Australia-New Zealand & Southeast Asia relations : an agenda for closer cooperation 9789812302892, 9812302891

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On 30 November 2004, the leaders of the member-countries of the Association of Southeast Asian Nations and those of Australia and New Zealand, bonded together in the Closer Economic Relations, will meet in Vientiane. They are expected to issue a joint declaration committing themselves to the substantial enrichment of the ties between their two regions, which have been expanding and evolving in ways that are of great benefit to their peoples. This study by Michael Richardson and Chin Kin Wah, Research Fellows at the Institute of Southeast Asian Studies, analyses the state of the relationship and its promise and makes well-thought-out recommendations — eighteen in all. It makes very useful reading in anticipation of a historic Summit.

Rodolfo C. Severino Visiting Senior Research Fellow ISEAS Singapore

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are available at < http://bookshop.iseas.edu.sg >

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Reproduced from Australia-New Zealand & Southeast Asia Relations: An Agenda for Closer Cooperation (Singapore: Institute of Southeast Asian Studies, 2004). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at < http://bookshop.iseas.edu.sg >

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the many-faceted problems of stability and security, economic development, and political and social change. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. An Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute’s chief academic and administrative officer.

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First published in Singapore in 2004 by ISEAS Publications Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2004 Institute of Southeast Asian Studies, Singapore ISEAS Library Cataloguing-in-Publication Data Australia-New Zealand & Southeast Asia relations : an agenda for closer cooperation. 1. Asia, Southeastern—Relations—Australia. 2. Australia—Relations—Asia, Southeastern. 3. Asia, Southeastern—Relations—New Zealand. 4. New Zealand—Relations—Asia, Southeastern. I. Institute of Southeast Asian Studies. DS525.9 A81A93 2004 ISBN 981-230-289-1 Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Seng Lee Press Pte Ltd

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CONTENTS

Foreword by K. Kesavapany

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The Authors

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Introduction

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Executive Summary

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Background to an Evolving ASEAN-ANZ Relationship Chin Kin Wah

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Shared Perceptions Michael Richardson

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Recommendations Michael Richardson

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Appendix Participants at the Australia-New Zealand Leadership Forum Inaugural Meeting 2004

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FOREWORD

On the 30th anniversary of the establishment of the ASEANAustralia Economic Cooperation Programme (AAECP), it is timely that a study be made to examine the state of relations between the two groups of countries and to recommend ways to improve them. Australia and New Zealand are old friends of ASEAN, being amongst the first Dialogue Partners and Defence Partners in the security of the region. Although ASEAN and Australia/New Zealand are geographically contiguous, there has not as yet been any extensive, public study which explores the multi-faceted relations between both sides, and offers concrete proposals to help strengthen these relations. With these aims in mind, the Institute of Southeast Asian Studies (ISEAS) has commissioned this report. It is co-authored by Mr Michael Richardson, a veteran journalist with a rich experience and deep knowledge of Asia; and an academic specializing in Southeast Asia, Dr Chin Kin Wah, who is a Senior Fellow and researcher in ISEAS. The report presents an overview of the growing relations between the countries concerned and presents detailed and concrete recommendations for enhanced economic linkages and cooperation in a systematic and thematic manner. This report is timely as it will be issued around the time the leaders of Australia and New Zealand would be meeting their ASEAN counterparts at the ASEAN Summit in Vientiane, Laos on 30 November 2004.

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ISEAS hopes that such a policy oriented report will contribute to a greater understanding of the dynamics of the relations between the two sub-regions. I wish to express our appreciation to Mr Michael Richardson and Dr Chin Kin Wah for undertaking this pioneering study and to all those who contributed towards this enterprise. K KESAVAPANY Director ISEAS

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THE AUTHORS

Although this report was commissioned by the Institute of Southeast Asian Studies (ISEAS), the views expressed in it are those of the respective authors: Chin Kin Wah, a Senior Fellow at ISEAS in Singapore. He is a specialist on regional affairs. Michael Richardson, a Visiting Senior Research Fellow at ISEAS. He is a former Asia Editor of the International Herald Tribune who has also reported on Asia for newspapers in Australia and New Zealand.

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INTRODUCTION

Australasia, encompassing Australia and New Zealand (ANZ), is geographically separate from Southeast Asia. But over the past few decades, the same forces that have driven globalization — faster and easier travel, trade, investment, communications, tourism and other exchanges of people, goods and services — have drawn the two regions much closer together. Their governments and citizens have increasingly become real life neighbours, by talking, visiting, doing business, extending a helping hand to those in difficulty, often squabbling, sometimes bitterly, but gradually learning to live in close proximity. This has happened as Australia and New Zealand have bonded through the Closer Economic Relations (CER) agreement since it was formally signed in 1983. They have reached the point where their economies have become highly integrated. Meanwhile, the Association of Southeast Asian Nations (ASEAN), formed in 1967, has expanded its membership and broadened the scope of its cooperation to include trade and investment liberalization. From having five founding members — Indonesia, Malaysia, the Philippines, Singapore and Thailand — ASEAN has been enlarged to include Brunei and, more recently, Myanmar, Cambodia, Laos and Vietnam. These ten countries have launched the ASEAN Free Trade Area (AFTA).

Study Framework This report is sponsored by the Institute of Southeast Asian Studies (ISEAS) in Singapore. It summarizes the state of relations between ANZ and Southeast Asia, then suggests ways to strengthen them.

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It deals with the interaction between ANZ and ASEAN, and between ANZ and several ASEAN members. The report does not deal with the separate interests of Australia and Southeast Asia, or New Zealand and Southeast Asia, except when they are a formative influence on broader ties. Examples include Australia’s relations with the United States and bilateral counter-terrorism cooperation between Australia and Southeast Asia. But many country-specific interests of Australia and New Zealand in their relations with the ASEAN region, as well as those of Southeast Asian nations with Australia and New Zealand, are not covered in this report. These interests are often pursued at a bilateral level. ISEAS, in cooperation with counterpart organizations in Australia and New Zealand, plans to convene an ASEAN-ANZ Forum in Singapore in mid-2005 which will consider this report and modify or add to its recommendations. The Forum will focus more generally on ways of advancing ANZ-ASEAN relations and set them in the context of wider regional developments, following the meeting of ANZ-Southeast Asia leaders at the ASEAN summit in Vientiane, Laos, in November 2004. Separate workshops on Australia-Southeast Asia relations, and New Zealand-Southeast Asia relations, will be held in Singapore either immediately before or after the Forum. The workshops will be smaller meetings, with about 30–40 nongovernment specialists and government officials in their private capacity from both sides taking part. Their aim will be to develop recommendations not only to strengthen ANZ-ASEAN ties but also to:

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develop the separate-interest relations between Australia and Southeast Asia, and between New Zealand and Southeast Asia; suggest ways in which individual countries can improve their internal conditions and policies for fostering closer regional relations.

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EXECUTIVE SUMMARY

Both Australia and New Zealand have longstanding and wideranging ties with individual member states of ASEAN and the group as a whole. However, • •

there is potential for closer relations across the spectrum, based on consultation, agreement and partnership; the principles of closer ties should be mutual benefit and respect, and shared interests and priorities.

Recent changes of leadership and attitude in Southeast Asia have reopened the door to closer engagement with ANZ. Australia and New Zealand should take this opportunity to further strengthen ties with the region. The government and the opposition in both countries are committed to engagement with Asia, although they differ in some areas on how best to achieve this. Meanwhile, the relations of Australia and New Zealand with Indonesia — by far the biggest member of ASEAN — have improved. But they still need to be carefully managed and given higher priority by Canberra and Wellington as well as by Jakarta. Australia and Indonesia have worked closely together to track down the terrorists responsible for the Bali bombings in October 2002 that killed dozens of Australians and Indonesians as well as several New Zealanders.

Why all sides stand to gain from closer ties 1. A stable and increasingly prosperous and democratic Southeast Asia is very much in the strategic and economic interests of Australia and New Zealand. Southeast Asia has recovered from the Asian financial crisis of 1997–98. Much of the region is now

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growing impressively again and its trade with ANZ is rising sharply. A vibrant, economically integrated Southeast Asia would be a globally attractive marketplace and centre for investment, especially when linked to other parts of Asia by agreements designed to expand trade and investment. 2. ANZ is valuable to Southeast Asia as a market and source of technology, knowledge, expertise, capital and other resources. Australia is the world’s 15th largest economy. ASEAN governments welcome ANZ’s involvement in regional trade, investment and diplomacy, seeing it as part of a balance of interests that promotes constructive engagement by external powers like the United States, Japan, China, India, the European Union and Russia. 3. The governments of Australia and New Zealand consult closely on a wide array of policies of common concern, both domestic and foreign. The economic integration of ANZ through CER has been of great benefit to both nations. There is potential for further synergy by working together to advance shared interests in closer engagement with Southeast Asia. But New Zealand’s economy is less than one sixth of Australia’s. The resources New Zealand can apply to regional relations will inevitably be smaller than those of Australia.

Opportunity The leaders of Australia and New Zealand are being invited, for the first time since 1977, for talks with their Southeast Asian counterparts at the ASEAN Summit in Vientiane, Laos, on 30 November 2004. ASEAN economic and foreign ministers have proposed that the summit reinvigorate ties with Australia and New Zealand, and be a platform for launching negotiations to establish a free trade zone between ANZ and Southeast Asia, through an ASEAN,

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Australia and New Zealand Free Trade Agreement (AANZ FTA). This was welcomed by Australian and New Zealand trade ministers at a meeting with their ASEAN counterparts in Jakarta in September. They recommended to their heads of government who will meet at the ASEAN summit that the negotiations to liberalize trade and investment should start early in 2005.

Benefits of an ANZ-Southeast Asia FTA The aim is to double ASEAN-ANZ trade and investment by 2010. Two-way trade in goods and services between the two regions was worth more than US$34.5 billion in 2003, while cumulative two-way investment amounted to over US$8.4 billion. Southeast Asia sells a lot more to ANZ than it buys and thus has a hefty trade surplus. But Southeast Asia invests significantly more in ANZ than vice versa. An ASEAN-ANZ free trade zone would be an influential force in Asia-Pacific affairs. ASEAN had a combined population of over 500 million and an estimated GDP of US$682 billion in 2003. Australia and New Zealand had a combined population of 24 million and an estimated GDP of US$587 billion last year. The GDP of ASEAN plus ANZ amounts to US$1,269 billion, not far short of China’s estimated GDP in 2003 of US$1,437 billion. A successful AANZ FTA would: 1.

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ensure that Australia and New Zealand are connected with the emerging economic architecture in Asia as other regional arrangements evolve. be good economics as well as good geo-politics. Much of the trade between ANZ and Southeast Asia is complementary rather than competitive. And there is considerable potential for further growth.

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strengthen the international bargaining position of both regions as they negotiate trade deals with other countries or groups of countries. send a positive signal to investors that ANZ and ASEAN are commited to continuing liberalization.

Wider Interests However, there is growing realization on both sides that there are wider interests and opportunities to be pursued in Asia. Indeed, in terms of trade and investment Northeast Asia is relatively more important for Australia and New Zealand than Southeast Asia, and has been for many years. Likewise, China and India beckon Southeast Asia. But they also beckon Australia and New Zealand. The latter are seeking their own free trade agreements with China, and perhaps in future with India, just as ASEAN has done with China and India. Good relations between ANZ and Southeast Asia are an important and desirable end in themselves. But they are not an essential precondition for productive Australian or New Zealand relations with other parts of Asia. Indeed, China has indicated that as a power with global interests, it wants Australia and New Zealand, along with India, to be part of any future Asian economic community.

The State of ANZ-SEAsia Relations This report finds that despite past differences and periodic setbacks, the relationship between ANZ and Southeast Asia has become increasingly solid and multi-faceted, as successive Australian, New Zealand and Southeast Asian governments have

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taken steps since the early 1970s to facilitate mutual ties and interaction in a wide range of areas. To appreciate the transforming nature of these changes brought about by a vast expansion of contacts between ANZ and Southeast Asia, they need to be seen in long-term perspective over the span of more than a generation. What is most striking is that in recent years much of the real substance in the relationship between ANZ and Southeast Asia has developed without the direct assistance or guidance of governments as private business, education and travel have mushroomed. From being largely government-fostered in the 1970s, the links between ANZ and Southeast Asia have become more broadly based and oriented towards closer contacts between people from the two areas. The trade, investment, tourism, education and other statistics in this report provide strong evidence that the combination of government enabling support and private sector initiative has become a mutually-reinforcing process. It has intensified ties between ANZ and Southeast Asia across a broad front. The nongovernment part of this dynamic provides ballast to relations, enabling them to stay on a more even keel in any political storms or disagreements that may be amplified through the media.

Soft Power People-to-people connections, especially through education, have major multiplier effects. They generate personal contacts, friendships, alumnae associations and professional networks. These, in turn, create familiarity, goodwill and better understanding. They also lead to more business, investment, and trade. This is the “soft power” of the new relationship between ANZ and Southeast Asia.

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More Alike There have been other important trends over the past 30 years that have engaged the two regions. By applying non-discriminatory immigration policies that include large numbers of people from Asia and the Pacific, Australia and New Zealand have become multi-cultural societies comparable to Southeast Asia’s multi-ethnic and multi-religious societies, including those in Malaysia, Singapore and, on a much larger scale, Indonesia, the world’s fourth most populous nation. In another formative development over the last 30 years, Australia, New Zealand and most Southeast Asian countries have adopted more open economic and trading systems. The economic success and growing wealth of some Southeast Asian countries have enabled them to catch up with Australia and New Zealand. Singapore (US$21,790) in 2003 had an average income per person that was higher than New Zealand (US$19,490) and not far behind Australia (US$25,470). Per capita GDP in oil- and gas-rich Brunei (US$13,350) was in a similar middle-income band. Malaysia (US$4,130) and Thailand (US$2,240) have also grown strongly. While there are still big disparities of wealth and serious poverty in some parts of Southeast Asia, a substantial middleclass has emerged where once there was only a small, wealthy elite with discretionary money to spend. Southeast Asians in this middle-class — many of them young, well-travelled and interested in the world around them — have aspirations, interests and tastes that are similar to their counterparts in the ANZ middle-class. There are more political affinities, too, than there were 30 years ago. Of course, many political, cultural and other differences remain between ANZ and Southeast Asia. This is not symbiosis. ASEAN is a diverse group of nations.

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However, Australia, New Zealand and most Southeast Asian countries are significantly more alike than they were 30 years ago. There has been a gradual convergence of economic and political systems, as well as educational and living standards, in and between Australasia and Southeast Asia. As a result, there is a firmer common platform of values on which to construct closer ties. The questions now are: 1. 2.

how to build on this convergence where it exists and how to narrow divergence in other areas; how to forge stronger partnerships between ANZ and the better-resourced Southeast Asian countries to diminish the gaps in opportunity and income in the region, and thus enable larger numbers of people to break free of the cycle of poverty and despair in which extremism and terrorist violence can spread. These opportunity and income gaps: • create conflicting interests among Southeast Asian countries; • add to protectionist pressures in those countries that fear competition in an open market; • and make it more difficult to achieve ASEAN economic integration.

This report makes 18 recommendations to strengthen ANZSoutheast Asia ties. These recommendations are not listed in order of priority. They are listed in a structural context that starts with ASEAN-ANZ trade and economic negotiations. Several of the recommendations propose steps ASEAN and ANZ leaders could consider at their summit meeting. They include: (i) launching the free trade negotiations, thus making them a symbolic centrepiece of the new ASEAN-ANZ relationship.

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The aim should be to make any AANZ FTA as comprehensive as possible so that it will stimulate trade, growth and economic integration within and between ANZ and Southeast Asia. However, there is some concern, mainly in academic circles, that given the proliferation of FTAs involving ASEAN and ANZ, there is a danger of a “spaghetti bowl” outcome of incompatible trade deals that can only be integrated, if at all, with great effort, time and cost; (ii) establishing a Research and Talent Development Initiative to provide a framework and focal point for scientific and technological collaboration between research centres in Australia, New Zealand and Southeast Asia to tackle major environmental and resource problems common to both regions, and to offer exchange programmes and scholarships so that young researchers can develop their skills and get to know their peers and conditions in neighbouring countries; (iii) agreeing to form a Bio-security Partnership to develop better protection against outbreaks and transmission of diseases that are infectious to humans, animals or plants and can cause great damage to the economies and public health of both regions; (iv) exploring opportunities for additional training and technical cooperation partnerships between ANZ and richer, more developed Southeast Asian countries to help bridge the development gap in Southeast Asia and enable the newer members of the group to catch up with the older members. This is a key ASEAN policy objective. The report recommends that Australia and New Zealand should work more closely and systematically with ASEAN members and international financial institutions to improve corporate governance, strengthen economic institutions and reduce official corruption and waste.

