Commentary on Prime Minister Goh's Speech

Senior Fellow, RIETI

On March 28th, I had the honor of listening to a speech given by Singaporean Prime Minister Goh Chok Tong, who was in Tokyo on invitation from the Research Institute of Economy, Trade and Industry. The main theme of the speech was how Japan and Singapore can influence the reshaping of the world in their national interests. Prime Minister Goh noted three key developments: first, the unprecedented preeminence of the United States (and the adoption of a new security policy that would aggressively use American preeminence in its efforts to prevent the proliferation of weapons of mass destruction and to fight against terrorism); second, the rise of China; and third, the political discontinuity in Indonesia. As a response to these changes the Prime Minister emphasized the importance of: first, maintaining cooperation with the United States; second, maintaining the regional power balance with stable Sino-US relations; and third, preventing the Indonesian state from veering towards radical Islam. In conclusion, Prime Minister Goh suggested the formation of the East Asian Free Trade Agreement (EAFTA) as a framework for achieving long-term stability in the East Asia region.

The speech illustrated the tension Singapore went through as it carefully followed developments on the international scene, and continued to review its strategy so as to ensure its national security and economic prosperity. It is invigorating to see such a strategic and positive mindset that both tries to predict the direction changes are taking, and tries to influence the course of change, rather than simply responding with passiveness.

Then what is Japan's response to the same question, and what significance does Japan's strategy have in East Asian economic integration? Furthermore, what road should one take to realize economic integration in the face of the various hurdles?

Environmental changes in Japan's international strategy

The most important change for Japan is the United States' new security policy following the September 11th terrorist attacks. The prime objective of this policy is to prevent weapons of mass destruction from falling into terrorist hands. The US will not shy away from use of force if deemed necessary, nor from unilateral actions (with "a coalition of the willing") outside of UN procedure. Japan falls into a dilemma when cooperation with the United States does not necessarily coincide with international cooperation. Under the new US policy, there is a chance that military activity would increase as part of preventive action against potential threats; meaning Japan would be asked to make more contributions in security matters, as was the case when Japan dispatched Aegis destroyers to the Indian Ocean to offer non-combat support to the US military operations in Afghanistan. Furthermore, as US military and economic burden increases considerably and the United States runs out of breath, there might be strong pressure on Japan again to reduce dependence on the US in achieving economic growth.

Secondly, the rise of China, as Prime Minister Goh noted, is a major change when viewed in the long term. Prime Minister Goh pointed to the importance of the United States maintaining a balanced of power vis-a-vis China, as well as the importance of Japan's involvement with ASEAN. But on a more fundamental level, the recovery of Japan's economy is indispensable for both achieving a constructive relationship with China, and in the first place maintaining the negotiating power needed to form such a relationship. Such economic recovery is also necessary in order to maintain and improve Japan's voice in the international community. Yet, Japan's economic recovery depends on how it capitalizes on the vitality of China and of other Asian nations. Responding to China's emergence involves not only the maintenance of the balance of power, but also an effort to build a constructive relationship by overcoming the sense of distrust between China and Japan.

Thirdly, along with the need to prevent South East Asia from becoming a hotbed of terrorism, another urgent problem is the North Korean nuclear program. Both are key elements not only to avoide a crisis in the short run but also to create a regional order in East Asia in the long run.

The significance of East Asian economic integration

The importance of East Asian economic integration becomes more obvious in its relevance to dealing with major challenges described above.

First, in response to the new US security policy, Japan, which is dependent on the US for its national security and which has no choice but to collaborate with the US in the future, must avoid becoming isolated in Asia as negative sentiment against the American willingness to resort to force with its military supremacy grows in Asia. It is in Japan's interest to avoid trade-offs between cooperating with the United States and belonging to Asia. With regards to the recent war, Japan was not alone: South Korea, the Philippines and Singapore all also expressed support for the US action against Iraq. But since Japan is the closest ally to the United States, one should note that while anti-US sentiment in Asian nations could cause anti-Japanese sentiment to grow, positive feelings for US among Asian people do not help improve their image of Japan.

Furthermore, while cooperation with the United States improves Japan's security, that should not invite anxiety from neighboring Asian nations. Rather, it should be supported by the surrounding nations' trust in Japan. Or if one wants to reduce its excessive dependence on the US markets, then one must work not only for domestic demand-led growth, but also for use of regional demand.

Under US preeminence, where no major international issue today can be resolved without the cooperation of the United States, it may sound confusing that one would tout the establishment of EAFTA in which the United States does not participate. But the relationship would become clear if we look at the aforementioned issues.

