“Regional integration and global developments – a view from the European Union”

European Commission

[Check Against Delivery]

José Manuel Durão Barroso

President of the European Commission

“Regional integration and global developments – a view from the European Union”

World Economic Forum

Istanbul, 29 September 2014

Dear Prime Minister, Mr Ahmet Davutoğlu,

Dear President,

Distinguished guests,

Ladies and gentlemen,

It is my pleasure to get this opportunity to address you all and to give you a view from the European Union on the issue of regional development and global developments, after the meeting of minds you’ve had over the last two days. Indeed I believe that regional development can also come from further developing such bonds between regional leaders and stakeholders.

When we discuss the challenges facing the European Union and the wider region today, it is important to bear in mind the starting point: that the European Union as such is precisely a project meant to overcome the divisions of the past and deal with those challenges. That European integration was always meant to be, and will always need to be, a tool to help its member countries face the issues they cannot successfully face alone. That bringing Europe as a region together is the only way to protect our interests and defend our values in a rapidly evolving world. And that the same logic of regional integration and increasing cooperation is at the heart of what the European Union does both internally and internationally, especially with its immediate neighbours.

That is as true today as it was when European integration took off after the Second World War.

That is where our lasting commitment to regional integration comes from.

Because then, and now, when times change, institutions need to change as well. So let me briefly recall what the current pace of change we are facing means for our governance at global and regional level. I will then try and highlight how I see the need for the world order to adapt itself to these new challenges. To conclude, I will say a few words on EU-Turkey relations.

Ladies and gentlemen,

As we speak, times are changing drastically, in some cases even dramatically. The rate of technological progress is unprecedented, global economic integration is rapidly expanding, issues like climate change and international migration are affecting all of us.

Trade flows and supply chains cross borders with increasing ease, information travels globally and decision-making centres are spread across the globe as well. So political decision-making and cooperation must rise above national borders too. The political mind-set needs to evolve as well.

One of the main questions of our times is whether or not we succeed in adapting our governance institutions to such a changing, complex and challenging global environment, and how. Governing structures need to evolve to support more dynamic societies, empower them get the most out of the opportunities that globalisation offers in terms of jobs, travel, knowledge and innovation, education and exposure to new ideas. They also need to shield them from some of the harmful effects of globalization like the growing threat of increasing international terrorist networks. Institutions are there to support us, and they need a certain flexibility to be able to do so.

This is particularly true in times of change and crisis, when hard questions are asked of governments everywhere. Around the world, we now see a triple gap of confidence widening: a gap between markets and states; between states amongst one another; and last but not least between governments and the governed. As a result, political institutions and economic systems across the world are under pressure.

This is, let’s be clear, not a “European” or “Western” issue.

True, in democracies such gaps show easily. But this is not – as some would have it until a few years ago – a problem aggravated by democratic openness. The legitimacy question is a fundamental one everywhere, and indeed democracies are better suited to deal with such issues than the ‘pressure cooker’ model of undemocratic or less-democratic systems. Our openness, the accountability of our political structures and the diversity inherent in our model of society, is what allows us to be more flexible and to adapt better to changing environments.

But for that to happen, we need leadership and we need cooperation.

That is why events such as this one organised by the World Economic Forum can really make a difference.

Ladies and gentlemen,

Let’s be honest: today, our governance systems are in many cases sub-optimal.

Few would deny that we struggled to deal with the global financial crisis. In many ways we had to improvise and the creation of the G20 – I will come back to it in a moment – was a clear illustration that our governance models needed to adapt to a totally new situation. Indeed, a lot of what we have done since the financial crisis, most obviously in the European Union but beyond as well, was trying to remedy the defects of our financial and economic governance systems.

Even fewer would deny that the ongoing war in Syria or the emergence of a totally new form of terrorism in the region, to take only these examples in the current international turmoil in the Middle East, are showing the inadequacy of some governance systems. And the actions taken by the United Nations, as well as the support given by countries around the world including in Europe, are a necessary effort to deal with the situation collectively.

