SYDNEY -
China has firmly laid to rest any lingering doubts over
its long-term intentions in East Asia by ratifying an
accord that will create the world's biggest free-trade
area - and sow further unease in Washington.
The
deal with the 10-member Association of Southeast Asian
Nations (ASEAN), signed on Monday at a summit in the
Laotian capital, Vientiane, aims to give 2 billion
people access to duty-free goods by the end of the
decade. With India agreeing to open negotiations on a
similar deal, the expanded trade zone will envelop about
half the world's population. And there are plans to
bring in Japan and South Korea, with Australia and New
Zealand also waiting in the wings for invitations.
Chinese Premier Wen Jiabao spoke expansively
during the summit of a "strategic choice made in the
interests of China's own development and in the common
interests of the region".
These interests,
clearly defined by the shadow of China's burgeoning
economic might, set a sharp new image of Asia's future
direction that will be guided as much by the urge to
conform to Chinese aspirations as the collective hopes
of East Asians.
Overnight, the region has
secured a degree of unification capable of matching the
bargaining might of the European Union and the North
American Free Trade Area (NAFTA). Equally important, it
has shifted the weight of strategic influence away from
Washington, perhaps permanently.
There will
continue to be doubts over how united East Asia can be
with its patchwork of political discord, territorial
conflict and economic inequality. Initially, at least,
only the six more-advanced ASEAN states - Singapore,
Thailand, Indonesia, the Philippines, Malaysia and
Brunei - will gain any appreciable benefit from enhanced
access to Chinese markets.
As finer details of
the accord are sketched in, nationalism and domestic
political interests are also likely to intrude. It is
difficult to imagine Thailand allowing total access to
its rice market or Malaysia opening up to cheaper
Chinese automobiles.
At this point, the accord
amounts to an outline agreement to remove selective
tariffs on manufactured goods and farm produce by 2010
and create a "plan of action" for closer cooperation in
services such as transportation, information technology
and tourism. Negotiations on the trade in goods were
completed in September, and tariff cuts will begin in
2005. An early-harvest program has already been
implemented to eliminate or reduce most import duties on
vegetables and fruits.
Hard talking has yet to
start concerning the more prickly areas of services and
investment, such as protected aviation routes,
employment limits on professionals, and financial
services, which will be hampered by deep disparities in
development levels. But look beyond the blurred print,
and the numbers speak for themselves: two-way trade
between ASEAN and China was multiplying by 20% a year
even before the two parties agreed last year on the
first phase of tariffs liberalization.
Since
January, market growth has increased by 35.6%
year-on-year, even with a slowdown in Southeast Asian
private consumption demand and an austerity program in
China's overheated manufacturing and services
industries. While the combined market is expected to
turn over US$1.2 trillion this year, ASEAN is still only
China's fifth-largest trading partner - a ranking
unchanged for 11 consecutive years - offering enormous
scope for expansion as sectoral integration accelerates.
The region's combined gross domestic product
(GDP) is a modest $2 trillion, with Singapore the only
member of the bloc that has attained developed-nation
status. With five other ASEAN other states regarded as
newly industrialized nations and three - Myanmar, Laos
and Cambodia - as largely undeveloped, China will be the
unchallenged regional economic leader.
So far
the ASEAN states appear to be comfortable with this
position, publicly at least. One reason is that their
own commercial sectors now have a significant but
largely hidden stake in China's economic emergence. As
of June, the ASEAN countries had cumulative investments
totaling $34 billion in China, second only to the
countless billions of dollars, much of it hidden, that
has been channeled in by overseas Chinese businesses in
Hong Kong and Taiwan since the late 1970s.
China
is also becoming more active in ASEAN, with an
investment of $1.037 billion in June, according to
official figures released in Beijing. Most of this
commitment has been by state enterprises involved in the
strategic farming, mining and construction sectors.
All that remains is for Beijing's ascendancy to
be cemented at a diplomatic level, as it moves to fill
the vacuum left by Washington's troop withdrawals and
preoccupation with counter-terrorism, as well as an
Asian backlash over the mishandling of the Iraqi and
Afghan military interventions.
This will come
when ASEAN hosts a special East Asian summit next year
alongside its regular gathering, which will include the
leaders of erstwhile economic rivals South Korea, Japan
and India as well as the 10 ASEAN member states. The
outcome is likely to be a formal East Asian Community
modeled on the European Union.