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The report also proposes that Australia and New Zealand consider acceding to ASEAN’s Treaty of Amity and Cooperation, or non-aggression pact, and team up with Indonesia’s ASEAN partners to support Jakarta’s bid for a permanent seat on the United Nations Security Council by issuing a joint statement of endorsement at the summit to add regional weight to their campaign. The report says that ANZ and Southeast Asia have a shared interest in countering terrorism as well as the smuggling or trafficking of money, arms, people, drugs and other contraband goods, and should continue to intensify their cooperation in curbing unconventional security threats. This includes exchanges between Special Forces. The report proposes that ANZ and Southeast Asian countries should inform each other before announcing any major arms acquisition, especially in long-range strike capability. Such consultation would not imply any right of veto. It would be designed to reduce the risk of misunderstanding. The report suggests that ANZ and Southeast Asian leaders should discuss and develop a new security agenda, one that responds more closely to the most pressing concerns of ASEAN countries with large numbers of poor and unemployed people. This does not mean downgrading regional cooperation to deter, prevent and suppress terrorist violence. It means raising the profile of action to reduce poverty and improve governance, public health, housing and education so that more people, not just the rich and middle classes, feel that they have a stake in preserving the basic framework of their societies. The report considers US relations with Australia, New Zealand and Southeast Asian countries and their impact on ANZSoutheast Asia relations. It proposes that as a close ally of the

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United States, Australia should use its privileged access in Washington to try and ensure that US political leaders and opinion makers are aware of Southeast Asian sensitivies over Muslim and other issues, and take account of them in making US decisions that affect the region. The report recommends that Australia and New Zealand should continue their policy of critical engagement with Myanmar and work with like-minded ASEAN members to press for real reform in the military-ruled country before it takes over the rotating chairmanship of the group in mid-2006 for 12 months. The report suggests that ANZ and Southeast Asian governments have a shared interest in ensuring that relations between China and Taiwan do not deteriorate to the point of armed conflict and should, wherever possible, coordinate their diplomacy related to China-Taiwan issue to maximize influence. The report recommends closer links between ANZ and Southeast Asian parliamentarians and lawmakers to foster better understanding of the diverse forms of representative government in the two regions. It also calls for a network of ANZ and Southeast Asian think-tanks to provide intellectual support for ANZ-Southeast Asian cooperation across a spectrum of key issues. Finally, the report says that an ASEAN-ANZ Leadership Forum of senior officials, business executives, community leaders and others should be formed to help shape a road map for strengthening ASEAN-ANZ ties on a continuing basis.

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BACKGROUND TO AN EVOLVING ASEAN-ANZ RELATIONSHIP Chin Kin Wah

Australia and New Zealand (ANZ) were among the earliest of ASEAN’s external partners. But their interests in the Southeast Asian region ante-dated the formation of the regional association. What is noteworthy about those interests was that they were defined largely in the context of ANZ’s old Commonwealth links with Britain on the one hand and their post-World War II alliance relationships with the United States (ANZUS and SEATO) on the other. The result of these derived relationships was firstly the absence of a coherent regional anchorage for ANZ foreign policy interests and secondly preponderant emphasis on the military dimensions in their relationship towards Southeast Asia. Before World War II, Australia and even less so in the case of New Zealand (which had little historical context to its relationship with other Southeast Asian countries), thought little about the region per se but looked primarily towards Britain as the major point of reference vis-à-vis the British-ruled territories of Malaya and Singapore as a theatre of operation. ANZ troops served alongside Britain’s in the defence of the Malayan region during World War II. The Japanese invasion and occupation of Southeast Asia and Britain’s failure to defend Malaya, Singapore and the then Dutch East Indies, heightened Australia’s awareness of its proximity to the region and “the threat from the North” — a security syndrome which haunted policy planners in Canberra in ensuing years when new conflicts caught up with the emergence of newly independent states in the post-colonial period. West

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Irian, the Vietnam War, Konfrontasi, and East Timor were some of the more vexing challenges that complicated particularly Australia’s relations with regional states “to the North”. With the advent of the Cold War the legacy of ANZ’s Commonwealth links to Britain in the Malayan area was translated into participation in the war against Communist insurgency. Malayan independence in 1957 further transformed the status and nature of such defence linkages and ANZ became associated with the Anglo-Malayan Defence Agreement (AMDA), which was Britain’s continued guarantee to the external defence of Malaya and later Malaysia as well as Singapore. These linkages survived though not without attendant strains, the vicissitudes of Indonesia’s Konfrontasi against Malaysia, the Philippines claim to Sabah, the formation of the Malaysian federation and the subsequent ejection of Singapore from it. But it was British withdrawal from East of Suez during the late 1960s that precipitated the loosening of these linkages leading eventually to the essentially consultative Five Power Defence Arrangements (FPDA), which replaced the AMDA in 1971. Over the years the FPDA adapted to changing needs, increasingly embellished its joint exercises and in the post 9/11 era have acquired a sharper focus on countering international terrorism. For the ANZ, Britain’s loss of the region in World War II served to underline the importance of having the United States as a protector. In a sense their subsequent participation in the Vietnam War could be seen as “club fees” for great power protection within ANZUS given the diminishing value of continued association with Britain. This reliance on “great and powerful friends” first Britain and then the United States, at the time of the Cold War together with a regional perception of ANZ as “white colonial

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outposts” (an image which was exaggeratedly sustained among some sectors of Southeast Asian opinion well past the formal abandonment of their respective discriminatory immigration policies and after their respective societies have become increasingly “Asianised” and “poly-cultured”) further distorted ANZ relations with the region. Perhaps not surprisingly, with Konfrontasi under way in 1964, the Indonesian Herald ran a feature on its editorial page, which described Australia and New Zealand as “just white dots on a vast Asian ocean”. Nearly 40 years later former Malaysian Prime Minister Tun Dr Mahathir Mohamad, well remembered for a long history of a testy relationship with Australia, was on record as having described the latter as “some sort of transplant from another region” shortly before he stepped down from high office. For Australia and even more so in the case of the more geographically distant New Zealand (with its more pronounced South Pacific orientation), their identity and sense of regional belonging complicated their subsequent attempts to relate to ASEAN or identify with East Asia. Nevertheless the 1970s did witness some transformation in the character of ANZ policies towards Southeast Asia against the backdrop of political and strategic changes in the region marked by British military withdrawal, the increasing failure of American intervention in Vietnam, which led to the Nixon doctrine and finally American military disengagement from mainland Southeast Asia. Concurrently the external pressures on ASEAN in the wake of the “fall of Vietnam” in 1975 and the subsequent third Indochina war following Vietnam’s invasion of Cambodia (1978/79) which also saw a lengthening shadow of the former Soviet Union on Indochina, were to catalyse ASEAN cohesion despite underlying tensions on how to cope with an expansionist Vietnam.

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ASEAN too began to invest greater efforts in regional cooperation, an intention already signalled by the convening of the ASEAN summit in 1976 — the first such high level meeting since the establishment of the regional association in 1967. In 1976 ASEAN also established full dialogue partnerships with Australia and New Zealand. And the following year on the 10th anniversary of ASEAN’s formation, the prime ministers of Australia, New Zealand and Japan made their presence felt at the second ASEAN summit in Kuala Lumpur thus signalling that they were starting to take ASEAN seriously. ANZ were among the first group of extra-regional actors, which ASEAN’s external relations centred on — the other being Japan plus an international organization namely, the UNDP. Their elevation to dialogue partner status in ASEAN was recognition of their emerging significance to the region’s development. Indeed, ASEAN and Australia had two years earlier begun discussions focusing on technical assistance cooperation in areas such as food production, agriculture, science and technology — areas then deemed crucial to the region’s economic development. Such discussions culminated in the ASEAN-Australia Economic Cooperation Programme (AAECP), which saw Australia contributing A$90 million in the first phase which ended in 1989. The programme has gone through two more phases since then and it is envisaged that the programme will in the future facilitate broad-based economic cooperation between ASEAN and Australia as well as bringing the new members of ASEAN (Vietnam, Laos, Cambodia and Myanmar) increasingly into this development cooperation venture. In 1975 ASEAN also entered into cooperation with New Zealand through a similar ASEAN-New Zealand Economic

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Cooperation Programme (ANZECP) whose long-term objective was the attainment of sustainable developmental benefits for the regional grouping. The more coherent regional focus was an important widening of New Zealand’s early enthusiastic participation in the Colombo Plan aid programme to certain Southeast Asian countries facilitating transfer of technical skills and educational contacts. In subsequent years the ANZECP, like its ASEAN-Australia counterpart, facilitated the development of more diverse and wider linkages as well as people-to-people contacts between the two sides. Besides contributing financially to these ASEAN-centric programmes, the ANZ countries have also made substantial contributions to development assistance programmes in key ASEAN states (such as Indonesia, the Philippines, and the new member states from Indochina) over the years. This said, it remains that development assistance and technical aid programmes are no substitute for trade and investment as stimulants to economic growth. From the perspective of the original ASEAN-5, Australia remained a minor market for exports and a minor supplier of imports given that Australian trade was heavily concentrated on the industrialized countries such as Japan, the US and the EEC (now EU). In 1981, for example, Australia accounted for only 2.5 per cent of ASEAN’s exports and 2.9 per cent of ASEAN’s imports. Australian investments in the region were heavily concentrated in three countries namely, Singapore, Indonesia and Malaysia. But overall Australian investments in ASEAN represented only 11.3 per cent of total Australian foreign investment. Moreover from the mid-1970s to the early 1980s ASEANAustralia relations in particular, were marked by trade frictions. ASEAN from time to time ventilated its concerns over Australia’s protectionism and the trade imbalance, which was in Australia’s

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favour. The strongest criticisms were directed at Australia’s civil aviation policies and protection of labour intensive manufacturing, especially the textile, clothing and footwear industries. In a way, Singapore’s dispute with Australia over the latter’s international civil aviation policy (ICAP) in the late 1970s, which strongly suggested Australian protectionism towards its national airline, demonstrated the value of ASEAN solidarity in negotiating with Australia. Compared to Australia, New Zealand was more detached not just physically but also psychologically from Southeast Asia, and hence had an even less pronounced regional orientation. Nevertheless, the absence of an abrasive leadership style towards the region, a less evident range of contentious economic issues and its “small power” image (at the time of Konfontasi, New Zealand had a population not much larger than Singapore’s; between Australia and New Zealand a substantial gap exists in the relative size of their populations, economies, geographic land masses and military capabilities) spared New Zealand the high profile rows which had characterized Australia’s relations with some ASEAN countries, notably Malaysia under the long stewardship of Dr Mahathir. While these had been “useful” facets in the development of New Zealand’s relationship with ASEAN they also underlined a comparative lack of impact its small economy had on the region. Compared to Australia, New Zealand’s economic links with the region remain considerably shallower. The region including the wider East Asia in general accounts for a much greater share of Australian exports than of New Zealand’s whose trade with the region has also expanded far less rapidly. While it may seem convenient to speak of Australia and New Zealand in the same breadth, their interests towards the region and their respective worldviews are far from identical despite

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areas of convergence. Since 1986, the anti-nuclear policy of New Zealand had to all practical purposes “bilateralized” the ANZUS alliance. Despite many similarities in their international outlooks, New Zealand was declared by the United States as a “friend but not an ally”. In the post 9/11 era New Zealand while supporting the US on the war against international terrorism has for its part sought to distance itself from American policy towards Iraq while Australia has been projecting itself as a staunch ally of the United States (a Deputy to the American Sheriff’s role in the fight against terrorism) — much to the discomfort at times of some regional governments. Nevertheless, New Zealand like Australia remains committed to the ARF (an ASEAN-driven multilateral cooperative security forum with an Asia-Pacific focus) and the FPDA, which post 9/11, are refocusing their cooperative security agendas on non-traditional security challenges including international terrorism. Indeed, the war against terrorism has provided common ground for a convergence of security interests between ANZ and the region. However, it is on the economic front that the complementary interests of Australia and New Zealand vis-à-vis ASEAN have emerged into sharper focus today. The decade from the mid-1980s to the mid-1990s was a time of phenomenal economic growth in ASEAN whose success story held forth the promise of an attractive economic partner to Australia and New Zealand which had adopted in 1983 an initiative towards Closer Economic Relations (CER) aimed at the removal of all tariff and non-tariff border barriers in goods between themselves. The ANZ CER was realized five years ahead of schedule in July 1990. In November 1993, during a visit to Australia, the Deputy Prime Minister of Thailand Dr Supachai Panitchpakdi, publicly broached the idea of a link between the CER and the ASEAN Free Trade Area (AFTA). Since 1995 the ASEAN Economic

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Ministers (AEM) have been holding informal joint consultative meetings with ANZ. This along with the initiation of ASEAN-CER dialogues over the scope for linkages between the two economic regions marked an important turning point. The sobering fact remained nevertheless that by the time of the third ASEAN-CER consultative meeting in 1997 total trade between ASEAN and the CER amounted to just 2.3 per cent of ASEAN’s total trade while ASEAN accounted for just 13.1 per cent of CER’s exports. It has also been observed that while FDI outflows from Australia expanded nine-fold between 1985 and 1995, the flow to ASEAN remained more or less constant. Substantive practical gains remain to be realized. The potentials nevertheless are strong. For ASEAN the winding down of the third Indochina war but more crucially, the ending of the regional Cold War in the early 1990s paved the way for regional reconciliation between the Indochina states and ASEAN — a process that led eventually to the phased entry of all the Indochina states and Myanmar into ASEAN by the end of the 20th century. Admittedly this greater diversity that came with regional expansion had complicated regional cooperation as well as relations with some external partners as the issue of Myanmar’s membership in ASEAN has demonstrated. Unfortunately the advent of the Asian economic crisis in 1997/98 and the social-political turbulence triggered by it in Southeast Asia were not only unwanted regional distractions, they also blemished ASEAN’s image and revealed the underlying vulnerabilities of a number of regional regimes. Since then the region has suffered the repercussions of a series of crises notably the “dot.com crash” of 2001, SARS in 2003, terrorist bombings in Bali (October 2002) and Jakarta (August 2003 and September 2004), which dramatically raised the spectre of terrorism by Muslim

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extremist groups operating within the region. The Bali bombings resulted (among other casualties) in the deaths of 88 Australians and some New Zealanders while the September 2004 Jakarta bombing was clearly targeted at the Australian Embassy. Despite a background of turbulence, ASEAN has sought to accelerate regional economic integration to regain economic resilience, competitiveness and a needed coherence to engage external partners. The 1997 adoption of the ASEAN Vision 2020 statement served to underline a commitment to closer regional economic integration. Growing awareness of the opportunities as well as downside of globalization, the economic rise of China (and its powerful potential for investment diversion from ASEAN) and the new challenges to ASEAN competitiveness provided added impetus. By 2003 the AFTA had been virtually realized through the Common Effective Preferential Tariffs (CEPT) scheme — at least among the old ASEAN members. The decision of the 9th ASEAN Summit convened in Bali in 2003 to establish an ASEAN Community by 2020 marked yet another aspiration to provide a more comprehensive underpinning to regional integration. The turn of the 21st century has also witnessed the emergence of new trends in international trading arrangements with an emerging pattern of proliferating bilateral and inter-regional Free Trade Areas (FTAs), given the limited progress of working out global free trade through the WTO. ASEAN itself is being courted again — this time by offers of FTAs by China and India and a comprehensive economic partnership by Japan. Since 2003, ASEAN has taken a firmer initiative to energize its relationship with ANZ. The ascent of Datuk Seri Abdullah Badawi to the prime ministership of Malaysia in 2003 has also helped to reopen the way to ASEAN negotiations with ANZ for an inter-regional FTA. Earlier, a meeting in Brunei between ASEAN

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Trade Ministers and their ANZ counterparts on 14 September 2002 led to a ministerial declaration, which launched the ASEAN– CER Closer Economic Partnership with the objective of expanding trade and investment and fostering closer economic integration between the two regions. In August 2004 ASEAN Economic Ministers agreed with their ANZ counterparts to begin negotiations for a free trade agreement in early 2005 to be completed within two years. The inter-regional cooperative process will be further elevated by a meeting of ASEAN-ANZ Heads of Government on the occasion of the ASEAN summit in Vientiane in November 2004, the first encounter at this level since 1977. Today the expanded ASEAN has about 530 million consumers and a GDP of well over US$600 billion. And soon to be linked increasingly to other Asian economies, including China and India through free trade agreements and comprehensive economic partnerships, ASEAN offers a vast market for ANZ. The combined GDP of the CER of almost US$600 billion is about as large as ASEAN’s although the ANZ population is only 24 million. The potential for cooperation in other areas is equally strong given that ANZ possess a vast pool of technologies and know-how, which ASEAN could tap. A study published by the Center for International Economics in 2002 projected that a free trade area between AFTA and the CER with zero tariffs on goods and services will result in a gain (in net present value terms over the period 2002 to 2020) of US$48.1 billion GDP. Out of this amount, AFTA will gain US$25.6 billion and the CER, US$22.5 billion. In terms of welfare (measured in real consumption) AFTA and CER will gain one per cent and 0.6 per cent respectively above what it would otherwise be in 2005. On top of these benefits an AFTA-CER link would lead to dynamic productivity gains from extra competition and enhanced business confidence between countries as a result

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of higher levels of trade, business contact and harmonization of standards and the application of common trade rules. There is a growing appreciation that the logic of economic development in ASEAN and the need to sustain free trade given the stasis in APEC and the WTO processes necessitate innovative approaches towards inter-regional economic cooperation. The economic resurgence of China (and the attendant risks of overdependence on the China market) also point to the need on the part of ASEAN and ANZ to explore new options and seek diversity in their respective linkages within East Asia. For Australia and to a lesser extent in the case of New Zealand, proximity to the region (in particular to ASEAN’s largest member, Indonesia, that is one of the most internally turbulent, in recent times) and the emerging new generation of non-traditional security threats (terrorism, ethnic and religious extremism, illegal immigrants, drug and human trafficking, spread of infectious diseases, etc.,) are enhancing awareness of new security interdependence that call for concerted cooperative efforts to meet them. The cooperation in the fight against international terrorism also calls for deeper inter-regional engagement to address the root causes of terrorism. Globalization and constant innovations in the technology for international communication are offering new opportunities for people-to-people contacts and the sharing of knowledge. Non-governmental actors and business networks contribute to a thickening of cooperative processes between countries and regions. Today with both the CER and ASEAN economies becoming increasingly open, there is tremendous need but at the same time, much greater scope for exploring and revitalizing a more comprehensive and considerably wider range of cooperative areas beyond technical assistance, trade and investment between ASEAN and ANZ compared to the early beginnings of 30 years ago.

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SHARED PERCEPTIONS Michael Richardson

In the past, there have been quite severe setbacks, at least in official ties, as the interests of different governments in the two sub-regions have clashed and public perceptions diverged on sensitive and often emotive issues. Despite this, the relationship has become increasingly solid and multifaceted, as successive Australian, New Zealand and Southeast Asian governments have taken steps since the early 1970s to facilitate mutual ties and interaction in a wide range of areas. To appreciate the transforming nature of these changes, they need to be seen in long-term perspective, over the span of more than a generation. Southeast Asian views of Australia were first set through the prism of the White Australia policy which barred Asian immigrants on grounds of race. Even after the last vestiges of the policy were discarded in 1973, Australia struggled to convince its Asian neighbours that it had removed the taint of racial discrimination. New Zealand ended remaining discriminatory practices against Asian immigrants in 1987. But it, too, seemed slow to change in the view of Asians. They remembered the history of prejudice against local Chinese from the nineteenth century in both Australia and New Zealand. The New Zealand government has recently taken steps formally to apologize to the Chinese community in New Zealand for former policies of discrimination.

