Excerpt of Nikkei Inc Interview with PM Lee Hsien Loong (May 2014)

Mr Yoshida: Do you think ASEAN can keep this growth momentum for two, three years?

PM: Well it can go up, it can go down but basically I think the ASEAN economies are not in a bad state. Malaysia has been making steady growth, Indonesia has been making steady growth, so has the Philippines and Vietnam. Thailand of course has got political troubles to resolve, so that has affected confidence and growth. Singapore, we are at three plus percent. I think if we can sustain that, we will be doing well.

Mr Yoshida: But however, Trans-Pacific Partnership (TPP) talks seem to be in stagnation?

PM: They have made a lot of progress but they have not quite completed the talks and one of the issues is between America and Japan. There are some other issues which are still being discussed but we have made significant progress over the last few months. There was a meeting in Singapore in December and another one in February and I hope we will be able to wrap it up this year, otherwise, we will miss the American timetable and we may be into a new President.

Mr Yoshida: Are you optimistic that TPP talks will conclude at the end of this year?

PM: I think a lot of work, I think a significant amount of political will have to go into that.

Mr Yoshida: What kind of progress do you expect?

PM: I have not had the latest update but we know what are the most difficult issues which are on the table. And they include things like rice and automobiles and in some countries I think Government Procurement and State-Owned Enterprises. So these are issues which we have to work out some landing zone.

Mr Yoshida: We understand that Singapore is one of the regional countries of TPP negotiations. Could you please give our Japanese readers, investors how important your TPP is?

PM: I think it is vital. We talk about the Free Trade Area of the Asia-Pacific - that is the long-term ideal. But the very major step towards the ideal is in the TPP because it brings together both sides of the Pacific, it brings together developed countries as well as the developing countries. It brings together the white countries as well as the Asian countries. And so it has strategic significance and not just an economic significance. And in the North and the North-east of Asia, Japan is a major economy, major power and for Japan not to be part of the TPP, it is a loss to the TPP but is also a disadvantage to Japan. It will be an additional link which will strengthen your ties with America and an additional way in which Japan can play an active role contributing to the stability and prosperity of the region which is one of Mr Abe’s important objectives.

Mr Yoshida: Anyway, talking about ASEAN Economic Community (AEC), discussion on AEC seems to be also going slow.

PM: Our target is to complete it by the end of 2015 – that is about a year and a half from now. We have about more than 70 percent done on the items. There are few more to go and especially on services, we need complete two more specific deals. And in terms of Non-Tariff Barriers (NTB), we also need to bridge some understanding because otherwise we bring down tariffs but NTB comes in and it is not easy to tell whether they have legitimate policy reasons, or whether they are really hidden barriers to trade and we need to make progress to limit and roll back if possible on the NTB. I hope we will be able to make more progress in the next 18 months, certainly agencies are working hard. But I expect that even after December 2015 when we go into 2016, we will still have work to do in ASEAN to continue improving our cooperation.

Mr Yoshida: So in ASEAN, there are a few frameworks, one is the AEC, one is TPP, and one is Regional Comprehensive Economic Partnership (RCEP). So how can AEC and ASEAN countries co-exist, with TPP and RCEP?

PM: Well it is like the North American Free Trade Agreement (NAFTA). America is in NAFTA together with Mexico and Canada, but they are also in the TPP. So similarly, in ASEAN, as we have a regional agreement amongst our own countries, which covers trade and services and investments and transportation amongst ourselves, in the ASEAN community and at the same time we have links outside, links with America and many partners to the TPP, but also links with China, India and some of the same partners under the RCEP. Japan has many trade agreements with different partners. So similarly ASEAN must be able to do the same.

Mr Yoshida: Thank you so much. My next question is about frameworks to stabilise Asia. Recently the tension between Southeast Asia and China is rising, especially between China and Vietnam, China and Philippines. Will it affect the relationship between China and ASEAN?

PM: Well it is an issue between China and ASEAN in the sense that ASEAN has an interest in the stability of the region and ASEAN is discussing a Code of Conduct with China, and in fact ASEAN has a Declaration of Conduct with China. So to that extent ASEAN is engaged in this issue. It is one aspect of the relations between ASEAN and China. There are many other aspects, many of them are very positive – cooperation, financial assistance, human resource development, trade, and we have an ASEAN-China FTA which we are planning to enhance. So ASEAN-China relations are multi-faceted, and South China Sea is one. And we will have to try our best to make sure that it does not colour the whole relationship.

Mr Yoshida: Do you think the Code of Conduct (CoC) will be enough to contain provocations from China?

PM: I would not put it as provocations from China, I would say these are incidents at sea and we hope that we will have a set of rules which all countries can abide by, which will minimise the chance of an incident at sea or a misunderstanding or an escalation. But I think that many countries would be very cautious about signing on to a set of guidelines which may constraint its freedom of action. It is natural, and therefore it will take some time to get everybody to agree to a Code of Conduct.

Mr Yoshida: Can you understand the Chinese position in South China Sea? They want to expand the areas?

