[asia-apec 223] ASEAN and APEC: The making of a geo-economic rivalry

[daga]

ASEAN and APEC: The making of a geo-economic rivalry
Walden Bello
The Sunday Chronicle 
13 October 1996

In late February this year, an economic conclave of major significance took
place in Bangkok: the Asia-Europe Leaders' Summit, or ASEM, which brought
together 10 heads of state of East and Southeast Asia with 15 of their
counterparts from the European Union. This meeting was notable for several
things, including the fact that it was one of the very key global economic
summits to exclude the chief executive of the United States, the world's
largest economy.

To many observers, ASEM would not have come about without APEC. ASEM is, in
their view, geo-economic diplomacy par excellence, with the goal of the
Asian countries being to use the "European opening" to counter pressure from
the United STates to create a trans-Pacific free trade area. And the
Europeans have been only all too willing to oblige, since ASEM not only
promises to become a useful tool against Washington's aggressive anti-EU
trade diplomacy but also provides an ongoing framework and process to tie
their economies more integrally to the "East Asian Economic Miracle."

The EAEG Challenge to APEC

The ASEM summit was significant in another way: the Asian governments that
attended were precisely those that Prime Minister Mohamad Mahathir of
Malaysia had targetted for membership in his proposed "East Asia Economic
Group" (EAEG), which the US considers the greatest threat to APEC. Indeed,
many observers say that because it provides an ongoing forum in which the 10
Asian countries must coordinate their policies vis-a-vis Europe, ASEM brings
the formal establishment of the EAEG a step closer.

THE EAEG would include only Asian and Western Pacific nations in a loosely
structured consultative group. While the other ASEAN countries have not been
on the forefront espousing it, they have nevertheless been broadly
supportive of the idea. In Mahathir's view, after all, ASEAN would be the
nucleus or core of the EAEG. In fact, it has been at the advice of this
ASEAN neighbors that Mahathir has downgraded his proposed formation from the
status of an independent regional "group" to being a "caucus" (EAEC) within
APEC in order to lessen Washington and Canberra's apprehensions.

It has not had this effect, however, and the Clinton administration has
brought against the "caucus" proposal the same criticism that the Bush
administration launched at the original "group" idea: that it would create
an "artificial dividing line down the middle of the Pacific."

Washington knows, however, that the so-called line is far from artificial,
and its strident opposition to Mahathir's project stems from the fact that
it would reinforce trends that are already at work. Already, intra-Asian
trade makes up some 53 percent of East Asia's trade and it is growing much
faster than its trade with other parts of the world. The size of Japan's
trade with Asia now outstrips its trade with the US, and Southeast Asia has
overtaken the US to become Korea's biggest market. With East Asia becoming
both integrated production base and its own biggest market, the formation of
EAEC would accelerate the lessening market dependence on the US and promote
greater political independence. 

So threatened is Washington that in 1995, in a talk in Tokyo, then US
Undersecretary of Defense Joseph Nye, according to a report that appeared in
Singapore's Business Times, made the strong suggestion that the US "would
probably withdraw our security presence" from the Asia-Pacific if the
countries in the area were to proceed to form the EAEC on the grounds that
the latter would "exclude the US from the region economically. " It was
another one of those Super-301 like threats that was not likely to raise
Washington's stock in Southeast Asia.

Endorsment of the EACC does not mean, however, that ASEAN as a whole is
opposed to the APEC free-trade area concept. It is more accurate to say that
ASEAN is not of one mind about APEC liberalization. Postures range from
Singapore and the Philippines' support, to Indonesia's formal endorsement
amidst strong doubts, Thailand's apprehensiveness, Malaysia's
confrontational stance, and Vietnam's still largely spetator role.

It is fair to say, however, that the center of gravity of ASEAN opinion
tends toward the cautious, critical, and suspicious. This is not mainly
because of Washington and Canberra's opposition to EAEC, which remains,
after all, a proposal. The reason is much more concrete and, for ASEAN, more
vital: APEC is increasingly perceived as a rival, in geoeconomic terms, to
ASEAN and its pet project, AFTA, the ASEAN Free Trade Area.

The ASEAN Vision: Regional Industrialization via AFTA

ASEAN is the grandfather of multilateral regional arrangements in the
Asia-Pacific, and the ASEAN governments are very jealous of their creation
when confronted with newcomers like APEC. Indeed, even among sectors of some
of ASEAN citizenries, with the notable exception of the Philippines, there
is a fellow feeling -- a sense of "ASEAN brotherhood and sisterhood"-- that
is unique in the East Asian region.

