Asean

The economic benefits of the RCEP for Southeast Asia

The RCEP is the world’s largest free trade agreement. What will be the economic benefits for Southeast Asia?

A report published recently by the United Nations Conference on Trade and Development (UNCTAD) argues that the implementation of the Regional Comprehensive Economic Partnership (RCEP) could be harmful to many participating states. This report states that the ASEAN countries’ balance of trade could be affected as a result of the RCEP ratification, since their imports of goods to other countries participating in the agreement will be greater than their exports. This is particularly true for China that -thanks to its efficient export capacity- could benefit most from trade diversion. According to Deborah Elms, Executive Director of the Asian Trade Center in Singapore, the conclusions drawn from this report are most likely wrong. By participating in the world’s largest free trade agreement (FTA), ASEAN will experience a new economic boost.

An inadequate model often results in poor judgments about the impact of trade agreements. Elms notes that it is very complicated to obtain valid estimates of the impact of any trade agreement. The simplest element to evaluate in a FTA is the reduction in tariff rates. All FTAs ​​aim to lower tariff rates at the border in order to provide benefits to member States and reduce costs. A reduction in tariffs rates should stimulate greater trade flows. However, not all goods are eligible for tariff cuts, which must be designed to meet the criteria of each trade agreement and include sufficient content from participating countries. Even if a product is eligible, companies have to apply for lower tariff rates since the FTA preferences are not automatically granted. As a result, no FTA has ever achieved full tariff liberalisation, in which free or discounted tariffs are granted to all goods entering the country.

Economic models are usually also based on existing trade profiles. Thus, in order to analyse the economic impact of tariff reduction and elimination, a model starts from the existing trade information. However, a key point of a FTA is to provide new opportunities for trade and to improve existing trade agreements or frameworks. Therefore, the new trade flows generated by the RCEP will not be seen in the economic models of the existing FTAs, as reported in the UNCTAD report, as they are new and will only affect trade later.

Determining the economic impact of the RCEP, like any FTA, continues Elms, also depends on other existing conditions. Asian governments, including ASEAN members, have been enthusiastic participants in FTAs. The RCEP itself was built on the basis of five pre-existing ASEAN+1 trade agreements. In fact, the region joins many different types of agreements, from bilateral commitments to large regional agreements. The benefits of the RCEP, even if only assessing tariff reductions, depend on the comparison of the RCEP with the other existing trade agreements. Companies could already benefit from duty-free access for their products under other FTAs, such as the one between ASEAN and China. Economic models that look at RCEP by isolating it from other processes, as the UNCTAD study did, struggle to grasp this level of complexity.

Furthermore, all FTAs include phased commitments. Tariff cuts are not granted immediately to all product categories but adapted over time. Elms points out that comparing the benefits of the FTA with the commitments of the RCEP requires careful consideration of timing. On the first day it comes into force, the RCEP may not be comparable to the benefits of existing FTAs, but after the tariffs are fully implemented the differences could be significant. 

In addition, the RCEP, as well as other global FTAs, includes more than just tariff reductions. Changes in customs procedures may have an even wider impact on companies, as the cost of delays at the border can be quite high, affecting returns much more than changing a tariff rate. The commitment to transfer commercial documentation online or clear cargo within six hours could end up being the most significant element of the RCEP for many companies. The services and specifically the investment commitments included in the RCEP are substantial, but difficult to show through economic models.

According to Elms, the reduction in tariffs on goods, which benefits China, is often overestimated, while the reduction of barriers affecting services, in favour of ASEAN, is dismissed too quickly. Excluding the analysis of these aspects of the agreement does not give a full picture of the overall benefits provided by the RCEP. It seems clear -Elms concludes- that the RCEP will offer significant economic benefits to member States, which will be appreciated even more by companies.

Carlo Urbani, the new hero of two worlds

The Italian doctor discoverer of the SARS virus, who operated in Cambodia, Laos and Vietnam

It is March 29, 2003 when Italy learns that his citizen, Dr. Carlo Urbani, died at the Bangkok hospital due to SARS (severe acute respiratory syndrome), an atypical form of pneumonia appeared in the South-East Asia that same year. 

Only then, people become aware of the extraordinary work carried out by the Italian doctor, the first who has isolated the virus and one of the first SARS victims. As the Superior Health Institute declares, "its early SARS report has placed the global surveillance system in alarm and it was possible to identify many new cases and isolate them before the hospital health personnel were infected. Thanks to the isolation of the virus, it was possible in a short time to develop a vaccine and place effective care measures to reduce its diffusion ".

Urbani, married with 3 children, after his specialization in infectious diseases at the University of Ancona, was immediately attracted by the challenge that international health launches to humanity, first in Mauritania with the WHO and then in Cambodia with Médecins Sans Frontières (MSF). In April 1999 he was elected president of MSF Italy and joins the delegation that collects the Nobel Peace Prize awarded to the organization. After Cambodia, his commitment takes him to Laos and then, in April 2001, Urbani moves with his family to Hanoi as coordinator of WHO health policies in Vietnam, Cambodia, Laos, Thailand, China and the Philippines.

