Pacific Rim Nations Strengthen Economic Ties

High-level meeting seeks cooperation among free-market economies

SENIOR officials of 12 Asia-Pacific nations meet today in Australia to take the first steps toward forming a new regional economic organization. It is a moment rich in historical portent. For some, it marks the emergence of the Pacific century, the shift of the economic and political center of gravity in the world from Europe and the Atlantic to Asia and the Pacific.

For others, the gathering is a sign of growing economic rivalry, of rising protectionism, and the division of the world into warring economic blocs in Europe, Asia, and the Americas.

And there are those who dismiss the possibilities of this new grouping as an impossible dream, trying to wed nations separated by the vast distances of the Pacific Ocean and by widely diverse cultures.

The Asia Pacific Economic Cooperation Conference, as it is formally called, is the first Cabinet-level meeting of virtually all the major free-market economies of the Pacific Rim. The nations are gathering at the initiative of Australian Prime Minister Bob Hawke, who proposed creating a new forum for regional cooperation during a visit to South Korea in January.

The idea of Pacific cooperation, actively discussed for 20 years, is now slowly gaining acceptance with the formation of various organizations to promote it. But the jump into a government-level body has traditionally seemed a daunting one. The less-developed nations of the region, centered in Southeast Asia, have feared domination by the more advanced countries such as Japan, Australia, and the United States.

The speed with which the Australian proposal has been realized has surprised even those intimately involved in the process. But all the officials and experts interviewed during recent weeks in a number of Pacific nations agree that the impetus comes from two factors: the fear of trade blocs forming in Europe and North America and the rapid pace of economic interdependence within this region.

The Pacific region is led by dynamic economies that depend heavily on trade to promote their development. The decision of the European Community fully to integrate their economies by 1992 has raised concern throughout Asia that access to that market would be blocked.

The formation this year of the US-Canada Free Trade Zone, along with rising protectionism in the US, has provoked similar concerns.

``We are not trying to be a bloc,'' says a senior Thai Foreign Ministry official.

The countries of the Pacific Rim depend on trade and therefore are compelled to be outward looking, says an official of Japan's Ministry of International Trade and Industry (MITI). ``If protectionism comes, our Asia-Pacific countries will be hurt dramatically,'' he contends.

The initial idea behind the Hawke proposal was ``to have a third area of regional cooperation which can counterbalance those two regional organizations,'' suggests former Japanese Foreign Minister Saburo Okita. In part, the idea was ``to have some sort of bargaining position,'' says Mr. Okita, the leading Japanese advocate of Pacific cooperation.

An ``open regionalism'' can ``induce the Europeans ... to become more outward looking, rather than a Fortress Europe,'' says Lee See-young, head of the South Korean Foreign Ministry task force on Pacific cooperation.

When Mr. Hawke first proposed this conference, he suggested the members be initially confined to those in East Asia and Oceania. According to a MITI official, Thailand and Malaysia supported the exclusion of the US. But Japan, South Korea, Singapore, and others urged the inclusion of the US and Canada, largely to avoid the perception that this was the beginning of a closed bloc.

``The US has a very deep linkage with European countries,'' says Lee Hong-kyu, an official of the Korean Ministry of Trade and Industry. ``So it is in the position of mediator between other economic regions and Asia.''

The Australians quickly revised their proposal. But the most serious obstacle to success remained - overcoming the deep-seated reluctance of the Association of Southeast Asian Nations (ASEAN), the six-nation regional group. The group includes Thailand, Indonesia, the Philippines, Malaysia, Singapore, and Brunei. Those less-developed countries have always worried that a broader group would be run by the advanced countries and undermine the role of ASEAN.

``The ASEAN organization already exists,'' the Thai official explains. ``Any organization which comes into being should not dilute ASEAN and should be an extension of ASEAN.'' The Southeast Asians reacted quite sharply last year when Japanese and US officials floated the idea of forming a group based on the model of the Organization for Economic Cooperation and Development (OECD), the Paris-based group of advanced nations. The suggestion implied creating a permanent secretariat of some type which they said might supersede the ASEAN secretariat.

