Asia Seeks Leading Role in Pacific’s Destiny : Trade: The Malaysian prime minister’s proposal for an economic consortium raises fears that it would shed traditional values of open markets.

Whose destiny is it to lead the Pacific into the 21st Century?

Pundits are asking that question with increasing frequency, wringing their hands over the decline of Pax Americana, fretting about Japan’s dream of the Greater East Asia Co-Prosperity Sphere and postulating about how the two great Pacific powers might balance their interests in a lasting partnership.

But the future may be decided by the followers, not the leaders, as East Asian nations examine the common values and interests that bind them into a regional entity.

Worries are rising that Europe’s economic integration and North America’s proposed free-trade agreement will divide the globe into protectionist trade blocs, stifling Asia’s export-driven economic growth. A number of countries are thinking seriously about circling their wagons.

Malaysian Prime Minister Mahathir Mohammed has proposed creating an economic consortium aimed at providing political leverage and counterbalancing the two groups in the West. Provocatively, the United States, Canada and Australia were excluded, while Japan was clearly incorporated into the plan.

The idea met initial skepticism, but Mahathir’s group appears to be taking on a life of its own. China endorsed it. Malaysia’s Southeast Asian neighbors are increasingly supportive. Japan is privately intrigued.

Yet the proposal raises the contentious question of how to define common interests in the broader Asia-Pacific region. The Bush Administration recoils at the idea of an exclusive Asian trading club, fearing the loss of influence over the fundamental principles that guide economic behavior.

Despite claims to the contrary, U.S. officials say, Mahathir’s proposed East Asian Economic Group (EAEG) could--in a worst-case-scenario--develop into a protectionist bloc prone to shedding traditional values of open markets. The obvious tendency would be to emulate the Japanese model of development through industrial policy, managed trade and mercantilism, a model that draws vociferous complaints of unfairness from the West.

In the very least, discussion of an exclusive Asian trade grouping underscores America’s economic decline and formalizes Japan’s ascendence as the dominant power in the region.

“The EAEG proposal is perhaps the first time after World War II in which a leadership role in East Asia is handed to Japan on a silver platter by another Asian country,” observed Hadi Soesastro, an Indonesian scholar, at a seminar in Mexico City in February.

In response, U.S. officials are promoting a different vision of Asia’s economic future, one that involves continued economic integration and economic cooperation across the Pacific and a resolute commitment to free markets.

The likely vehicle to advance that cause would be a loosely defined association established two years ago in Canberra, Australia, calling itself the Asia Pacific Economic Cooperation (APEC). It gathers government officials from 12 countries, including the United States and Australia, mainly for research.

So far APEC has been formless, toothless and directionless, its critics say.

But U.S. officials expect the annual APEC ministerial meeting in Seoul, South Korea, next month to mark the beginning of a more vigorous stage of APEC’s development. The three Chinas--Hong Kong, Taiwan and the People’s Republic--are going to be admitted, and Soviet observers are expected to attend.

“Our goal is to get all these countries into the camp of open markets rather than see them take the Japanese approach of more managed trade,” said a U.S. official, requesting anonymity.

Developing East Asia, after a decade of phenomenal economic growth, is not as pliant as it once was. Mahathir is the voice of dissatisfaction, asking whether the American ideology of open markets and liberal democracy must be the norm or whether Asia should be allowed its own way of doing things.

“Today, individuals in some developed countries consider it their right to tell us how to rule our country,” Mahathir said in a speech late last month before the United Nations General Assembly. “If we don’t heed them, they consider it their right to destroy our economy, impoverish our people and even overthrow our governments.”

Mahathir warned of the potential for a sinister, neocolonial “New World Order,” and he pointed to “powerful trade blocs” that would demand “voluntary restraints”--an apparent reference to the EC’s recent automobile import quota agreement with Japan.

He also articulated the dilemma of conflicted identities and divided loyalties for developing East Asia.

“We are told that we may not call ourselves East Asians as Europeans call themselves Europeans and as Americans call themselves Americans,” Mahathir said. “We are told we must call ourselves Pacific people and align ourselves with people who are only partly Pacific, but more American, Atlantic and European.”

Mahathir may be grandstanding to the Third World, but he appears to be hitting a responsive chord in some parts of East Asia. He proposed the EAEG at a banquet for China’s Premier Li Peng, who was visiting the Malaysian capital of Kuala Lumpur last December. China, caught up in a battle to retain most favored nation status with the United States, wasted no time in endorsing the EAEG plan.

The foreign ministers of the Assn. of Southeast Asian Nations (ASEAN), meeting in July, declared that they would “further examine and advance” the proposal. ASEAN’s economic ministers met earlier this month and proposed a softer alternative to Mahathir’s group, calling it a “caucus.” They also revived an old idea of creating an ASEAN free-trade zone, setting a timetable of 15 years for completion. ASEAN’s position on the trade bloc issue won’t be entirely clear until the group holds its next summit in January.

Japan, meanwhile, remains officially skeptical, diplomatically echoing U.S. concerns about exclusivity. But privately, Japanese officials are sympathetic. Bureaucrats at the Ministry of International Trade and Industry, engineers of the industrial policy that resurrected the Japanese economy after World War II, are reportedly smacking their lips at the plan.

“You have to look at the Japanese behavior in terms of Victorian behavior,” said Juanjai Ajanant, professor at the University of Toronto and a former high government official in Thailand. “What they do, they do in the dark.”

