 My name is Doug Paul. I'm the Vice President of Studies here, and I'm pleased to welcome you on a beautiful afternoon when there's every kind of call of nature to get outside, to come in to show your seriousness and interest in this subject, and I hope all of you will be able to stay for the reception that follows. This is our second event in the Japan Program's four-part series, Past as Prologue, and we've had a number of speakers, and we're delighted today to have some more. Earlier this month we examined the issue of Japan-Korea relations and the role of the United States. Today we're broadening our horizons to focus on the economic and political developments in Southeast Asia, which I think are a terrific story. Again, in this instance viewed primarily through the U.S.-Japan alliance lens, so many people forget that Japan is by far the largest investor in Southeast Asia, and the resident influence of Japan is not sufficiently recognized, and they will help to do something about that. As we noted in our first event, 2015 has been a year of reflection. The 70th anniversary of World War II has looked at the legacies of the bad parts of the conflict, poorly defined borders, unresolved territorial disputes, use of nuclear weapons, and more constructive things like the anniversary of the United Nations and the Bretton Woods and post-war institutions. Despite the onset of the Cold War, the post-World War II era generally embraced economic openness, fostering technological development, and a level of independent interdependence that would have been hard to imagine in the 1930s. This dynamic has had a profound impact on Asia, and the U.S.-Japan alliance has been a big promoter of this trend and significantly influenced by it, no more than in Southeast Asia. The Japan program therefore conceived this past as prologue series as a way to put our reflection to productive use and apply it to some important issues for the future. 70 years after the war, Southeast Asia stands at a crossroads amid multilateral trade negotiations, economic integration initiatives, political turmoil in the establishment of new development institutions and regional governance frameworks. How should the U.S. and Japan respond and contribute constructively? That's the question before us. Our aim today is to foster scholarly and public discussion about Southeast Asia's remarkable economic and political journey, and provide context for future U.S. and Japan foreign policy vis-a-vis the region. We're honored to have two highly distinguished scholars from Japan to participate in today's conference, Professor Shirai Shi in Kauai, and I want to offer a special thanks to them for coming so far for this event. I'll thank our other presenters, one of whom is running a little late. We had a miscommunication, and that's why we're starting a little bit later than we would like about the starting point. So Uri Dadosch will sneak in at the moment he gets here, and that I'm sure will happen soon. So I'll now pass the mic to Jim Schof, Director of our Japan program. Thank you very much, Doug. Welcome, everyone. I'm Jim Schof, and I'm Director of the Japan program here at Carnegie. We have two panels today, and I'll end up moderating both panels. Our first is to examine Southeast Asia's political and economic development since the end of World War II unabashedly through a U.S.-Japan lens. We're not the only countries involved in that story by far, but we have had a role to play, and it's critically important, I think, to both countries. Our second panel, we'll start later on this afternoon, we'll talk about the multifaceted challenges facing Southeast Asia, including governance, globalization, infrastructure needs, changing balance of power, and competing political economic models, again, all with an eye on what this means for the United States and Japan, and their contribution and response. And we encourage you to stay for reception afterwards this evening. Before we begin, I wanted to offer a quick thanks to Vikram Nehru, head of our Southeast Asia program here, who is not here with us today. He and I worked together putting this event, organizing this event. He's on his way to Myanmar, actually, as a monitor in the elections coming up with the Carter Center, so go look forward to another event when he gets back. Overall, I just wanted to mention before we begin that, in my mind, the reason that we put this event together is, ultimately, if the United States and Japan are going to develop, see, this was perfect. I was able to kind of keep talking until Udi arrived. If our two countries are going to develop proactive constructive policies for the future, we really need accurate assumptions about that future. And I think you cannot truly develop accurate assumptions about the future without fully understanding the past and what and what does not apply going forward. So let me introduce our guests today, and we'll get started. Our first panel has features and presentations. Our second panel will be just a facilitated discussion. Dr. Masahiro Kawai is here with us all the way from Tokyo. He has been both a professor and a practitioner in the field of development economics, currently teaching at the University of Tokyo. Until last year, he was dean and CEO of the Asian Development Bank Institute. He's also served as the chief economist for the World Bank's East Asia and Pacific region. He was deputy vice minister of finance at the Ministry of Finance in Japan. He was vice minister of finance for international affairs. And started, I believe, your career way back when at the Brookings institution, as I understand. So welcome back to the neighborhood. So his right is Murray Hebert. He's a senior fellow and deputy director of the Cemetery Chair for Southeast Asia Studies at the Center for Strategic and International Studies next door. He was also a senior director for Southeast Asia at the US Chamber of Commerce and is an accomplished journalist based in the region with the Wall Street Journal and the Far Eastern Economic Review based in Kuala Lumpur, Bangkok, Hanoi, and Beijing at different times. So very pleased to have Murray here with us today. And Uri Darush is a senior associate at Carnegie in our international economics program. He's a perfect split between the private and public sectors on these issues. He was president and CEO of the Economist's Intelligence Unit and was vice president at Data Systems, Data Resources, sorry, and also several years at the World Bank as director of various groups, including international trade and economic policy. So we're going to begin with Professor Kauai and then Dr. Hebert, and we'll take it from there. Thank you very much for organizing this very interesting event. My role is to provide some background material for the next session. I have maybe 10 minutes or 10 minutes plus and I am going to, I have been asked to cover the past 70 years of history of the Japan-Asian relationship. Just rather than starting from the 1950s onward, just let me make a brief remark on the ASEAN Economic Community Initiative. So this year, ASEAN Community is expected to be launched. And as an economist, the economic community, ASEAN Economic Community is the most important community that would give the real substance to ASEAN. So ASEAN is expected to become a single production base and single market. And ASEAN is expected to connect itself with the rest of the world. So this is something that ASEAN has been pursuing for some time. And the role of Japan and perhaps the United States would be to support ASEAN in strengthening its economic community. And ASEAN economies face various challenges. The ADB and ADBI published two major books, one called ASEAN China India 2030. The