Achieving Economic Stability In Asia: How Will The Bush Administration Act?

Thursday, January 1, 2004 - 01:00

The meetings of the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC) forum in October ended very differently, and sparked concern among trade watchers as to the future role the United States will play in Asia. The ASEAN meeting concluded with a stronger commitment by member countries and observers - Korea, China, Japan, and India - to integrate the region more fully by 2020, suggesting that Asia is once again pursuing an economic path which excludes the United States. This development should be particularly pleasing to former Malaysian Prime Minister Dr. Mahatir Mohamed, as it harkens back to the days when he first proposed an East Asian Community.

But the APEC Leaders' meeting revealed a much different picture: the United States still wields much influence in Asia, especially when President Bush puts Asia high on his policy agenda. Despite strong protests from Dr. Mahatir, the United States was successful in winning support among APEC leaders to restart WTO trade talks using the Derbez text from Cancun. President Bush kept the talks centered on security, and strengthened support for his war against terrorism. Some of this apparent inconsistency could be attributed to Asian embarrassment over Mahatir's blatantly anti-Semitic comments at a recent forum of Muslim countries, and his attacks on both the United States and the WTO.

The results of the ASEAN and APEC meetings in October were similar to those from summit meetings held in November of 2000. However, Asian regionalism appeared more imminent and formidable then: China was beginning to exert more economic influence in the region, the United States was less engaged in Asia, and only a few countries were giving real consideration to FTAs as alternatives to the WTO. The re-emergence of Asian regionalism appears less threatening today in large part because in recent months the United States has displayed more interest in regional economic dynamics, especially those involving China. Problems may arise in the future if U.S. officials do not continue to expand their focus in Asia.

Since September, U.S. officials have stepped up pressure on Chinese officials to float the yuan and comply more fully with China's WTO commitments. The results have been mixed. Chinese officials have committed to move gradually towards a more flexible exchange rate. Japan has provided some limited and very carefully worded support for this effort. As a first step, the Chinese government decided to relax some controls on the outflow of capital. Both USTR Zoellick and Commerce Secretary Evans, during their trips to China in October, pressed Chinese officials to implement fully China's WTO commitments related to the protection of intellectual property rights (IPR), fair distribution and trading rights, and market access in agriculture. But industry groups and some Republican and Democratic Members of the U.S. Congress are not satisfied; they complain the Administration's handling of the issue has included "too much rhetoric." They want President Bush to consider undertaking a Section 301 unfair trade investigation of China and/or confront China on the issue at the WTO. In response to these pressures, the Administration stepped up pressure on China in November by announcing that Chinese textile imports would be subject to safeguards restrictions.

While Bush Administration officials work to placate domestic interests on the China issue, they may not be sufficiently sensitive to China's growing popularity in Asia. U.S. officials forget that countries in the region welcome China's stable currency, as it helped to mitigate contagion during the Asian Financial crisis. The need to maintain stable regional currencies has prompted countries to enter into bilateral currency swaps with China, and to consider a more cooperative regional financial framework. U.S. officials also fail to consider why China has been so successful in expanding its economic ties with the ASEAN countries; for most countries in Southeast Asia, China is now a more important economic partner than the United States. The least developed countries of Cambodia and Laos depend heavily on China's foreign economic development assistance, and the former Asian Tigers are hopeful that completion of the China-ASEAN FTA will bring about a return of investment to the region and increased access to China's market.

China's success in expanding its economic influence has often come at the expense of the United States. Chinese officials displayed shrewd diplomatic skills at the WTO Ministerial at Cancun in September, currying favor with developing countries on specific issues while taking care to demonstrate to industrialized countries a willingness to make concessions in other areas. These same diplomatic skills were employed at the recent ASEAN summit, where Chinese officials moved forward with their efforts to integrate China within the region by agreeing to the Treaty of Amity and Cooperation, while at the same time considering broader economic ties with Japan, South Korea, and India. At the APEC meeting, President Hu Jintao used diplomacy to encourage countries to maintain stability in the region and to counter efforts by the United States to increase economic ties with non-Asian members of APEC. Like the United States, China has proposed an expansion of trade ties with Australia.

The United States does remain important to many Asian countries, both as an important economic partner and regional stabilizer. Singapore was the first Asian country to complete an FTA with the United States, and now Australia and Thailand are following suit. But FTAs with the United States are only one part of their strategy. They also seek to balance their regional interests by negotiating agreements with other large economies in Asia - Japan and Korea. The Bush Administration would do well to take a lesson from these countries regarding future U.S. Asia trade policy.

Under President Bush, U.S. trade policy in Asia has centered around FTAs with specific countries that USTR Zoellick has said meet certain criteria, and which offer economic advantages to U.S. exporters and strategic advantages to the Administration. But truth be told, U.S. FTA policy in Asia has been driven by one factor - support for U.S. foreign security policy. Asian countries which have been selected as viable FTA partners ("can do") support the war in Iraq, and are considered essential partners in the war against terrorism. Australia and Thailand are two cases in point. Whatever the criteria, U.S. FTA policy so far has overlooked two of the United States' most important trade and security partners - Korea and Japan - both of which supported President Bush's war against terrorism and contributed to the Iraqi invasion and occupation.

The Bush Administration must do more to engage Asian partners to ensure a fair balance of both economic and security power in the region. Asian regionalism by default centers around China, as countries depend on China's market for economic survival. Much of this has resulted because of lack of full engagement by the Administration in the region. Indeed U.S. FTAs with Singapore, Australia, and Thailand as well as continuing dialogue in APEC will help to balance regional interests in the short-term. But the United States will have to think outside the box to achieve a balance over the long-term. Economic stability in Asia will require more active, positive economic engagement by the United States with Japan and Korea, as well as China.

Russell L. Smith is Special Counsel in the Government Relations Department and Caroline G. Cooper is an International Trade Specialist in the Washington, DC office of Willkie Farr & Gallagher LLP. This article originally appeared in the KWR International Advisor. KWR International is a consulting firm specializing in research, public/investor relations and business development services for a wide range of public and private sector clients. For more information, visit www.kwrintl.com.

Please e-mail the authors at rsmith@willkie.com or ccooper@willkie.com with questions about this article.