Last Wednesday night, in a ballroom packed with a who’s who of west coast movers and shakers at the Beverly Wilshire Hotel, the Pacific Council on International Policy (PCIP) presented its inaugural Warren Christopher Public Service Award to Hillary Rodham Clinton. Warren Christopher’s family, who helped established the award, filled the table next to the one where I was seated, the Women’s Initiative Table, which is part of the Pacific Council’s effort to encourage women’s participation in foreign policy.

Hillary Clinton speaks at the Pacific Council on International Policy (PCIP) as the inaugural Warren Christopher Public Service Award recipient. Photo/Ken Pagliaro

The award honors the lifetime achievements of Warren Christopher, the longtime chair of the non-partisan Pacific Council’s Board of Directors, who died in 2011. Christopher’s life was devoted to public service, from a young naval officer to secretary of state to a counselor to presidents, and the head of the Christopher Commission in the wake of the Rodney King incident. As deputy secretary of state, he was awarded the Medal of Freedom by President Jimmy Carter in 1981 for his role in negotiating the release of American hostages held in Iran for 444 days. The criteria for the Christopher Award include: commitment to international affairs, to the highest ethical standards, to promotion of the common good, to equality and fairness, and to government service as a noble pursuit.

Hillary Rodham Clinton served as the 67th Secretary of State of the United States from January 2009 until February 2013, after four decades in public service as an advocate, attorney, first lady, and senator. As first lady, Hillary Clinton traveled to more than 80 countries to represent the U.S., including her trip to the United Nations Fourth World Conference on Women in Beijing, in September 1995, where she said, “However different we may be, there is far more that unites us than divides us. We share a common future. And we are here to find common ground so that we may help bring new dignity and respect to women and girls all over the world. There are some who question the reason for this conference. There are some who wonder whether the lives of women and girls matter to economic and political progress around the globe. Let them look at the women gathered here … It is conferences like this that compel governments and people everywhere to listen, look, and face the world’s most pressing problems.”

In 2000, she made history as the first first lady elected to the United States Senate. In 2007 and 2008, Clinton made her historic campaign for president. In her four years as secretary of state, Clinton presided over President Obama’s “pivot to Asia” in his Administration’s foreign policy.  And on Wednesday night she reminded the audience that: “Asia is home to half the world’s population. Future growth,” she said, “and our hopes for a less bloody century, depends on the Asia Pacific. The U.S. is an Asia Pacific power, and our alliances there are strong.” Clinton noted that Christopher “understood, profoundly, the growing importance of Asia,” and credited him with putting the U.S. alliance with Japan “back on firm footing,” bolstering South Korea in the face of provocations from North Korea, and putting the U.S.-China relationship “on a positive trajectory.”

Clinton told the story of how Warren “Chris” Christopher, as secretary of state, was one of the first diplomats to ever make it a priority to attend ASEAN meetings; one of the requirements was that he participate in a skit after the business meetings were adjourned. “Chris” dressed up famously as the Statue of Liberty and sang “Home on the Range.” Clinton said it was a gesture that went a very long way in demonstrating U.S. commitment to ASEAN, and to Asia, more broadly.

Amy Ovalle is The Asia Foundation’s senior director for Global Communications, based in San Francisco. She is also a member of the Pacific Council on International Policy. She can be reached at aovalle@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

Cambodia announced two major bilateral trade agreements last month, with the Philippines and Thailand, that are expected to further expand the country’s rice export sector. Over the last few years, Cambodia has emerged as a major rice exporter in the region, due in large part to the Royal Government of Cambodia’s recent expansion of its agricultural sector.

Despite positive development, compared to neighboring countries with similar weather and soil conditions, Cambodia’s paddy rice yield remains relatively low. Photo/Karl Grobl

Agriculture, led by rice farming, contributes to roughly a third of the country’s GDP and has immense potential for strengthening Cambodia’s economic growth, accelerating poverty reduction, and improving the living standard of its citizens. As part of this agenda, in 2010, the RGC adopted a new Policy Paper on Paddy Production and Rice Export, better known as the Rice Policy, to promote diversification of Cambodia’s economic sectors by catalyzing growth in paddy rice production and milled rice export to match the growth seen in the garment and service sectors. In his keynote address at the policy’s launch, Prime Minister Samdech Hun Sen said: “The policy aims to ensure that we grab the rare opportunity to develop Cambodia in the post global financial and economic cataclysm.”

If Cambodia’s rice export sector were to reach its full potential, it could produce 3 million tons of milled rice, with the total export value amounting to $2.1 billion (approximately 20% of the GDP) and an estimated additional $600 million (approximately 5% of the GDP) to the national economy. It would also boost employment and income for agricultural farmers who make up more than 70 percent of the population living in rural areas.

Despite positive development, compared to neighboring countries with similar weather and soil conditions, Cambodia’s paddy rice yield remains relatively low. In 2006, the average yield was 2.6 tons per hectare, while Thailand, Laos, and Vietnam achieved 2.8 tons, 3.5 tons, and 4.9 tons, respectively.

The underutilization and non-usage of arable land is a huge deterrent to the industry’s growth. Most Cambodian farmers cultivate paddy rice once per year during the rainy season, while farmers in Vietnam’s delta region cultivate 3.5 times annually. Such low productivity is mainly a result of high energy prices and poor transportation infrastructure. For example, in the low elevation Mekong plain, petroleum products are generally used to pump water into irrigation canals, which makes it too expensive for farmers to plant multiple crops a year. Moreover, rural areas pay a much higher rate (30-90 cents per kWh) than those living in urban centers (20 cents). In contrast, farmers in Vietnam only pay about 10 cents per kWh.