As a result of systemic defects or delay, we must also admit that there is some popular scepticism about both regional and global governance systems. This could, in the longer term, undermine them. Sometimes, they are seen as over-powering and interfering – as you can note from emotional protests against the World Trade Organisation, for instance. At other times, they are damned as ineffective – as if often claimed of the United Nations. And indeed, they may even be criticised for being both – which is sometimes the case of criticism of the European Union, that some criticise because it is too intrusive in Member States’ competences; others because it does not rely on sufficient coherence of Member States’ action. Such criticism may or may not be true, but it undoubtedly underlines an increasing need for greater legitimacy in our institutions, as well as enhanced effectiveness.

The regional dimension is part of that effort.

There is frequently a gap also between regional and global decision-making. Global bodies such as the UN and the WTO explicitly recognise the desirability of regional input and support – but the truth is that we have no established model or mechanism for how this should take place. In some cases the gap between global and regional decision-making is widening. A clear example is the relative stasis of the WTO agenda compared to the proliferation of regional or bilateral trade deals.

Besides, interdependence and interconnectedness are evolving fast, but the dynamic propelling us towards a “global village” and shared decision-making is confronted by that of a world which seems to be drifting apart. The renewed claim for identity at subnational or local level can sometimes be seen as a threat to the Nation State model, potentially leading to greater fragmentation. Globalisation has shortened the distances but has not erased differences in political and social models and has sometimes even exacerbated them. Today, we live not just in economic, scientific and technological competition with each other, but also in a broader geo-political competition of models of governance. Differences seem harder to bridge – at a time when the need to bridge them is much greater.

On top of that, the dynamic of divergence between East and West, North and South, seems set to continue. It is no exaggeration to say that power and influence are shifting, but I do not necessarily consider this as a “loss of power” of the West – I see it as part and parcel of truly global integration, which, if implemented according to some values and principles, can be a true win-win situation for the different players in our world.

In concrete terms we have seen challenges to the post-war bodies, on which global governance was based, such as the UN, the IMF and World Bank. A certain amount of complexity may be part of the new reality, but new competing institutions could further complicate regional and global governance. So the real question in my view is: do we want to focus on cooperation and collaboration or on competition?

Ladies and gentlemen,

Against this backdrop, how do we see the world order shifting and adapting itself?

A first, major development which I already mentioned is the emergence of the G20 in response to problems of global economic governance.

The economic liberalisation, and therefore also: the economic interdependence that has been so spectacular and successful over the last two decades came under threat as soon as the financial crisis erupted. The need for openness and for a global response was more obvious than ever before, namely by collectively resisting pressures of naked and ugly protectionism. But that in itself was not enough to bring it about, because the temptation to go it alone and try to survive the crisis by ‘beggar-thy-neighbour’ policies was very strong. We simply had to step up our common engagement.

I vividly remember when French President Sarkozy, then holding the rotating Presidency of the European Council, and myself went to Camp David in October 2008 in order to try to convince President George W. Bush to join our call to act against the crisis in a concerted and convincing way. This led to the G20 in its current format, at Heads of State or government level, and the hugely important effort to globalise the response to the crisis at that stage. Since then, the G20 has become the only truly global forum for coordination of economic policies between its members, giving concrete shape and form to a lot of the concepts that the European Union has brought to the table, for instance on a framework for balanced and sustainable growth, on financial regulation and supervision or on action against tax evasion and fraud.

The development of the G20, from which Turkey is a member and will hold its next presidency, is a constructive and an institutional response to the problems we face together. As such, it is one of the most significant transformations of the global system – in the short term probably the most important one – and its creation certainly helped to avoid much more negative scenarios that might well have happened without it.

A second, major test for global governance is climate change, on which we had an important UN Summit in New York last week where I had the honour to speak on behalf of the European Union.

Climate change is one of the defining challenges of our times. It ignores borders, disrupts societies, undermines development and destroys our global commons. It is by its very nature a problem we can only face together. At the same time, climate change also presents an opportunity to reinvent our economies in a cleaner, leaner, greener and more efficient way. But we, the international community, can only grasp this opportunity and defend our shared planet if we show courage, vision, determination – and unity.

