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Open regionalism in the Asia-Pacific

by Yoichi Funabashi

The U.S.-China trade war centers on a series of retaliatory tariffs and a struggle for hegemony in strategic technologies. Together, this trade war and the Fourth Industrial Revolution, which is characterized by such innovations as artificial intelligence, big data, blockchain and robotics, is plunging the world into a period of enormous upheaval.

Growth in Asia-Pacific countries depends on trade with the United States and China, and many rely on the U.S. for their security. No country will be able to avoid the ripple effects of the U.S.-China trade war. There is no other way to protect each of these countries than to promote an Asia-Pacific regional economic partnership agreement to secure market access and preserve a liberal trade framework based on rules and the rule of law.

Until the pullout of the U.S. by the Trump administration, the Trans-Pacific Partnership was set to become the largest bulwark against these negative ripple effects. After the failure of the 12-member TPP, Japan, Vietnam and Mexico shifted gears to negotiate the establishment of a TPP 11 (officially known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP). Thailand, the Philippines, Indonesia and South Korea have all hinted that they may also join this partnership, which would further expand this bulwark protecting free trade.

Ideally this would provide the momentum necessary to complete the negotiation for the Regional Comprehensive Economic Partnership, but these negotiations have made slow progress, in part because India fears that an open market would lead to an influx of cheap Chinese imports.

China has also recently mentioned a plan for an EPA for the ASEAN Plus Three (comprised of the 10 ASEAN countries and China, Japan and South Korea). This framework would exclude not only India but also Australia. China clearly hopes to create a vertically integrated Chinese economic zone, with China itself at the helm.

Japan needs to deal with this very carefully. For Japan and the countries of ASEAN, an “Asia-Pacific fusion” — uniting East Asia and the Pacific — is a desirable regional vision. The present vacuum created by the lack of U.S. participation in the region must not be filled by China’s growing sphere of influence. Maintaining a diverse and pluralistic Asia-Pacific including China — in other words, a form of “open regionalism” — is necessary to secure the peace and stability of the region.

But how should we address the economic, social and political ruptures generated by the Fourth Industrial Revolution? The Fourth Industrial Revolution threatens to hollow out existing industries, replace humans with machines, swell the ranks of the economically disadvantaged and bring about autocratic forms of social surveillance and political control.

Seven “unicorns” — startups with valuations of over $1 billion — have already emerged in Southeast Asia. Most of these companies, however, have been backed by Alibaba and Tencent Holdings. For all of them, “leapfrogging” and “feedback” (applying cutting-edge technologies to mature fields) have provided a springboard for growth. Chinese standards, in which people are locked into a social credit scoring system generated through vast amounts of customer data, will likely expand its reach.

During my recent visit to Ho Chi Minh City, an influential local economist described to me the risks associated with Chinese standards: “China’s online big tech companies will use their offline partners to acquire all the data they need on customers, products, production lines and personnel to set up their own company in the same field and annihilate their former partners, creating a monopoly on profits. This is terrifying.”

Another type of ecosystem must be created in the Asia-Pacific region. Not the vertically integrated, unitary, disruptive, plundering and short-term ecosystems of Silicon Valley and Shenzhen, but a more horizontally integrated, diverse and pluralistic ecosystem rooted in the values of social harmony and interdependence, and guided by a long-term perspective.

Of course, an “open regionalism” should be the central pillar of this ecosystem, in which China, the U.S., India and Europe should be encouraged to participate alongside Japan and the ASEAN states. In most East Asian countries, governments and bureaucrats have traditionally spearheaded business activities. But the Fourth Industrial Revolution has been mainly led by businesses, and in particular startups, as its driving force. The time it takes for governments to develop rules and standards surrounding the implementation of innovative new technologies has proven unable to keep up with the speed of technological innovation, thereby creating a “governance gap.” This is why we need new and more dynamic public and private partnerships.

Traditionally, economic exchanges between Japan and ASEAN have consisted of friendship and exchange of views between big companies and established industries — especially among those of Japan and ASEAN members.

Yet a succession of younger, more dynamic companies are emerging from both Japan and the ASEAN countries with a grasp of the entire ASEAN market as well as global aspirations, the desire to innovate in a digital economy, and roots in an explosively expanding middle class and consumer society. What we need now is an initiative to connect these creative young standard bearers of the new global Asia.

Yoichi Funabashi is chairman of the Asia Pacific Initiative and a former editor-in-chief of the Asahi Shimbun. This is a translation of his column in the monthly Bungei Shunju.