Report of“An East Asian Community”
andNew Dynamism of Regional GovernanceThe 2nd Year2005 October – 2006 September

Supported by
The Japan Foundation Center for Global Partnership (CGP)The Council on East Asian Community (CEAC)

Preface
As discussions both within and beyond Japan regarding the regional integration of East
Asia have accelerated in recent years, the Council on East Asian Community (CEAC) launched a
3-year project on “‘An East Asian Community’ and New Dynamism of Regional Governance”(October 2004–September 2007) supported by the Japan Foundation Center for Global
Partnership (CGP). The project aims to clarify the root, background, and theoretical frameworkof the concept of an East Asian Community and to provide a policy perspective regarding how
the United States should partake in this framework taking intents and strategies of Asian
countries into consideration.
In its 1 st year (October 2004–September 2005), CEAC held the 1 st International
Workshop on “An East Asian Community and the United States” on June 17-19, 2005 in Tokyo,
with the participation of Mr. Ralph COSSA, President of the Pacific Forum CSIS andrepresentatives from five think tanks from China, South Korea, Indonesia, Singapore, andThailand. In the 2 nd year (October 2005–September 2006), CEAC held the 2 nd International
Workshop on June 20-21, 2006 in Tokyo, with the participation of representatives of think tanks
from Indonesia, South Korea, Malaysia, Singapore, Thailand, and the United States. Following
the International Workshop, on June 22, the “Japan-US-Asia Dialogue” was held with theco-sponsorship of the Global Forum of Japan (GFJ) and the Pacific Forum CSIS. 78 participants,
composed of intellectuals, economists, and politicians from Japan and other countries including
CEAC members, attended the Dialogue. In the 3 rd year of the project, CEAC will publish a bookin English on an East Asian Community and its relationship with the United States as anaccomplishment of the 3-year project.
This report consists of 7 parts, which are based on papers prepared for the 2 nd
International Workshop, in addition to the Workshop materials such as the program and theparticipants list. The 7 papers written by the Workshop participants from Japan, Singapore andthe United States are the preliminary drafts of a book to be published in the 3 rd year of our
project. The report is posted on the website (www.ceac.jp) of CEAC to report the result of our
2 nd year’s activities to the general public of Japan and abroad.
Upon publishing this report, I would like to extend my appreciation to CGP for theirsupport throughout this project.
September 30, 2006
ITO Kenichi
President
The Council on East Asian Community(CEAC)

Table of Contents
1. Emerging East Asian Community? - Political Process
Dr. JIMBO Ken, Senior Research Fellow, the Japan Forum on International Relations (JFIR).........1
2. Trade and FDI Driven Economic Growth and Regional Economic Integration in East Asia
Prof. URATA Shujiro, Professor, Waseda University.....................................................................17
3. Economic Integration in East Asia: A Financial and Monetary Perspective
Prof. SHIRAI Sayuri, Professor, Keio University..........................................................................44
4. Political and Security Cooperation in East Asia?
Dr. FUKUSHIMA Akiko, Senior Fellow and Director of Policy Studies, National Institute for
Research Advancement (NIRA).....................................................................................................66
5. Diversifying Cultures and the Concept of an East Asian Community
Prof. AOKI Tamotsu, Professor, Waseda Univesity.......................................................................88
6. East Asian Community and the United States: U.S. View -- One Step Forward, Two Steps Back?
Mr. Ralph COSSA, President, the Pacific Forum CSIS..................................................................94
7. An East Asian Community and the United States: A View from ASEAN
Mr. Simon TAY, Chairman, Singapore Institute of International Affairs......................................110
8. The 2 nd International Workshop on “An East Asian Community and the United States” (June 20-21,
2006, Tokyo, Japan)……………………………………………………………………………………….133(1) Program……………………………………………………………………………………….........133(2) Participants List……………………………………………………………………………………….135(3) Curriculum Vitae of Participants……………………………………………………………………...136

1.

Emerging East Asian Community? - Political Process

Dr. JIMBO Ken
Senior Research Fellow
The Japan Forum on International Relations (JFIR)
Introduction
Regionalism and Regionalization in East Asia and wider Asia-Pacific region have accumulated as
multi-layered frameworks of Mega-regionalism, sub-regionalism and various forms of Ad-hoc
multilateralism 1 . Among various types of regional framework, the recent trend represents the rise of “EastAsia” especially since 1997, the year launching of the ASEAN+3 Summit Meeting. Although it is relatively a
new trend to forge regional cooperation based on the ASEAN+3 processes, there have already been 48
official Meetings among 17 areas (e.g. finance, trade and investment, labour, health, IT, tourism, education,etc.) come into force under the framework of 10+3 process 2 . Based on such accumulative regionalization
process, the East Asian Summit (EAS) launched since December 2005 represents the significant milestone ofcommunity building in East Asia.
Although the term “East Asia” has been given a birth as the political process, its signified image(signifier) as a region has been varied by observers. One of the most important fundamentals of East Asia has
been the de facto regionalization represented by the drastic expansion of intra-regional exchanges andincreased interdependence among countries in the region, particularly after the late 1990’s.
During the last 10 years, the trade volumes between Japan and China, China and South Korea, andChina and ASEAN have increased by four, eight and six fold respectively. In the figure of 2003, the East
Asian intra-regional trade share has marked 53.3% (including Taiwan and Hong Kong) while it was only
33.6% in 1980. The figure exceeded the rate of NAFTA (44.5%) and getting closer to the rate of EU (60.3%).
Its share of the global GDP accounts for one fifth, and countries in the region now hold about a half of theworld foreign reserves. Moreover, with the increased trends of horizontal production networks in the
manufacturing sectors, East Asia has provided the cross-border ‘integrated economic space’ to forge dynamic
competitiveness.
The functional regionalization in East Asia has facilitated by a growing awareness of enormous
potential and opportunities of closer regional cooperation on common interests and concerns. It isnoteworthy that several major incidents after the late 1990s played a role as a vital catalyst for foundation ofvarious ASEAN+3 processes. One is the financial crisis in 1997, which awakened people of the region to theneed of a regional approach to secure their financial institutions and financial markets. The other is the riseof asymmetrical threats such represented by the terrorist attacks on September 11 th 2001, which underscoredthe importance of regional cooperation in addressing terrorism and other transnational issues.
In dealing with these events, regional networks of functional cooperation have spread swiftly inwide-ranging issues, such as finance (the Chiang Mai Initiative and the Asian Bond Market Initiative),various types of Free Trade Agreements, and transnational issues (terrorism, illicit drug trafficking, sea
piracy, trafficking in persons, non-proliferation and public health), etc. Although functional cooperation does
not automatically define the fixed membership in nature, ASEAN+3 formats has provided a common divisor
as a regularized official process to cover these functional agendas.
1
2

T.J. Pempel, Remapping East Asia: The Construction of a Region (Cornell University Press, 2005)
ASEAN Secretariat, “ASEAN Plus Three Cooperation” http://www.aseansec.org/16580.htm
1