Despite the organizational responsibilities, fighting forgotten diseases and saving human lives always remains Urbani's main mission. On February 28, 2003, the doctor is called by a French private hospital in Hanoi to deal with a case of atypical pneumonia that had hit an American businessman. From the ascertained symptoms, he immediately understands that the man is facing a new type of contagious virus.

The main suspicion falls on an epidemiological outbreak already observed in Guangdong, a southern China region where the SARS virus had spread for months, kept hidden by the Beijing authorities from the world community. A delay that proves fatal and contributes to the uncontrolled spread of the virus. 

Urbani senses the threat of the new virus, completely unknown to the human body, without a therapeutic protocol or vaccine, and therefore capable of evolving in a very short time into severe bilateral pneumonia, potentially lethal. Thus, the Italian doctor, by raising the alarm to the Government and the WHO, convinces the local authorities to adopt preventive isolation and quarantine measures to limit its spread.

Unfortunately, he did not imagine that to have been already infected. Urbani learns about this on March 11, during a flight from Hanoi to Bangkok, Thailand. He asks to be hospitalized in solitary confinement and 18 days later he dies, leaving the provision that a sample from his lungs is taken after his death, in order to analyze it and test a vaccine against SARS.

Urbani's researches are still relevant today, and in these months of health emergency, they acquire even greater importance. The information provided by the doctor on how to contain the infection - including the measure of quarantine - are the basis of today’s WHO protocol against pandemics.

His commitment and dedication to work were recognized by Kofi Annan himself, the former Secretary General of the United Nations, who after his death testified as follows: "We will never know how many millions of deaths SARS would have caused because Dr. Urbani made sure to avoid it. He leaves an illuminating example in the community and we will remember him as a hero in the highest and truest sense of the term”.

The post-Brexit UK is looking Eastward

In rebuilding its political and trade relations after Brexit, London looks to the Indo-Pacific, and in particular to the emerging economies of Southeast Asia

In March, Prime Minister Boris Johnson presented the document Global Britain in a competitive age 2021 to the British Parliament. The British foreign policy report shows London's intention to rebuild autonomous post-Brexit international relations, particularly with the Indo-Pacific region. The idea of a United Kingdom mediating between the European Union and the United States is indeed history. Today, the country looks at East Asia, and in particular at the emerging economies of Southeast Asia, to celebrate its renewed international autonomy. In reality, despite the declaratory tones of Global Britain 2021, the country is nothing more than a middling power in a multipolar world, but it seems to have understood that the center of gravity of the new global order lies precisely in Asia.

During the last months of 2020, Prime Minister Johnson began to weave the ranks of new trade agreements with Japan and Australia, but also Singapore and Vietnam. The country has in fact rushed to regulate trade ties with two of the most prosperous ASEAN economies. The agreement with Singapore, signed last December, essentially replicated the previous one with the EU. The country is a key financial and commercial hub for many multinational corporations operating in the region, and the UK is the main destination for Singaporean FDI. Also in Vietnam, the free trade agreement with the EU has been replaced by a new bilateral agreement that gives the UK access to preferential tariffs. Education, energy, infrastructure and health care offer much opportunities for British exporters, but most of the trade between these two countries takes place in terms of imports of clothing, footwear, rice, seafood and wooden furniture from Vietnam.

In addition, Foreign Secretary Dominic Raab has visited several countries in Southeast Asia, such as Singapore, Malaysia, and most recently Indonesia. His aim was to strengthen economic relations with emerging economies, but also to reaffirm that the United Kingdom is available to cooperate for regional security. Finally, International Trade Secretary Liz Truss said negotiations for Britain's membership of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) will take place this year. The British participation in the agreement that establishes one of the largest free trade areas in the world would be to the full benefit of relations with ASEAN countries.

So, unlike France, Germany and the Netherlands, the UK has not planned an official strategy for the Indo-Pacific yet, but it is working on it. A series of signs hint at the country's posture, particularly interested in the emerging economies of Southeast Asia, and by joining the CPTPP, Great Britain could finally graft the future of its trade relations in this region. The British foreign policy of 2021 is therefore a litmus test of an economic order that is now mainly played out in East Asia.

5 years in 1: The new ASEAN e-commerce

Not only China: e-commerce is also gaining momentum in ASEAN, with a specific emphasis on everyday consumables.

In the last months we witnessed the gradual disappearance of specific industrial sectors, while others have experienced rocketing growth. E-commerce is clearly the best example of success, and specifically e-commerce in Asia.

McKinsey has found that 2020 has seen two examples of international successful companies: the ones that focus on Asia (+9%) and that massively invest on enhanced digital infrastructures and commerce platforms (+76%).

