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Political power plays cloud East Asian economic community vision

by Takashi Kitazume

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Japan can help ASEAN integration

East Asian leaders will hold their first summit in Kuala Lumpur this week, but the region lacks a clear vision of its common future and the often-discussed idea of an East Asian economic community remains vague, experts from ASEAN countries and Japan told the Dec. 2 Keizai Koho Center symposium.

While East Asia has achieved a substantial degree of economic integration through market forces, successful creation of an institutional framework for a regional economic community depends on political will and the leadership of governments, they said.

But political relations between Japan and China — the two major players of the region — remain precarious, clouding the prospect of a regional community, the panelists told the audience.

Hank Lim, research director at the Singapore Institute of International Affairs, said market forces and private-sector production networking continue to drive economic integration in East Asia.

But governments in the region were awakened to the need to institutionalize the de facto integration after they experienced what they perceived as a heavy-handed U.S. approach — through the International Monetary Fund — to the 1997 Asian financial crisis, he pointed out.

So far, the efforts have mainly evolved over separate talks between the 10-member Association of Southeast Asian Nations and its Northeast Asian partners — Japan, China and South Korea — to create free trade agreements.

The East Asian Summit, which will also invite leaders from India, Australia and New Zealand, will be held Dec. 14 as part of an annual series of high-level meetings of the ASEAN bloc and its economic partners.

However, Lim noted that the summit is being held prematurely because it does not seem to have a clear agenda. And the concept of a frequently discussed East Asian economic community remains vague, he added.

“What will be the content of the East Asian economic community? What does it entail? Will it be a community or the Community?”

Lim said the prospect of an East Asian community depends heavily on relations between Japan and China, which continue to be marred by political disputes even though China surpassed the United States this year as Japan’s largest trading partner.

“Unless you have a certain semblance of stability in Sino-Japanese relations, we will have problems. So bilateral relations will become regional issues,” he said.

Prime Minister Junichiro Koizumi’s repeated visits to Yasukuni Shrine — seen by many in Japan’s Asian neighbors as a symbol of the nation’s past militarism — are often cited as the primary factor behind the chilly relations between Tokyo and Beijing.

But Lim said that even without Yasukuni, Japan and China will continue to have disagreements on a number of other issues because for the first time in the region’s history, the two countries are simultaneously in power — Japan as the established power and China as an emerging power.

Lim expressed hope that Japan and China will deal with each other in a pragmatic way as long as their interests in the region coincide. And the ASEAN bloc will likely serve as the hub or bridge between these two powers, he added.

But at this moment, East Asia is like a car whose driver — the ASEAN bloc — is half asleep and its two main passengers — Japan and China — are rocking the vehicle, making it unclear whether the car can move in its desired direction, Lim told the audience.

Another major, unanswered question is the role of the U.S. in an East Asian economic community, Lim said.

“We tend to say the U.S. is not (part of) East Asia” and U.S. delegates will not attend the upcoming East Asian summit, he said.

But in fact, the U.S. plays dominant economic and security roles in the region, Lim said, noting that major portions of the products made in East Asia are consumed in the American market and governments in the region invest much of their foreign exchange reserves on U.S. Treasury bonds.

The U.S. also has security arrangements with Japan, South Korea, Thailand, the Philippines and Singapore, he pointed out.

“How far can East Asian economic regionalism go without the implicit or explicit concurrence of de facto leader, the U.S.? . . . Somehow we must (consider) how a structure (can be built) without sacrificing the U.S. interest” in the region, Lim said.

Mahani Zainal Abidin, an economics professor at the University of Malaya, acknowledged that the notion of East Asia developing a high degree of market integration may belie the fact that the region remains very much dependent on the U.S. market.

East Asia’s growth depends a lot on sources outside of the region, including technology transferred by non-Asian multinational corporations, and many of the region’s currencies are linked to the dollar, the Malaysian scholar said.

“So in a way sometimes we’re kidding ourselves to say that East Asia is integrated,” she said. “Yes, to a certain extent. But to a large extent it’s driven by forces outside the region.”

Since the days when former Malaysian Prime Minister Mahathir Mohamad first proposed the notion in the early 1990s, the U.S. has long viewed moves by East Asian nations for regional integration with skepticism — as something that excludes the U.S. and undermines American interests in Asia.