other one is ASEAN 2030 toward a borderless economic community. These two books were published last year. And if you are interested, please take a look at these two publications, which will be an excellent summary of ASEAN and its relationship with China, India, and the rest of the world. So ASEAN faces tremendous challenges. And that's something that Japan is clearly interested in supporting in the future. And ASEAN is a collection of different countries, very diverse countries, some very high income countries, others very low income countries, some very developed, industrialized, others are still highly agricultural. So making sure that the collection of these 10 countries would continue to develop would be a significant challenge. So now let me just briefly talk about the relationship between Japan and ASEAN over the past 70 years in five minutes, which is a tremendous challenge. So after the end of the war, Japan started to normalize its diplomatic relationships with Southeast Asian countries. So a normalization process proceeded in the 1950s. And as part of this process, Japan started to provide economic assistance for reparation, war reparation purposes. And in the 1960s, you may know Japan started its high economic growth era. And Japan was able to provide a greater amount of ODA to Southeast Asian countries. And in 1966 ADB was established, and Japan and the United States became top shareholders, equal shareholders. And ADB also assisted Southeast Asian countries and other Asian countries. And in 1967 ASEAN was created with five key members, Singapore, Malaysia, Indonesia, Thailand, and the Philippines. And then in the 1970s, the Japanese economy grew, and Japan became the world number two economy in 1968. In the 1970s, Japan's export was expanding tremendously, and Japan had trade issues with the United States. And also ASEAN, Japanese products were flooding in ASEAN markets. And when Prime Minister Tanaka visited Thailand, Indonesia, and other countries, he encountered tremendous problems from ASEAN countries. People went to the street. And Japan realized that just exporting products to ASEAN countries would not be just enough. And in 1973, there was an agreement between Japan and ASEAN on synthetic rubber products to make sure that the Japanese rubber product exports to ASEAN countries would not jeopardize the rubber industry in ASEAN, in particular Malaysia. But this agreement in 1973 between Japan and ASEAN on the rubber product synthetic rubber product issue was a very important starting point for a positive relationship between Japan and ASEAN. Because that provided a forum to discuss much wider issues on the Japan-ASEAN relationships. And in 1977, the famous Fukuda Doctrine was announced, which included the point that Japan would not become a military power. Second, Japan would build mutual confidence and trust with ASEAN countries. And third, Japan would strengthen cooperation with ASEAN, our Southeast Asian countries, and ASEAN, then still five members. And Japan would foster good relationships between, would help foster good relationships between ASEAN and Indochina countries, the so-called CNMV countries. So in the 1980s, as a result of the Fukuda Doctrine, Japan expanded ODA to Southeast Asian countries. And Japan became the number one globally in terms of ODA provider in the 1980s. And 30% or so of Japanese ODA went to Southeast Asian countries. And then in 1985, there was a plaza agreement, and a significant yen appreciation took place, which pushed the Japanese multinational companies to go abroad. A lot of multinationals went to ASEAN countries. And that also promoted Japanese imports of manufactured products from other Asian countries, particular ASEAN countries. So this combination of Japanese ODA, which helped build infrastructure in ASEAN countries, and foreign direct investment, and trade, this combination of ODA, FDI, and trade, that really supported ASEAN's outward-oriented industrialization and economic development. And then in the 1990s, you may remember, Japan entered the era of subnation. And Japanese ODA started to decline. And Japanese presence was maintained in Southeast Asia, but not as rapidly as had been expected. There was the Asian Financial Crisis in 1997-98, which promoted wider cooperation of ASEAN with Japan, including China and Korea. So the ASEAN plus three process started after the Asian Financial Crisis. And then in the 2000s, trade agreements started to emerge. The ASEAN plus one trade agreements, including ASEAN and Japan, trade agreement. And then in the 2010s, the discussion of ARCEP, the Regional Comprehensive Economic Partnership started, and now TPP is there. So that's a concise history of the past 70 years. Now, today, Japan's ODA is not so significant, but still among top five, the U.S. ODA is getting large. Is this the total ODA, or is it just total ODA for the world? Yes, it's total. Thank you. Now, when we take a look at ASEAN's trade with the trading partners, the importance of Japan has been declining. The importance of the US or EU has been declining also over time. ASEAN has been trading with ASEAN countries, actually for ASEAN. ASEAN is the biggest trading partner, and then recently China, the red color, has been rising. For Japan, the importance of China is rising, but ASEAN has been relatively important, and ASEAN's importance has not changed. Actually, on the import side, the importance of ASEAN has been rising. Japanese outward foreign direct investment has risen, and now for Japan, Asia is the largest target for foreign direct investment. And of Asia, ASEAN is the largest recipient. So ASEAN is a very important economic region for Japan, because that's the region where Japanese multinationals are very active, more active than in China. But ASEAN, collectively. And from the perspective of ASEAN, Japan is a very important FDI source. The EU is still the largest, but in terms of a single country, Japan is the largest, although perhaps the importance of the United States should not be discounted because depending on which statistics you take a look at, sometimes the US appears number one. But Japan and the US are very important providers of foreign direct investment. And supply chains that have been formed in East Asia do include ASEAN as a very important economic entity. And Japanese multinationals provide not only capital, but also technological resources and also multinationals do connect ASEAN countries with the global markets. ASEAN has been a very important production base for Japan. But now ASEAN is transforming into a bigger market with the rise of middle class and affluent. So Japanese multinationals strategy is now shifting away from production based only towards a market for Japanese goods and services. And Japanese multinationals would go there and then they would provide goods and services there. So ASEAN economic integration is very, very important for Japanese multinationals. So competing, in a sense competing initiatives for RSEP and TPP, but actually they are very complementary. Let me skip here. I have produced a paper on ASEAN economic integration and the econometric results suggest that bigger size is good in attracting foreign direct investment. So ASEAN economic integration and AEC is going to be good for ASEAN in attracting more foreign direct investment and thereby expanding more trade and connecting ASEAN with other countries. But for that purpose, ASEAN needs to continue to improve business climate, needs to continue to invest in infrastructure and human resource development. And by looking at the benefits of various FTAs for ASEAN, the benefit from RSEP, which is an ASEAN plus 6 FTA, 10 ASEAN members plus China, Japan, Korea, Australia, New