As a relatively new player in the milled rice market, Cambodia faces a steep learning curve. However, with a surplus of 3.5 million tons of paddy rice, Cambodia has the potential to soon be among the top five milled rice exporters in the world. Photo/Karl Grobl

Poor transport and infrastructure such as roads, railways, warehouses, and handling equipment also increase costs for farmers. To transport one ton of rice on a 100 km road, Cambodian farmers must spend $15, while their counterparts in Thailand and Vietnam pay $4 and $7.50, respectively. The lack of handling equipment in one of the main ports, the Sihanouk-Ville Port, is also a major constraint for the export of large quantities of milled rice. In addition, lack of access to and high cost of credit decreases domestic economic value-added and hinders milled rice export, presenting an obstacle for rice millers to stockpile paddy rice.

According to the Rice Policy, If Cambodia is to export 3 to 4 million tons of milled rice per year, it has to produce at least 10 to 11 million tons of paddy rice. In fact, in 2012, Cambodia enjoyed a surplus of more than 4.7 million in paddies, according to the Ministry of Agriculture Forestry and Fishery. Yet, official figures from the Ministry of Commerce showed that it only exported 200,000 tons of milled rice last year, or only 10 percent of its full capacity.

To better understand the bottlenecks in the rice sector, The Asia Foundation, in partnership with the AusAID-funded program, “Cambodia Agricultural Value Chain” (CAVAC), hosted a series of consultative forums last year in three provinces – Kampong Thom, Kampot, and Takeo – with stakeholders from the private sector (farmers, seed producers, agro-business owners, exporters) and the public sector (Ministries of Agriculture, Commerce, and Water Resources Management, provincial governors, provincial departments of line ministries, and local authorities). Approximately 370 participants attended the workshops and discussed how to create business-friendly environments (i.e., competitiveness and productivity, access to finance, access to markets), and the technical aspects of rice production (use of fertilizers and insecticides, seed categories, and availability of water sources). The insights were frank and eye-opening.

Although the challenges are significant, the opportunities for the sector are greater. Dr. Hang Chuon Naron, Secretary of State for the Ministry of Economy and Finance, optimistically predicted that the RGC can achieve its target for milled rice: “With regards to RGC’s rice export target in 2015, we may achieve up to 80 percent of the 1 million tons planned. This should include the milled rice to Vietnamese, Thai, and non-EU markets.”

Implementing a strategic framework like the Rice Policy is just the beginning. To increase the paddy rice production to meet market demand and promote the export of milled rice, the government must initiate and support a host of reforms in partnership with the private sector. For instance, to solve the issue of credit shortages for buying and processing paddy rice, the government can provide incentives to commercial banks to increase the loan portfolio for agriculture.

At the end of the day, the RGC must keep the farmers themselves in mind. Introducing new technologies or improving agricultural practices can only go so far if they are not accepted and adopted by farmers. Donors and NGOs can play a pivotal role in providing support and facilitating the successful implementation of new policies and projects aimed at improving the agricultural value chain.

As a relatively new player in the milled rice market, Cambodia faces a steep learning curve. However, with a surplus of 3.5 million tons of paddy rice (equivalent to 2 million tons of milled rice), Cambodia has the potential to soon be among the top five milled rice exporters in the world. More importantly, growth in the agricultural sector will translate into more economic opportunities for Cambodia’s vast rural population. While not a silver bullet, the success of the rice sector is an exciting and potentially crucial driver in Cambodia’s prosperous and equitable development.

Khut Inserey is The Asia Foundation’s senior program officer in Cambodia. He can be reached at ikhut@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

Yesterday marked the 18th World Book and Copyright Day, first introduced by UNESCO in 1995, in celebration of books, authors, and the joys of reading. It’s also an occasion to reflect on the importance of education, especially as a driver of poverty reduction. The link between education and economic empowerment is undeniable; accordingly, governments, civil society, and the international donor community have made notable efforts to increase school enrollment and improve literacy rates around the world.

While literacy rates have improved vastly over the past decade in Cambodia, improvements in functional literacy are more uncertain. Photo/Karl Grobl

Despite advancements, an estimated 250 million children are still unable to read and write, and in some developing countries, 25-50 percent of students who have graduated from primary school cannot read a single sentence, according to the World Bank.

Unfortunately, Cambodia is no exception. While literacy rates have improved vastly over the past decade – according to the 2008 National Population Census, currently at about 78 percent among those aged 15 years or older – improvements in functional literacy (the ability to read, write, and calculate beyond basic skills) are more uncertain. In 1999, functional literacy was just 37 percent, in comparison to the basic literacy rate of 68 percent. Unsurprisingly, a third of Cambodians live below the national poverty line, which is 61 cents. Moreover, Cambodia’s improvement in literacy has not necessarily been equitable, with girls, the rural poor, and minorities still facing the most significant challenges.

The Royal Government of Cambodia (RGC) has been committed to expanding educational opportunities and is party to several international initiatives, including the Millennium Development Goals and UNESCO’s Education for All. Nationally, the Ministry of Education, Youth, and Sport (MoEYS), as part of its Education Strategic Plan 2009-2013, has prioritized expanding early childhood education, non-formal education, technical and vocational training, and access to secondary and post-secondary education. To address disparities in literacy rates, MoEYS has designed and implemented inclusive policies such as bilingual education in provinces like Rattanakiri and Mondulkiri with a large minority population, scholarships for girls and students representing other vulnerable groups, and non-formal education opportunities for youth and adults that are not integrated into the public school system.