China has been, for years, the leading actor in this sector. In 2020 Chinese e-commerce grew to a record $2.090 billion, up 26% from the previous year. Total active customers are now 900 million over a total population of 1,4 billion people. However, it is important to shed a light on the two underlying changes that Chinese e-commerce has seen in the last months.

First, Chinese are still not allowed to leave the country out of necessity matters, and they cannot access the most important global commercial and fashion hubs. This has been the end of the so called ‘shopping tourism’, which has brought nationals to purchase online and from their homes. Now, 73% of retail purchases are online, versus 35% of 2019, the trend to endure up to 50% in 2025. Second, Gen Z (the ones born after 1995) are increasingly gaining prominence in purchases, especially the ones living in lower tier cities.

Gen Zs and Millennials account for roughly 300 million consumers, and their presence is literally reshaping the e-commerce landscape by emphasizing the importance of uniqueness and omnichannel experiences.

Although less skyrocketing, ASEAN has also witnessed a historical evolution in its e-commerce industry. Studies have found that the e-conomy in the region has grown five times more than in a business-as-usual year before 2020.

Users grew from 360 to 400 million, while active consumers have grown 33%. If keeping this rate, ASEAN e-commerce market will value $300 billion in 2025. 

The key for this growth has been massive investments in digital infrastructure and architecture and traditional business model innovation, which have all spurred the way for new industries to grow in the long term. In particular, ICTs development and education have also been crucial in successfully facing Covid-19 related challenges. Moreover, the growth of digital conglomerates, together with innovation in digital payments methods, have allowed millions of retailers to access international marketplaces. Similar to the Chinese case, most of the new consumers are young, live in rural or less important urban areas, and are highly sensitive for customization, peer-to-peer confrontation and quality omnichannel integration. Notably, 94% of Southeast Asians internet users will continue to purchase online after the pandemic has ended, a remarkable share even when compared with China (around 40%). 

Though similar to other global ecosystems, ASEAN e-commerce is fundamentally different, due to an intrinsic characteristic.

Indeed, before 2020 the great majority of retail purchases were made offline: like others, ASEAN economies are traditionally ‘communal’, meaning that physical daily contact is an inseparable part of social and economic structures. In this sense, the region has pioneered a new approach to digital commerce, centered on exchange of consumable goods and food. Online purchases of groceries and food deliveries has increased 35%, reaching $6 billion, one of the most consistent increases. However, here the key is that online Asian users are willing to purchase high-quality consumables as well as best-in-class groceries.

These numbers highlight a unique chance for Italy and for Made in Italy products, which have historically been able to represent quality, focus on style and on personality in everyday life, being it with fashion products or food. 

Asian e-commerce has been the key for companies’ prosperous growth in 2020 but will by all chances be also the key for growth for years to come: Italy, if takes it on time, can not only be an accelerator of this commercial shift, but also a global leader promoting a new cross-national e-conomy model.

ENRICO LETTA LASCIA IL TESTIMONE A ROMANO PRODI: cambio di Presidenza all’Associazione Italia-ASEAN

PRESS RELEASE

Il Prof. Romano Prodi sostituisce Enrico Letta alla presidenza dell’Associazione Italia-ASEAN. L’ex Presidente della Commissione europea ha accettato l’invito del neosegretario del Partito Democratico a guidare l’associazione da lui fondata nel 2015 per favorire e stimolare le relazioni tra l’Italia e i 10 paesi del Sudest asiatico, nel quadro delle relazioni tra Unione Europea e ASEAN.

Nel suo commiato, il presidente uscente Enrico Letta ha sottolineato che “in questi sei anni di attività, il livello di relazioni politiche ed economiche è cresciuto grazie al lavoro dell’associazione, che si è sviluppato dalle intuizioni di Francesco Merloni – alla guida di uno dei primi gruppi industriali italiani a guardare all’Asia sudorientale – e del Presidente della Repubblica Mattarella, primo capo di stato europeo a visitare il Segretario Generale dell’ASEAN”.

Enrico Letta nel motivare la scelta di Romano Prodi – con esperienze di governo italiane ed europee – ha ringraziato i vice presidenti Romeo Orlandi e Michelangelo Pipan, il tesoriere Oliver Galea, il direttore Valerio Bordonaro e la Segretario Generale Alessia Mosca, che assumerà la carica di Vice Presidente esecutivo.

Il professor Prodi ha accettato con entusiasmo spingendo sulla necessità dell’Italia di rafforzare quelle strutture che si occupano di creare relazioni internazionali economiche e politiche che siano di sistema, informali e profonde.

Women and sustainability: a pivotal combination for development

Women and sustainability are interrelated factors: adopting a gender perspective towards Southeast Asian development might support post-pandemic economic recovery 

Gender equality and climate change are endemic problems in Southeast Asia, and Covid-19 made them even more urgent. Good news is that ASEAN is not alone: the 2030 UN Agenda for Sustainable Development confirms the international commitment on these issues and systematizes further challenges. However, highly context-specific features play a vectoral role in the region, since it is hardly affected by climate change, and it damages disadvantaged people such as indigents and women – that often coincide.