The European Union has been and remains at the forefront of efforts to address climate change. In 2005, we created the world’s first and largest carbon market with the European Emissions Trading System (ETS). In 2008, we set the most ambitious targets for domestic emissions’ reductions, renewable energy and energy savings under our 2020 framework. This ambition is paying off. The European Union is on track to meet our targets.

And we try to lead by example in the future as well. The European Commission has proposed an ambitious reduction target of 40% of domestic emissions by 2030, compared to 1990 levels, plus a renewables target of at least 27% and energy savings of 30%.

So, the European Union will be ready to agree a comprehensive, global and binding climate treaty at the end of next year in the Paris Summit. And we urge those countries with the greatest responsibilities and capabilities to get ready as well. Climate change is probably the most obvious example of the need for stronger global governance.

At the same time, we must also assist the most vulnerable countries, many of which are less able to take action on climate change, but who nevertheless suffer the consequences. For that reason, over the next 7 years, the European Union aims to allocate more than €3 billion in grants to support sustainable energy in developing countries. This will leverage between €15 and €30 billion in loans and equity investment, to plug gaps in energy infrastructure and businesses, to power schools, homes and hospitals in a sustainable manner. In total, Europe will provide €14 billion of public climate finance to partners beyond its borders over the next seven years.

We need to keep up the momentum on climate action, and foster a true coalition of all stakeholders, not just governments and international organisations but business leaders, financial institutions, and civil society. This concerns us all.

A third, major evolution in global governance is the increasingly dense web of trade agreements that spans the globe – not least around the European Union’s free trade agreements.

This too is a case of rules and institutions following economic reality, while shaping it at the same time. Open trade needs to go hand in hand with a rules-based system and a level playing field for all nations, citizens and companies, otherwise its effectiveness and legitimacy will suffer gravely.

Over the last five years, Europe was able to conclude a new generation of deals with South Korea, Singapore, Colombia, Peru, Central America, and Canada; we finalised economic partnership agreements in Africa, with West Africa and the Southern African Development Community (SADC); we resumed negotiations with the Southern Cone Common Market (Mercosur); we launched important negotiations on free trade agreements (FTAs) with Japan, India, Vietnam and Thailand, and on an investment agreement with China. And we took the unprecedented step to start negotiations with the United States of America on a Transatlantic Trade and Investment Partnership (TTIP). All this shows clearly: the European Union as the world’s largest trading block remains open for business. The crisis has not prompted us to pull up the drawbridges – on the contrary.

Now, we have always made it clear that this system of deeper bilateral ties, for us, is a second-best option. Indeed, we have only resumed bilateral and regional negotiations once it was regrettably but unmistakably clear that a multilateral trade deal encompassing the whole of the WTO membership was not forthcoming because some of the most important players were not ready for a global agreement. And in the EU we have made sure that our bilateral agreements, all of which go much beyond what would be possible multilaterally, are building blocks and not stumbling blocks for the multilateral trading system. It is a good example of pragmatic policies of bilateral and regional integration adding up to a race to the top, instead of a race to the bottom.

Ladies and Gentlemen,

Since we are here in this historical and great city of Istanbul, let me conclude with some words about Turkey – a country that I respect and admire so much – and also about Turkey-EU relations.

EU-Turkey relations are almost as old as the EU itself! We are close partners – and it is absolutely critical that we sustain and deepen this partnership. I think both Europeans and Turks understand this shared interest very well.

The EU is Turkey’s central trade and investment partner. In 2013, 41.5% of Turkish goods exports went to the EU and 36.7% of all imports of goods came from the EU. The great majority of all foreign direct investment in Turkey comes from the EU. With the customs union, Turkey has access to the biggest internal market in the world. Also, I believe that adopting the EU acquis – as required by the agreement – encourages and facilitates investment in Turkey.

