Hedging China with
FTAs By Sherman Katz and Devin
Stewart
After a hot summer of heated
debate in Washington about China, US policy toward
China has settled into one of dissuasion and
persuasion. US officials in the Pentagon aim to
dissuade China from seeking to become a regional
military power, while other parts of the
government, the State Department in Foggy Bottom
for example, aim to persuade China to adopt civil
society and democratic institutions.
Both
faces of US policy recognize that the central
question is political: what if China becomes rich
and powerful, but not democratic? Unlike the
Soviet Union, China does not seek to destroy the
US and the international system it created. By
contrast, China is playing by American-made rules,
although it
may
be playing a different game, taking advantage of
its lack of democratic constraints. The US
therefore must hedge against a number of possible
futures for China - strong, weak, cooperative, or
aggressive.
One area in which China has
demonstrated creativity and long-term thinking is
its economic diplomacy and the promotion of an
East Asian Summit this December that excludes the
United States. The Summit may lay the groundwork
for an eventual East Asian trade agreement,
charter, and community. The operating principle in
the US government is that any institution without
the US in Asia will lack credibility, and will
ultimately fizzle.
The US approach toward
the East Asia Summit has been to bet that many
participants in the meeting, suspicious of its
intentions, will stop China from controlling the
agenda. Moreover, it is believed friends of the
United States, in particular Japan, India, and
Australia, will protect US interests at the
summit. But the US also may wish to offer its own,
alternative vision.
An idea that is
gaining support in Washington is to deepen
economic integration with countries, such as
Japan, South Korea, and Australia, which share
values with the United States. In this way, the US
would have a stake in East Asian economic
integration and could point the way toward a model
of high quality growth. Such an economic zone,
which could even include China when it is ready,
would nudge China toward more transparency and
accountability.
Five aspects of such a
zone are particularly attractive. First, deeper
economic integration will signal to regional
challengers and domestic polities that US,
Japanese, Korean, and Australian interests are
contiguous. Initiating integration would allow the
US and its friends to have a larger influence on
the terms of the final shape of a future Asian
trade bloc. The US and other democratic countries
also could collectively bring pressure to bear
over intellectual property rights, among other
issues, on countries like China at the World Trade
Organization.
Second, labor-abundant
economic competitors of China in Asia, such as
Thailand and Indonesia, would find economic
liberalization with the US and Japan, two
countries rich in capital and technology, to be
equally beneficial to opening up to China. The
increase in economic growth attained from economic
liberalization would help spread the benefits of
globalization and contribute to stability.
Third, US companies would risk losing
competitive advantage in large Asian markets
without US involvement in Asian integration.
Little of the recent push in the US in the area of
FTAs has included East Asia, and China and
Malaysia are proposing regional agreements that
would exclude the US. A logical strategy would be
for the US to work with Japan, Australia, South
Korea and other democracies to create an FTA,
forming the bedrock of future East Asian
integration that will in time include China. It is
encouraging that the US is working toward
concluding a free trade agreement with Thailand
and has already concluded one with Singapore.
Fourth, US integration with East Asian
nations is more feasible than ever. The
combination of a historically low level of trade
friction between the US and Japan, and the
momentum created by the conclusion of other free
trade agreements by the governments of the US and
Japan, also make integration more feasible.
Abandoning a policy of only considering
multilateral agreements, Japan signed its first
bilateral free trade agreement in 2002 with
Singapore and a second in 2004 with Mexico. It has
also issued a report and has been in talks with
Korea on a bilateral FTA and is pursuing an
agreement with ASEAN Plus Three.
The US
signed FTAs with Australia, Bahrain, and Morocco
in 2004 alone. The forecast for the Doha Round is
cloudy. The US Chamber of Commerce has pushed the
US to sign more FTAs, and the National Association
of Manufacturers included Japan in a list of
potential FTA partners.
Finally, promoting
democracy is consistent with President Bush's
worldwide vision and the security and history of
East Asia. Strong economic and security
relationships among democratic nations can become
a model for how countries in East Asia can
develop. The spread of democratic governance and
transparency promotes regional political
stability, while the spread of democratic markets
will promote regional economic stability. Japan,
after more than a decade of economic reform, is
now in a position to make the case for better
corporate and political governance in the region.
The practices of lifetime employment and
cross-shareholding are ending, and corporate
profits are at record highs.
An economic
partnership agreement could take initial shape in
around four areas. The first would be border
measures: Rich countries should lower tariffs and
aim to reform their subsidized, protected
agricultural sectors in the long term. Although
regional agriculture reform has been problematic
elsewhere, pressure from regional partners can
only help to add leverage, particularly as long as
Asian countries seem to free ride behind EU
problems with agricultural reform. The second
would be the harmonization of regulatory systems,
such as professional standards, to facilitate
business transactions.
Third, the
countries in the zone would collaborate on new
energy technologies and enforcement of
intellectual property rights to set positive
precedents for the international system. Fourth,
the zone of countries would reduce border and visa
security regulations for businesses in exchange
for tighter security cooperation in areas such as
container security and business visas. Greater
opening at the border would depend on governments
sharing basic democratic values.
The zone
could be negotiated in tandem with the five-party
security organization advocated by Francis
Fukuyama. The security organization would include
the United States, Japan, Russia, South Korea, and
China, and would address security concerns beyond
the North Korean nuclear program.
China's
economic growth must not be regarded as a problem
in itself. The US cannot, and should not want to,
stop China from becoming prosperous. Rather, the
US and the democratic states in Asia should set a
benchmark of high-quality growth that embraces
civil society, and at the same time engage China
by establishing a permanent five-party security
organization that can work to avoid surprises.
Sherman Katz is the William
Scholl Chair in International Business at the
Center for Strategic and International Studies
(CSIS) in Washington, DC. Devin Stewart is
a Fellow of the Office of the Japan Chair at
CSIS.