The ASEAN Gender Outlook acknowledges ASEAN’s efforts towards gender equality, but it emphasizes that economic consequences of the Covid-19 pandemic are deemed to compromise these results. Indeed, women and girls in Southeast Asia are regarded as being hardly affected by the economic crisis. Systemic discriminations that are inherent to cultural practices, further aggravated by other factors such as predatory economic imperatives, are very influential on women’s condition. Therefore, considering that inequality is a multi-layered issue, governments are required to adopt a comprehensive perspective that values this complexity.

Given the aforementioned specificities of the region, women and sustainability are key concepts for development. According to a FAO report titled Rural women and girls 25 years after Beijing, 39% of women living in rural areas are employed in agricultural sectors. As we mentioned in a previous article, climate change is particularly inclement in Southeast Asia, affecting agriculture – leading sector of the regional economies. The overall picture is further worsened by industry-led urbanization that moved most of male labor force towards cities, leaving women in the countryside. This movement consequently produced a ‘feminization’ of agricultural work in the region.

This scenario clearly describes how women employed in agriculture are dangerously exposed to climate change effects. The situation is aggravated by the fact that feminization in agriculture did not mean a feminization of land’s right. Decision-making still relies on men. ASEAN Gender Outlook estimates that 24% of Southeast Asian lands are less fertile than in the past, and that women suffer from environmental degradation without agency to change situation: they cannot avoid the abuse of pesticides and the use of monocultures.

Adopting a gender perspective in Southeast Asia means including marginalized instances such as environmental degradation and agricultural development, economic growth and social justice. In conclusion, considering women and sustainability as interrelated factors might enhance post-pandemic recovery for ASEAN countries.

Multilateralism, digitalization, and sustainability

EU’s agenda for its new Trade Strategy

On February 18th, 2021 the European Commission released the guidelines for a new “Trade Strategy”. The document determines the Union’s approach in trade with third countries in the years to follow.

It seems clear that the keyword will be “open strategic autonomy”. Open autonomy in recovering economically from the COVID-19 pandemic, thanks to the green and digital revolutions. Open autonomy in renovating multilateralism. Above all, open autonomy in reforming substantially the World Trade Organization (WTO).

The transition to a more sustainable economy is probably the main challenge. The goals set by the European Green Deal, a set of policy initiatives by the European Commission to make Europe climate neutral by 2050, are ambitious, numerous, and urgent. For this reason, one of the first targets of the new Strategy is to strengthen the environment safeguard clauses already present in the Free Trade Agreements (FTAs) that the EU signs with third countries. The respect of these clauses will be monitored very closely. Simultaneously, the fight against illegal trade will become stricter, to ensure the rights of citizens, workers, and farmers.

The second challenge is the digital revolution. The EU aims to enact new guidelines for “digital commerce”, that is the buying and selling of goods and services using digital channels such as the Internet and mobile networks. According to the Commissiona, over 60% of global GDP was represented by e-commerce transactions in 2018. Numbers that have grown sharply during the COVID-19 pandemic. However, the Commission strongly advises against those countries that impose discriminatory measures to promote their own digital competition at the expense of others. In the new Strategy, the EU pushes to ensure more cross-border data flows, but in respect of the EU’s legal framework on personal data protection. One of the most ambitious objectives is to ban unjustified data localisation requirements by apps and websites when they are not strictly necessary.

The reform of the WTO is essential to reach these goals. The Commission’s Strategy highlights the need to reinforce environment safeguard clauses not only in its FTAs but also internationally, by applying them to all those countries that want to keep trading goods, property, or services worldwide.

The WTO, with the appointment of the new Director-General Ngozi Okonjo-Iweala last March 1st, already made it through a complex deadlock situation: the appointment of the institution's governing bodies, blocked by the Trump administration for more than three years. The Nigerian economist received approval by both the EU and the White House under the new Biden administration. She is both the first woman and first African representative to be elected Director-General. Many hope that she is “the right woman in the right place” to put an end to the trade rivalry and increasing protectionism between the Union and the US. And to solve the trade war between China and the US, since this latter posed tariffs “inconsistent” with trade rules on China goods in 2018. Supported by the new administration, the EU hopes to export to the WTO its model of a digital and green transition.

The target of posing its strategic autonomy at the core, towards a Union that alone can reach its goals and pursue its global agenda on multilateralism, digitalisation, and climate change, is admirable. It is impossible not to notice, however, the lack of a strategy to relaunch relations with the Indo-Pacific area. Particularly Tiger Economies have been shining for their successes in the digital development field for a long time. Moreover, they are part of that group of countries most interested in the fight against climate change, seen their geographical position particularly prone to environmental disasters. Europe is already putting more emphasis on the Indo-Pacific. Several FTAs with Japan, Vietnam, Singapore, ongoing negotiations with Australia, Indonesia, and Malesia, and the development by the Commission of an “Indo-Pacific Strategy” are all tangible examples. However, more focus on this area of the world from the trade point of view remains crucial to give a boost to the new Strategy and to strengthen the position of the EU in the global arena.   

