Network of East Asia Think-Tanks (NEAT) Working Groupon“Towards Seamless Connectivity: Transforming Multimodal Transport System into Economic Corridors”

Final Report

BangkokAugust 2015	  1

1.

Introduction

In light of the ASEAN Charter, which became effective in 2008, ASEAN
has invested immense effort into building three pillars of the ASEAN
community: the ASEAN Political-Security Community (ASPC), theASEAN Economic Community (AEC) and the ASEAN Socio-CulturalCommunity (ASCC). Regional connectivity has been identified as animportant mechanism that lends support to the establishment of the threepillars, as it can strengthen intra-regional political integration, propel
economic growth and increase interactions, and therefore understanding,among ASEAN citizens. To enhance regional connectivity, ASEAN is in
the process of implementing the Master Plan on ASEAN Connectivity(MPAC), which aims to, inter alia, connect physical infrastructure,
standardize border-crossing processes, and promote people-to-people
connectivity within the region.
Since ASEAN countries, on the one hand, and China, Japan, andRepublic of Korea, on the other, have enjoyed strong trade relations anddeepened diplomatic ties, it is clear that benefits of ASEAN connectivity
can be more fully realized by embracing China, Japan and Republic ofKorea as equal partner countries. A broader and more synergized scopeof cooperation on regional connectivity within ASEAN Plus Three has
the potential not only to generate a greater volume of economic and noneconomic activities but to also move member countries closer towards thelong-term goal of achieving an East Asian Community (EAC). As such,
the Statement on ASEAN Plus Three Partnership on Connectivity wasadopted in the ASEAN Plus Three Summit in Phnom Penh in 2013. The
Statement testifies to a commitment of ASEAN Plus Three to enhanceconnectivity within the region.	  

2Given the importance and timeliness of open dialogues on regional
connectivity, a NEAT working group meeting was held on August 20-21,
2015 in Bangkok, Thailand. The theme of the meeting was “Towards
Seamless Connectivity: Transforming Multi-modal Transport System into
Economic Corridors”. The objectives of the meeting were twofold: (1) tostudy and analyze existing mechanisms and work plans related toregional connectivity, especially rules and regulations which need to be
improved to further facilitate flow of goods, services and people, and (2)to support developments of regional production and supply chains as well
as special economic zones and connectivity networks for functional
economic corridors. Meeting attendees included connectivity experts
from 9 ASEAN Plus Three countries as well as government officials from
the Ministry of Foreign Affairs, the Royal Thai Government. This reportsummarizes and synthesizes the discussions at the meeting.

2.

Discussions on ‘Seamless’ Connectivity

Connectivity Initiatives
Several connectivity plans and initiatives were discussed at the meetingand they can be classified into three broad groups according to thecountry/organization from which the initiative originated.
At the ASEAN level, the main initiative is the Master Plan on ASEAN
Connectivity (MPAC), which entails priority transportation infrastructure
projects such as ASEAN highway networks and Singapore Kunming Rail
Link (SKRL). ASEAN also has an expressed interest in elevating theidea of regional connectivity further; at the 18th ASEAN Summit in	  3Jakarta in 2011, a possibility of a “connectivity Master Plan Plus”,
whereby other regions, particularly Northeast Asia and South Asia, would
be integrated into the planning and implementation of MPAC, was welldeliberated.
There exists a connectivity initiative from Japan, known as the“Partnership for Quality Infrastructure: Investment for Asia’s Future”.
The initiative was introduced by Prime Minister Shinzo Abe in May
2015. Under the initiative, the Japanese government has committed itself
within the next five years to a 25% increase in official development
assistance and a 50% expansion of the Asian Development Bank’s
lending portfolio, particularly to the private sector. An example ofprogress made under the initiative is the fact that Japan is offering loans
to Thailand so that a railway linking Bangkok to its vicinities can beconstructed. Another example is Japan’s vested interest in a High Speed
Railway project connecting Kuala Lumpur and Singapore.
In addition to the above initiative, it is worth noting that involvementfrom Japan also comes in the form of investments from both the private
and public sectors. The Japanese government has initiatives such asprovision of assistance to the Thiwala1 and Dawei Special Economic
Zones in Myanmar. The private sector’s involvement is mainly throughforeign direct investment (FDI), which situates ASEAN economies in an
important position along the global value chain (GVC).
Finally, China has proposed two main initiatives to promote connectivity
in the region: the Silk Road Economic Belt and the 21st Century Maritime
Silk Road, collectively known as the Belt and Road initiative. The	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  1	  Investment in Thiwala from Japan also has involvement from the private sector in Japan.