Finally, the regionalization in East Asia as a community building is more comprehensive process.
The term ‘community’ is again a multifaceted concept of which many observers have different images 3 .
Most broad sense of community could be defined as a group of countries sharing some values in common(shared values), having a sense of giving oneself to another (attribution), and interacting beyond functionalbases (comprehensiveness). If those dimensions are applied, the record of building bloc process of
ASEAN+3 and East Asian Summit could be characterized as a process of community building 4 . The “Joint
Statement on East Asian Cooperation” agreed at the third ASEAN+3 Summit in November 1999 outlined themember countries’ commitment to economic, social and political areas of cooperation and called for each
Ministerial process to engage in the process. The Kuala Lumpur Declaration at the First East Asian Summit
in December 2005 has also identified the process of “dialogue on broad strategic, political and economic
issues of common interest and concern with the aim of promoting peace, stability and economic prosperity inEast Asia”.
This paper tries to focus on opportunities and obstacles for the East Asian Community byespecially focusing on the political process of ASEAN+3 and East Asian Summit. First, the paper
underscores the framework of analysis, which aims to provide the current trends of creating a ‘region’.
Second, the paper analyses the process of the ASEAN+3 and East Asian Summit to extract the commonalityand diversity of the concept of “East Asia”. Finally, the paper outlines the current ad-hoc cooperation
mechanism and its possibility to apply in context of new regionalism.
Framework of Analysis: Nature of “Post”- Mega Regionalism
First Wave of Regionalism: Failure in 1960s
The term ‘region’ could be defined in various terms. In international relations, it generally indicatesthe multilateral groupings of neighboring nations. However, when it comes to the term ‘regionalism’, itrather suggests a functional relation that bundles multiple nations with their political, economic and cultural
inheritance, often based on the advantages geographical proximity 5 . If one tries to look into the‘regionalism’ we need realize that it is the dynamic concept of geopolitics/economics, which rests between
the global governance and the bilateral rational choice of the government. Thus, ‘Regions’ are fluid andcomplex mixtures of physical, psychological, and behavioral traits that are continually in the process of
being re-created and redefined 6 .
Historically, after the WWII, it is often said that there have been three waves of regionalism 7 . The
first wave arose in 1960s, among the members in West Africa, Latin America and Caribbean States etc.
These regionalisms took form as Free Trade Area, Customers Union and other trade agreements with taking
advantage of the special treatment in the GATT Article 24 th .
It is to our common knowledge that these first waves of regionalism ended in failure (except for the3This confusion might further deepen by how the concept is introduced (or translated) in local languages.
For example, the term kyodotai（共同体）in Japanese indicates high degree of adhesion within the groupbundled by consanguinity and ownership, which is more determined concept than the casual ‘group ofpeople sharing (something) in common’.
4
In this regard, areas of cooperation of which ASEAN+3 and East Asian Summit cover are morecomprehensively defined than APEC (economic oriented) and ARF (political-security oriented) process.
5
Robert Z. Lawrence, Regionalism, Multilateralism, and Deeper Integration (Washington DC: The
Brooking Institution, 1996).
6
T.J. Pempel, Remapping East Asia, p.4; Edward D. Mansfield and Helen V. Milner, eds., The Political
Economy of Regionalism (New York: Columbia University Press, 1997).
7
Jaime De Melo and Arvind Panagariya eds., New Dimensions in Regional Integration (Cambridge
University Press, 1993).
2

original European Community and EFTA) because of various reasons. 1) There were no participation of big
economies to these regional gathering, 2) these regions tended to pursue the import substitution policy, and3) they rather emphasized the protection of national industry sectors through preferential trade agreement
and strong protectionist policy. Some lessons learned from the failure of the first wave was that the region
pursuing the import substitution among small and medium size economy will lose their competitiveness anddecrease its validity, especially the international economy became more interdependent in 1970s 8 .
The Second Wave in 1980s: Premise of ‘Open Regionalism’
The Second Wave, derived from the famous term by Prof. Jagdish Bhagwati, came along in late1970s and 80s with the rising of wider regionalism or ‘mega-regionalism’ based on the principle of the ‘open
regionalism’ 9 . Rising East Asian economy and the decline of the dominant economic status of the UnitedStates (“After Hegemony”: Robert Keohane) had both promoted the relative rise of regional groupings suchas the Asia Pacific Economic Cooperation (APEC) and Asia Europe Meeting (ASEM) process.
The concept of open regionalism has also been applied to the political and security cooperation in
the Asia Pacific. Based on the strategic environment after the end of Cold War in Asia, nearly 20 countries in
Asia-Pacific have agreed to form the ASEAN Regional Forum (ARF) in 1994 to promote confidencebuilding among nations by increasing exchanges among officials/non-officials contacts and transparency of
their security policies.
The premise of the open regionalism was based on ‘inclusiveness’ and ‘equality’, where countries
in the region are, in principle, open to participate in the forum. The membership of the regime is based on theexistence in the region, not exclusively by its characteristics. “Engagement” was the core principle for thistype of multilateral cooperation by the inclusion of the states, as the APEC engaged Taiwan and Hong Kong,
and ARF successfully engaged China, Russia, enlarged ASEAN, India, Pakistan and North Korea.
The Third Wave: Rise of Bilateralism/Ad-hoc Mechanism to form Region
As we entered in the 21 st century, we have now witnessed the new forms of regionalism in Asia,
which does not necessarily adhere to this unequivocal inclusive nature. The emerging impetus of bilateralism
and functionalism—such as bilateral Free Trade Agreements (FTAs) and other functional cooperation—are
made up by the capability and the willingness of actors. Although most of the existing coalitions have theprinciples of open memberships and do not exclude the future participation of non-member, the tacit
assumption of such coalitions of the willing does not necessary includes the countries that are reluctant tocooperate within the framework. It virtually leads to the politics of exclusion.
The primary benefit of such coalition of the willing may be; they could evolve cooperation withlike-minded states to ensure higher level of cooperation. It could even be regarded as a counter argument
toward ‘inclusive region-based’ cooperation like the APEC and the ARF, which recently failed to address
vigorous developments for cooperation as long as participating countries “continue to move at a pace
comfortable to all participants and on the basis of consensus.” Instead, the coalition of the willing will set up
the higher degrees of cooperation without the interference of external actors, and invite them after thecoalition has set up the agenda.
8Also, these LDCs pursued attempting such unions sought to allocate industries by bureaucratic negotiationand to tie trade to such allocations, rather than use trade liberalization and hence prices to guide industry
allocation. Ibid, p.28.
9
Jagdish Bhagwati, “Regionalism and Multilateralism: an overview” in Jaime De Melo and Arvind
Panagariya eds., New Dimensions in Regional Integration, op.cit.
3This paper tries to argue that the current process of ASEAN+3 is more likely to be based on the
networks of such bilateral frameworks and agreements. Financial Cooperation such as Chiang Mai initiativeis the bundle of bilateral swap arrangements; other functional cooperation is also being made throughcoalitions of the willing.
Development of ASEAN +3 Framework
Financial Cooperation
The ASEAN+3 process has been developed by the efforts to recover from the Asian currency crisis.
Even today, the most advanced area of cooperation within ASEAN+3 is in the field of financial cooperation.
Before having the idea of Chiang Mai Initiative, Japan's initial proposal to create a $100 billion
Asian Monetary Fund (AMF) was aborted due to opposition from the United States and the IMF. Also, China
was said to be reluctant to go with the idea. The overall sentiment, however, has changed substantially in1998 as a turning point. After witnessing currency crises in Russia and Central America, the U.S. has comeround to thinking that it would be more positive to let Japan play a greater role in financial cooperation in
Asia. China has also realized that the stabilization of the global economy, particularly that of the Asian
economy, is crucial to its own economic development, and thus has come to support the idea of creating a
region-wide framework for currency stabilization 10 .
As a major step in this direction, the Chiang Mai Initiative, a network of bilateral currency swap
agreements, was launched in 2000. The Chiang Mai Initiative is also meaningful as a confidence-building
step. It has introduced a crisis prevention mechanism and sent out a message that Asian countries would join
forces in the event of crisis. Such signaling is quite important because it discourages to some extent
speculative moves by foreign funds and provides some assurance that a crisis would subside at an early stage
even if one occurred.
Beyond the Chiang Mai Initiative, ASEAN+3 is currently seeking for establishment of Asian Bond
Market, to fund especially to Small and Medium Enterprises in East Asia to subsidize the mid and long-term
capital resources. In addition to the Bond Market Initiative, there are several ideas are floated to stabilize
regional financial and equity market. Some argues that East Asian countries could shift from the current defacto dollar peg system to a band, basket and crawling (BBC) regime with each country pegging its currency
to a different currency basket. For instance, South Korea, which competes with Japan in exports, should
adopt a basket in which the yen carries substantial weight. The trade volume between the two countries may
not affect rather than their concern on competitiveness in the global market, that is, in exports to the U.S. andEurope.
Newly Industrializing Economies (NIEs) are generally in the same situation. They should peg theircurrencies more closely to the yen rather than to the dollar so as to avoid negative impacts from the volatilityof dollar-yen exchange rates. But the yen could dominate a much smaller portion of the currency basket for
China and other countries that are far behind Japan in economic development and do not compete with Japanin exports. They can change the composition of their currency baskets according to changes in theirrespective trade structures. When countries come to have similar trade structures, the precondition forforming an optimum currency area, they can move into the second stage, which would be to peg theircurrencies to a single, common currency basket.