A Multicultural ANZ Like Australia, New Zealand now has an immigration policy that makes no distinction between applicants on grounds of ethnicity or religious beliefs. Both countries have growing numbers of

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Asians in their societies. Far from trying to shore up an AngloCeltic majority heritage, Australia and New Zealand have opened their doors to racial and religious diversity by promoting multicultural policies. There are more than 1.3 million Australians of Asian ancestry, out of a total population of 20 million. Since the late 1940s, over six million migrants from about 200 countries have made Australia their home. In the past 25 years, the Australian Islamic community has grown significantly. The 2001 census found that there were almost 282,000 Muslims living in Australia — an increase of 40 per cent since the 1996 official count. Some recent estimates suggest that Australian Muslims may now number between 350,000 and 450,000. New Zealand’s population of four million is also ethnically diverse. Asians comprise over 6 per cent of the population, more than the number of Polynesian settlers from the Pacific Islands. Indigenous Maori make up about 15 per cent of New Zealanders. Indigenous Aborigines and Torres Strait Islanders account for about 2.4 per cent of the Australian population. There is some anti-Asian sentiment in Australia and New Zealand. A small number of xenophobic activists and right-wing extremists in both countries have sought to exploit this feeling, sometimes to try to win votes in elections. But any political gains have been short-lived. Racist attacks and abuse against Asians in Australia and New Zealand often receive extensive publicity, at home and abroad. But they are very much the exception, not the norm, and are treated as serious matters by police and judicial authorities. Of course, there have been numerous cases of ethnic and religious animosity within and between Southeast Asian countries. They continue to this day. Xenophobia and racial prejudice are not unique to ANZ.

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Southeast Asia’s Image Problem Just as some Southeast Asians continue to have distorted views of ANZ, so some Australians and New Zealanders tend to see Southeast Asia as a place of bewildering complexity, widespread poverty, and pervasive corruption, abuse of power and suppression of human rights and civil liberties. According to public opinion surveys, a significant number of Australians continue to regard Indonesia as a vaguely defined “threat”. Meanwhile, some Indonesians, including officials, lawmakers and analysts, allege that Australia’s role in supporting the decision of East Timor, in a referendum supervised by the United Nations in 1999, to leave Indonesia and become independent is part of an agenda to weaken the giant archipelago-nation by fomenting separatism. New Zealand, too, has been criticized by some of these same elements in Indonesia for backing East Timor’s right to self-determination and quickly committing the second largest number of troops after Australia to the peacekeeping force mandated by the UN, after the 78 per cent vote by Timorese in favour of independence led to a maelstrom of violence directed by hardline nationalists in the Indonesian military and their militia allies in East Timor. ANZ views of Southeast Asia in recent years have been coloured by troubles in the region and its evident difficulties in coping with them. Before the Asian financial crisis of 1997–98, Southeast Asia appeared to have entered an era of unlimited growth and was immensely attractive to Australia and New Zealand. But Australia was prevented from further participation in ASEAN-led regionalism. A plan to link ANZ and Southeast Asia in a common free trade zone was blocked by Malaysia in 2000, using the ASEAN consensus rule which allows just one member with a strong objection to have a right of veto. Australia,

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in particular, was made to feel an outsider and a supplicant, despite being a longtime supporter of ASEAN and contributor to the International Monetary Fund’s emergency assistance to Indonesia and Thailand — the two regional countries hardest hit by financial crisis. The tumult of 1997–98 stripped away much of Southeast Asia’s economic lustre. A newly enlarged ASEAN lacked cohesion and struggled to cope effectively with regional problems. Since then, religious extremism, terrorism, separatist violence, SARS and bird flu have made Southeast Asia seem a dangerous area of the world. And beyond Southeast Asia, the giant markets of Northeast Asia and South Asia are magnets for ANZ’s traders, investors, business executives and tourists. Australia and New Zealand implemented in the 1980s many of the painful reforms forced on Southeast Asian economies by the Asian financial crisis. They prospered as ASEAN struggled to recover.

Waking Up Yet this was a period of lost opportunity for both ANZ and Southeast Asia. A stable and increasingly prosperous and democratic Southeast Asia is very much in the strategic and economic interests of Australia and New Zealand. A vibrant, economically integrated Southeast Asia, which already has a combined population of more than 500 million, would be a globally attractive marketplace and centre for investment, especially when linked to other parts of Asia by agreements designed to expand trade and investment. ANZ is valuable to Southeast Asia as a market and source of technology, knowledge, expertise, capital and other resources. An assessment of where and how relations between two regions can be improved is therefore timely.

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Much of Southeast Asia is now growing impressively again and its trade with ANZ is rising sharply. However, there is growing realization on both sides that there are wider interests and opportunities to be pursued in Asia. Indeed, in terms of trade and investment Northeast Asia is relatively more important for Australia and New Zealand than Southeast Asia, and has been for many years. Likewise, China and India beckon Southeast Asia. But they also beckon Australia and New Zealand. The latter are seeking their own free trade agreements with China, and perhaps in future with India, just as ASEAN has done with China and India. Good relations between ANZ and Southeast Asia are an important and desirable end in themselves. But they are not an essential pre-condition for productive Australian or New Zealand relations with other parts of Asia. Indeed, China has indicated that as a power with global interests, it wants Australia and New Zealand, along with India, to be part of any future Asian economic community. New Zealand’s government is looking at how it can strengthen New Zealand’s links with Asia as a whole. Over one third of New Zealand’s foreign trade is with Asia. Visitors from Asia provide one third of New Zealand’s revenue from tourism, a major foreign exchange earner. Some 90 per cent of a record 118,600 foreigners studying in New Zealand in 2003 were from Asia and the international student sector is estimated to have contributed close to NZ$2.3 billion to the local economy. One New Zealander in 15 is of Asian descent. Asian investment has created wealth for New Zealanders while Asian cultures are having a growing influence on New Zealand cities, food and lifestyles. The impact and profile of Asia is even more pronounced in Australia. There is strong interest in Asia, and it is politically

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bipartisan. In both Australia and New Zealand, the government and the opposition are committed to engagement with Asia, although they differ in some areas on how best to achieve this.

ASEAN-ANZ Summit On the ASEAN side, governments welcome ANZ’s involvement in regional trade, investment and diplomacy, seeing it as part of a balance of interests that promotes constructive engagement by external powers like the United States, Japan, China, India, the European Union and Russia. The leaders of Australia and New Zealand are to be invited, for the first time since 1977, for talks with their Southeast Asian counterparts at the ASEAN Summit in Vientiane, Laos, on 30 November 2004. ASEAN economic and foreign ministers have recommended that the summit should reinvigorate ties with Australia and New Zealand, and be a platform for launching negotiations to establish a free trade zone between ANZ and Southeast Asia, through an AANZ Free Trade Agreement.

A Chance to Get Closer Recent changes of leadership and attitude in Southeast Asia have reopened the door to closer engagement with ANZ. Australia and New Zealand should take this opportunity to further strengthen ties. Abdullah Badawi took over as prime minister of Malaysia from the long-serving Mahathir bin Mohammad in November 2003. Since then, the new Malaysian leader has made it clear that he intends to seek better relations not just with Australia but with the US and Singapore, two other countries that also had strained ties with Malaysia in the recent past. Mr Abdullah’s multi-ethnic coalition won a sweeping majority in the Malaysian general elections in March 2004. He promotes the concept of Islam Hadhari

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— a “civil Islam” that is tolerant of other faiths and progressive in its embrace of democracy, economic development and modernization to enhance the quality of life of all Malaysians. Meanwhile, the relations of Australia and New Zealand with Indonesia — by far ASEAN’s biggest member — have improved. But they still need to be carefully managed and given higher priority by Canberra and Wellington as well as by Jakarta. It is, however, patently false to argue that an Australian leader (John Howard) who has visited Indonesia as prime minister ten times, and an Australian foreign minister (Alexander Downer) who has visited Indonesia even more often, are part of a government that has neglected or downgraded ties with an important neighbour. Mr Howard’s most recent visit was in October 2004 for the inauguration of Susilo Bambang Yudhoyono as Indonesia’s new president. Mr Howard made the trip just days after his coalition government was re-elected for a fourth successive term in office. He said that his attendance was “a mark of the great importance that I attach to the relationship between Australia and Indonesia”. The two governments and their law enforcement agencies have worked closely together to track down the terrorists responsible for the Bali bombings in October 2002 that killed dozens of Australians and Indonesians as well as several New Zealanders. The role of Australia and New Zealand in helping East Timor gain independence from Indonesia has faded into the background and become less of an irritant in bilateral relations. The process of reconciliation should be aided by Mr Yudhoyono’s clear-cut victory in Indonesia’s first direct presidential elections in September. He campaigned on promises to fight terrorism and corruption, uphold civilian rule, promote professionalism in government and the military, stimulate the economy and improve the investment climate. Like the Malaysian prime

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minister, Mr Yudhoyono is likely to pursue a foreign policy that is marked by pragmatism and a desire to develop constructive neighbourly relations.

ANZ Nexus Some New Zealanders like to think that they are less pushy and therefore more naturally acceptable in Southeast Asia than Australia. They believe that not being an ally of the United States, and not being as closely associated as Australia has been with US policies in Iraq and the campaign against terrorism, is a plus in relations with Southeast Asia, which has more Muslims than any other part of the world. But New Zealand is much further away from Southeast Asia than Australia and its geopolitical outlook is towards the South Pacific. As an island-continent, Australia is about thirty times larger than New Zealand. There are about five times as many Australians as there are New Zealanders. And Australia’s economy, measured by GDP, was more than six times bigger than New Zealand’s in 2003. New Zealand’s relations with Southeast Asia are not only less abrasive than Australia’s, they are much less substantial in nearly all areas. They may therefore attract less controversy for both these reasons. Australians and New Zealanders maintain a tradition of rivalry in sport that sometimes makes them appear to be from hostile nations. From time to time, their national interests diverge. This happened in the 1980s when New Zealand’s anti-nuclear policy led to the suspension of its alliance relationship with the United States through the tripartite ANZUS treaty in which Australia is the third partner. It happened again a few years ago when New Zealand, which spends substantially less per capita on defence than Australia, disbanded its combat air arm and reshaped the

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rest of its defence force so that it seemed less capable in some ways of operating abroad. The loss of the security relationship with the US and the perception of diminished military effectiveness reduced, at least temporarily, the standing and significance of New Zealand in the eyes of some in positions of influence in Southeast Asia — especially in the context of the Five Power Defence Arrangements. But while disbanding the combat air arm, the New Zealand Government was enhancing the country’s maritime air and sea patrol capability and beefing up the army. The upshot is a more mobile army with better protection, upgraded Orion surveillance aircraft, and enhanced airlift and sealift in support of overseas deployments. The operating tempo of the New Zealand defence force over the last four years is the highest for at least three decades. For example, for the first time since World War II frontline units from all three services — army, navy and airforce — have been deployed to the Middle East at the same time. While the New Zealand military may now be shaped and oriented towards peacekeeping, peacemaking and surveillance roles in the Southwest Pacific and, to a lesser extent, in Southeast Asia, that did not stop New Zealand from sending naval vessels to support anti-terrorist operations in the Arabian Sea, and special forces to Afghanistan to support US-led operations against Taliban and Al-Qaeda resistance. New Zealand Orions have been based for nine months at a time in the Persian Gulf, the first occasion on which Orions have been based so far from home over such a long period. New Zealand C-130 transport planes have been based in Central Asia in support of operations in Afghanistan. Troops from Australia and New Zealand have repeatedly served alongside one another in wars and conflicts overseas in the last century after their leaders agreed that a joint response

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was needed. They did so to help restore order during the Malayan Emergency in the 1950s and 1960s, and in response to Indonesia’s armed Confrontation of Malaysia in the mid-1960s. Both sent troops to Vietnam. On Papua New Guinea’s Bougainville Island, in East Timor and, most recently, in the Solomon Islands, the two countries have made closely integrated military and security contributions to successful peacemaking. The ANZ governments consult closely on a wide array of policies of common concern, both domestic and foreign. The economic integration of Australia and New Zealand through CER has been of great benefit to both nations. There is potential for further synergy by working together to advance shared interests in closer engagement with Southeast Asia.

Bedrock Australia and New Zealand have been early and consistent supporters of ASEAN and its quest for political, security and social cooperation and economic integration in Southeast Asia. Australia became an ASEAN dialogue partner in 1974 — the first country ASEAN agreed to meet on a regular basis to discuss political, economic and functional collaboration. New Zealand became an ASEAN dialogue partner in 1975. The 30th anniversary this year of the linkage with ASEAN is a reminder of Australia’s long-standing ties with Southeast Asia and its extensive bilateral relations with the member countries of the group. The 30th anniversary next year of New Zealand’s dialogue with ASEAN will have similar significance. Australia flagged its wish to engage with Southeast Asia through ASEAN when it committed over A$90 million to the first phase of the ASEAN Australia Economic Cooperation Program (AAECP) from 1974 to 1989. This aid project focused on promoting

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research and development in science and technology, particularly in food-related areas where Australia had significant expertise. Those involved in the programme say that perhaps its most valuable contribution was to enable scientists and officials from Australia and Southeast Asia to work together for the first time. They say that in numerous cases, this regional collaboration generated benefits that surpassed the technical or commercial benefits of the food production, preservation and transport packaging projects themselves because it opened channels for continuing and expanded cooperation. From 1974 to 2003, Australian contributions to regional cooperation projects managed by the ASEAN Secretariat in Jakarta amounted to A$160 million. In the twelve months to June 2004, Australia’s total development assistance to individual ASEAN countries was A$350 million. In addition, Australia has provided A$45 million over six years until 2008 for the ASEAN-Australia Development Cooperation Program, the successor to the AAECP. New Zealand’s total assistance to Southeast Asia in the year to June 2004 is around NZ$45 million. It includes government money provided to individual Southeast Asian countries and to multilateral agencies and non-government organizations with projects in the region. Most of the bilateral aid went to Indonesia, the Philippines, Vietnam, Cambodia and Laos. New Zealand allocated about NZ$2 million for the year to its development cooperation programme with ASEAN.

Beyond Government However, what is most striking is that in recent years much of the real substance in the relationship between ANZ and Southeast Asia has developed without the direct assistance or guidance of governments as private business, education and travel have

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mushroomed. From being largely government-fostered in the 1970s, the links between ANZ-Southeast Asia have become more broadly based and oriented towards closer contacts between people from the two areas.

Trade Australia’s exports of goods and services to Southeast Asia nearly trebled in 13 years, reaching A$18.7 billion in the financial year to June 2003, from A$6.5 billion in FY1990. In the same period, Southeast Asia’s goods and services exports to Australia — the world’s fifteenth largest economy — increased more than fivefold to A$25.8 billion in FY2003, from A$4.7 billion. Southeast Asians visiting or studying in Australia provide most of Australia’s services export revenue. Australians visiting ASEAN countries are Southeast Asia’s main services earner. Since FY1999, Southeast Asia has sold a lot more goods and significantly more services to Australia than it has bought in return. In FY2003, Southeast Asia’s merchandise trade surplus with Australia amounted to nearly A$2 billion while its services sales surplus was over A$200 million. As a result, total trade was almost A$5.9 billion in Southeast Asia’s favour. New Zealand, too, has a substantial deficit in trade with Southeast Asia. Its exports of goods to the region more than doubled from NZ$900 million in 1990 to over NZ$2.2 billion in 2003. But in the same period, imports from Southeast Asia grew even faster, from NZ$600 million to nearly NZ$2.7 billion. Still, Southeast Asia was New Zealand’s fifth largest export destination last year, accounting for 8 per cent of total exports. New Zealand’s sales of services to Southeast Asia in 2003, mainly in tourism and education, were worth more than NZ$400 million.

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Much of this trade between ANZ and Southeast Asia is complementary rather than competitive. And there is considerable potential for further growth. The goods ANZ and Southeast Asia exchange amount to only a small fraction of their total trade. For example, the total trade between ASEAN and the two CER countries in 1999 of about US$15.4 billion represented barely 0.25 per cent of ASEAN’s and one per cent of CER’s external trade. Southeast Asia’s exports to Australia in 2003 amounted to less than 4 per cent of ASEAN’s worldwide sales while its imports from Australia that year were less than 3 per cent of total imports. Both Australia and New Zealand trade more with China, Japan and South Korea than with any Southeast Asian country. Still, trade in goods and services between Southeast Asia and Australia now exceeds A$40 billion a year. Singapore, Indonesia, Thailand and Malaysia are among the top 15 destinations for Australian exports. And five ASEAN countries were among New Zealand’s top 20 markets last year.

Investment Australian direct investment in Southeast Asia rose from nearly A$1.9 billion in 1991–92 to A$3.1 billion in FY2003. But the latter was well below the peak level of almost A$5 billion recorded in FY2001. And Australia’s direct investment in Southeast Asia, as a proportion of its total foreign investment, is declining. It fell from about 4 per cent of the A$46.3 billion invested abroad in FY1992, to 2 per cent of the A$152.3 billion in FY2003. More than 6 per cent of New Zealand’s offshore investment is in Southeast Asia. But it has not increased much since 1998, when it totalled NZ$585 million, compared to NZ$814 million in 2003. In

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the same period, Southeast Asian investment in New Zealand dropped from almost NZ$3 billion to just over NZ$1 billion. Southeast Asian direct investment in Australia has also been stronger than vice versa, particularly in the past couple of years. It increased from just A$758,000 in 1991–92, or well under one per cent of Southeast Asia’s total investment outside the Southeast Asian region, to almost A$14.6 billion in 2002–03, or about 6 per cent of its foreign investment.