Turkey has gone through tremendous changes over the past ten years. The most spectacular change obviously concerns the economy: thanks to a series of difficult but smart reforms after the big crisis of 2001. Turkey has become a much wealthier country, with a 5% annual growth on average, entered the G-20 club and qualified as a functioning market economy, one of the economic criteria for EU accession.

Turkey has also made progress in its alignment with the EU legislation even if we consider that the picture is mixed as regards the political criteria.

Let me stress that the EU stands by Turkey’s reforms. I have to say that Turkey is the biggest recipient of pre-accession assistance from the EU – it benefited from €4.8 billion in the period 2007-2013. For the next programming period 2014-2020 Turkey will benefit from around €4.5 billion. Strategic priorities include support to political reform and democratisation, including rule of law and human rights, social development and social inclusion, development towards a resource-efficient low carbon economy, increased inter-connectivity, and progress towards alignment with the EU.

We welcome the fact that the new Government has tabled its EU Strategy, which is intended to reinvigorate Turkey’s work on its European path. We would like to see this clear European commitment on the Turkish side. On the European side, I would like very much to see new chapters open as soon as possible, in particular chapters 23 and 24.

So, Turkey is and remains a key partner for the EU. This has been repeated many times by the Council of the EU and by the Commission, and I’m sure this will again be one of the central messages of the upcoming Progress Report.

Take any major challenge we are faced with – from the economic crisis and energy security to migration policy or terrorism – Turkey appears as a strategic partner for the European Union and as part of the solution. Not to mention of course Turkey’s crucial role in its neighbourhood – which is also the EU’s neighbourhood. The way Turkey has so far offered shelter to a million of Syrian refugees and recently to Kurdish refugees is very impressive. But to be able to tackle all these challenges, Turkey strongly needs the EU, too! We are bound to succeed together. There is also a large, untapped potential for cooperation between us. This ranges from foreign policy to counter-terrorism, the economy, trade, energy, migration policy and the visa dialogue.

I know there are some, both in the EU and in Turkey, who have doubts about EU enlargement. But let me tell you I am convinced EU enlargement will continue because a bigger Europe is a stronger Europe.

In 2012, EU GDP was 23% of world GDP, amounting to €13 trillion while our share on the global population is just 7%. Accession benefited both those countries joining the EU and the established member states.

Enlargement extended the internal market, opened trade and financial flows and created new opportunities for businesses and companies to firms in the EU and in the incoming countries. Trade between old and new member states grew almost threefold in less than 10 years preceding the 2004 and 2007 enlargements and fivefold among the new members themselves. Central and Eastern Europe grew on average by 4% annually in the period 1994-2008. It is estimated that the accession process itself contributed almost half to this growth over the period 2000-2008.

The economic dynamism of these countries generated three million new jobs in just six years from 2002 to 2008. Growth in the acceding countries contributed to growth in the old member states through increased investment opportunities and demand for their products. It contributed 0.5 percentage point to cumulative growth of EU-15 in 2000-2008. German exports to the 12 countries that joined in 2004 have almost doubled since then, totalling €124.5 billion last year.

These figures speak for themselves. EU enlargement was and is a good thing for Europe.

Ladies and gentlemen,

Government structures are stubborn things.

But facts, as we know, are even more stubborn.

So we need to be ready to change the way we work when faced with new realities, in order to better serve and protect our citizens.

In a world where threats and opportunities are ever more global, I am confident we will find solutions that transcend the traditional boundaries of politics as well.

Pragmatism and conviction will overcome all pessimism. After ten years at the helm of the European Commission, I can say that this is not wishful thinking. This is simply the lesson I draw from all what was achieved to overcome the worst part of the financial and economic crisis, as well as to face new global challenges.

Thank you very much.

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Speeches: ASEAN and America: Partners for the Future

As Prepared for Delivery

Thank you, Phil. I’m glad to be in San Francisco, and with all of you here at the Commonwealth Club.

