Japan has, for many years, held a position of transcendental importance for the Association of Southeast Asian Nations, or ASEAN, as well as for its member countries.

INSTITUTIONAL LINKAGES

In December 2003, the leaders and foreign ministers of Japan and the ten-nation ASEAN gathered in Tokyo to “commemorate” 30 years of ASEAN-Japan relations. It was the first time that ASEAN leaders had met outside of Southeast Asia. At that “Commemorative Summit”, according to a Japanese government summary, Japanese “Prime Minister Junichiro Koizumi clearly stated that Japan would continue to regard its relationship with ASEAN as very important and confirmed that Japan and ASEAN should further develop their relations as sincere and open partners that ‘act together, advance together.’”

Indonesia's President Megawati Soekarnoputri, speaking for all of ASEAN, pointed out:

Megawati continued:

At their summit meeting in Phnom Penh in November 2012, the ASEAN states agreed to Japan's proposal for another Commemorative Summit in December 2013, or ten years after the first one. At their summit in November 2002, also in Phnom Penh, the Japanese and ASEAN leaders had declared their intention to conclude a “framework” for an ASEANJapan Comprehensive Economic Partnership (AJCEP) agreement, which they concluded in October 2003 in Bali. In April 2008 Japan and all ten ASEAN member-states completed the signing of the AJCEP agreement, which covered trade in goods, trade in services, investments, economic cooperation, and dispute settlement.

Introduction

The ASEAN Economic Community (AEC) Blueprint provides a roadmap for establishing a ‘single market’ by 2015. The intent is to create a single economic market and production base as well as to enhance the competitiveness of the region and improve its attractiveness as a host location for foreign direct investment. Relative to the European Union (EU), ASEAN's notion of a ‘single market’ represents loose integration. However, even this requires countries to move beyond trade liberalization. As a result, the AEC Blueprint has set goals in a number of policy areas. This chapter examines two areas: competition policy (here limited to competition law) and intellectual property policy.

The AEC Blueprint recognizes that both the notion of fair competition and sound intellectual property policy provide static and dynamic efficiency gains. Ultimately, they ensure that firms succeed not due to monopolization and collusion but because of efficiency and innovation. Fair competition and secure intellectual property rights are aimed at improving the business environment and impacting both foreign direct investment flows and the willingness of firms to share and transfer advanced technology. Since there is no multilateral or plurilateral competition regime, every ASEAN member state has agreed to enact a national competition statute prior to 2015, and most have already done so. In the area of intellectual property, the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) sets the minimum standard, as all ASEAN countries except Lao People's Democratic Republic are signatories to TRIPS. In both areas, there is no intent to harmonize laws across the region or to have regional enforcement bodies; instead, countries rely on regional networks to build capacity and enhance cooperation and coordination.

This chapter provides an assessment of the achievements thus far on the path to 2015 and draws lessons from other regional trade agreements and case law to provide a sense of likely pitfalls that ASEAN may encounter. It also highlights some yet unaddressed issues and suggests some refinements that ASEAN may wish to consider as it prepares for 2015. The next section provides a general overview of competition and intellectual property (IP) and the goals of the AEC.

INTRODUCTION

Economic integration in East Asia has been undergoing a massive transformation for more than a decade. The search for markets, combined with a quest for low-cost production sites, has resulted in a set of formal trade agreements — at the regional, plurilateral, and bilateral levels — among countries in the region. Not only the number of trade agreements but also their content has evolved to cover various aspects aside from trade liberalization. This transformation reflects the complexity of problems surrounding economic integration in East Asia, as well as the need for better governance and discipline.