ASEAN-EU cooperation on climate

Climate change is real, and Southeast Asian countries have already experienced its effects in the most impactful way. Here is why inter-regional cooperation between ASEAN and the EU is an opportunity to achieve sustainability.

According to science, climate change is already irreversible. Indonesia, Thailand, Vietnam, Myanmar and the Philippines are among the most affected countries. Indeed, even though no country is immune, this region is particularly vulnerable. In this regard, inter-regional cooperation between the Association of Southeast Asian Nations and the European Union is deemed to be a great opportunity to enhance sustainable production practices and critical consumption.

It is quite hard to assess responsibilities when it comes to environmental deterioration and climate change. Developing countries blame the most developed ones of having profited from the exploitation of environmental resources; on the contrary, developed countries evolved in informed markets of consumers, sensitive to ecological issues, therefore they accuse developing countries of polluting. Indeed, these countries usually leverage bland regulations on environment in order to attract more foreign direct investments (FDIs) within their territory. However, it is hard to define what is a scientific posture towards the issue and what is mere political rhetoric. Nonetheless, this debate should not distract us from a very urgent fact: climate change is here. 

Two other facts are real when dealing with the debate on climate change. First, the unprecedented frequency of storms, droughts and meteorological and environmental phenomena are among the effects resulting from human activity. Indeed, the Nobel Prize in Chemistry Paul Crutzen introduced the term “anthropocene” to indicate the current geological era. Here, human beings compromised the survival of the planet through polluting activities, often determined by unsustainable production rates. The second certain element is that poor populations of developing countries are the most vulnerable, and those least resilient to bounce back from the disruption of environmental disasters. Insufficient economic resources and unstable public institutions are a weakness. This can cause the transformation of environmental disasters in social disasters, thus compromising the long-term stability of the socio-economic fabric of local communities.

These issues, together with that of food security, are particularly urgent among the countries of Southeast Asia, for two main reasons. First, most of the inhabitants are concentrated in coastal areas. As an instance, Jakarta is a case of the variety of risks associated with climate change. Urban residents of Indonesia are estimated to represent 65% of its total population in 2025. By that date, the Indonesian capital will probably be 95% submerged by the Java Sea. The most populous country in Southeast Asia is not news to this kind of environmental phenomena, which have become increasingly recurrent and aggressive since the 1960s. Thailand is also accustomed to floods and storms, which once hit it less frequently and caused less damage: Bangkok, sinks about 1-2 centimeters every year, and at this rate in 2030 it will be below sea level. Similarly, the development of the city of Da Nang in Vietnam, which thanks to the centrality of its geographical position is regarded as an important hub for the Vietnamese transport and service sectors, is slowed down by continuous flooding. Finally, according to the il Global Climate Risk Index, Myanmar and the Philippines are regularly exposed to severe tropical cyclones and are unlikely to recover in time from the disasters of previous years, with the result that the damage adds to each other, weighing on the local population.

Secondly, climate change impacts most severely on agriculture, a pivotal economic sector for most of the ASEAN countries. Namely, wheat, rice and maize crops are extremely susceptible to adverse weather conditions. In addition to being compromised by the unpredictability of these climatic phenomena, agricultural activities also cause the largest share of emissions of which the economies of Southeast Asia are accused, responsible of the intense consumption of energy and fossil fuels.

This scenario makes the promotion of international cooperation all the more necessary. In addition to being part of the Paris Agreement, ASEAN founded its own working group in 2009, the ASEAN Working Group on Climate Change. It is a consultative platform designed to promote regional cooperation and climate action with international partners, as well as with local communities. ASEAN Senior Officials on the Environment also carries out coordinated action between member countries and various dialogue and development partners; in addition, the ASEAN Climate Resilience Network is dedicated to sharing information, experiences and skills related to climate smart agriculture.

ASEAN therefore uses its institutional platforms to fight against climate change. In this regard, cooperation with the European Union is particularly relevant. In addition to the contribution of multilateral institutions, last November ASEAN held a broad dialogue on climate change and international responsibilities, when their respective commitments were reiterated. In the wake of the European Green Deal, Southeast Asia can use on the long-standing experience of the Union on the subject of regulations against the abuse of plastic, and for the promotion of biodiversity and the circular economy. The cooperation between the two regional entities is also supported by the Enhanced Regional EU-ASEAN Dialogue Instrument, within which dialogue between countries is promoted in various areas of interest, including sustainability, environment and climate change. As Vandana Shiva argues, expert in social ecology and environmental activist, in order to imagine a sustainable future for our planet, a paradigm shift is essential, no longer based on the predation of environmental resources or on unregulated competition, but on the sharing of information, practices and responsibility. In this sense, ASEAN-EU inter-regional cooperation represents a real opportunity to be able to imagine alternative models of socio-economic development, in the name of the respect for the environment.

