http://www.atimes.com/atimes/Southeast_Asia/FL03Ae02.html
ASEAN, China all smiles for now By Alan Boyd 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. (Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact us for information on sales, syndication and republishing.) 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