The leaders of the ten countries of the Association of Southeast Asian Nations, plus China, Japan, and South Korea (ASEAN + 3) held a series of meetings earlier this month. Most remarkable was the agreement between ASEAN and China to start negotiations on a bilateral free trade agreement.
Beijing's successful bid for the 2008 Olympics, hosting of the Asia Pacific Economic Cooperation (APEC) leaders' meeting, and accession to the World Trade Organization (WTO) did much to increase China's standing in the international arena. Now China is taking steps to increase its influence in the region. Considering the sense of threat towards China and reluctance to conclude an FTA with China alone that was prevalent among the ASEAN countries when Chinese Premier Zhu Rongji proposed this idea one year ago, the agreement was a major achievement of Chinese regional diplomacy.
The news prompted an American friend of mine to ask me, "Do you feel threatened?" And a friend of mine from Singapore told me that it was quite worrying that Japan's movements were so slow. How Japan should respond to these new developments?
Before answering that question, why is East Asian regional economic integration gaining momentum in the first place?
The biggest factor is China's economic surge. The Chinese economy has become ever more integrated with the other Asian countries, keeping pace with its rapid growth. China's neighbors are, on the one hand, concerned about the "hollowing-out" of their industries. On the other hand, they are eager for a slice of the ever-growing Chinese economic pie.
These concerns are growing as worldwide demand for Asian exports has been radically reduced in the current global recession. Concerns about China's burgeoning military capacity have further strengthened the case for having China engaged in a stable interdependence, where one country's prosperity is in the interest of others. Beijing is well aware that its neighbors perceive China as a threat--both militarily and economically--and is making efforts, by supporting regional political and economic structures to reduce anxieties about its strategic intentions.
In addition, the September 11 terrorist attacks have had a considerable influence on economic integration in East Asia. The shock of the attacks and ensuing incidents made the global recession more severe, and East Asian businesses, which are highly dependent on the U.S. market, have turned to look at Asia for markets. At the same time, the attacks prompted changes in the U.S. policy towards Asia and Japan-China relations.
In building anti-terrorism coalition, the U.S. has modified its unilateralist approach to foreign policy, and now emphasizes international cooperation. This policy shift is absent in areas unrelated to fighting terrorism and the U.S. still places importance on its own initiative even in anti-terrorism operations. Nevertheless, the terrorist attacks have brought about changes in the relations between the U.S. and major countries in the world.
What is unusual is that the relationships between the U.S., Japan, and China are all improving simultaneously since September 11: China was quick to side with the U.S., albeit with reservations. Japan will provide rear area support in the war on terrorism, a move welcomed in Washington and not opposed in Beijing. And China accepted Japanese Prime Minister Koizumi's apology for Japanese aggression during World War II during his visit to Beijing in October, and the Chinese leadership has apparently shelved the history issue for the time being.
Whether the new trilateral dynamic can be sustained remains to be seen. The anti-terrorism cooperation cannot eliminate fundamental differences of values between the U.S. and China. Yet the new trilateral relations could present an opportunity to advance efforts toward integration and stability in Asia. When Japan-China relations are strained, establishing regional economic- and security-related frameworks prove difficult if not impossible. Stable U.S relations with Japan and China are crucial for fostering the broad understanding within the U.S. that it is in the U.S.'s interest for East Asia to become more mature and integrated, regardless of U.S. membership.
How can Japan take advantage of these conditions to promote its national interest?
First of all, Japan's most urgent task is to revitalize its economy. Temporary stimulus through government expenditure is not a solution. Japan must make its economic and social structure more conducive to the creation of new business, new markets, and new employment. Domestic policies alone cannot accomplish this task. If the Japanese business environment and corporations operating there are to become competitive in the ever more integrated global economy, Japan must make its markets at home efficient and flexible, while eliminating the obstacles to cross-border business activities. In addition to reducing barriers through the new WTO trade negotiations, which have just been launched, complementing sets of rules are in order to facilitate the flow of corporate resources between neighboring countries with more frequent business transactions. If Japan is to maintain its economic vitality with a population that is aging, it needs to further integrate with the rest of Asia (an area with higher growth potential) and capitalize on its neighbors' dynamism.
Second, it is in Japan's own interest to open its markets to products from neighboring economies that have comparative advantages, thus encouraging more autonomous and stable growth of Asian economies. East Asia must reduce its dependence on exports outside the region and base its economic growth more firmly on domestic or regional demand in order to stabilize the global as well as the regional economy. To stimulate regional demand, it will be crucial to eliminate barriers to cross-border movement of corporate resources, integrating long-fragmented regional markets and, in turn, enhancing the profitability of business activities to meet regional demand.
Third, Japan's security is dependent on the prosperity and stability of its neighbors. Asia, which had long lacked a sense of unity as a region in the context of the Cold War, is experiencing de facto economic integration through business activities. Japan should avoid being left behind when there is momentum to capitalize on this reality to foster a more mature and integrated Asia that can better serve the global community. Japan needs a robust decision-making system capable of overcoming conflict of interests if it is to develop and implement strategies based on its national interest.
Whether Japan can seize this historic opportunity of Asian integration to become more open to, embedded in, and trusted within the region--and in fact a more effective U.S. ally in Asia--rests with Japan to decide. I do hope that the fears of my friends from the U.S. and Singapore will never become realities.
Author, Naoko Munakata
Visiting Fellow, CNAPS, Brookings Institution and
Senior Fellow, Research Institute of Economy, Trade and Industry (RIETI)
e-mail: munakata-naoko@rieti.go.jp
Editor in Chief, Nobuo Tanaka
Vice President and Senior Fellow
Research Institute of Economy, Trade and Industry (RIETI)
e-mail: tanaka-nobuo@rieti.go.jp
tel: 03-3501-1362 fax: 03-3501-8391
The opinions expressed or implied in this paper are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI), or of the Research Institute of Economy, Trade and Industry (RIETI).