By Agnese Ranaldi

Challenges and opportunities for the G-20 Italian Presidency

For the first time, Italy will chair the G-20 will have to mediate between the US and China. The handover with Indonesia can help put Asian issues at the centre.

For the first time since its establishment, the G-20 will be chaired by Italy. The Italian Presidency began in December 2020 and will end on 30-31 October 2021 with a large conference of all the heads of state and government in Rome. Before the Roman Summit, various ministerial-level meetings will take place on various issues in several Italian cities in the period between May and October. For Italy, it is a great opportunity to be the undisputed protagonist on the stage of international politics. 

The central themes on which the Italian Presidency has decided to set the work of the G-20 are three: People, Planet and Prosperity, exemplified in the acronym 3Ps. These are three concepts based on the United Nations 2030 Agenda for sustainability. Indeed, we can speak of social sustainability in favour of People, environmental sustainability concerning the Planet and also economic sustainability with regards to Prosperity. The fact that sustainability is at the centre of the forum suggests that our country intends to play a leading role in building a new international economy based on the respect for the planet and the protection of people. Alongside sustainability, the issue of health will also be central, given that Italy will chair the Global Health Summit together with the European Commission and therefore we can expect a strong commitment from the Italian Presidency on the current problem of the pandemic and how to counter it with global measures.

A challenge that awaits our country, under the leadership of the new Draghi executive, will be to play a mediating role between the US and China. With this in mind, the Rome Summit will also be the first major international event in which the new President Joe Biden will meet with Chinese President Xi Jinping. As already demonstrated by Biden's words at the recent G-7, the US has decided to leave Trump's isolationist season behind and to return protagonist in international politics. Surely the new President will bring to the table the theme of the greater commitment of the USA to sustainability and compliance with the Paris climate agreements, as well as support for the battle against the virus and the end of the "tariff war" with China, but it will make its voice heard about Hong Kong, the Uighurs and the delicate conflict in the South China Sea. Italy will have to be ready to facilitate dialogue between the two giants and perhaps it will find a valid ally for this task precisely in the country that will succeed ours as Chair of the G-20.

Indeed, in 2022 it will be up to Indonesia to coordinate the work of the international forum. Indonesia is not only the most populous Muslim country in the world and the third most populous in Asia, but it is also a member of ASEAN (the only one of these in the G-20) and certainly among all, it has been the most committed to greater integration and democratization among the countries of Southeast Asia, as demonstrated by the recent case of the coup in Myanmar. For the "archipelago state", the Presidency of the G-20 will be the long-awaited opportunity to demonstrate to the world that democracy and Islam can coexist, that the country is on its way to development and shares the battle for sustainability and that it is a valid actor in international politics. It will try to exploit its position to better integrate ASEAN with the G-20 and will certainly play a mediating role between the US and China, also not to get trapped in their dispute.

Italy will have to team up with Indonesia to facilitate dialogue between the US and China, to soften relations between China and India and to strengthen UE-ASEAN relations. It is good to remember that Italy (together with Germany and France) has recently become an ASEAN Development Partner and this certainly constitutes a privileged observation point for the Asian scenario that our country must be able to make the most of, especially given the handover with Indonesia. Finally, it should not be forgotten that the EU and Indonesia have been negotiating a trade agreement for several years, but the differences of opinion on palm oil are effectively blocking it. The hope is that the Italian Presidency will be able to unlock this trade dossier, as well as those with the other ASEAN countries. A closer relationship between the EU and ASEAN through Italy and Indonesia will improve the dialogue between Europe and Asia and prevent the two geographical areas from being trapped in the dispute between the US and China.

By Niccolò Camponi

The new Japanese strategy

Mitsubishi's surprise announcement: after exiting Europe, it will focus on ASEAN. The choice of the Japanese multinational is a case study for the changing world.

Stringent standards on pollutant emissions and increasingly strict technical regulations have made Europe a difficult place to do business for a large automotive multinational. What's more, while the EU is increasingly becoming a niche market, the new consumers are elsewhere. Guided by similar considerations, Mitsubishi Motors Corporation (MMC) recently announced its intention to suspend operations in Europe once its current production line is completed. In doing so, MMC, a few years after its 'compatriot' Daihatsu, has decided to abandon Europe, where it has had a presence since 1975, to focus on the emerging and increasingly lucrative markets of Southeast Asia.

According to Sammu Chan, senior analyst at LMC automotive, Japanese automakers have a problem with Europe: "From emissions regulations and difficult market conditions to premium segment pressure and domestic competitive pricing, they face a nightmare scenario when it comes to the question of sustainable profitability in Europe." The issue of greatest concern seems to be emissions, especially given the fines threatened by the European Union to the United Kingdom as part of its carbon emissions regulations. "With such stringent CO2 targets in Europe" - according to Chan - "a clear EV strategy is needed to thrive over the next decade," which not everyone seems to be able to afford.