When talking about regional economic integration and the rise of regionalism in East Asia, one cannot neglect the importance of economic relations between Japan and Southeast Asian countries. Market-driven integration in the region was initiated, to a large extent, by the economic relations of Japanese business groups with their ASEAN counterparts. The relations created networks of trade, production, investment, and services spanning across developing countries of ASEAN and later included other countries in East Asia. Formal economic cooperation and trade agreements between Japan and ASEAN countries, at the regional and bilateral levels, also set the practice of including new features of free trade agreements (FTAs) known as behind-border issues (BBIs). BBIs include provisions on investments, competition policy, intellectual property rights, and other non-trade issues. The inclusion of BBIs into ASEAN-Japan FTAs created a 21st century regionalism that is different from the relationships created by traditional trade agreements.

This paper is an attempt to examine regional economic integration in East Asia, particularly between Japan and ASEAN countries, and how it has evolved into 21st century regionalism. The premise is that economic relations, while initiated by market forces, require some kind of management to address emerging issues and problems. This can be delivered by providing various elements within the framework of FTAs.

We begin the analysis by looking at the nature of economic relations between Japan and ASEAN countries and how formal trade agreements emerged. This is done through both historical and analytical assessment. We then explore more technical details of trade agreements by looking at various new behind-border issues in FTAs between Japan and ASEAN countries and place them in the context of implementing economic integration in the region.

The chapters in this book are based on papers presented at a remarkable conference organized by the Institute of Southeast Asian Studies on 7 October 2011. They are groundbreaking in several ways.

For one thing, they discuss territories instead of countries. This approach is highly significant, and promises to lead ISEAS research in new directions in our effort to understand Southeast Asian dynamics beyond national divides.

The chapters also study major actors in the political economy of many nations, who are often overlooked. The focus is tactically moved towards politics and key processes found at levels below the national conceptual umbrella.

Furthermore, the book as a whole examines the nexus between politics and economics and in the process not only gives a deeper meaning to regionalism, but also inspects the geography and geopolitics of developmental processes today.

These are important strands that when interwoven, amount to a unique innovation. The case studies do not come only from within Southeast Asia, but also cover industrial areas external to the region as well.

I congratulate Dr Francis Hutchinson for conceiving of and organizing this conference and bringing to bear, in the process, his wide range of international contacts, and his penchant for comparative studies in an area that is necessarily complex.

Heartfelt thanks to Konrad Adenauer Stiftung for helping to sponsor the conference.

This chapter deals with non-traditional security issues, focusing particularly on crimes at sea in Southeast Asia, and discusses how ASEAN-Japan cooperation can be effective in combating these challenges. The region, which consists of ten countries, is a hotbed of cross-border crimes, ranging from illegal unreported fishing, unlawful dumping, drug smuggling, human trafficking, timber smuggling, illegal arms trading, to armed robbery at sea. These criminal activities greatly benefit from the weak capacity of the government to control territorial boundary, especially at sea. What are the features of these maritime crimes in Southeast Asia, and in what ways do they pose a threat to the security environment in the region? How have ASEAN and Southeast Asian governments identified the problem and responded to it? How is it strategically important to involve Japan — a country that has campaigned globally for human security agendas — in the framework of regional security cooperation? We examine these questions and highlight the importance of promoting a new paradigm of maritime non-traditional security cooperation that should envisage the dynamics of security-development nexus and properly target the elimination of root causes.

We first examine the development of maritime crimes in the region. We then discuss the major limitations of the existing maritime security cooperation in Southeast Asia, which is heavily “military-oriented” due to the weak capacity of civilian law enforcement agencies at sea. Finally, we argue that a way to overcome these limitations is to shift the policy paradigm and involve Japan so as to accelerate the new paradigm.

EVOLVING MARITIME CRIMES AND HUMAN INSECURITY

The waters of Southeast Asia are subject to all sorts of cross-border crimes, and many civil society organizations question the political will of regional governments in engaging the war on crime at sea. Below, we examine four types of transnational crime that are active in both continental and maritime Southeast Asia. The scale of the crime is, however, overwhelmingly large in the latter.