10

Phillip Y. Lipscy, “Japan’s Asian Monetary Fund Proposal” Stanford Journal of East Asian Affairs, Vol.3,
No.1 (Spring 2003).
4

Functional Cooperation
On the functional cooperation, there are wide array of cooperation in progress including trade andinvestment, IT, transnational issues, development assistance, energy security, environmental preservation,
disaster prevention, food security and health care.

As mentioned earlier, there are 48 consultative bodies

covering 17 areas exist within the ASEAN+3 frameworks in progress. What is important here is that thescope of participating countries in such cooperation is decided flexibly and openly according to thecharacteristics of each area. Countries outside the ASEAN+3 frameworks such as Australia, New Zealand,
India and the United States play important role in the functional cooperation.
Functional approach compared to the institutional approach attempts to create a various types ofcommunity through the promotion of cooperation in individual fields, rather than building comprehensive
institutional and legal frameworks from the outset. Such functional approach is more likely to promote
cooperation in East Asia since East Asia has enormous diversity and disparities which makes such approachmuch more appropriate.
The challenge we face today is how to converge one functional cooperation with another. If wepromote various types of FTAs (from Economic Partnership Agreement to Early Harvest-type FTA) without
any coordination, the nest of FTAs contains different types of standards which make the ‘Spaghetti Bowl’
Effect. It is very important to network those bilateral bases of cooperation to regional one, with having highstandards of cooperation and harmonization of rules and standards.
Other functional forms were added to the ASEAN+3 framework; the Economic Ministers Meeting
was held first in Yangon on 2 May 2000 and has been held annually since then. As Table 1 indicates, otherareas such as labor, agriculture, tourism, energy, and environment are also now being discussed at theministerial level.
Table 1: Scope of ASEAN+3 Cooperation
Area

Year of Establishment

Political and Security

2000

Economic, Trade, and Investment

2000

Finance and Monetary

2000

Agriculture, Fishery, Forestry

2001

Labour2001

Environment

2002

Tourism

2002

Culture and Arts

2003

Energy2004

Health2004

Information Technology and Communications

2004

Social Welfare and Development

2004

Transnational Crime and Counter-Terrorism

2004

Science and Technology (SOM only)

2001

Youth (SOM only)

2004

Source: This table is slightly modified from that which is presented in the ASEAN Annual Report, 2003-2004,
p. 66, <http://www.aseansec.org/AR05/PR-Partnership.pdf>.
5

Political and Security Cooperation
From the mid-1990s increased support for an East Asian grouping. These included:The inauguration of the Asia-Europe Meetings (ASEM) in 1996, which explicitly involved dialogue
between Europe and an 'Asian side';

The traumatic impact on many regional economies of the Asian financial crisis from mid 1997,
which prompted many regional states to consider the desirability of greater cooperation to forestall
any future crisis and to add greater 'weight' for Asia in relations with international institutions suchas the International Monetary Fund;

APEC’s inability to maintain the momentum towards trade liberalisation it had in the mid 1990s;



A continuing sense that the ongoing development of regional groupings in Europe (the EU) and theAmericas (the North American Free Trade Agreement) should be accompanied by greater East Asian
cooperation; and

China’s dynamic economic growth which stimulated a rise in the importance of trade among thecountries of East Asia.

All these developments contributed to the opening up of 'political space' for an East Asian grouping 11 .
One of the most significant milestones of the ASEAN+3 political processes is the agreement on‘Joint Statement on East Asia Cooperation’ at the third ASEAN+3 Summit in November 1999. ASEAN+3
leaders have agreed upon the issue areas of economic cooperation, monetary and financial cooperation,social and human resources development, scientific and technical development, cultural and information
areas, development cooperation, political-security area and transnational issues, which should be covered bythis process, and mentioned that “political and other fields” are important as follows. 12・ in the political-security area, they agreed to continuing dialogue, coordination, and cooperation
to increase mutual understanding and trust towards forging lasting peace and stability in EastAsia;
・ in the area of transnational issues, they agreed to strengthen cooperation in addressing common
concerns in this area in East Asia.
Another important development in Manila was the informal breakfast attended by the leaders ofChina, Japan and South Korea. Within the ASEAN+3 gathering, the ‘+3’ component of three-way
cooperation was much weaker than the corresponding ASEAN cooperation. In fact, there had never been asummit among the leaders of the three countries in Northeast Asia. At the initiative of Japan’s Prime Minister
Obuchi, the three leaders agreed to have a separate meeting of their own for the first time.
With the third meeting in Manila, ASEAN+3 clearly established a life of its own as a viableinternational institution in East Asia. It was determined that its summit would be held annually; it defined thescope of the group’s activities as being very comprehensive; it created functional ministerial meetings; and it
created an advisory panel to consider future directions. Annual summits, however, have continued to be thefocal point for ASEAN+3 cooperation. At the 2000 Singapore summit, a range of new ideas were raised suchas the desirability of transforming the ASEAN+3 summit into an East Asian Summit and desirable forms of
free trade in the region. President Kim Dae Jung proposed the establishment of an East Asia Study Group(EASG) composed of government officials to ‘explore practical ways and means to deepen and expand theexisting cooperation’ among ASEAN+3; it was tasked to ‘assess the recommendations of the EAVG’ and to
11