While these initiatives have had positive impact, Cambodia’s education system still faces numerous hurdles, including issues related to governance and quality of services at subnational levels. Cambodia also faces growing demand for a labor force fluent in English. In 2008, only 5 percent of the population had working knowledge of the English language. Inadequate resources, such as textbooks and facilities, contribute to the problem. With the formation of the ASEAN Economic Community in 2015, which will establish a free trade zone among ASEAN member countries, English-language proficiency will be even more critical for Cambodia’s growth and development.

The Asia Foundation’s Books for Asia program, in partnership with the RGC and a network of NGOs, has distributed over 900,000 books and other educational materials to Cambodian universities, primary and secondary schools, NGOs, government ministries, and public libraries. Read more about Books for Asia in Cambodia.

Cham Soeun is a program officer for the Books for Asia program and Lisa H. Kim is program officer for The Asia Foundation in Cambodia. They can be reached at scham@asiafound.org and lkim@asiafound.org, respectively. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation.

Last week, the Asian Development Bank released its annual “Asian Development Outlook” report for 2013, with Asia’s success story of unprecedented growth in the last decades forecast to grow by 6.6 percent in 2013 and 6.7 percent in 2014. This remarkable growth is fueled by what seems to be an insatiable and possibly dangerous appetite for energy, the focus of this year’s report.

Energy consumption is indeed helping to power Asia’s economic expansion, and this trend is only growing. Asia consumed 34 percent of the global energy supply in 2010; by 2035, that share will increase to more than half.

Energy consumption is indeed helping to power Asia’s economic expansion, and this trend is only growing. Asia consumed 34 percent of the global energy supply in 2010; by 2035, that share will increase to more than half. However, this does not come without a cost.

Many Asian cities are among the worst cities for air pollution in the world, from Ulaanbaatar to New Delhi to Beijing. In China, the government – which only in recent years has become more candid about the environmental consequences exacted by its growth strategy – released statistics from its own Ministry of Environmental Protection which estimated that the cost of environmental degradation to the country was $230 billion, or 3.5 percent of the nation’s total GDP. This environmental degradation and its impact on climate change is becoming a real threat to Asia’s growth and to its population. Southeast Asia, for example, has been designated by the UN as “highly vulnerable” to the impacts of climate change and natural disaster, as the majority of its population and many of its major cities are located in low-lying coastal areas. According to the ADB, continuing “business as usual” emissions increases are expected to trigger a loss of 6.7 percent combined GDP by 2100 in ASEAN countries. In this context, Asian economies will have to manage energy access, both among countries in the region and between the rich and the poor. Without effective management, rising disparities may lead to wider development gaps and exacerbate social and political tensions in the region.

Regional cooperation may hold the key to addressing Asia’s energy challenge, as it already has on the economic front. Asia has clearly benefited from improved intraregional trade and regional economic integration. Intraregional trade and trade with China now accounts for more than 37 percent of ASEAN’s total trade, up from 26 percent in 2000. Moreover, ASEAN is moving forward on its plans for an integrated ASEAN Economic Community (AEC) by 2015, which will create a single market and production base that will enable member economies to benefit from improved efficiencies in their value chains and economies of scale. Such reforms have helped contribute to strong economic performances by ASEAN member economies in 2012 and strong projections for the near future. Although South Asia is less integrated than Southeast Asia, significant headway has also been made toward improved intraregional economic cooperation in the region. For example, earlier this year, Pakistan granted Most Favored Nation (MFN) status to India, a major breakthrough for trade relations between these two countries. Regional integration has been credited as a key factor in insulating the sub-region, and Asia overall, from the effects of the global slowdown or stagnation experienced in EU and the U.S.

Similarly, efforts to foster regional cooperation on the energy front may lead to major payoffs for meeting Asia’s energy challenge. Currently, cross-border energy markets and infrastructure connectivity have been neglected on the regional arena. As the ADB report states, “The lack of cooperation is all the more glaring as jointly promoting energy savings and energy security would not require new technology or pose the high cost and financial risk developing it might entail. … What is missing is political commitment in Asian countries to cooperate in energy markets and build the necessary infrastructure.” Examples of areas ripe for regional cooperation include cross-border coordination on the mode of electricity transmission for maximum efficiency, political consensus on the sharing of hydroelectric power, transportation connectivity, development of interconnected natural gas systems, and co-investment on renewable energies.

All of these projects will require strong political will at the national and regional levels. There are technical as well as policy challenges to overcome in order for an integrated Asian energy market to emerge. As the environmental and health costs to rapid economic growth become too large to ignore, regional cooperation will no longer be optional for political and economic actors. The private sector will also have a prominent role to play in the delivery of sustainable development solutions for the region. Ultimately, the objective for Asian development must underscore coordinated and responsible approaches, with nations working together to bring about sustainable prosperity for all.

Véronique Salze-Lozac’h is The Asia Foundation’s director for Economic Development Programs based in Bangkok, Nina Merchant-Vega is associate director, and Katherine Loh is a senior program officer. Salze-Lozac’h can be reached at VSalze-Lozach@asiafound.org. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation.

Today, March 20, marks the 180th anniversary of the Treaty of Amity and Commerce, making the U.S. bilateral relationship with Thailand the longest uninterrupted diplomatic relationship between the U.S. and any Asian nation. The Thai-American Chamber of Commerce’s theme for 2013 commemorating 180 years of relations is “Two Nations, One Friendship.”

