U.S. Dispute Gives Japan Reason to Look to Asia
International Herald Tribune
May 18, 1995
Michael Richardson 

America's attempts to force open Japanese markets are likely to encourage the country to seek new trade and economic alliances in Asia, analysts said Wednesday.

In an apparent effort to help Japan distance itself from the United States, Malaysia has signaled that it is prepared to accept Australia as a member of a regional economic group known as the East Asia Economic Caucus.

Originally designed to bring Northeast Asia and Southeast Asia together in a powerful economic association for the first time, the caucus has been slow to get off the ground because of Japan's reluctance to join - based on concerns of offending the United States.

But with Tokyo now facing record sanctions in its trade dispute with Washington over cars and car parts Malaysia has opened the door to acceptance of Australia in the caucus. Japan has sought to reassure America that the caucus would not be an "Asians-only" lobby working against Western interests.

Reversing his long opposition to membership by economies that were not part of East Asia, Mahathir Mohamad, Malaysia's prime minister, said in an interview with The Australian newspaper on Monday that Australia's eventual entry into the caucus was "a distinct possibility."

He was quoted as saying that as Australia "becomes more Asianized, certainly in terms of geographical relations but also in terms of outlook, there is no reason why they cannot be part of" the caucus.

[On Wednesday, Mr. MaHL hathir denied that reversing his stand was due to pressure from Japan and said he had told the newspaper that Australia had to be "Asian first" before it could join the caucus, Agence France- Presse reported from Kuala Lumpur, quoting Bernama, the Malaysian news agency.

["The Japanese have presumed that because of Japanese pressure on me, I have changed my stand because Japan had insisted that Australia and New Zealand" be in the caucus, he told Malaysian journalists on an official visit to Tokyo.]

Mr. Mahathir has campaigned for the caucus at every opportunity since he proposed it in 1990 to promote free trade and to protect the economic interests of the East Asian region.

Ian Perkin, chief economist at the Hong Kong General Chamber of Commerce, said that if America continued to target Japan with sanctions, that could make Tokyo reconsider its position on the caucus.

In a sign of growing support for the caucus within the Japanese private sector, Keidanren, the Japan Federation of Economic Organizations, said last month that it wanted to see the group formed as soon as possible.

On a visit to Kuala Lumpur, Masaya Miyoshi, Keidanren's president, said the caucus would facilitate the promotion of free trade and the movement of capital within the region.

Keidanren has close ties with the Japanese auto, steel and electric-power industries that have borne the brunt of U.S. market-opening attacks in recent years.

Ronald Bevacqua, a Japan specialist in the Tokyo office of Merrill Lynch & Co., said that, for the moment, Japan had too much at stake in terms of its security and economic well-being "to be seen to break away from the U.S. by joining," the caucus.

But he said that could change if Japan decided over the next few years that Asian markets had become large enough to outweigh those of the West.

Signs are already multiplying that Japan is shifting its economic and trade focus toward Asia. In recent weeks, Japanese officials and bankers have called for Japan to reduce its dependency on the dollar as a reserve currency.

On Tuesday, Japan's Finance Ministry said the country's direct investment in the rest of Asia soared 47 percent in the year ended March 31, as the surging yen, partly the result of U.S. trade pressure, prompted firms to shift more production overseas.

Asia has overtaken Europe over the past two years to become the second-biggest recipient of Japanese investment, after North America. In 1993, Asia exceeded North America as Japan's premier trading partner for the first time.

Last year, Asia accounted for nearly 40 percent of Japan's trade, with the United States accounting for 30 percent and Western Europe 17 percent.

In a signal of accommodation to its Asian neighbors, Japan hinted this week that it might finally provide rate relief to nations - many of them Asian - whose yen-based debts have increased dramaticallyas the yen's value has soared. Countries that owe Japan billions of yen in aid loans have been crying out for relief for months.

Australia, an ally of the United States, is not considered geographically part of East Asia. But Gareth Evans, its foreign minister, said recently that with trade, investment, migration and tourism drawing Australia closer to the region, it should be considered part of the East Asian sphere of influence.

Washington has warned that if a caucus made up exclusively of East Asian countries was formed, it could cause divisions within APEC, the Asia Pacific Economic Cooperation forum, and weaken American ties with Asia.

APEC, which the United States sees as the key organization for liberalizing trade and investment in the region, has 18 members including America, Canada, Australia and New Zealand as well as the East Asian economies that would be the founding members of the East Asia Economic Caucus.

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