455.
ARF members are Australia, Brunei, Burma (Myanmar), Cambodia, Canada, China, European Union (Presidency), India, Indonesia, Japan, Laos, Malaysia, Mongolia, New Zealand, Pakistan, PNG, Philippines, Republic of Korea, Democratic People’s Republic of Korea (DPRK, from 2000), Russia, Singapore, Thailand, USA and Vietnam.
Sanae Suzuki, East Asian Cooperation through Conference Diplomacy: Institutional Aspects of the ASEAN Plus Three Framework, Tokyo, APEC Studies Center, Institute of Developing Economies, JETRO, March 2004.
Ong Keng Yong, ‘AEC a force for economic progress and social good’, Australian Financial Review, 15 June 2003.
‘Integration questions remain unanswered’, Oxford Analytica, 14 June 2004.
Frank Frost, ‘ASEAN and Australia’, in Alison Broinowski, ed, Understanding ASEAN, London, MacMillan, 1982, pp. 144–168.
Richard Stubbs, ‘ASEAN Plus Three: Emerging East Asian Regionalism?’, Asian Survey, Vol. XLII, No 3, May–June 2002, pp. 441–448.
Roderic Pitty, ‘Regional Economic Co-operation’, in Peter Edwards and David Goldsworthy, eds, Facing North: a Century of Australian Engagement with Asia, Volume Two, Melbourne University Press, 2003, p. 31.
See Peter Searle, ‘Recalcitrant or Realpolitik?: The politics of culture in Australia’s relations with Malaysia’, in Richard Robison ed, Pathways to Asia: the politics of engagement, Sydney, Allen and Unwin, 1996, pp. 56–84.
James Cotton, ‘The East Timor Commitment and its Consequences’, in James Cotton and John Ravenhill eds, The National Interest in a Global Era: Australia in World Affairs 1996–2000, Melbourne, Oxford University Press, 2001, pp. 213–234.
Tim Dodd, ‘ASEAN stifles new merger deal’, Weekend Australian Financial Review, 7–8 October 2000.
Mark Baker, ‘Australia drops bid to join summit’, The Age, 7 October 2003.
Paul Kelly, ‘A door opens in Asia’, The Australian, 24 April 2004.
Daily Telegraph, 14 August 2004
Tony Parkinson, ‘ASEAN ready to strengthen Australian ties’, The Age, 14 April 2004.
Eric Ellis, ‘Our mate in Jakarta’, The Bulletin, 9 November 2004.
Rowan Callick, ‘Australia on equal terms at ASEAN table’, Australian Financial Review, 29 April 2004.

20. Paul Kelly, ‘A door opens in Asia’, The Australian, 24 April 2004.

21. See ‘Great leap forward: is Australia leaving Asia behind?’, Business Asia, June 2003.

22. Reserve Bank of Australia, ‘Asian bond fund’, Media Release, 2 June 2003.

23. Department of Foreign Affairs and Trade, ‘Australia’s Trade with ASEAN’, 2004.

24. Len Davis et al, Economic benefits from an AFTA-CER free trade area, Canberra, Centre for International Economics, June 2000, p. vii.

25. ibid, p. viii.

26. Andrew Burrell, ‘Indonesian trade doors open wider’, Australian Financial Review, 11 November 2004.

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