Piracy and Armed Robberies

Since 80 per cent of Japan's oil imports travel through the Straits of Malacca and 60 per cent of Australia's oil tankers use Indonesian waters, the problem of piracy is a vital concern for ASEAN dialogue partners.

INTRODUCTION

ASEAN and Japan are partners. For a partnership to succeed, it must be grounded on shared interests, common objectives, and mutual trust and confidence. A partnership will not succeed if the partners do not have shared interests or common objectives or if they do not trust each other. In 1977, Prime Minister Takeo Fukuda pledged that Japan would do its best to establish an equal partnership of mutual confidence and trust based on “heart-to-heart” understanding between ASEAN and Japan.

Shared Interests

I will begin this essay by asking whether ASEAN and Japan have shared interests. I will argue that they do. What are their shared interests? They have a shared interest in maintaining peace and stability in East Asia and Asia-Pacific. They have a shared interest in promoting sustainable development and human security. They have a shared interest in promoting regional cooperation and integration.

Common Objectives

ASEAN and Japan have many common objectives. Let me list some of them. They aim to increase trade and investment between them. They aim to facilitate the manufacturing, trading, and servicing activities of the private sector in the two economies. They aim to increase the flow of tourists, students, interns, and talented workers between the two sides. They aim to enhance financial cooperation between them. They aim to augment the connectivity among the ten ASEAN countries and between ASEAN and Japan. They aim to promote human security in ASEAN, through the efficient, productive, and wise use of Japan's official development assistance (ODA). They aim to maintain the freedom of navigation and the security of strategic sea-lanes, such as the Straits of Malacca and Singapore, as well as the Lombok and Sunda Straits. They aim to promote a balance of power in Asia-Pacific and to reduce tension, suspicion, and misunderstanding. They aim to promote greater regional cooperation and integration, bilaterally, as well as through the various regional and sub-regional institutions. They will continue to support the central role that ASEAN plays in those institutions and processes. They also aim to cooperate to promote the green economy and to abide by the ancient Asian ethic that Man must live in harmony with Nature.

Once known for its over-regulated and autarkic economy, in recent times India has emerged as a leading exporter of software and IT-enabled services. Following sweeping domestic economic reforms in 1991 and the advent of international outsourcing, India was able to capitalize on its ranks of cost-effective, skilled labour to emerge as a global player in these emerging service industries.

In contrast, India's role as electronics producer is less well-known. Despite its array of state-owned electronics-producers and tradition of electronics production dating back to the 1960s, it has generated only a fraction of the jobs or export earnings of its better-known sibling.

However, this soon may change. The country's growing affluence, urbanization, and IT-literacy, coupled with evolving consumption patterns, mean that India has emerged as a target market of choice for not just consumer electronics, but also other sub-sectors such as office equipment and telecommunications products.

The combination of India's domestic market and its reputation as an attractive site for skill-intensive tasks has seen a large number of electronics-producing market leaders establish a presence in the country. In addition to production facilities, this has also entailed research and design centres geared to understanding the growing and increasingly attractive Indian market. This rapidly expanding market has also offered opportunities for local producer firms to emerge in product spaces such as the manufacture of mobile phones.

The consolidation of local and international market leaders operating in India has, in turn, enabled the country to emerge as a significant electronics exporter, particularly in areas such as: audio/video products; testing and measuring equipment; medical devices; and telecommunication products.

Just as the software sector has changed India's economic landscape, the hardware sector now promises to do the same. New centres of production are emerging, as lead firms and suppliers coalesce in specific areas. While traditional centres of electronics production such as Uttar Pradesh and Karnataka remain relevant for domestic production, Tamil Nadu is emerging as the pre-eminent centre of electronics manufacturing for export.

Over the past two decades, this state of 62 million people in the south of the country has undergone a far-reaching structural transformation. The agricultural sector is making way for the services sector, and Tamil Nadu's industrial sector is being renewed.