The Australian government closely consulted with Japan's MITI, which formed a high-level study group to examine various options for cooperation. The group issued a interim report in June 1988, followed by a final report a year later. MITI favored gradual steps toward regional cooperation, focusing on concrete projects such as training skilled workers and creating loose forms of organization.

Such Australian-Japanese collaboration goes back to the earliest gestation of this concept. In 1968, Australian economist Peter Drysdale, Japan's Okita, and a few other experts joined to form an academic group to promote Pacific cooperation, inspired by the European Community. The Pacific Basin Economic Council, a grouping of businessmen, was also formed around this time.

Okita was Japan's foreign minister when, in 1979, Japanese Prime Minister Masayoshi Ohira and Australia's Malcolm Fraser joined to initiate a project on Pacific Rim cooperation. That led to the creation of the Pacific Economic Cooperation Conference, a tripartite body of academics, businessmen, and government officials. Through the 1980s, the conference has moved slowly to build a consensus on Pacific cooperation, studying specific areas where common interests can be forged.

The Australians were quietly and actively making an effort, with the support of MITI, to persuade ASEAN that the idea was not a threat. According to Australian diplomatic sources, the breakthrough came earlier this year when Thailand ``told its ASEAN colleagues they shouldn't fear the Hawke initiative.''

The Thai government, which has presided over an economic boom sparked largely by Japanese investment, ``has a more commercial orientation,'' the diplomat explains.

During the latter half of the Reagan administration, then Secretary of State George Shultz emerged as a strong backer of Pacific regional cooperation. He broached the OECD idea in a speech at the annual ASEAN foreign ministers meeting in 1988. But the the Bush administration's support did not become clear until a June 26 speech by Secretary of State James Baker III.

Mr. Baker, who will lead the US delegation at the conference, presented a broad framework for US policy toward Asia, including the need for a ``global partnership'' with Japan. He noted the rapid growth of the Asian economies, particularly the increasing flow of capital and trade between Asian nations. Intra-Asian trade reached nearly $200 billion last year, for example. Korean and Taiwanese investment is playing a major role in Southeast Asia.

``Yet unlike Europe, there are inadequate regional mechanisms to deal with the effects of interdependence,'' Baker says. He referred positively to the efforts of Hawke and MITI. ``Clearly, the need for a new mechanism for multilateral cooperation among the nations of the Pacific Rim is an idea whose time has come.''

The US stance helped push ASEAN toward a more favorable position. It also persuaded the Japanese Foreign Ministry, which opposed the Hawke proposal out of concern for ASEAN and US reaction, to change its attitude. At a September preliminary meeting, ASEAN agreed to attend the conference as a ``exploratory meeting.'' But ASEAN also went further to offer to host a follow-up meeting next year. South Korea said it would be the site of the third of what promises to become an annual summit.

But ASEAN nervousness has by no means disappeared. According to the Australian source, after a meeting several weeks ago ASEAN asked that the agenda item on ``future steps'' to create an organization be worded more vaguely and that the next meeting also be designated as ``exploratory.''

The conference must deal with the issue of broader membership, particularly the inclusion of Hong Kong and Taiwan, two of Asia's rising economic powers. Behind that lies the issue of admitting China, which claims sovereignty over both Hong Kong and Taiwan. The admission of Hong Kong, with Beijing's approval, is a probable first step.

Aside from the organizational issue, The agenda for the conference also covers several other major items, including global trade liberalization and regional cooperation on issues such as investment, technology transfer, human resource development, and environmental protection.

``No drastic measures will be decided,'' predicts Masakazu Toyoda, the MITI official who headed the Pacific cooperation study. The diversity of the grouping dictates a slow pace. , confining the initial results to broad statements of principle.

The clearest accomplishment would be the decision to go ahead with the next meeting, beginning what is sure to be a long and difficult path toward creating a new force in the world. Average Economic Growth Rates (1975-85) World 2.8 ASEAN* 6.9 Asia NICS** 7.9 South Korea 7.6 Taiwan 8.3 China 7.7 Japan 4.5 Australia 2.9 North America 2.9 *ASEAN: Thailand, Indonesia, the Philippines, Malaysia, Singapore, and Brunei. **Newly Industrialized Economies: Taiwan, S. Korea, Singapore, Hong Kong

Source: MITI