In an established market like Europe's, auto companies face the challenge of smart technology squeezed between competitive pressures and the urgency of investment. The new economic recession triggered by the Covid-19 pandemic has certainly not helped an industry already challenged by a somewhat physiological slowdown in sales. Therefore, the Japanese manufacturer is focusing its new development plan on "rationalizing costs and improving profitability," which it trusts will put the brand back on a sustainable growth trajectory over the next three years. The medium-term plan, dubbed "Small but Beautiful," includes the reallocation of management resources to new emerging markets and a strengthening of primary technologies: European operations will no longer be a priority.

L’attenzione di Mitsubishi si concentrerà invece sui Paesi ASEAN, che generano ad oggi circa un quarto delle vendite totali dell’azienda, e dove l’azienda punta a raggiungere una quota di mercato dell’11%, prima di riprendere la propria espansione globale. Nell’ambito della sua ristrutturazione globale, le fabbriche del Sud-Est asiatico sono destinate a svolgere un ruolo chiave nella fornitura di nuovi prodotti ad altri mercati emergenti in tutto il mondo come appunto quelli dell’America Latina e dell’Africa. La strategia prevede anche un’innovazione della gamma Mitsubishi attraverso l’introduzione dell’ibrido plug-in e dei veicoli elettrici, che saranno destinati inizialmente al solo mercato ASEAN. I nuovi modelli beneficeranno della tecnologia sviluppata nell’ambito della sua alleanza con Renault e Nissan

"By integrating these technologies," the company stressed, "Mitsubishi will launch environmentally friendly models that will contribute to the development of a society in which people, cars and nature can coexist in harmony”. By choosing to focus on ASEAN instead of dispersing around the world, the automaker has decided to invest in the region's unique development story. Currently, Mitsubishi already has a production base in Vietnam, as well as Thailand, Indonesia and the Philippines. The plan is to add Myanmar to the list, although the recent coup may cause the company to reconsider that goal.

In a time of great difficulty, Mitsubishi has decided to restart in ASEAN. In Southeast Asia, the company will face a very different market from Europe, one that is less strict on emissions and more conducive to buying products that are not necessarily in line with the latest technologies. The choice of the region as a production site for components and vehicles destined for the new emerging markets will also have a very significant impact on the production and introduction of electric vehicles in the ASEAN countries.

A new beginning for Japan-ASEAN relations

Japan is looking closely at Southeast Asia to diversify production and contain Chinese growth 

Vietnam and Indonesia were the destinations of the first State visit abroad by the new Japanese head of government Yoshihide Suga in October. An important signal which confirmed Japan’s growing interest in Southeast Asia. The year 2021 also marks the 10th anniversary of the Diplomatic Mission of Japan to ASEAN, established in Jakarta in 2011, as further proof of the intense and lasting alliance.

Only one month after he took office, Suga chose two key states in the region as his first contribution to the progress of Japan-ASEAN relations, strongly supported by his predecessor Shinzo Abe. “I too would like to continue deepening the friendship and cooperation with the people of ASEAN. Japan and ASEAN are equal partners and friends. We support each other by working side by side, learning from one another and working together in pursuit of growth,” said Suga in his speech to the students of the Vietnam-Japan University. On this occasion, the Japanese PM addressed essential issues for the consolidation of the partnership. He appreciated the mutual aid to face the health crisis and Japan’s commitment to the establishment of the ASEAN Center for Public Health Emergencies and Emerging Diseases. In addition, Suga assured that the implementation of Japan’s COVID-19 Crisis Response Emergency Support Loan will have a particular focus on the Indo-Pacific, including the ASEAN countries.

The strong link between Japan and Southeast Asia is based on the common need to establish themselves in the regional context and to invest in peace and stability of the Indo-Pacific in order to prosper. Premier Suga expressed strong support for the ASEAN Outlook on the Indo-Pacific (AOIP), as it shares the same values that also characterize Japan’s foreign policy strategy “Free and Open Indo-Pacific”, defined by the Abe administration. The ASEAN approach in AOIP emphasizes the centrality of international laws to quell disputes and the importance of transparency in regional relations. This position affirms a shared course of action with Japan and thus a common purpose that is precious for the development of a prosperous and peaceful future in East Asia.

The South China Sea dispute represents a key point in the relation between Tokyo and the ASEAN countries. By declaring Japan’s total opposition to any kind of escalation in the region, the Japanese PM fostered collaborative initiatives with ASEAN to establish compliance with international laws in the seas and oceans. Japan has supplied patrol vessels and maritime safety equipment to Vietnam and the Philippines. It also promoted the training of military personnel and the dispatch of experts to coastal nations along the region’s main sea routes, including Indonesia and Malaysia, to help strengthen their operational capabilities. Last October also marked the meeting between Suga and Indonesian President Joko Widodo. Both leaders stressed their intention to continue to work closely on regional challenges, in particular the issues about South China Sea and North Korea. All the topics addressed during the official visits were then confirmed by Suga during the 23rd Japan-ASEAN Summit Meeting, held in November 2020.