Zealand and India. That would produce a large benefit. Now TPP does not generate a large benefit for ASEAN because not all ASEAN members are part of TPP. But once FTA AP is created, the free trade area for the Asia Pacific, by combining RSEP and TPP, then clearly ASEAN benefits a lot. And of course benefits for Japan would be very large. And maintaining ASEAN centrality is extremely important. And this is something both Japan and the United States would like to support because if ASEAN disintegrates, then it's not going to do any good for anybody. And ASEAN integration is extremely important. And as ASEAN connects itself with other players, stakeholders in the rest of the world like China, Japan, Korea and others, then it's going to be increasingly important for ASEAN to upgrade its integration process. ASEAN is like an FDA economic partnership agreement among ASEAN countries. ASEAN needs to improve more integration. So perhaps the next step after the completion of ASEAN, after tariffs have been eliminated, maybe the next stage for ASEAN would be customs union. And then true market integration. And this is something Japan, the United States would like to support. And finally, the Ministry of Foreign Affairs asked an international consulting firm to conduct some opinion surveys from ASEAN countries. Which countries are important partners for ASEAN today and in the future? This was done in 2014. Japan came as number one. China number two, US number two, number three. So Japan's position seems to be very good. And which country is the most trusted partner for ASEAN? Well, you may be surprised, but Japan came as significant number one. Followed by the US, UK, China doesn't come as a high partner in this category. And then, in what areas should Japan and ASEAN strengthen their cooperation? Science and technology is one important area, trade and investment. So these are the areas where Japan can continue to work on with ASEAN. Thank you very much. Thank you very much. Thank you, Professor. You did an admirable job with a very, very difficult assignment. But you've gotten us off to a great start. Marie, I want to offer it to you. You can either talk from there or come up here. Sure. So do we use this thing or this thing? This thing works. Yeah. So thanks, Jim and Carnegie, for the invitation. You did introduce me as cutting my teeth in Southeast Asia as a journalist, which means that I'm not used to looking more than 12 months back and mostly looking this week and looking forward from there. But I'll do my best to look at the next 70 or the last 70 years. When you look back at the end of World War II, it is kind of interesting when you think about Southeast Asia to recognize that the US really didn't have any place where Southeast Asia was covered in the administration. It was basically covered in the Europe Department because Europe, French, colonized so-called Indochina, Vietnam, Laos, Cambodia, the Dutch Netherlands, and the British, Myanmar, Burma, Malaysia, and Singapore. So they're really outside of the Philippines, which was then a colony and handled other ways. Southeast Asia wasn't a big deal. But in 54, when the French are defeated at Dien Menphu in Vietnam, the US obviously had to make some decisions. There was a major debate within the administration. You had the Asianists who said we should basically support independence, and you had the Europe guys supporting the colonial powers, and we all know who basically won. Then, very quickly in 54, the US set up CETO, the Southeast Asia Treaty Organization, which was intended to help block the spread of communism. This resulted in the support for regional governments that were very anti-communist, including Thailand, Philippines, and to some extent Indonesia. CETO did include Australia, Philippines, Thailand, and the British, the French, and Pakistan. So a lot of what the US was doing in Southeast Asia was handled through this organization with one very narrow objective. Then, as the war moved on, and the US recognized that it would ultimately have to withdraw at some point, the US was very supportive of the founding of ASEAN, Association of Southeast Asia Nations in 1967. In 1969, we had the Guam Doctrine in which President Nixon announced that basically he was going to Vietnamize or Asianize the war, and the US was going to reduce its row. Then, basically after the war, a lot of what the US was doing in the region militarily was done through the Philippines, hosting the Clark Air Base and the Subic Naval Base, which were the US cornerstone for a lot of their bilateral alliance system in Southeast Asia. This whole environment changed very dramatically at the end of the Cold War. There was an obvious emergence already even before the end of the Cold War of a multilateral order in which the administration recognized that it would have had a certain core interest in Southeast Asia, which it would try to implement through ASEAN, through its larger allied relations in the region. I'll go through the four or five key points, key components of the strategy. One was, and you'll recognize it's kind of ironic, that China plays a pretty substantial role in almost all of these components. The first objective was to prevent the emergence of a competing power capable of challenging the US regional preeminence. It's happening now. It was to safeguard and keep open the vital sea lanes of communications through Straits and Malacca, South China Sea. That's also being challenged. Maintain security ties with allies and expand ties thanks to China. It's actually been easier for the US to push a lot of this recently, particularly in the countries rimming the South China Sea. And then the other goals were to sustain and strengthen commercial investment ties and promote democracy and human rights. There was a lot of concern that the US would soon withdraw actually after Vietnam, but particularly after the end of the Cold War. And so the US made various initiatives with particular countries, which I'll just quickly run through. But one was it intensified security ties with Singapore, particularly after the closing of the bases in the Philippines. And then in 2000, we have the Changi Naval Agreement to use Changi Naval Base, which we all recognize is really critical today. It signed after leaving the Philippines, but then at the end of the 1990s, it signed a visiting forces agreement with the Philippines, which was and gave it the major NATO, non-NATO ally status. And then more recently, last year, just before President Obama visited in April, you had the EDCA announced with the Philippines the Enhanced Defense Cooperation Agreement, which was going to allow the US to rotate troops and equipment through the Philippines. If you follow Philippines-U.S. relations, you probably know that the EDCA is now stuck in the Supreme Court of the Philippines. Then with Malaysia and Indonesia, particularly after September 11th, the US stepped up counterterrorism assistance, capacity building. And then more recently, with the tensions in the South China Sea beginning around 2009, the US increased its work with Vietnam, Philippines, Malaysia, Indonesia to increase maritime domain awareness, provide capacity building for the Coast Guard and to increase naval exercises. I already mentioned Vietnam, but that's improving relations with Vietnam has happened very dramatically after 2009, when China stepped up its increased assertiveness in the South China Sea. Another component of US relations in the region was the signing of the free trade agreement with Singapore. There was an effort by the US also to start free trade agreements with Thailand and Malaysia in the late 2000s, but they ultimately foundered. And then just generally, the US