People-to-People In 2003, over 625,000 Southeast Asians visited Australia, nearly three times the number just over a decade earlier. This growth is aided by more liberal air services agreements, affordable air fares and organized mass tourism. In the same year, almost 722,000 Australian residents visited Southeast Asia, close to double the number in the early 1990s. Four of the top ten destinations for Australian travellers are in Southeast Asia. Moreover, some 45,000 Australians live in the region and many Australians have family members there. Since 1991, over 186,000 Southeast Asians have settled permanently in Australia, an average of around 14,350 a year. In 2003, nearly 76,000 students from Southeast Asia were enrolled in educational institutions in Australia. This cohort was almost six times bigger than the 12,690 Southeast Asians attending Australian schools and universities in 1990. About 100,000 Malaysians have studied in Australia. Many are now in influential positions in Malaysian politics, the bureaucracy, armed forces and security services, business and education. Around 25,000 Indonesians are currently studying in Australia, more than double the number a decade ago. They are one of the largest groups of foreign students in Australia. In 2002,

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Australia surpassed the United States to become the number one destination for young Thais seeking further education overseas. And thousands more Southeast Asians are enrolled in campuses or courses that Australian educational institutions have established in Southeast Asia over the past decade, often in joint ventures with local counterparts. These figures provide strong evidence that the combination of government enabling support and private sector initiative has become a mutually-reinforcing process that has intensified ties between ANZ and Southeast Asia across a broad front. The nongovernment part of this dynamic provides ballast to relations, enabling them to stay on a more even keel in any political storms or disagreements that may be amplified through the media. People-to-people connections, especially through education, have major multiplier effects. They generate personal contacts, friendships, alumnae associations and professional networks. These, in turn, create familiarity, goodwill and better understanding. They also lead to more business, investment, and trade. This is the “soft power” of the new relationship between ANZ and Southeast Asia.

More Alike There have been other important trends over the past 30 years that have engaged the two regions. By applying non-discriminatory immigration policies that include large numbers of people from Asia and the Pacific, Australia and New Zealand have become multi-cultural societies comparable to Southeast Asia’s multi-ethnic and multi-religious societies, including those in Malaysia, Singapore and, on a much larger scale, Indonesia, the world’s fourth most populous nation.

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In another formative development over the last 30 years, Australia, New Zealand and most Southeast Asian countries have adopted more open economic and trading systems. The economic success and growing wealth of some Southeast Asian countries have enabled them to catch up with Australia and New Zealand. Singapore in 2003 had an average income per person (US$21,790) that was higher than New Zealand (US$19,490) and not far behind Australia (US$25,470). Per capita GDP in oil- and gas-rich Brunei (US$13,350) was in a similar middle-income band. Malaysia (US$4,130) and Thailand (US$2,240) have also grown strongly. While there are still big disparities of wealth and serious poverty in some parts of Southeast Asia, a substantial middleclass has emerged where once there was only a small, wealthy elite with discretionary money to spend. Southeast Asians in this middle-class — many of them young, well-travelled and interested in the world around them — have aspirations, interests and tastes that are similar to their counterparts in the ANZ middle-class.

Political Affinities There are more political affinities, too, than there were 30 years ago. Governance in Australia, New Zealand, Malaysia and Singapore is based on parliamentary democracy inherited from British colonial rule. The Philippines has a US-style system of representative government. Meanwhile, Thailand and Indonesia have moved from authoritarian government backed by the military to multi-party democracy, the regular election of law-makers and, in the case of Indonesia, the president as head of state, government and the armed forces. The principles of civilian control and rule

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of law — long taken for granted in Australia, New Zealand and a minority of Southeast Asian states — are becoming the norm, not the exception, for most people in the region. Of course, many political, cultural and other differences remain between ANZ and Southeast Asia. This is not symbiosis. ASEAN is a diverse group of nations. Myanmar and Laos are rigid one-party states, with the overwhelming majority of their people mired in poverty. But Cambodia — though very poor and still suffering from the decimation of Khmer Rouge tyranny — has a functioning multi-party democracy. And both Brunei and Vietnam have been inching cautiously towards less authoritarian forms of government. Brunei — an Islamic sultanate which is one of the world’s last remaining absolute monarchies — reconvened its parliament in September for the first time in 20 years. Although the 21 members of the Legislative Council are appointed, they agreed to a constitutional amendment to expand their number to up to 45 members — 15 of whom will be elected directly by the people. No timetable has been given for the polls, which would be the first since 1962 when an armed revolt ended its experiment with democracy. In Vietnam, the legislature is elected under a system that is effectively controlled by the ruling Communist Party. But the party has encouraged the parliament to become more active in debating laws, exposing abuses and acting as a check on executive power.

Closer Together Australia, New Zealand and most Southeast Asian countries are significantly more alike than they were 30 years ago. There has been a gradual convergence of economic and political systems, as

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well as educational and living standards, in and between Australasia and Southeast Asia. As a result, there is a firmer common platform of values on which to construct closer ties. The questions now are: 1. 2.

how to build on this convergence where it exists and how to narrow divergence in other areas; how to forge stronger partnerships between ANZ and the better-resourced Southeast Asian countries to diminish the gaps in opportunity and income in the region, and thus enable larger numbers of people to break free of the cycle of poverty and despair in which extremism and terrorist violence can spread. These opportunity and income gaps: • create conflicting interests among Southeast Asian countries; • add to protectionist pressures in those countries that fear competition in an open market; • and make it more difficult to achieve ASEAN economic integration.

In April 2003, Southeast Asia took the initiative to reinvigorate the relationship with Australia and New Zealand. As noted earlier, the ASEAN economic ministers decided to re-open the door for negotiations on an ASEAN, Australia and New Zealand Free Trade Agreement (AANZ FTA) that had been shut by the ASEAN side in 2000, primarily because of pressure from Malaysia. ASEAN foreign ministers concurred in July with the move to put the FTA negotiations back on the agenda. This was welcomed by Australian and New Zealand trade ministers at a meeting with their ASEAN counterparts in Jakarta in September. They recommended to their heads of government, who will meet at the ASEAN summit in

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Vientiane on 30 November 2004, that the negotiations to liberalize trade and investment should start early in 2005. The aim is to double ASEAN-ANZ trade and investment by 2010. Two-way trade in goods and services between the two regions was worth more than US$34.5 billion in 2003, while cumulative two-way investment amounted to over US$8.4 billion. Southeast Asia sells a lot more to ANZ than it buys and thus has a hefty trade surplus. But Southeast Asia invests significantly more in ANZ than vice versa. Australia’s merchandise trade with ASEAN in 2003 totalled A$32.2 billion (US$23.9 billion), while two-way services trade amounted to A$9.6 billion (US$7.2 billion). The equivalent figures for New Zealand-ASEAN merchandise trade in that year was NZ$4.9 billion (US$3.4 billion). No statistics are available for NZASEAN services trade. Australia’s foreign direct investment (FDI) in ASEAN at the end of 2003 amounted to A$3.45 billion (US$2.6 billion) while cumulative ASEAN FDI in Australia by then was A$5.83 billion (US$4.4 billion). At the end of March 2003, New Zealand had invested NZ$901 million (US$617 million) in ASEAN while Southeast Asian FDI in New Zealand totalled NZ$1.1 billion (US$746 million).

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RECOMMENDATIONS Michael Richardson

1. Negotiations to create a free trade area linking ASEAN and ANZ — the AANZ FTA — should be a symbolic centrepiece of their new relationship. The summit meeting in Vientiane between ASEAN and ANZ leaders should be the platform to launch these negotiations. The aim should be to make any agreement as comprehensive as possible so that it will stimulate trade, growth and economic integration within and between ANZ and Southeast Asia. A final decision on whether to begin the FTA negotiations will be made by the ANZ and Southeast Asian heads of government when they meet in Laos on 30 November 2004. They are expected to accept the schedule outlined by ministers. The ASEAN and ANZ trade and economic ministers recommended in September that the FTA negotiations should start as early as January 2005 and be concluded in two years. They agreed that an FTA should be fully implemented within 10 years, though whether this will be from the start of negotions or from the date of entry into force of the agreement has yet to be decided. The aim is to move to zero tariffs on as many goods traded between the two sides as possible, liberalize trade in services, reduce non-tariff barriers to trade, and promote investment. The aim should also be to refocus on the potential for further growth for mutual benefit. But an AANZ FTA should also ensure that products of interest to ASEAN agricultural exporters, including tropical fruit, will be able to enter the ANZ market, subject to acceptable quarantine and health standards.

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Some ASEAN countries allege that Australia has misused quarantine powers to block imports of competitively priced food products from Southeast Asia. Indeed, New Zealand is challenging Australia to demonstrate, as rules of the World Trade Organization require, that there is a scientific justification for Australian quarantine bans on imports of New Zealand apples. Market access for farm products is a major issue for ASEAN agricultural exporters — one that will be a litmus test in their eyes of Australia’s committment to free trade. Even though formal negotiations on an AANZ FTA have been delayed for five years, much useful preparatory work has been done. This includes making Southeast Asian countries more familiar with ANZ phytosanitary regulations and helping them, through capacity building, to meet the standards required for entry of goods. But the ultimate test will be access to the Australian market. Integrating CER, the Closer Economic Relations agreement linking Australia and New Zealand, and AFTA, the ASEAN Free Trade Area, in a way that is acceptable to both sides will not be easy because the two blocs are at very different stages of development.

CER The CER Agreement is a shortened acronym for the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) of 1983. As a result of progressive liberalization, CER now includes free trade in goods, including agricultural products, and almost all services between Australia and New Zealand. Tariffs and quotas have been eliminated. While preserving each country’s political sovereignty, the CER accord has led to a high degree of economic integration even though Australia and

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New Zealand are about 1,800 kilometres apart, divided by the Tasman Sea. The CER was built on a series of preferential trade agreements, including the 1966 New Zealand and Australia Free Trade Agreement (NAFTA). By the late 1970s, NAFTA and its predecessors had led to the removal of tariffs and quantitative restrictions on 80 per cent of trans-Tasman trade. Since CER took effect in 1983, two-way trade between Australia and New Zealand has grown by over 500 per cent. Total trade in goods and services amounted to more than A$16 billion in 2003. New Zealand is Australia’s fifth largest market, and largest outlet for manufactured goods — taking 6.6 per cent of its exports. Australia is New Zealand’s biggest trading partner. The CER trade deal is buttressed by a series of related agreements. Australians and New Zealanders can visit, live and work in the other country. Each year, over a million Australians and New Zealanders cross the Tasman as tourists, for business or to visit family members. Under an Open Skies accord, all Australian and New Zealand owned airlines can operate trans-Tasman services and domestic services in either country, subject to the necessary safety approvals. More than 450,000 New Zealanders reside in Australia and around 50,000 Australians live in New Zealand. They are covered by a reciprocal health care agreement and a cost-sharing arrangement for social welfare payments. They are protected from double taxation. Under a mutual recognition arrangement, a person who is registered in a recognized professional occupation in either country is entitled to practise an equivalent occupation in the other. Goods that may legally be sold in either country may be sold in the other. There is a joint food standards agency and

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code. Australia and New Zealand are also working to harmonize their customs and quarantine procedures. By 2003, total two-way investment — often in companies with extensive operations in both countries — amounted to almost A$34 billion. Labour, banking and financial services markets in Australia and New Zealand have been largely integrated, although there are separate stock exchanges and currencies. The finance ministers of the two countries agreed earlier this year to hasten business law reform. Studies are underway on the feasibility of adopting a joint approach to banking and insurance regulation. This trade, investment and business facilitation has created a bigger market for each economy, stimulating growth, employment and wealth on both sides of the Tasman. Australian officials have described the CER agreement as the most comprehensive, effective and mutually compatible free trade agreement in the world and said it is the benchmark for Australia’s approach to all other free trade deals.

AFTA Like CER, the ASEAN Free Trade Area, AFTA, is a preferential trading arrangement that gives those inside its borders, but not outsiders, the benefit of lower tariffs. AFTA was established in 1992 to eliminate tariff barriers and turn ASEAN economies into a single production base, creating a regional market of more than 500 million consumers that would have lower costs and could compete more effectively for foreign investment. The rise of China and India as trade and investment competitors for Southeast Asia has underlined the need for ASEAN integration. According to the World Bank, ASEAN-wide import taxes, under the average common effective preferential tariff schedule

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known as CEPT, fell from about 13 per cent in 1993 to just under 3 per cent in 2002. About 90 per cent of intra-Asean trade now falls within the 0–5 per cent tariff range and a majority of it is duty free. ASEAN leaders at their summit in Vientiane in November are expected to accept a recommendation from their economic ministers that the six oldest members of the group — Brunei, Indonesia, Malaysia, the Philippines Singapore and Thailand — move to zero tariffs by 2007 rather than 2010, as originally intended. The newer and poorer ASEAN members — Myanmar, Cambodia, Laos and Vietnam — would cut their tariffs to zero in 2012, also three years earlier than targeted. But AFTA has major flaws. It excludes some nationally sensitive items, such as rice, and permits other traded goods to be withdrawn by member countries under certain conditions. Its rules of origin are complicated and shrouded in red tape. As a result, only a small proportion of intra-ASEAN trade is actually conducted under the CEPT. Trade among ASEAN economies accounts for only about 25 per cent of their total merchandise trade and this share is not rising fast. Much of the intra-ASEAN trade is through Singapore. By contrast, intra-regional trade in the European Union amounts to some two-thirds of total trade; in the North American Free Trade Area, NAFTA, it amounts to one half. In addition, little or no progress has been made in advancing trade in services in Southeast Asia. The ASEAN Framework on Services (AFAS) has been largely ineffective. ASEAN’s real weakness is that deals only with the easiest part of trade liberalization, i.e., tariffs, and has made little progress on the more important areas, non-tariff barriers, product standards, customs coordination, services and transport. Recognizing these weaknesses, ASEAN commissioned a report on its competitive position by McKinsey Consulting. The

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report highlighted the maze of non-tariff barriers imposed by different ASEAN member states; unnecessary costs due to different product standards and customs procedures; and the fragmented markets this created. One important result of the AANZ negotiations could be to prod ASEAN to intensify its own work on the more difficult areas of economic integration. At their last summit, in Bali in October 2003, ASEAN leaders appeared to recognize these concerns and agreed to the goal of creating an ASEAN Economic Community, or AEC, by 2020, as one pillar of a more cohesive Southeast Asia. The other two pillars are political and security cooperation, under the still evolving ASEAN Security Community, and socio-cultural cooperation. The main aim of the AEC is to accelerate and deepen Southeast Asia’s economic integration by liberalizing trade in services, investment and skilled labour flows as well as goods. The AEC would also eliminate non-tariff barriers and make national product standards and customs compatible. This would bring Southeast Asia closer to being a single market and production base. According to the McKinsey report, deeper integration could shave almost one-fifth off total costs of production in AFTA. As a follow-up to the McKinsey report, the ASEAN economic ministers established a High-Level Task Force. Among the specific initiatives proposed by the task force to advance regional economic integration in the next few years were: simplifying customs procedures and hastening clearance; eliminating tariff and nontariff barriers to trade; accelerating implementation of Mutual Recognition Arrangements for key sectors, such as electrical, electronic and telecommunications equipment where trade in parts and components constitute 45 per cent of intra-ASEAN trade; harmonizing standards and technical regulations; creating a more effective mechanism for settling trade and other disputes among

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AFTA members; and fast-tracking the liberalization of eleven priority sectors — automotive, wood-based products, textiles and apparel, rubber-based items, fisheries, agro-based products, electronics, air travel, tourism, information and communication technologies, and healthcare. An AANZ FTA should support the aims of this High-Level Task Force to integrate ASEAN.

Benefits of an AANZ FTA A report, known as the Angkor Agenda, by a high level task force chaired by Cesar Virata, a former Philippine finance minister, was presented to a meeting of the ASEAN and ANZ ministers in October 2000. It estimated that an AANZ free trade area would result in gains for AFTA of US$25.6 billion over 10 years, or about 0.3 per cent of additional GDP above what it would otherwise be in 2010. The report said that the gains for CER in the same period would amount to US$22.5 billion, or just under an extra 0.3 per cent of GDP. On the ASEAN side, the study covered only Indonesia, Malaysia, the Philippines, Singapore and Thailand. It did not include Brunei, Myanmar, Cambodia, Laos and Vietnam. Some of its forecast gains may already have been captured in the bilateral FTAs Australia has concluded with Singapore and Thailand, and the FTA between New Zealand and Singapore. Both Australia and New Zealand are interested in negotiating a bilateral FTA with Malaysia. Any FTAs in place between ANZ and Southeast Asian economies will remain unaltered unless improved provisions are agreed in the course of the AANZ FTA negotiations. Australia and New Zealand have a vital strategic interest in having friendly neighbours in a Southeast Asia that is stable and prosperous. A successful AANZ FTA will ensure that the two countries are connected with the emerging economic architecture in Asia as other regional arrangements evolve. It would be good

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economics as well as good geo-politics. Enhanced AFTA-CER relations would strengthen the international bargaining position of both regions as they negotiate preferential trade deals with other countries or groups of countries. It would also send a positive signal to investors that ASEAN and ANZ are committed to continuing liberalization. An AANZ free trade zone would be an influential force in Asia-Pacific affairs. ASEAN had a combined population of over 500 million and an estimated GDP of US$682 billion in 2003. Australia and New Zealand had a combined population of 24 million and an estimated GDP of US$587 billion last year. The GDP of ASEAN plus ANZ amounts to US$1,269 billion, not far short of China’s estimated GDP in 2003 of US$1,437 billion.