Richard Stubbs, ‘ASEAN Plus Three: Emerging East Asian Regionalism?’, Asian Survey, v. 42 no. 3, May- June 2002, pp. 440–455
12
ASEAN Secretariat, “Joint Statement on East Asian Cooperation” (28 November 1999).
http://www.aseansec.org/5469.htm
6‘explore the idea and implications of an East Asian Summit’. 13
The EAVG presented its report to the ASEAN+3 summit in November 2001 with the opening
statement stating, ‘We, the people of East Asia, aspire to create an East Asian community of peace,
prosperity and progress based on the full development of all peoples in the region.’ 14 The goals the EAVG
agreed upon to create an East Asian community included:
・ To prevent conflict and promote peace among the nations of East Asia;
・ To promote trade, investment, finance and development in the region;・ To advance human security and well-being, in particular by facilitating regional efforts forenvironmental protection and good governance;
・ To bolster common prosperity by enhancing cooperation in education and human resources
development; and・ To foster the identity of an East Asian community by encouraging active exchanges and regulardialogues at both the governmental and non-governmental levels. 15
The report, based on these goals in mind, made 57 concrete recommendations including 22 major
recommendations encompassing five areas of cooperation: economic, financial, political and security,environment and energy, and social, cultural and education. The most noteworthy recommendations
included:・ Establishment of the East Asian Free Trade Area (EAFTA) and liberalisation of trade wellahead of the APEC Bogor Goal;・ Establishment of a self-help regional facility for financial cooperation;
・ Adoption of a better exchange rate coordination mechanism consistent with both financial
stability and economic development.
・ Evolution of the annual summit meetings of ASEAN+3 into the East Asian Summit.
The East Asia Study Group examined all EAVG recommendations and presented its report to the2002 Phnom Penh Summit. This was the first substantive government-level policy agreement reached within
the ASEAN+3 process. The EASG report positively assessed the EAVG report by saying: ‘It provided East
Asian countries with a good compass to show the right direction towards a bright future of East Asia.’ 16
After examining all EAVG recommendations, the EASG concluded that 17 of them should be selected as‘short-term measures’ to be implemented, and nine of them should be selected as ‘medium-term andlong-term measures to require further studies’ 17 .
The EASG report was significant in the sense that the newly established framework of ASEAN+3
could agree at all about concrete measures of joint action. However, it revealed its limitations too; the EASG
virtually postponed its judgment on difficult issues by designating them as ‘medium-term and long-term
measures’. For example, the four recommendations of the EAVG listed above were all categorized as these‘medium-term and long-term measures’ that required further study. Nonetheless, although limited, theoutcomes from the EASG report do show a willingness to move beyond talk into substantive policy actions.
While officials of the EASG deliberated over various measures in 2001 and 2002, the regional
political momentum moved from Seoul and Tokyo to Beijing. President Kim Dae Jung’s failure to improve

13

Final Report of the East Asia Study Group, ASEAN+3 Summit. (Phnom Penh, 4 November 2002), p. 64.
Towards and East Asian Community: Region of Peace, Prosperity and Progress. East Asian Vision Group
Report, 2001. p. 6.
15
Towards and East Asian Community: Region of Peace, Prosperity and Progress, p. 16.
16
Final Report of the East Asia Study Group, p. 13.
14

17

Final Report of the East Asia Study Group, p. 13.
7

the North-South relationship after a historic visit to Pyongyang in 2000 led to declining approval ratings in2001 and compromised him during the 2002 presidential campaign. A series of leadership changes deprived
Japan of opportunities to shape regional policies. Prime Minister Keizo Obuchi, who was a strong supporterof Japan’s ties with ASEAN+3, was replaced by Yoshiro Mori after falling ill in April 2000. Mori, unable toimprove his popularity, was forced to resign next spring and Junichiro Koizumi took office in April 2001.
Koizumi, though immensely popular when he assumed the prime minister, was slow to focus on developing
an Asia policy. Rather his immediate task was to improve relations with the United States and to cooperatewith the US and the international community after the 9/11 terrorist attacks.
Regional Actors and East Asian Community
ASEAN
In past years, ASEAN strives to become more of a coherent community, through the establishment of
the ASEAN Community (articulated in the Bali Concord II in 2003) that constitutes ASEAN Security
Community and an ASEAN Economic Community and ASEAN Socio-Cultural Community. These reactions
are motivated by how ASEAN try to coordinate two difficult questions: that is to deal within the problems in
ASEAN, especially forging trade and investment through FTAs at the same time to deal with theunderdeveloped nations namely Cambodia, Laos, Myanmar and Vietnam (CLMV) through the redistribution
polity. ASEAN also wanted to lead the process of regionalism in East Asia, by defining its own concept ofcommunity building earlier than any other actors in this region in order to maintain their position of “drivers’seat” in regionalization process.
ASEAN’s recent efforts have also shown just how difficult it is to get these nations—some of whichhave been closely aligned for over 30 years—to think and act as one, especially in the political and security
arena. Developing a lowest common denominator for security cooperation among these ten diverse nations isdifficult enough. If current established multilateral community-building mechanisms, such as the ASEAN,
APT, the ASEAN Regional Forum (ARF) and Asia Pacific Economic Cooperation (APEC) “gathering of
economies” are any indication of the willingness of East Asian nations (regardless of how the term isdefined) to seriously address issues of regional governance, one should not expect much progress soon.
In building the ASEAN Community, the ASEAN member countries are now committed todeveloping an ASEAN Charter to provide the constitutional framework for ASEAN. The ASEAN Charter,
which will be a landmark constitutional document embodying fundamental principles, goals, objectives andstructures of ASEAN cooperation capable of meeting the needs of the ASEAN Community and beyond. It isnoteworthy that the Charter aims to promote democracy, democratic institutions, human rights, transparency
and good governance 18 . The Charter will include ‘political norms and values’ that would promotetransparency and accountability among members.
China
In the meantime, China, which had long been reluctant and passive to any multilateral cooperative
frameworks, began to take active initiatives to cultivate its relationship with ASEAN countries. Prime
Minister Zhu Rongji, at the ASEAN+China summit in November 2000, proposed to establish an FTA
between China and ASEAN countries. 19 In the next year’s summit, Zhu agreed with his ASEAN
18

