第9回

JIIA‑Ifri 定期会合

21 世紀に向けての日欧協力･･････････････････
The JIIA-Ifri 9th Joint Conference
Japan-Europe Cooperation toward the 21st Century

平成 12 年 9 月 25‑26 日 パリ
25‑26 September 2000, Paris

OECD 基金後援
Supported by OECD Foundation‑‑‑‑‑‑‑‑‑‑‑
平成 13 年 3 月
財団法人 日本国際問題研究所
March 2001
The Japan Institute of International Affairs

Contents
Foreword
Hisashi OWADA ････････････････････････････････････････････････ 5

Outline of the 9th JIIA-Ifri Joint Conference
Sadaharu KATAOKA ････････････････････････････････････････････ 7

The Korean Peninsula after the Summit Meeting : A Japanese Perspective
Hideya KURATA ･･････････････････････････････････････････････ 13

The Aftermath of the Financial Crisis in Asia
Seiichi KONDO ･･･････････････････････････････････････････････ 21

The EURO, the Growth Potential and the Financial Markets in Europe
Michel AGLIETTA ････････････････････････････････････････････ 29

The Enlargement of European Security Organizations
Guillaume PARMENTIER ･･･････････････････････････････････････ 39

The Expansion of Regional Organizations and Implications for Regional and Global Security
Comments on Parmentier's presentation
Sadaharu KATAOKA ････････････････････････････････････････････41

The Expansion of Regional Organizations and Implications for Regional and Global Security- Security Agenda in Asia –Satoshi MORIMOTO ････････････････････････････････････････････45

Introduction and comments on the Paper by Prof. Satoshi Morimoto
Masahiro OMURA ･･････････････････････････････････････････････51

Disarmament Process in Trouble
Akira HAYASHI ･･･････････････････････････････････････････････55
Agenda ･･････････････････････････････････････････････････････････････ 63
List of participants ･････････････････････････････････････････････････････ 65

はじめに

はじめに

本報告書は、平成 13 年 9 月にパリにて開催された財団法人日本国際問題研究所（
JIIA）及びフ
ランス国際関係研究所（
Ifri）との間の第 9 回定期会合「21 世紀に向けての日欧協力」の成果をとりまとめたものである。
当研究所とIfri との定期会合は、1991 年 11 月にパリにて第 1 回会合が開催されて以来、著しく進捗しており、定期会合の根幹である国際情勢に関する日仏間の知的対話は、混沌とする現在の国際社会の趨勢と相俟って、極めて大きな広がりを見せている。
第 9 回会合では、本報告書に見られるように、朝鮮半島、欧州及びアジアの地域安全保障組織の拡大、エネルギーと安全保障の問題、軍縮プロセスと NMD/TMD に関する問題、そして、アジア
通貨金融危機後の経済情勢やユーロの現状などの経済と安全保障の問題などについて、口角泡を飛ばす活発な議論が行われ、日仏の研究機関の関心事が、現在、国際政治及び安全保障問題
のみならず、国際経済問題にまで深く関わっていることが示された。
本会合により、日本とフランスの両国を代表する研究所による定期会合を開催することの重要性が再認識されたことを確信する次第である。

平成 13 年 3 月
財団法人 日本国際問題研究所
理事長 小和田 恆

5Foreword

This 9th Franco-Japanese Conference shows that the dialogue between experts from bothcountries on geopolitical, geoeconomic and security matters is now deeply rooted.

We have made significant progress since our first conference in November 1991.

The bilateral dialogue has expanded considerably. The issues on the Korean peninsula, thedevelopment of regional security organizations in Europe and Asia, the disarmament process and
NMD/TMD as well as issues of economics and security such as the aftermath of the Asian financial
crisis and the current state of the euro are now part of the debates to be found in the following
contributions.

This meeting brought to light once again the significance of holding annual meetings
between the research institutes representing Japan and France.
Hisashi OWADA
President, JIIA
March 2001

6

第９回 JIIA・Ifri 定期会合 「21 世紀に向けての日欧協力」

第９回 JIIA・Ifri 定期会合 「21 世紀に向けての日欧協力」

片岡

貞治

グローバルイシューズ（欧州・アフリカ）研究員

9 月 25―26 日、パリにおいて JIIA・Ifri 第 9 回定期会合が行われた。JIIA（日本国際問題研究所）とIfri（フランス国際関係研究所）との定期交流はトラックII 外交の一環として 91 年より始まっており、欧州で行われるのは、今次会合で 5 度目である。また、小和田恆理事長が日仏定期会合に参加するのは初めてのことである。因みに、小和田が全セッションに亙って議長を務めた。
日仏定期会合の目的は、欧州及びアジアの情勢のみならず、国際情勢の現状認識を踏まえ、安全保障を始めとした種種の外交問題に関して両シンクタンク間で忌憚なき意見交換を行うことにある。
第一セッションの第一部において、倉田秀也客員研究員は 92 年合意と先般の南北首脳会談の比較、「ペリー報告」の有効性、南北首脳会談の背景、「南北共同宣言」署名以後の南北朝鮮関係の展望等について詳細に述べた。倉田は、南北首脳会談も北朝鮮が米朝協定を放棄した兆候は見られないとし、南北間の軍事的信頼醸成には慎重な見解を示した。フランソワ・ゴドマン主任
研究員は、北朝鮮内部の政策決定過程は未だに謎の部分があると指摘した。第二部では、アニ
タ・ティラポルスキー研究員が旧ソ連諸国、カスピ海、中央アジアの石油・天然ガス等のエネルギー情勢に関して、最近の数値を交えて詳細な報告を行った。
第二セッションでは、近藤誠一 OECD 事務次長が、97 年のアジア経済危機の原因とその後の処置を分析し、アジア諸国における「ガバナンス」及び透明性の必要性を改めて指摘した。フランソ
ワ・ニコラ首席エコノミストは、アジアのリージョナリズムの特殊性について言及した。欧 州通貨統合問題では、アグリエッタ教授は、IT 革命によって支えられている米国の好況な経済景気とその更なる潜在性が、ユーロ地域からの大量の資本の流出を引き起こし、それによってユーロがドルに対して下落しつづけていると指摘した。一方、吉国真一日本銀行ロンドン事務所参事は、欧州諸国が各国の経済システムの再構造化に成功すれば、欧州内部での投資が増大し、ユーロは上昇するであろうと述べた。
第三セッションの第一部において、欧州部門で、NATO のエキスパートであるギヨーム・パルマ

7第９回 JIIA・Ifri 定期会合 「21 世紀に向けての日欧協力」

ンティエ教授が、欧州の安全保障システムの拡大について、NATO の拡大、EU の拡大と独自安保構想とそれぞれ二部に分けて、説明した。いずれの場合においても、全ての諸国には受け入れられないプロセスでなされるであろうし、満足しない諸国を生み出すであろうと指摘した。片岡貞治研究員は、欧州安全保障システムにおいては依然として NATO が中心であり、EU や OSCEは NATOを補完する役目を有しているに過ぎないと述べた。アジア部門では、大村昌弘研究調整部長が、都合で来られなくなった森本敏拓殖大学教授のペーパーを代読したが、森本は欧州及びアジアの安全保障において、米国のプレゼンスは依然として再重要であり、米国のプレゼンスを維持させていくよう努力しなければならないと説いた。第二部の「軍縮プロセス」において、林暘在イタリア大使（前ジュネーブ軍縮会議日本政府代表部大使）は今春の NPT 再検討会議は、核軍縮を完全に破綻させなかったという意味においては成功だったと言えるが、向こう10 年間で何らかの進展が見出されなければ核軍縮体制は大きく揺り動かされるであろうと指摘し、また NMD 問題との関連で専守防衛に徹する日本にとって TMD 共同研究はミサイルの脅威に対する唯一可能な防衛手段として行っている旨説明した。
全体を通じて、研究者、専門家及び実務経験者が、それぞれの立場から、自らの経験を踏まえて、実直に意見を述べ、日仏知的交流に相応しい有意義な意見交換が行われた。

第 1 回日仏会議 於：パリ 91 年 11 月
第 2 回日仏会議 於：ベルリン

92 年６月

第 3 回日仏会議 於：東京 93 年 1 月
第 4 回日仏会議 於：東京 94 年６月
第 5 回日仏会議 於：パリ 95 年 12 月
第 6 回日仏会議 於：東京 9７年 6 月
第 7 回日仏会議 於：パリ 97 年 12 月
第 8 回日仏会議 於：東京 99 年 1 月

8Outline of the 9th JIIA-Ifri Joint Conference

Outline of the 9th JIIA-Ifri Joint Conference

Sadaharu KATAOKA
Research Fellow, European Studies and African Issues, JIIAThe 9th JIIA-Ifri Joint Conference entitled "Japan-Europe Cooperation toward the 21stCentury" was held in Paris on September 25 and 26, 2000. Regular exchange between JIIA and Ifri(Institut Francais des Relations Internationales) began from 1991 as part of Track II diplomacy, andSeptember meeting was the fifth such meeting held in Europe. It was also the first JIIA-Ifri Joint
Conference in which Ambassador Owada, President of JIIA, participated, serving as Chairman for
all the sessions.

The objective of the JIIA-Ifri Joint Conferences is to have the two think tanks consider
current international affairs and to engage in frank exchanges of views on security matters and otherforeign policy issues.

In the first part of Session 1: Energy Issues and security; The Korean peninsula after thesummit meeting-Japanese perspective, Hideya Kurata, JIIA Adjunct Research Fellow, commented indetail on a comparison of the 1992 Accord and the recent North-South Summit Talks, theeffectiveness of the Perry Report, the background to the North-South Summit Talks, and theprospects for North-South relations after the signing of the North-South Joint Communique.
Kurata sees no signs, even after the North-South Summit Talks, that North Korea has abandoned theidea of seeking a bilateral North Korea-US agreement, and he expressed a cautious view towards
military confidence-building measures between North and South Korea. Francois Godement, SeniorResearch Fellow of Ifri, pointed out that there are still opaque areas in the policy- anddecision-making processes within North Korea.

In the second part; The future of energy resources: a sub-regional assessment (Russia, Nearand Central Asia), Anita Tiraspolsky, Research Fellow, East European and Post-Soviet Economies ofIfri, offered a detailed report and the latest figures on the energy situation in the former Soviet
republics, including oil and natural gas production in these republics, the Caspian Sea, and Central
Asia.

9

Outline of the 9th JIIA-Ifri Joint Conference

In Session 2: Economic issues and security; The issue of integration and mutual dependence
revisited; in the first part, Seiichi Kondo, Deputy Secretary General of the OECD, in his presentation
titled the aftermath of the financial crisis in Asia analyzed the causes of the 1997 Asian economiccrisis and the measures taken thereafter, and he pointed out the need for

improvement of"governance" and transparency in the countries of Asia. Francaise Nicolas, Senior Economist of Ifri,
noted the peculiar nature of regionalism in Asia.

On the issue of European currency integration (the second part of Session 2: European
monetary integration and its impact on the international financial system), Michel Aglietta,
Professor of Economies of the Universit・de Paris 10, explained that firm economic growth in the US
supported by the IT revolution and the potential for still more growth have prompted a massive
outflow of capital from the euro region, causing the euro to continue to fall versus the dollar. On
the other hand, Shinichi Yoshikuni, Chief Representative in Europe of the Bank of Japan, asserted
that investment within Europe would expand and the euro likely rise in value if the countries ofEurope succeed in restructuring their individual economic systems.

During the first part of Session 3: Security Issues in Asia and Europe (the Expansion ofregional organizations and its implications for regional and global security), with regard to Europe,
Professor Guillaume Parmentier, a NATO expert, discussed the expansion of the European security
system, dividing the topic into two parts: on the one hand, NATO expansion, and on the other EU
expansion and the concept of an independent security system. Such an expansion would not in any
case be carried out in a process acceptable to all countries, and dissatisfied countries would no doubt
emerge. Sadaharu Kataoka, Research Fellow of JIIA, stated that NATO remains the central focusof the European security system, and that the EU and the OSCE simply play a supplementary role to
NATO.

With regard to Asia, Masahiro Omura, Director of Research Coordination of JIIA,

presented a paper prepared by Professor Satoshi Morimoto of Takushoku University, who washimself unable to attend.

Morimoto asserted that the US presence remains the most importantelement in the security of Europe and Asia, and that efforts must be made to maintain this US
presence.

In the second part of Session 3 (The disarmament process and NMD/TMD), Akira Hayashi,
Japanese Ambassador to Italy, Former Ambassador of Japan to the Conference on Disarmament,
declared that this spring's NPT Review Conference was a success in the sense that it did not allow
efforts towards nuclear disarmament to be completely frustrated, but he warned that the nuclear
disarmament regime would be greatly undermined if progress is not seen over the next ten years.

10Outline of the 9th JIIA-Ifri Joint Conference

He also explained, in connection with the NMD issue, that Japan, given its purely defensive posture,
is carrying out joint TMD research as the only possible means of defense against a missile threat.

Throughout the conference, researchers, specialists, and officials offered frank opinions fromtheir respective perspectives and experiences, resulting in a meaningful exchange of views suited tohigh-level Japanese-French intellectual exchange.

1st Japan-France Conference (Paris)

November 7-8, 1991

2nd Japan-France Conference (Berlin)

June 4-5, 1992

3rd Japan-France Conference (Tokyo)

January 11-12, 1993

4th Japan-France Conference (Tokyo)

June 2-3, 1994

5th Japan-France Conference (Paris)

December 4-5, 1995

6th Japan-France Conference (Tokyo)

June 23-24, 1997

7th Japan-France Conference (Paris)

December 1-2, 1997

8th Japan-France Conference (Tokyo)

January 11-12, 1999

11

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

The Korean Peninsula after the Summit Meeting :A Japanese Perspective

Prof. Hideya KURATA
Adjunct Research Fellow, JIIA

1. Preface
The North-South Summit Meeting on June 13-15 2000 was the second attempt to make abreakthrough in inter-Korean relations after the end of the Cold War in June 1994, both the Northand the South had agreed to hold a summit meeting between Presidents Kim Il-sung and Kim
Young-sam in Pyongyang, but it was aborted due to the sudden death of President Kim Il-sung on
July 8 of that year. The international setting in which Kim Il-sung proposed the summit meeting
was extremely unfavorable to the DPRK; the US was about to impose punitive sanctions against
the DPRK ﾕ s efforts to preserve the ﾔ nuclear option,ﾕ and Japan as well as the ROK also had
made clear that they would join the collective sanctions unless the DPRK alleviated theirsuspicions regarding its alleged nuclear program. Neither the resumption of Japan-DPRK talks nor
North-South dialogue had seemed likely until Kim Il-sung ﾕ s unexpected offer of a summit
meeting. Kim Il-sung ﾕ s offer, therefore, was motivated by a wish to make a breakthrough in theunfavorable international environment and to eschew the collective sanctions.
Unlike in 1994, the agreement to hold a summit meeting between Kim Jong-il and Kim
Dae-jung was announced while the DPRK was successfully seeking improved relations andwidening its diplomatic ties with Western countries. In the US and DPRK relations, the tension had
eased since the mid-September agreement the previous year in Berlin stipulating the suspension of
the DPRK's missile test-fire in exchange for mitigation of the US economic sanctions imposed on
the DPRK. In parallel with the eased US-DPRK relations, Japan lifted sanctions imposed in thewake of the Taepodong test-fire in August 1998 and agreed with the DPRK to resume talks onnormalization. The DPRK, furthermore, succeeded in establishing full diplomatic ties with Italy

13

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

early 2000 and subsequently resuming ties with Australia.
Bearing the comparison in mind, this paper examines the background of the summit meeting
between Kim Jong-il and Kim Dae-jung and the prospects of inter-Korean relations after thesigning of the 'North-South Joint Declaration ' at the historic event. The primary conc ern is placedon whether or not the summit meeting will prove conducive to creating a favorable international
environment in Northeast Asia. To this end, this paper will begin with a discussion on the Korean
experience in forging a desirable international system favorable for the Korean people striving forpeaceful unification and for the people in the surrounding countries hoping for stability on the
Korean Peninsula as well.