PM: The Chinese, in one way, I understand them because they have made it quite clear that they want to discuss territorial and maritime disputes on a bilateral basis, China with Vietnam, China with Philippines, China with Malaysia and so on. That part is clear. What exactly is the legal basis for their claim, what exactly they are claiming, in very precise terms, they have not made clear. And some of their experts have said that it is not in their interest to make this very clear. So that part is ambiguous. But that they intend to defend what they say is theirs, strongly, I think that is also very clear.

Mr Yoshida: I want to ask you more about framework in ASEAN. Recently, it seems that the presence of United States has been decreasing and presence of China is increasing. What framework do you think is needed to keep Asia stable and for some countries to live alongside China?

PM: I do not think that the American presence is decreasing, in fact, the Americans how talked about rebalancing towards Asia and President Obama has paid attention to the region and has visited Asia quite a number of times, including ASEAN. He has just been in several ASEAN countries recently. In fact not just ASEAN countries, but he was in Japan too recently. So I think that the Americans fully understand the importance of the region and have every intention of staying here over the long term. Right now they have other items on their plate, the economic issues, their domestic political gridlock, I think a, certain weariness after the wars in Afghanistan and Iraq. And so they are reluctant to engage very aggressively in new foreign commitments, but they know that they have a major stake in this region. I think in the long term, they will continue to have a major stake and therefore every reason to be present in the region. The Chinese presence is growing, there is no doubt, because the Chinese are getting much stronger and developing day by day, year by year. And so there will have to be a shift and adjustment in the balance and in the relationship between China and America, but also involving the other countries, Japan, ASEAN, getting used to this new arrangement and finding the new role to play in this new balance.

Mr Yoshida: So you mean for ASEAN the most important thing is to keeping balance between some big countries like US and China?

PM: I think it is most important for both America and China to be positively engaged in the region. And to have a certain balance in their influence, in their interest, in the way in which they interact with one another.

Mr Yoshida: How about ASEAN?

PM: ASEAN is not a superpower. ASEAN is a group of countries. We hope to be relevant; we hope that we can play a role in the regional architecture and the way we put it is we hope ASEAN can be in a central position and all the other powers find it useful to have ASEAN as a host in the forum for this cooperation and for this dialogue and exchange, but to do that ASEAN has to be effective and must be cohesive and must have substantial cooperation which is why we are working on the ASEAN Community.

Mr Yoshida: What kind of role can Japan play in order to keep Asia’s stability?

PM: Well, I think first a very important role is to establish relations of trust and confidence and with your neighbours, and especially those where you have not fully reconciled after the Second World War, with Korea, with China. If you can manage good, stable relations with Korea and China, then I think you have the external preconditions both to proceed with the restructuring of your domestic economy and the revitalisation of your domestic economy and also to play an active role in the region.

Ms Kikuchi: How would you evaluate PM Abe’s economic and fiscal reforms so far?

PM: I think he has pursued them with complete single-mindedness. I think that it has changed the mood in Japan. The first arrow and the second arrow, financial and monetary policies, I think these are an immediate stimulus to confidence. The third arrow is very important because that is what makes it sustainable. But at the same time, the third arrow takes longer to arrive. This is work of several years, even a decade or longer and also something which requires a tremendous amount of political resolve in order to change mindsets and very settled ways of doing things in the Japanese economy. We talked about very sensitive products but there are also issues to do with the labour market, issues to do with employment practices, issues to do with foreign labour. These are not easy issues, but crucial, and crucial also for Mr Abe to maintain support for the period when it takes to get there, because you cannot expect results overnight.

Ms Kikuchi: And will there be any possibility for Singapore to change its stance to keep limited government and shift it towards big government like, for example hiking up the taxes?

PM: I do not think we can be a big government like the Europeans are a big government. In Europe, the government takes up about half the GDP, some countries more than half, but at least 45 percent of the GDP, quite commonly. In Singapore, the Government is about 16 percent of the GDP (NB: Government spending was 14% of GDP in 2013). I think if we go forward with greater social burdens, the Government’s share will go up. It may go up 20 percent of the GDP, but I do not think you can reach 40, 45 percent. And whatever it is which we spend, we have to earn because the Government does not have a money machine producing money from heaven. And that means at some point, we will have to look to our revenues and decide whether we have enough, and if not, where will we be able to raise new revenues. It is unavoidable.

Mr Yoshida: Do you have any timetable?

PM: Well, I think for the immediate future we are alright. Over the next five to 10 years, we will have to look at this very seriously.

Ms Kikuchi: What kind of cooperation can Japan and Singapore do in order to solve these very difficult issues.

PM: Well, we can learn from Japan in terms of ageing, because it is more advanced with you, and you have a lot of experience making arrangements for the old people. Physical arrangements, appliances for homes, arrangements for nursing, taking care, keeping in touch with old folks who are living on their own so that if something happens you can go and give them help. These are areas which we can learn a lot from. I think that in terms of population overall, we have been grappling with the issues of immigration, of foreign workers and there are difficult issues there. Japan has taken the view that that is too difficult and has been very, very tight on immigration, even on foreign workers. But if you are at some point able to consider that as a politically feasible option, then maybe our experience may be interesting for you to look at.

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