Christopher Roberts, “The ASEAN Charter: A Crossroads for the Region?” IDSS Commentaries, 1
September 2005. http://www.ntu.edu.sg/idss/publications/Perspective/IDSS602005.pdf
19
Based on this decision, an ASEAN-China Expert Group on Economic Cooperation was created; its report
was submitted to the ASEAN+China summit in 2001. See <http://www.aseansec.org/newdata/asean_ chi.pdf >.
8

counterparts to conclude an FTA between ASEAN and China within ten years. At the 2002 ASEAN+China
summit, China and ASEAN concluded a ‘Framework Agreement of Comprehensive Economic Cooperation’,
which stipulated approaches and modalities to facilitate economic cooperation including an FTA. Thisagreement included a provision to realize trade liberalization immediately in some sectors, known as the‘Early Harvest program.’ 20 In 2003, China became the first dialogue partner of ASEAN to sign its Treaty ofAmity and Cooperation. Since then China has continued to expand the scope and depth of its cooperation
with ASEAN, with a new bilateral dispute resolution mechanism being agreed upon in 2004 and cooperationin disaster planning and relief operations being undertaken in 2005. 21
When the idea of an East Asian Community was floated, it becomes more obvious that China wasseeking more than just economic benefits through its approaches to ASEAN. By compromising with ASEAN
over the South China Sea dispute and China’s accession to the TAC—ahead of Japan and other nations—was
also an important steps to improve political relations with ASEAN. 22
U.S.
The US Secretary of State Condoleezza Rice made a speech on the US’s Asia policy on March 19,
2005 at Sophia University in Tokyo. The “Pacific Community” and “openness and choice” were the
keywords when she outlined the regional architecture.
The future of Asia and the Pacific community will be defined around two great themes—openness
and choice. Instead of closed societies or economies, instead of spheres of influence, we stand foran open world. Instead of an exclusive club of powers, we stand for a community open to all. But
states must choose. They must choose whether to be a part of that community of openness,
accepting the responsibilities that go with it. The United States and Japan have already made thatchoice, and we are honored to have a democratic Japan as a friend.
――Speech by Secretary of State Condoleezza Rice 23
Prior to that speech, Japan and United States have issued “Joint Statement of the Japan-US Security
Consultative Committee” on February 19th , with having recognition of welcoming the “development ofvarious form of regional cooperation” while stressing the “importance of open, inclusive and transparent
regional mechanisms” as a bilateral common strategic objective in the region 24 . The term “regional
cooperation” clearly included the recent strives for developing East Asian frameworks. At the Rice speech,
however, such embracement of other regional cooperation was not reiterated, but the “Pacific community”
was the only concept when she described the region.
It is still unclear whether the US perceives the East Asian grouping would serve the US regional
interests. Several in the US, including ex-Vice Secretary of State Richard Armitage, openly opposed the idea
of East Asian community (and holding of East Asian Summit). Apparently three concerns were raised. First,
the East Asian community would create or increase the Chinese sphere of influence in the region. Given thegrowing economy and political influence of China, building of a regional framework without the US might
create China-led community, which disturbs the US engagement in East Asia.
20<http://www.aseansec.org/13196.htm>.
Source: ASEAN-People’s Republic of China, < http://www.aseansec.org/4979.htm>.
22
Susumu Yamakage, “The Construction of an East Asian Order and the Limitation of the ASEAN Model”,
Asia-Pacific Review, Vol.12, No.2, 2005
23
Condoleezza Rice, “Remarks at Sophia University” (March 19, 2005)
http://www.state.gov/secretary/rm/2005/43655.htm
24“Joint Statement of the Japan-US Security Consultative Committee” (February 19, 2005)
http://www.state.gov/r/pa/prs/ps/2005/42490.htm
921

Second, the East Asian community will challenge the flexibility of bilateral “hub-spokes” systems
thus to increase the transaction cost in both security and economic relations. Third, the East Asian
community might serve as an excuse to delay the democratic transition of authoritarian regimes in the region
by introducing an Asian model of governance. With these factors, the US seems to have rejected to apply theanalogy of trans-Atlantic relations, where NATO and EU play the complementary role. The logic became
more clear when US tries to emphasize the trans-Atlantic relations as “community of democracies,” incontrast to the trans-Pacific relations.
Japan
Japan had long been reluctant to engage in any kind of bilateral FTAs, but seeing the emergence ofincreasing complex network of FTAs throughout the world, finally decided to start seriously focusing on the
conclusion of an FTA agreement. The first country with which Japan did so was Singapore, which had few
sensitive export products to Japan. The negotiations started in October 2000 and were concluded by January
2002 when Prime Minister Koizumi visited Singapore. In his policy speech delivered in Singapore, Koizumi
proposed to create a ‘community that acts together and advances together.’ 25 In the subsequent summit inPhnom Penh, ASEAN and Japan issued a ‘Joint Declaration on the Comprehensive Economic Partnership’(CEP), and in the 2003 summit, they concluded a ‘Framework for Comprehensive Economic Partnership.’ Asbuilding blocks to establish a Japan-ASEAN CEP, bilateral FTA negotiations were started in December 2003
between Japan and Thailand, between Japan and the Philippines, and between Japan and Malaysia. Japan andSouth Korea also agreed to start bilateral FTA negotiations in 2003. Since then Japan has also acceded to theTreaty of Amity and Cooperation (in 2004) but still remains far behind China in terms of bilateralagreements, treaties and memoranda with ASEAN.
In 2002 Policy Speech, Prime Minister Koizumi mentioned Australia and New Zealand as potential
partners in ‘expanded’ East Asian community, suggested the potential enlargement of the concept of East
Asia. Since Japan has become a late comer, however, in the bilateral FTA dynamics especially with ASEAN
member states, it has been fallen behind to find new core attachment to develop relations with ASEAN,
notably the TAC accession. Japan’s failure to make concessions to the ASEAN nations in the course of tradeliberalization negotiations has also slowed the progress of economic partnership. 26
Japan’s stance towards East Asian Community became clearer when the Japanese government
floated the “Issue Paper” at ASEAN+3 Foreign Minister’s Meeting in June 2004. 27 In the Issue Paper, theJapanese government reaffirmed the importance of enhancing regional cooperation, and analyzed that 1)
ASEAN’s leading role in community building, 2) functional cooperation plays the prominent role, 3)
ASEAN+3 should involve other regional actors, and 4) ASEAN+3 should continue to articulate principles
such as openness, transparency, inclusiveness and conformity with global norms and systems. 28
The Japanese government also raised points to clarify regarding the modality of East Asian Summit
in the “Issue Paper”. Especially, 1) fundamental objective of the East Asian Summit, 2) difference between
East Asian Summit and ASEAN+3 Summit, and 3) organization of East Asian Summit have been repeatedly
mentioned in question format. By laying out these agendas, the Japanese government seek to have theSummit which could be compatible to 1) Japan’s security commitment with the United States, 2) Japan’s
25<http://www.mofa.go.jp/region/asia-paci/pmv0201/speech.html>.
Susumu Yamakage, ibid.
27“Issue Papers provided by the Government of Japan” (25 June, 2004)
http://www.mofa.go.jp/region/asia-paci/issue.pdf
28
Ibid.
10
26