You’re here today because you understand the importance of Asia to America. This is especially evident in a Pacific Coast state like California. More than 5.5 million Asian-Pacific Americans live in California, and millions more Californians do business, study, or otherwise benefit from their ties with the region. California exported nearly $70 billion in goods to the region last year, more than any other state. And Asia matters to the entire United States – to our economy, to our security, to our families.

As a Pacific power and a trading nation, we can’t afford not to be in the Asia-Pacific. That’s why President Obama decided, before he even took office, to institute a long-term, strategic emphasis on the region. And I’m confident that strategy will extend far beyond his presidency, because we have strong bipartisan support for it – both parties understand the importance of Asia.

Now, there is a lot going on in Asia today, from the dramatic rise of China and the historic reforms in Burma, to the ongoing threat from North Korea’s pursuit of nuclear weapons, to the dangerous tensions in the South China Sea.

And while I know that as a topic, “strengthening regional institutions” probably ties for last place with “corporate tax policy” in its headline-grabbing power, it’s one of the most consequential undertakings in terms of American interests. And that’s what I’d like to discuss with you today — namely, the effort to shape a rules-based order that is stable, peaceful, open and free.

First let me say that the region I am responsible for–East Asia and the Pacific–is a diverse one. Northeast Asia, Oceania–which includes Australia, New Zealand, and the Pacific island states–and then Southeast Asia, are all quite different.

Northeast Asia is home to two of our important treaty allies – Japan and the Republic of Korea. We’ve modernized defense cooperation with both countries to address the very real threat posed by North Korea. And we’ve deepened economic engagement through free trade agreements such as the one reached with South Korea.

Northeast Asia is also home, of course, to China–with which we’ve dramatically increased our engagement.

I was with Secretary Kerry, Treasury Secretary Jack Lew, and other Cabinet officials earlier this month for the annual Strategic and Economic Dialogue covering nearly every area of our relationship with China, from concrete steps to combat climate change and wildlife trafficking, to preventing nuclear proliferation on the Korean Peninsula and in Iran, to facilitating business and investment between our two countries.

These exchanges show the conviction of both sides – as the world’s two largest economies, two of the strongest military powers, and the two largest carbon emitters – to cooperate on the world’s toughest problems whenever we can. And just as important, they show our shared commitment to tackle problem areas frankly and openly, instead of merely agreeing to disagree on issues like human rights or intellectual property protection.

Australia, New Zealand, and the Pacific island states are extremely important partners. We’ve upgraded our defense cooperation with our Australian treaty ally, and we’re working to create jobs and shared prosperity with both Australia and New Zealand through the TPP trade agreement.

We’re also working with the vulnerable island states to protect the environment. Last month, Secretary Kerry hosted the “Our Ocean” conference, a first-of-its-kind diplomatic effort rallying heads of state, scientists and advocates from the Pacific Island nations and beyond to protect this shared resource.

But in many respects, the dynamic center of the region is Southeast Asia, and the ten countries that make up ASEAN.

Let me first say a few words about each.

Our ally the Philippines is a stable democracy with strong economic growth. We completed an enhanced defense cooperation agreement during President Obama’s visit in April, which enables us to better address common security challenges and provide relief for disasters, such as Typhoon Haiyan. Our economies also continue to grow closer, with two way trade reaching $24 billion last year.

We have strong partners in Indonesia and Malaysia, both pluralistic and tolerant Muslim-majority nations with growing economies. Indonesia’s recent presidential election shows the strength of their democracy. And President Obama’s recent visit to Malaysia highlighted our growing economic, people-to-people, and security ties.

Singapore is an influential and effective economic, diplomatic and security partner. Brunei is a major energy producer that, while small, has been a valuable partner for us on crucial regional issues like renewable energy and free trade.

Vietnam, of course, has a complicated history with the U.S. But our relations are now flourishing. Trade is increasing dramatically as Vietnam’s economy grows. And we’re forging closer security ties, even as we encourage greater political openness and respect for human rights.

We cooperate with Laos and Cambodia on a range of development issues, and we also push them to adhere to global standards of human rights.

