Washington's Pivot to Southeast Asia Needs Economic Ties

This piece was co-authored by Jack Myint and Nicholas Borroz. It originally appeared in New Mandala on 23 May, 2016.

To sustain its efforts to counter China's growing influence in Asia, Washington must deepen its economic ties with Southeast Asia. Since 2011, President Barack Obama has stated he intends to pivot American foreign policy towards Asia, the goal of which is essentially to "contain" China, no matter how White House spokesmen try to avoid such a contentious term.

Southeast Asia is the priority sub-region for the pivot. India and Japan are also important elements, but their preexisting antagonism towards Beijing make them natural barriers to Chinese expansionism. Southeast Asia--particularly the poorer countries that are economically beholden to Beijing--falls more within China's sphere of influence.

The pivot comes after a long-term decline in American influence in Southeast Asia, caused by two factors. First, Washington shifted its focus to the Middle East and Central Asia as a result of military operations in Iraq and Afghanistan. Second, China has displaced American influence with its increasing foreign direct investment in Southeast Asia.

The Obama Administration's attempts to reprioritize Asia have had a decidedly militaristic quality. Washington has repositioned warships to the region; it has indicated it intends to jointly develop an aircraft carrier for India; it will reportedly increase reconnaissance drone flights over the South China Sea; and it has announced it plans to set up "permanent logistics facilities" by developing military bases in the Philippines.

Despite these developments, the pivot is still poorly defined. According to a recent report commissioned by the US Department of Defense, there is "consistent confusion about the rebalance strategy." Essentially, the following questions have no clear answers: how should the United States rebalance towards Asia, and what justifies such a shift?

Economic ties to sustain military involvement

There is growing American awareness that a purely military rebalance will not allow Southeast Asia to resist China over the long term and enable the United States to pursue its interests. An increasing number of articles and policy events in Washington highlight Southeast Asia's need for infrastructure development, warning that China is meeting this requirement in order to establish its dominance in the region. It is in this context that policymakers reacted with alarm last year to Beijing's creation of the Asian Infrastructure Investment Bank.

There is also increasing consciousness that to validate any military presence in Asia over the long term, Washington must strengthen economic ties with the region. This counters the common criticism both domestically and abroad that the United States often becomes involved in far-flung places where it has no direct economic interest; lightning rods for such criticism are Afghanistan and, to a lesser extent, Iraq.

It is true that the United States already has an economic interest in the region. Southeast Asia's waters are one of the world's most critical shipping lanes for the movement of goods and oil on a daily basis. US-ASEAN two-way trade exceeded over $200 billion in 2015, including over $80 billion in US exports. Additionally, the United States is close to finalizing the Trans Pacific Partnership (TPP), which will closer link it to the economies of four ASEAN countries--Vietnam, Brunei, Malaysia, and Singapore.

But these economic ties must be further strengthened to justify any pivot, as President Obama is well aware. He signaled this when he met with leaders of the ten member states of ASEAN in February--two months after the creation of the ASEAN Economic Community (AEC). After the summit, Obama remarked the United States' main priorities with respect to Southeast Asia are economic and trade-related.

Specific goals
To solidify economic ties with Southeast Asia, Washington should define and pursue specific objectives that deepen economic ties between it and the United States. These objectives should lower the cost of entry for American firms, and also ensure these companies' investment provides meaningful benefits to receiving countries.

One such objective in US trade policy could be to reduce local content requirements in Southeast Asian countries. These requirements--which pose major disincentives for American companies investing in the region--are in place to ensure economic activity does not unfairly benefit foreign investors over local communities.

In exchange for reducing such requirements, therefore, Washington should work with American companies to ensure their economic activities in Southeast Asia offer substantive support to host countries' economic development. This could come in the form of CSR, technical training, or building infrastructure development projects that are eventually transitioned to local control. Additionally, US companies could support entrepreneurship initiatives.

To meet these objectives, the United States should look for ways of collaborating with its regional ally Japan--which enjoys a strong reputation in Southeast Asia because of its common implementation of such knowledge transfer programs.

Another specific objective Washington could pursue would be to work with Southeast Asian governments to reduce compliance risk--another major discouragement for risk-averse American companies. Washington could tackle corruption issues by supporting Southeast Asian governments' justice and law enforcement sectors, and also by helping local companies to develop compliance programs.

The benefits of reducing compliance risk for Southeast Asian countries would be meaningful, since it would help improve investment inflows not just from the United States, but also from compliance-conscious investors from other countries. The United States leads the world's anti-corruption industry: it is the author of the Foreign Corrupt Practices Act (FCPA), a global standard for defining corruption in international business; and Washington and New York are replete with companies dedicated to helping investors mitigate compliance risk abroad.

Washington should focus these efforts on Southeast Asia's least developed countries. Doing so would allow Washington to build up resistance to Chinese influence in countries most susceptible to it, and also to reduce economic disparities in Southeast Asia that prevent the region's economic integration.

In these ways, Washington can create an economic justification for its pivot to Southeast Asia. When such ties are established, the United States will be able to sustain its presence in the region over the long term.

Nicholas Borroz is a Washington-based strategic intelligence consultant specializing in geopolitics, the energy sector, and investment risk.

Jack Myint is an Associate at the US-ASEAN Business Council in Washington. He has advised numerous private companies on business risk in Southeast Asia, with a particular focus on Myanmar.