2. 'The 1992 System' Reconsidered
In considering the most stable and desirable international system for the Korean Peninsula, one
needs to look back to inter-Korean relations and the relations among the four major powers aroundthe Peninsula in the early 1990s. In the lingering aftermath of the end of the Cold War, North andSouth Korea had held the High-Level Talks headed by their respective Prime Ministers since
September 1990. In the 5th North-South High-Level Talks, both sides adopted the comprehensive
and practical framework called the 'Agreement on Reconciliation, Non-aggression, Exchange andCooperation between the North and the South' (hereafter cited as the 'Basic Accord') on December
13, 1991. The preface of the 'Basic Accord' stipulated that the two sides "recognize their relations,
not as a relationship between states, but as constituting a special relationship stemming from theprocess towards unification"(1), and the 'Basic Accord' was a document pledging
confidence-building, non-aggression and economic cooperation on the basis of the national zeal for
unification. This document was effectuated at the 6th North-South High Level Talks together with
'The Joint Declaration on the De-nuclearization on the Korean Peninsula; (adopted on December 31,
1991) embracing a pledge on mutual inspections, on February 19, 1992. In addition, in late Januaryof the same year, the DPRK signed the Safeguard Agreement with the International Atomic Energy
Agency (IAEA), a legal obligation imposed on every non-nuclear-weapon signatory state to the
Nuclear Non-proliferation Treaty (NPT), which the DPRK had long rejected. Subsequently, in
April 1992, at the 3rd meeting of the 9th session of the Supreme People's Assembly, the DPRK
smoothly ratified the Safeguard Agreement.
In retrospect, the process that the North-South High-Level Talks preceded and highlighted at
the adoption and effectuation of the 'Basic Accord' was that of effecting a shift in international
relations surrounding the Peninsula to 'cross-recognition'. In September 1990, when the 1st
North-South High-Level Talks were held in Seoul, the ROK successfully established diplomatic
ties with the former Soviet Union. In the concurrent visit of Shin Kanamaru and Makoto Tanabe to
Pyongyang, Japan and the DPRK agreed to initiate talks on normalization, and the two
governments held talks from January 1991. A year later, in September 1991, both North and South

14

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

joined the United Nations at the 46th UN General Assembly. Also taking a glance at US-DPRK
relations, consular-level talks between the two countries in Beijing were upgraded to the firsthigh-level talks between Deputy Secretary of State Arnold Kanter and Secretary Kim Young-sun in
New York on January 22, 1992. It was in April 1992 President Kim Il-sung referred to the possible
establishment of embassies in the respective capitals of the two countries in an interview with the
Washington Times (2). In parallel with the DPRK's attempts to normalize its relations with the US,
China normalized its relations with the ROK in August 1992. South Korea eventually establishedambassador-level diplomatic ties with all the four major countries involved with the Peninsula.
A concentric development of relations had been witnessed since 1991 and was completed in
1992, while an institutional framework emerged with inter-Korean relations at its core (3). In that
period, the DPRK not only adjusted to the non-proliferation regime but also widened its diplomatic
ties with 'hostile' countries, i.e., the US and Japan, for the sake of its regime's survival. If one might
be allowed to call the international system the '1992 System,' then one can say that the '1992
System' is the most desirable system available for lessening the possibilities of armed attack withweapons of mass destruction (WMD) between the North and the South. On the one hand, theinternational community urged the DPRK to alleviate its suspicions through international nuclear
inspections under the NPT/IAEA regime; on the other, North and South Korea implemented apledge on inter-Korean mutual inspections to lessen distrust.
Regarding the institutional arrangements, it should be noted in particular that Article 5 of the'Basic Accord' stipulated, "the two sides shall endeavor together to transform the present state ofArmistice into a solid state of peace between the South and the North and shall abide by the present
Military Armistice Agreement (of July 27, 1953) until such a state of peace is realized." Signing the'Basic Accord,' the DPRK modified its previous proposal on concluding a peace pact with the US
and adjusted its stance toward the ROK's claim that a peace regime had to be built between the
North and the South. Certainly, prior to the adoption of the 'Basic Accord,' the delegation of the
DPRK's Korean People's Army (KPA) to the Military Armistice Commission (MAC) at
Panmunjom had already rejected attendance at a full-dress meeting of the MAC in protest of theappointment of ROK Major General Hwang Wok-tak as the replacement for a US Major General in
March 1991. However, the paralyzed MAC was expected to recover its functions as Article 5 of the'Basic Accord' was implemented, and the United Nations Command (UNC) placed in Seoul after
the Armistice was also expected to be dissolved; the Korean War would be legally ended inaccordance with the establishment of an inter-Korean peace regime. If this were realized, the US
and China, the de facto signatories to the Military Armistice Agreement, would play importantroles in guaranteeing the inter-Korean peace regime. Though Japan and Russia are not signatories
to the Military Armistice Agreement, the economic recovery of the DPRK would be doubtful
without Japan's contribution, and the region-wide confidence-building system surrounding thePeninsula would not be real without Russia's cooperation; the two countries are also qualified tohelp forge a multilateral arrangement concerning the Peninsula.

15

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

3. 'The 1992 System' Convulsed
The '1992 System' seemed to have provided the basis for the loose multilateral arrangement
frequently called the '2+4 System.' However, the DPRK's announcement of its withdrawal from the
NPT in March 1993 and its subsequent talks with the US undermined the '1992 System.' For
regime survival, the DPRK attempted to forge a more favorable international environment byplacing US-DPRK relations at the core. The international environment with US-DPRK relations at
the core that the DPRK sought was not compatible with the '1992 System,' which had inter-Korean
relations at its core. The DPRK had to seek improved relations with the US at the sacrifice of the'1992 System.' Although the '1992 System' served as a necessity for the DPRK regime's survival, it
did not suffice in that it did not tolerate the preservation of the 'nuclear option.' As long as theinternational community headed by the US prohibited it the 'nuclear option,' the DPRK would
attempt to obtain more favorable conditions for regime survival in talks with the US.
Seen from this perspective, the Agreed Framework in October 1994 that promised theprovision of technological support for light water reactors (LWRs) in return for the DPRK's pledge
on cessation of 'nuclear activities' as well as the promised normalized relations between the US andDPRK must have appeared to be a great achievement for the regime survival of the latter. Theinternational consortium known as the Korean Peninsula Energy Development Organization(KEDO) that provides crude oil annually to the DPRK must also have been an indispensablemechanism for its regime survival. Of more importance is the DPRK's proposal of the 'New Peace
Arrangement' that sought to replace the Military Armistice Agreement with a peace pact with theUS, excluding the ROK from the peace process. Concurrent with the announcement on April 28,
1994, the DPRK decided to withdraw the KPA delegation from the MAC while establishing the
Panmunjom mission of the KPA in the following month. Subsequently in September, the DPRK
evicted the delegation of the Chinese People's Volunteer Army from the MAC (completed on
December 15, 1993). Furthermore, the DPRK paralyzed the Neutral Nations Supervisory
Commission (NNSC), evicting the Czech (May 1993) and Polish (February 1995) delegations fromthe Communist side of the Commission. These measures were clear violations of Article 5 of the'Basic Accord,' which pledged the establishment of an inter-Korean peace regime, but theyeloquently reveal the DPRK's attempts to forge international relations with US-DPRK relations at
the core (4).
The promoted Four-Party Talks, the ultimate aim of which was the establishment of aninter-Korean peace regime, were the mechanism established to counter the DPRK's 'New Peace
Arrangement.' As stated earlier, 'the 1992 System' embraced the possible development of amultilateral arrangement to guarantee the inter-Korean peace regime after the Military ArmisticeAgreement was kept in good faith and the North and South abided by Article 5 of the 'Basic

16

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

Accord'. The arrangement was supposed to involve eventually the de facto signatories to the
Military Armistice Agreement, the US and China. However, the Four-Party Talks were proposedand convened not on the condition that Article 5 of the 'Basic Accord' be implemented but in lightof the fact that the Armistice mechanism had been paralyzed and no measures had been taken
concerning Article 5 of the 'Basic Accord.' The Four-Party Talks, therefore, are not at the stage of
constructing a multilateral arrangement to guarantee the inter-Korean peace system. Moreover, theTalks have been out of session since the 6th plenary talks (August 5th to 9th, 1999) were closed
without agreement on a date for holding the next meeting. This is primarily due to the DPRK's
adherence to the 'New Peace Arrangement,' which shows that the DPRK's acceptance of theFour-Party formula does not indicate its compliance with the aims of the formula.
However, it does not necessarily follow that the Four-Party Talks have served no purpose. It isan unprecedented achievement by the ROK that China shared the same view with the ROK and the
US regarding the peace regime issue. Insofar as the Four-Party Talks were proposed to establish aninter-Korean peace regime, China's participation in the Talks indicates that China opposes the
DPRK's proposal for 'the New Peace Arrangement.' Viewed from a different angle, China seems to
be curbing the DPRK's efforts to conclude a peace pact with the US and inducing the DPRK to join
the inter-Korean peace regime within a multilateral framework.

4. Revival of 'The 1992 System' ?
(1) Appraisal of the 'April 8 Agreement'
There are few doubts that 'the 1992 system' should be revived on the Korean Peninsula and that
the North-South Summit Meeting should give an impetus to the revival of the system. However, the'April 8 Agreement' shows that the DPRK is not necessarily positively inclined toward theimplementation of the 'Basic Accord.' The 'April 8 Agreement' refers only to the 'July 4
North-South Joint Communique,' saying "the South and the North, reaffirming the three principles
of national unification as proclaimed in the historic July 4 Joint Communique..."(5).
On the other hand, as stated earlier, the 'Basic Accord' is a comprehensive and practicalframework rather than an agreement on principles. President Kim Dae-jung also repeatedly
reiterated the significance of the 'Basic Accord' for improving inter-Korean relations while callingfor a 'South-North Economic Community' in his New Year's Speech in January and his 'Berlin
Declaration' in March this year, both of which are supposed to have opened the way for the summit
meeting. It is speculated that the ROK's special envoy, Park Chi-won, must have insisted that the'Basic Accord' as well as the 'July 4 North-South Joint Communique' be referred to in the 'April 8
Agreement' during the secret meeting with his DPRK counterpart, Song Ho-gyong.
However, the actual 'April 8 Agreement' stated that the parties have come together "with a view

17

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

to advancing the reconciliation and unity, exchange and cooperation and peace and unification of
the people...," failing to insert the formal name of the 'Basic Accord: 'Agreement on Reconciliation,
Non-aggression, Exchange and Cooperation between the North and the South'. If this vague
expression was due to a refusal by the DPRK to refer to the formal name of the 'Basic Accord,' it ishard to imagine that the North and the South will successfully implement the document after thesummit meeting. It is the natural course of events that the DPRK will ignore Article 5 of the 'Basic
Accord'ﾑ the pledge on a inter-Korean peace regime ﾑ as long as it remains committed to 'the New
Peace Arrangement' and its call for a US-DPRK peace pact. Seen from these perspectives, theDPRK is consistent in agreeing to hold a summit meeting with the ROK while insisting on 'the
New Peace Arrangement' with the US.
(2) 'The Joint Declaration' and 'Basic Accord'
It seems that North Korea adhered to 'the New Peace Arrangement' at the North-South Summit
Talks in June this year. The leaders of both Koreas adopted 'the North-South Joint Declaration'(Hereafter cited as the 'Joint Declaration'), in which the North and the South agreed to resolve thequestion of reunification independently and through the joint efforts of the Korean people, who are
the masters of the country (Item1), while pledging to resolve humanitarian issues such as exchange
visits by separated family members and unswerving Communists who have been given long prison
sentences in the South (Item 3). Moreover, both leaders also agreed to consolidate mutual trust bypromoting balanced development of the national economy through economic cooperation bystimulating cooperation and civic, cultural, sports and other exchanges (Item 4).
Attention should be paid more to what was not in the document than what was in it. It is
supposed that South Korea's President Kim Dae-jung, who frequently stressed the significance of
the 'Basic Accord' in the management of North-South relations, asserted that the 'Basic Accord'should be cited in the 'Joint Declaration' at the summit meeting. However, the 'Joint Declaration'
failed to cite the 'Basic Accord,' which revealed that the North had adhered to its 'New Peace
Arrangement'.
The North's reluctance to revitalize the 'Basic Accord' could be seen in the agreed economic
cooperation. There is no doubt that the North hopes for the South's economic cooperation to revive
its devastated economy, for which the 'Basic Accord' had provided the practical framework. Afterthe 'Basic Accord' was put into force, the North-South Exchange and Cooperation Joint
Commission was set up as the official body to implement the items on economic cooperation in the'Basic Accord.'
In addition, the annexed protocol on the North-South Exchange and Cooperation Joint
Commission embraced a detailed agreement on promoting inter-Korean economic cooperation.
Article 1 of the annexed protocol stipulates, "The South and the North shall determine, throughmutual consultation, the procedures for guaranteeing investment, avoiding double taxation and

18

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

arbitrating disputes and other matters necessary to smoothly carry out economic exchange andcooperation"(Item 12). Concerning social infrastructure, Article 3 also stipulates, " ...the South andthe North shall open additional sea routes, connect the Seoul-Shinuiju Railroad, theMunsan-Keasung Highway and other land routes and shall open an air route between Kimpo
Airport and Sunan Airport"(Item 2)(6). In the aftermath of the summit meeting, the two Koreas held
the North-South Ministerial Meeting, not the North-South High-Level Talks that produced the'Basic Accord,' though both agreed to make efforts to reconnect the railroad(7) in accordance with
Item 2 of the annexed protocol on the North-South Exchange and Cooperation Joint Commission.
The form of the inter-Korean governmental talks was largely due to the North's reluctance torevitalize the 'Basic Accord.' The North might have been concerned that, if the inter-Korean
governmental talks proceeded along the lines of the 'Basic Accord,' it would be seen as complying
with the document, eventually losing momentum in pushing for talks with the US.

