TCS Daily

An Asian Economic Union?

By Rowan Callick - December 23, 2004 12:00 AM

The countries of East Asia, which are leading world growth in the 21st century, have at last started groping their way towards an economic union to rival those of Europe and North America.

Until the summit of the Association of South East Asian Nations in Laos, which ended on December 1, the push for integration of these countries - far more culturally disparate than those of Europe or America - lacked a venue.

Now, the annual summits of the ten Asean leaders with those of China, Japan and South Korea are shaping up as the platforms where patterns of regional integration are shaped. India joined the crowd this year. So too did Australia and New Zealand, with their Prime Ministers John Howard and Helen Clark invited to the recent meeting and also, most likely, the next summit, in Malaysia. The emergence of an East Asian Community is set to be confirmed then. It cannot be put off until 2006, because Burma is due to host and chair the summit then, and the nature of the military junta ruling the country would risk tarnishing the occasion.

It is China, whose economic surge is sucking in imports from its neighbourhood, giving most Asian countries substantial trade surpluses, which is driving this vehicle. It will now form a free trade area with Asean's six original and more advanced members by 2010, and the other four by 2015. Their two way trade reached $US 85 billion during the first ten months of 2004l 35 per cent up on the same period in 2003.

Japan and South Korea are starting to discuss more vague FTAs with Asean, while Australia and New Zealand, whose own 30 year old free trade area is known as Closer Economic Relations, are also about to begin FTA negotiations with Asean, which are expected to aim, at least, at being comprehensive.

The annual Asia Pacific Economic Cooperation summits - the most recent was held in Santiago, Chile, in November - embrace the US and some South American leaders as well. But the Asia action is now coalescing around the meetings between the North Asian economic giants and Asean.

All eyes, in Laos, were on China's Premier Wen Jiabao who, as Hong Kong based business commentator Philip Bowring says, "was able to claim the headlines by criticising the United States for its weak dollar while insisting that his own currency remain artificially pegged to it." Wen said that promoting an Asian economic zone comprised "a strategic choice made in the interests of China's own development and in the common interests of the region."

As Washington remains preoccupied with the Middle East and withdraws troops from Asia, the impetus in regional influence is swinging strongly China's way, with even allies South Korea and Australia constantly ratcheting up their relations with Beijing. Asian states hold about $US1 trillion savings held in US assets, and are increasingly anxious about their potential returns. Canberra is about to launch full FTA negotiations with China, following the ratification of its agreement with the USA. It is Japan that feels most awkward about China's rise, and is attempting to claw back lost influence in Asia, but without significant success.

The ultimate destination of this new Asian push could, said The Australian Financial Review in an editorial, be "a European style common market, a China-dominated co-prosperity sphere, or a bowl of free trade agreement noodles intricately but confusingly enmeshed."

A new region-wide agreement would have the benefit of removing much of the new compliance costs business faces as it seeks to benefit from the recent rash of regional bilateral agreements, and it would shift the administrative burden from Asean itself, which has encountered obstacles in shifting from its original prime goal of countering communism to that of liberalising economies.

Asean's focus on diplomacy and on process has prevented it moving on to achieve more practical success. During its latest summit, there was pressure on Australia's Howard to sign up to its 1976 Treaty of Amity and Co-operation which enshrines the principle on non-interference in member states, preventing for instance concerted action on Burma's reluctance to liberalise economically or politically. Thailand's populist Prime Minister, Thaksin Shinawatra, threatened to walk out of the summit if his tough response to insurgency in the Muslim south was discussed. It wasn't. But John Howard declined to sign up to the treaty.

Dr David Martin Jones, senior lecturer in politics at Australia's Queensland University and author of the forthcoming book "Regional Delusion: The Asean Experience," said: "Asean's Treaty of Amity and Co-operation was supposed to create the integrated region its very terms prevent. It implies they are stuck with putatively strong states that won't allow cross-border transactions. This had some legitimacy during the Cold War, but in this era of globalising pressures it should be torn up. It has been stagnant, but it needs the capacity for flexible engagement."

Asean was formed by Indonesia, Malaysia, the Philippines, Singapore and Thailand in 1967 to shore up national defences against the communists. When the Vietnam War ended in 1975, the focus shifted modestly towards economics, with Japan becoming the principal development partner. Brunei joined in 1984. About 30 years after Asean was formed, it grew to include Burma, Cambodia, Laos and Vietnam. But they are at an earlier stage of economic development than the six older members, complicating immensely the process of economic integration into Asean's own Free Trade Area that has aimed ambitiously to become a common market by 2020, but now looks like being overtaken by the new, broader grouping driven by Beijing.

Rowan Callick is Asia Pacific Editor of the Australian Financial Review.


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