U.S.-Thai relations have been characterized as being “special,” especially during the Cold War, when Thailand was viewed as a front-line state in the war against communism. But with the end of the Cold War, followed by a peaceful settlement of the Cambodian conflict, major power security issues do not have the same salience they once did. Whereas Thailand once feared a possible attack by China and subversion by its ethnic Chinese population, today China is Thailand’s largest trading partner and cultural ties have improved and enhanced considerably.

These developments have altered U.S.-Thailand relations, not necessarily for the worse, but in ways that are challenging nonetheless. Southeast Asia is a much more peaceful, prosperous, and stable region than it was during the Cold War and Thailand has played an important role in this. For decades, Thailand and the U.S. have worked closely together to mitigate illicit drug trafficking, human trafficking, and other criminal activity. Thailand has cooperated with the U.S. in combating terrorism by sharing information on the movement of terrorist organizations. For the past 30 years, Thai and U.S. military forces have held the joint military exercise “Cobra Gold,” which has expanded to become the largest multinational exercise of its kind in the world.

Economic linkages remain robust, with bilateral trade amounting to more than $37 billion in 2012. The U.S. is also one of Thailand’s largest investors, with over 700 companies investing over $40 billion combined. U.S. exports to Thailand include aircraft, agricultural equipment, machinery, chemicals, and medical products. Thailand’s exports to the U.S. include machinery, rubber, shrimp and tuna, agricultural products, and jewelry. Since 2007, Ford has been the largest automotive investor in Thailand, propelling the country to a place among the world’s top 10 auto manufacturers.

But despite these examples of cooperation between the U.S. and Thailand, the relationship seems to be languishing in certain respects, falling short of its potential. Many Thais believe the U.S. takes their country for granted, with Thailand viewed as largely reacting to or responding to U.S. requests – whether allowing U.S. jets traveling across the Pacific to refuel at U-Tapao Air base on the way to Afghanistan or the Middle East, signing the Proliferation Security Initiative, or considering U.S. urging on how to vote on particular issues at the UN, among other issues. Conversely, some argue that Thailand relies too heavily on the historical legacy of the relationship with the U.S., which includes offering elephants as beasts of burden to the U.S. in 1860; sending military personnel to almost every war the U.S. has engaged in from World War I to the present; not declaring war against the U.S. after Thailand was invaded by Japan; and having the world’s only monarch, King Bhumibol Adulyadej, ever born on American soil. Interestingly, all Thai school children know these facts, whereas most Americans are oblivious.

So while the structure of the relationship seems solid, something appears to be missing. Is it the lack of a common enemy as existed during the Cold War?  Is it the asymmetry of the relationship? These questions come at a time when the U.S. is paying greater attention to Asia, particularly Southeast Asia, and wants to rely more on regional institutions, such as ASEAN, to constructively address global problems, including disaster relief and humanitarian assistance, climate change, maritime security, and counter-terrorism. The U.S. would like to see Thailand do more to address regional and global security challenges, but domestic politics in Bangkok since 2006 has distracted Thailand from playing a greater role in regional affairs.

After 180 years, the U.S. and Thailand share a deep historical legacy and the friendship endures. However, while it is important to bear history in mind, a shared historical legacy is not enough. No matter how asymmetrical the relationship might be, it should not be taken for granted. Whether U.S.-Thai relations are “special” in the 21st century can be debated by policymakers and academics in both nations. At a minimum, the relationship should remain “important” in helping to ensure peace, stability, and economic prosperity in Southeast Asia and the Asia-Pacific, more broadly. But this will require that both nations develop a set of strategic objectives that can be pursued in the future. There is an opportunity this anniversary year to discuss what these strategic objectives might be in the effort to make U.S.-Thai relations more germane in a 21st-century world.

John J. Brandon is director of Regional Cooperation Programs for The Asia Foundation in Washington, D.C. He can be reached at jbrandon@asiafound-dc.org. The views and opinions expressed here are those of the individual author and not necessarily those of The Asia Foundation.

From January 1 of this year, Thailand’s employers must pay all employees at least 300 baht (about $10) a day. If they don’t, they will face six months in jail and/or a 100,000 baht fine for not complying. The 300-baht minimum daily wage policy, the fulfillment of a 2011 election campaign pledge by the ruling Pheu Thai Party, has been piloted in seven provinces since May 1, 2012 (including Bangkok), with much debate and division among employers, labor unions, government ministries, and academics about the actual and perceived impact of the policy on the economy, productivity, small- and medium-sized enterprises (SMEs), and inequality.

Workers finish their shift at a factory outside of Bangkok. Starting January 1, all businesses must pay all employees a minimum daily wage of 300 baht, or face fines. Photo/Karl Grobl

For employees, the government, and labor unions, the hope is that in a time of economic growth (5% predicted for 2013) and low unemployment (0.6% at the end of 2012), increased income for workers will boost consumption and force productivity gains and innovation. This will then drive a more balanced, modernized, and competitive economy and help Thailand avoid the much-dreaded middle-income trap. Indeed, one of the commonly stated goals of the new minimum wage is that it will push Thai workers to raise their own skill levels in preparation for increased labor competition with the opening of the ASEAN Economic Community (AEC) in 2015. Advocates of the policy also anticipate that the modernization of Thai businesses and increases in productivity will lead to a reduction in the level of geographical disparity in Thailand, with fewer workers forced to move to Bangkok for higher wages.