The second issue of the rise of China can be addressed by involving China, currently enjoying rapid growth, in the future economic integration of East Asia. It is no exaggeration to say that whether or not Japan can cope with its aging society and resuscitate its economy will depend on how it can capitalize on China and East Asia's dynamism. Furthermore, as Prime Minister Goh mentioned in his speech, the communication in the process of creating an FTA, and the regional economic interdependence strengthened by an FTA, will help foster mutual trust. This is an important point to bear in mind in institutionalizing East Asian economic integration.

Regarding the question of holding back the proliferation of radical Islamic forces in Southeast Asia, the answer again lies in rebuilding the economy. Regional competition will increase with the ascension of China, and it would not be easy for ASEAN nations which have long protected their domestic markets to make structural changes. In order for them to survive this new challenge, however, it is imperative for them to prepare an environment conducive to the development of industries to their respective comparative advantage and accelerate this move through the combination of liberalization and economic cooperation.

If and when the two Koreas are unified, it is preferable that Japan and South Korea maintain as robust an economy as possible in order to smoothly bear the cost of unification; and economic integration is one important means to achieving this. While we do not know what political stance a unified Korea would take, South Korea's current stance against the United States and China would not necessarily be maintained as one would need a reason other than the North Korean threat to keep US forces on the Korean peninsula, and because a unified Korea would directly border with China. The geo-political dynamics in the region could also change. A deeper mutual trust among Northeast Asian nations is necessary for avoiding instability that may arise from such future change in the region.

Three hurdles: political resistance, developmental gaps, mutual distrust

Yet, various problems face East Asian economic integration. Endeavors for an FTA to date include: Japan and Singapore, which have already an agreement in force; China and ASEAN, currently under negotiations; and Japan-South Korea, Japan-Thailand, Japan-Philippines, Japan-Malaysia, Japan-ASEAN, and South Korea-Singapore, all either currently studying or discussing. These are all either bilateral or between ASEAN as a whole and a country. An FTA encompassing the entire East Asian region is still a distant vision of the future. There are various reasons for this.

First of all, with political resistance against liberalization still strong in the nations, the outcome of this endeavor is still uncertain.

Second,, a wide difference in the development stages exists among the individual countries. In order to come up with a credible FTA, governments of the developing nations must have the capacity to participate in the negotiations, to implement the agreement and to take necessary measures to absorb the shock of liberalization in the transition to an economic structure based on comparative advantage. The developed and developing nations must cooperate to build the needed capacity. This is an effort to foster a sense of unity by jointly overcoming the developmental gaps to realize a common goal.

Furthermore, an FTA cannot be realized by economic logic alone. Trust between nations (and economic regions) is necessary. Deeper economic interdependence will certainly help build mutual trust in the long run through larger common interests and greater mutual understanding that human interaction brings about, despite possible frictions in the interim. Mutual trust, however, does not come from economic relationships alone. There is still a deep sense of distrust between Japan and other Asian nations over the issues of history recognition and security policy. It is at least necessary to manage bilateral relations so that differences in opinion over a particular matter do not damage them as a whole. As a consequence, Japan and other Asian countries must work to create an atmosphere where the public on both sides would welcome strengthening bilateral ties.

Building blocks towards new possibilities

During the question and answer session, Prime Minister Goh mentioned the building block approach as a process that leads to the establishment of an EAFTA. In other words, the FTA between Japan and Singapore has prompted Thailand, Philippines, Malaysia and other ASEAN nations to consider an FTA with Japan. China reacted to this move and started negotiations with ASEAN for an FTA. Likewise, Japan proposed a comprehensive economic agreement with ASEAN. These moves influenced South Korea, which had until then been less active toward FTAs within Asia, prompting it to seriously study an FTA with Singapore. If Singapore or ASEAN conclude FTAs with Japan, China and South Korea respectively, Prime Minister Goh argued, they would have to be linked together at some point. He also speculated on the creation of an East Asian common currency.

Prime Minister Goh said: "If we have just vision and imagination alone, and no concrete means to realize this vision, then we are living in the clouds. But if we just have concrete steps to resolve immediate problems without having a vision, then it is very pedestrian in your leadership. So, we've got to find a way to combine the vision with the reality of the situation".

There are various criticisms of the building block approach. For example, if an FTA was reached only among nations that found it easy to do so, then that may discourage them from reaching an FTA with the remaining nations. Or if a developed country chooses countries at a similar development level and with capacity to reliably implement FTAs, that may create distrust among less developed nations that are left behind. Moreover, if various bilateral agreements adopt differing rules of origin, they would collectively complicate trade-related procedures ("spaghetti bowl" effect).

Neverthless, if one moves towards a future vision only when the road ahead is mapped out well, then it is impossible to achieve anything. After all, all we can do is to remain hopeful of East Asian economic integration and take constructive moves step by step. Whether each step taken by the building block approach has been successful in opening up new frontiers depends on whether or not the step achieved something that was regarded as previously not doable. It is important for each of us to engage in our daily work with this sense of mission.

April 22, 2003

April 22, 2003