economic engagement in this region and APEC/WTO process, and 3) promoting openness and inclusivenessof the Summit process.
East Asian Summit and East Asian Community
Political Process of East Asian Summit I: Modality A and A’
Another item on the agenda for East Asian countries is the commencement of East Asian Summit.
The issue, which was virtually put on the shelf after the proposal of EAVG, was materialized by holding thefirst East Asian Summit in December 2005. The original idea of EAS derived from the EAVG proposals, thenby EASG as a medium and long term goals. However, Malaysia, who happened to be the host country of
APT in 2005, strongly wanted to pursue this goal because they had a legacy of EAEC in early 1992, theywanted this concept in their hands.
The earlier thoughts on East Asian Summit were not conceptualized fully to create a new regionalframework. Rather, it was more like upgraded version of ASEAN+3 process replaced by renamed as “EastAsia.” But several considerable challenges and political struggles came across, before/during the ASEAN+3
Vientiane Summit in 2004.
China has made clear its hope to hold the Second East Asian Summit in 2007, a year before the
Beijing Olympic. With coordination with Malaysia, both countries tried to set the modality as: 1) East Asian
Summit should be held once in two years, 2) ASEAN and non-ASEAN countries may host in rotation, 3) its
membership will be ASEAN+3 (Modality A). In response to the Chinese proposal, Japan raised an additional
proposal which tried to transform from single Chair to Co-Chair system comprised of ASEAN and
non-ASEAN countries, and Japan wanted to co-chair with Malaysia at the first Summit (Modality A’ 29 ) 30 .
As for the membership issue, Beijing—anxious to entrench its influence over and even dominanceof this regional forum from the outset—wished to restrict participants to Southeast and Northeast Asianstates (that is, the existing ASEAN+3 members). But Tokyo favored a more all-encompassing grouping inwhich China’s power and influence would implicitly be balanced by the presence of extra-regional
stakeholders, most importantly the United States.
Neither Modality A nor A’, however, worked out. At the ASEAN+3 Vientiane Summit in 2004,
Philippines strongly opposed to both ideas since Philippines were to be scheduled to host the ASEAN+3
Summit in 2007 (until Myanmar declines its chairmanship in 2006), which makes conflict between hostingof ASEAN+3 and East Asian Summit at the different venue. Certainly, Philippines thought that ASEAN+3
process would be diluted and lose the influence as a Chair.
Indonesia, and to some extent, Vietnam and Myanmar opposed to the idea of Modality A/A’ at theVientiane Summit, because they thought that the ASEAN could be marginalized in the East Asian Summit
process, since the +3 countries may have stronger influence over it. They thought that it might be not too
wise to create the framework which would lose the ASEAN's grip. They insisted that the integration process29

At the “Issue Paper” proposed by the Japanese government, Japan promoted the “double-track” approach
to invite Australia and New Zealand as a “dialogue partner”. “In this case, an EAS would consist of both a‘core session’ held by ASEAN+3 alone and an ‘expanded session’ in which both ASEAN+3 and regional
partners would participate. In the ‘core session’, ASEAN+3 would discuss key issues related to community
building. In the ‘expanded session’, ASEAN+3 would brief the regional partners of their discussions in thecore session. Other wider issues could also be discussed in the ‘expanded session’. Ideas from experiences in
the PMC could be drawn upon in arranging the ‘expanded session’” Japan Ministry of Foreign Affairs,
Issue Paper (June 2004)30
On the ground of policy planning, the Ministry of Foreign Affairs thought that China may have a bigger
bargaining power to obtain the role of Chair, since Japan has already had Japan-ASEAN Special Summit
Meeting in December 2003. Interview with MoFA officials (August 2004).
11

of ASEAN should come first.
Japan was positive but with having certain level of ambivalence about East Asian Summit. Its
original position was that East Asian groupings should include countries like Australia and New Zealand,since Japan attach importance of these liberal democracies. APT would become a process for further
independence of financial cooperation, trade and investment but if it is upgraded to East Asian Summit, theyclaimed that countries beyond ASEAN+3 should be included at least as dialogue partners.
Political Process of East Asian Summit II: Modality B
Then, there were important sea change in the spring of 2005 when every country tried to seek foran agreeable modality of the East Asian Summit. Singapore started to think that India, who has been
claiming to become a member of East Asian Summit, should not be ignored due to their rapid economic
growth. Singapore, Vietnam and Indonesia began proposing that Australia and New Zealand could be invitedwith different reasons in their mind. For Singapore and Indonesia, their prosperous neighbors are also in
down-under. For Vietnam, it might also be beneficial for them to counter-balance Chinese influence in theregion, then to give ways to introduce resources and funds from multiple nations.
Meanwhile, ASEAN came up to consensus of inviting Australia, New Zealand and India as
full-fledged members, not as a observer or dialogue partner. During the process, ASEAN has created thethree criteria for participation for East Asian Summit and floated to other +3 members. These are, East Asian
Summit members should 1) have close relations with ASEAN, 2) be a full-dialogue partner with ASEAN and3) be the signatory of the Treaty of Amity and Cooperation (TAC) (Modality B).
With the Modality B becoming the least common denominator, ASEAN once again became thecenter of the community building process, and was seen to be expanded into wider East Asian Summit
process. The annual meeting of the East Asian Summit shall be organized by the ASEAN Secretariat inconsultation with the other members. Eventually, ASEAN member states, and other members of the Summit
have agreed that ASEAN shall host the annual meetings of the East Asian Summit, which will be held inconjunction with the ASEAN Summit annual meeting. Thus, the East Asian Summit will be held under thechairmanship of ASEAN.
The decision to invite Australia and New Zealand as a formal member to the Summit was part of an
attempt by Singapore, Indonesia and Vietnam with having a full support, shortly afterwards by Japan 31 . The
ASEAN countries demanded Australia sign a Treaty of Amity and Cooperation as a precondition for being
invited. The Howard government was at first reluctant to sign the treaty but decided it was a modest
concession compared to the benefits of being a founding member of the new summit conference 32 . Australia
has gained formal admission into the East Asian Summit by acceding to the TAC. Alexandra Downer,31

As stated in the footnote 27, Japan’s position until early 2005 was to invite Australia and New Zealand as‘dialogue partners’ not as full-fledged members.
32
In a speech on 1 December 2005, Australia’s Minister for Foreign Affairs Alexander Downer suggested
that the character and direction of the East Asia Summit may take some time to become apparent but
welcomed the fact that Australia would be an inaugural participant. Mr. Downer stated that “This is just thefirst meeting and nothing is set in stone. And if there is to be an emergence of an East Asian community, it
will not, in my view, be built around one institution or meeting. An East Asian community will emerge forpractical reasons, not for ideological reasons. APEC, the ASEAN Regional Forum, ASEAN plus three, andthe East Asia Summit will all contribute to an open but increasingly integrated region…” “The East Asia
Summit is only in its very first iteration and will take some time to bed down. But we can say now that wehave a regional architecture that serves Australia's interests well. It is open and inclusive. It addresses
security and economic issues in a practical way and Australia has a very strong voice in how it develops.”
Frank Frost and Ann Rann, “The East Asian Summit: Issues and Outcomes” Australian Parliamentary
Library E-Briefs, 17 January, 2006.
12