Interesting signals also come from the launch of the Supply Chain Resilience Initiative. The strategy conceived by Japan, with India and Australia as the main partners, will try to increase the resilience of the three countries’ supply chains by diversifying production towards ASEAN. The aim of this initiative is to reduce dependence from the Chinese production system. By partnering with countries such as ASEAN members, Japan intends to accelerate the economic evolution of the Indo-Pacific region to contain China’s strong growth. In this regard, the Regional Comprehensive Economic Partnership (RCEP) has combined once again ASEAN and Japan in the largest commercial area in the world. Through the implementation of the RCEP Tokyo will aim to strengthen its strategic partnership with ASEAN to balance Beijing’s weight in the agreement.

Joint efforts have also recently been directed towards the renewable energy sector. The Asian Development Bank and the Japanese Ministry of Economy, Trade and Industry have signed a memorandum of cooperation to reinforce their commitment to clean energy development in Southeast Asia. As the global agenda increasingly includes issues related to the ecological transition, governments around the world are feeling the urgent need to accompany this process. For its part, Tokyo is strongly focusing on the ASEAN countries in order to work together on these delicate and high-priority dossiers of common interest.

Japan thus continues to look closely at Southeast Asia even with the advent of the Suga leadership. The valuable commercial initiatives and the geopolitical dynamics at play will reinvigorate the Japan-ASEAN strategic partnership. The conditions for “building together the future of the Indo-Pacific region” are all there.

 

Indo-Pacific, the new challenges for Europe

Among trade agreements and military consolidation, European countries are redefining their strategy in Southeast Asia

Europe has recognized the potential of the Indo-Pacific and is redefining its strategic priorities in this regard. The first European power to acknowledge the importance of the region was France, led by Emmanuel Macron, which in 2017 published the plans for a greater regional participation, immediately followed by Germany and the Netherlands. Together, the three countries are pushing to outline the European strategy for the Indo-Pacific, which is expected to be published in 2021.

The interest of the European Union in Southeast Asia is certainly not new. In 2017, the stock of foreign investments directed to ASEAN countries reached the value of 337 billion euros, far exceeding the commitment of any other foreign investor and, in 2020, trade between China and the EU reached the figure of 480 billion euros. Not to mention that about 12% of the annual trade flow of some European countries, including France and Germany, passes through the South China Sea.

With this in mind, the guidelines for the regional strategy adopted by the German government last September establish the principle of freedom of navigation and call for deeper cooperation. Australia welcomed the German and European Union presence in the region by sending diplomats to all European capitals to show support to the initiative. France was also well received by India, which supported its entry into the Indian Ocean Rim Association - an association that brings together countries bordering the Indian Ocean having goals of regional cooperation and sustainable development - making Paris the first non-regional member of the group. 

The most visible component of the renewed European interest in the Indo-Pacific is the conspicuous deployment of military resources; Paris recently entered into an agreement with India for the mutual use of naval bases, which also establishes the allocation of military units and ships in the French "areas of responsibility" of New Caledonia and Polynesia. The United Kingdom, albeit no longer part of the European Union, will also send a group of aircraft carriers to the region by the end of the year and it is an active member of the Five Powers military alliance, which also includes the former British colonies of Australia, New Zealand, Malaysia and Singapore. 

The military presence, however, is secondary to the economic influence. Over the past three years, the European Union has woven a mosaic of free trade agreements, concluding two with Vietnam and Singapore and opening negotiations with Australia. The EU has also agreed on a Strategic Partnership with ASEAN looking for a future trade agreement. 

These reference scenarios, apparently far from the Italian geographical context, highlight some food for thought for the foreign policy of our country. The strong opening of the Indo-Pacific area towards Europe should be more exploited by Italy which has enormous potential for increasing bilateral cooperation in almost all sectors. ASEAN alone is the fifth largest global economy and fourth largest trading power in the world and, in recent years, the region has gradually opened up to trade and investments. Consequently, the ASEAN countries have a deep interest in Italy and Europe. To give another example, the commercial exchange between Italy and India, now at around 9 billion euros, is well below the potential that the two countries could express. While Italian investments have increased in various sectors (advanced manufacturing; automotive; energy transition; infrastructure; agri-food and IT), Italy is just the 5th country in the EU for trade with India.

With the launch of the Biden presidency, it is also questionable whether the European strategy in the Indo-Pacific will undergo any changes, since European interest in the region coincided with the gradual disengagement of the United States from the international scenario. Well, the EU leaders, by reassuring their citizens and the Indo-Pacific countries have declared that the European Union does not intend to step aside and that it will not give up its strategic autonomy just because the United States have returned. If, in fact, it is true that the Indo-Pacific area will constitute one of the major economies within the next few years, it represents an indispensable opportunity for Italy and Europe, not only for the prospects offered by an ever-increasing integration of the respective economies, but above all to build a solid economic, political and military partnership based on common interests and values.