There are fears on the part of some employers that increased labor costs (the new minimum wage applies to every employee in Thailand, regardless of age, sex, industry, or nationality) will affect already struggling SMEs and could lead to employee layoffs or even force some SMEs out of business. This could, in turn, negatively impact employment, increase unskilled workers’ vulnerability, raise the cost of living, and worsen poverty in the country. Many employers fear that Thailand’s international and regional competitiveness will be negatively affected by increased labor costs, which could trigger Thai businesses to employ greater numbers of informal labor. Migrant workers from Thailand’s neighbors, particularly Cambodia, where the daily minimum wage is $2.03 and Burma (also known as Myanmar) where the daily minimum wage is 58 cents, are expected to come in even greater numbers, attracted by higher wages. In fact, some Cambodian factory owners are complaining that they are now facing a labor shortage as locals move to Thailand for better wages.

Migrant workers from Thailand’s neighbors, particularly Cambodia and Burma, where daily minimum wages are lower, are expected to come to Thailand in even greater numbers, attracted by higher wages. Photo/Karl Grobl

The National Economic and Social Development Board estimates that the new policy raises Thailand’s average wage by 22.4 percent, and in certain provinces, such as Tak, Surin, and Phayao, represents a nearly 70 percent increase. The wage hike is expected to hit SMEs in labor-intensive industries – agriculture, tourism, and manufacturing – the hardest, and many academics and business association groups argue that the increase to 300 baht happened too fast and did not allow time for businesses to prepare. Of the 7,063 jobs that were lost due to company closures between April 1 and December 25 of last year, five companies (that together account for 1,762 of these jobs) cited impact from the minimum wage policy as the reason for folding. On the other hand, the permanent secretary of Thailand’s Ministry of Labor stated that workers’ productivity increased by 12 percent last year due to the policy, compared to an estimated average growth of 2-3 percent without the policy.

The reality is that the impact of this “policy-driven” raise in labor cost is likely to affect industries and businesses differently depending on their labor-intensity, profitability, and margin for increased productivity. This impact disparity is already being felt on the ground. One owner of an SME printing business in the town of Mae Klong in Samut Songkram province explained that the minimum wage increase will not impact his business because he says he can save costs elsewhere in his operations and is willing to pay a higher wage to keep his skilled workers. He is, however, concerned for SMEs that do not need skilled workers, like fisheries. For them, he said, the new minimum wage for an unskilled worker is just too expensive. But, according to this businessman, the government and businesses are focusing on the wrong problems by worrying so much about the minimum wage. For him, the costs of inputs for his printing business, like paper, ink, and gasoline, which are more expensive and harder to get for provincial SMEs, is what is making his business vulnerable, not the change in wages. He added that the issue of expenses related to logistics, such as the cost of gasoline and quality of infrastructure for moving goods, is what the government should pay more attention to if it wants to help Thai entrepreneurs.

Arguing that many SMEs cannot support the costs of the new minimum wage, private sector bodies such as the Federation of Thai Industries, the Chamber of Commerce and the Thai Bankers’ Association have called for the government to set up a compensation fund for Thai businesses (particularly for SMEs) to alleviate the impact of the wage hike. The government has rejected that idea, but is already implementing a number of support measures, including:

• Reducing employers’ contributions to the Social Security Fund from 5 to 4 percent
• Cutting fees paid by small- and medium-sized hotels by 50 percent
• Establishing skills training clinics and increasing the state budget for seminars
• Reducing the withholding tax for SMEs from 3 to 2 percent
• Reducing corporate income tax from 30 to 20 percent by 2013

These measures are a good start, but don’t alleviate the need for a more global economic policy required to really move the Thai economy to the next level. Both private and public investments are needed in key areas such as education and training, infrastructure and energy, and research and development. The role of the government in shaping a global business environment that will be more supportive of SMEs, and in preparing the Thai economy for the upcoming regional integration into the AEC, is what can make the wage policy beneficial or harmful to the Thai economy and define the role Thailand is ready to assume in the region for the coming years.

Sarah Alexander is a program fellow for the Economic Development Programs, Véronique Salze-Lozac’h is the Foundation’s director for Economic Development Programs, and Arpaporn Winijkulchai is a program officer, all based in Bangkok. They can be reached at salexander@asiafound.org, vsalze-lozach@asiafound.org, and arpaporn@asiafound.org, respectively. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation.

For Southeast Asia, 2012 brought both challenges and opportunities to the region – from Cambodia’s chairmanship of ASEAN and further political opening in Burma (also known as Myanmar) to tensions in the South China Sea and the adoption of the ASEAN Declaration of Human Rights (ADHR). But, despite these ups and downs, U.S.-Southeast Asia relations continued to expand and deepen last year.

On his first trip overseas after being reelected, President Obama visited Southeast Asia, where he made history as the first sitting U.S. president to have ever visited Burma and Cambodia. Commemorating 180 years of uninterrupted diplomatic ties, he also visited Thailand. President Obama’s visit to Southeast Asia underscored his commitment to the U.S. strategic “rebalancing” to the Asia-Pacific. The dynamic of this “rebalance” is to downsize the U.S. presence in the Middle East and Afghanistan, and to invest more and pay greater attention to the Asia-Pacific, particularly Southeast Asia. However, given recent violent extremism in Mali and the international hostage crisis ending in bloodshed in Algeria, coupled with the U.S. budgetary constraints and its impact on defense, accomplishing this rebalancing may become a more difficult challenge.

One criticism of the rebalance is that it heavily emphasizes the security aspect of the relationship while not paying greater attention on expanding U.S. trade and investment with the region. With tensions on the rise in the South China Sea, the U.S. has enhanced its military ties with the Philippines and Vietnam. While the U.S. says it does not take sides in maritime territorial disputes, outgoing Secretary of State Hillary Clinton has said that the U.S. has a “national interest” in the freedom of navigation across the western Pacific, including the South China Sea. U.S. officials continue to emphasize to ASEAN nations that the best way to resolve territorial disputes is to develop a formal Code of Conduct in the South China Sea. This has created fears among some in the region that the U.S. may be pursuing a “containment” strategy toward China.

