Asia/Pacific: Three reasons why Canada needs to be more involved

Canada’s vital foreign policy interest lies in getting right its relations with the United States, including such mundane things as border management and an array of everyday bread-and-butter issues. The horrific events of 9/11 showed that this relationship is of existential importance to us and vastly outweighs everything else we do internationally. Geography is truly destiny and our trade figures underscore our economic reality.

But if the United States is our number one foreign policy priority, certainly a second priority has always been a rules-based global system – for the security this delivers, and for facilitating the trade and investment flows on which our economic well-being depends.  As Canada has never had, nor sought to acquire, the ability to project power abroad and impose its will on others, its vital interests have always lain in agreed global rules and an orderly world.

The first priority is why Asia has historically lacked our full and consistent attention, the second is why recent events in Asia should compel us now to focus a great deal more on this important part of the world.

Let’s look at three developments in the Asia/Pacific region which are having an impact on Canada and what we could/should do about them.

1. The new Great Game

In 1904, Sir Halford Mackinder, a member of the Royal Geographic Society in London, caused a sensation with the publication of an article entitled “The Geographic Pivot of History”.  His thesis was that the “Heartland” of the world was not Central Europe but Central Asia, and that Central Asia was the fulcrum or “pivot” on which the fate of great empires rested. Whoever controlled Central Asia could control the world.  While the region had historically been contested by Britain and Russia, Mackinder speculated that China would one day aspire to the region. Like Russia, it was a continent-sized power; but unlike Russia, it had a thousand-mile coastline mostly free of ice which extended its reach to the main shipping lanes of the Indian Ocean and the Pacific.

Mackinder map

Without attracting much notice in the West, China has started to fulfill Mackinder’s prophesy, undertaking a “pivot” which is far more consequential than anything planned by Washington. It’s one that could change the economic dynamics not just of Asia but the world.

In recent years the Xi Jingping regime has launched a series of initiatives to connect China with the Eurasian landmass, initiatives collectively known as the “Belt and Road” strategy. The “Belt” is the Silk Road Economic Belt intended to enhance trade with Central Asia (and beyond with the Middle East and Europe) through improved commercial ties and infrastructure projects such as roads, railways, energy pipelines, and streamlined border crossings. The “Road” is the Maritime Silk Road to improve trade, shipping and energy links with Southeast Asia, Oceania, and East Africa.

silk road economic beltIn support of the strategy, China has created an Asian Infrastructure Investment Bank (AIIB) which is still being capitalized but will be larger than the $20 billion which the World Bank and the Asia Development Bank annually invest in infrastructure. China has also established the Silk Road Fund which will start with $40 billion. This is in addition to China’s New Development Bank with the BRIC countries – Brazil, Russia, India, China and South Africa – and three other financial institutions involved in capital exports which China has had since 1994 (the China Development Bank, the Export-Import Bank, and the Agricultural Development Bank).  Finally, China also has a sovereign wealth fund, the Chinese Investment Corporation, modelled on Singapore’s Temasek investment company as well as the state-owned China International and Trust Investment Corporation. If this sounds like a lot, it is. But it’s still not all that’s needed.  It’s been estimated that Asian countries will need in the order of $750 billion a year through to 2020 to finance all their infrastructure requirements.

Some are convinced there is something nefarious about all this, but a better explanation is that China is simply looking for ways of keeping its massive growth going. China is currently sitting on almost $4 trillion in foreign currency reserves which it naturally wants to invest in something other than US Treasury bills.  In helping to construct a vast infrastructure network connecting China to the rest of the world, the Chinese will also be exporting renminbi savings and building up an offshore renminbi market which would add significantly to Beijing’s financial clout. So whatever China’s motives, this particular “pivot” is shaping up as a geopolitical game changer of the first order.

2. Changing the game

In no other part of the world is it more obviously true that economics and security are connected.

With China pursuing its economic full-court press, it’s bound to encounter push-back both in Asia and globally.  This is happening.  Much of the world’s attention has been focused on the actions Beijing has taken to assert its maritime claims. In the South China Sea, this has placed it in competition with the Philippines and worried the rest of Southeast Asia. In the North China Sea, it’s running much greater dangers in taking on Japan and South Korea – and the US Navy. These developments have the potential to threaten peaceful relations and to disrupt shipping routes in Asia/Pacific; but they could also have implications for the provisions of the Law of the Sea which govern international maritime disputes and for the application of maritime jurisprudence everywhere – including in Canada’s own northern waters.

China is also changing the game in other ways. In addition to littoral and territorial disputes, Asia faces serious challenges in a host of other areas such as the struggle for democracy and respect for human rights in the emerging economies, corruption in politics and business, large-scale migrant smuggling, trafficking in narcotics, and cyber hacking – any and all of which Western democracies such as Canada have a deep stake in seeing resolved. How China exercises its influence over these issues will have effects beyond Asia.

China's critical SLOCs crop

It should also be noted that technology is transforming the security landscape in Asia as in other regions of the world. Technology has not only been of enormous benefit to China’s economy but technology has spawned new methodologies of warfare which have helped accelerate the development of China’s military capability to the point where one can now imagine China challenging the writ which other great powers have long assumed was theirs in Asia. China has been a nuclear power for a long time and more recently has become a space power; with the rapid expansion we have witnessed in its naval and air force capabilities, China will soon be a military power to be reckoned with as well.  Given economic realities, it would be difficult for the United States to simply outspend China in an arms race as it did the Soviet Union in the Cold War.

