As
analysts continue to take into account the
far-reaching effects of the European debt crisis,
the recent Asia-Pacific Economic Cooperation
(APEC) meeting in Vladivostok highlighted the
potentially pivotal role that the Asia-Pacific
region can play in jumpstarting the currently
stagnating global economy.
Many see
development and trade in the area, already
accounting for 54% of world economic output and
44% of trade, as the foundation for a more robust
economic environment. There are many
opportunities, such as the opening of Myanmar with
its untapped resource market, that show room for
expansion; at the same time, the geographically
vast, economically diverse, and
politically polarized
region also faces many obstacles that make
economic growth anything but certain.
A
key topic of discussion at the APEC summit was the
direction of the region's economic integration.
The United States, taking a leading role in
promoting a vast multilateral free trade zone, has
put forth a model in the form of the Trans-Pacific
Partnership (TPP). In particular, the free-trade
agreement between Washington and Seoul, which went
into effect in March of this year, is being used
as a key example of how a wider inter-Pacific
arrangement could enhance economic growth.
However, some of the key players are
putting forth an alternative vision. China,
rebuffed by the perceived exclusivity of the TPP,
promotes the establishment of a trilateral free
trade agreement between China, South Korea, and
Japan. Beijing recognizes that its geographic
proximity and increasing share of trade with its
potential free trade partners make it a more
viable candidate for such an arrangement.
Furthermore, without including China, the TPP has
little appeal to the economies of the Pacific rim
that stand to benefit from China's economic
growth.
Nonetheless, both visions share
serious defects. The Japanese government under the
Yoshihiko Noda administration has chosen to
concentrate on raising the consumption tax as it
key objective over joining the TPP. In effect,
with elections expected to be called within the
year, Tokyo has delayed work on joining the US-led
trade bloc. On the other hand, while joining a
trilateral FTA with China would boost Japanese
exports, domestic fears of aggressive Chinese
agricultural imports and implicit opposition from
South Korea, which looks to establishing its own
bilateral FTA with China, hinder the formation of
an exclusively Northeast Asian economic zone.
Equally stalled, Seoul will have trouble
moving forward in widening the web of FTAs that
President Lee Myung-bak built during his tenure
due to mounting public opposition. The hard-won
Korea-US FTA will probably stay in place
regardless of who wins the South Korean
presidential election this year because the
divided legislature will not have the power to
repeal or renegotiate what has already been
ratified - but regional maritime disputes and
inter-Korean relations will most likely occupy
most of the next administration's time and energy
rather than new free trade deals.
To
further hinder efforts towards regional
integration, overlapping claims of special
economic zones (SEZ) and discourse over the legacy
of Japanese imperialism between the three
countries became front page stories in August and
aggravated relations in the region.
Indeed, in recent years, inter-regional
disputes, including issues in the South China Sea
involving the Philippines and Vietnam, have
increasingly spilled over into economic disputes.
The extreme case of China threatening to embargo
rare earth metals to Japan in 2010 during one of
the heated exchanges over the Senkaku/Diaoyu
islands exemplifies the danger of political
situations impacting economic relations.
Russia's Foreign Minister Sergey Lavrov
stated that these tensions would not undermine
economic cooperation within APEC, which in his
words were "built on strong foundations". These
were also the opinions of the Asia Development
Bank that believed that the South China Sea
dispute would not affect regional economic
integration. Even so, with the World Trade
Organization noting a resurgence in protectionism,
the strife among major economic players in the
Asia-Pacific could not have risen at a more
inconvenient time. Washington, for one, was
clearly worried as its officials cautiously
recommended in Vladivostok that South Korea and
Japan mend their current near-hostile relations.
Washington's concern probably reflected
the interests of other APEC members who hope to
offset losses from decreased consumption in key
European markets with increased inter-regional
trade. In line with this objective, APEC members
did agree to cut tariffs by 5% on
environment-related items by 2015 as discussed in
Honolulu last year. According to APEC's out-going
Executive Director Datuk Muhamad Noor Yacob,
continued reduction of tariffs, now averaging
around 6%, adds to APEC's contribution in lowering
the barriers to trade in the region, which in 1989
operated with an average tariff of 16.6%.
Yet lowering tariffs to increase the
volume of trade assumes that market conditions are
conducive to taking advantage of this situation.
Despite Hu Jintao's assurance of China's steady
growth, analysts are increasingly skeptical of
Beijing's declared assessments as ongoing debates
probe the many indicators of China's market
stability such as the housing market. In addition,
existing issues like the strains placed on
petroleum importing economies by US-led sanctions
against Iran (see US
faces sanctions dilemma in East Asia, Asia
Times Online, July 21, 2012) and the burden
imposed on lower income economies by the inflation
of food costs (see Food
and Asian integration, Asia Times Online,
August 3, 2012) cast a shadow over prospects for
the region.
In other cases, the weak
economic foundations of certain countries render
some economies yet unprepared to take on a more
active role in regional trade. This year's host
for the APEC summit, Russia, represents this case.
By holding the prestigious meeting in Vladivostok,
Russia hoped to highlight its commitment to
increasing engagement in the Asia-Pacific.
Unfortunately, reality stands long ways away from
Moscow's aspirations.
Despite the fact
that Russia's economy depends on developing its
far eastern provinces and exploiting the natural
resources there, want for institution,
infrastructure, and efficient distribution of
capital obstructs a more proactive engagement in
the desperately energy-seeking region in the near
future.
Diplomatically, the Medvedev and
Putin administrations have laid the groundwork for
increasing exports to South Korea and Japan,
tentatively holding Pyongyang's verbal consent in
building a pipeline through the Korean Peninsula.
Unfortunately, the state has stifled business
opportunities and investments by aggressively
imposing Moscow's directives (See Putin
Returns to the Wild East, Asia Times Online,
May 15, 2012). As a result, key enterprises like
Amurmetall, the only Russian electrometallurgical
project in the Far East, barely carry on, unable
to operate using their full capacity.
All
these factors show that while Asia has the
greatest potential for leading the global economy
towards a recovery, it too faces severe challenges
in reaching that point. As it becomes clearer that
the current slowdown might not have as easy
solution as many hoped, the global stagnation
could be here for the long haul. And there may be
nothing more governments can do than to simply
wait for conditions to improve.
Yong
Kwon is a Washington-based analyst of
international affairs.
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