5. Conclusion: Local Structure in the Regional Context
Even though the immediate achievements after the summit meeting are generally limited to theeconomic sphere, the military Confidence-Building Measures (CBM) between North and South
Korea are still required, and they will have regional implications. For example, the bilateralconfidence-building between Japan and the DPRK is limited as long as the North and the South
implement no CBMs. In other words, the chances for Japan-DPRK confidence-building will be
widened only when North and South Korea implement CBMs, not vice-versa.
In this context, attention should be paid to the DPRK's recent proposal for a 'three-party
military organization (or US-DPRK-ROK military body). The Panmunjom mission of the KPA firstmade this proposal in October 1998(8) and subsequently the KPA side submitted this proposal in the
General-level Official Talks at Panmunjom. This proposal is unique in that it acknowledges a role
for the ROK in the security of Panmunjom, while giving an eye to US-DPRK relations for building
a peace regime; in addition to that, it accepts the continuous stationing of US troops in the ROK forthe time being. As long as the proposal calls for a US-DPRK peace pact, however, it seems
extremely unlikely that the ROK will accept it. However, it is noteworthy that Kim Jong-il showed
understanding toward the continued stationing of US troops in South Korea at the Summit Meeting.
It is likely that the North will propose a more realistic framework for arms control on the Peninsula,while accepting the presence of US troops.
This does not necessarily mean, though, that North Korea will be willing to revitalize the'Basic Accord', and it is also hard to imagine it will easily drop its insistence on the 'New Peace
Arrangement' in the near future. However, the North seems to have judged that tension reduction isrequired for the sake of continued visits by South Korean labor resources. The recent agreement to

19

The Korean Peninsula after the Summit Meeting : A Japanese Perspective

hold a defense ministers' meeting between the North and South demonstrates the North's judgment.
.
What the South must do is not to insist that the North revitalize the 'basic Accord in a hasty
manner, but instead achieve the de facto implementation of the document. The North-South defense
ministers' meeting will be one step in this direction and will be conducive to shifting the North's
focus from US-DPRK relations to DPRK-ROK relations in the framework among the DPRK, ROK
and US. Should it take place, the North-South defense ministers' meeting is expected to play a role
in restoring the MAC mechanism at Panmunjom. That will in turn help region-wide CBMs byinvolving Russia. Inter-Korean relations and relations among the four major powers would bestabilized in a concentric manner and will be more solid than in the '1992 System.'

Note;
(1)

"Agreement on Reconciliation, Nonaggression and Exchanges and Cooperation between
the South and the North," Intra-Korean Agreements, Seoul: National Unification Board,
October 1992, p.3. Hereafter citations from the 'Basic Accord' will refer to this document.

(2)

Kim Il-sung Chojakjip (Kim Il-sung Collective Works), Pyongyang: Chosun Rodongdang
Chulpansa, 1996, p.346.

(3)See, Hideya Kurata, "Conceptualizing Multilateral Arrangements for the Korean Problem
after the Cold War: 'Concentric Multilateralism' and Its Dynamics," Les Cahier de l'ifri;
France and Japan in a Changing Security Environment, Volume 1, Paris: Institut
Francais des Relations Internationales, 1997.

(4)

See, Hideya Kurata, "The International Context of North Korea's Proposal for a 'New
Peace Arrangement': Issues after the US-DPRK Nuclear Accord," The Korean Journal of
Defense Analysis, Vol. VII, No.1 Seoul: Korean Institute for Defense Analyses, (Summer
1995).

(5)(6)"South-North Agreement, April 8, 2000" (English Translation).
"Protocol on the Compliance with and Implementation of Chapter III, South-North
Exchanges and Cooperation, of the Agreement on Reconciliation, Nonaggression andExchanges and Cooperation between the South and the North," Intra-Korean Agreements,
op. cit., pp.27-28.

(7)"Joint Press Release of the 1st South-North Ministerial Level Talks," The 1st South-North
Ministerial Talks, 2000. 7. 31, Ministry of Unification, Republic of Korea, pp. 3-4.

(8)See, Hideya Kurata, "Chosen-Hanto Heiwa-Taisei-Juritsu-Mondai no Kihan-teki Kozo
(The Normative Structure of the Peace-Building Issue on the Korean Peninsula," Kokusai
Mondai,(International Affairs), No.474 (September 1999), p.30.

20

The Aftermath of the Financial Crisis in Asia

The Aftermath of the Financial Crisis in Asia

Mr Seiichi KONDO
Adjunct Research Fellow, JIIA

1.

It is a great honour to be a part of the IFRI - JIIA Annual Joint Conference, which focuseson the co-operation between Japan and Europe. This focus is quite welcome, given that this has
been the weakest part of the triangular relationship between the US, Europe and Japan.

What is the Asian Crisis?
2.

It is surprising to note that the outbreak of the Asian Crisis was only three years ago. It

seems that it is already becoming a part of history. "History," Jawaharlal Nehru said, "is written by
the victors and conquerors." It is very appropriate, therefore, to look back upon the crisis now,and give fresh thought to its implication from a broad perspective, before victors, whoever they are,set the tone.
3.

The causes and lessons of the Asian Crisis continue to be much debated, so my remarks

today will reflect my personal views, and not those of the OECD Secretariat or OECD Members.
4.

The crisis cost three countries - Thailand, Korea, and Indonesia - enormously. In 1998,

their economies contracted by between 7 per cent and 13 per cent. Unemployment rates more thandoubled, accompanied by social and political turmoil. In the media, admiration for the "Asianmodel" of growth that had been created over the last two decades suddenly turned to contempt.
5.

One could now easily agree that the main common factors that induced the crises were

21

The Aftermath of the Financial Crisis in Asia

dollar-pegged currencies, growing dependence on short-term foreign capital, and weak domestic
financial sectors.
6.

But today, many Asian economies are already back on a strong path toward growth: thelatest OECD estimates project real GDP growth this year of 8.5 % in Korea, 6.2 % in Malaysia,
5.5 % in Thailand, and 3 % in Indonesia.
7.

Can we then conclude that the lessons of the Asian crisis have been learned, that its

problems have been fixed, and that the risk of future crises has largely been diminished? I would
not give a clear "yes" on all three accounts.

Much remains to be learned and to be done.

Recoveries of crisis-hit countries owe much to strong demand, particularly from within the region,
including Japan, and from the U.S. While situations differ across countries, reforms in the supply
side, such as financial market reforms, are clearly not sufficient. Therefore, continuing efforts
will be needed to further reduce risks of future financial instability.
8.

But more fundamentally, I would not say "yes" because the lessons from the Asian crisis

should not be seen in the context of the Asian crisis alone. These lessons are relevant to a muchbroader challenge posed by recent events that signal the arrival of a new age in the history ofcivilisation - the end of the Cold War, the proliferation of the market economy, the unprecedented
growth and size of private capital, a power shift from states to markets, and the rise in power ofcivil society.

How to Characterise the New Age?
9.

What characterises the new age that is arriving? It is a world where international orderand prosperity will be achieved neither by the hegemony of a superpower nor a balance of power
among states in the traditional sense, but by co-operation among four main actors - states,international organisations, markets, and civil society.
10.

Markets create wealth, they create jobs, and they allocate resources most efficiently. They

are at the heart of the free market system, and the symbol of rationality.
11.

Civil society represents citizens in a way that complements the domestic electoral system.

Human beings possess two contradictory desires: the tireless wish for free, rational, universal, andopen human relations on the one hand; and the yearning for the sense of belonging that comes withstable, special, and closed human relations on the other. Human history is a constant struggle forthe realisation of the former by resisting tyrants. That is why Francis Fukuyama introduced thenotion of an end to history when democracy and the free market system prevailed overcommunism.

22

The Aftermath of the Financial Crisis in Asia

12.

The rapid advance of globalisation, however, plunged many people into anxiety.

Globalisation, the exemplar of freedom, rationality, universality, and openness, gave rise to losers
in competition, and the fear that anyone could be a loser tomorrow. Financial and information
networks bypassed national borders and drove markets rapidly toward uniformity. As a result,everyone began to feel at the mercy of the dictates of a gigantic, inhuman market ruled byrationality alone.
13.

This sense of helplessness often took the form of fear of being forced to fight a lonely

battle, in the name of self-responsibility, in faceless cyberspace. And the more universal the
global standards people needed to acquire in order to survive the battle, the greater their identity
crisis. Civil society is instinctively seeking a return to stable, special, closed human relations.
Somewhat ironically, it has gained an enormous power through Internet communication.
14.

States indeed seem to have yielded much to markets, although retaining unquestioned

power in such areas as defence, public security, and taxation. Nevertheless, states play new andstrengthened roles: to promote smooth and proper functioning of market forces by ensuring acompetitive environment and by introducing a proper regulatory framework; to respond to publicconcerns over the negative impact of globalisation by building a social safety net to ensure thateveryone has an opportunity to lead a dignified life in this new, competitive environment; and tocombat the abuses of free markets (to address cartels, tax evasion, money laundering, etc). Susan
Strange says that states are retreating.(1) She is only right in terms of business operations. States
are not retreating. They are shifting roles from player to referee.
15.

International organisations not only provide a means of co-ordinating policy and making

independent analysis that cannot be accomplished by individual states acting alone, but also serve
as autonomous regimes for carrying out the collective will of nations.

How do these actors operate?
16.

The characteristics of the interaction among these four actors is that while therelationship keeps evolving, none of them can be a dominant power. And none of them can survive
unless co-operating with the others.
17.

As the new age approached, markets started to gain power. In the foreign exchange

markets alone, $1.5 trillion of money moves around the world every day. Markets are said to be
the best judge of economic performance, but they can become biased once they are locked into acertain mindset. And when markets recognise their mistake, they can turn around abruptly andrush in the opposite direction.

23

The Aftermath of the Financial Crisis in Asia

18.

This enormous power of markets was demonstrated in Asia in two opposite directions.

The notion of an "Asian miracle," backed by fairly sound macroeconomic policies, induced a floodof investment in Asia, as well as increased desire by foreign investors to enjoy the fruits of thatmiracle. This trend was further encouraged by the perception that governments would effectively
guarantee loans. But when the deterioration of the current accounts and the accumulation ofshort-term, unhedged dollar debt passed a critical level, financial markets decided that the situation
was no longer sustainable and would no longer continue to finance the current deficit of Thailand.
Once confidence was lost, rushed hedging of foreign currency debt aggravated the situation. This
had a contagious effect. The inflow into the emerging economies in East Asia was around US$ 40
billion in 1994, and doubled to nearly US$ 100 billion in 1996. In 1997, it reversed to an outflow
of around US$ 12 billion.
19.
I do not subscribe to any "conspiracy theory" behind the Asian crisis. Everybody did
what they thought was right to protect themselves. It simply turned out that there was no system
in place to counter-balance the shortcomings of powerful markets.
20.

This reinforces the notion that states have already handed over their power to markets.

Susan Strange has argued that in the absence of hegemonic power of states, what we have now is a"ramshackle assembly of conflicting sources of authority," because profit-oriented, powerfulmarkets are not accountable to anyone. However, it did not take long for the other actors to react.
States and international organisations started to initiate economic reforms, in some cases in
consultation with civil society. The attempt to strengthen the "international financial architecture"by the G7 and the IMF has made some progress so far, in strengthening supervision overlender-side institutions such as hedge funds, and strengthening private sector involvement in crisis
prevention and resolution.
21.

We also see a growing endeavor to incorporate social elements in business behaviours

and decision-making processes. The recent revision of the OECD Guidelines for Multinational
Enterprises was one such step forward in expanding business responsibilities in relation to theenvironment, labour standards, and ethical behaviour, and in enhancing monitoring mechanisms bystates and civil society.

When I attended the Baltic Development Forum Summit in Malmo,

Sweden, last week, I was asked to speak about "socially responsible investment." When the
power of one actor becomes too strong, other actors take actions to redress the balance.

How can we ensure that order and justice are established?
22.

What is the mechanism to guarantee order and justice, in the absence of hegemonic

power? Is it the balance of power among the four actors in the traditional sense? The answer is

24

The Aftermath of the Financial Crisis in Asia

"no." Rather, there is a need to institutionalise interdependence, by way of establishing "goodgovernance" among all of the actors. The notion that if someone fails, you will fail too, serves asa basis for the co-operation. Interdependence and systemic risks are two sides of the same coin.
And good governance systems in all the institutions, both public and private, will ensure theprocess of the formation of order. Governments are expected to have proper regulatory regimes,
including prudential regulation and insolvency regimes, to have high ethical standards, and to beaccountable. International organisations are expected to have their own governance system toensure compatibility and complementarity of national systems, and to establish global governancefor those areas where each country acting alone cannot achieve its objectives. Private companies
need to develop a sense of corporate responsibility and to enforce high standards of corporate
governance, and financial institutions need to have high credit assessment skills. Citizens need tobe equipped with knowledge and skills to understand the complexities of and to compete in the new
information age.
23.

For this system to work most efficiently, transparency is the key. Transparency helps to

avoid misunderstanding, misinterpretation, and undue speculation. It fosters accountability -- thenotion that all actors are responsible and answerable for their actions, not just governments -- byallowing for scrutiny and possible challenge. It builds mutual trust, the basis of co-operation.
Transparent walls will help prisoners get out of the dilemma.
24.

Asia in 1997 lacked many of these elements of governance. Conglomerates linked tolarge financial institutions and to the state operated under conditions that made effective externalmonitoring very difficult. Because of their high-level connections and the perception of implicit
government guarantees, these conglomerates had easy access to external debt and finance without
appropriate controls. At the same time, minority shareholders as well as creditors had neither the
information nor the effective means to monitor corporate operations. Lack of transparency andaccountability led, in turn, to distorted incentive structures, excessive conglomeration,
over-investment and dangerously high corporate indebtedness.

Poor disclosure and lack of

independent and good quality audit only made the situation worse, by delaying the appearance of
warning signs of the deteriorating financial conditions of corporations. Creditors and theinternational system as a whole lacked governance, too. Citizens were not fully equipped with
sufficient levels of knowledge and skills.

Therefore, confidence was lost, which led to adownward spiral.
25.

The next question is: who creates the governance system, and when will we complete thework? It is states, and international organisations who take the lead, in close consultations withbusiness and civil society. The sovereign power of states in making regulations and collecting
taxes plays an important role in establishing good governance systems throughout society, and in
financing public goods.

25

The Aftermath of the Financial Crisis in Asia

26.

The OECD is working to help establish a good governance system, such as throughperiodic in-depth country reviews, regulatory reform reviews, corporate governance principles, theconvention to combat bribery of foreign public officials, and guidelines on investment andmultinational enterprises, just to name a few.

We are trying to disseminate our norms to

non-Members as well. Next month, I am going to Kiev to attend a Corporate GovernanceRoundtable involving Eurasian countries. This is my fourth presence in this series, following
roundtables in Moscow, Sao Paulo, and Hong Kong, which have demonstrated how international
standards can be considered and applied on a regional basis. In December, I will go to Seoul forthe second Anti-bribery Workshop in Asia.
27.

There are two lessons I learned from these trips. First, international standards nevercomplete themselves. They keep evolving, in response to the ever-changing world economy andtechnology. We shall never reach a stage where all the rules and principles are set, and everybody
can live a peaceful and prosperous life by just abiding by existing rules.