4initiative will connect Western China with Central Asia, Western Asia,
the Middle East, and Europe. Linkage between China and the rest of theworld through the South China Sea, the Indian Ocean, the South PacificOcean, the Red Sea, the Mediterranean, and East Africa is also
envisioned. The Belt and Road initiative is to be financed by several
institutions, notably China Development Bank, Asian Infrastructure
Investment Bank (AIIB) as well as the Silk Road Fund.
Even prior to the Belt and Road initiative, China has been contributing tothe enhancement of infrastructure connectivity in the region. In theSouthern part of China, Yunnan serves as the main bridge between
China’s inner regions and South and Southeast Asia due to its location at
the border of three ASEAN countries. In 2011, the Chinese government
approved a large budget for infrastructure development to prepare
Yunnan to serve as the gateway to South and Southeast Asia. Examples
include land-rail routes to connect China to ASEAN, deep-water piers, oiland gas pipelines between China and Myanmar, and the construction ofthe Changsui International Airport, which opened in 2012.

Benefits of Enhanced Connectivity
At the meeting, the NEAT Working Group acknowledged in theimportance and identified benefits of enhanced connectivity in the region.
First, greater connectivity is expected to generate access to new markets,
better accommodate foreign investment (inward and outward), pave theway for increased international trade, and facilitate the formation of new
economic partnerships as well as strengthen existing ones, thereby
boosting economic growth for all parties involved. Second, enhanced
connectivity is expected to reduce transportation costs, which will be	  5beneficial to international trade and conducive to people-to-people
linkages. Finally, connectivity initiatives proposed by ASEAN, Japan and
China are expected to enrich the global production system, allowing
investors in one country to benefit more fully from existing productionbased comparative advantage in other countries.
Insummary,enhancedconnectivity

involves

thecreationofinfrastructure, rules and regulations that are “market-inducing”, opening
up economic opportunities for consumers and producers alike.

Challenges of Enhanced Connectivity
At the meeting, the NEAT Working Group raised concerns over potential
challenges of realizing enhanced regional connectivity within ASEAN
Plus Three. They can be classified as within-country problems and crosscountry or regional problems. It is worth noting that most of theinitiatives are at an early stage and (therefore) some of the challenges
discussed may be premature.
Within-country Problems: 1.

Many governments in the region have resource constraints andconnectivity projects may be inconsistent with their national
development plans. Even if budget is available, connectivity
projects often have to compete with pressing national projects; itmay not always be politically palatable for governments toprioritize connectivity projects over national projects.

2.

There is often lack of planning and maintenance with regard to thedevelopment of infrastructure, owing in part to lack of resources.	  

6This in turn leads to uneven development within and acrosscountries in the region, posing hiccups to the ambition of achieving‘seamless’ connectivity.
3.

Countries need to restructure and strengthen institutions in order topromote connectivity. However, the progress depends on politicalwill. If political impetus is behind the promotion of connectivity,
projects can move forward quickly. Nonetheless, lack of political
will and political instabilities within countries could impede
progress on connectivity.

Cross-country/ Regional Problems: -1.

While ASEAN is understood to be an integral part of many of theinitiatives discussed at the meeting, there is no guarantee that
financial institutions that provide financial support for connectivity
projects, such as the Asian Development Bank (ADB), AIIB oreven the Silk Road Fund, will prioritize ASEAN over otherregions.

2.

Connectivity plans have geo-political implications and a potential
to change the landscape of international relations. Cooperationfrom countries along the routes proposed in the initiatives of
ASEAN Plus Three is obtainable only through mutual trust andunderstanding. It is important that ASEAN Plus Three not only
strengthens diplomatic bonds with governments in other regions
but also highlights possibilities of benefits that would accrue to allparties involved.	  

7

3.

Policies and strategies of the Plus Three countries, and other nonASEAN countries such as India and the United States have
implications for ASEAN connectivity. Overlapping policies orinitiatives which are not concerted could lead to competition.

4.

Gaps in infrastructure quality, logistics performance and tradefacilitation, and discrepancies in terms of standards, regulations,and institutions among countries can impede the potential benefitsof an enhanced ASEAN Connectivity.

3.

Suggestions

In light of the many challenges above, the NEAT Working Group hasoffered the following suggestions for enhancing connectivity within theASEAN Plus Three region.
1.