With our longtime treaty ally Thailand, despite the recent setback of a military coup, we remain committed to our enduring friendship.

Perhaps no other country shows the promise of this region better than Burma, which has made a turn of historic proportions towards democracy and reform.

But that turn is by no means complete. Burma faces many challenges, and the success of its reform process is by no means certain. Burma is working to negotiate a lasting peace to end the world’s longest running civil war. It is grappling now with the key issue of constitutional reform, of military versus civilian control over its government, and of who it deems eligible to serve as head of state.

It continues to face hard choices in determining how to resolve an ongoing humanitarian crisis in Rakhine State. On that issue, we have seen some positive movement in the past week, as the government announced its intent to welcome the return of assistance providers, like Doctors Without Borders, and put forth its strategy on how to bring access to livelihoods and security back to populations that have been living tenuously for many months because of ethno-religious violence and discrimination.

Secretary Kerry will be very focused on seeing how this process is proceeding, when he visits in early August. He, and then President Obama when he visits in November, will be keen to get a sense of Burma’s preparedness for its landmark elections next year. The world will be watching, and we will continue to stand with the government and people of Burma as they enter this testing period. So we will continue to press Burma’s leaders to protect and respect all of their peoples, and their human rights and fundamental freedoms. And we will continue to support that country’s transformation.

That’s the overview of Southeast Asia today. The region’s economic dynamism and strategic importance has made it a particular focus of this administration – the ‘rebalance within the rebalance,’ if you will.

These ten countries have many differences, but they are bound by the conviction that they can achieve more together than they can apart. But before we talk about where they’re headed, it’s important to know how they came together.

Today’s ASEAN began in 1967 when the Vietnam War was heating up, and the Cold War seemed never-ending. In this uncertain world, five Southeast Asian nations signed a Declaration that they would support each other as they sought to build prosperous, independent states.

Now, nearly half a century after its founding, ASEAN has doubled to 10 nations with more than 620 million people, and a GDP of $2.2 trillion.

As Southeast Asia has grown and developed, ASEAN’s relations with the U.S. have grown as well. Under our Trade and Investment Framework Agreement signed in 2006, we have deepened our economic ties.

Since President Obama decided in 2009 to sign the Treaty of Amity and Cooperation–a treaty that ASEAN has extended to key neighbors–we’ve deepened our political ties as well. This is shown by the President’s decision to participate annually in the East Asia Summit, as he will again this year in November. This commitment to enhanced engagement with ASEAN is a key feature of the rebalance.

And we’re strengthening our ties with ASEAN across the entire U.S. government. Take this past April, when Secretary Hagel, USAID Administrator Raj Shah, and U.S. Pacific Commander Admiral Sam Locklear hosted defense ministers from the ASEAN nations in Hawai’i. This was the first-ever ASEAN meeting here in the United States–a recognition that our security and prosperity are more intertwined than ever before.

For instance, California already sells over $11.6 billion worth of goods to ASEAN. Exports to ASEAN support more than 90,000 California jobs [in 2012]. And both of those numbers can grow a lot more. Your state also stands to gain from more tourists and students from the region.

And ASEAN matters to the entire United States. We had $206 billion worth of trade in goods last year. ASEAN is our fourth-largest export market and trading partner. With a diaspora reaching across America, the region contributes to our culture. And sitting astride vital trade routes, it is important to our security.

A stable Southeast Asia that meets the aspirations of its people–for economic growth, clean air and water, education, and a voice in how they’re governed–is in America’s national interest. And one of the best, most efficient ways for America to help the region meet its aspirations is by investing in ASEAN.

Strengthening regional institutions is a long-term strategy. We pursue it because it’s essential to building the foundations for progress–from ease of trade, travel and transport, to systems for resolving legal disputes, to the ability to act together on pressing issues like environmental protection. We all benefit from a rules-based system.

Strong institutions harness a powerful force. A force you see in both daily life and in international politics–peer pressure. In fact, ASEAN shows that the best way to create positive peer pressure in the long term is through strong institutions.

