A “Free and Open Indo-Pacific”: Approaches to Investment and Infrastructure

April 15-16, 2019
US Embassy Tokyo, Japan

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On April 15-16, 2019, Pacific Forum, with support from the US Embassy in Japan, convened 50 experts and officials for a dynamic discussion of approaches to investment and infrastructure in the Indo-Pacific. The meeting began with a general discussion of the meaning of a “Free and Open Indo-Pacific,” followed by a deeper dive into finance, investment, and specific initiatives in physical infrastructure, energy security, and digital connectivity. Key findings include:

All of developing Asia, Central Asia, and China have some $26 trillion in infrastructure needs, a spending gap that no individual government can meet. There is space for collaboration and a need for coordination between all players for impactful and effective investments. Moreover, there is now a coalition of willingness to help in the development sector.

“FOIP” as a Brand

It was argued that the “Free and Open Indo-Pacific” is a brand. Participants generally agreed that FOIP has value as a brand but faces challenges in implementation. The United States has exhibited a lack of vision and clarity as to the direction of FOIP that Japan has in part filled, but participants noted great continuity in US policy despite the change in administrations in 2017. Japan has been doing many of the things included under FOIP. Thus, there is a great deal of continuity in both US and Japanese approaches to the region, despite the FOIP rebranding.

While they agreed that FOIP is a competitive concept to China’s Belt and Road Initiative (BRI), opinions were divided on whether this should be made explicit. For Japan, there is an element of strategic ambiguity built into FOIP. Ambiguity will not work if FOIP is to take off as a concept—at a minimum, certain core concepts must be clarified.

US vs Japanese versions of FOIP

The US and Japanese FOIP visions differ. The most important difference between them is the degree to which they see it as an anti-China strategy. In the US, FOIP is largely seen through the lens of US-China competition, and the military dimension overshadows FOIP’s economic and diplomatic dimensions. Japan is more open to cooperating with China on economics. Not only is the United States in a trade war with China, but the economic pillar to the US strategy is underdeveloped. The US has therefore focused on the Quad coalition (United States, India, Australia, and Japan) for military purposes. The Trans-Pacific Partnership would have been central in strengthening (economic) cooperation.

Japan’s FOIP focus is on quality infrastructure and investment. Japan’s FOIP is also more expansive, stretching from India to the Middle East and Eastern Africa. The US and Japan also differ on how much to push democracy and how far to push other countries under FOIP. These differences may be manageable if the US and Japan communicate with each other. There could be areas in which Japan plays a moderating role and the US takes a harder stance against China.

Standards vs. Values under FOIP

US diplomatic efforts tend to focus on democracy and human rights; there were questions about the wisdom of this approach. A Japanese focus on these issues could estrange it from traditional partners in Southeast Asia such as the Philippines and Myanmar. Japan instead prefers to focus on transparency and quality. Some participants argued that promotion of values is a necessity to successfully compete with BRI. For example, donor and recipient states need to have more transparency for FOIP projects to outbid BRI projects.

Promoting FOIP should prioritize values, statements, and principles, rather than containing China. It was suggested that there be a code of conduct or brand for projects conducted under the FOIP imprimatur. There should also be opportunities for cooperation with China. Democratic states should also counter the idea that authoritarian rule is more efficient. A diversified, network-oriented technology initiative is more powerful than a centralized approach.

Instead of values, FOIP could focus on standards. This requires those promoting FOIP to harmonize standards. The basic question is “Whose rules work best?” If FOIP rules are to be “better” than BRI rules, they must be in the interest of recipient countries. Promoters of FOIP have to be able to articulate the rules and sell them.

Third Countries under FOIP

There was much discussion about the role of third countries under FOIP. Participants considered the roles of ASEAN (specifically, Vietnam and Thailand), India, New Zealand and Australia, the Nordic countries, Canada, and to a lesser extent, South Korea.

In general, third countries are feeling pressure to support FOIP. This may be counterproductive. The consensus was that smaller countries do not want to choose sides between FOIP and BRI or the US and China. For example, Vietnam prefers to be a neutral player, to avoid choosing one side, and to diversify relationships. Japan has eased back on such pressure, instead cooperating on more practical terms. Reluctance to label projects under FOIP leads to confusion over intent and strategy, however. Some participants thought that third countries should be forced to choose between the West and China.

Southeast Asia is worried about US commitment and sustainability in the region. There are concerns about ASEAN centrality continuing in FOIP, and the United States and Japan need to communicate that ASEAN will remain central.

It is unclear what US and Japanese expectations are for India under FOIP—is it a target for development or a partner with which to collaborate? One participant suggested that India, as an emerging country, should play a role as a norm maker.

Countries also define the Indo-Pacific region differently and focus on distinct partner countries. For example, Australia and New Zealand focus on countries in the South Pacific. South Korea is struggling to situate itself between FOIP and BRI but also fears being marginalized.

Multilateral cooperation is important to increase funds for infrastructure services. One example is the United States, Australia, Japan, and New Zealand support for electrification of Papua New Guinea. Yet this is an instance of slow progress that lacks a clear division of labor regarding what each country can contribute.

Role of the Private Sector under FOIP

The private sector faces many challenges in the type of investment promoted by FOIP. These include the riskiness of investments, the long-term nature of public infrastructure in which returns are hard to capture, and undeveloped local currency markets. Infrastructure projects are also subject to failure.

The BUILD Act represents a fundamental shift in how the US carries out foreign aid. Japan has more experience in coordination between the government and the private sector than does the United States, so it can learn lessons from Japan (and South Korea) in this regard.

Industry associations could create standards of conduct (e.g., a global infrastructure code) independent of governments. Their efforts could complement governments and further improve them, because markets and governments must correct each other.

Private equity often will not flow into public infrastructure projects unless the government initiates them. The private sector needs to be involved in any discussion of how to effectively implement FOIP visions.

Areas of Potential Cooperation under FOIP

Under FOIP, there has been a gap between US enthusiasm and dollar amounts committed to initiatives (and therefore the effectiveness of policies). Yet there are other ways stakeholders could contribute to development in the Indo-Pacific and implement FOIP besides putting money on the table. For example, recipient countries could be offered assistance in assessing the quality of offers being made. Recipient countries could be provided with a way to grade investments made in BRI. US attorneys and accountants have been sent to Myanmar for this purpose.

Japan proposed concrete projects to the United States during the US-Japan Summit and Prime Minister Abe’s US visit in November 2018. Areas for cooperation included the environment, capacity building on illegal fishing, and Japan building hospitals for which the United States would provide training and equipment.

The United States and Japan have pledged assistance for ASEAN’s Smart Cities initiative, and they should work together in the digital and cybersecurity fields to help met Southeast Asia’s digital infrastructure needs.

Energy and climate offer opportunities for cooperation between China, the US and Japan. Southeast Asian energy consumption is projected to double between 2016 to 2050. China is moving forward with a cleaner energy mix, such as clean coal, solar, and hydrogen energy. Japan has pledged $10 billion in liquefied natural gas investment in Asia and the United States $50 million for capacity building for energy (infrastructure), including AsiaEDGE. The renewable energy sector is a potential area for constructive cooperation. It will be important to ensure that infrastructure in the Indo-Pacific region is both climate and carbon resilient.

For more information, please contact Crystal Pryor or Brad Glosserman.  The views expressed are those of the conference organizers and do not necessarily reflect the views of all participants.

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