Some in East Asia Fear U.S. and Europe Will Leave Them Far Behind: Protectionism Could Prompt A Trade Bloc Led by Tokyo
International Herald Tribune
February 9, 1993
Michael Richardson 

Apprehensive about signs of protectionist trends in the United States and Europe, Asian countries are looking anew at proposals for closer East Asian economic cooperation built around Japan.

While officials in the region deny that they are intending to form an increasingly closed trading bloc, analysts have little doubt that this is what would emerge should America and Europe adopt tougher policies to limit Asian imports.

The analysts say that trade policy decisions to be taken in the weeks ahead by the Clinton administration, particularly toward Japan, will largely determine whether a powerful East Asian economic association is formed to counter the single economic market in Europe and the planned North American Free Trade Agreement linking the United States, Canada and Mexico.

Paul Keating, the Australian prime minister, said Monday that the United States "faces a quite fundamental decision on where and how it wishes to place itself in the emerging economic alignments of the Pacific - a decision which will affect all of us in the region."

Echoing concern expressed throughout East Asia and the Western Pacific, he said that the Clinton administration intended to pursue a robust market-opening strategy with its Asian trading partners.

Mr. Keating cautioned, however, that unless Washington "goes about it in the right way, it risks accumulating resentment and resistance."

Smaller Asian countries have generally benefited in the past from market-opening agreements between the United States and strong East Asian economies, such as Japan, because all nations have been eligible for the benefits.

But there is growing concern in the region that the Clinton administration - under pressure from Congress and American industries asserting that jobs and growth are being stifled by cheap Asian imports - may be tempted to adopt protectionist policies.

One consequence of any U.S. attempts to reduce its huge trade deficit with East Asia by imposing punitive tariffs or demanding guaranteed shares for American goods in Asian markets would be to force countries in the region to band together.

There has already been a proposal from Malaysia to form an East Asian Economic Caucus that would exclude the United States and other North American Free Trade Agreement countries, as well as Australia and New Zealand.

The proposal is backed by Brunei, Indonesia, the Philippines, Singapore and Thailand, Malaysia's partners in the Association of South East Asian Nations, although Jakarta has been lukewarm.

Japan, South Korea and China have not endorsed the caucus plan, fearing it would exacerbate trade frictions with the United States, their largest single market.

But analysts said that this position could change if Washington were to pursue managed trade or aggressive market-opening measures enforced by unilateral imposition of stiff penalties for noncompliance.

Mahathir bin Mohamad, the Malaysian prime minister, said recently that supporters of the plan for an East Asian caucus did not want to create a trade bloc. Instead, he said, their aim was to form a powerful Asian lobby for maintaining free trade.

Already, however, there is unease among East Asian countries and industries that have benefited from access to a relatively liberal global trading system that a combination of regional groupings and sluggish economic growth in many parts of the world will fuel protectionism.

Wong Kan Seng, Singapore's foreign minister, said that the rise of economic regionalism in North America and Europe was forcing East Asian nations to consider how they could work together.

He said that the economic success of Japan and other dynamic countries in the region had led some developed states to "question the usefulness" of the multilateral trading system under the General Agreement on Tariffs and Trade.

Mr. Keating, in a speech to a trade conference in Sydney, said that nations on both sides of the Pacific should avoid protectionism by pursuing a policy of "open regionalism," under which trade would be liberalized but not in a way that disadvantaged other countries.

The objective, he added, should be to create a huge trans-Pacific market bound together with harmonized rules for trade, investment, standards, certification and the settlement of disputes.

Nonetheless, pressure to form an East Asian economic caucus is already strong and seems likely to increase.

East Asia's share of world output of goods and services nearly doubled to reach 18 percent in 1990, from under 10 percent in 1965, and continues to rise.

This success had created enormous new markets, Mr. Wong told the World Economic Forum last month. "But it has also required painful adjustments in other countries," he said, "especially the United States and Europe, as noncompetitive industries are phased out and workers are retrenched."

Mr. Wong said the United States and Europe were entering "a more introspective phase" as they grappled with structural problems of competitiveness while "fair and managed trade are being loudly championed by influential opinion makers instead of free trade."

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