In its first quarter century, ASEAN achieved success mainly as a political
alliance against communism. However, the original impulse for its founding
in the late sixties was for it to serve as a vehicle for regional economic
cooperation. The spirit that animated plans for an economic bloc was not the
neoclassical concern for "efficient allocation of productive resources
through free market mechanisms" that underlies, in theory at least, the APEC
free trade area. Rather, trade integration was seen as a base for integrated
regional industrialization. As originally envisioned by the influential
Robinson report undertaken by UN-ESCAP, ASEAN members were to carry out
limited trade liberalization to create a wider marker that would encourage
coordinated industrial import substitution at a regional level.

In the 1970s and 1980s, the ASEAN countries launched several initiatives,
including the Preferential Trading Agreements (PTA), which aimed at a
limited liberalization; the ASEAN Industrial Projects (AIP), which sought to
assign large-scale capital-intensive projects to different countries to
develop; the ASEAN Industrial Complementation Scheme (AIC), which aimed to
divide different production phases of the automobile and other industries
among member countries; and the ASEAN Industrial Venture (AJIV), aimed at
increasing industrial production through resource pooling and market sharing
by ASEAN firms. Running through these schemes was the protectionist
perspective of using trade policy--that is, reducing trade barriers among
members while keeping them up against non-members-- as an instrument to
build regional industrial capacity.  

Grand in vision, these initiatives were scarcely implemented in the 1970s
and 1980s, as ASEAN focused on regional politicaly issues like the
continuing instability in Cambodia.  But with the end of the Cold War and
the return of relatively political stability to Cambodia, ASEAN members
returned to the common-market agenda that had been ASEAN's original impulse
by launching AFTA in 1992. There was another reason as well: the founding of
APEC in Canberra in 1989 and Australia's energetic diplomacy to make it the
regional economic bloc for the Asia- Pacific.

The core of AFTA is the so-called CEPT or "Common Effective Preferential
Tariff Agreement" which applies to all manufactured goods and processed
agricultural products. The central provision of CEPT was that all tariffs
would be lowered to a substantially free trade level within 15 years, in
2008. In the view of its planners, AFTA was, like the previous ASEAN tariff
reduction attempts, no simple free trade scheme. It was to simultaneously
use internal trade liberalization and external trade discriminations in an
effort to create a wider market that would provide the economies of scale
for the profitable operation of capital-intensive and technology- intensive
industries, be they ASEAN-based or foreign.

As an Australian government study pointed out, unlike the APEC free trade
scheme, AFTA employs trade policy for regional industrialization ends: "By
creating an integrated ASEAN market and production base, AFTA seeks to
encourage multinationals (and ASEAN-based firms) to develop region-wide
production, distribution, and marketing strategies; and in the process boost
the overall competitiveness of ASEAN production." The idea is to boost
regionally based industries by providing them with a unified market of some
320 million people while using foreign multinationals to upgrade regional
industrial capacity, principally through the transfer of technology.

Whether the foreign transnationals, especially the dominant Japanese
conglomerates, would derive more benefits from ASEAN than ASEAN would derive
from them was, of course, an interesting question that demands a separate
discussion.

The vision was certainly grand, but when it came to implementation, the
agreement was initially bogged down in different time frames for tariff
reductions and long list of products that the different countries wanted to
exempt from CEPT provisions, casting doubt on countries' commitment to the
regional liberalization process. It seemed AFTA would go the way of past
ASEAN initiatives, until ASEAN governments "relaunched" the program during
the ASEAN Economic Ministers' Meeting in Chiang Mai, Thailand, in 1994 with
the ambitious agreement to advance the target date for the elimination of
trade barriers from 15 to 10 years, making ASEAN a substantially free trade
area by the year 2003. The Chiang Mai meeting also extended the coverage of
CEPT to unproceesed agricultural goods, including rice. 

AFTA and APEC as Strategic Rivals

This time it was Bill Clinton's big push for the APEC area during the
November 1993 Seattle Summit that served as the spur to ASEAN's quickening
pace of trade integration, just as it would be APEC's 2020 free trade vision
articulated at the Bogor Summit in November 1994 that would spark the Sultan
of Brunei's controversial proposal a year later, in 1995, to advance the
achievement to the year 2000, three years ahead of the already revised
schedule-- a recommendation on which there is, however, no consensus as yet.