increasingly found ASEAN, a very useful vehicle through which to work. We had then the Clinton administration started to look for bigger ways to work with regional institutions, helped set up APEC in the late 1990s and became much more active with ASEAN in the ASEAN regional forum to deal with security issues. A lot of this attempts to engage regional institutions continued under President George W. Bush and it's gotten, it received a major boost after President Obama announced the Rebalance to Asia, which in 2009-10, which resulted in the US joining the East Asia Summit and starting to focus very specifically on Southeast Asia as part of its Rebalance to Asia. So that's sort of the strategic political environment. In the economic development, as I already said, when during the Cold War, a lot of the focus was on USA to economic aid to the anti-communist governments, particularly in Thailand and the Philippines which benefited hugely. Thailand in particular grew very rapidly during this period thanks to a lot of the US war effort being based in Thailand and also from increased, as we heard earlier, increased investment from Japan and as well as US companies. The US also stepped up, US companies basically functioning independently started to step up their investment in Singapore, Malaysia, Thailand. You had big multinationals, the Intel, Motorola, Seagate, a lot of the pharmaceutical companies all got very active, particularly in Singapore but also in Malaysia, Thailand. And then you had the financial crisis in the late 1990s, 1997, 1998 in which the US supported a lot of the calls by the IMF and the other IFIs for a very draconian sort of economic reform process which, especially the Thais but to some extent the Malaysians and Indonesians also viewed the US to be very heavy handed. It came at the time of China's increasing economic role in the region and China was viewed as much more even handed, much easier to work with, set up the Chiang Mai initiative for dealing with the financial crisis. And so the US was a bit in a sort of had a bit of a negative hole that had to dig out after the financial crisis. And then jumping forward, which my colleague from Japan mentioned, the TPP has become a major focus of the, it was launched during the end of the Bush Administration but became a major economic pillar of the US rebalance to Asia under President Obama at which it's an attempt to try to incorporate really pretty rigorous rules based transparent kind of trade and investment rules. We had the four countries in Southeast Asia as part of the agreement that happened already, Singapore, Malaysia, Brunei, and Vietnam. And you know, as my colleague from Japan talked about the investment from Japan was really very significant in the development of the major economic powers in Southeast Asia. The US investment, as I said, was also very significant. By the end of 2013, US companies invested a total of $204 billion in Southeast Asian economies. That is more than three times larger than the $66 billion that had been invested in China by the end of 2013. Two-way trade is also very significant. It's upwards of $250 billion a year. Two-way trade is much smaller than China, but ultimately a lot of Southeast Asian trade does go through China because China uses a lot of components from Southeast Asia and the global supply chain. So now the concern in many Southeast Asian countries, Thailand, Malaysia, Indonesia, and to some extent the Philippines is that economic growth has really slowed down. Part of it is due to what's happening in Europe, part of the slow growth in Japan. More recently, the slow growth in China, it's that they're increasingly worried that growth is getting closer to zero and they need to find some way to jumpstart and get themselves out of the middle income trap. And that is what is now promoting, prompting. You may have seen earlier this week President Jokowi of Indonesia was here. Indonesia is quite a protectionist government, quite a protectionist regime on trade. And investment issues, but he announced that they want to join. Philippines has said they want to join. Thailand before the coup also said that it would like to join down the road. I'll just throw out one more component. USAID, as my colleague from Japan already mentioned, along with Japanese, ODA was really important in the early years, primarily to Thailand and the Philippines initially. A lot of it focused on pure economic aid, on things like the Rice Research Institute in the Philippines, for example. But more recently, it has also, US has also started to invest in capacity building. So you see in Vietnam, the STAR program, which has worked to help Vietnam build capacity, legal system, an intellectual property rights system that will help Vietnam join the WTO. Also did the same thing in Laos, helping them join the WTO. But more recently, also, the US has focused a lot more on democratic issues. So in Myanmar, Burma, there's been a lot of the aid, although some of it's still on economic development, a lot of the aid is focused on, for example, in light of the elections. That's happening on November 8th, which Vikram is going to go observe. There's a lot of effort in trying to build democracy, build political parties, help Myanmar build an election commission. So that's a quick and dirty overview of what the US has been up to for seven years in Southeast Asia. Thanks, Jim. Thank you very much. I appreciate that. We've got a great foundation. Before we get into our group discussion and then open it up to the audience, Rudy, I wanted to give you a chance to give some of your thoughts on what you've heard and some of your observations. Thank you very much, Jim. And it's a pleasure to be sharing a panel again with my friend here. We seem to do this regularly, even though you live on other parts of the world. And thank you, Mary. So I have the disadvantage that I'm not an expert on Southeast Asia and the advantage that I look at global economic trends. And so I try to put, you know, a little bit what has been said in some perspective. And so what I observe is a kind of general picture. Number one, that this region remains of vital importance for both Japan and the United States and remains a very active agenda on the policy front. The economic diplomacy, if you like, for both countries and for very understandable reasons. The second big feature is the rising importance of China, which comes out beautifully in hero's numbers. And at the same time, which was also very interesting, this trust of China, relatively low level of trust of China in Asia, relative to Japan and relative to the United States, which of course is part of the dynamic here that is encouraging the strengthening of these relationships and the consolidation of these relationships with the United States and Japan, but also the rising economic importance of China explains why the ASEAN countries want to be connected to China as well. How could you not want to be connected to this huge economic and growing economic mass? The third big feature that comes out from the discussion and from the numbers is the rising importance of ASEAN itself to each other. So this is a successful economic block that is becoming increasingly important to themselves. And indeed, the trading partners look like they're more important to each other than the other three big countries or four countries, if you include the blocks, the European Union are to them. And the fourth feature which was discussed but we didn't go into in any depth is the integration of production networks in East Asia, the so-called global value chains, which are a very distinct feature of East Asia, Southeast Asia in particular, including its links with China and Japan and