Are FTAs the Best Way Forward? Supporters of preferential trade deals, whether between two or more economies, insist that they can galvanize wider liberalization and stimulate progress in multilateral negotiations at the World Trade Organization. Critics contend that they are a second best alternative to broader trade and investment opening through APEC, the Asia Pacific Economic Cooperation forum, and the WTO. 2. Australia, New Zealand and Southeast Asian countries, collectively through ASEAN and individually, are engaged in an increasing number of separate negotiations to expand their preferential access to foreign markets through free trade agreements and closer economic partnerships. They should develop template arrangements, including use of common or similar rules of origin, among all these agreements and partnerships so that they can be harmonized with wider regional or global free trade negotiations that

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promise greater benefits in future. Otherwise the outcome in the Asia-Pacific region will be a “spaghetti bowl” of incompatible trade deals that can only be integrated, if at all, with great effort, time and cost. ASEAN is due to have FTAs or similar arrangements with China by 2010, Japan by 2011 and India by 2012, all providing for zero tariffs. Singapore has FTAs with New Zealand and Australia and other countries outside the region, including the United States. Singapore is negotiating preferential trading arrangements with many other countries and blocs. Thailand, too, has been very active in signing and seeking such arrangements in Asia and beyond. Australia has a FTA with Thailand and New Zealand is seeking one. Both Australia and New Zealand are undertaking feasibility studies for separate FTAs with Malaysia.

The China Factor Australia and New Zealand are clearly interested in developing closer economic relations with Southeast Asia. But they no longer give it the priority of a decade ago, when Southeast Asia appeared to be in an era of unlimited growth and before China’s stellar rise and India’s rapid emergence had riveted world attention. China has become the world’s seventh largest economy. It has grown consistently fast for over two decades. For both Australia and New Zealand, China is now the big magnet in Asia. China is also a key market for Southeast Asia, but it competes with ASEAN countries for investment and in trade. By contrast, the economic interests of ANZ and China are far more complementary than competitive. Each has leading sectors of goods and services the other lacks and needs.

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Australia and China agreed in August that their feasibility study of a free trade agreement between the two countries could be completed by April 2005, at least six months earlier than planned. Australia expressed optimism that negotiations on a free trade deal could begin shortly after this scoping study was concluded. China recently surpassed the US to become Australia’s second biggest export market after Japan. Australia was China’s twelfth largest destination for exports in 2003. China has not only become a voracious buyer of Australian minerals, energy and farm products, it has emerged as a major investor by pumping A$2.2 billion into the Australian economy in 2003. China also looms large for New Zealand. It is New Zealand’s fourth largest trading partner. Two-way trade in goods was worth NZ$4.6 billion in 2003. Significantly, China is a major buyer of New Zealand’s dairy products and the largest market for its wool. In services trade, China is the sixth largest source of tourists and other overseas visitors to New Zealand and accounts for almost half the number of foreigners studying in New Zealand. China and New Zealand hope to complete their FTA feasibility assessment by November 2004, four or five months before the Australia-China FTA scoping study is concluded. ASEAN would be at a disadvantage if the Australia-China FTA and the New Zealand-China FTA take off and develop faster than the AANZ FTA. A deal with either Australia or New Zealand would be China’s first FTA with a developed economy. Two other Northeast Asian economic powers, Japan — the world’s second largest economy after the US — and South Korea also trade extensively with, and invest heavily in, ANZ. Australian and New Zealand trade is growing far faster with China and other Northeast Asian economies than with Southeast Asia. The value of New

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Zealand’s exports to China have trebled in the last decade. Australia’s exports of goods to China have grown at an average annual rate of 14.5 per cent over the past ten years. In the last four years, the rate of increase has been sharply higher, averaging over 22 per cent annually. Still, Australia’s trade in goods and services with China was worth A$25.2 billion in 2003 — somewhat less than the A$25.8 billion with Southeast Asia. 3. ANZ and Southeast Asia should develop a new security agenda, one that responds more closely to the most pressing concerns of ASEAN countries with large numbers of poor and unemployed people. This does not mean downgrading existing regional cooperation to deter, prevent and suppress terrorist violence. It means raising the profile of action in other areas. While there must be a crackdown on terrorism and extremism in Southeast Asia, it should be coupled with intensified programmes to reduce poverty and improve governance, public health, housing and education so that more people, not just the rich and middle classes, feel that they have a stake in preserving the basic framework of their societies. The leaders of Australia, New Zealand and Southeast Asia should discuss the content of this new security agenda, and how each country can contribute to it, when they meet at the ASEAN summit in Vientiane on 30 November 2004. The agenda should seek to spread more hope and opportunity. There should be follow-up talks among officials and experts from ANZ and Southeast Asia to develop this agenda, which could be benchmarked against the United Nations Millennium Development Goals.

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Are ANZ and Southeast Asia focusing too much on the symptoms of terrorism and too little on the causes or the conditions in which terrorism and criminality fester and breed? Are the causes or drivers of terrorism in Southeast Asia and elsewhere ideological, rather than socio-economic? Are what we learn and believe more important in fostering intolerance and extremism than our economic and social conditions? Or does one set of inflaming circumstances feed upon the other?

The Wolfensohn View World Bank president James Wolfensohn warned recently that immediate preoccupations with Iraq, Afghanistan and terrorism were distracting policy-makers in rich countries from long-term issues of poverty and development. He noted that the world was spending US$900 billion on defence, over fifteen times the amount being spent on development assistance. On a visit to Australia last February, Mr Wolfensohn observed that in percentage terms, the international community was spending less now on development than 40 years ago. He quoted figures showing that only a small proportion of the two billion people to be born in the next 25 years would be in rich countries. The rest would grow up, he said, having to endure poverty and unemployment while becoming disillusioned with a world they would inevitably view as unequal and unjust. Mr Wolfensohn said that he believed the fundamental cause of disequilibrium, conflict and, in many cases, terror, was poverty. He noted that population growth and increased freedom of movement meant that rich countries were no longer places of privilege separate from the developing world. Instead, there was really one world — a small part of it rich and a big part of it poor — that was connected by trade, transport, finance, environment

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and shared pollution, crime, drugs, health or disease and even by terror.

Southeast Asian Concerns Southeast Asian foreign ministers echoed many of these concerns about the fraying fabric of human security when they addressed the United Nations General Assembly in September 2004. While reaffirming their commitment to fighting terrorism, they called for battle plans to be redrawn so that sights were trained more on “root causes” like poverty, social injustice and religious intolerance. They also called for inter-faith discussion and dialogue between peoples of different civilizations. The Australian Government’s announcement in October that it will co-host with Indonesia an inter-faith dialogue involving religious leaders from the region to share perspectives and increase understanding among the faiths about key issues such as terrorism suggests that it receptive to Southeast Asian concerns. New Zealand, too, is likely to be supportive.

UN Goals The UN outlined its Millennium Development goals in the year 2000. They set targets for progress in eight areas: poverty and hunger; primary education; women’s equality; child mortality; maternal health; disease; the condition of the natural environment; and a global partnership for development. Most of the targets call for substantial improvements by 2015, compared with 1990.

Fissures If ANZ and Southeast Asia are taken as a single entity, a threefold socio-economic divide emerges roughly like this:

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in the rich or developing-strongly camp are Australia, New Zealand, Singapore, Brunei, Malaysia, Thailand and perhaps in the non-too-distant future, Vietnam; in the slipping seriously camp, are Indonesia and the Philippines;

and in the very poor camp are Myanmar, Cambodia and Laos. Indonesia and the Philippines form an interface between ANZ and Southeast Asia. They straddle the most direct sea and air lanes of communication between ANZ and East Asia. Both are struggling with fractious political elites, heavy debts and budget deficits, and rising birth rates, unemployment and poverty. Indonesia, with a population now estimated at 223 million, is the world’s fourth largest nation. By 2025, it is projected to have over 270 million people. The Philippines, with a population of more than 81 million, is expected to have nearly 110 million people by then. It is already the fourteenth largest country in the world. But both countries have leaders who appear to be committed to recovery strategies. Indonesia’s President Yudhoyono has said that he wants to improve the investment climate, starting with political stability, improved security, good taxation and economic policies, and legal certainty including sanctity of contracts and fair systems for settling disputes. If the governments of Indonesia and the Philippines can implement necessary changes, it will increase the level of investment, trade and other economic support from neighbouring states in Southeast Asia and from ANZ. Self-help must be the starting point. If Indonesia and the Philippines fail to quell lawlessness, they will become poorer and criminality of all kinds, including terrorism, will increase. There will be little then that neighbours can effectively do to help arrest the downward slide.

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Philippines The Philippines budget deficit narrowed sharply in August 2004, raising hopes that the government might meet its full-year fiscal targets and begin to slow the rapid growth in public debt. The improvement was the result of cuts in government spending and improvements in tax collection. The government has a six-year plan to reduce the number of poor Filipinos from 34 per cent to less than 20 per cent of the population by 2010. Manila counts as poor anyone earning less than US$227 per year, the minimum required to meet basic needs in 2000, the year of the most recent poverty statistics. The government of former president Fidel Ramos managed to reduce the number of poor people from just over 45 per cent in 1991 to just under 37 per cent in 1997, after five years of sustained economic growth averaging almost 4 per cent a year. The current president, Gloria Macapagal Arroyo, warned in August that the Philippines was in “fiscal crisis” because it had been spending far more than it earned since 1998. An annual budget deficit of up to 4–5 per cent of economic output led to a rapid build-up in debt. It amounts to nearly 80 per cent of gross domestic product for the government and more than 120 per cent for the entire public sector, including Napocor, the loss-making state power company. This is one of the highest levels in Asia. A report by a group of economics professors at the University of the Philippines has warned of a looming Argentina-like default on loan repayments if there is surge in global interest rates or a withdrawal by foreign lenders.

Indonesia While Indonesia has made an impressive and rapid transition from authoritarian rule to democracy in the last six years, the

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financial and economic crisis of 1997–98 that brought former strongman President Suharto down and put Indonesia back on a democratic path also hit the country very hard indeed. According to the National Development Planning Board, BAPPENAS, nearly 25 per cent of the population is unemployed or only able to find part-time work at very low rates of pay. Annual economic growth of around 4 per cent sounds impressive but provides less than half the 2.5 million young Indonesians entering the employment market each year with jobs. Poverty has increased in the past few years and corruption is widespread. State spending on basic development needs like health, education and housing has fallen, because government revenue has declined and about one-third of it is used to pay or rollover debt accumulated in the past. The UN Children’s Fund, UNICEF, reports that Indonesia has the highest rate of elementary school dropouts in Southeast Asia. Both government and Muslim religious schools need more funding and better teacher training programmes. They need to develop a curriculum that offers students a modern education, one in which they read widely, learn English and other foreign languages, and acquire the knowledge and skills that will enable them to find jobs. During Suharto’s rule, an active family planning programme reduced Indonesia’s fertility rate from over 2.3 per cent in the 1970s to less than 1.5 per cent in the 1990s. Now those who run the programme to distribute contraceptives to poor couples warn that it is heavily underfunded. As a result, the birth rate is rising and the country’s population could almost double to 400 million by the middle of this century. This will worsen shortages of jobs, food, medical care, and education. It will intensify poverty. Will it also exacerbate extremism and terror in the name of religion, and drive even more Indonesians overseas, to

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Malaysia and other Asian countries, and to Australia, to look for work?

Help: Enough & What Kind? In such a situation, are neighbouring states in the rich or developing-strongly camp doing enough, individually and collectively, to help the new leadership in Indonesia and the Philippines arrest and reverse the downward socio-economic spiral? Are neighbouring states doing enough to alleviate the endemic poverty traps in Myanmar, Cambodia and Laos? Should the countries in the rich or developing-strongly camp be offering programmes to promote good governance, education reform and teacher training, and regional trade and economic integration, as Australia is? Or should they focus on other aspects of human resource development while offering temporary employment to hundreds of thousands of Southeast Asian migrant workers, as Malaysia, Singapore and Thailand are doing? Of course, these different approaches may well be complementary. To what extent should the countries in the relatively privileged camp be working together and coordinating their policies towards the rest of Southeast Asia, in line with regional development goals? Will trade liberalization, including free or preferential trading arrangements, raise living standards across the region or mainly in the economies of the rich and developing strongly camp? These are questions ANZ and Southeast Asian leaders should ponder. 4. At their summit in Laos in November, ANZ and ASEAN leaders should consider establishing a Research and Talent Development Initiative (RTDI). It would: • provide a framework and focal point for scientific and technological collaboration between research centres

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in Australia, New Zealand and Southeast Asia to tackle major environmental and resource problems common to both regions; • offer exchange programmes and scholarships so that young researchers can develop their skills and get to know their peers and conditions in neighbouring countries. The RTDI programme could be funded jointly by the ANZ and Southeast Asian governments and managed by the ASEAN Secretariat in Jakarta, in liaison with research centres in Australia, New Zealand and Southeast Asia. A major focus of the programme should be on improving agriculture and the quality of life in rural areas, especially in Southeast Asia. Southeast Asian countries need to take more effective action to prevent the widespread and reckless squandering of their natural resources that should be the base of sustainable economic activity in the future. The wholesale cutting of forests, the destruction of coral reefs, over-fishing and the pollution of water supplies and air, particularly in major cities, will have devastating social and environmental consequences for the region unless control and remediation measures are applied.

Research Soundly-based research by scientists and others can help to highlight problem areas and find solutions. Australia and New Zealand also face serious problems of water management, land care, resource depletion and energy supplies as the planet becomes warmer. There is clearly potential for joint ANZ-ASEAN research and development projects for mutual benefit in such areas as

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fisheries and coral reef protection; native forest, watershed and river management; plantation forest industry research and development; land care and food (including rice) production; planning for global warming and mitigation of its effects; and energy conservation and innovation, including clean coal technology, development of renewable energy sources and the hydrogen economy. These are all matters of common interest; they should also be areas for joint action. Some research and development in these areas has been carried out in the past, or is currently underway, through bilateral aid programmes between Australia and Southeast Asian countries and New Zealand and Southeast Asian countries, or between Australia and New Zealand separately with ASEAN, through the ASEAN secretariat, or through research institute partnerships in Australia or New Zealand and Southeast Asia. Such collaborative R&D involving Australian, New Zealand and Southeast Asian research centres needs to be intensified and better coordinated, with more generous funding from governments. For example, Australia’s CSIRO (formerly the Commonwealth Scientific and Industrial Research Organization) has a well-funded science and innovation programme over the next seven years that includes major projects on water, food, oceans and energy that could be of interest to Southeast Asia. So could the forest products research joint venture established in July by ANZ’s two largest forest research agencies, New Zealand’s Forest Research and the CSIRO’s Forest and Forest Products division. The Australian Centre for International Agricultural Research, ACIAR, does a lot of good work in Southeast Asia through the Australian Government’s aid programme, AusAID, to promote better production of staple foods, better human and animal health in rural areas, better water supply and sustainable fisheries. ACIAR collaborates with the International Rice Research Institute (IRRI),

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based in the Philippines, on rice production. ASEAN recently agreed to establish formal relations with IRRI. This will bring together the largest grouping of rice-producing nations and the world’s leading rice research institute.

Vital This kind of research is unspectacular and seldom reported in the mainstream media. But it is vitally important because of the impact it can have in alleviating poverty and raising living standards, especially in rural Southeast Asia where a majority of the population still lives and works. The leaders of Indonesia, Malaysia, the Philippines and Thailand have all recently made rural development and raising farm incomes a top priority in their national policy. If life is made better and more attractive in the countryside, it will help to slow the mass migration of young people to towns and cities in search of work and wider opportunities — a human tide that threatens to overwhelm many already overcrowded urban centres in Asia. 5. Australia and New Zealand should work more closely and systematically with ASEAN members and international financial institutions to improve corporate governance, strengthen economic institutions and reduce official corruption and waste. The East Asian financial crisis of 1997-98 did not occur because the region lacked export opportunities or capital, either foreign and domestic. It happened because poor corporate governance and rampant graft led to massive waste of money and inefficiency. Politicians, officials and the private sector were often complicit in this network of systematic corruption through money politics. World Bank and other surveys suggest that governance in much of Southeast Asia has deteriorated further, not improved, since

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then. The lessons of the crash risk being forgotten as economies recover. Yet without institutional reforms, economic integration among ASEAN countries can only exacerbate these weaknesses. Corruption is a cancer that undermines economies and government legitimacy. While Singapore is currently the sole ASEAN country rated as having top quality economic institutions, corporate governance and a corruption-free environment, measured by international standards, other ASEAN governments, including Malaysia, Indonesia, the Philippines, Vietnam and Thailand, say that they recognize the key importance of making improvements in these areas and are committed to do so. Like Singapore, Australia and New Zealand have achieved some best-practice benchmarks in governance and institution-building. The International Monetary Fund, World Bank and Asian Development Bank have wellestablished programmes to improve corporate governance and strengthen economic institutions in Southeast Asia. Although there is close cooperation between these agencies and ANZ and Singapore, there is scope for more extensive collaboration. The advantage of working with and through international financial institutions on politically sensitive issues is that the standards they set are seen to be global, not bilateral. ASEAN’s best way forward is to combine its market expansion measures with deep and sustained institutional reforms as the region intensifies efforts to achieve an integrated ASEAN Economic Community (AEC) by 2020. A report published by the World Bank in September reaffirmed that good government is at the heart of economic growth. A Better Investment Climate for Everyone drew on surveys of 26,000 businesses in 53 countries. It found that governmental failure is the most important obstacle business faces. Inadequate enforcement of contracts, inappropriate

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regulations, corruption, rampant crime and unreliable infrastructure can cost 25 per cent of sales. This is more than three times what businesses typically pay in taxes. 6. At their summit, Australia, New Zealand and ASEAN leaders should consider forming a Bio-security Partnership to develop better protection against outbreaks and transmission of diseases that are infectious to humans, animals or plants, including food crops. They should do so in close consultation and collaboration with United Nations agencies such as the World Health Organization, WHO, the Food and Agriculture Organization, FAO, and the World Organization for Animal Health, as well as other international disease control centres and networks like the Centres for Disease Control and Prevention in the United States and its affiliate in Singapore. ANZ and ASEAN should consider jointly sponsoring with relevant UN agencies an Asia-Pacific Leadership Forum on infectious diseases, similar to the forum that Australia has strongly backed on HIV/AIDS and development. The aim of both meetings would be similar: to bring key experts and political leaders together to exchange ideas and develop measures to stop the spread of disease. Diseases can have a major impact on public health and economic activity, particularly when they are contageous and move from one country to another creating an international pandemic. From 1918 to 1919, the so-called “Spanish flu” killed over 20 million people — more than died in World War I. In recent years, the spread of foot-and-mouth disease in animals and HIV/AIDS in humans are just two examples that have cost billions of dollars in

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treatment and lost production alone. AIDS cuts a swathe through young people in the prime of their working lives.