Proponents of the EAEG grouping say it will be committed to open markets and free trade. Noordin Sopiee, director of Malaysia’s Institute of Strategic and International Studies, an influential think tank, defended the basic concept in the New Straits Times in August.

“There must be no attempt to create a fortress East Asia. . . . There must be no attempt to create a trade bloc,” he wrote.

But laissez faire economics isn’t necessarily on the agenda. Sopiee suggests that EAEG may attempt to “harmonize” regional industrial policies and, in effect, draw up blueprints that would rationalize the divisions of labor across a set of economies.

“The choice before us in the region is whether we sit back and let nature take its course, or do we intervene to help the process of increasing interdependence along,” Sopiee wrote.

Such intervention would be a dream come true for the Japanese Ministry of International Trade and Industry planners, who have for years tried to orchestrate Japanese penetration into the region with commercially oriented foreign aid, infrastructure projects and direct foreign investment aimed at stratifying industrial production.

David Arase, assistant professor of government at Pomona College, said the notion of coordinating industrial policies through a forum like EAEG would be tantamount to “integrating Asia under Japanese industrial policy.”

“Tokyo controls things from the top by controlling investment and technology and access to its own markets,” Arase said.

To be sure, Japanese economic dominance is already well established in the region, but barriers to a more formal economic association with Japan remain formidable.

Japan’s trade surplus with its Asian trading partners has been rising sharply, creating a strained atmosphere. Massive direct investment in the region since the yen nearly doubled in value five years ago has caused concern. And memories of Japan’s wartime atrocities remain rooted in the minds of the older generation.

Rapid economic growth, much of it related in some way to Japanese investment, has spread the wealth, however, and the Japanese are no longer openly reviled as “economic animals,” exploiting the region.

When Emperor Akihito broke precedent recently and took an historic tour of Thailand, Malaysia and Indonesia, the news was that there was no news. The son of Hirohito, in whose name Asia suffered tragically, was cordially received.

Japan has opened its markets to Asia’s manufactured goods, not just its resources. Still, economists doubt that it can replace the U.S. market as the engine of growth in the region. The United States took nearly one-fourth of East Asia’s exports last year, as opposed to Japan’s 15% share. The ratio of manufactured goods to total imports from developing Asia remains significantly higher for the U.S. market.

Alienating the United States at the expense of building an exclusive house of Asian interests, as Mahathir proposes, echoes ironically back to Imperial Japan’s World War II battle cry of “Asia for the Asiatics.”

“East Asia has come of age,” Sopiee, the Malaysian analyst, concluded in his article. “And the logic of East Asian dynamism, interdependence and cooperation cannot be denied.”

That may be so, but a showdown seems in store over where to draw the lines on the map.

Does burgeoning East Asia share economic interests with its North American trading partners that would place it naturally into a pan-Pacific community? Why can’t the sleepier economies of Australia and New Zealand be part of the family?

And does it matter, after all, to American business?

Richard Drobnick, director of USC’s International Business Education and Research program, thinks so, and he advised business executives to keep an eye on trends in regionalism in a speech earlier this year.

“The Pacific Rim’s regional structure does affect business strategies in terms of decisions about where to focus marketing efforts, where to locate production, who to seek as strategic alliance partners and subcontractors, and how to attract, train and retain key employees,” Drobnick said.

But monitoring developments across the vast and vague region is a daunting task.

“Are we really entering a Pacific century, and will there ever be a natural feeling of community in the Pacific Rim?” asked James Clad, a senior associate at the Carnegie Endowment for International Peace. “My feeling is that we’re light years away.”

Competing Trade Blocs There are competing visions of economic cooperation in the Pacific. Two organizations--one fledgling, the other not yet formally established--are possibly headed for a showdown, a contest for future economic agenda-setting in the Asia-Pacific region. One group, the Asia-Pacific Economic Cooperation, includes the United States and embraces traditional free-trade principles; the other, the East Asia Economic Group proposed by the Malaysian prime minister, excludes the Americans, the Australians and the Canadians and looks toward Japan as the model for development.

Asia-Pacific Economic Cooperation (15 members) 1 Australia 2 Brunei 3 Canada 4 (China)* 5 (Hong Kong)* 6 Indonesia 7 Japan 8 S. Korea 9 Malaysia 10 New Zealand 11 Philippines 12 Singapore 13 (Taiwan)* 14 Thailand 15 United States East Asia Economic Group (11 prospective members) Brunei China Hong Kong Indonesia Japan S. Korea Malaysia Philippines Singapore Taiwan Thailand Economic Growth in Asia 1990 gross domestic product in billions of U.S. dollars (percent increase over previous year) Japan: (4.9%); $2,963 S. Korea: (8.6%); $224 Taiwan: (5.2%); $165 Hong Kong: (2.3%); $70 Singapore: (8.3%); $35 Indonesia: (6.5%); $96 Thailand: (12.2%); $79 Malaysia: (8.5%); $43 Source: The Heritage Foundation “U.S. and Asia Statistical Handbook”

Asia Export Dependence on the U.S. Market

Despite Japan’s economic penetration and domination in Asia, the United States still plays a key role as the largest single market for Asian exports. That is one argument against a trade bloc that would exclude the United States and other Pacific nations such as Australia and Canada.

1990 Exorts to U.S. and Japan as a percentage of total exports

U.S. Share: United States imports about 23% on average.

Japan’s Share: Japan imports about 15% on average. Source: The Heritage Foundation “U.S. and Asia Statistical Handbook”