to a lesser degree with the United States and a much less of a feature in the rest of the developing world with the exception of the European periphery. So these are kind of four features. Let's say they kind of stand out in a global perspective. Now, a word about the current conjecture or the current situation. When you look at ASEAN today and you compare to the rest of the world, it is striking how much better the middle-income countries of ASEAN are doing. I know they're not very happy with what they're doing, but they're doing so much better than Latin America or not to mention the Middle East, North Africa, or the middle-income countries in the periphery of Europe which are doing a little bit better. We're talking about 2% to 4% growth differential, despite the fact that these East Asian countries, these Southeast Asian countries are in a neighborhood where the two biggest trading partner, China, is slowing pretty dramatically and Japan is in trouble as it has been for quite a while now. So, and also striking is the low-income countries in ASEAN, the Laos, the Vietnam, Vietnam I guess is a borderline, and the Cambodia, how much of Myanmar is how much better they're doing than the low-income countries in other parts of the world, including in Africa, which is now slowing quite dramatically, partly on account of the declining commodity prices. So, what I can say is that this is an example, as I said, I think two days ago in this room, I don't know how many of you were there. This is an example of why development is what you do to yourself and not what others do to you. So, what the ASEAN countries are showing is that even in a relatively unfavorable context, the fact that they have solid fundamentals and that they have integrated with each other, and there is an inherent dynamic in the region means that they can actually do much better than other developing countries that have not exhibited those characteristics even again in an unfavorable environment. The other feature I want to bring out here, and it wasn't here as assignment, but I will mention it, is just how badly Japan in recent years is doing relative to, we know it's a long-term issue, relative to the other high-income countries, many of the other high-income countries. So, if you compare Japan's economic performance in the last few years with that of Germany, with that of the United States, with that of the United Kingdom, but even comparing it with the high-income countries in Asia, so Australia, Singapore, which now has a much higher per capita income than Japan, has been doing a lot better. So that's another factor that is important. I don't want to get into when Jim knows the stories. I don't want to get into what Japan needs to do, but this is an important feature of this whole connection. Japan's declining importance, rapidly declining importance, as an economic player. United States, of course, the trends are less pronounced, although the United States is not doing great, as you all know, but relative, even this year, in a very bad year, China will do somewhere between 6.5% and 7%, and it is a bad year for China. I want to stress that the Chinese situation is difficult and will stay difficult for a while, but still we're talking about 6.5%, 7%. So the trends that we have observed in recent years are very much with us, they're very much alive, and they're going to continue. I also note that United States economic influence in the region is declining, not just in relative terms, not just because of these fundamental economic trends, but when I look, you know, my background is in the multilateral organizations, when I look at the big instruments, traditional instruments of U.S., economic policy, economic diplomacy, the projection of American power, and I look beyond the aircraft carriers and the fancy technology, defense technology, which I don't understand anyway. When I look beyond that, what I see is that the WTO is sort of falling into obscurity as far as Asia is concerned. What I see is the East Asia region is concerned. What I see is that the World Bank is playing a less and less important role and there are alternatives being built up domestically, the Asian infrastructure bank, and other initiatives. And I see that the IMF, which potentially actually has a more active role, is simply less of a player for many reasons, partly because of governance issues, partly because of the memories of how the IMF did, partly because of alternative arrangements, and partly because the Asian countries have taken on their own sort of approaches, their flexible exchange rate, big reserves, et cetera, so that the international organizations are playing much less of a role. And that, I think, is important in terms of understanding the ability of the United States to project its economic influence. Now, the Trans-Pacific Partnership is the conclusion of that negotiation and assuming it is ratified by Congress, which I suspect it will be one way or another, is a significant step forward. But again, it should not be exaggerated. I'd like to say that TPP is like Coca-Cola. It has a fantastic brand name, but nobody knows what is in it, you know? And so I'm waiting with baited breath for the draft to come out so that I can know what is in it. But meanwhile, I'm ready to talk positively about it. What we do know is that the liberalizing impact of TPP for most players is absolutely minor, and this comes out in your numbers. It is probably not minor for Vietnam and Malaysia, but it is very minor for the United States. It is minor for Japan. I'm dying to see what the agricultural agreement is. But even if it is significant, agriculture is 2% of Japan's GDP. So we know that that liberalizing effect is going to be minor and in part because the United States already a very open economy, and that also suggests to me that the United States had less to give in this negotiation with a lot of the players. So I hope that the rules part of the negotiation is significant, but my expectations are not too high. Last point I want to make is that Southeast Asia is a success story. I mean, I look at developing countries and you can cut them whatever way you like. It really is a big success story. It was helped with Japan and the United States, but if you look at the numbers on foreign aid, we're talking peanuts, you know, relative to the size of these economies, and it was mainly a private sector story, the FDI, the trade, and so on and so forth. And the real challenge for Southeast Asia going forward that will really determine the prospects of the region is, in my view, whether the private sector and not so much all these policy initiatives will continue to be able to operate constructively across the region if it can, then I think the region has a very bright future. And that really goes back to making sure that the great power rivalries that are, you know, a huge issue, let's face it, in the region at the moment and likely to remain or could even get worse in the future that these are kept under control. So if we can continue to have an amicable, positive economic competition between China and Japan and the U.S., which China, by the way, will continue to win in the sense that it will increase its share, if we can keep it friendly and positive, then the region looks very good. If it becomes a serious rivalry, then we've got a world-class problem. Thank you. Thank you very much. We appreciate that. I want to get at that issue, kind of raised at the end about the varying degrees of impact or effectiveness over the years. Do either of our presenters want to comment on anything that Uri just said, or before I jump into my questions, please. Just a few words on some of the things that Uri said. Japan's declining