Internationalism vs. Regionalism
28.

My second lesson is that there is no one-size-fits-all standards. And this relates to therecent rise of regionalism. Europe is integrating further, deeper and wider. So are NAFTA andMercosur. There is a slow but steady move in Asia toward establishment of a regional monetary
co-operative arrangement. If globalisation is a good thing and if we are responding to it byestablishing globally applicable standards, why do we need regionalism?
29.

The demise of a formidable common enemy, and ever-tightening international

competition are making countries vulnerable, and are driving them to form regional alliances toincrease their negotiating power.

The public supports this as a means to go back, as I statedearlier, towards stable, special, closed human relationships, to counter fears of globalisation, and tomaintain identity. Markets go global, but human beings stay local. Being human beings alone
does not create identity. Even Europe seems to be too big to give identity to citizens. In Malmö
last week, I felt a strong sense of Baltic/Nordic regional identity shared by the people there. The
Mayor of the town who hosted a welcoming reception referred to it as a "transnational European
region."30.

This regionalism could impede the formation of international standards. But, we should

see its positive side, as well. Each country and region has its own history, culture, and social
background.

Any sets of standards have to be acceptable to all those countries, if they are to be

applied universally. But those standards have to be high enough to be a guiding benchmark to
many countries. Therefore, we need constant efforts to bridge the international standards andnational specificities. International standards evolve over the years, and so do cultures.

Our

efforts are to bridge two moving targets, to promote the development of good global governance.

26

The Aftermath of the Financial Crisis in Asia

31.

This points to the positive role regionalism can play. Regional fora can serve as abridge between international standards and local requirements. They have better knowledge ofthe local economic situation, and can survey local developments much more closely than aninternational body, such as the IMF. They could provide more effective measures to respond tocrisis, more quickly. They also could make sure that economies in the region abide by the rules
and conditionalities set by the IMF. Regional co-operation could supplement global efforts.
32.

The Asia-Pacific region responded to the Asian crisis by establishing the Manila

Framework.

There is also a move toward a network of bilateral exchange and repurchaseagreement facilities among ASEAN countries, China, Japan and Korea, using Asian currencies andAsian government bonds, respectively (Chiang Mai Initiative). Asia has inherent difficulty inestablishing regional economic or financial fora, due to its diversity, lack of vertical integration,
which the Americas have, and lack of strong political will for horizontal integration, which Europe
has. However, given the potential role this kind of regional co-operation can play, one should notdiscourage the emerging efforts in various regions, including Asia, on the condition ofcompatibility with international standards. Here again transparency is the key word.

Conclusions
33.

The end of the Cold War significantly diminished the danger of military conflict. Some

felt that the proliferation of democracy and the market economy would lead us towards utopia.
But, we soon learned that we are entering into a new age with new security concerns in theeconomic area.
34.

To cope with them, we need to equip ourselves with knowledge and skills to ensure that

democracy and the market economy work properly. We need to establish good governance acrossthe earth, both in public and private institutions, and in each citizen. This can be achieved only
through co-operation among the four major actors in the international arena - states, internationalorganisations, markets, and civil society, with states taking a leading role.
35.

The key to ensure smooth functioning of co-operation is the institutionalisation ofinterdependence through transparency.
36.

Lack of governance can cause financial crises. Why did this occur in Asia? Why in

1997? And why was Asia punished so cruelly? It is not because Asia in 1997 alone lacked
governance. Asia lacked it for many years before 1997. Other regions lacked it, too. The
virtuous circle of high growth expectation backed by the notion of an "Asian miracle," andenormous inflow of foreign investment created an unsustainable situation under weak national andinternational systems. It was only in 1997 that markets recognized and fully responded to these27

The Aftermath of the Financial Crisis in Asia

weaknesses. The size and nature of the financial market brought about a huge cost to the Asians.
They are still paying the cost.
37.

The establishment of international order through co-operation is not easy. It requires

constant dialogue among the four actors, and it needs to evolve continuously in response to
economic and technological changes.

It needs to take into account the specific needs andchanging situation of each country. Regional co-operation can play a constructive role in ourefforts to bridge these two moving targets. Constant and patient efforts are essential to produce
and to keep revising international standards that fit all countries.
38.

This may be more difficult than establishing order through hegemony in the traditional

sense of the word. But only in this way can one expect the establishment of order with "justice".
The attention and energy we spent vis a vis communism during the Cold War should now be spenton these efforts.
39.

We can be encouraged in these efforts by the words of Immanuel Kant, who wrote in1795 that "the spirit of commerce, which is incompatible with war, sooner or later gains the upper
hand in every state. As the power of money is perhaps the most dependable of all the powers
included under the state power, states see themselves forced ..... to promote honourable peaceand ..... to prevent war ....." "In this manner nature guarantees perpetual peace by the mechanism of
human passions. Certainly she does not do so with sufficient certainty for us to predict the future in
any theoretical sense, but adequately from a practical point of view, making it our duty to work
toward this end, which is not just a chimerical one."(2)

Note;
(1)

Susan Strange, The Retreat of the State: the diffusion of power in the world economy,
Cambridge University Press, 1996, pgs.197-198.

(2)

Immanuel Kant, Perpetual Peace: A Philosophical Sketch, First upplement: Of the
Guarantee for Perpetual Peace, 1795.

28

The EURO, the Growth Potential and the Financial Markets in Europe

The EURO, the Growth Potential and the Financial
Markets in Europe

Dr Michel AGLIETTA
Professor of economics, university of Paris 10 and Cepii

Since the beginning of the ongoing year, the weakness of the Euro has surprised mostanalysts. Indeed the available models of the equilibrium exchange rate and deviations fromequilibrium fail to account for the slump of the Euro against the Dollar below parity. It appears thata possible explanation appeals to determinants which are beyond the usual variables, be theyinterest rate differentials, net foreign assets or discrepancies in output gaps. The changing patternof capital flows must be scrutinized according to the growth potential linked to the spread of the"new economy". Moreover the external value of the Euro in future years will depend on the ability
to raise the investment rate in new technologies, along with the saving to finance it on internalfunds and the efficiency of capital markets to channel them.
The paper will draw lessons from previous attempts in assessing the long run equilibrium
value of the Euro and show that a standard B.E.E.R (behavioral equilibrium exchange rate) model
was reasonably successful up to the end of 1997. It will then gauge the arguments for solving theconundrum of the atypical recent moves. Finally it will look into the future in trying to assess thebalance of forces which will shape developments in equilibrium exchange rates.

The Equilibrium Value of the EURO in Retrospect.
A theoretical Euro can be computed from the beginning of the flexible exchange rate era in March
1973 to the end of 1998 in order to estimate the equilibrium value of the effective or the Dollar
exchange rate in the long run. On this basis it is possible to give a rough order of magnitude for the29

The EURO, the Growth Potential and the Financial Markets in Europe

overvaluation or undervaluation of the currency and to capture part of the gap in short-run
dynamics under the assumption of a mean-reverting behavior to the long-run value.
In a nutshell the BEER approach to the equilibrium real exchange rate amounts to estimating anequation of the following type (with all the variables but the interest rates being expressed in logs):
In the long run, the law of motion of the exchange rate is:(1)

E(t)=Ê(t)+u(t)(2)
Ê=f(prod, z, nfa ).
The short-run dynamic of the real exchange is given by the following equation:(3) E(t)-E(t-1)=a[E(t-1)-E(t-2)]+b1[prod(t)-prod(t-1)]+b2[nfa(t)-nfa(t-1)]+b3[r(t)-r(t-1)]-μu(t-1)+v(t)Ê(t) is the real equilibrium exchange rate and E(t) the current real exchange rate
prod is the labor productivity differential between the home and the foreign country
nfa is the net foreign asset of the country whose currency is measured
z is an index of non-price competitiveness of the home relative to the foreign countryr is the long-run real interest rate differential between home and foreign country.
The model determines Ê by structural variables at each point of time and a residual uwhich feeds the short run equation. The term -μu, whenever statistically significant, points to an
adjustment process whereby an overvalued exchange rate relative to the equilibrium exchange rate
at time t-1 triggers a depreciation in period t and conversely if undervalued.
A few papers have applied the BEER methodology to explain exchange rate changes of the Euroagainst the Dollar, computing a theoretical Euro to the end of 1997 and 1998. On quarterly timeseries starting in 1973-I, the variables prod and nfa are significant. Prod was proxied by the relative
price between wholesale prices and retail prices in a study by Aglietta and alii, by laborproductivity differential in a more recent research run in the ECB(1) (2).
The equilibrium real exchange rate of the dollar against the Euro is depicted on figure 1.
It is computed from the long-run relationship estimated according to equation (2) here above. The
figure shows that the equilibrium value of the dollar depreciated continuously, and thus a trend
appreciation occurred for the Euro from the third quarter of 1985 to the first quarter of 1993. The
factor contribution to the long-run real exchange rate is depicted on figure 2. Relative prices played
an important part in the early 80’s and net foreign assets in the 90's up to 1997. The ECB study tells
a slightly different story for the latter period. The influence of net foreign assets is found to havebeen weak and replaced by the impact of long-run real interest rate differential on the equilibrium
exchange rate.
All in all it can be said that prior 1998, the long-run equilibrium real exchange rate of thedollar against a basket of European currencies mimicking the Euro was driven by the following
fundamentals:● The dollar appreciated whenever the relative price of traded against non-traded goods
declined more in the US than in Europe.
●

The dollar depreciated with the accumulation of foreign debt in the US and with the30

The EURO, the Growth Potential and the Financial Markets in Europe

building up of a creditor position in Europe.
●

The dollar appreciated whenever the real interest rate on US Treasury bonds increased

relatively to a weighted similar rate in Europe.
In 1997, the estimated real exchange rate amounted to a nominal equilibrium exchange
rate for the dollar against the Euro in the range of 1.15 to 1.25 $ per Euro, taking into account of
the huge uncertainty in this type of econometric exercise.
Moreover figure 1 shows how large deviations of the current to the equilibrium exchange
rate can be. In the late 70's the dollar was substantially undervalued and in the early 80's of the
bubble years it was extravagantly overvalued. But for ten years between the Louvre accord in
February 1987 to early 1997 the current exchange rate fluctuated around the equilibrium value in arange of +or-15%.
Everything seemed to fall apart from the time of the Asian crisis onward. The dollar
appreciated vigorously relative to the estimated equilibrium value. Worse still, the model
underlying the fundamentals is suspected to be no longer relevant.

The EURO, the Financial Crises and the New Economy.
In the course of 1997 the dollar appreciated markedly against the Euro from 1.3 to about
1.1. A short-lived weakness occurred in the wake of the LTCM episode which spurred turmoil in
US financial markets, the dollar plummeting from 1.1 to 1.2 Euro. From November 1998 onwards,
the Euro has slid almost continuously from 1.2 to 0.9 dollars per Euro, with only a short respite in
the summer of 1999. As large as it looks like, this 25% of decline is dwarfed by the 65% rise of the
Yen against the Euro and the 45% increase against the dollar from the doomsday of June 16,1998
when the Fed intervened to calm down the market to the second quarter of 2000.
The magnitude of these moves is not unprecedented, but the forces which drove them are
not in line with traditional fundamentals and are difficult to disentangle. The main puzzle about thesteady slide of the Euro is the following: is it a gross undervaluation of the market exchange rate
relative to an equilibrium exchange rate left unchanged in the range 1.15 to 1.25? Is it a drift of theequilibrium exchange rate itself and, if so, what are the factors conducive to this drift? ECB
officials tilt obviously toward the first interpretation, never missing an opportunity to emphasizethat the Euro has a big potential of appreciation. They may be right, but the upturn of the Euro
would not follow the same pattern in either case. If the Euro is excessively depreciated a change inthe market mood can be triggered by a favorable event like a successful conclusion of theintergovernmental conference on the reform of the European institutions or the confirmation of a
non-inflationary momentum for year 2001. If the Euro is close to its equilibrium value, a recovery
would involve the long-run growth potential of the Euro zone, not only the cyclical momentum.
Until the beginning of this year the explanation of the weakness of the Euro by cyclicalfactors and financial shocks looked relevant. The aftermath of the Asian crisis on world trade had
affected two main European countries, namely Germany and Italy. A slowdown for six months in

31

The EURO, the Growth Potential and the Financial Markets in Europe

late 1998 and early 1999 which impinged upon the whole Euro zone, while the long US upswing
continued imperviously. A confirmation that the differential in the output gaps on the two sides of
the Atlantic was an active factor arose in mid-1999. As soon as surveys pointing out thatnear-future economic activity regained momentum in Europe had been released, the Euro recovereda bit and stabilized toward 1.1 dollars per Euro.
Meanwhile changes had occurred in the financial markets since the start of the Asiancrisis. When the crisis had worsened in October after the devaluation of the Taiwan dollar and thesubsequent attack on the Hong Kong dollar whic h magnified the crisis in Korea and Indonesia(slump of the won by 50% and collapse of the rupiah by 80%), contagion spread all over emerging
markets. The correlative flight to quality by foreign investors and international banks triggeredhuge capital flows denominated in dollars which receded to US bond markets.
Significantly the spread between long run bonds (US-Europe) which was slightly above
100 basis points in the spring of 1997, halved to 50 in November. In the mean time the dollar
appreciated from 1.3 to 1.1, as already mentioned. Therefore the safe haven syndrome benefiting
US financial markets, directed inflows of capital to the US more than to Europe, engineering a risein the dollar disconnected from yield differential. The opposite arose in September 1998.
Confidence deteriorated in US capital markets across the board, spawning a flight to liquidity. The
spread widened to 150 basis points while the dollar waned from 1.1 to 1.2 per Euro.
One can sum up this discussion as follows. For two years between mid-1997 and mid
1999, cyclical factors took the lead in explaining the strength of the dollar. The momentum in US
activity was unaffected by the slowdown in world trade. The service sector substituted for
manufacturing and the overall supply was highly flexible, partly due to the widening trade accountdeficit which was itself a consequence of both the speed of US absorption and the strong dollar.
Conversely the cyclical recovery in Europe was in its infancy and was affected by the slump inworld trade of industrial products. This means that the move of the dollar Euro exchange rate waspositively adjusting to the discrepancies between the two big economies. The same cannot be said
for the Yen which appreciated hugely despite the deflationary flounder of the Japanese economy.
However financial shocks disturbed the relationship between the exchange rate and cyclical factors
in the real economy. These shocks underlined the sensitivity of the relative value between
international currencies to changes in market sentiment. In crisis conditions interest rate
differentials were no longer relevant.
From cyclical to structural factors
In year 2000, the Euro has continued its downward drift against the dollar albeit
uncertainty has plagued the financial markets about the time and the pattern of adjustment in the
US economy to a more sustainable growth path. Meanwhile the robustness of the cyclical upgradein Europe has been confirmed without any positive apparent effect on the Euro whatsoever.
Furthermore the spread between US and European public bonds was reduced to 50 basis points in
mid-2000 at the time of the worst weakness of the Euro. Found statistically significant in thestudies quoted here above, the interest rate differential was disrupted by the financia l crises. Morerecent regressions run in the research department of the CDC show that the public bond spread