Australia’s Foreign Minister, said Australia would be keen to participate in the East Asia Summit, althoughsome countries have opposed its membership. Australia has long baulked at signing the TAC claiming it
could conflict with obligations under its security treaty with the US. Some Asian countries also regard
India's membership of the group as a further balance to China. The Indians have traditionally not been activein the region because of isolationist economic policies but as a result of the market opening policy whichbegan fourteen years ago they now want to pursue engagement with East Asia 33 .
Conclusion: Emergence of Dual Image of East Asian Community: Whither ASEAN+3 or East Asian
Summit?
The 16 participants in the first East Asia Summit met on 14 December 2005. The meeting was
relatively short (lasted three hours) and few specific decisions were made: the emphasis was on developing
communication among the members. Malaysia’s Prime Minister Badawi, the chair for the meeting, in his
Chairman's Statement described the Summit as a 'leaders-led' gathering that initiated confidence-building
among the members as a first step towards more substantial collaboration.
The main issues discussed during the Summit included the need for denuclearization of the Korean
peninsula, terrorism, avian flu, sustainable development, the need for progress in the Doha round of WTO
negotiations and the role which the EAS should play as a complement to existing cooperation dialogues(including ASEAN+3) in the process of community building in the region.
The 'Kuala Lumpur Declaration on the East Asian Summit' indicated that it will be a 'forum for
dialogue on broad strategic, political and economic issues of common interest and concern, and with the aimof promoting peace, stability and economic prosperity in East Asia'. It affirmed that the East Asian Summit isintended to be an 'open, inclusive, transparent and outward-looking forum, in which we strive to strengthen
global norms and universally recognized values, with ASEAN as the driving force working in partnershipwith other participants of the East Asia Summit'. The Summit would be 'convened regularly', would be
hosted and chaired by an ASEAN member and would be held 'back to back with the annual ASEAN Summit'.
The Summit participants issued a specific declaration concerning avian flu, with a commitment to report all
outbreaks rapidly and transparently, and to take steps to ensure that the disease does not develop into a form
which could be transmitted directly between humans.
The existence of multiple and even competing forms will allow the core group of East Asian
countries to retain the leadership role in driving regional integration. At the same time, it will allow them toaccommodate interests from outside the region to a certain extent, thereby reducing possible misgivings
about an East Asian community evolving into an exclusive bloc.
Whether or not the newly launched East Asia Summit will play a central role in regional integrationin the future, its occurrence points to potentially bright prospects for the East Asian community. It will be avery different, but possibly even more successful, model of regionalism from those we have seen so far inother parts of the globe.
A large part of the original rationale for bringing together leaders from across East Asia was to lay
the foundations for an institutionalized, pan-regional community with both economic and security
dimensions. The precise ambit of such a community, let alone its modus operandi, is still undefined. As with
the East Asian Summit, greater attention has focused on the community’s potential membership. While India
and Japan have continued to favor using the East Asian Summit, with its wider membership, as the basis for
a community, it was clear that once the summit’s membership had diversified to include non-East Asianstates, China could only accept the more exclusive ASEAN+3 as the basis for a regional community. This
33

David Hale, “The East Asian Summit”, Asia Media, December 12, 2005.
13

Chinese prescription, based essentially on power-political reasoning, finds some sympathy in states like
Malaysia and Thailand.
While the Kuala Lumpur Declaration at the end of the summit failed to indicate what part, if any,
the EAS might play in establishing the regional community, informal remarks by the summit chairman
indicated that he did not see Australia, India and New Zealand as future members of it. Nevertheless, inpractical terms these three states are increasingly integrating with East Asia and possess in Japan a major
East Asian ally. Their aim will be to join a regional community primarily concerned with facilitating tradeand investment, and like Japan they will not want to be part of any grouping that China might attempt to use
as a vehicle for regional domination. A larger question concerns the extent to which an East Asian
community, whether its membership be inclusive or exclusive, might be able to achieve significant
consensus on economic and security issues given the fundamental rivalries that exist amongst combinationsof major players such as China and Japan, and China and India.

14

Appendix: A
Kuala Lumpur Declaration (East Asian Summit)
SHARING the view that the East Asia Summit could play a significant role in community buildingin this region;
FURTHER RECOGNISING the need to support efforts to build a strong ASEAN Community
which will serve as a solid foundation for our common peace and prosperity;
DO HEREBY DECLARE:FIRST, that we have established the East Asia Summit as a forum for dialogue on broad strategic,
political and economic issues of common interest and concern with the aim of promoting peace,stability and economic prosperity in East Asia.
SECOND, that the efforts of the East Asia Summit to promote community building in this region
will be consistent with and reinforce the realisation of the ASEAN Community, and will form an
integral part of the evolving regional architecture.
THIRD, that the East Asia Summit will be an open, inclusive, transparent and outward-looking
forum in which we strive to strengthen global norms and universally recognised values with
ASEAN as the driving force working in partnership with the other participants of the East Asia
Summit.
FIFTH, that:
Participation will be based on the criteria for participation established by ASEAN;
The East Asia Summit will be convened regularly;
The East Asia Summit will be hosted and chaired by an ASEAN Member Country that assumes theASEAN Chairmanship and held back-to-back with the annual ASEAN Summit; andThe modalities of the East Asia Summit will be reviewed by ASEAN and all other participating
countries of the East Asia Summit.
Chairman’s Statement (ASEAN+3 Summit)
2. We signed the Kuala Lumpur Declaration on the ASEAN Plus Three Summit to reaffirm ourcommitment to ASEAN Plus Three cooperation, which has achieved substantial progress in the lasteight years. We agreed to continue holding the ASEAN Plus Three Summit annually in conjunction
with the ASEAN Summit to guide and provide political momentum to East Asian cooperation andcommunity building efforts.
3. We agreed that the ASEAN Plus Three process will continue to be the main vehicle in achievingthat goal, with ASEAN as the driving force, and with the active participation of the ASEAN Plus
Three countries, in order to promote shared ownership. We reiterated our common resolve torealise an East Asian community as a long-term objective that would contribute to the maintenanceof regional and global peace, security, progress and prosperity
16. We welcomed the convening of the first East Asia Summit (EAS) on 14 December 2005 in
Kuala Lumpur, Malaysia. We shared the views that the EAS should be convened annually and that
the EAS will play a significant role in this region. The EAS will be consistent with and reinforce
ASEAN’s efforts in building the ASEAN Community. We recognised that the EAS will contributeto the evolving regional architecture. We look forward to a fruitful deliberation of the EAS.

15

East Asian Summit Political Process Ｉ【Modality A】（Oct 2004）
2005 Host C: Malaysia
2007 Host C: China(Chinese Proposal)

Bi-Annual Meeting
Alternative Host: ASEAN / Non-ASEAN
Membership: ASEAN + 3
ASEAN+3 Summit Coexist【JPN Counter Proposal】
Proposal】（July 2004～
2004～March 2005）
2005）

1) East Asian Summit should be CoCo- hosted by ASEAN and NonNonASEAN Member States. The First Meeting in Kuala Lumpur shouldbe CoCo-hosted by Malaysia and Japan
2) Australia and NZ should be invited to EAS as DialogueDialogue- Partners(two(two-tier approach)【Philippines’ Response】
Philippines will be a chair country for ASEAN in 2007. If China holds
EAS in 2007, ASEAN+3 Summit in Philippine will be deteriorated.
(cf. Myanmar has given up their chairmanship in 2006)【Indonesian Response】

ASEAN should focus on ASEAN-integration rather than EAC (SBY)