Governments need to be convinced that connectivity is critical togrowth so that they can re-prioritize connectivity projects, relative
to other national projects.

2.

It is extremely important that supranational financial institutions
such as the ADB and AIIB support the development ofconnectivity projects. Co-financing possibilities between ADBand AIIB should be explored, given the magnitude of the funds
needed for infrastructure investment. This would help in filling thefinancial gaps that may exist in some of the countries involved.
Efforts to strengthen and sustain regional sources of funds will beimportant in funding infrastructure development in the region.	  

83.

Since

ASEAN

has

establishedtheASEAN

Connectivity

Coordinating Committee (ACCC) under the MPAC and the Beltand Road initiative and Partnership for Quality Infrastructure
initiative are so closely interconnected with the MPAC, apossibility of including Plus Three countries as active members,
rather than observers, of the ACCC should be explored.
4.

Asian countries are known to have large domestic savings andforeign exchange reserves. A mechanism should be devised suchthat these resources could be utilized to finance the development ofinfrastructure needed to enhance connectivity. Setting up suchmechanism would entail creating an Enabling Environment toaccommodate

privateinvestment,

in

which

cooperationagreements, legal and regulatory frameworks, investment planning,
institutional arrangements and a functional domestic capital market
need to be developed.
5.

In light of the fact that the private sector has resources that can betapped into for connectivity projects, which are often consideredpublic goods, a stronger framework for Public Private
Partnerships(PPPs),

inadditiontotheexistingPPPInfrastructure Advisory Facility, needs to be developed. Onerecommendation is to establish a formal regional platform toexchange PPP knowledge and experience, such as a knowledgebased Regional PPP Center of Excellence. Another suggestion isfor countries with successful PPP experiences (including Japan) toshare their expertise with other countries. Yet another suggestion isfor all countries involved to establish national-level units that	  9

would oversee PPP funding opportunities within the region andfunction in consultation with a Regional PPP Center of Excellence.
6.

The private sector should be encouraged to take the lead in
conducting connectivity-based feasibility studies and to submit a
project proposal to the government, regardless of whether suchproposal is being solicited, so that, in realizing the benefits ofconnectivity projects, they have a stronger incentive to form apartnership with the government. The East Asia Business Council
should be tasked with a greater role of promoting awareness ofpossibilities of developing ASEAN infrastructure among private
investors. In addition, governments should ensure that privatesector involvement in connectivity projects serves not only
business interests but also the purpose of economic development.

7.

The evaluation of feasibility of infrastructure development
projects needs to extend beyond mobilization of resources. It
should also address the political dynamics within each country
involved, realizing the complexity of policy-making processes at
the national and the international levels.

8.

Given the potential impacts of the Belt and Road initiative,
particularly the 21st Century Maritime Silk Road, ASEAN
countries

shouldembraceefforts

toenhance

maritime

connection to improve the transport system overall, saving costs
and time and making regional connectivity truly ‘seamless’.
9.

To further strengthen people-to-people linkages, governments
should improve border service facilities in terms of their	  10accessibility, availability of basic amenities as well as efficiency,
the last of which is reflected in the length of waiting time at theborder.
10.

There should be a more concerted effort in merging the Belt andRoad Initiative and Partnership for Quality Infrastructure
initiative together with existing connectivity plans in ASEAN,
particularly the MPAC. The implementation of the Maritime Silk
Road initiative in particular should also be orchestrated at theASEAN level so that connectivity benefits can be maximized.	  

11

List of Participants
NEAT China:
Li FujianInstitute of Asian Studies, China Foreign Affairs University
NEAT Indonesia:
Shofwan Al Banna Choiruzzad
ASEAN Study Center, University of Indonesia
NEAT Japan:
Yumiko Okamoto
Faculty of Policy Studies, Doshisha University
NEAT Korea:
Choong Lyol Lee
Department of Economics, Korea University at Sejong
NEAT Laos PDR:
Sonexay Vannaxay
Institute of Foreign Affairs
NEAT Malaysia:
Yong Hee Kong
Institute of Strategic and International Studies
NEAT Singapore:
Irene Chan
S. Rajaratnam School of International Studies (RSIS)	  12

NEAT Thailand:
Ukrit PathmanandInstitute of Asian Studies, Chulalongkorn University
NEAT Vietnam:
Le Thi Thuy Linh
Institute of Foreign Policy and Strategic Studies, the Diplomatic
Academy of Vietnam	  13