32

The EURO, the Growth Potential and the Financial Markets in Europe

resumed its influence in 1999. A 100 basis point increase in the spread was estimated to entail a
13% appreciation of the dollar against the Euro in the long run. But this impact vanished altogether
in 2000.(3)It is not surprising that analysts and forecasters alike have been puzzled by the 10 to 13%
stumbling of the Euro in 2000. Most variables singled out in former regressions, be they toexplaining the long-run exchange rate or the short run adjustment, are no longer working. The
dollar is impervious to the piling up of foreign debt and does not react to benchmark interest rate
differentials. Its strength is not eroded by excess demand being converted into inflation scare or
fear of Fed reaction leading to a recession. In this context some people in the Fed and in the US
academy are inclined to comfort market sentiment and declare that the dollar exchange rate of theEuro is at its equilibrium value. One is tempted to concur with this judgement. It fits with the factthat repeated increases in short rates by the ECB got nothing but a negative short impact on theexchange rate. If market sentiment is convinced that the Euro is at its equilibrium valu e, any
attempt to boost it by monetary policy is interpreted as a will to overvalue the Euro in the face ofadverse structural forces. Incremental short-term interest rate hikes are simply non credible for that.
Indeed the market believes that a more stringent hardening in the stance of monetary policy inEurope will stifle a long overdue effort in productive investment and weaken the long-run value of
the Euro further. The relevant question at this point is: what are the fundamentals currently
acknowledged by market participants which are not in the in the continuity of long-run historical
relationships? Since this question pertains to ongoing structural change, econometric analysis is
obviously powerless to investigate it. Yet useful indications are provided in examining the change
in the pattern of capital flows.
The first observation is about the long-run spread in interest rates. As mentioned earlier,the spread on public bonds has declined 100bp against dollar debt this year. But the spread onprivate debt, as measured by the differential on the fixed leg of swaps respectively in dollar and inEuro, has not declined at all. It is still as high as 150bp. The first and foremost reason for it is thedebt redemption policy by the US Treasury, which is contracting the supply of public debt even forbenchmark maturities( the 10 year and the 30 year bonds). This supply shock increases the price of
US debt against the debt of European countries but does not make it less attractive. It does notwork against the dollar. The second reason is the massive foreign investment on corporate bonddebt. It points to a change in the structure of foreign investment in the US which fits with the
dynamism of the private sector. Indeed when the swap spread replaces the public bond spread in
the CDC regressions the anomaly no longer arises. The change in the private spread does not work
opposite to the expected direction of correlation with the change in the exchange rate the way the
public spread does. But introducing the private debt spread is far from being enough to understandthe forces which has moved the exchange rate this year. However it gives the clue for further
investigation. If capital inflows into the US are attracted by differences in the profitability ofinvestments relative to perceived risk in the US compared to elsewhere in the world, looking at
debt investment is far from being enough.
The latest survey of current business which collects and synthesizes data on foreign direct33

The EURO, the Growth Potential and the Financial Markets in Europe

investment in the US goes a long way in highlighting the motivations of European investment in
the US. Between 1997 and 1999 the value of US businesses acquired by foreign direct investment
was multiplied by 4.5. Almost half of this value was supplied by foreign direct investors and half
by US affiliates. The structure of this investment by branches of activity underwent a complete
overhaul. The share of manufacturing fell from 70 to 26%, the complement going to an aggregateof trade, finance and services. Much more importantly was the impact of new technologies forwhich the US are much ahead of the rest of the world. The share of computers and electronics
products increased from 8.3 to 11.4% despite the very sharp decline in the price of these products.
The share of information and communication leapt amazingly forward from 6.2 to 33.0%. Europe
was by far the biggest provider of direct investment outlays, its share increasing from63.1 to72.5%.(4)
Undoubtedly the catching up process of the European business sector to the growth
regime called "new economy" fosters huge amounts of capital flows in acquiring the information
technology and in restructuring the corporate sector to meet competition on global markets.
Traditional macroeconomic models of the fundamentals of the exchange rate are entirely irrelevant
to account for this process. On the one hand, much higher capital inflows than usually gauged
against debt ratios are sustainable since a large portion does not take the form of debt. On the other
hand, interest rates are not the yields that have to be considered to measure the attractiveness ofcapital inflows and the subsequent impact on the dollar. The yields to be considered are the returnon assets of corporations that restructure thanks to their acquisitions in the US, compared to thereturn they would have got had they not made that direct investments. Conversely, portfolio
investments taking the form of equities are sensitive to total return on equities (expected priceappreciation included), not directly on interest rates. The BIS, in its 2000 annual report notes thatthe relationship between the exchange rate and the ex post differential in share prices is unstable.
This not surprising since expectations of equity prices are notoriously volatile and subjected to
sharp, discontinuous revisions whenever market conventions are changing (5) .
For the time being only qualitative results can be reached along these lines. However analternative model of the fundamentals can be sketched to highlight the present puzzling
configuration. For reasons which are exogenous to the exchange rate, the rejuvenating of thesources of growth has given a long lead to the US compared to Europe and Japan. After an intense
restructuring and a rise in the rate of investment, the US economy has been achieving a gain in totalfactor productivity and a faster increase in labor productivity. It is why that, right or wrong, thefinancial markets are convinced that the high rate of return on capital is sustainable in the long run.
On the financial side, the globalization of markets and the revolution in corporate governance havegenerated a competition for corporate control which has lifted up required financial returns. A
heavy constraint, aggravated by absurdly tight monetary policies in the early 90's, has ensued forEuropean businesses. They are late in embodying new information technologies but they are
subjected to the same financial standards as US businesses. Because social restraints make theadoption of new technologies and new principles of new organization slower and more protracted,
the economic rate of return in Europe is still lower than in the US. Pressured by the same financial

34

The EURO, the Growth Potential and the Financial Markets in Europe

requirements, European businesses have no other immediate means than external growth throughthe acquisition of productivity-generating assets in the US. Therefore the hard core of capital
inflows into the US can be dubbed fundamentally determined, thus reflected in the equilibrium
exchange rate. But, even if the present level of the dollar is more economically justified thanspelled out by standard macroeconomic models, does it mean that it can be sustained for ever?

Looking Into the Future: The EURO and the Pattern of Capital Flows.
The factors which impinge upon the exchange rate of the Euro against the dollar in thenear future are so complex and so intermingled as to defy any pretension to make forecasts. Yet one
can carefully expect that real cyclical factors will reassert themselves. A slowdown in the US looks
long overdue, even if the US economy has defied standard macroeconomics for the last few years.
A downturn in the US coupled with a sustained upswing in Europe, albeit the momentum is not sostrong in EMU on the average, will move the relative output gaps against the dollar and push theEuro upward. How much is another matter. The precedent of the early 90's can be misleading. A
decade ago the US went into a severe recession magnified by the unwinding of financial
imbalances while real estate prices had undergone a slump. The heavy indebtedness had affectedbank solvency and a credit crunch ensued. The Fed moved to engineer a precipitous recess ininterest rates. Meanwhile the shock of German unification entailed a simultaneous tightening ofmonetary policy in ERM countries. It ensued that the theoretical Euro appreciated between the fallof 1989 and yearend 1990 form 1.05 to 1.40$.
It is unlikely but not impossible that the financial imbalances accumulated in the US
economy warrant such a dramatic reversal this time. Bank balance sheets are robust, althoughdelinquency rates on credit are creeping upward, admittedly from very low levels. Corporations aremuch less in debt and households have gone into debt to finance a higher proportion of financial
rather than real estate assets. Since financial markets are more efficient than real estate markets andsince the central bank will surely not let equity markets go under for a long time, even if there is a
Stock market crash, the recession( if any ) will probably not be deep and long enough to warrant a
30% depreciation.
Besides, the conduct of monetary policy by the ECB does not look trustworthy in theeyes of foreign investors. No one knows what its exclusive reliance on its inflation objective reallymeans with regards to its reaction to a temporary spike in primary commodity prices. If market
participants are convinced that a strong catching-up effort in productive investment is crucial for
European growth, an overreaction to a negative supply shock might be detrimental for the Euro.
There is undoubtedly a bias in the way uncertainties in the economic climate are interpreted about
Europe versus the US. A likely reason for this market attitude is that the decision making process of
economic policy at large is murky, the economic consequences of future institutional changes are
impossible to assess, the erroneous belief that Europe is plagued with rigidities is hard to die.
Finally the earlier harbinger of instant portfolio shifts in favor of the Euro was made on

35

The EURO, the Growth Potential and the Financial Markets in Europe

the basis of static models. It was taken for granted in such scenarios that EMU would deliver
instantaneously capital markets competitive with US markets. It is simply untrue. It takes time tomake a broad and deep corporate bond market with a benchmark and a wide range of investment
and non investment grades. It takes more time to integrate equity markets so that prices depend on
sectors and businesses rather than on countries. Equity markets for high growth, high risk innovate
firms are still especially segmented. The responsibility for managing European-wide market
liquidity crises is quite unclear and does not specify an operational role for the ECB.
These financial features play against the Euro but are not to persist in the longer-run. The
equilibrium rate of the Euro could be fostered by a change in the pattern of direct investments. The
fast increase in the capital- labor ratio in the US is not going to last for ever. The rate ofaccumulation will decelerate and the profitability of investments will decline. The strong dollar
will make foreign investment of US firms cheap and the balance of direct investment will bereversed. A pattern similar to the 60's could occur, leading to a downward pressure on the dollar as
much as technology is transferred to other countries at the initiative of global corporations trying tokeep their dominance on world markets. The big difference is the destination of those future capital
flows. Apart from information and communication services and the biotechnology industries,
Europe will not be the main recipient of direct investment. The bulk of them will flow to highgrowth emerging countries. Therefore an overhaul in exchange rates will arise, depending on the
speed of convergence in total factor productivity with a likely rise of Asian currencies. The overall
consequences for the Euro is impossible to assess since there will be countervailing forces. For thetwo coming decades, Europe will be a region with a relatively low potential growth but high saving
and will accumulate ownership on foreign assets.

Note;(1) Le taux de change d'équilibre de l'Euro, par M.Aglietta, .Baulant,V. Coudert,

Revue Economique, mai 1998

(2) The real effective exchange rate of the Euro and economic fundamentals : a

BEER perspective, by S.Makrydakis, P.de Lima, J.Claessens, M.Kramer, ECB,
roneo, march 2000.
(3)

CDC's briefs : ≪taux de change et courbes de tau : l'euro ne répond plus aux
variations du taux d'intérêt ≫ , by A.Sutan and Y. Tampereau, Research
Department, Flash n°2000-147, August 23, 2000.

(4)≪Foreign direct investment in the US≫, by N Howenstine and R. Troia, Surveyof Current Business, June 2000.

(5)

BIS annual Report, chapter V ≪Foreign Exchange Markets : equity marketts
and exchange rates (p.97), 70 th report, June 2000.

36

equilibrium real exchange ratecurrent real exchange rate

9
1
4
4
7
4
7
2
7
0
2
-73 s-7 rs-75 rs-76 rs-7 rs-78 rs-7 rs-80 rs-8 rs-8 rs-83 rs-8 rs-85 rs-86 rs-8 rs-88 rs-89 rs-9 rs-91 rs-9 rs-93 rs-9 rs-95 rs-96 rs-9 rs-98
a
a
a
a
a
a
a
a
a
a
ars ar
a
a
a
a
a
a
a
a
a
a
a
a
a
a
m m
m m
m m m
m m m
m m
m m m
m m
m m
m m m
m m m
m

60

80

100

120

140

160

180

Figure 1 : Real Exchange Rate of the Dollar Against the EuroRelative Prices

Research and Development

Net Foreign assets

73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98
ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- ar- arM M M M M M M M M M M M M M M M M M M M M M M M M M

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

1

1.05

1.1

Figure 2: Factors Contribution to the Equilibrium Value of the Real Exchange Rate (Dollar VS Euro)The Enlargement of European Security Organizations

The Enlargement of European Security Organizations

Dr Guillaume PARMENTIER
Head of the French Center on the United States, Ifri

The borders of Europe are ill-defined in the present context of European construction.
While during the Cold War, the limits of political Europe were clearly marked, at the expense of
the political and economic freedoms of half of our continent, there is no theoretical reason today
for the political concept of "Europe" not to coincide with Europe geographically defined, save forthe fact that three states, Russia, Turkey and Kazakhstan, are divided between Asia. All European
states have a right in principle to participate in European structures.
This is a main reason why enlargement has become such a thorny political si sue forEurope and for the Atlantic partners. This is in turn why the problem is there to stay, since it will
not in the foreseeable future find a solution which will satisfy all the interested parties.
The paper will examine how NATO enlargement was achieved in a limited way, andhow this opened new issues, some of which intractable, such as Baltic candidacies. It will define
the reasons why NATO nations chose to ignore what could have been deemed to be the principal
reason for early enlargement: Balkan security, with clear consequences for the balance of Europe.
The role of US domestic politics will be alluded to in some detail. The paper will also underline thehopes of the expansion of 1999 created in Central and Eastern Europe, and the benefits whichpertained to US diplomacy from this feeling, at least in the short term. The contention of the paper
will be that frustrations are likely to reemerge in the near future. The recent proposals for a "Big
Bang" approach to future NATO expansion, as accepted ni Vilnius in April 2000, by all the
candidates, create the prospect of an indefinite delay in future enlargement, or of a breach between
the present applicants, none of which is conducive to maintaining confidence.
39

The Enlargement of European Security Organizations

The enlargement of the European Union is obviously of a profoundly different nature.
For Central and Eastern Europe, it has remained a prospect, and a pretty frustrating one at that,with a constant postponement of the entry dates, even for the better-placed candidates. Certainly,
there have already been beneficial consequences, as witnessed in the reconciliation between
Hungary and Romania, the solution of awkward outstanding issues, such as that of the Danube dam
between Slovakia and Hungary, or the assumption of economic responsibility for weak states such
as Macedonia and Albania by the European Union. The choice of Estonia as an early applicant to
the Union has also had a positive effect, and the decision by Estonia and Latvia to renounce theirlegislation limiting the rights of Russian-speaking residents can at least partly be ascribed to thebeneficial effect of EU attraction.
On the other hand, the development of a European Defense and Security Policy, the"Saint-Malo process", is viewed with apprehension by a number of EU applicants, since it runs therisk of determining a process and creating working habits between members before their accession.
Their recent association to some of the deliberations among present members has limited thesefears, and the Helsinki choice of a "Big Bang" approach to enlargement, including Turkey, hasmade matters less difficult than had been the case before. On the other hand, many, if not mostapplicants feel that progress in this direction creates the danger of building insuperable obstacles totheir accession. They already are asked to revisit their legal systems, their economic organisationand their social legislation on the basis of the "acquis communautaire", and are weary of being
asked to meet added goals in other dimensions of policy at the same time: inevitably, theimpression that the Union is "moving the goalpost" is not popular with them.
Enlargement of both the EU and NATO is therefore of considerable importance toEuropean security, but it will in the nature of things be an unsatisfactory process, in which
dissatisfaction will go on. On the degree of frustration felt by applicants, and on the number ofunsatisfied countries will the process eventually be judged.