importance. Because of Japan's long-term economic stagnation. Now, Abenomics is there, but Abenomics has not yet really led to a successful outcome yet. But I don't think there is any other alternative for Japan other than pursuing structural reforms. An aging issue is there. Prime Minister Aben is still trying to pursue structural reforms. Labor market reform, which is taking place, utilizing more women, and healthy silver people, old age people, as they were, trying to encourage more investment. Multinational companies may not be excited about investing in Japan, but now they are getting very active internationally, internationally acquiring other firms, funding their businesses abroad. So, multinationals as a whole are still active, and there are unsuccessful multinationals, and they have been consolidated. So, the private sector, somehow the private sector vitality has been realized in the domestic economy. And the Bank of Japan has been pursuing QQE, quantitative and qualitative easing. Yesterday, the BOJ did not pursue another easing because the underlying inflation rate is rising. CPI, net of fresh food and energy, is rising more than 1%. So, if the BOJ is successful in realizing the 2% inflation rate and the structural reform of Abe, somehow becomes visible. I would say Japan can reverse its course. Now, you said Singapore's per capita income is higher than Japan's. Yes, Singapore is a city state. So, what you want to compare is per capita income in Singapore with Tokyo's per capita income, or any big cities per capita income. So, still Tokyo's per capita income is much higher. Is it growing as fast as Singapore? Well, that's something I don't know. Tokyo's per capita income, I think, is a service economy. China's growth, I think China's growth will continue to decline structurally because of the aging environmental constraint and so forth. So, China's 6.5% to 7% growth is not just a one-time phenomenon. I think it's going to go down, but I agree. China has to remain a very, very important power. TPP, the role of TPP, the direct impact on Japan or the United States may be limited, but by inducing countries like Indonesia, Korea, Thailand, the Philippines, Korea, Taiwan, and so forth to come, I think overall impact would be eventually bigger. So, as you said, rules-making part is a very important contribution made by TPP. On this issue, can I jump in? Because I want to use this as a foil to look backwards still a little bit. We talk about TPP as norm-building, as raising the bar, influencing the way that other countries eventually develop. How has that played out in Southeast Asia, in your mind? Now, to some extent, the point's been raised that the success story of Southeast Asia, by and large, maybe it's a private sector success story. It's primarily driven by what has gone on in the region. It's been helped by institutions. It's been helped by government policies of the United States and Japan, perhaps. But I want to ask a question in general about how do you assess how we've influenced Southeast Asia's development over the years. Murray was talking, brought out a lot of the important points about the Cold War focus and the anti-communist, kind of the political lens and the security lens by which the United States was viewing the region and allocating resources. That had an impact of supporting certain groups versus other groups, certain priorities versus other priorities. Japan was coming at it from perhaps an economic first perspective, not necessarily originally seeing ASEAN economic community and integration as the ultimate goal back in the 60s and 70s. So their goals and objectives have evolved over time. So I want to ask a little question about how you assess some of these different kind of external U.S. Japan versus internal factors, other outside institutions. What have been some of the most important influencers of how Southeast Asia has developed for better or for worse? Well, I think internal factors, domestic reforms pursued by Southeast Asian economies had a much more significant impact on their own economic development processes. And I think external factors had good synergy with internal reform. That's why Southeast Asian economies have been quite successful. They have been able to use aid for the purpose of economic development. And by opening up their economies, inviting more foreign direct investment, which also required further reforms and they had to import a lot of capital goods, intermediate products. So they liberalized trade regime so that they would be able to produce and export. So this process worked very well. Maybe the U.S. may have initially focused on non-communist countries, but maybe that was in the early period. At the later period, I think this aid, trade, foreign direct investment, this nexus supported by domestic reforms. This process worked extremely well. So, Murray? So on the TPP, the significance, some of it is just into keeping the U.S. engaged in the region beyond just having aircraft carriers to quote your analogy. I mean, right now it is mostly aircraft carriers and the intels, but this was going to probably help keep the U.S. engaged economically at a deeper level. But to talk a second about the other impact of the TPP is that it is an action-forcing event. Part of the reason the Vietnamese and the Malaysians joined was to use the TPP to force reforms in the state-owned sector. Both of them are going to have to make significant changes. And it also lets the U.S. and other countries, like Japan, Australia, introduce other conditions, other improved labor conditions. Vietnam is going to have to open up. It is a freedom of association using ILO standards. That is very tough for a communist government to do when they believe itself to be the bastion of the working class. And so I would argue that the TPP, and then it also is going to, in terms of the investment chapter, once we know what is in it, like we know it is in Coke, then it is going to give companies greater confidence. Now why does Indonesia want to join? There is going to be a heck of a lot of trade diversion. If you are doing textiles and garments, Vietnam and Malaysia are going to take everybody else to the cleaners. The Chinese already recognize us, and so they are setting up plants, garment factories, they are setting up textile mills, they are setting up button factories. Because they know Vietnam is going to get so much lower tariffs to get their garments into this country, China is going to have a lot of trouble with its high labor costs. And so it is really, I think the TPP, yes, the amount that the U.S. benefits economically is very minor. But they are the non, I don't know if you call them non-tangibles, but the other factors I think are actually pretty significant. Yeah, no, so I just wanted to address your question, so I was thinking about it, what are the factors, external and internal? And as I said, and as Hira has also said, I think the domestic dynamic, as always, is the most important. But when you look externally, I would say that Japan made a big contribution, but it made it unwittingly, and that is Japan made a big contribution by being the first non-European, or non-Europeanized country that broke through the industrial revolution barrier in the second half of the 19th century. And it was the first example of a country that was not in Europe or was not an outgrowth of Europe like the United States with very similar institutions, et cetera, that really broke through. Of course, Japan was never colonized, and that's part of the reason it had a serious government and so on and so forth. And then after Japan, after World War II, there was the example of the Asian Tigers, I guess one of which is Singapore, is