Asia
flexes its free-trade muscles By Tim Shorrock
WASHINGTON - Led by Japan and
China, the disparate nations of East Asia are in the
midst of a free trade revival that could create one of
the world's largest economic blocs.
Last week,
Japan and South Korea began a fourth round of
negotiations aimed at creating a bilateral free-trade
agreement (FTA) by December 2005. The signing of an
agreement would unite two economies with a combined
gross domestic market of US$5 trillion, about 75% of the
entire East Asian economy.
Japan signed an FTA
with Singapore in 2002 and is negotiating similar
bilateral deals with Malaysia, Thailand and the
Philippines.
On June 30, China and the 10-member
Association of Southeast Asian Nations (ASEAN) will
conclude talks on which products should be included in a
proposed free trade zone scheduled to be completed by
2010.
Next year, China will open free trade
talks with New Zealand, its first such negotiations with
a developed country. New Zealand and Australia are also
contemplating a recent ASEAN initiative for an FTA.
Meanwhile, Malaysian Prime Minister Abdullah
Ahmad Badawi is floating a proposal for an Asian
inter-regional trading group similar to the European
Union (EU). His proposal is a likely topic of debate at
the 37th ASEAN ministerial meeting set for this week in
Indonesia.
There, ASEAN, Southeast Asia's key
diplomatic club, is expected to formally request FTA
talks with New Zealand and Australia.
Badawi is
calling for an FTA that would be signed by all 10
members of ASEAN, plus China, Japan and South Korea. He
also is calling for a regional monetary fund that would
supplement the Washington-based International Monetary
Fund (IMF).
In a speech on June 21 in Kuala
Lumpur, Badawi admitted that creating an East Asian free
trade area could take up to two generations. But he said
an economic community is essential for Asia to retain
its independence as a region.
"Our present and
our future are incredibly dependent on decisions made in
Washington or New York or Geneva," he said. "We are
punching way below our weight." East Asia, he added, is
"a heavyweight, compartmentalized and cribbed in the
featherweight class".
These moves toward
regionalism in Asia are partly a reaction to the
economic cohesion in Europe and North America created by
the EU and the North American Free Trade Agreement
(NAFTA), which will soon expand to include Central
America.
At the same time, they reflect a
general sense that the region was left to fend for
itself by the IMF and the World Bank after the Asian
financial crisis of the late 1990s, said Kinoshita
Toshihiko, a trade expert at Tokyo's Waseda University
and a former official with Japan's Export-Import Bank.
At the time, "East Asia felt an identity that
they were all on the same boat," Kinoshita said at a
recent Washington forum organized by the Sasakawa Peace
Foundation.
During the Asian crisis, Kinoshita
noted, the United States brusquely shot down a Japanese
proposal to create an Asian Monetary Fund to act as a
regional IMF. Earlier, in 1991, the US government
opposed a proposal by former Malaysian prime minister
Mahathir Mohamad for an Asian free trade zone that would
have excluded the US.
Japan, taking the US lead,
was "lukewarm" to the idea as well. As a result, the
term East Asian Economic Community - the proposed name
of this forum - "became taboo in this area", he said.
The
"centrifugal forces" behind free trade are
very strong, and Asia is already experiencing "the
fruits" of regional cooperation, said Kinoshita. Under
the "ASEAN-plus-three" structure, he noted, Asian
countries recently launched an Asian Bond Market
Initiative and an Asian Bond Fund so local governments
will have access to capital during a future financial
emergency.
In addition, intra-regional trade now
encompasses 45% of the area's total trade and Japan's
trade with East Asia is increasing as its trade with the
United States slows.
Last year, for example,
Japan's exports to East Asia rose 22% in comparison to a
3% rise with the US. Japan's imports from East Asia rose
16%, while its US imports rose only 2%.
For
Asian regionalism to work, Japan must take a strong lead
and convince the US that the process is not aimed at
reducing US influence, Kinoshita argued. "By acquiring
the trust of the United States, Japan could take
leadership in its own way," he said.
Richard
Katz, the senior editor of The Oriental Economist Report
and a long-time expert on the Japanese economy, took
exception to Kinoshita's interpretation of trade
statistics.
While Japan is more trade dependent
on Asia, he said, Asia is becoming less dependent on
Japan.
"Japan is neither hub nor brain" of East
Asian economic integration, he said, noting that South
Korea has overtaken Japan as China's No 1 trading and
investment partner.
Moreover, said Katz, much of
the increase in Japanese trade involves "captive"
exports and imports - that is, Japanese firms shipping
goods to and from their affiliates in China and
elsewhere.
"The overwhelming share in the growth
of Japanese imports [from Asia] is from Japanese
affiliates," he said. "So, yes, there is integration in
Asia, but Asia is not integrating with Japan."
Alan Tonelson, a research fellow at the US
Business and Industry Council Educational Foundation in
Washington and a long-time critic of US trade policy,
agrees with Katz that trade statistics tell only part of
the Asian economic story.
In an interview with
Inter Press Service, Tonelson said discussions of FTAs
in Asia often overlook the fact that China and its Asian
competitors continue to view the United States as their
primary market.
"In my view, the main element of
the Asian model is that it relies very heavily for
growth on net exports to the United States," Tonelson
said. Much of China's growth in recent years, he
contends, is due to heavy investments in Chinese
manufacturing and high-tech industries by US
multinational corporations that use China as an export
platform to ship products back to their home market.
"If you're interested in the implication of
trade flows, the fact that manufactured goods are
stopping at more places [in Asia] is not important," he
said. "The end result is, trade flows, and [it's] more
lopsided and Asia's dependence on the United States as a
final consumption market continues to grow."
Back at the symposium, Adam Posen, a senior
fellow at the Institute for International Economics,
argued that Asian countries have yet to find a driving
force for regionalism. "We don't have an agreed upon
engine for Asian transformation," he said.