40

The Expansion of Regional Organizations and Implications for Regional and Global Security

The Expansion of Regional Organizations and
Implications for Regional and Global Security
Comments on Parmentier's presentation

Dr Sadaharu KATAOKA
Research Fellow, European Studies and African Issues, JIIAThe year 1999 was an epoch-making year for the postwar European security system. A
series of major events occurred in this year: the 50th anniversary summit meeting was held in
Washington; the updated Strategic Concept was adopted; Poland, the Czech Republic and Hungary
officially joined NATO; Operation Allied Force was carried out in Yugoslavia over a period of 78
days; the Istanbul Summit of OSCE was held and the Charter for European Security adopted; the
CFSP of the EU evolved; and the notion of a common European security and defense policy(ESDP) was launched at the Cologne Council in June and the Helsinki Council in December.
Since the collapse of the Cold War structure, we have already seen much evolution anddevelopment in the European security system. In spite of this assessment, we have to also reaffirm
that the cornerstone of European security has not changed, which means that it is still nuclear
deterrence that provides the de facto support for the European security system. Through thisnuclear deterrence the balance of conventional force is maintained in Europe.
The great lesson that we have to learn from the crises in Bosnia and Kosovo is that power
is needed to handle such situations. The preventive diplomacy efforts of the UN, the OSCE andthe EU were powerless after all. (Nevertheless, we have to appreciate the OSCE's efforts, andespecially those of the OSCE Mission in Kosovo before and after the NATO raids).
This fact shows that the threat or use of force was more easily carried out in regional
conflicts because of the collapse of the Cold War structure. The reason the former state members of
the Warsaw Pact want seriously to become members of NATO is that it is the only organization that

41

The Expansion of Regional Organizations and Implications for Regional and Global Security

possesses this power.
(The mandate of the OSCE KOSOVO Verification Mission, which was withdrawn in early 1999,
specifically stated that it should, to the extent possible, assist UNHCR, ICRC and otherinternational organizations in facilitating the return of refugees to their homes and the provision offacilitative humanitarian assistance.

In Kosovo, the OSCE developed an innovative and close

relationship with the UN, as the OSCEMIK formed an organic part of the overall framework of theUN. On 1 July 1999, the decision was taken to establish an OSCE Mission in Kosovo, as a
distinct component within the overall framework of the United Nations Interim Administration
Mission in Kosovo (UNMIK). The OSCE Mission, within the overall framework, took the leadrole in matters relating to institution- and democracy-building and human rights. It cooperates
closely with relevant organizations in the planning and implementation of its tasks. It undertakes
a number of tasks that are unprecedented in the context of the OSCE - the training of a new police
service and of judicial and administrative personnel, for example. In those tasks, as well as in the
promotion of human rights, in the building of a society where power is shared and where thejudiciary, the media, non-governmental organizations and political parties play independent roles,
the objective is to bring about mutual respect and reconciliation among all ethnic groups in Kosovo
and of establishing a viable multi-ethnic society where the rights of each citizen are fully andequally respected.

The Mission maintains close links with KFOR, which provides a secureenvironment for OSCE activities in Kosovo.

The Council of Europe offered to provide

secondments to OSCE Missions, has contributed seconded staff to the Kosovo Verification Mission
and provides experts to the OSCE Mission in Kosovo, on both short-term and long-term bases, inthe fields of media affairs, police training, democratization, human rights and the rule of law.)
The European Union also has been playing a growing role in the sphere of security issues.
The Maastricht Treaty of 1992 created the Common Foreign and Security Policy. The Amsterdam
Treaty of 1997 brought us the High Representative for CFSP - Javier Solana - as well as manyother changes to make our external relations more effective.
European heads of government made a number of important decisions at the Cologne andHelsinki European Councils in 1999. The immediate goal is to have the ability by 2003 to deploy
50-60,000 troops, capable of the full range of what are known as the Petersberg tasks humanitarian and rescue work, crisis management, peace-keeping, and even peace-making.
Europe's ambition requires changes that are both practical and institutional. The greatest
is to build up Europe's military capability to act autonomously where NATO as a whole does notwish to be involved. The relationship between the EU and NATO needs to be fleshed out, as does
the relationship of those EU countries who are neutral and not NATO members.
Europe will need to tackle on the way a number of difficult issues: reconfiguring forces

42

The Expansion of Regional Organizations and Implications for Regional and Global Security

for rapid deployment anywhere rather than for a static defensive battle; achieving the necessarytransport capability; and reviewing the tradition of conscripted forces. There is a sense of urgency.
The Union's experience in Bosnia and Kosovo shows how classic foreign policy is hamstrung if notbacked up by a capacity to project force when and where it is needed. The French Presidency has
made clear its determination to drive full throttle for that goal in the coming six months.
It is fallacy, though, to imagine the gradual Europeanization of NATO by the EU.
It is important to point out that the notion of the European Security and Defense Identity
was always NATO's own military project, essentially designed to solve a number of structural andpolit ical problems within the Euro-Atlantic community.

Since the crisis of Kosovo, theprogressive creation of a stronger and more autonomous European security capability has emerged
not just as a NATO military project, but also as an EU political project. As we know, the Cologne
Council in June 1999 and the Helsinki Council in December 1999 launched the notion of a
Common European Security and Defense Policy as an inherent part of the EU's long-term political
agenda.
The idea that Europe should play a role in security more commensurate with its size andresources has been promoted in different forms on both sides of the Atlantic (1).

In the UnitedStates, the main focus has always been on burden-sharing in the Euro-Atlantic community. In
Europe, much of the driving force has been generated by France, who is always advocating thecreation of a more balanced alliance structured on two pillars. France always seeks to make theEuropean security system more balanced. The notion of burden-sharing refers primarily toresources, leaving US political and strategic leadership unchanged. At one level, ESDI is merely
the latest version of burden-sharing.

However, the Franco-European project was predicated on

the assumption that balance involved not only resources and military tasks, but also politicalinfluence and diplomatic leadership. ESDP therefore goes much further than ESDI in positing not
only the necessity but also the legitimacy of some relatively autonomous measure of European
security policy(2).
I think that for the best solution for the European security system is for both NATO andthe EU to need one another and to work more closely together. NATO is still the center of gravityof European security and it is the OSCE and the EU that supplement it.
On the other hand, the European security system, especially NATO, is facing a series ofdilemmas in its relations with Russia and with non-members. How should it manage relations
with Russia? This is still the biggest problem for NATO. NATO should also seek to consolidate
its relationship with Russia.

43

The Expansion of Regional Organizations and Implications for Regional and Global Security

Note;(1) Stuart Croft, Jolyon Howorth, TerryTerriff and Mark Webber, "NATO's triple challenge",(2)

International Affairs, Volume 76 Number 3, July 2000, p.503-504.
Ibidem., p. 504.

44

The Expansion of Regional Organizations and Implications for Regional and Global Security

The Expansion of Regional Organizations and
Implications for Regional and Global Security- Security Agenda in Asia -Prof. Satoshi MORIMOTO
Professor, Faculty of International Development
Takushoku University, Tokyo

1. Security Environment and Regional Security Cooperation in Asia
(1)

Ten years after the end of the Cold War, the international community is moving into thest

21 century. In the past decade, the international community has been trying to catch up with fastchanges and to establish a viable theory for a new international world order in the post-Cold War
era. However, drastic changes in the world have made it impossible for human wisdom to keep
up with reality. The world has seen both competition and coordination, both hegemonic andnationalistic behavior by nations to enhance their individual power and influence, and also
multilateral cooperation among nations to enhance political security and economic stability.
The East-West Cold War confrontation started when the Soviet Union sought world
hegemony on the basis of communist ideology. During the half-century of the Cold War era,theory stayed ahead of reality. As proposed by U.S. diplomatic expert George Kennan, Western
nations pursued a coordinated policy of containing the Soviet Union to win the Cold War. For the
past decade, experts have been trying in vain to formulate a theory for a post-Cold War ordercomparable to Kennan's containment theory. U.S. political scientist Samuel Huntington's theoryof "The Clash of Civilizations" attracted wide attention, but most experts agreed that it had many
logical flaws and was far from viable.

On the other hand, the UN is unlikely to become theexclusive principal base on which a new international order is established, although it is likely tocontinue to undergo a restructuring that strengthens its role and function. The international orderthat has emerged so far is built around nations that share common value systems, especially with
the United States. Foreign relations seem to be controlled not only by value systems, but also by a

45

The Expansion of Regional Organizations and Implications for Regional and Global Security

combination of value systems and the national interests of each nation.
(2)

Asia is now relatively peaceful and calm, although there is a broad consensus that thepotential for uncertainty and instability is significant.

There are two aspects to the region's

dynamism in the post-Cold War period. The first is the dynamism of challenge, which means
destabilizing factors. The challenges to peace and stability in the region consist of two types.
One is inherent sub-regional problems such as the situation on the Korean Peninsula, theChina-Taiwan relationship, China's future role and direction in Northeast Asia, the East Timor andIndonesia situation, the South China Sea issue in Southeast Asia, and the Kashmir conflict inSouthwest Asia. Another type of challenge to peace and stability comes from common regional
issues of a transnational nature. These include nationalism, the imbalance in military modernization
programs, international organized crime, terrorism, ethnic conflict, narcotics trafficking, territorial
issues among nations, the NMD ･ TMD issue, the proliferation of WMD (especially thedevelopment and transfer of nuclear weapons and missiles), the international movement of labor
and refugees, instability in areas adjacent to SLOC and piracy incidents, and the widening of theeconomic gap between post-modern, modern, and pre-modern states. An energy and food crisis
due to increased population and economic growth is a potential destabilizing factor in the future.

The regional framework and organization for security cooperation has not been welldeveloped due to the diversity of the security environment, national interests, and the policies ofindividual nations in Asia. However, since the end of the Cold War, Asia has faced the potential
of instability in not only economic but also security aspects; most nations in the region sharecommon concerns about instability and uncertainty and seek to manage them through dialogues
and cooperation. The ARF was established in 1994 in order to improve multilateral security
dialogues and cooperation among Asian nations and to prevent destabilizing factors from turning
into armed conflict.

Frameworks for multilateral security cooperation and dialogues for thispurpose, such as ARF, ASEAN+3 and ASEM, have been developing significantly in recent years.
Unfortunately, they lost momentum to some extent due to the economic crisis in 1997 and thenationalistic approach of some participants. Over the previous decade Asia enjoyed significant
economic development and the expansion of democracy, respect for human rights, and common
value systems, but since 1997 the economic crisis has severely tested the region's ability tomaintain economic growth and development. The momentum and capability of Asian nations todeal with political instability and security disorder in the region has also been diminishing as
domestic political turmoil in some countries during the past three years has made other nations
more cautious. The possibility of regional consensus and agreement on CBMs and preventive
diplomacy is also becoming remote because some nations still adhere to respect for sovereignty
and non-interference and are reluctant to agree definitely on implementation of an Asian approach.

46

The Expansion of Regional Organizations and Implications for Regional and Global Security(3)

The other aspect of dynamism in the region is the positive factors of opportunity andexpectation, of which there are three elements. The first element is the presence and commitmentof the United States. The Japan-U.S. alliance is unquestionably critical for the peace and stability
not only of Japan, but also of the entire Asia region. Japan and the U.S. have made significant
efforts to maintain their alliance in the post-Cold War period, putting priority on exploring andpromoting common national values and interests. During the Cold War period the Japan-U.S.
alliance contributed to deterring Soviet military intervention in Asia and to transferring Soviet
forces from Asia to the European front. While continuing to do this, the alliance has expanded its
role to managing destabilizing factors in the Far East, including military confrontation andconfusion on the Korean Peninsula and in the Taiwan Strait, and other incidents. Both Japan andthe United States have made serious efforts to strengthen their bilateral security ties in the areas ofJapan-U.S. defense cooperation, the effective use of U.S. bases in Japan, and the BMD joint
research program. The Japan-U.S. alliance is the most significant factor for peace and stability inthe region as a whole. It contributes to deterring and controlling military action in Northeast Asia
by North Korea.
The second element of opportunity is the multilateral cooperation and exchanges among
the nations in the region. This was manifested in the dialogues and the cooperative approach that
led to the steady strengthening of APEC in matters of economic development and cooperation andof the ARF on political and security issues. In July 2000 the ARF held the seventh ministerial
conference since its establishment in 1994, and there has been remarkable progress in dialogues
and cooperation on regional security in the past several years.
Two major factors lie behind these developments in the security dialogue in Asia. The
first is the region's economic development and growth, which has infused its countries withconfidence and sparked moves to seek a collective identity for Asia as a whole. The second is thegrowing recognition of the many potential elements of instability that exist there and of the need tobuild a framework for dialogue within the region to prevent escalation of disputes into conflicts.
An indication of this recognition was given at the second ARF conference, where agreement wasreached on a three-step approach to the pursuit of regional stability through confidence-building
measures, preventive diplomacy, and approaches to conflict resolution. Since then, multilateral
security cooperation and dialogues have concentrated on CBM. A new focus is now expected tobe conflict prevention, or 'preventive diplomacy'. CBM and preventive diplomacy in this regionboth exhibit some typically Asian characteristics, including a realistic and gradual approach toward
consensus. Therefore, development is slow and it is still difficult to reach agreements that include
binding obligations to comply.

However, regional security cooperation through CBM andpreventive diplomacy has played a significant role in promoting mutual understanding andconfidence among nations in the region. These measures contribute to peace and stability in order
to compensate, not to offset, the roles of the Japan-U.S. alliance.

47

The Expansion of Regional Organizations and Implications for Regional and Global Security

Third, the improvement in the bilateral relationships among the four major powers in the region-the
U.S., Russia, China, and Japan-is also a significant and positive indication. In the post-Cold War
period, the relationship among the major powers has been characterized, in general, as a 'concert ofpower,' in contrast to its balance of power nature during the Cold War era. However, relations
among the major powers still exhibit some elements of power sharing and a nationalistic approach,as most major actors put a higher priority on national interests than before. In any case, China's
future and the relationship among the four major powers are still key factors in shaping the regional
security structure and in securing peace and stability.
In particular, Northeast Asia is the only region in which the complexly interrelated
interests of all four major powers overlap. On the other hand, each of the bilateral relationships
between major powers has a different aspect and dimension. So far, the U.S.-China relationshiphas deteriorated due to issues such as Taiwan, the NMD issue, the NATO mishap at the Chinese
Embassy in Belgrade, alleged spying on missile and nuclear technology developments, humanrights, and the WTO, to name a few.