SARS The genesis of Severe Acute Respiratory Syndrome, SARS, in China in late 2002 and its spread to other parts of East Asia and the world in 2003 revealed an initial lack of official transparency about the disease and readiness to cooperate with other countries in preventing its spread. This attitude in China and some other countries changed, and international collaborative measures were put in place to detect and control the pneumonia-like illness. Even so, more than 800 people worldwide died of SARS and the fear of infection severely disrupted air travel, tourism and economic growth in Southeast and Northeast Asia for some months after governments in many countries imposed tight internal and border controls. Fortunately, the SARS-induced economic shock was relatively short-lived. Researchers involved in a joint Hong Kong-US project announced in September 2004 that they had found chemical compounds that prevent SARS infection. While this is a promising step towards creating a drug to combat the sometimes fatal respiratory illness, a cure may still be a distant prospect as scientists have yet to proceed to animal and human testing.

Bird Flu Unlike SARS — where cross-border checks were enough to stop the spread of the disease — influenza is infectious even before fever develops, so such checks are useless. Asia is now the focus of concern as a likely epicentre for a new and deadly global flu pandemic. This follows an outbreak of avian influenza in early 2004 that has killed more than 30 people, ravaged Asian poultry

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industries and caused some damage to tourism and investor confidence. So far, nearly all deaths are thought to have been the result of bird-to-human transmission. The problem was believed to have largely subsided by April, but additional waves of the disease since July have shown that the virus was not eradicated. Indeed, it appears to be hosted by several species of birds and animals. Thailand, Vietnam, China, Malaysia and Indonesia are among countries that have dealt with new cases in recent months. Thailand announced a probable case of human-to-human transmission of the disease in late September. This has fanned fears that the deadly H5N1 variant of the bird flu virus may be mutating into a form that could spark a human influenza pandemic. The FAO and the World Organization for Animal Health said in joint statement that a permanent threat to animal and human health continued to exist from Asian bird flu.

Surveillance Veterinarians and scientists from the ten ASEAN member states announced a plan in July to set up a bird flu surveillance network in an effort to curb the spread of the virus. At a meeting in Bangkok organized by the FAO, delegates said that governments and laboratories would have to find ways to standardize testing and contain the disease through closer international cooperation. They aim to establish the network within two years. Australia and New Zealand should join this effort as part of the proposed Biosecurity Partnership. They should work with ASEAN and the FAO to speed up implementation of the bird flu surveillance network plan. Singapore proposed in early October that ASEAN should take a coordinated approach to control bird flu in Southeast Asia. The Singapore plan calls for a H5N1 Taskforce to be formed under the ASEAN Sectoral Working Group on Livestock.

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Intervention After the SARS outbreak, Singapore joined hands with US health agencies to set up a Regional Emerging Disease Intervention Centre, REDI, in Singapore. It works with the WHO and the Asia Pacific Economic Cooperation Forum, APEC, to improve regional preparations for a flu pandemic. Both Australia and New Zealand have experience and expertise that they could contribute to a Biosecurity Partnership with ASEAN on flu and other infectious diseases. Australia, for example, maintains a national influenza pandemic plan, which outlines measures for identifying and dealing with a flu pandemic in the human population. Vaccination of healthy poultry may prevent the need for mass culling of birds and Australian researchers are working on a vaccine for use against the current H5N1 strain. Vaccination has been suggested as a preventive measure to protect the livelihoods of farmers and agrarian economies. Australia is also the site of one of the WHO’s four collaborating centres for influenza research. Flu viruses in humans keep changing. To counter this, vaccine composition has to be updated before each new flu season in the northern hemisphere winter and the southern hemisphere winter. Information on circulating strains and epidemiological trends is gathered by the WHO Global Influenza Surveillance Network. It consists of 112 national influenza centres in 83 countries and four WHO Collaborating Centres for Reference and Research on Influenza located in Atlanta, in the US, and London, Melbourne and Tokyo. Flu samples for strain identification are collected by the national centres and passed to the four collaborating centres. They work jointly with national laboratories in Australia, Britain and the United States involved in registration and quality control of flu vaccines to make sure that they match the new epidemic strains.

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The WHO said on 4 October 2004 that it made the prototype seed strain for an H5N1 vaccine available to manufacturers in early April. But so far, only two of the world’s twelve or so major companies producing flu vaccines have made any significant advance in work on a pandemic vaccine. These two multinational companies, Aventis Pasteur Inc. and Chiron Corp., have produced small batches of vaccine for use in clinical trials. The trials, which require several months for the compilation and analysis of data, are needed to fine-tune vaccine composition, test safety, and meet other licensing requirements. Trials are not expected to begin before the end of 2004. 7. Australia and New Zealand have long-established aid partnerships with ASEAN, through the ASEAN Secretariat in Jakarta. But a number of Southeast Asian countries now have their own training and technical cooperation programmes. Australia and New Zealand should explore opportunities to extend their aid collaboration with these ASEAN states. If most of the training can be done in Southeast Asia, rather than Australia or New Zealand, it will reduce travel and other expenses, lowering the administrative costs of aid. Australia, New Zealand, Singapore, Malaysia, Thailand and any other ASEAN countries that provide development assistance in Southeast Asia should make an inventory of their projects and provide the information to the ASEAN secretariat to form a data base for use as a checklist to prevent duplication and waste of scarce aid resources. One of the promising trends in Southeast Asia in recent years has been the increasing readiness of richer, more developed members

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of ASEAN to help partner states that need assistance. The aim is to bridge the development gap in Southeast Asia and enable the newer members of ASEAN to catch up with the older members. This has become a key ASEAN policy objective through the Initiative for ASEAN Integration, IAI. Singapore established its training and technical cooperation programme in 1992. Malaysia, too, has had a similar programme for some years. Both provide capacity building to a wide range of developing countries, not only to those in Southeast Asia. From 2001, Singapore set up four IAI training centres in Phnom Penh, Hanoi, Yangon, and Vientiane to provide courses of 1–3 weeks for government officials from those countries in subjects that include English, trade and economic development, negotiation skills, notetaking, curriculum planning, instructional techniques and WTO accession requirements and issues. The emphasis is on training trainers and helping to equip officials of the newer ASEAN members so that they can play a productive part in the 500 or so meetings that ASEAN has each year. Thailand announced in 2003 that it would cease to be an aid recipient and instead provide training focused on its Mekong River neighbours, Cambodia, Laos, Vietnam and Myanmar. Brunei, Indonesia and the Philippines also provide this kind of human resource development to the newer ASEAN members. As noted earlier in this report, Australia and New Zealand have long established development cooperation programmes with ASEAN that are coordinated and run through the ASEAN secretariat in Jakarta. They reflect the current priorities of the partners, including promotion of economic growth, poverty alleviation, expansion of economic links in Southeast Asia, and hastening the integration of the newer member countries of ASEAN.

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ANZ-SEAsia Partnerships However, Australia recently extended the scope of a joint training partnership with Singapore for less developed ASEAN countries. New Zealand has an agreement with Thailand to do something similar for countries of the Mekong River basin. The aim of these aid partnerships between ANZ and ASEAN countries is to draw on the relative strengths of the partners in providing training, and to share resources and thus costs. There is potential to extend these kinds of partnerships, not just between ANZ and ASEAN countries, but among Southeast Asian states themselves that are providing assistance, mainly in the form of training. The main obstacles in the way are lack of political will; a desire to continue national “branding” of official development assistance; and problems in motivating and coordinating different national bureaucracies. The parliaments of Australia and New Zealand also have strict accounting and auditing requirements for their government aid programmes and this can affect the development of third country aid partnerships. Still, the Singapore-Australia Third Country Training Program, first established in 1996, offers one possible way forward. Its scope was extended in August when the two partners signed a new memorandum of understanding to offer training to other Southeast Asian countries in: better understanding of the WTO and trade policy; surveillance and containment of communicable diseases; customs and quarantine regulation and proceedures; health care and environmental management; air traffic control; and financial risk management. A joint management committee will meet annually over the next three years to determine which fields and countries get priority.

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8. Australia and New Zealand should consider acceding to ASEAN’s Treaty of Amity and Cooperation (TAC) when their prime ministers meet Southeast Asian leaders at the ASEAN summit in Vientiane on 30 November. Agreed by ASEAN heads of government at their first summit in Bali in 1976, the Treaty of Amity and Cooperation in Southeast Asia sets out a code of conduct for regional relations. It binds the contracting parties to renounce the use or threat of force except in self-defence and prescribes a process for settling any disputes peacefully. All 10 ASEAN members have adhered to the treaty. Papua New Guinea, which has observer status in ASEAN and shares a land border with Indonesia, joined the TAC in 1989. The treaty was amended in 1987 to allow countries outside the region to accede, and again in 1998 to enable the new members of ASEAN to consent to such accession. China and India joined in October 2003 during the ASEAN-China summit and the ASEAN-India summit; Japan and Pakistan followed in mid-2004. ASEAN wants all its dialogue partners to accede to the TAC, arguing that this will encourage constructive engagement in political and security matters and thus help reinforce regional peace and stability. Other key principles of the treaty, which some analysts have referred to as a non-aggression or peaceful coexistence pact, are respect among member states for each other’s sovereignty and territorial integrity as well as non-interference in each other’s affairs. However, the latter principle has not stopped some ASEAN countries from criticizing developments in other member states that affect the interests and standing of the region, including repression in Myanmar.

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The TAC establishes a High Council to recommend ways of resolving conflicts among signatories, but only if all the conflicting parties agree to mediation. The council has not been convened since the treaty came into force because ASEAN member states are unwilling to surrender national sovereignty to a regional dispute-settling body. Nonetheless, the TAC enshrines principles that underpin regional order and it could become a more effective body in future. As friendly neighbours, Australia and New Zealand should accede to the treaty because it would be a significant symbolic gesture of support for peace and stability in Southeast Asia. As partners of ASEAN, it would show that they accept the approach for maintaining order that countries in the region are comfortable with. This would be another step towards the goal of regional integration. Following Indonesia’s decision to give East Timor the right of self-determination leading to independence, adhering to the TAC would also reinforce the repeated public recognition by Australia and New Zealand of Indonesia’s current territorial integrity and unity. Like Australia, Japan is a long-time ally of the United States and consulted Washington before joining the TAC. The fact that Tokyo acceded indicates that the US has no major problem with allies becoming part of a treaty that does not place any onerous constraints on their freedom of action, including their alliance obligations or their right of self-defence. South Korea, another Asia-Pacific ally of the US, is also expected to accede to the TAC, along with Russia. The Australian Government has expressed interest in deepening its strategic partnership with Indonesia by developing a more formal bilateral security arrangement or treaty. If this

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were negotiated in the context of an Australian decision to join the TAC — a step Indonesia has specifically requested — it would make it easier for Jakarta to portray the pact with Canberra as being compatible with its own and the region’s security principles. 9. Australia and New Zealand should continue their policy of critical engagement with Myanmar and work with likeminded ASEAN members to press for real reform in the military-ruled country before it takes over the rotating chairmanship of the group in mid-2006 for 12 months. If Australia and New Zealand want to intensify their relations with ASEAN, they must continue do so on the basis that the group has ten members. They must also accept that one of the members is Myanmar and not seek to exclude it from high-level ASEAN-ANZ meetings, or try to diminish its status at such meetings, as the European Union has done. The contention between the EU and ASEAN over Myanmar has raised a major obstacle to closer relations between Europe and Southeast Asia. Because the EU objected to the inclusion of Myanmar, two separate sessions earlier this year between EU and ASEAN finance and economic ministers were cancelled. The biennial Asia-Europe Meeting, ASEM, bringing together heads of state and government from Europe and East Asia came close to being cancelled for the same reason. It was finally held in Hanoi in the second week of October under a compromise formula that only permitted Myanmar to take part at a lower level of representation. Despite the façade of regional solidarity, other ASEAN members have been repeatedly embarrassed by Myanmar since it joined the group in 1997. The refusal of the military regime in Yangon to heed repeated public and private calls from Southeast

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Asian countries to improve its human rights record and allow genuine constitutional and democratic change to take place has embarrassed ASEAN and tarnished its international status. Yangon’s intransigence has become a recurring distraction for ASEAN at a time when it needs to be fully focused on constructive diplomacy. Unlike the EU, the United States does not have a summitlevel connection with ASEAN. But both the US and Europe have imposed economic and other sanctions on Myanmar in protest at the government’s treatment of the opposition National League for Democracy and its detained leader Aung San Suu Kyi. In contrast, ASEAN seeks change by engaging, not isolating, Myanmar. While strongly critical of repression in Myanmar, Australia and New Zealand have policies for dealing with the issue that are more in line with those of ASEAN than with those of Europe and the US. The need for reform is even more pressing now, following political changes in October 2004 that appear to strengthen the hold on power of ultra-hardliners. Canberra and Wellington should work with like-minded ASEAN members to press for change in Myanmar. Such an approach is likely to be welcomed by most ASEAN members who recognize that if there is no genuine constitutional and democratic reform in Myanmar before it assumes the chair of ASEAN in 2006, the organization will face a crisis in its relations with the West. EU policy will harden further while America has reportedly warned that unless Myanmar is well on the road to democracy by then, the US Secretary of State will not attend the annual meeting of ASEAN foreign ministers and the ASEAN Regional Forum on security. There is a further potential complication for ASEAN. The annual meetings of the World Bank and IMF will be in Singapore

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in September 2006. The focus of the studies due to be launched then and the seminars to be held around that period will obviously have a heavy ASEAN flavour. An unreconstructed Myanmar as chair of ASEAN would change that focus considerably, distracting attention from progress and opportunities in the region to the retrograde record of the junta. 10. Law-makers from ANZ and Southeast Asia should become more familiar with each other, the work they do and the legislative and political systems in which they operate. This would foster better understanding of the diverse forms of representative government in the two regions and broaden the horizons of members of parliament who are often preoccupied with local issues and the concerns of their constituents. Closer legislative ties between ANZ and Southeast Asia could be promoted through: • Exchange visits of parliamentary delegations and/or visiting MP fellowships. These could be made a regular activity through formal parliamentary exchange agreements. But they should be hinged to a constructive programme of work and networking, and not be regarded as an opportunity for pleasure tours. • The continuing participation of Australian and New Zealand MPs, preferably on an expanded basis, in the general assembly meetings of AIPO, the ASEAN InterParliamentary Organization. This could have useful multiplier effects in many areas, including the advance of foreign policy interests shared by a majority of countries in both regions.

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Burma Reform Lobby For example, a cross-party caucus in the Malaysian parliament was formed in June to press for reform in Myanmar. The caucus is led by Zaid Ibrahim, an MP from the United Malays National Organization, UMNO, the leading party in the country’s ruling coalition. The deputy chairman of the caucus is Wan Azizah Wan Ismail, an opposition leader and wife of the former Deputy Prime Minister Anwar Ibrahim who was recently released from jail after a court overturned his conviction. When launched, the caucus called on the Myanmar military regime to return to “the mainstream of responsible international norms and behaviour”. The caucus is supported by the Malaysian Government which has made clear that it wants to see the Myanmar Government carry out its political reform pledge. Malaysian parliamentarians plan to host a meeting of elected representatives from around Southeast Asia in a bid to hasten reform in Myanmar. Among those who have reportedly agreed to attend the meeting in Kuala Lumpur from 26 to 28 November are legislators from Thailand, Cambodia, the Philippines, Indonesia and Singapore. Their Malaysian hosts want to set up a network among ASEAN parliamentarians to push for restoration of civil liberties and democracy in Myanmar. Australia and New Zealand share this objective and should seek to be associated with this legislative lobby group.

AIPO Meetings of AIPO, the ASEAN Inter-Parliamentary Organization are usually held each year and hosted by one of the eight member parliaments of AIPO in Southeast Asia on a rotating basis. The organization was established in 1977 to encourage a greater sense of social cohesion and community in ASEAN. It has a small

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permanent secretariat in the Indonesian parliament but depends to a large extent for its effectiveness on the interest or otherwise of the annual host parliament and its speaker. The eight full AIPO members are Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam. As Brunei and Myanmar have no legislatures yet, they are accredited as AIPO’s Special Observers with the right to full participation in the group’s activities. AIPO has nine dialogue partners, including the parliaments of Australia and New Zealand. They are invited to send MPs to the AIPO general assembly session. The last was held in Phnom Penh, Cambodia, from 12 to 17 September. The work of AIPO is often carried out by committees and has ranged over a broad array of issues that are of interest to Australia and New Zealand, including drug abuse and rehabilitation; human rights; protection of wildlife, the environment, marine and coastal resources; trade and investment liberalization; and public health. AIPO is also a forum for discussion on harmonizing laws passed by its member parliaments. 11. Australia, New Zealand and Indonesia’s ASEAN partners should team up to support to Jakarta’s bid for a permanent seat on the United Nations Security Council. They should back the bid collectively as well as individually, by issuing a joint statement of endorsement at the ASEAN summit to add regional weight to their campaign. The structure of the UN Security Council has remained unchanged since 1945. It has 10 rotating members chosen by the UN General Assembly. But real power resides with the five permanent members — Britain, China, France, Russia and the United States. Each is a

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nuclear weapon state with the right to veto Council decisions. ANZ and Southeast Asian countries have long argued that the composition of the Council is out of step with current geopolitical realities and should be enlarged to better reflect the world of today. A report commissioned by the UN itself is due in December 2004 and is expected to recommend reforms in the UN’s representation and procedure. Australia first proposed in September 2003 that the Security Council be expanded to include Japan, India, Brazil, Indonesia and an African nation. The inclusion of Indonesia would bring better balance to the council by adding a voice from Southeast Asia. Indonesia is the world’s fourth most populous nation. It has more Muslims than any other country, representing over 15 per cent of global Islam. Indonesia has moved from autocracy to fully elected representative government in the space of just six years. Its success, even in the face of economic adversity and terrorist violence, shows other Muslim countries that democracy and Islam can be compatible. Malaysia has long been such an exemplar while showing sustained economic growth and modernization. Brunei, too, fosters religious tolerance although it is an Islamic sultanate. Although perhaps not as secular as Muslim-majority Turkey, Indonesia is governed by civil, not religious, law. The state ideology, Pancasila, enshrines belief in God while offering equal rights and protection to all religions in Indonesia, including Islam, Hinduism and Christianity. In a speech in September 2004 putting forward Indonesia’s candidacy for a permanent seat on the UN Security Council, Foreign Minister Hassan Wirajuda told the General Assembly: “Moderate Islam must have a voice on the council. Indonesia would be that voice.”