So far, Asia has avoided major conflict. But the ingredients are there, the risks are rising, and diplomacy has not been particularly active in resolving the clash of interests.

3. Asia’s evolving international relations architecture

In 2002, at an APEC Summit in Mexico, the leaders of New Zealand and Singapore decided to create their own little free trade area. Brunei joined in 2005 and Chile in 2006. From such humble beginnings, made all the more difficult but ultimately stronger by members agreeing that all decisions would require consensus, Asia is on the verge of creating a Trans-Pacific Partnership (TPP), one of the world’s most expansive trade agreements whose 12 members (five others have expressed an interest in joining) include such economic powerhouses as the United States and Japan.

What lies beyond the TPP as it exists today is an expanded TPP which would include three of the biggest players in Asia not now members – China, India and Indonesia. While it may not work out that way, the APEC vision is of a true Free Trade Area of the Asia Pacific (FTAAP) to take the place of the fragmented trade arrangements now there.

If it doesn’t work out this way, there are other regional processes and initiatives in play.  One of these is the Regional Comprehensive Economic Partnership (RCEP) initiative, launched by ASEAN in 2012, which includes all of the big Asian players. RCEP includes more than three billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade. Another initiative is the ASEAN Economic Community (AEC). Though progress here has been halting, the AEC is targeted for launch at the end of this year and would integrate the flow of goods, services, investment, capital and skilled labour among ASEAN countries. By 2020 ASEAN banking institutions are supposed to be integrated as well, all of which is highly ambitious and of course surrounded with much doubt.

The need for a Canadian strategy for Asia/Pacific

It’s time Canada developed a fully elaborated Asia strategy.

Canada has had a bad habit of not taking developments in Asia/Pacific seriously when they begin and then having to scramble once we realize our interests are involved and we need to get on board. This has been the case with China, with the growing security problems in Asia/Pacific, and with regional economic integration processes. The Trans Pacific Partnership is an example of the latter.  But Canada has never negotiated a free trade agreement with ASEAN, so it isn’t a party to the RCEP process. It’s also the only non-Asian participant in the ASEAN Dialogue to be left out of the East Asia Summit process. In sum, the TPP trade deal is very important for Canada but it’s no substitute for an actual Asia policy.

What’s at stake for Canada can be summed up in three points:

  • First, Canada’s economic interests would be severely harmed if it were on the outside of any new set of trade rules involving such a large set of markets as those of Asia/Pacific, especially since our NAFTA partners — the United States and Mexico — are in.
  • Second, in addition to the specific agreed liberalization measures which can boost trade through reduced tariffs and barriers, the habit of dialogue with trade partners opens up beneficial bilateral channels for problem-solving.
  • Third, the TPP will push Canada to take much needed measures to improve its own economic policy and commercial infrastructure. Canada’s economic output is generally not close to ports, so if it is to come out ahead it will be need to improve its roads, railways and pipelines to move products to East and West coast ports and out to distant markets. This will not be easy given the vast distances, the harsh winters, the complex regulatory environment, and the limited investment capital available. Canada’s trade with Asia-Pacific has grown steadily over the last two decades, but the 2008 financial crisis hit hard and recovery has been slow.

Canada trade with Asia -- merchandise

In addition to needing an economic strategy for Asia, Canada also needs a political one to contribute to the resolution of regional security problems.  A place to start would be to try to revive the dialogue on the South China seas which Canada co-sponsored with Indonesia until funding was cut a decade ago. Another is to launch new multilateral diplomacy initiatives on such issues as the Law of the Sea and control of technologies stoking insecurities.

Finally, Canada’s Asia strategy needs to be adequately resourced.  Some of the measures the government should take are the following:

  1. To support everything else we do, Canada needs to reverse the erosion of its operating platform in the region: the downsizing or closures of embassies, trade offices, and visa offices. These are key to maintaining Canada’s profile and competitive advantage in the region, and to promoting Canada’s political and economic interests in Asia. A doubling of Canada’s trade commissioners in the region would not be out of order, considering that trade accounts for 60% of Canada’s GDP.
  1. Government and business should take concrete steps to strengthen their joint operations in the region. Both sides could make better use of the Canadian chambers of commerce throughout Asia, the new Canada-ASEAN Business Council, and the Asia-Pacific Foundation of Canada, to showcase Canadian products and services and to encourage more Canadian companies to set up offices in the region. Enhancement of air links would also be important.
  1. Lastly, if Canada is serious about Asia, it will invest in it. This means putting the time and effort into negotiating the necessary trade agreements including if necessary an FTA with ASEAN. It also means Canada joining the China-led Asian Infrastructure Investment Bank, as several European countries have already done.

In conclusion

Asia is transforming before our eyes and Canada is overdue to fashion a response to protect and promote its interests in this promising but volatile part of the world. In doing so, it might help Canadians to bear in mind a bit of ancient Chinese wisdom from Lao Tzu: Do the difficult things while they are easy, and do the great things while they are small. A journey of a thousand miles must begin with a single step.
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The featured image is of a caravan on the Silk Road in the far west of China in 1992.

 

Randolph Mank

Randolf Mank is the President of MankAsia, a consultancy based in Kuala Lumpur specializing in assisting companies to enter and navigate markets in Asia. He is a former Vice President Asia for Blackberry and currently serves as a board director of the Canada-ASEAN Business Council. Mr. Mank is a three-time Canadian ambassador in Asia (Indonesia, Pakistan, Malaysia), a former Director General for Asia at Canada’s Department of Foreign Affairs and International Trade, and for five years headed the G-8 Foreign Ministers’ Secretariat for Canada.

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