2. The common security agenda for Asia and Europe
As Europe and Asia continue their development in the post-Cold War period, there arethree factors that are of particular relevance with regard to the need for cooperative efforts between
these regions in the political, security, and economic spheres.
The first is that in the course of their pursuit of globalism and regionalism, both Europe
and Asia will find that they share common ground and are seeking similar interests. As bothregions believe in democracy, promotion of the market economy, and the protection of humanrights, they already share a sound base on which to promote further cooperative relations.
In particular, it is important to promote further mutual economic relations between these
two regions, as this will provide European countries with the means for helping to develop the vast
untapped potential of the Asian countries. At present, although the European economy is facingsome problems, if it is able to promote mutual relations for economic growth in investment, trade,and joint development projects, such economic cooperation would in turn give a crucial boost to
the European economy. As the regional structures of Europe and Asia have many similarities
there is no reason for them to be mutually exclusive. Thus, in order to promote world economic
growth and growth within the two regions, both Europe and Asia need to strengthen their economic
links.
Secondly, they share similar security priorities. Needless to say, Europe and Asia eachneed to watch very closely developments in Russia, which is as a source of potential instability for

48

The Expansion of Regional Organizations and Implications for Regional and Global Security

both regions. The future direction of Russia is still the crucial factor for stability and prosperity inEurope, just as China is critical for Asia.

Both nations have huge territories and powerful

militaries. They share a common border and are suffering political, economic difficulties anddomestic problems. Russia and China seem to be coming together to counter the U.S. uni-polarsystem in recent years. However, both major powers of Russia and China have to coordinate withand get support from the United States and international organizations if they are to ensure theirown economic prosperity.
Russia's substantial support to China under the Sino-Russia strategic partnership, such as
the transfer of sophisticated military equipment and technology, has serious implications forsecurity in Asia.
Europe and Asia also each need to work to ensure a continued US presence. America's
European and Asian policies are closely related and the U.S. presence in each region is mutuallydependent. How to maintain this presence continues to be a top priority issue for both regions.
In this context, attention must be paid to US security policy under the new us administration withregard to how U.S. will maintain or modify the force structure under new policy guidelines or
strategies. Moreover, both Europe and Asia share similar concerns regarding the non-proliferationof Weapons Mass Destructor. Promoting the non-proliferation of WMD is vital to the stability of
the region. In addition, both Europe and Asia share the same concerns over how to promote
peacekeeping operations within the region by balancing their regional operations with those ofinternational organizations such as the UN. As NATO continues to expand to the east, theEuropean and Asian regional structures are likely to overlap. At that time, Central Asia and the
Gulf States will be critical to the stability of both Europe and Asia.
At any rate, there is a need for further cooperation and increased dialogues in the politicaland security spheres between Europe and Asia. ASEM has been established for this purpose.
ASEM has to be improved and reinforced in order to increase mutual cooperation between Europe
and Asia not only in the economic area, but also in political and security areas.
Third, in the process of developing a new international order, Europe and Asia need todevelop various areas for dealing with issues on a global regional scale and the activities ofinternational organizations such as the UN as well as mutual cooperative arrangements such as
those between the United States, Europe, and Japan. In particular, both regions need to address awide range of problems such as the prevention of internal conflict, population and labor migration,
human rights, the environment, energy, the North-South problem, and aid to developing countries.
Cooperation in dealing with this wide range of problems is in the interests of each of the tworegions. To promote Asian economic development, Asia needs to close the gap between Europe
and itself, and this will require increased cooperation. Both Europe and Asia are rich and stableregions and in order for this situation to continue in the future, it is not sufficient to address only

49

The Expansion of Regional Organizations and Implications for Regional and Global Security

regional problems, and cooperation should be promoted on a global scale. If Europe and Asia cando this successfully, they will help to break new ground, and international relations will be seen as
entering a stage of new cooperative relations in the post-Cold War era.

50

Introduction and Comments on the Paper by Prof. Satoshi Morimoto

Introduction and Comments on the Paper
by Prof. Satoshi Morimoto

Mr Masahiro OMURA
Director of Research Coordination, JIIA

Outline of the Paper
The paper consists of two parts: the first half discusses the security environment andregional security cooperation in Asia, and the second half the Common Security Agenda for Asia
and Europe.
1

The first half addresses three topics: a new world order in the post-Cold War era,destabilizing factors in Asia, and the positive factors of opportunity and expectation.
a.

In the view of Prof. Morimoto, the U.N. is unlikely to become the exclusive principal

base on which a new international order is established. The international order that has emergedso far is built around nations that share common value systems, especially with the United States.
Foreign relations seem to be controlled by a combination of value systems and the national
interests of each nation.
b.

Prof. Morimoto then talks about the dynamism of challenge, or destabilizing factors in

Asia.

There are in Asia numerous sub-regional problems such as the Korean Peninsula, theChina-Taiwan relationship, East Timor and Indonesia, the South China Sea and the Kashmir
conflict.
There also exist common regional issues of a transnational nature.

They include

nationalism, the imbalance in military modernization, international organized crime, terrorism,
ethnic conflict, narcotics trafficking, territorial issues among nations, the NMD/TMD issue, theproliferation of WMD, the international movement of labor and refugees, instability in areas
adjacent to SLOC (sea lanes of communication) and piracy, and the widening economic gap amongpost-modern, modern and pre-modern states.

51

Introduction and Comments on the Paper by Prof. Satoshi Morimoto

Frameworks for multilateral security cooperation and dialogue, such as ARF and ASEM
have been developing, but they have lost momentum to some extent due to the economic crisis in1997 and the nationalistic approach of some participants.

Thus the possibility of regional

consensus and agreement on CBMs and preventive diplomacy is growing remote.
c.

There are positive factors of opportunity and expectation in Asia as well.

positive factor is the Japan-US alliance.

The first

Japan and the US have made significant efforts tomaintain their alliance in the post-Cold War period, putting priority on exploring and promoting
common values and interests. The alliance has expanded its role to managing destabilizing
factors in the Far East.
The second element of opportunity is the multilateral cooperation and exchange among
the nations in the region. This is manifested in the dialogues and the cooperative approaches of
the APEC and the ARF. Two major factors lie behind these developments in security dialogue in
Asia. The first is the region's economic development and growth, which has sparked moves toseek a collective identity for Asia as a whole. The second is the growing recognition of the manypotential elements of instability and of the need to build a framework for dialogue within theregion.
In this connection, an agreement was reached by ARF nations in 1995 on a three-step
approach to the pursuit of regional stability through confidence-building measures, preventive
diplomacy, and approaches to conflict resolution. Since then, multilateral security cooperationand dialogues have concentrated on CBMs.

A new focus is now expected to be conflict

prevention, or 'preventive diplomacy'. CBM and preventive diplomacy in this region have been
pursued in a realistic and gradual approach toward consensus.
The third positive indication is the improvement in the bilateral relationships among thefour major powers in the region-the U.S., Russia, China, and Japan. In the post-Cold War period,
the relationship among the major powers has been characterized, in general, as a 'concert of power,'in contrast to its balance of power nature during the Cold War era. China's future and therelationships among the four major powers are still key factors in shaping the regional security
structure and in securing peace and stability.
2

In the latter half Prof. Morimoto discusses the Common Security Agenda for Asia andEurope.

He emphasizes three factors of particular relevance with regard to the need forcooperative efforts between the two regions.
a.

The first is that in the course of their pursuit of globalism and regionalism, both Europe

and Asia will find that they share common ground and are seeking similar interests. As bothregions believe in democracy, the promotion of market economies, and the protection of humanrights, they already share a sound base on which to promote further cooperative relations. It is
important to promote further mutual economic relations between these two regions. In order topromote world economic growth and growth within the two regions, both Europe and Asia need tostrengthen their economic links.
b.

Secondly, Europe and Asia share similar security priorities. The future direction of52

Introduction and Comments on the Paper by Prof. Satoshi Morimoto

Russia is a source of potential instability for both regions. China is critical for Asia. Russia andChina seem to be coming together to counter the U.S. uni-polar system in recent years.
Russia's substantial support to China under the Sino-Russia strategic partnership, such as
the transfer of sophisticated military equipment and technology, has serious implications forsecurity in Asia.
Europe and Asia also each need to work to ensure a continued US presence. America's
European and Asian policies are closely related and the U.S. forces in both regions are mutuallydependent. In this context, attention must be paid to US security policy under the newadministration.
Moreover, both Europe and Asia share similar concerns regarding the non-proliferation of
weapons of mass destruction. In addition, both Europe and Asia share the same concerns over how
to promote peacekeeping operations within their respective regions by balancing their regional
operations with those of international organizations such as the UN.
ASEM has to be improved and reinforced in order to increase mutual cooperation
between Europe and Asia not only in economic matters, but also in political and security matters.
c.

Third, Europe and Asia need to address a wide range of problems such as the preventionof internal conflict, population and labor migration, human rights, the environment, energy, theNorth-South problem, and aid to developing countries. Cooperation in dealing with this wide
range of problems is in the interests of each of the two regions. If Europe and Asia can do thissuccessfully, they will help to break new ground, and international relations will be seen as enteringa new stage of cooperative relations in the post-Cold War era.

・Comments
Now I would like to add some brief comments of my own.
It seems to me that Prof. Morimoto's thinking is very close to the mainstream thinking on
security in Japan after the Second World War. It is a realistic view with an emphasis on military
analysis. He talks about Russia and China coming together to counter the U.S. uni-polar system
in recent years. This view is clearly oriented on the national interests of Japan, putting emphasison the bilateral relationship with the United States. As a recent trend the thinking embraces acomprehensive approach to national security.
When we look at the security situation in Asia during the last and next decades, we
immediately notice several destabilizing factors, as pointed out by Prof. Morimoto. They include
development and deployment of weapons of mass destruction, moves towards military buildup anddomestic turmoil frequently associated with the suppression of democratization and human rights.
These trends are also observable in other regions of the South.

Such factors have serious

implications for the peace and stability of the region and require concerted efforts by the53Introduction and Comments on the Paper by Prof. Satoshi Morimotointernational community to contain the associated risks.
The Government of Japan adopted the ODA Charter in 1992 incorporating four principles
that have significant roles to play in dealing with the above-mentioned destabilizing factors. The
four principles aim at the following:(1)

pursuing environmental conservation and development in tandem;(2)
avoiding the use of ODA for military purposes or for aggravation of international
conflicts;(3)

paying full attention to trends in recipient countries' military expenditures, theirdevelopment and production of mass destruction weapons and missiles, their export and import ofarms; and(4)

paying full attention to efforts for promoting democratization and the introduction of amarket-oriented economy, and the situation regarding the securing of basic human rights andfreedoms.
Ten years have passed since the adoption of the charter, and there have been nearly ahundred cases where the charter has been implemented, according to a recent survey.

Onecharacteristic of the implementation is that the Government of Japan has taken a tough stance as far
as the development and production of mass destruction weapons and missiles are concerned. Thisis evident in the cases of nuclear tests by India and Pakistan, for example. Japan has maintained asuspension of aid for two years and resumed only part of it this year after confirming a nuclear test
moratorium by the two countries.
Japan also took a firm stance when China conducted a nuclear test in 1995.

It

suspended grant aid until China signed the CTBT in 1996.
There are other cases where Japan has taken a somewhat more flexible stance than other
donors, including European countries. It would seem beneficial for both Japan and Europe to
exchange views regarding the principles and implementation of development assistance in relation
to non-proliferation and disarmament, democratization and human rights, among others. Suchexchange might highlight our common efforts to realize a better security environment in Asia andother regions.

54

Disarmament Process in Trouble

Disarmament Process in Trouble

Amb. Akira HAYASHI
Ambassador of Japan to Italy
former Ambassador of Japan to the Conference on Disarmament

1. Recent developments in disarmament(1)

From the years immediately before and after the end of the Cold War until the mid 90s,

important progress was made in various fields of disarmament and arms control. The INF Treaty
was concluded in the theater missile field, STARTII was agreed upon to reduce strategic arsenals
and agreement on further reduction talks was reached between the US and Russia (Soviet Union).
The Chemical Weapons Convention was adopted and entered into force shortly thereafter, the NPT
was extended indefinitely and the CTBT was adopted.
(2)This encouraging trend started to change rapidly after the adoption of the CTBT in 1996,

practically the last achievement in disarmament in the 90s. The deterioration of the global
security environment caused by such events as the enlargement of NATO, troubles over UNSCOM,
the nuclear tests by India and Pakistan, the Kosovo situation and the missile defense debate aresome of the main reasons for this stall of disarmament process.
On the other hand, the approaches and the interrelationships within the disarmament
process itself have also made matters worse in recent years. A typical example is the deadlock of
the Conference on Disarmament (CD), the sole multilateral negotiating body for disarmament,
which has been unable to carry out any substantive work during these past four years.
Winter has come for the disarmament process and no breath of spring can be felt yet.
According to the Tokyo Forum, the global regimes to stop the proliferation of nuclear weapons andother weapons of mass destruction are under siege.

55

Disarmament Process in Trouble(3)

When it comes to disarmament, weapons of mass destruction are the main focus, and ofthese nuclear weapons are overwhelmingly important.

Although the bilateral negotiations

between the US and Russia are the center of the world's concern because of the size of the nuclear
arsenals they have, here I would like to share some thoughts on how nuclear disarmament shouldbe placed in global regimes of disarmament and non-proliferation, especially from the viewpoint of
non-nuclear weapon states.
(The views expressed here are my personal views unless specified otherwise.)

2. Nuclear disarmament(1)

At the Conference on Disarmament, nuclear disarmament is the biggest issue of concern.

While the CD has not engaged in negotiations on the actual reduction of nuclear weapons, it has
concluded successfully treaties such as the PTBT, NPT and CTBT (some argue that these are nottreaties of nuclear disarmament, but they contain undeniably disarmament aspects). The next
agenda item in the CD for nuclear disarmament and non-proliferation is FMCT. While the CD
has agreed to establish an ad hoc Committee to negotiate on FMCT twice in the past, it has not yet
been able to start substantive negotiations. The difference of views on how to handle in the CD
nuclear negotiations in general has been the principal source of disagreement on the adoption of its
work program, but now another issue of conflict has been added: missile defense.
(2)
There exist roughly three positions concerning the nuclear disarmament in the CD. It
might be more or less the same globally.
First is the position taken by the five nuclear weapon states. They claim that nuclear
disarmament is an issue that concerns solely the nuclear weapon states and that it is not appropriate
to discuss it multilaterally, let alone negotiate. In other words, "don't poke your nose into ourbusiness" is their response to non-nuclear weapon states. They agree to disclose information andto brief on progress (if any) but only to the extent they deem appropriate.
The second position is that there should be negotiations on nuclear weapons with theparticipation of non-nuclear weapon states in a time-bound framework, because the elimination of
nuclear weapons is an obligation under NPT that includes both nuclear and non-nuclear weapon
states. This is basically the common position of the non-aligned countries (NAM).
The third position is the one which non-nuclear weapon states of the Western and Easterngroups take, with some differences in nuance. They do not seek to carry out negotiations on
nuclear weapons reduction in a multilateral setting, but argue that discussions should be conducted
on nuclear disarmament, the most important issue in disarmament today, at the CD, which is thesole multilateral negotiating body for disarmament in the world, and that there exist subjects thatcan be and should be negotiated multilaterally. Although NAM countries have a common
position, many of them do not think it feasible to achieve a time-bound approach and are preparedto join in this third path.