In agreeing to
Wen's demand for a summit independent of ASEAN, the bloc
has, in essence, accepted that the center of gravity has
shifted to the north. ASEAN may still have a role as a
buffer among the conflicting interests of China, India
and Japan, but as a bloc, is well on the way to becoming
an economic subjugate of Beijing.
Southeast
Asians may find their interests compromised in other
ways if the free-trade agreement (FTA) framework
realizes a mooted strategic evolution toward a consensus
- if largely unexplained - framework for closer
cooperation in "politics, security, and military
affairs".
Even if the defense sharing is largely
limited to disputes consultation and weapons exchanges,
as is generally expected, the agreement will still
represent a generational shift from Beijing's 1990s
security phobias, when multilateralism was viewed with
deep suspicion.
China reacted coolly when former
Malaysian prime minister Dr Mahathir Mohamad first
proposed an East Asian Economic Community in the early
1990s; the plan eventually was dropped under intense
pressure from Washington. But when the idea was revived
two years ago, the momentum came not from ASEAN but from
China, and this time the US entreaties have been muted.
Beijing, probably convinced that an economic showdown
was inevitable with the US, made a shrewd preemptive
strike while Washington was preoccupied with the Persian
Gulf quagmire.
China's position had been
undergoing subtle changes since the 1990s, when it
unexpectedly began to heed ASEAN's demands for a
collective solution to a territorial standoff
threatening vital trade routes in the South China Sea.
Beijing later signed a pact setting aside sovereignty
over that region, which will pave the way for the joint
commercial exploitation of oil and gas tracts - though
China will again be the main beneficiary as it happens
to have the largest number of territorial claims.
A wider non-aggression accord known as the
Treaty of Amity and Cooperation was initialed at the
Laos summit, and - intriguingly - China has backed a
regionwide prohibition on the use of nuclear weapons, a
pact that Washington has consistently refused to
endorse.
Economic discussions also have security
overtones. Money is being poured into
telecommunications, energy and transport schemes that
will foster a sense of mutual dependency. There have
been high-level meetings on a currency-swapping
arrangement and a pan-Asian bonds fund to finance
development projects.
Washington faces some deep
soul-searching over its growing impotency in Asia.
Although it retains strong bilateral security
relationships, especially with Japan and South Korea,
the US could be shut out of a broader dialogue as the
geopolitics goes regional. There are already signs that
the traditional US leadership, in disputes resolution,
is being superseded by a more confident and adroit
Chinese posture.
Diplomats acknowledge that
China holds most of the cards in negotiations over North
Korea's nuclear arsenal, the democratization of Myanmar,
realignment of the former communist Central Asian states
and even - indirectly - prospects for reconciliation
between India and Pakistan.
In the global arena,
China has procured the allegiances of a formidable array
of non-aligned Third World states that have the numbers
to smother US objectives. They already have had
Washington ejected from the key international
human-rights forum.
Japan's reaction to the FTA,
now eagerly awaited, will have a crucial bearing on
whether Asia proceeds to the next step of integration,
as few analysts harbor any doubts that a China-Japan
axis, once unthinkable, would be able to put the squeeze
on the United States.
Both countries have
sizable current-account and trade surpluses with the US,
and the Japanese in particular have significant levels
of portfolio and direct investment in US markets. The
central banks of Japan and China have the world's
largest foreign-exchange reserves, and much of this is
invested in the Treasury bills that the US Federal
Reserve uses to underwrite budget deficits and stabilize
the dollar. Combined holdings of government debt by the
two countries are believed to amount to at least $1.2
trillion, offering an unparalleled ability to influence
internal policies, if they wish.
But for now,
China is happy to play a subtle waiting game, content in
the knowledge that the ASEAN states are searching for a
mentor closer to home and just can't get enough of the
Chinese relationship.
"There is only one way
out, not by looking West but by looking inward,"
Philippine President Gloria Macapagal-Arroyo said in
Laos. "A large East Asia bloc can secure ASEAN, China,
Japan and Korea as economic leaders in the Asia-Pacific.
We must ensure that China, Japan and Korea find it more
convenient to be in our bloc than not."
Alan Boyd, now based in Sydney, has
reported from Asia for more than two decades.
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