ASEAN is working towards forming a cohesive economic community by next year through lower barriers and increased trade volumes with each other. For the U.S. economy, this will mean easier and more efficient market access to all 10 ASEAN countries. And in the longer term, a more prosperous ASEAN will be able to buy more American exports–from farm products to manufactured goods, to services.

Even as ASEAN pursues its ambitious agenda of internal integration, it has taken on the challenge of bringing the entire Asia-Pacific region closer together. This fills an important gap – APEC is a forum for economic cooperation, but there was no forum in the region where countries could deal with political, security, and humanitarian issues.

So in 1997, ASEAN started meetings with Japan, South Korea, and China… then with Australia, India, and New Zealand… and four years ago with the United States and Russia, bringing the number of world leaders attending what is now known as the East Asia Summit to 18.

The growth of the East Asia Summit shows ASEAN’s measured advance on the international stage as the hub that connects the region.

Less visible than the leaders’ summit, but even larger, is the ASEAN Regional Forum, an annual gathering of foreign ministers and other senior officials representing 26 countries from Pakistan to the Pacific Rim, and the EU.

This is perhaps the region’s most important ministerial meeting of the year, and it takes place in a few weeks in Burma. Secretary Kerry and his counterparts will discuss political and security issues, and begin fleshing out the agenda for the East Asia Summit, or EAS, which President Obama plans to attend in November.

Why the emphasis on EAS? In Europe, we’ve seen for decades how a region can develop effective institutions tailored to their unique needs, such as NATO and the OSCE. Those organizations have helped tackle regional, political, security and humanitarian problems. We believe the EAS can become the premier forum for addressing pressing issues in the Asia-Pacific region. But it is relatively new, and members are still trying to shape it to increase its usefulness and effectiveness.

We joined EAS because, as an Asia-Pacific nation, we want to be at the table for a strategic discussion about how we build and shape the institution over time.

Let me give you a little preview of the issues that will be at the top of Secretary Kerry’s agenda. We expect to advance collaboration on issues ranging from non-proliferation to humanitarian assistance and disaster response.

Disaster response is incredibly important, since the Asia-Pacific is hit by 70 percent of all natural disasters, costing the region $68 billion annually over the past ten years.

We have worked closely with partners, including China, on improving regional responses to problems and accidents such as oil spills, for example. We are supporting the EAS declaration on Rapid Disaster Response, helping spread the lessons learned in the Philippines from the recent Super-typhoon Haiyan, and working to improve the capabilities of ASEAN’s Centre for Humanitarian Assistance and disaster relief.

We’ve also teamed up with regional partners to develop a strategic plan for exercises that will prepare us to better coordinate delivery of life-saving relief in future disasters. And we are preparing to host an ARF climate change adaptation workshop to help countries protect their people from this growing problem.

In addition to advancing these areas of collaboration, we will have frank discussions about pressing political and security challenges. In recent months, the main security challenge facing ASEAN has been tensions in the South China Sea.

This is, of course, most important to the countries with overlapping territorial and maritime claims there. Let me note up front that the U.S. is not a claimant and does not take a position on others’ claims to land features in the South China Sea. So the United States can be impartial. And we are impartial; we are not taking one claimant’s side against another.

However, peace and stability in the South China Sea is important to the international community, because the South China Sea is essential to the global economy. Up to 50 percent of the world’s oil tanker shipments, and over half of the world’s merchant tonnage, pass through the South China Sea. National interests like freedom of navigation, international law, the peaceful settlement of disputes, and unimpeded commerce are at stake.

Rival maritime and territorial claims have existed here for decades, as countries jostle over islands, shipping lanes, historically rich fisheries, and more recently, oil and gas reserves.

The claimants have, at various times, shown that cooperation in the South China Sea area is possible. They have jointly explored for and managed resources. The Philippines and Indonesia peacefully settled a 20-year maritime boundary dispute just outside the Sea earlier this year. China and Vietnam have settled similar issues in the past. And some claimants have jointly developed energy resources further away from disputed land features.