in Southeast Asia, but the other three, Hong Kong, Taiwan, and South Korea are in the general region, but they're not in Southeast Asia, and they were the first truly developing countries of the 20th century that took off. So they provided an incredible example for the rest of the region. So I think that's very important. I do think that aid played a role, but I also believe that very, very important were the ideas that were promulgated. And, you know, we can be very negative about the World Bank and its ideologies and the IMF and its ideologies and the WTO and its ideologies. But in effect, one way or another, these institutions over a period of 50, 60 years did change the nature of the dialogue in a lot of developing countries. And I would say that the WTO of the three probably played the single most important role, as who in particular the accession of China, which again gave a big example to the region, and to the accession of Vietnam also was a very important step forward. So this combination of examples, particularly domestic examples, ideas communicated over a long period, and institutional, very important institutional factors, such as WTO accession, that help explain this dynamic. But when you look forward, you don't see quite where the next, some of this momentum increasingly has to come from inside the region, from looking at examples of each other, and you need a context which is constructive for this to continue. A couple more quick questions, and then I want to open it up to the group. Murray, you were talking about that dynamic of TPP competition, where you have people who are in, people who are out, and they end up in a zero sum dynamic or fear that they will be, and that may actually move investments around and influence decision makers. Have we seen that before in the past? Is that a potentially new phenomena in Southeast Asia? Has there been a zero sum dynamic to competition as the beginning of this production platform supply chain dynamic evolved in Southeast Asia? Should we see that as something potentially new, or are there precedents for that? Well, you did have Vietnam come up as a latecomer trying to join the club, right? Vietnam joined the WTO in 2007. It resulted in pretty big boost in investment. Now, some of it is just countries, companies, some of them are Japanese, others that are looking for alternatives. You had Thailand caught in long political crisis, floods and all that kind of stuff. So you want to have a Thailand plus one, so that did begin with Vietnam, but obviously Vietnam could continue because of TPP. That's really the only huge new dynamic that I see in the region that gave an impetus to some pretty significant changes. It's not in the context of Southeast Asia, but because of Korea-US FDA and Korea-EU FDA, Japan was in a sense forced to work with the US and the EU. Now, in the case of Southeast Asia, Vietnam joining TPP is in a sense a threat to Thailand also. Vietnam is a big power in the Mekong region, and Thailand, traditionally Vietnam and Thailand, they are in competition. So Thailand feels under pressure. Similarly, Indonesia, because of Malaysia and Vietnam, Indonesia feels that they have to do something. So this external pressure is a very good pressure in terms of forcing these non-TPP countries to pursue reforms. So it has a really positive impact. A lot of other issues I wanted to get to, but I do want to open it up, but just to throw it out there as things to think about. Other factors that crossed my mind as I thought about today's event, US loves to talk about the provision of stability and the alliance frameworks in the region have helped laid the foundation for stability, for the region to prosper. I'm curious to what extent you think that is borne out, because there's been plenty of turmoil and war and political upheaval in Southeast Asia, even as it has been going through this remarkable economic development. And then the provision of markets, the role of markets as being a key factor has also seemed to me to be somewhat important. But I want to open it up and give the audience a chance to ask some questions as well. And if nobody's brave enough, then I'll come back to my questions. But I can see we have some people who are not shy. So when the microphone comes, just let us know who you are and where you're from and direct. Hi, Prashanth from the Diplomat Magazine. I wanted to actually go back to Uri's point earlier that we have diminished, I guess, or reduced economic influence on the part of the United States, because that's a good example of looking back to look forward. I think every decade or so we have predictions about the decline of the United States or reduced presence. And I'm just wondering, there's always a very fierce debate on both sides. I'm wondering to what extent can we see that there are any differences with this focus on U.S. economic decline relative to other instances being declared in the past? And to that end as well, are there any metrics that we can actually measure it or any ways we can talk about it? Because my sense is that the debate usually focuses on things like, are we focusing only on what the U.S. government is doing or are we focusing on what U.S. companies are doing as well? Are we looking at what are the Chinese are doing in terms of trade versus the U.S. or are we looking at investment as well? So if we can get some clarity on that, that would be great. Thanks. Who on the panel would like to be addressed? Reference to your... Yeah, here. Reference to me. Look, I mean, it's not very complicated. I mean, you just look... I'm talking about relativities. I'm not talking... I don't think the United States is in decline by any wide... any stretch of the imagination. And I think it's a very dynamic, very vital, tremendously powerful economy, okay? So I'm not a U.S. citizen, so I'm going to congratulate you for your economy. What? You're not either. All right, well, I'm sorry about that. But the... Part of the dynamism... You know, I'm a French citizen. I see dynamism, you know, in a different light than other people see. But what I want to say is... I'm talking relativities. I mean, the relativities just look at, you know, look at the relative size. I mean, China now has the largest manufacturing sector. It's the world's largest exporter. It has three and a half trillion still of foreign exchange reserves. Despite all of its problems, its, you know, government debt is one... is smaller as a share of GDP, much smaller than the United States. It's a fraction of Japan's. And so... And its dynamism is extraordinary. And whatever analysis that you make tells you that it's very much building. It's very much in a building phase. Its per capita income is still a fraction of that of the United States. And as my colleagues at Carnegie often like to say, after Japan and Korea reached the per capita income of China of today, they still had, like, 8% growth for 30 years or something like that, okay? So it's not like this is a country that is exhausted. It's potential. So, yeah. Is it fair to say, then, that... Christopher Thong brought the idea of kind of a cyclical story of U.S. rise, slight decline, or, you know, warnings of disengagement for the region. What you're suggesting or talking about is that we're in a situation that's unprecedented for this region, for Southeast Asia, at least in the last 70 years, where a single economy, a single country has... its role has changed so much. We can't look back in the 60s or 70s or the 80s or the 90s and say we can identify that issue. Well, Japan, Japan went through a similar... Japan, really, I mean, I remember... Which had a very positive... I remember 20 years ago or 25, I've been in the business a long time. I remember when everything depended on Japan in East... I mean, everything. I mean, it was kind of the United States and then Japan was the big deliverer and when Japan ran into problems, this was a huge problem for the region. This is what we're talking about 25 years ago. And so Japan came up at an extraordinary rate and there used to be a lot of concern in the United States, remember, about Japan as number one. So the United States has had its wish. Now, Japan is no longer a concern. It's just not going fast and it's hurting American exporters, but that's fine. I remember having participated in many, many discussions with U.S.