Burma has made remarkable gains over the past year toward greater political liberalization: almost 2,000 political prisoners have been released, peaceful demonstrations have been allowed, and press censorship has been abolished. In addition, ceasefires with most minority groups have commenced and economic sanctions have been suspended, but not lifted, as challenges persist; most notably current fighting between Myanmar’s army and Kachin rebels as well as sectarian clashes in Rakhine state that have left 180 people dead and more than 110,000 displaced since June. National reconciliation is the most critical challenge if Burma is to achieve long-term stability and genuine democratization. Meanwhile, in the Southern Philippines, the signing of the Framework Agreement on Bangsamoro between the government of the Philippines and the Moro Islamic Liberation Front (MILF) looks to cease hostilities where 150,000 people have been killed over the past 40 years.

One of the outcomes around the East Asia Summit held in Phnom Penh in November was the adoption of the ADHR by the 10-member states. While ASEAN hailed it as a “landmark development,” civil society and human rights organizations in the region and globally expressed disappointment that some of the principles and articles in the declaration could erode universal human rights and fundamental freedoms. NGOs particularly objected to the provision that rights could be restricted on the grounds of “national security” and that such rights must be “balanced” subject to “national and regional contexts and different cultural, religious, and historical backgrounds.”  As the ADHR is a declaration, and not a convention, the document is not legally binding. Like many ASEAN declarations, the ADHR seems to be more about aspirations rather than commitments. Taken in this context, it could be viewed as a first step toward greater protection of human rights in the region rather than an end in itself.

To counter criticism that the U.S. was over-emphasizing security in rebalancing its policy in the region, the U.S. announced in Phnom Penh the U.S.-ASEAN Expanded Economic Engagement Initiative (E3 Initiative), designed to expand trade and investment ties and business opportunities among all 11 countries. The E3 Initiative will lay the groundwork for ASEAN countries to adhere to the high standards found in the Trans-Pacific Partnership (TPP), which the U.S. is negotiating with four ASEAN states (Brunei, Singapore, Vietnam, and Malaysia). ASEAN is the U.S.’s fourth-largest export market and fifth-largest trading partner. The TPP is the U.S.’s effort to keep pace with the Regional Comprehensive Economic Partnership that includes all 10 members of ASEAN and other countries in the region, including China and India. The U.S. is also trying to increase its “soft power” through scholar exchanges such as the new U.S.-ASEAN Fulbright Initiative and increasing its foreign assistance by 17 percent to Southeast Asia, with much of this assistance going to Burma.

Despite foreign policy challenges in the Middle East, western Africa, Afghanistan, and elsewhere, the U.S. will continue to sustain and expand its relations with Southeast Asia, particularly through ASEAN. But ASEAN’s centrality is being challenged, in part because the grouping’s practice of making decisions on the basis of consensus among the member states is seen as limiting its effectiveness. Both China and the U.S. have significant interests in Southeast Asia. ASEAN nations value its economic relations with both countries and none want to see any extra-regional power become dominant, and thus do not want to be put into the position of having to choose between China and the U.S. For this not to happen, a more stable U.S.-China relationship will be required.

John J. Brandon is director of Regional Cooperation Programs for The Asia Foundation in Washington, D.C. He can be reached at jbrandon@asiafound-dc.org. The views and opinions expressed here are those of the individual author and not necessarily those of The Asia Foundation.

Over the last several decades, Asia has become increasingly integrated with the rest of the world, its rapid development driven largely by exports to the United States and European Union. Yet, as the world’s main economic arteries shift eastward, intra-regional integration within Asia still lags behind. The recent global financial crisis and economic fall-out is quickly changing that dynamic, however. Indeed, as strong, stable economic growth in the West, particularly in the U.S. and EU, remains elusive, regional markets are becoming more attractive among Asian countries, highlighting the importance for enhanced integration. Despite challenges, this trend toward regional integration should continue in 2013.

Compared to strides made among Southeast Asian countries to increase intra-regional trade, progress in South Asia through SAARC remains relatively slow. Photo/Conor Ashleigh

Currently, over half of world trade takes place between members of regional trade agreements, and Asia is no exception. However, in Asia, as in other parts of the world, regional integration is uneven. While Southeast Asia is shoring up its economic integration efforts through the Association of Southeast Asian Nations  (ASEAN) Economic Community Blueprint for 2015, with plans to continue attracting foreign direct investment, capitalize on the growth of its neighbors (mainly China and India), and accelerate the pace of its trade facilitation measures through a single market strategy, South Asia remains weakly integrated through the South Asian Association for Regional Cooperation (SAARC) both economically and politically.

Regionalism, not Protectionism, Can Help Mitigate Global Uncertainty

In fact, Asia has reason for optimism about the capacity of regional trade to compensate for weak markets in the U.S. and the EU and to reduce vulnerability to external shocks. In 2012, opinion leaders in Southeast Asia said that they were most positive about the ASEAN Economic Community compared to all other regional trade agreements in Asia. Indeed, while East Asian economic cooperation has mostly been driven by market forces, Southeast Asia has taken significant strides in formalizing its region as a single market and production base through ASEAN. Intra-regional trade and trade with China now accounts for more than 37 percent of ASEAN’s total trade, up from 26 percent in 2000. At the same time, trade with the U.S. has fallen from 20 percent in 2000 to 10 percent in 2011, and trade with the EU from 15 percent to 11 percent in the same period.