56

Disarmament Process in Trouble(3)This group of moderates, consisting of countries from the Western and Eastern groups

and non-extremist NAM countries, has a majority in number. The frustration of those countries,
whether or not it is publicly and loudly voiced, is the inflexibility of nuclear weapon states insticking to their basic position.

Every time the moderates come up with some idea forcompromise based upon a middle-of-the road approach, they encounter a negative response from
nuclear weapon states, who say that it is a "slippery slope". The moderate countries believe thatthey are not asking something absolutely impossible for nuclear weapon states, knowing perfectly
well the situations and circumstances of the nuclear weapon states.

If such outright andcategorical responses continue in the future, the raison d'etre of global regimes of nuclear
disarmament and non-proliferation will be questioned.
(4)

The above frustration is closely related to how non-nuclear weapon states perceive the

NPT. The essence or the basic structure of NPT is a deal between non-proliferation anddisarmament, that is, renouncing the development and possession of nuclear weapons forever by
non-nuclear weapon states on the one hand, and possession of nuclear weapons by five countries
for the time being and their eventual elimination on the other. The commitment to a futurenuclear-free world is the reason why so many countries, a quasi-totality of the countries of theworld, have acceded to the Treaty as non-nuclear weapon states. In that sense, the obligation ofdisarmament for nuclear weapon states is, apart from a meticulous and legalistic interpretation ofwords, the same as that of non-proliferation for non-nuclear weapon states. Therefore it is naturalthat accountability is strongly required in its implementation.
(5)

It is true that at the beginning the NPT aimed principally at preventing an increase of

nuclear weapon states as had been feared by President Kennedy. Since its inception in 1970,
Germany and Japan have acceded to it, South Africa has abandoned nuclear weapons and joined,
followed by Argentina and Brazil, and the former republics of the Soviet Union have also acceded
to it as non-nuclear weapon states. Although four countries are outside the Treaty --and that is not
at all unimportant-- it can be said that the goal of non-proliferation has been mainly attained. As aconsequence, it is logical that attention is focused on the other commitment, that is, disarmament
by five states. Against this background, the non-nuclear weapon states are fully entitled to raise
their voice for more efforts toward nuclear disarmament. It should be added that they are moredisappointed and frustrated at the fact that nuclear weapon states do not share this basic view of therules of the game than at the slow progress in the reduction of nuclear weapons. Had nuclear
weapon states not conceived when the Treaty was signed that the day would come for them to cash
the check?

Did they believe the Treaty would linger forever at the stage of pursuing only

non-proliferation?
(6)

As a result of the accession by almost all the countries that could possibly be expected atpresent, another aspect of the Treaty has become very relevant: the effective implementation of57

Disarmament Process in Trouble

the Treaty. When the dynamic phase of enlarging participating states ends, the following phasewill be the good administration and implementation of the Treaty. Considering more seriously the
implementation, including dealing with problems of non-compliance, will and should become theprimary concern for the Treaty. Here again, efforts for that purpose have met strong opposition
from the five countries. They are concerned that the disarmament process will be inevitably taken
up if the implementation is more thoroughly checked.
(7)

The Review and Extension Conference of 1995 offered an opportunity to reexamine theTreaty, especially its implementation. The Conference agreed on, in addition to the decision onindefinite extension, two decisions -one on Strengthening the Review Process and the other on
Principles and Objectives for Nuclear Non-Proliferation and Disarmament- and a resolution on the
Middle East, as a package.

These two decisions are extremely important because theimplementation of the Treaty should be checked almost permanently by the strengthened review
process which uses the Principles and Objectives as yardsticks. As the President of theConference, Ambassador Dhanapala, stated at the end of the Conference, "permanence withaccountability" was what most of the countries expected from those decisions. However, the newly
started Preparatory Committee process 1997-1999 was disappointing and obtained few results.

3. NPT Review Conference 2000
(1)
It was anticipated that the RevCon 2000 would be extremely difficult. Some countries
tried to lower expectations in order to avoid a failure of the Conference or rather to avoid being
blamed for the failure, but low expectations would not help in any way the healthy implementationof the Treaty.
The Conference managed to adopt a final document after overcoming various difficulties.
(2)

The Japanese Government's view on the results of the RevCon 2000 is as follows:"It was the first Review Conference of the Treaty since the indefinite extension of theTreaty in 1995 and it was held at a time when the environment surrounding nuclear disarmamentand non-proliferation had been extremely severe since the late 1990s. The achievement of theConference was produced by the strong will of all the participating countries to make a final
agreement possible. The Government of Japan welcomes and appreciates the results as they arevery significant for maintaining and strengthening the nuclear non-proliferation regime and for
promoting nuclear disarmament in the future". (partial quotation)
Foreign Minister Kono further said in his statement at the UN General Assembly:"I highly appreciate the final document adopted at the 2000 NPT Review Conference thisspring, since it contains practical steps to be taken in the future in the fields of nuclear disarmamentand non-proliferation, including an unequivocal undertaking to accomplish the total elimination of
nuclear arsenals."58

Disarmament Process in Trouble(3)

In my view, the Conference was successful in the sense that it did not totally fail byagreeing on the final document. The crisis over the NPT was put off to the future. Therefore, how
to put the results into practice is important. From that point of view, it could be said that the danger
signal is already blinking. At the resumed session of the CD after the RevCon, an agreement could
not be reached on the program of work that included the establishment of an ad hoc Committee on
FMCT and the establishment of a subsidiary body on nuclear disarmament, despite the agreementin the final document.
(4)

It is very much expected that the international environment will be ameliorated and betterand more effective implementation of the Treaty will be achieved in the coming years. If notangible progress is made during the next five or ten years, meaning that if the RevCons in 2005 orat latest in 2010 does not produce reassuring results, then it would not be too pessimistic to foreseethat the global regime for non-proliferation will be tremendously disturbed.

4. Missile defense problems(1)

The NMD program of the US has important implic ations for the international security

environment and, more specifically, for nuclear disarmament and non-proliferation. Russia andChina have reacted very negatively to the prospect of national missile defenses. Several European
countries also view them with concern.
Impacts have been seen in such cases as the commencement of START III negotiations,the ratification of the CTBT by the US and China, and the adoption of a work program at the CD,
including the start of negotiations on FMCT. The development of the NMD program might affectthe entire process of nuclear disarmament between the US and Russia and might also bring about
an increase in the nuclear arsenal of China.
The decision by President Clinton to postpone a decision to deploy a National Missile
Defense has given us breathing space to consider once again its implications and possible ways todeal with it.
(2)

Before stating the position of the Japanese Government on this issue, it might be useful totouch briefly upon the TMD (Japan calls it BMD) on which Japan is conducting joint technologicalresearch with the US.
- Japan decided to initiate Japan-US cooperative technological research on NTWD (NavyTheater Wide Defense), a type of TMD. No decision has been taken on its development
and deployment, which will be considered separately and subsequently on the basis of its
technical feasibility and in accordance with Japan's future defense structure.

59

Disarmament Process in Trouble- Japan's military capability is exclusively defense-oriented. It does not have offensive
capability. For such a country, the only available means to defend itself from possible
missile attacks is to have shields against them.
- TMD (BMD) is not a missile defense covered by the ABM Treaty between the US andRussia. It does not affect the strategic stability specified in the ABM Treaty.
(3)

The position of the Japanese government could be summarized as follows:
Since the US government has been examining the feasibility of the NMD program, it isdifficult for Japan to take a specific position on this issue. With this reservation, Japan understands
that the US sees the recent proliferation of ballistic missiles as a new threat, and that it has been
exploring the program to respond to this threat. Japan hopes that the consultations between the US
and Russia on this issue will be successfully concluded, and that the consultations will becompleted in a way that will contribute to ameliorating the international security environment andto strengthening the arms control and disarmament regime.
Foreign Minister Kono said at the 55th session of the UN General Assembly on President
Clinton's decision, "I also appreciate the postponement by the US Government of its decision to
deploy a National Missile Defense, as a result of prudent consideration with an emphasis on further
dialogue on this important issue."(5)

This Japanese view might not be straightforward or very clear.

The conflicting

circumstances in which Japan is placed do not allow the Government to be very eloquent on thisissue.
Japan is committed to the joint research on TMD without, nevertheless, making final
decisions on its development and deployment. The difference between TMD and NMD is of atechnical and strategic nature and not easily comprehensible to the general public. A critical view
on NMD might risk to lead people to question why Japan carries out research on TMD. Being anally of the US is another consideration. The inhibition to say something that might trouble the US,
especially on defense matters, seems to be much stronger in Japan than among US allies in Europe.
On the other hand, Japan is concerned with the possible serious impacts on theachievements in nuclear disarmament to date as well as on future developments, as a country
vigorously promoting nuclear disarmament. Furthermore, an eventual increase in China's nuclear
arsenal triggered by US NMD would be a direct threat to Japan's security and be a serious concern.
(6)

NMD has too many problems to be actually pursued, in my view. First of all, it would

inevitably challenge the concept of nuclear deterrence, which was and still is the guiding principleof nuclear strategy, without providing any alternative. The US claims that NMD is not somethingthat would affect nuclear deterrent, but it is undeniable that the nuclear deterrent capability ofRussia and China would be affected. In the case of China particularly, their actual deterrent
vis-a-vis the US will become almost nil even in the first phase of the program. Furthermore, it is60

Disarmament Process in Trouble

hard to believe that a missile defense system that costs several tens of billions of dollars or perhaps
more is only for the purpose of defending against a few missiles that might or might not belaunched from certain countries of concern. It is more natural and logical to think that, if a system
is successfully developed, it will be used for more serious threats.
An argument for de-coupling is also raised. Will Americans feel more prepared to cometo help in overseas conflicts or become less interested in them once their own land is secured frommissile attacks? The answer will depend entirely on the specific situations they face, and either
scenario is possible.
(7)

Of course, missile proliferation is a serious problem at present. While the necessity tocope with it is keenly recognized by most of the countries in the world, it is unlikely that NMD is
the right answer because of various adverse consequences it would produce.
(8)
The important part of NMD development relates to American domestic politics. It is
hard to imagine that NMD will be renounced totally unless it is deemed technically infeasible.
It is difficult to find a quick answer to cope with this problem during the breathing space,but we cannot remain idle in view of the adverse effects to global disarmament andnon-proliferation process.
Making efforts to seek effective means to prevent missile proliferation and encouraging
the Americans to conduct further discussions with the Russians and Chinese are among the leastthat international society should be asked to do.

61AgendaThe JIIA-Ifri 9th Joint Conference
Japan-Europe Cooperation toward the 21st Century
25-26 September 2000, Paris
Chaired by Dr Thierry de Montbrial and Amb. Hisashi Owada

Agenda1. Energy Issues and Security●

The Korean Peninsula after the summit meeting - Japanese perspective
Presentation

Prof. Hideya Kurata, Adjunct Research Fellow, JIIA and Associate
Professor,

Discussant●

Tokoha-Gakuen Fuji Junior College

Prof. Français Godement, Senior Associate, Ifri

The future of energy resources: a sub-regional assessment (Russia, Near and CentralAsia) - European perspective
Presentation

Prof. Anita Tiraspolsky, Research Fellow, East European Post-Soviet
Economies, Ifri

Discussant

Mr Seiichi Kondo, Deputy Secretary General, OECD

2. Economic Issues and Security: the issue of integration and mutual dependence
revisited●

The aftermath of the financial crisis in Asia
Presentation Mr Seiichi Kondo, Deputy Secretary General, OECD
Discussant●

Dr Française Nicolas, Senior Economist, Ifri

European monetary integration and its impact on the international financial system
Presentation Dr Michel Aglietta, Scientific Adviser, Centre d'etudes prospectives etd'informations internationales (CEPII)
Discussant

Mr Shinichi Yoshikuni, Chief Representative in Europe, London Office,Bank of Japan

63

Agenda3. Security Issues in Asia and Europe●

The expansion of regional organizations and its implications for regional and global
security
Presentations Dr Guillaume Parmentier, Head of the French Center on the United States,
IfriProf. Satoshi Morimoto, Professor, Takushoku University (paper only)
Mr Masahiro Omura, Director of Research Coordination, JIIA
Discussants

Dr Sadaharu Kataoka, Research Fellow, European Studies and African Issues,
JIIA
Dr Isabelle Cordonnier, Senior Analyst, Delegation for Strategic Issues,
French Ministry of Defence●

The disarmament process and NMD/TMD
Presentation

Amb. Akira Hayashi, Ambassador of Japan to Italy and former Ambassadorof Japan to the Conference on Disarmament

Discussant

Mr Patrick Allard, Policy Planning Staff, French Ministry of Foreign Affairs

64List of participants

List of participants
JIIA Delegation
Hisashi OWADAHead of the delegation, President of the Japan Institute of International Affairs
former Ambassador to the United Nations
Akira HAYASHI
Ambassador of Japan to Italy
former Ambassador of Japan to the Conference on Disarmament
Sadaharu KATAOKA
Research fellow, European Studies and African Issues, JIIA
Seiichi KONDO
Deputy Secretary General, OECD
Hideya KURATA
Adjunct Research Fellow, JIIA and Associate Professor, Tokoha-Gakuen Fuji JuniorCollege
Masahiro OMURA
Director of Research Coordination, JIIA
Haruhisa OYAMA
Chief Representative, Paris Office, Bank of Japan
Shinichi YOSHIKUNI
Chief Representative in Europe, London Office, Bank of Japan
French participantsThierry de MONTBRIAL
Director of Ifri
Michel AGLIETTA
Scientific Adviser, CEPII
Patrick ALLARD
Policy Planning Staff, MOFA
Jean-Marie BOUISSOU
Senior Researcher, CERI
65

List of participants

Isabelle CORDONNIER
Senior Analyst, DAS, Ministry of Defence
General FRERE
Deputy Director, Delegation for Srategic Issues, Ministry of Defence
Francois GODEMENT
Senior Associate, Ifri and Professor, INALCO
Benoit GUIDEE
Japan Desk Officer, MOFANathalie HOFFMANN
Analyst, Office for prospective studies, Ministry of Defence
Pierre JACQUET
Deputy Director, Ifri
Christian LECHERVY
Adviser to the Minister for International Issues, Ministry of Defense
Francois MISSOFFE
former Minister and Former Ambassador to Japan
Francoise NICOLAS
Senior Economist, Ifri
Guillaume PARMENTIER
Head of the French Center on the United States, IfriMarianne PERON-DOISE
Senior Analyst, Delegation for Strategic Issues, Ministry of Defense
Karoline POSTEL-VINAY
Researcher, CERI
Nicolas REGAUDDAS, Ministry of Defense
Laurent SAILLARD
East Asia and Oceania desk - DREE - Ministry of Economy, Finance and Industry
Veronique SELTZ
Economist, CDC-Marches
66List of participants

Regine SERRA
Asia-Pacific Studies, Ifris
Bruno TERTRAIS
Assistant to the Director of Strategic Affairs, Ministry of Defense
Anita TIRAPOLSKY
Research Fellow, East European and Post-Soviet Economies, Ifri
Xavier VERJUS-RENARD
Korean Peninsula Desk Officer, MOFA

67