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12. Australia’s alliance with the United States is a plus in its relations with some countries in Southeast Asia but has become a source of suspicion in Muslim-majority Indonesia and Malaysia. New Zealand does not have this benefit or burden because it is no longer a full-fledged ally of the US linked to Australia through the ANZUS treaty. Australia should use its privileged access in Washington to try and ensure that US political leaders and opinionmakers are aware of Southeast Asian sensitivities over Muslim and other issues, and take account of them in making US decisions that affect the region. It should be done at the highest level of government. Singapore has done this repeatedly, both in private and in public, over the past few years often at very senior levels of government. This has helped Singapore to reconcile its pro-US policies with its Southeast Asian engagement. And it may well have strengthened Singapore’s value in Washington as a friend who can assist the United States in making course corrections. It is sometimes said that Australia’s close ties with the United States are at the expense of its ties with Asia in general and Southeast Asia in particular. Yet some Southeast Asian countries also have close links with the US. Thailand and the Philippines, like Australia, are treaty allies of the US. They have the same formal status in Washington’s eyes as Australia. All three are designated as non-NATO allies, along with New Zealand. However, in practice Australia has much more extensive military and intelligence collaboration with the US than Thailand, the Philippines or New Zealand.

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The Philippines caused consternation in US and Australian government circles in July 2004 when it agreed to bring its small unit of soldiers home from Iraq and not replace them. Manila did this after extremists captured a Filipino truck driver as he made a delivery to an American base in Iraq and threatened to execute him unless the Philippines pulled out. The Philippine Government said it had to put the protection and welfare of its millions of overseas workers ahead of its alliance with the US. Not long afterwards, Thailand also withdrew its remaining contingent of troops from Iraq, saying they had completed their one-year humanitarian mission to help the US rebuild war-torn Iraq. The Thai Government’s decision to send about 450 troops, including engineers and medics, to Iraq in 2003 was unpopular among many Thais, who opposed the military invasion. The deployment was also reported to have inflamed sentiments among Thailand’s already alienated ethnic Malay Muslim minority, who are concentrated in southern Thailand. Yet both the Thai and Philippine governments have since shown that they want to repair relations with Washington, evidently because they regard their alliance with the US as valuable in a number of ways, including the leverage it gives them in negotiating with regional powers like China. Singapore, though not an ally of the US, is negotiating a framework agreement for strategic cooperation and partnership with Washington to embed and probably expand the close military and security links it has with America. Singapore has pointedly maintained its force commitment in Iraq, saying it is vital to stand firm in the fight against international terrorism. Singapore also regards the US military presence in Asia as a stabilizing factor

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amid a shifting regional balance of power, as big countries like China, Japan and India jostle for influence. Australia’s alliance with the US is a positive factor in its relations with the Philippines, Singapore and Thailand. It certainly appears to do no harm to Australian links with Vietnam, which regards its big neighbour China warily. Nor does the US alliance seem in any way to undermine Australia’s relations with Cambodia or Laos. But in Indonesia and Malaysia, Australia is seen to have become too close to the US and, as a result, insensitive to Muslim concerns in Southeast Asia where there are more believers in Islam than any other region of the world, including the Middle East. Indonesia and Malaysia have also expressed concern that having close ties with Australia when it is seen as a proxy, or deputy sheriff, for the US in Southeast Asia will inflame Muslim public opinion at home, thus strengthening radicalism and its violent fringe. However, this is a manageable problem. When the Philippines, Singapore and Thailand decided to support the US in Iraq, it caused dissension in ASEAN, especially in Muslim-majority Indonesia, Malaysia and Brunei. They were worried the Iraq commitment would inflame Muslim sentiments, aggravating extremism at home and making it more difficult to maintain ASEAN cohesion. Yet elections in 2004 in Malaysia and Indonesia have strengthened the forces of moderate Islam in both countries. Australia should use its privileged access in Washington to ensure that US political leaders are aware of Southeast Asian sensitivities over Muslim and other issues, and take account of them in making US decisions that affect the region. These issues include the US-led invasion and occupation of Iraq and America’s

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perceived bias towards Israel and against the Palestinians in their territorial struggle. The US has global interests and Southeast Asia has to compete for attention against areas demanding more urgent focus and action. Singapore has repeatedly raised issues of concern to Muslims with the US, both in private and in public. This has helped Singapore to reconcile its pro-US policies with its Southeast Asian engagement. And it may well have strengthened Singapore’s value in Washington as a friend who can assist the US in making course corrections. 13. Australia, New Zealand and Southeast Asian countries have a shared interest in ensuring that relations between China and Taiwan improve or at least remain stable and do not deteriorate to the point of armed conflict. This would shatter hopes for China’s peaceful emergence and for the region to prosper through trade, investment and tourism. It would also put governments in ANZ and Southeast Asia under intense pressure to take sides, quite possibly between China on the one hand and the US and Japan, both backing Taiwan, on the other. No government in the region wants to be put in such an invidious position. It therefore makes sense for regional governments, wherever possible, to coordinate their diplomacy related to the China-Taiwan issue to maximize influence. As China’s growing power and influence permeate Asia and the Pacific, countries in the region are recalibrating their relations with Beijing to acknowledge its status and defuse potential conflict. These adjustments signal to both the US and its ally Japan that the

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old strategic and economic balance in which they were the dominant players is shifting to include China as an increasingly important pole. Amid simmering tension between Beijing and Taipei, two trends worry an increasing number of Asia-Pacific governments. One is the growth of independence sentiment on Taiwan, which Beijing insists is a province of China. The other is the belief of many Taiwanese that China would not use force to prevent independence and the expectation of Taiwanese leaders that even if China did, the US would intervene militarily to protect democracy on the island. Taiwan’s economy is becoming increasingly integrated with, and dependent on, China. But politically, they are moving apart. Recent visitors from Southeast Asia to Taiwan, including Lee Hsien Loong, now Singapore’s prime minister, have noted that there is a stronger Taiwanese identity emerging. More people are speaking the Taiwanese dialect and many think of themselves as Taiwanese, not Chinese. The governing Democratic Progressive Party of President Chen Shui-bian plays on this aspiration for sovereignty and statehood. He said on 3 September that the island’s official name, Republic of China, is confusing and that he wants to call it Taiwan during trips abroad — a remark that Beijing interpreted as another possible step towards formal independence. DPP leaders portray themselves as crusaders for national dignity and insist that Taiwan, after 55 years of separate rule, is already independent of China. Reacting to this political groundswell, younger generation lawmakers in Taiwan’s opposition Kuomintang have founded a new party faction. They want the KMT to adopt a more proindependence stance to prevent the party being marginalized.

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A number of regional countries have tried this year to convince the Taiwanese of the realities of their international position. On 22 August in his first National Day speech since becoming Singapore’s prime minister, Mr Lee said bluntly that a move by Taiwan towards independence was neither in Singapore’s nor the region’s interests. “If Taiwan goes for independence, Singapore will not recognize it,” Mr Lee said. “In fact, no Asian country will recognize it. Nor will European countries. China will fight. Win or lose, Taiwan will be devastated. Unfortunately, I met only very few Taiwanese leaders who understood this.” As their trade, investment, tourism, security and other ties with China intensify, many Asia-Pacific nations are adjusting their relations with Beijing and making it clear to Taiwan that its interests must be subordinate. China delayed talks on a free trade agreement after Mr Lee, then deputy prime minister of Singapore, took official leave of absence and made what he said was a private visit to Taiwan in July. Not long afterwards, Malaysia said that all its ministers had been told not to visit Taiwan because it could offend the Chinese Government. The Philippines, too, is seeking closer relations with China. On 1 September, New Zealand’s Foreign Affairs Minister Phil Goff confirmed that a visit by a Taiwan government minister had been cancelled after Australian authorities had indicated he would not be granted a visa to enter Australia with a trade and business delegation following the trip to New Zealand. Mr Goff cited “political sensitivities” as Wellington prepares for free-trade talks with China, a key trading partner for New Zealand. Australia, one of America’s closest Asia-Pacific allies along with Japan, warned Taiwan in August that it could not count on

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support if it provoked China. The warning came from Australia’s Foreign Minister Alexander Downer as he spoke in Beijing of Australia’s hope to develop a “strategic partnership” with China and negotiate a bilateral free trade deal with the world’s sixth largest economy. China recently surpassed the US to become Australia’s second biggest export market after Japan. China has not only become a keen buyer of Australian minerals, energy and farm products, it has emerged as a major investor by pumping A$2.2 million into the Australian economy in 2003. Mr Downer even suggested in Beijing that Australia’s alliance with the US might not be invoked if US forces became embroiled with China in a conflict over Taiwan, although he later backed away from this position, saying it was a hypothetical situation. The US itself is preoccupied with Iraq and counter-terrorism, and locked into increasing interdependence with China. America, too, wants to prevent miscalculation by Taiwanese nationalists. President George Bush began his tenure by warning China that the US would do “whatever it took” to defend Taiwan from any Chinese aggression. But by December 2003, he had shifted position, saying that America opposed attempts by Taiwan to change the status quo. The cumulative diplomatic pressure needs to be maintained on Taiwan if it is to register in Taipei and among Taiwanese nationalists. But China, too, may need to be reminded that its ballistic missile build-up on the mainland opposite Taiwan and other actions are unhelpful in lowering the cross-straits temperature and creating an atmosphere conducive to renewed talks between Beijing and Taipei. If ANZ and ASEAN do this collectively or in coordinated way, it will make it more difficult for China to single out particular countries for reprisals.

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14. ANZ and Southeast Asian countries should inform each other before announcing any major arms acquisition, especially in long-range strike capability. Countries in Southeast Asia should do likewise, among themselves and with Australia and New Zealand. Such consultation would not imply any right of veto. It would be designed to reduce the risk of misunderstanding that could trigger a regional arms race. All governments have the right to take measures they think are needed to defend their countries and deter attack. But without adequate notification and explanation in advance, Southeast Asian countries may feel that Australia is acquiring offensive weapons and intends to play a more assertive military role in the region, possibly as a surrogate for the US. As a result, they may not be willing partners of Australia in other security sectors, such as countering terrorism and people-smuggling in Southeast Asia, before terrorists or illegal immigrants can reach Australia. Australia has the most advanced military capability in ANZSoutheast Asia, partly because of its alliance with the US and the access this gives to buy advanced American arms and technology. New Zealand does not want a similarly high military profile. Indeed, New Zealand’s per capita defence spending in 2002 amounted to US$14,760, substantially less than Australia’s US$20,585. Successive Australian governments have sought to maintain a qualitative military edge in the region because voters evidently want the assurance that their sparsely populated island-continent is strongly defended. New Zealanders are much further from Asia. Because they are more remote and no longer an ally of the US,

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they feel less likely to be attacked from any quarter, including by terrorists. Thus they feel more secure than Australians. For Australia, balancing the need to develop cooperative security with Southeast Asia while meeting the domestic demand for defensive measures that may appear to be directed against the region can be difficult. It is important to find and keep the right balance. Speaking publicly about possible pre-emptive strikes by Australia if local authorities in Asia or the Pacific were unwilling or unable to prevent an imminent attack by terrorists on Australia is counter-productive. Australia should reserve that right of selfdefence, but not talk about it. The announcement by the government of Prime Minister John Howard in August 2004 of plans to put long-range missiles on airforce jet fighters and maritime patrol aircraft from 2007 resurrected this issue among some Southeast Asian nations, notably in Indonesia and Malaysia. The new missiles can strike targets on land or sea up to 400 kilometres away. Australia’s neighbours in Southeast Asia have short-range air-to-air and antiship missiles, but not the air-launched and highly accurate missiles that Australia will buy for striking land targets as well as ships from far away. The Howard government said that its announcement had long been planned and did not come as a surprise to the region where the decision was understood. A statement issued by the Australian defence minister said that when combined with upgraded precision-guided bombs and short- and long-range airto-air missiles now fitted to Australia’s 71 F/A-18 Hornets, Australia’s fighter jets would have “the region’s most lethal capacity for air combat and strike operations. The long range of these new missiles will reduce the risk to both aircraft and crew by decreasing their exposure in a high threat environment.”

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The Australian announcement — just ahead of the start of an election campaign in which the Howard government made strong defence and security measures a prominent issue — appeared to have caught at least some sections of the Indonesian Government by surprise. A foreign ministry spokesman in Jakarta said that it was legitimate to ask against whom the new missiles might be directed and which countries in the region Australia regarded as potentially hostile. He cautioned that “risks of misperception” could encourage other countries to acquire similar weapons, sparking a regional arms race. The Indonesian spokesman added that Australia should have consulted its neighbours about a major arms programme involving acquisition of the first air-launched long-range missiles in Southeast Asia. It is not the first time Australia has announced a major new air-strike capability without first informing nearby countries to reduce the risk of misunderstanding and hostility. In 1993, when the government of Prime Minister Paul Keating ordered 15 extra F-111 long-range, high-speed bombers to extend the life of the fleet without first telling Jakarta of its plan, the then Indonesian ambassador to Australia said that the move would raise doubts about Australia’s commitment to closer defence ties with its neighbours. 15. ANZ and Southeast Asia have a shared interest in countering terrorism as well as the smuggling or trafficking of money, arms, people, drugs and other contraband goods. Australia and ASEAN countries should continue to intensify their cooperation in curbing unconventional security threats. They should increasingly include collaboration not just in counter-terrorism, people-smuggling and child-sex tourism, but over other trans-border activities of concern

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to Southeast Asian states, such as the illegal trade in logs, fish and wildlife. While New Zealand’s resources are considerably smaller than Australia’s, it too should take action to mesh its intelligence and law enforcement activities more closely with Southeast Asia, among other things by posting more police liaison officers in the region and signing a joint declaration with ASEAN on cooperating to combat international terrorism, as Australia has done. New Zealand and Southeast Asian countries should support the Jakarta Centre for Law Enforcement Cooperation established by Australia and Indonesia in July and take part in its activities. One of Al-Qaeda’s closest allies in Southeast Asia, the Jemaah Islamiyah, was responsible for the horrific nightclub bombings in Bali in October 2002 that killed 88 Australian citizens, 39 Indonesians, three New Zealanders and 72 other people from 16 countries. Many Australians, Indonesians and New Zealanders were among the over 330 wounded. This shared tragedy drew ANZ and Southeast Asia closer together. It showed that terrorists are as much the enemy of Indonesia as they are of Australia or New Zealand. In the Bali killings, the bombing of the Marriott Hotel in Jakarta in August 2003, and bombing outside the Australian embassy in Jakarta in September 2004, the victims included many locals as well as foreigners; and Muslims as well as non-Muslims. The attacks also made it starkly apparent that governments, intelligence organizations and law enforcement agencies in the region, especially those of Australia and Indonesia, had to cooperate to bring the terrorists to justice and prevent any more attacks from causing further economic damage by undermining trade, travel, investor, consumer and business confidence.

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Transnational terrorism poses a common threat to Australia and many Southeast Asian countries, among them Indonesia, the Philippines, Malaysia, Singapore, Thailand and Cambodia. Operatives of Al-Qaeda or its Southeast Asian affiliates, including the Jemaah Islamiyah and the Abu Sayyaf, have been active in all these countries. Terrorism could also disrupt the air routes and sea lanes that have been critically important in expanding trade, business, tourist and other links between ANZ and Southeast Asia. But terrorism is just the most obviously menacing of a wide range of unconventional or non-traditional security threats that challenge the region. These threats include the smuggling or trafficking of money, arms, people, drugs and other contraband goods. They also include the illegal export or import of land and marine resources, like forest logs, reef fish and other wildlife, that are vital to the health of the environment and sustainable economic growth. These smuggling activities undermine government controls and social order. They fuel criminal networks. They are also channels that can be used by terrorists. If these activities take root and spread in Southeast Asia they will infiltrate with greater force into Australia, New Zealand and the Southwest Pacific, and vice versa. However, different levels of resources, circumstances, legal frameworks, and political and security cultures inhibit effective cooperation in countering unconventional security threats. In some areas of the region, these same differences provide opportunities for terrorists to recruit and proselytize, train, plan, move funds and resources, and then strike again, possibly in new and even more dangerous ways. Since the Bali bombings, Australia and Southeast Asia have intensified their intelligence and law enforcement collaboration.