On the other hand, progress on SAARC’s goal of a South Asian Economic Union by 2020 remains relatively slow. Though intra-regional trade in South Asia recently surpassed $2 billion following the full implementation of the South Asia Free Trade Agreement, it represents only 5 percent of the region’s total trade volume, compared to ASEAN’s 22 percent and the EU’s 55 percent. However, South Asia has made strides integrating with the rest of Asia. For example, while only 1.3 percent of South Asia’s parts and components are traded within the sub-region, 56.3 percent go to East Asia. This represents the enormous potential that exists for South Asia’s future trade among its own region.

Such economic integration in the region is becoming increasingly important to help stave off and overcome global economic shocks. Prior to the last-minute resolution that saved the U.S. from falling off the “fiscal cliff,” the UN Social Commission on Asia and the Pacific warned that if the U.S. were to fall, it would have dire consequences for Asia, decreasing growth by as much as 2.2 percent. To reduce their dependency on developed countries’ economies, Asian countries need to diversify their export markets and take advantage of the efficiencies and growing demand that regional trade offers.

Avoiding the Middle Income Trap

While trade is an important part of regional economic integration, it remains only one piece of the puzzle. To avoid the dreaded “middle-income trap” (where countries attain a certain level of income but remain stuck there), Asian nations must prioritize other aspects of regional integration, including:

• Investment in infrastructure. Infrastructure development is essential to Asia’s economic and political development. In order to address this issue, ASEAN has recently set up the ASEAN Infrastructure Fund, financed by member nations as well as the Asian Development Bank and private equity, to mobilize resources for critical infrastructure development.

• Increased cooperation in education and skill development. A recent publication by the Asian Development Bank stated that “a deeper level of economic integration, which is required for sustainable development, calls for regional cooperation in skills development.” Such cooperation could take the form of regional and sub-regional “technical and vocational education and training” (TVET) strategies, such as creating regional and national qualifying frameworks and encouraging national commitments to invest in critical areas like high-skilled manufacturing.

• Cooperation in technological innovation and research. ASEAN member nations have taken steps toward such cooperation through the Krabi Initiative, which encourages collaboration across the region on a host of issues, from green technology and food security, to exploiting new technologies such as digital media and social networking for development and innovation.

Addressing Socioeconomic and Environmental Challenges

Regional cooperation in Asia should not be considered solely as a means to accelerate economic growth, but also as an effective way to address broader socioeconomic and environmental issues facing the region. It will, for instance, play a key role in women’s economic empowerment in the region. Women business owners and managers in Asia often do not have the same access to business opportunities as men. However, through groups such as the ASEAN Committee on Women, the South Asia Women’s Entrepreneurship Symposium (SAWES), they are able to form regional networks that provide a platform for them to access information and contacts essential to running a business and advocate for change in areas that are stifling their potential. (Read about The Asia Foundation’s support for these networks.)

Regional cooperation will also be integral to managing the impact of environmental issues, such as water scarcity, energy production and distribution, urbanization, climate change, and disaster recovery and management. Establishing and implementing fair and practical water-sharing and conservation arrangements is critical, with river systems like the Mekong, Indus, and Ganges all crossing national borders and essential to local livelihoods. Over the last couple of years, the Asia-Pacific has experienced 70 percent of the world’s natural disasters. This has led to a stronger push toward regional forums and programs to prepare for and manage disasters through information-sharing, as well as collaborative disaster-management planning efforts. Data management and sharing and the use of innovative ICT tools to provide more timely and accurate predictions, communications, and responses are also being explored regionally to minimize the impact of such disasters.

While greater intra-regional trade and investment represent a logical “next door” opportunity for Asian economies, this shift doesn’t come without challenges. To lessen reliance on shrinking U.S. and EU markets, Asia will need to modify the structure of its regional trade from a focus on raw materials or semi-finished products to those higher up the value chain. Another challenge will be to ensure that smaller, poorer Asian countries also benefit from increased regional interaction. Finally, intra-regionalism can only be successful if the regional entities nurture their links and cooperation with other regions.

But, the most important challenge of all remains making regional cooperation work for the people of Asia. The political will and institutional commitments to regional integration relies on the capacity and interest of individuals, civil society, and businesses to take the lead and give life to the concept.

Véronique Salze-Lozac’h is The Asia Foundation’s director for Economic Development Programs based in Bangkok, Nina Merchant-Vega is associate director, Katherine Loh is a senior program officer, and Sarah Alexander is a program fellow for the Economic Development Programs. Salze-Lozac’h can be reached at VSalze-Lozach@asiafound.org.

When President Obama made his first post-election international trip last month to Southeast Asia, his message was clear: as Asia becomes the driver of global politics in the coming decades, the U.S. is strategically reorienting its presence in the region. But the U.S. is not the only one that recognizes a need for reorientation – Asia itself does too.

In November, 16 Asia-Pacific nations – the 10 ASEAN nations and their six major regional trading partners, Australia, China, India, Japan, New Zealand, and South Korea – announced that they would begin negotiations on a sweeping new trade pact, the Regional Comprehensive Economic Partnership. According to the Center for Strategic and International Studies, this grouping “includes more than 3 billion people, has a combined GDP of about $17 trillion, and accounts for about 40 percent of world trade.” While the scope of this regional initiative is impressive, it need not be viewed as rivalrous to the Trans-Pacific Partnership initiative that the Obama administration launched last year (which would include the U.S. but exclude China). Rather, this model of regional interaction augurs a future in which the Asia Pacific can, will, and must continue looking to itself as an important source for trade and investment partners, strategic geopolitical allies, and the goods, services, and innovations that benefit its workers and businesses.

