Tri-lateral trade pact an Asian
game-changer By Brendan
O’Reilly
As global economic power shifts
away from the West, the leaders of East Asia's
most important economies are busy laying the
groundwork for the continued growth of their
region based on mutually beneficial trade and
investment.
Last week, Chinese Premier Wen
Jiabao hosted Japanese Prime Minister Yoshihiko
Noda and Republic of Korea President Lee Myung-bak
in Beijing. The three leaders agreed to launch
formal talks later this year to set up a
trilateral free-trade agreement (FTA). This move
will have significant and long-lasting effects on
both the global economy and the strategic
environment in Asia.
Trade between the
three nations was valued at over US$690 billion
last year, up from $130 billion in 1999. [1] The
People's Republic of China (PRC) is already the
largest trading partner of both Japan
and South Korea. Easing
restrictions on trade and investment between these
East Asian powerhouses should lead to even greater
economic integration and growth.
Together
the economies of China, Japan, and Korea
constitute roughly 20% of world economic output in
nominal terms. This figure, while impressive, is
smaller than the European Union's 28% share of
total world gross domestic product (GDP).
However, given China's continued rapid
economic growth and the European Union's ongoing
fiscal and political crisis, it seems entirely
possible that the proposed free trade zone in
Northeast Asia could very well overtake the
European Union in nominal terms within a decade.
Indeed, the combined GDP of China, Japan and Korea
is already higher than that of the EU when
measured in terms of Purchasing Power Parity
(PPP).
As China's economic growth rate
slows to a still-impressive annual rate of about
7.5% a year, Chinese leaders are looking for more
sources of both investment and trade. Japan's
ongoing economic malaise provides a strong
incentive to integrate with and harness China and
Korea's developing potential. Korea's economy is
heavily dependent on exports, and yearns for
greater access to the huge Chinese and Japanese
markets.
The deepening dependence of Korea
and Japan on Chinese markets will have profound
geopolitical implications. These Asian powers may
find themselves increasingly in China's orbit, to
the detriment of American designs in the region.
According to the Joint Statement issued by
the three leaders after the recent meeting in
Beijing:
We reaffirmed our commitment to
enhancing trilateral financial cooperation. In
this regard, we welcomed the enlargement of
bilateral currency swap arrangements among the
three countries last year, which contributed
significantly to stabilizing the regional
financial markets. We agreed to promote investment
by the foreign reserve authorities in one
another's government bonds ... [2]
These
policies, particular the drive to conduct
bilateral trade in local currency, will further
regional mutual-dependence and incrementally
weaken the global dominance of the US dollar.
Japan is something of a latecomer to the
party. China and Korea already began bilateral
talks on a free trade agreement earlier this
month. Some analysts believe Korea wants to
conclude a bilateral agreement with China in order
to negotiate a trilateral agreement including
Japan from a position of strength.
Some
observers have been dismissive of the proposed
trilateral FTA. Politically important
constituencies will need to be accommodated in all
three nations, particularly Japan's heavily
subsidized farmers, South Korean manufacturers,
and China's gargantuan state-owned enterprises.
Various exemptions meant to protect these sectors
may lead to a "shallow" FTA.
Besides
issues of economic protectionism, other
outstanding bilateral geopolitical issues remain,
especially between China and Japan. Both nations
claim a chain of small, uninhabited Pacific
islands called the Diaoyu by China and the Senkaku
by Japan. High-level maritime talks regarding the
issue are ongoing in China's Hangzhou.
Furthermore, China has bristled at Tokyo's hosting
of the World Uyghur Congress, a group the Chinese
government brands as a separatist organization
linked to terrorist groups.
China's
high-level pursuit of economic integration with
Japan while simultaneously maintaining a tough
stance in bilateral territorial and political
disputes is entirely typical of China's current
foreign policy. Economic development takes
precedence over nationalist sentiment and military
confrontation. China views its expanding economy
and foreign trade as its greatest assets in
negotiations with potential rivals. The Chinese
government remains committed to ensuring its
neighbors of China's "peaceful rise" while
upholding tough policies on issues that China
views as threats to its sovereignty.
