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Asia Shifting Toward Economic Regionalism
By Tim Shorrock
In mid-June, Japan and South Korea began a fourth round of negotiations aimed at creating a bilateral free trade agreement (FTA) by December 2005. The talks would unite two economies with a combined gross domestic market of five trillion U.S. dollars, or about 75 percent of the entire East Asian economy. Japan signed an FTA with Singapore in 2002 and is negotiating similar bilateral deals with Malaysia, Thailand and the Philippines. On Jun. 30, China and the 10 countries that make up the Association of South-east Asian Nations (ASEAN) conclude talks on which products should be included in a proposed free trade zone scheduled to be completed by 2010. Next year, China will open free trade talks with New Zealand, its first such negotiations with a developed country. New Zealand and Australia are also contemplating a recent ASEAN initiative for an FTA. Meanwhile, Malaysian Prime Minister Abdullah Ahmad Badawi is floating a proposal for an Asian inter-regional trading group similar to the European Union. His proposal is a likely topic of debate at the 37th ASEAN ministerial meeting set for Jun. 29-30 in Indonesia. There, ASEAN, South-east Asia's key diplomatic club of 10 countries, is expected to formally request FTA talks with New Zealand and Australia. Badawi is calling for an FTA that would be signed by all members of ASEAN plus China, Japan and South Korea, as well as a regional monetary fund that would supplement the Washington-based International Monetary Fund. In a Jun. 21 speech in Kuala Lumpur, Badawi admitted that creating an East Asian free trade area could take up to two generations. But he said an economic community is essential for Asia to retain its independence as a region. "Our present and our future are incredibly dependent on decisions make in Washington or New York or Geneva," he said "We are punching way below our weight." East Asia, he added, is "a heavyweight, compartmentalised and cribbed in the featherweight class." These moves towards regionalism in Asia are partly a reaction to the economic cohesion in Europe and North America created by the EU and the North American Free Trade Agreement, which will soon expand to include Central America. At the same time, they reflect a general sense that the region was left to fend on its own by the IMF and the World Bank after the Asian financial crisis of the late 1990s, said Kinoshita Toshihiko, a trade expert at Tokyo's Waseda University and a former official with Japan's Export-Import Bank. At the time, "East Asia felt an identity that they were all on the same boat," Kinoshita said at a Washington forum organised by the Sasakawa Peace Foundation in June. During the Asian crisis, Kinoshita noted, the United States brusquely shot down a Japanese proposal to create an Asian Monetary Fund to act as a regional IMF. Earlier, in 1991, the U.S. government opposed a proposal by former Malaysian Prime Minister Mahathir Mohamad for an Asian free trade zone that would have excluded the United States. Japan, taking the U.S. lead, was "lukewarm" to the idea as well. As a result, the term East Asian Economic Community - the would-be name of this forum -- "became taboo in this area," he said. The "centrifugal forces" behind free trade are very strong, and Asia is already experiencing "the fruits" of regional cooperation, said Kinoshita. Under the "ASEAN-plus-three" structure, he noted, Asian countries recently launched an Asian Bond Market Initiative and an Asian Bond Fund so local governments will have access to capital during a future financial emergency. In addition, intra-regional trade now encompasses 45 percent of the area's total trade and Japan's trade with East Asia is increasing as its trade with the United States slows. Last year, for example, Japan's exports to East Asia rose 22 percent in comparison to a three percent rise with the United States. Japan's imports from East Asia rose 16 percent, while its U.S. imports rose only two percent. For Asian regionalism to work, Japan must take a strong lead and convince the United States that the process is not aimed at reducing U.S. influence, Kinoshita argued. "By acquiring the trust of the United States, Japan could take leadership in its own way," he said. Richard Katz, the senior editor of 'The Oriental Economist Report' and a long-time expert on the Japanese economy, took exception to Kinoshita's interpretation of trade statistics. While Japan is more trade dependent on Asia, he said, Asia is becoming less dependent on Japan. "Japan is neither hub nor brain" of East Asian economic integration, he said, noting that South Korea has overtaken Japan as China's number one trading and investment partner. Moreover, said Katz, much of the increase in Japanese trade involves "captive" exports and imports - that is, Japanese firms shipping goods to and from their affiliates in China and elsewhere. "The overwhelming share in the growth of Japanese imports (from Asia) is from Japanese affiliates," he said. "So, yes, there is integration in Asia, but Asia is not integrating with Japan." Alan Tonelson, a research fellow at the U.S. Business and Industry Council Educational Foundation in Washington and a long-time critic of U.S. trade policy, agrees with Katz that trade statistics tell only part of the Asian economic story. In an interview with IPS, Tonelson said discussions of FTAs in Asia often overlook the fact that China and its Asian competitors continue to view the United States as their primary market. "In my view, the main element of the Asian model is that it relies very heavily for growth on net exports to the United States," Tonelson told IPS. Much of China's growth in recent years, he contends, is due to heavy investments in Chinese manufacturing and high-tech industries by U.S. multinational corporations that use China as an export platform to ship products back to their home market. "If you're interested in the implication of trade flows, the fact that manufactured goods are stopping at more places (in Asia) is not important," he said. "The end result is, trade flows and more lopsided and Asia's dependence on the United States as a final consumption market continues to grow." Back at the symposium, Adam Posen, a senior fellow at the Institute for International Economics, argued that Asian countries have yet to find a driving force for regionalism. "We don't have an agreed-upon engine for Asian transformation," he said.(Inter Press Service) |
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