INTRODUCTION

Indonesia, Malaysia, the Philippines, and Thailand or the IMPT countries are usually referred to as the ASEAN-4 countries. Japanese foreign direct investment (FDI) in the ASEAN-4 countries has evolved through various stages after the post-World War II period. The Cold War saw the Japanese not being involved in the ASEAN-4 countries in an active manner, as they were not interested in war or in containing communism in Southeast Asia as were the Americans. In the 1950s and 1960s, the focus of the Japanese government's policy was to encourage direct investments to secure reliable flows of raw materials (Guisinger 1991, p. 30). From the late 1950s, the ASEAN economies were also becoming increasingly involved in import substitution industrialization (ISI) and there was little scope for Japanese direct investments in ASEAN. Japanese electrical products and cars were, however, sold in ASEAN countries.

The oil shocks in the early and late 1970s also saw increased Japanese investments in oil drilling in Indonesia to secure reliable supplies of oil for home consumption. There were Japanese investments also in textiles, chemicals, and metals in the ASEAN-4 countries in the 1970s. It was the next phase of export-oriented industrialization in the ASEAN-4 countries, which coincided with the Plaza Accord of 1985, that saw the active involvement of Japanese multinational corporations (MNCs) as direct and greenfield investors in several of the ASEAN-4 countries. In the 1980s Japanese corporations began to focus their investments in food processing, machinery, electrical and electronics goods, and more technologically advanced products (Guisinger 1991, p. 30).

This active phase of Japanese FDI in the ASEAN-4 countries lasted for about a decade, when, as a result of the opening up of China, Japanese investors took their capital to China to take advantage of cheaper unskilled labor and to exploit the advantages of a relatively huge domestic market. There were also divestments by Japanese multinational corporations in some of the ASEAN-4 countries after the Asian Financial Crisis (AFC) of 1997–98. In divesting, the Japanese multinational corporations exhibited tendencies of being “footloose” and revealed their preference for commercialism over benevolence. The slowing down of Japanese investments in the ASEAN-4 countries also coincided with the AFC of 1997–98, the bursting of the Japanese bubble, the deflationary cycle in Japan, and the admission of China into the World Trade Organization (WTO) in 2001.

Introduction

Free Trade Agreements (FTAs) have been the centrepiece of trade policy in Southeast Asia over the last decade, for individual countries and for ASEAN collectively. In this respect, ASEAN has followed a wider Asian and global trend: trade policy has shifted from non-discriminatory unilateral liberalization, backed up by (non-discriminatory) GATT/WTO commitments, to preferential (i.e., discriminatory) liberalization through FTAs.

Executive Summary

There is concern that the slow progress in implementing AEC 2015 may have to be with the ASEAN business community showing little or no interest in ASEAN developments. We conducted a survey to find out whether this concern has empirical support. Our survey was designed to relate ASEAN business firms' awareness of or interest in AEC 2015 to various firm characteristics, their operating environments, and in particular the extent to which they were engaged in ASEAN economic integration.

The survey was conducted in nine ASEAN member states, with a total sample size of 381 firms. They came from over 47 two-digit ISIC (Rev 3) industries, with the majority representing manufacturing and services industries. Most of the questionnaires were filled out by members of senior management at the respondent firms.

A key finding of the survey is that there is a general lack of awareness of AEC 2015 in the ASEAN business community. For example, it is more likely for the respondent firms to be aware of the ASEAN-PRC Free Trade Agreement than of AEC 2015. By relating the likelihood of the firms' awareness of AEC 2015 to their exposure to ASEAN economic integration, we find that the awareness of AEC 2015 increases to the extent to that firms were affected by the regional, cross-border economic activities. In other words, what drives the business community's interest in AEC 2015 is the actual process of economic integration. We can infer from this that the lack of awareness of AEC 2015 in the business community can be attributed to the lack of actual economic integration.