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This has created an increasingly dense web of interaction. The main focus is on countering terrorism. But the cooperation extends to other common threats as well, such as people smuggling, money laundering and terrorist financing. Some of this activity is bilateral. Where appropriate, however, it is multilateral and encompasses ASEAN and other regional bodies. For example, Australia and five of the ten ASEAN members — Indonesia, the Philippines, Malaysia, Thailand and Cambodia — have concluded bilateral counter-terrorism arrangements that underpin collaboration at an operational level between Australian agencies and their overseas counterparts. Australia and Brunei are discussing a bilateral memorandum of understanding on counter-terrorism. Australia and Singapore have also built on their long-standing security, intelligence and defence links in response to the terrorist threat. In July, ASEAN and Australia signed a Joint Declaration for Cooperation to Combat International Terrorism. It stated that terrorism was a serious threat to the peace, security and economic prosperity of both ASEAN and Australia, and contravened the laws, religious beliefs and fundamental values of the countries concerned. The declaration calls on the eleven participating countries to designate an agency to coordinate with law enforcement and security organizations, authorities responsible for countering terrorist financing and other relevant government bodies, and to act as a central point of contact for the regional counter-terrorism network. Such agreements are important because they provide a framework to sustain political commitment and carry out practical cooperation. Australian officials say that the Australian Security Intelligence Organization (ASIO) and the Australian Secret Intelligence Service (ASIS) have also deepened existing ties and

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forged new relationships in the region. The officials say that this has led to a greater pooling of resources and a dramatic increase in the sharing of information. Exchanging accurate intelligence in a timely way can help identify and monitor terrorists, provide warning of and disrupt their activities, and uncover links and associations that were previously unknown. In October 2004, shortly before his coalition government was re-elected for a fourth successive term in office, Prime Minister John Howard said he would establish a A$20 million programme led by a national coordinator for counter-terrorism intelligence cooperation and training for Southeast Asia and the Pacific. This centre would oversee the deployment of Australian spies to work with their counterparts in the region and also train intelligence agents from the region. Whether all Southeast Asian states will participate remains to be seen. The Australian Federal Police and the Indonesian National Police conducted a joint criminal investigation into the Bali bombings. It was based on the bilateral counter-terrorism arrangement signed in February 2002 and led to the identification and arrest of most of those who took part in planning or executing the attack. By April 2004 — 18 months after the Bali bombings — 33 people had been convicted by the Indonesian courts for involvement in the attack. Three were condemned to death and four given life sentences. The Indonesian and Australian police worked together to investigate the terrorist attack outside the Australian Embassy last September. They made a joint investigation of the terrorist bombing of the JW Marriott Hotel in Jakarta in August 2003, even though no Australian was among the 18 who were killed in the attack. All but one of the victims was Indonesian. However, charges relating to an Indonesian who was sentenced to 10 years in jail for

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involvement in the Marriott bombing were dropped in August after an Indonesian Constitutional Court ruling that anti-terrorism laws introduced after the Bali bombings in 2002 could not be applied retrospectively. Convicted Bali bombers have said that they will appeal against their convictions and Australia wants this loophole closed. The AFP also helped the Philippines police investigate a series of terrorist bombings in the southern Philippines in 2003. Australia was able to supplement the local knowledge and other skills of the Indonesian and Philippine police with forensic expertise, mobile phone tracking technology and computer disk deciphering. This collaboration proved to be effective and is being institutionalized in a number of ways. In July 2003, the Australian Government announced a A$5million programme to help key Philippine Government agencies build their counter-terrorism capacities over the next three years. It followed a similar A$10 million package over four years for Indonesia in October 2002. The Indonesian and Australian police have established a Transnational Crime Coordination Centre. In July, the two countries opened the Jakarta Centre for Law Enforcement Cooperation (JCLEC). Headed by a senior Indonesian police officer, it will have a staff of around 20 and is expected to be fully operational by the end of 2004. JCLEC aims to enhance the operational expertise of regional law enforcement agencies in dealing with transnational crime, including terrorism. It will be responsible both for operational support and regional training in skills like tracking and interception of terrorists, forensics, crime scene investigation, financial probes, threat assessments, criminal prosecution and counter-terrorism legislative drafting skills. Australia is contributing A$36 million to support JCLEC. New Zealand as

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well as some Southeast Asian countries could also support the Centre and take part in its activities. Some years ago, the activities of the Indonesian police were separated from those of the military by the government. But the police were under-resourced and in many cases poorly trained and motivated. Supporting the development of a professional police force in Indonesia that is able to carry out its responsibility for internal security, law enforcement and counter-terrorism will strengthen democracy, civilian control and the rule of law in the world’s fourth most populous nation — and one that is a lynchpin for stability in Southeast Asia. 16. Australia has allocated some A$54 million over the next four years to improve its ability to provide counterterrorism intelligence, and to develop Special Forces contacts and counter-terrorism networks with Southeast Asia. Australia should work closely on this project with New Zealand, which has proficient and experienced Special Forces. The new Australian Special Forces training centre at Holsworthy barracks in Sydney could be used as a hub for regional commando exchanges and training when it is completed in 2006. Should a terrorist attack occur in ANZ or Southeast Asia, the responsibility for protecting the people and infrastructure at risk, or for rescuing hostages, would fall on the military, through their Special Forces or commando units. Operational ties between the Special Forces of Australia and New Zealand have long been close. And well before the Bali terrorist attacks in October 2002, the Australian Defence Force had developed links with Southeast Asian Special Forces. Some commandos from the region were

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trained at Australia’s Special Forces centre in Perth. When the new training centre under construction at Holsworthy Barracks in Sydney is finished, it and the Perth facility will be among only four of their kind in the world. The other two are in the United States. The terrorist bombings and attempted attacks in Southeast Asia and the terrorist threats against Australia underline the need for effective operational links between regional Special Forces. For example, in the case of a terrorist hijacking in one country that involved nationals of neighbouring states, Special Forces of the other countries would need to know who was responding and their capabilities so as to offer relevant intelligence or other useful assistance. In the recent past, Australian and New Zealand Special Forces have been banned from training with their Indonesian counterparts in Kopassus because of alleged human rights violations by the latter. Australia last trained with Kopassus forces in 1997. The links with Kopassus were severed after the violence in East Timor before and after it chose independence from Indonesia. The violence was blamed on the elements in the Indonesian military working with militia groups in East Timor. While contacts with some Kopassus officers are still banned because of human rights issues, Australia is gradually rebuilding links with the commando force, starting with the unit responsible for taking counter-terrorist action in a crisis. Officers from that Kopassus unit were among senior representatives from Special Forces of 15 Asia-Pacific nations, including eight of the 10 ASEAN members (Myanmar and Laos were absent), who attended an inaugural regional special forces meeting in Australia in June 2004. Australia and Singapore held an exercise in Singapore in September to exchange information and

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techniques for handling terrorist attacks involving chemical, biological and radiological materials as well as conventional explosives. Australia and Southeast Asian countries plan to hold more counter-terrorist exercises as they seek to ensure effective responses to any crisis, including cooperation when needed and requested. 17. ANZ and Southeast Asian think-tanks interested in fostering closer relations between the two regions should form an association similar to the proposed Network of East Asian Think-Tanks (NEAT). The aim would be to provide intellectual support for ANZ-Southeast Asian cooperation across a spectrum of key issues. This will need government funding, probably on an on-going basis. Although Southeast Asia is well informed about its own affairs and developments in many other parts of the world, centres of knowledge and studies about ANZ are in most cases sadly lacking. This should be rectified to encourage better informed public discussion in Southeast Asia about Australia and New Zealand, their history, political systems, and contemporary society. Australia, New Zealand and Southeast Asian countries have a well-established and effective tradition of academic networking. Both Australia and New Zealand have some distinguished centres of Asian knowledge and studies in universities and elsewhere, although there have been cutbacks in recent years and funding is in short supply in some areas. There is similar expertise in Southeast Asian countries — and similar complaints about lack of money and resources are common. Many of these centres are think-tanks that produce ideas and policy proposals for

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governments and/or for public discussion. Some of these thinktanks are independent of government, or more or less so; others are close to, or actual arms of, government. There are longstanding links between ANZ and Southeast Asian think-tanks through networks like the Council for Security Cooperation in the Asia Pacific, CSCAP. It is the leading so-called second-track group on strategic issues in the region. CSCAP meetings draw together officials in a private capacity and other experts to develop ideas for reducing tension, building confidence and strengthening cooperation in Asia-Pacific defence and security, ranging from arms control to human security. These proposals and reports are often presented to first-track government bodies to consider. Think-tanks in East Asia recently took steps to form a regional association, to be known as the Network of East Asian ThinkTanks, NEAT. ANZ and Southeast Asian think-tanks should do likewise, with similar aims in mind. NEAT’s stated objectives are to: serve as a second-track process for ASEAN+3 (meaning China, Japan and South Korea) or East Asian cooperation; pool academic resources of the ASEAN+3 countries to provide intellectual support for East Asian cooperation; study issues and initiatives identified by the ASEAN+3 Summit or other levels of meetings and give policy recommendations to the ASEAN+3 meetings; designate its representatives to present recommendations at first-track meetings on East Asian cooperation as well as at international conferences; study issues and carry out joint research on East Asian cooperation in key areas, including strategic and emerging issues; establish a website and produce and circulate NEAT publications; organize working group meetings, workshops and other cooperative activities; and establish linkages with East

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Asian governments and with other networks, institutions and organizations. NEAT plans to hold an annual conference in which the ASEAN secretariat will be invited to participate. NEAT will be controlled by government-designated think-tanks, one in each of the 13 member countries. In many cases these are likely to be different bodies in the case of a Southeast Asian network with ANZ think-tanks. The latter should also develop the closest possible collaboration with NEAT to keep abreast of the latest secondtrack assessments about the progress and prospects for East Asian integration. NEAT has asked East Asian governments to provide necessary financial support, in addition to funds raised from other sources. Although Southeast Asia is well informed about its own affairs and developments in many other parts of the world, centres of knowledge and studies about ANZ are in most cases sadly lacking. This should be rectified to encourage better informed public discussion in Southeast Asia about Australia and New Zealand, their history, political systems, and contemporary society. A start in this direction will be made when the University of New South Wales opens a campus in Singapore in February 2007 for mainly Asian students. Its humanities and social sciences programmes will include Australian studies. The Australian Government announced in October that it would establish an Australia-Malaysia Institute and an AustraliaThailand Institute to build knowledge and understanding between peoples and institutions. The new bodies will have similar aims to the longstanding Australia-Indonesia Institute. 18. An ASEAN-ANZ Leadership Forum should be established. It would meet annually and help shape a road

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map for strengthening ANZ-ASEAN ties. The AFTA-CER Business Council, which links the ANZ and ASEAN business communities, should work with other interested groups that deal with relations between to two regions. Together with governments, they should help provide input to the proposed ASEAN-ANZ Leadership Forum and mobilize business backing for an AANZ FTA. How should ANZ-ASEAN relations be managed? Should it be left entirely or largely to governments? As this report suggests, the dynamics of the relationship have moved well beyond the impetus of officialdom. Indeed, the heart of the relationship is now its people-to-people ties stretching across a broad canvas. Of course, governments will continue to have an important role in facilitating ties and setting the tone of relations. But the governments of Australia and New Zealand have acknowledged that the sheer diversity of trans-Tasman interdependence through CER and other links have outgrown state management and need buttressing by the private sector, from business to cultural and community leaders. The Australian and New Zealand foreign ministers announced the formation in December 2003 of an Australia-New Zealand Leadership Forum to enable robust discussion (under Chatham House rules) of new approaches to the many challenges the two countries face in their relations, including economic, defence, political and social ties. The Forum, which held its inaugural meeting in Wellington from 14–16 May, is co-chaired by an Australian, Margaret Jackson, Chairman of Qantas, and a New Zealander, Kerry McDonald, Chairman of the Bank of New Zealand. It was attended by nearly 40 senior officials, business executives, trade union leaders and others. (A list of participants is provided in the Appendix.)

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It is clear that, even between two nations with such close ties and shared histories as Australia and New Zealand, much remains to be done to consolidate a sense of strategic partnership. There is huge scope for harmonization of effort, for pooling energies and programmes — across the board — in order to work to best mutual advantage. The same sorts of challenges and opportunities face ANZ in the redefinition of their strategic relationships with Southeast Asia. A body similar to the ANZ Leadership Forum could help shape a road map for strengthening ANZ-ASEAN ties. It could be called the ASEAN-ANZ Leadership Forum and meet annually. Achieving a balanced membership may be more difficult than for a forum between two countries. One possibility would be to have three participants from each of the 10 ASEAN member states and 15 each from Australia and New Zealand, for a total 60 participants. The group would probably need a small secretariat to support its work on an ongoing basis. The AFTA-CER Business Council (ACBC) engages with officials at their regular meetings and with ASEAN and ANZ/CER economic ministers during their annual consultations. Australia, New Zealand and the 10 ASEAN member states each have two business representatives on the ACBC. It is currently chaired by Australia. Singapore is the deputy chair. The chair of the ASEANNZ Combined Business Council (ANZCBC) is one of New Zealand’s two representatives on the ACBC. The ACBC has worked closely with officials to develop strategies to support the target of doubling ASEAN-CER trade and investment by 2010. At their meeting on 5 September, ASEAN and CER economic ministers acknowledged that an FTA should reflect business priorities for deepening regional economic integration and instructed officials to continue to involve the ACBC in their work programme.

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APPENDIX Australia-New Zealand Leadership Forum Inaugural Meeting in Wellington, 14–16 May 2004.

AUSTRALIAN PARTICIPANTS (36) (Steering Group Members are asterisked) *Ms Margaret Jackson, AC Chairman — Qantas Mr Geoff Askew, Head of Group Security — Qantas Ms Sharan Burrow, President — ACTU *Mr Rowan Callick, Asia Pacific Editor — Australian Financial Review Mr Les Cassar, AM Chairman — Tourism Taskforce Australia Mr Phil Clark, (to Sat lunch) Managing Partner — Minter Ellison Professor Adrienne Clarke, AC Melbourne University Ms Berna Collier, Commissioner — Australian Securities & Investments Commission *Mr Bob Cotton, Former Australian High Commissioner to NZ Hon. Alexander Downer, MP Minister for Foreign Affairs Dr Bob Edgar, Chief Operating Officer, ANZ Banking Group Mr Saul Eslake, Chief Economist — ANZ Banking Group Mr Brian Evans, (to Sat pm) Chief Executive Officer — Fairfax New Zealand *Professor Allan Fels, AO Dean — ANZ School of Government Mr Joe Gersh, Managing Director — Gersh Investment Partners Mr Allan Gyngell, Executive Director — Lowy Institute for International Policy Mr Tony Harrington, Chief Executive — PricewaterhouseCoopers HE Dr Allan Hawke, Australian High Commissioner to NZ

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*Mr David Hoare, Chairman — Principal Global Investors Mr Richard Humphry, AO Managing Director and CEO — ASX Mr Bill Jacob, (to Sat pm) President — New Zealand Steel Mr Doug Jukes, National Chairman — KPMG Mr Bill Kelly, Deputy Commissioner (Operations) — Victoria Police *Ms Katie Lahey, Chief Executive — Business Council of Australia Mr Rod McGeoch, AM Director — Sky City Entertainment Group & Telecom New Zealand Mr Bob McMullan, Shadow Minister for Finance & Small Business *Mr Murray McLean, OAM Deputy Secretary — DFAT Mr Jim Murphy, Executive Director, Markets Group — Department of the Treasury Mr Hugh Morgan, AC President — Business Council of Australia Mr Alan Oxley, (Sat only) Managing Director — International Trade Strategies Ms Heather Ridout, Chief Executive — Australian Industry Group Mr Graeme Samuel, AO Chairman — Australian Competition and Consumer Commission Mr Ian Smith, (to Sat pm) CEO Australia — Gavin Anderson & Co Mr Ric Smith, AO Secretary — Department of Defence Mr James Strong, (Sat only) Chairman — Insurance Australia Group Limited Dr Ziggy Switkowski, Chief Executive Officer — Telstra Hon Daryl Williams, AM, QC, MP Minister for Communications, IT and the Arts NEW ZEALAND PARTICIPANTS (36) Mr Kerry McDonald, Chairman — Bank of New Zealand Professor James Belich, Auckland University Dr Seddon Bennington, Chief Executive — Te Papa

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Dr Alan Bollard, Governor — Reserve Bank of New Zealand Dr Don Brash, Leader of the Opposition Mr Gerry Brownlee, Deputy Lead of the Opposition Mr Nick Calavrias, Chief Executive Officer — Steel & Tube Holdings Ltd Ms Liz Coutts, Chair — Industrial Research Ltd Hon. Dr. Michael Cullen, Minister of Finance Mr Geoff Dangerfield, Chief Executive Officer — Ministry of Economic Development Ms Jane Diplock, AO Chair — Securities Commission Hon. Peter Dunne, Chair, Foreign Affairs, Defence and Trade Committee Hon. Phil Goff, Minister of Foreign Affairs and Trade Mr Robin Hapi, CEO — Te Ohu Kai Moana (Treaty of Waitangi Fisheries Commission) Professor Peter Hempenstall, University of Canterbury Mr Jock Hobbs, Chairman — NZRFU Sir Frank Holmes, NZ Institute of Policy Studies Mr Colin James, Political Journalist Ms Pamela Jefferies, Company Director — former Chief Human Rights Commissioner Professor Judith Kinnear, Vice Chancellor — Massey University Dr Andrew Ladley, Victoria University Mr John Maasland, Chairman — Carter Holt Harvey Hon. Jim McLay, Hon Chair (NZ) — Trans Tasman Business Circle Mr Simon Murdoch, Secretary of Foreign Affairs & Trade Mr John Palmer, Chairman — Air New Zealand Mr Dennis Pickup, Chief Executive Officer — Tourism Holdings Ltd Ms Paula Rebstock, Chair — Commerce Commission Mr Lou Sanson, Chief Executive Officer — Antarctica NZ

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Mr John Shewan, Chairman — PricewaterhouseCoopers Dr Mary Anne Thompson, Chief Executive Officer — Department of Prime Minister & Cabinet Dr Chris Tremewan, Pro Vice Chancellor — Auckland University Mr Henry van der Heyden, Chairman — Fonterra Mr Mark Verbiest, Group General Counsel — Telecom New Zealand Ltd Ms Karen Walker, Chief Executive Officer — Karen Walker Ltd Mr Ralph Waters, Chief Executive Officer — Fletcher Building Dr Mark Weldon, Chief Executive Officer — NZX Mr Ross Wilson, President — NZ Council of Trade Unions

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