In 2002, the ASEAN nations and China signed a Declaration on Conduct in the South China Sea. The Declaration, among other things, said that the parties would resolve disputes peacefully and in accordance with international law, and would refrain from actions that would escalate disputes, such as setting up new outposts on unoccupied features. And they agreed to work toward a more detailed Code of Conduct.

But tensions have flared over the years as well, and this year, they are running high. No claimant is solely responsible for the state of tensions. However, big and powerful countries have a special responsibility to show restraint. China’s recent pattern of assertive, unilateral behavior has raised serious concerns about China’s expansive claims, and its willingness to adhere to international law and standards.

Tensions spiked recently when China sent a deepwater drilling rig and armed ships into an area near the Paracel Islands that Vietnam also claims. The resulting weeks-long confrontation resulted in damaged ships, including the sinking of a Vietnamese fishing vessel, and damaged relations, including anti-Chinese riots in Vietnam.

At the same time, public evidence indicates the claimants are upgrading outposts on small land features in the South China Sea. What worries me is that China’s projects are far outpacing similar upgrades that other claimants are making. This important, resource-rich area should not be heavily militarized.

And actions off the water can raise tensions as well.

All parties should be able to bring disputes for adjudication under international law if they conclude that regular diplomatic efforts will not succeed. The Philippines has done this in a dispute with China over the validity of its claim that a 1948 Nationalist Chinese map “proves” that China owns the land and water within a “9 dash line” in the South China Sea.

But instead of engaging constructively and arguing its case as the Tribunal has proposed, China has pressured the Philippines to drop its case, and attempted to isolate the Philippines diplomatically.

International law, not national power, should be the basis for pursuing maritime claims in the South China Sea.

The United States works to lower tensions and help the parties peacefully manage their disputes in several ways. We have told the claimants – including the Chinese – directly and at the highest levels, of our growing concern. And we’ve encouraged all sides to avoid provocations and make clear claims based on international law.

We’re working with ASEAN and the international community to promote regional structures and arrangements, like a meaningful Code of Conduct, to lower tensions and manage disputes.

Rules and guidelines work best when they’re agreed to by the parties, through institutions that build habits of cooperation.

The U.S. is also investing more than $156 million in the civilian maritime capabilities of allies and partners in the area over the next two years. This includes equipment, training, and infrastructure. And it augments our own security presence in the region, which has been enhanced by the rebalance.

These are steps the U.S. is taking. But the claimants are the ones who must manage and settle the disputes. They are the ones who must generate the peer pressure – who must hold themselves to high standards, and then set an example for each other.

For instance, China and ASEAN already committed under the 2002 Declaration on Conduct to avoid activities that “would complicate or escalate disputes and affect peace and stability.”

However, these problematic activities are not well defined. We are urging China and the other claimants to have a conversation about what activities are acceptable to each of them – both to help reduce tensions now, and manage differences in the long run.

We have called for claimant states to define and voluntarily freeze problematic activities. The exact elements of a freeze would be decided by consensus among the claimants, and would not prejudice the competing claims.

We’ve offered these ideas, in greater detail, both in public and in private. And we plan on advancing this important discussion at the upcoming ASEAN Regional Forum meeting in Burma.

Over time, strong institutions can influence the conduct of all their members, helping to avoid conflict and incentivize peaceful resolution of disputes. We see beneficial outcomes of positive peer pressure with environmental issues, in trade, and human rights. It doesn’t work every time, but it’s responsible for enormous progress.

The Asia-Pacific region has almost limitless potential, if it can avoid the pitfalls ahead. Strong institutions are key – not just to avoid and resolve disputes, but also to lower barriers to trade, and protect human rights and fundamental freedoms.

The U.S., as a resident Pacific power and participant in many of the region’s institutions, will do all we can to strengthen those institutions even further.

We do this through our alliances and our security partnerships–and through our growing business and people-to-people ties, in which California plays an incredibly large role. And together, the American people and our government will continue to help provide a foundation of peace and stability on which the region can grow.

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