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3 December 2020, Gateway House

India, Canada & ASEAN

Trade patterns are influenced by geography. To facilitate strong trade relations and strengthen domestic economies, India & Canada must leverage ASEAN through the digital shift and build on beneficial relations with nations amidst the coercive behaviour of hegemonic powers.

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Gateway House (GH) – The next U.S. administration is likely to continue with its focus on home-grown manufacturing (Trump – ‘Make America Great Again’ or Biden – ‘Build Back Better’ campaigns), while China has announced adoption of ‘Dual Circulation’ due to increased geo-political uncertainties and strained relations with the West. With the two largest economies looking inward, how will trade and economic relations shape in the future and how different will they be from the pre-pandemic era of globalisation?

Dan Ciuriak (DC) – Post pandemic era will definitely be different in good measure due to the compliments of a number of shocks, pandemic itself is a big one. But we also have various elements of digital transformation, prepping and building up pressure on the economy. We have this deep intensification of climate change related concerns, massive forest fires in Australia, we also have populist reactions to the perceived notions of globalisation which have been driving political dynamics, including the election of President Trump in 2017 and of course, we have the trade and technology war between the United States and China.

All of these things are coming together and therefore, there is change. Because of the pandemic, we have seen an acceleration in the change of business models, work from home and so forth. This has had tremendous impact on businesses, some have prospered and market values have soared and other businesses have been forced to close. In many ways, this is creative destruction. In the sense, that we are seeing, the transformation of the global economy to a digital transformation but we are also seeing destruction where we are watching the loss of firms which would have otherwise been viable but, could not survive the combination of pandemic and economic shocks. So, there will be scars from that. When you lose firms, you lose trade.

Meanwhile, both China and U.S. have little room to manoeuvre on trade. The U.S. elections results will change the tone of administration but they do not signal populism, per se. President Trump after all gained the second highest votes in the US. electoral history. Meanwhile China has no choice but to break the strangle hold of U.S. on critical technologies and that does dictate the message we focus on industrial policy. So, those two major trends will continue. Meanwhile, on the other side of the world, you have Brexit coming and that will send shock waves in the European area. So there are many factors driving change and, it will not go away. That being said, all these things point to forces that are driving apart the world and there are forces pointing towards isolation and reduction of trade. We are also seeing many counter occurrences as well. I will give you examples; the U.S. will be re-joining international organisations and, that will be a positive factor for the global community and we also have Regional Comprehensive Economic Partnership agreement which includes China and 14 regional economies including ASEAN economies and this is supposed to be coming this week at a virtual leader meet at Indonesia and that goes against the sense of dissention and disruption. Notwithstanding the talk of decoupling, Foreign Direct Investment from China has held up and Chinese firms continue to be listed on U.S. Stock Exchange but businesses aren’t actually validating all of this geo-political trash talk we are hearing from governments. So, in my sense, world will continue to be shaped by new and major economic trends which are to be found in nexus of Big Data, Artificial Intelligence and Machine Learning. It will be continued to be shaped by new found national and security concerns that are raised by the digital transportation.

GH – Moving on, historically ASEAN has had deep economic ties with China and, security cover from USA. What role can Canada play on the trade and economic front to wean ASEAN away from the Chinese economy, thus, helping them strengthening their strategic choices?

DC– In this particular case geography matters very much. Trade patterns are shaped heavily by economy and geography. Both distance and also, patterns of preferred advantage and cultural affinities and so on. So, ASEAN is firmly rooted in this Indo-Pacific or Asia-Pacific world in which China is a very major part. So, from this perspective, the deep and intricate trade relations in the West Pacific that have underpinned the Asian miracle in the past few decades, this will continue regardless of the policy choices made in the capital. Ultimately, it is the firms that trade and not the government and they will continue to exploit market opportunities. ASEAN also has individual FTAs with all the major economies in the region. The RCEP from ASEAN’s perspective is mainly about streamlining the spaghetti bowl rules. So, it is really about economics than politics and it is good economics because it reduces trade costs. From ASEAN’s perspective, India’s withdrawal from RCEP negotiations actually represents economic gains foregone and kind of weakens the overall Indo-Pacific economic sphere. But, in terms of what Canada can do to help ASEAN with trade diversification options – trade diversification is always a good thing from a risk hedging perspective, doubly so when it is received not by putting up barriers but by reducing the barriers to trade. ASEAN could obviously pursue trade agreements with EU, U.S. and Canada, all of which are up for grabs and will work naturally for its trade diversification.

Canada can pursue FTA with ASEAN. We have actually written a trade agreement for Canada and ASEAN through various think tanks. ASEAN and Canada are small, open economies and we have mutual interest in seeing multilateral rule-based system strengthening. Working together to make WTO fit for a digital age is a second way where ASEAN and Canada can cooperate and strengthen a system which protects us from the coercive behaviour of great powers. Canada joining the Digital economic partnership agreement which has been established by Singapore, New Zealand and Chile will be one way in which Canada can deepen its relations with the region and working rules for the road of a digital age. Open economies together setting up these roles is much more desirable than having these rules being made by large hegemonic powers. So, I think there are lots of ways in which Canada can help ASEAN in its future with trade relations but we do have to engage with the region in a big way.

GH – Thank you Dan. This was really interesting. Thank you for coming on board for the interview.

Dan Ciuriak is a senior fellow at CIGI, where he is exploring the interface between Canada’s domestic innovation and international trade and investment.

This interview was exclusively conducted for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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