A
cog in the works After the recent meeting
of the heads of state of the three countries in
Beijing, the leaders issued their "Joint
Declaration on the Enhancement of Trilateral
Comprehensive Cooperative Partnership". This
document has 50 points, covering a range of issues
from cultural exchanges and sustainable
development to "enhancing political mutual trust".
What is most telling about this Joint Declaration
was not what is said, but what it did not. The
words "North Korea" do not appear anywhere in the
document.
Although the three leaders made
no joint declaration regarding the nuclear weapons
program of North Korea (also known as the
Democratic People's Republic of Korea, or DPRK),
Premier Wen Jiabao did allude to the predicament:
"What is most urgent is to make all-out efforts to
prevent the escalation of tensions on the Korean
Peninsula ... All the parties should give full
play to their wisdom, remain patient and show
their goodwill to alleviate conflict and return to
the right track of dialogue and negotiations ...
"[3]
Large-scale war is the greatest
threat to increasing prosperity in East Asia. Even
as China seeks greater cooperation and trade with
Japan and South Korea, it remains the DRPK's main
partner and patron. Worrying geopolitical fault
lines still exist in the region. A recent incident
may be an ominous sign of changes to come.
On May 8, a North Korean gunboat
commandeered three Chinese fishing boats in the
Yellow Sea. Twenty-nine sailors were captured, and
reports surfaced of North Korean officials
demanding 1.2 million yuan (US$189,900) to release
the boats and the sailors.
The Chinese
boats and crew were released on Sunday, after
nearly two weeks in North Korean captivity. Liu
Hongcai, the Chinese ambassador to the DPRK, was
personally involved in discussions to secure the
sailors release. [4] It is unclear if any ransom
was paid.
The Chinese Foreign Ministry
initially played down the incident as a "fisheries
case". Although it is possible that this situation
may be the result of a simple navigation error,
other worrying possibilities remain.
North
Korea may have been displaying its displeasure at
China's increasing ties with North Korea's
perceived enemies. The timing of the incident is
especially interesting. The Chinese fishermen were
captured a few days before Wen Jiabao hosted
Japanese Prime Minister Yoshihiko Noda and South
Korea's President Lee.
On the other hand,
there is speculation that rouge North Korean
commanders may have orchestrated the maritime
confrontation. This too would display a worrisome
trend of internal divisions and a breakdown of
hierarchy in the DPRK.
Regardless of the
proximate cause of incident, the implications are
troubling. The DPRK leadership may have
purposefully orchestrated a row with Beijing in
order to extract economic aid or to threaten China
in the event of deepening Chinese cooperation with
South Korea and Japan. The possibility of a
breakdown within the North Korean chain of command
is perhaps even more unsettling.
North
Korea remains a potential spoiler to continued
economic growth and political stability in
Northeast Asia. As old tensions between China,
Japan and South Korea are superseded by the
promise of mutual economic benefit, the DPRK seems
to be the only regime in the region motivated
primarily by fear instead of greed. The North's
nuclear weapons program provides the United States
with an incentive to maintain a military presence
in South Korea and Japan. This American military
presence in turn strains the relationship between
these two powers and Beijing.
The
bottom line Ongoing tensions with North
Korea contrast sharply with the optimistic
symbolism of the proposed trilateral FTA. The
leaders of China, Japan, and South Korea are
making concrete efforts to put the past behind
them and move to a new stage of East Asian history
based on mutual respect and economic cooperation.
China, Japan, and Korea share a long and
bitter history of antagonism and warfare. Koreans
remember centuries of domination by Chinese
dynasties followed by a bloody occupation by Japan
and attempts at forced assimilation. Korea and
China share a deep anger towards Japanese war
crimes and ongoing lack of official recognition or
apology. The Korean War in the 1950s reignited
South Korean fears of Chinese hegemony.
Even a few decades ago, Cold War
suspicions and fear clouded the relationship
between these three nations. China and South Korea
have had formal diplomatic relations for less than
20 years.
In light of these old tensions
and rivalries, the symbolism of the three parties'
formal push for a trilateral FTA is nearly as
important as the FTA itself. For the leaders of
China, Japan, and South Korea to come together as
equals for the sake of mutual economic benefit
would have been unthinkable a generation ago.
Outstanding geopolitical issues remain, but the
political elite of these three nations have
displayed their will for a peaceful, prosperous,
and integrated future.
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