Mahani said Washington should change its position and be “more comfortable with East Asia as an economic group.”

“Nobody doubts the importance of the U.S. to the region. . . . The U.S. must not consider (East Asia’s bid to build an economic community) as a challenge (to its interests),” she said.

She also urged Japan, despite its close security and economic ties with the U.S., to “think Asia” as the region gropes for economic integration.

Mahani said East Asian economies need to integrate “because we have to counterbalance regionalism in Europe and America.”

Economic integration also merits East Asia because the region — with a young and growing population — is obviously the center of future growth, Mahani said. While the region has developed as a manufacturing base, it needs to integrate to become more efficient in services, she added.

“The economic community must anchor the source of growth. We’re just a production center, but not the source of global growth,” Mahani said.

Through economic integration, Asia needs to allow “a more systematic and controlled flow of people,” Mahani said, as she pointed to large numbers of illegal immigrants working everywhere in East Asia.

Still, Mahani likened the ongoing debate over an East Asian community to a group of blind men touching an elephant — with nobody having a clear idea of the whole picture.

Fukunari Kimura, a Keio University professor, said it is only natural for economies in East Asia to integrate because the region has established an intraregional network of production and distribution networks that are more advanced than in any other part of the world.

On the other hand, he said, political relationships in the region remain complicated, especially in Northeast Asia, where Japan, China, South and North Korea, and Taiwan have not resolved their mutual distrust even 60 years after the end of World War II.

Given this huge gap between the close economic ties and the complicated political relations, Kimura suggested that countries in the region may find it easier to proceed with economic integration first and then try to reduce political tensions.

The decision to invite Australia, New Zealand and India to the summit may reflect the region’s desire to dilute the political implications of the event by including countries from outside the region, he said.

However, other panelists said the significance of regional integration could be minimized unless it extends into the political sphere.

Josef Yap, president of the Philippine Institute for Development Studies, said economic benefits of an East Asian free trade agreement are overstated — because intraregional trade has expanded a great deal without FTAs.

Yap went on to say that the relevance of FTAs is mainly political, although indirect economic benefits may be significant.

By creating FTAs, countries seek political and security gains, he said, noting for example that by pursuing an FTA with China, the ASEAN expects to accelerate solutions to the dispute over the Spratley Islands.

An FTA will also provide leverage for policy-makers to accelerate domestic reforms, and it is hoped a regionwide FTA will increase the weight of East Asia’s bargaining chips with the world’s major powers, he added.

Lim argued that trade/investment liberalization and economic cooperation are important, but not sufficient to build a regional community.

“Eventually you need to have a common regional identity — that we are East Asians,” he said, calling for efforts to promote social and cultural affinity.

East Asia should approach regional cooperation based on a comprehensive and broad approach toward community building, he said.

“It should not be just about trade and investment, it must be about moving toward cooperation in natural disasters like tsunami, bird flu and terrorism, issues that bond together the peoples of East Asia.”

Lim asked if East Asian countries are ready to accept a regional redistributive mechanism to help the weaker members who suffer losses from integration or to narrow the gap between the rich and the poor within the region. “Otherwise your credibility as a regional organization is gone,” he said.

When Europe moved toward integration, the region’s major powers like France and Germany were ready to do it, Lim said. “Will China and Japan agree? They don’t even agree on basic issues. How are we going to get the vision to go in the direction that we want?”

“You cannot take it for granted” that trade and investment liberalization would set the right direction for building a regional community, he said.

The participants must make a conscious approach to promote security through confidence building, Lim said. “Don’t do, don’t say, don’t act, don’t initiate something that would create suspicions among others,” he said. The dispute over Yasukuni, for example, may not mean anything in substance “but perception is very important in international relations.”

Mahani of the University of Malaya posed another question: Does an East Asian economic community entail the creation of stronger regional institutions?

“We need to institutionalize the regional integration process. Now the question is, can East Asia accept a supraregional body like the EU Commission to which member countries will give up certain powers? . . . Are we willing to put ourselves in an economic straitjacket” like the ones imposed on individual EU members? she asked.