We also examine how ASEAN businesses obtain information regarding the various initiatives of ASEAN economic integration. The most popular source of such information is the internet. But the internet has turned out to be the least effective way of disseminating information regarding ASEAN economic integration by being associated with the lowest level of awareness of AEC 2015. Instead, those that received such information from the government were most likely to be aware of AEC 2015. This clearly suggests that ASEAN governments can do more to communicate the vision of AEC to the ASEAN business community.

Conventional academic and practical approaches to economic policy-making focus on the national level. However, over the last three decades, this nation-centred approach has been called into question by the re-scaling of economic, political and social processes. Decreasing barriers to trade, ever further-reaching production networks, greater flows of information, and demands by citizens for more participation in public life have challenged the primacy of the nation-state.

In addition, many national-level governments now have to contend with energized and proactive sub-national governments. In part, this is due to policies enacted by national governments themselves. Over the past decades, the “Silent Revolution” of decentralization has swept the globe, as central governments (with some notable exceptions) have devolved responsibilities to state, provincial, and municipal governments.

Furthermore, economic globalization seems to be heightening the relationship between location and economic activity. Despite investment being mobile, economic activity and, in particular, innovation have remained very sensitive to geography and the local institutional environment. This is seen in the emergence of high-performing regional economies in industrialized as well as industrializing countries.

These trends have implications for sub-national governments. While state and provincial governments may have gained in importance, the challenges facing them have also increased. More mobile investment along with heightened competition in many sectors means that policy-makers must now, not only attract investment, but also work hard to retain it. Firms that have problems getting reliable suppliers, securing appropriate labour, or obtaining licences will relocate to more amenable locations — often in a neighbouring state or province. Thus, competition between sub-national governments for investment is also on the rise, as they strive to outdo each other by providing incentives and specialized infrastructure.

However, while state and provincial governments have acquired new visibility and additional responsibilities, they are different from their national counterparts in that they do not have a wide range of tools or a large quantity of resources at their disposal. In addition, they are embedded in a specific power relationship with their national governments, and must reconcile central priorities with those of their constituents.

Conversely, despite their relative paucity of revenue and governmental responsibilities, state and provincial governments are usually responsible for a range of public services that are important to firms

Introduction

Korea has achieved remarkable economic growth over the past five decades. After the devastation of the Korean War (1950–53), the country was among the poorest in the world. From a GNP per capita below US$100 in 1960 (in 1996 USD), the country's GNP reached US$20,000 in 2007. Such a remarkable level of economic growth is closely tied to the successful implementation of the government's strategies for export-oriented and sectorspecific industrial development, human resources, and innovation since the launch of the First Five-Year Economic Development Plan in 1962.

Because of the development of industrial clusters, dynamic spatial patterns and processes have occurred in Korea's “space economy”. In the country's early industrialization phase, the spatial disparity of economic activities increased with the bipolar concentration of industries. This spatial disparity has been persistent, accompanied by the continuous concentration of population, which has created a new spatial division of labour between the Capital Region and the rest of the country as well as path-dependent trends of industrial development.

However, a conscious state-led strategy of supporting industrial clusters in the non-Capital Region has mitigated this somewhat. Despite the persistent spatial disparity of economic activities, the intra-regional disparity of per capita GRP has been considerably decreased over the last two decades. Along with the decrease of the spatial disparity of per capita GRP, a new path creation trend is evolving in cities of provincial areas and rural areas. The development of high tech industries such as electronics in the non-Capital Region and the development of ICT have influenced the spatial dynamics of the Korean economy (Park 2009).

Gumi city in Gyungsangbuk province is a good example of economic development in the non-Capital Region that has contributed to lowering intra-regional disparities as well as the progress of the dynamics of Korea's economic space. Over the last four decades, Gumi city has emerged as a leading electronics cluster and, in 2011, the city's export value reached US$33 billion. Gumi's industrial structure has been transformed, evolving away from the branch plant agglomeration characterised by the co-location of many branch plants in the electronics sector to an industrial cluster with evolving local networks.