ASEAN's competitive pace is not surprising, for the grouping would lose its
raison d'etre-- to become a unified market and production base via internal
trade liberalization and external trade discrimination-- if the APEC free
trade area were to become a reality. ASEAN would be happy with APEC if the
latter were to remain a group for consultation and cooperation that would
not threaten the ASEAN goal of regional industrial upgrading through
regional trade liberalization. At the same time, Canberra and Washington
have come to realize that the more AFTA becomes a reality, the more
difficult it would be for an APEC free trade area to come into existence. 

This race for effective liberalization between AFTA and APEC has been
largely carried out without references to the essential contradiction
between the two enterprises. This may be about to change. One Australian
government unit has already warned that AFTA could become a "substitute for
more comprehesive liberalization," and urged Canberra to "press for
liberalization of a range of ASEAN tariff and non-tariff barriers and
remaining impediments to investment, for all of ASEAN's trading partners."
But probably more alarming, and more offensive, to ASEAN was a remark by Dr.
Fred Bergsten, the former head of the now disbanded Eminent Persons' Group,
to the effect that permission must be secured from APEC and the World Trade
Organization before any subregional economic grouping in East Asia is
allowed to pursue further integration.

The ASEAN reaction to Bergsten's proposal and similar suggestions to "bring
AFTA under control" is probably not different from that of a commentator in
Singapore's Business Times: "This is extraordinary. APEC is a voluntary and
non-binding agreement among Asia-Pacific states and why it should have to
right to veto any proposal from formally constituted bodies such as ASEAN is
hard to see... APEC needs to more carefully avoid giving the impression of
patronizing any of its members, especially as it is viewed as an instrument
of US policy in this region. A few lessons in diplomacy would not come amiss
among visitors from Washington."

Creating an ASEAN united front vis-a-vis APEC, however, has not been smooth.
Some governments have thrown up obstacles, and one of the most threatening
to AFTA in the long run is the Philippines' decision, as stated in a recent
government document, "to go one step further by making available all tariff
changes on an MFN (most favored nation) basis," that is, to all the
country's other trading partners, including the US and other advanced
countries. The rationale of this position which is precisely what the
Australians have demanded-- is supposedly to "minimize the potential trade
diverting effects of the regional trading agreements." Thus the Philippine
position would, objectively, undermine AFTA, since AFTA's strategic goal is
precisely to "divert trade" in order to upgrade regional industrial capacity
via import substitution.

ASEAN's Guerilla Tactics

But while most of the other ASEAN governments would see MFN as subversive of
AFTA, they have not hesitated to invoke the principle in an APEC context.
And they have done so, not out of doctrinal considerations but as a tactic
to slow down the US push for trade liberalization.

Washingtron says that APEC trade concessions should be extended only to
non-APEC members that agree to make reciprocal concessions. Applying MFN in
an APEC context, say the Americans, would encourage "free riders," like the
European Union, which would benefit from a free trade area while keeping up
their own barriers. This would eventually dilute the benefits of belonging
to an APEC free trade area.

Teaming up with the Japanese, ASEAN has replied that MFN is the only
position that is really consistent with the General Agreement on Tariffs and
Trade (GATT) global trading framework administered by the WTO. This stand is
largely a tactical ploy, in the hope that disagreement on this very basic
principle would have the effect of pushing discussion of concrete
liberalization plans without APEC further into the future, giving AFTA the
space to put its liberalization program securely in place and effectively
heading off an APEC free trade area.

What we see here are guerilla tactics in geo-economic conflict, and in
conjunction with the ASEM initiative and Malaysia's continuing push to
formalize the EAEG, such Fabian moves may bring about the effective demise
of the ersatz vision of a regional free trade area that American and
Australian pressure produced at Bogor, and bring APEC back to the role that
ASEAN, Japan, and practically all the other Asian countries are comfortable
with: serving as a consultative forum for economic cooperation, with no
other ambitions.

(Dr. Walden Bello is co-director of Focus on the Global South, a program of
Chulalongkorn University and professor of sociology and public
administration at the University of the Philippines. He is the author of
Dragons in Distress: Asia's Miracle Economies in Crisis [London: Penguin,
1991] and other books on Asia-Pacific economic realities.   
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