-Japan economic rivalry in the early 1990s and the projection was that the Japanese GDP would catch up with U.S. GDP within a relatively short period of time, but Japan had subnation and Japan lagged behind. Now, China, our base assumption is that it's going to continue to grow at maybe 6% for the next few years and then 5% in, you know, 5, 10 years and then 4% and so forth. But who knows, you know, this continuous event could take place. And also we are now discussing China, but India, India is there and India's demographics are much more favorable than China's demographics and there is huge potential for India to continue to grow. Now, the table is broadening. I have a question here. There's a microphone coming here. My name is Frank Albert. I'd just like to ask Professor Kawai what the Japanese government sees the impact of the Asian infrastructure investment bank being going forward both in terms of the Japanese and the relationship, if any, and also how you see the Asian development bank's relationship with the result of it. We'll talk more about that in the second panel, but it would be great to get Kawai Sensei's view on that. Japan has never said that it would not join AIIB. So in the future, if AIIB turns out to be a good bank, the kind of bank that Japan wants to see, then Japan may join in the future. And ADB has been working with AIIB very closely and I just had a conversation with Mr. Nakao, the president of ADB about a week ago and they are discussing joint projects now. So ADB and AIIB would be working together and hopefully the World Bank and AIIB would be working together and they come up with many, many joint projects so that AIIB would be able to apply the kind of standard that the ADB and the World Bank are using. What do you favor the U.S.? Well, if Japan joins, then it would be useful for the U.S. to join. According to my calculation, if the U.S. joins, the U.S. would become a very important shareholder. Maybe about the same as Japan's voting power or maybe higher than Japan's voting power. And even though the U.S. and Japan's collective voting powers may not be sufficient to influence the decision-making of AIIB, I think still a lot of pressure can be put on AIIB. Many people who worked for ADB know that the United States, up until about 10 years ago, the United States was sort of a... was always criticizing ADB. The way in which ADB was run was bad from the perspective of the U.S. Executive Directors. They always complained, criticized, and so forth. I think that was healthy. That made ADB a better institution, ultimately. And if the U.S. joins AIIB, I think the U.S. could play that sort of role. So that would improve the quality and nature of AIIB. Thank you. Let me take a couple of questions quickly, back-to-back, if I can. Here and then... Thank you. I'm Jeanine Weng with Voice of Vietnamese Americans. I'd like to come back to the topic of today's Regarding Japan and U.S. approach to support the development of ASEAN. You know that ASEAN, the majority of our country's literate nations, be around the sea, and Mr. Schultz talked about stability. So I'd like to know your approach regarding how to maintain stability in the Southeast Asia Sea, given what is going on now. And especially, is there anything that we can talk on the agenda of the EAS coming in November? Anything significant? One topic that you think we should talk about and bring about to ensure the stability in that region. And I also would like to bring up that the human capital is important in that area because of the democracy in that area. It's very young, growing younger generations which could help Japan a lot in your future development. Is there any plan to develop the human capital for those countries, especially for Vietnam? And the key is infrastructure and connectivity. I want to talk about infrastructure and connectivity in relationship to AIIB and ADB and also is there a plan, a project already in planning or in implementing between the U.S. and Japan to promote infrastructure for ASEAN and connectivity for ASEAN to promote ASEAN centrality. Thank you. Okay, thank you. We may not be able to get to all of those right now but we can pull some of those into the second discussion as well. Then I had a question here. Vibhanshu from American University. My question is to Hiroshan. Recently, it seems that China is winning against Japan in what appears to be a great power mercantilist game. The best example is the high-speed train bidding in Jakarta Bandung in Indonesia. And it seems that China and Japan are heading towards a similar tug-of-war situation in Indian high-speed train market too. Do you see how is Japan responding to this type of mercantilist game which China is engaged in? Is there a strategy? Could you spell out more on that? Thank you. Thank you. Okay, so there's a lot to respond to. Okay, thank you very much. Take your pick. Yeah, responding to AIIB's, you know, progress, Mr. Abe announced a new additional economic assistance program for Asian countries. And I think Japan is very serious in helping connect Asian countries with each other and with the rest of the world. And in particular, in the Mekong region, the east-west connectivity is a big interest for Japan. Of course, you know, north-south is done by China. So east-west, connecting Vietnam with Laos, Cambodia, and Thailand, and then eventually Myanmar, and hopefully India, you know. So I think connectivity is extremely important and Japan is free, free aware of that. Now this high-speed train issue in Indonesia, China was able to provide funding without sovereign guarantee and Japan required sovereign guarantee and that was apparently the reason for taking China's proposal. And also, China has a tremendous price competitiveness with Japan for infrastructure projects. So what Japan is going to have to do would be to focus on the quality of infrastructure. So price competitiveness is something that Japan cannot really embark on. It's not possible. So I think Japan needs to focus on safety, reliability, durability, and so forth so that ultimately total calculation would say Japan's deal is better than China's deal. So that sort of long-term perspective may be needed, but politicians have short-term views. So politicians want to have infrastructure ready within their terms. So I think developing a country, recipient countries, they have to have a longer-term view. And you know, maintenance. Maintenance is a very important spending. Without maintenance, you cannot really maintain good infrastructure. So if you have to spend a lot of money after infrastructure is constructed, then it's not cheap. So that's a kind of competition that Japan would have to really embark on. Any other final comments from our panelists? If not, then we've reached the end of the first session. And before we thank them, I just want to let you know we'll start the second session at 4 o'clock, and that will run us straight to our reception at 5.30 and a chance to network and exchange cards as well. But thank you, gentlemen, for getting us started on this discussion. Thank you very much.