For this model to succeed, however, Asia must look to its neighbors not as competition for scarce resources, but as partners in the mutual resolution of serious social, economic, political, environmental, and human rights issues crisscrossing its borders. An integrated Asia will require harmonized laws that protect migrant worker safety and stop human trafficking, while encouraging the flow of high-skilled workers. It will require a combination of science and research policies that encourage innovation and technology transfer with courts that protect intellectual property rights. It demands education policies that tap bright young Asian minds and enhance cross-fertilization through educational exchanges. It will call for the nurturing of a cadre of professionals in the private and public sectors to address the causes and consequences of climate change and environmental degradation, including disaster response and crisis management. It will hinge upon the strengthening of public health institutions to address major public health events that disregard borders, like SARS and Avian influenza. And of course, it will require strong Asian financial institutions and banking and regulatory policies that encourage investment and stable economic growth, while mitigating risks to investors, producers, and ultimately, consumers.

What all these issues have in common is the need for laws, policies, institutions, individuals, and leaders to guide nations and the region. Yet in many parts of Asia, laws meant to protect may not yet exist, or if they do, are poorly enforced; policies meant to foster or enable may remain tabled or unimplemented; institutions meant to govern may lack strength; and citizens meant to speak up may not have a voice. What is needed in this already complex, multilayered, and interdependent region are institutions of good governance that can propel and sustain Asia’s path to prosperity.

As Asia prepares for greater economic and political integration, empowering citizens – whether parents, teachers, farmers, businessmen, or consumers – with the tools, information, skills, and space to make informed decisions will be critical to ensuring an Asia that is equitable and free of conflict.

Katherine Loh is a senior program officer for The Asia Foundation’s Economic Development Programs. She can be reached at kloh@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

This month, the Association of Southeast Asian Nations (ASEAN) was at the center of a flurry of diplomatic activity as members gathered in the Cambodian capital of Phnom Penh for the annual summit meeting, as well as a series of high-level “ASEAN plus” meetings with Dialogue Partners including China and the United States. Economics was covered in several news reports, but it was a security story that stole the headlines.

The growing economic significance of Southeast Asia has led global powers to also pay more attention to the political and security issues of the region. Photo/Ted Alcorn

On the economic and trade front, different groupings with overlapping memberships launched initiatives and held discussions on the sidelines of the main meetings. ASEAN and its Free Trade Area Partners (Australia, China, India, Japan, South Korea, and New Zealand) launched a Regional Comprehensive Economic Partnership (RCEP). Parties to the Trans-Pacific Partnership (Australia, Brunei, Malaysia, New Zealand, Singapore, the United States, and Vietnam) met and agreed to try to conclude talks by 2013.

In recognition of ASEAN’s growing role in the world economy, the United States also launched the U.S.-ASEAN Expanded Economic Engagement (E3) initiative and the 2013 ASEAN-U.S. Trade and Investment Framework Arrangement (TIFA) Work Plan. According to the U.S.-ASEAN Business Council, the ASEAN region is now the 5th largest market for U.S. exports.

U.S.-ASEAN diplomatic relations also received a boost when both sides agreed to institutionalize the meeting at the Summit level, ensuring that future participation at the annual talks would be kept at the level of the U.S. president and ASEAN heads of government.

ASEAN leaders even signed a landmark Declaration on Human Rights. While detractors may have sniffed at the lack of bite in the declaration, other long-term analysts of the region marveled at how far the association – usually known for its hard-nosed focus on economics and aversion of potentially troublesome issues – had come.

But the territorial rows over the South China Sea between China and some ASEAN member countries again made waves at the November ASEAN gathering. Earlier this year in July, the unity of the regional group had already taken a blow when its Foreign Ministers made controversial history by failing for the first time in ASEAN’s 45-year existence to agree on a Joint Communiqué because of disagreement over the territorial disputes.

At this month’s summit, a draft statement from Cambodia’s chairman included a paragraph stating that ASEAN had arrived at a consensus not to internationalize the issue of the South China Sea territorial claims. This was strongly disputed by some members, including Brunei, the Philippines, and Singapore. Eventually, the paragraph was dropped, and a final version of the statement was agreed and issued, saving the grouping from a repeat of the July fiasco. The boat had been rocked again, but at least it managed to keep everyone on board this time.

Looking ahead, Vietnam’s Deputy Minister for Foreign Affairs Le Luong Minh will succeed Surin Pitsuwan as secretary-general of ASEAN for the next five-year term (2013-2018). Brunei takes over the chairmanship from Cambodia for the year 2013 and Burma (also known as Myanmar) is slated to hold the chairmanship for 2014. It would be the country’s first time chairing the group since it joined ASEAN in 1997. (In 2006, in the face of strong international objections, it had passed up its turn to chair to focus on internal reforms.)

The growing economic significance of the region has led global powers to also pay more attention to the political and security issues of the region. With these external powers now increasingly in the mix, the dynamics among the ASEAN countries have become more complex. Loyalties are pulled in different directions as national interests are weighed against regional interests. With each member of ASEAN making calculations using its own set of scales, there is no doubt that the unity of ASEAN will continue to be tested in the future. But if the 10 members are to realize their imminent goal of an integrated ASEAN Community by Dec. 31, 2015, they cannot afford many more missteps.

Peggy Kek is an adviser for The Asia Foundation in Singapore. She can be reached at pkek@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.