This chapter will analyse the case of Gumi city. This chapter will first put forward national industrial and regional policies.

This study aims to answer the following three questions: (i) whether the ASEAN Economic Community (AEC) is achievable by 2015, (ii) the obstacles along the way in achieving it, and (iii) the measures needed for its eventual achievement.

All the experts' emphatic answer to the first question is that it would be very difficult to achieve AEC by 2015 in terms of the commitments in the AEC Blueprint. The reasons are many. Several commitments made toward AEC 2015 have not been implemented by ASEAN member states. While progress has been made in lowering tariffs and some behind-the-border economic hurdles, non-tariff barriers remain as major impediments to AEC 2015. Similar lags take place in the commitments made on the liberalization of trade in services despite the growing importance of services in the ASEAN economies. Regional institutions remain weak, as member states guard their sovereignty. When national goals differ from regional ones, decisions of political leaders tend to favor national goals. Flexibilities designed to accommodate the different levels of development of member states seem to have been used to justify non-compliance with their commitments; yet, such non-compliance is not censured, as maintaining a unified position among member states becomes more important to their leaders. Interest groups and those opposing regional competition tend to succeed in preventing their national leaderships from enforcing AEC commitments.

In the above context, the chapter writers' view is that the increased intra-ASEAN trade and investments over the years have been driven more by market forces than by regional agreements. Accordingly, it is in the interest of each ASEAN state to take unilaterally measures toward improving its business climate and liberalize trade and investment policies without waiting for regional agreements to be concluded. There is a view that the year 2015 needs to be regarded as a vision than as a hard-and-fast target year, so that the year could serve more as a benchmark of progress. Depending on the speed of progress, more measures for integration can be undertaken aimed at 2015 and beyond 2015. More than anything else, it would be in ASEAN states' interest to avoid grand designs and stress effective compliance with their existing commitments instead of concluding additional new agreements.

Introduction

As one of the Four Asian Tigers, Taiwan is known for attaining exceptionally high growth rates and rapid industrialization from the 1960s to the present. With a per capita income of US$70 at the end of World War II to US$2,280 by 1980 (Kuo, Ranis and Fei 1981) and US$18,458 in 2010 (International Finance Corporation 2012), the country's growth has been phenomenal. Beyond this, it is one of the few countries to have successfully engineered both structural and sectoral transformation. In addition to Taiwan's economy experiencing a large-scale shift from agricultural to manufacturing activities, its firms have emerged to become market and technology leaders in a range of areas.

Kaohsiung, Taiwan's second city, has played an important role in the country's development. With a total population of 2.77 million people, it is the country's centre for heavy industry, with important steel-making, ship-building, and petrochemical operations (UHDD 2010). Kaohsiung is also the site of the island's biggest harbour and its port used to be the third largest in the world. As an educational city, it ranks second only to Taipei, with 12 universities and colleges in the metropolitan region. Kaohsiung has also been long associated with export-oriented manufacturing, housing the country's first export processing zone (EPZ) and an important cluster of leading electronics majors.

Taiwan has a multi-levelled government structure, with special municipality, provincial city, and county governments. However, while the role of the central government in supporting the country's industrialization is well-documented, relatively little research has been carried out on the role of Taiwan's sub-national governments. While the country's political system has traditionally been centralized, municipal leadership positions were made elective in 1994, and important responsibilities regarding taxation and economic development have progressively been decentralized.

This chapter will therefore examine the electronics sector in Kaohsiung and the role of Taiwan's central and municipal governments in fostering its development. To this end, it is divided into four sections. The first section will provide an overview of Kaohsiung's economy and its electronics sector. The second section will discuss central government policies which have been implemented to promote the development of Taiwan's electronics sector, including those that affect Kaohsiung. Following that, Kaohsiung's local institutions and policies will be examined, seeking to establish how and whether they have played a role in the sector's development. The fourth and final section will conclude.