East Asian Summit Political Process II【Modality B】 (April 2005)
2005 Host C: Malaysia
2006 Host C: ASEAN
Mod B. Proposal
Singapore
Indonesia
Vietnam【 Criteria on EAS Membership】
Membership】
1) Dialogue Partner of ASEAN
2) Accede Treaty of Amity and Cooperation
in Southeast Asia (TAC)
3) Having Substantive Relations withASEAN
New Member: Australia, New Zealand, India
ASEAN+3+3 = 16 Member States

Additional Support【 JPN Counter Proposal】
Proposal】（July 2004～
2004～March 2005）
2005）
1) East Asian Summit should be CoCo-hosted by ASEAN and NonNon- ASEAN
Member States. The First Meeting in Kuala Lumpur should be CoCohosted by Malaysia and Japan
2) Australia and NZ should be invited to EAS as DialogueDialogue-Partners(two(two-tier approach)【Modality A】（Oct 2004）
2005 Host C: Malaysia
2007 Host C: China(Chinese Proposal)

Bi-Annual Meeting
Alternative Host: ASEAN / Non-ASEAN
Membership: ASEAN + 3
ASEAN+3 Summit Coexist

16【Agreed【AgreedModality】
Modality】

1)1) Participation
Participationwill
willbebebasedbasedononthecriteria
forparticipation
the criteria for participation
establishedestablishedby
byASEAN
ASEAN
2)2) TheEast
Asia
The East AsiaSummit
Summitwill
willbebeconvened
regularly
convened regularly
3)3) The
TheEastEastAsia
AsiaSummit
Summitwill
willbebehostedandchairedbyanhosted and chaired by an
ASEAN
ASEANMember
MemberCountry
Country2.

Trade and FDI Driven Economic Growth and Regional
Economic Integration in East Asia 1

Prof. URATA Shujiro
Professor
Waseda University
I. Introduction
East Asia achieved remarkable economic growth until it was suddenly struck by the economic crisisin the late 1990s. Although East Asia experienced devastating setback from the crisis, many East Asian
economies quickly recovered to achieve reasonable economic growth. Rapid economic growth in the
pre-crisis period and quick recovery in the post-crisis period by East Asian economies are attributable tovarious factors such as sound macroeconomic management, availability of low-wage labor and others. Amongthese factors the role of foreign trade and foreign direct investment (FDI) has to be emphasized.
FDI recipient countries can gain various benefits from receiving FDI, which would contribute toeconomic growth. FDI brings various resources such as funds for fixed investment, technology, andmanagement know-how, which are in acute shortage in many developing countries. In addition, FDI enables
recipient countries to utilize sales and procurement networks of multinational corporations (MNCs), major
foreign investors, to result in the expansion of trade (exports and import). Export expansion promoteeconomic growth as it enables exporting countries to earn foreign exchange, which can be used to importtechnology, intermediate goods, capital goods, and other items for achieving economic growth. Successful
export performance in turn results in attracting FDI with an export motive. This way a trade-FDI nexus isformed in East Asia, to result in increasing intra-regional economic activities, or deepening regionalization.
What has been remarkable in East Asia is sequential formation of the trade-FDI nexus engaging at first in theearly 1980s two East Asian Newly Industrializing Economies (NIEs), Singapore and Hong Kong, which were
followed by four members of the Association of Southeast Asian Nations (ASEAN4), or Indonesia, Malaysia,
the Philippines, and Thailand in the latter half of the 1980s. In the 1990s China joined other East Asian
countries to be a part of the trade-FDI nexus in the region. Such sequential evolution of the trade-FDI nexus
resulted in multi-layered development process in East Asia. One special characteristic of trade-FDI nexus in
East Asia is that such nexus is built on regional production and distribution network by MNCs from not only
East Asia but also from other parts of the world including the US and the EU.
Up against market-driven regionalization resulting from rapid trade and FDI expansion, which was
attributable to trade and FDI liberalization, East Asia started to witness institution-driven regionalization in
the forms of regional cooperation such as the Chiang-Mai initiative, which is a currency swap arrangements todeal with the shortage of foreign exchange involving East Asian countries and free trade agreements (FTAs).
These developments seem to have shifted the gravity of regionalization from market forces to regional
institutions.
In light of these new developments in East Asia, this paper analyzes the changing nature of
regionalization and it further attempts to present several important policy issues in East Asia in order tomaintain its economic dynamism in the future. The remainder of the paper is organized as follows. Section II
1

Prepared for the 2 nd International Workshop on “An East Asian Community and the United States” June
20-21, 2006, Tokyo.
17

examines the market-driven regionalization, which is created by rapid expansion of foreign trade and FDI.
Section III expands the analysis of market-driven regionalization by explicitly shedding light on regional
production and distribution networks developed by MNCs. Section IV turns to the issue of institution-driven
regionalization, and finally section V presents some concluding remarks on the challenges that East Asia faces
to achieve further economic growth.
II. Expansion of Foreign Trade and Foreign Direct Investment in East Asia
East Asia saw rapid expansion of foreign trade and FDI in the 1980s and in particular 1990s,
indicating the increasing importance of international economic activities in their economies. Between foreign
trade and FDI, FDI inflows expanded particularly fast during the 1990s. Rapid expansion of foreign trade andin particular FDI inflows can be seen from Figure 1, where exports and FDI inflows are shown with GDP for
East Asia. From 1980 to 2002 GDP for East Asia increased five-fold, while exports increased approximately
eight-fold. FDI inflows increased remarkably 40-fold from 1980 to 2000, after which they declined. Thissection examines recent developments of foreign trade and FDI in East Asia.
II.1. Foreign Trade
Foreign trade of East Asian economies increased rapidly and continuously in the 1980s and 1990s
with a decline in 1998 as a result of the financial crisis (Table 1). In 23 years between 1980 and 2003
merchandise exports and imports of East Asian economies (excluding Japan) increased 6.9- (10.3-) and 5.9(9.3-) fold, respectively. Since both world exports and imports only increased 3.3-fold each during the
1980-2003 period, the shares of East Asia in world exports and imports increased from 12.8 (6.3) and 13.3
(6.4) percent to 23.5 (17.3) and 20.6 (15.7) percent respectively. It is to be noted that exports grew faster thanimports for East Asia, indicating that increased global linkage through foreign trade contributed to theincrease in GDP as well as foreign exchange earnings. As shown in Table 2 Among East Asian countries,
excluding Cambodia and Vietnam, whose growth performance is exceptional partly because of their low base,
China registered especially high rate of growth, as its exports and imports increased 24- and 21-fold over the
1980-2003 period, respectively. China was followed by Thailand, Hong Kong, Korea and others
For many East Asian countries foreign trade grew faster than GDP during the 1980-2003 period,
resulting in increased linkage to global economy. Specifically, exports-GDP and imports-GDP ratios for East
Asian countries increased from 27 and 28 percent in 1980 to 46 and 43 percent in 2003, respectively (Table 1).
It is remarkable to note that for all the East Asian countries listed in Table 2 the export-GDP and import-GDP
ratios are higher than their respective world averages in 2002.
Remarkable expansion of foreign trade was accompanied by various changes in the structure offoreign trade in East Asia. Table 3 shows export destinations and import sources for East Asian countries. One
remarkable development is the increased importance of East Asian countries both as export destinations andas import sources, indicating increased intra-regional trade in East Asia 2 . For East Asian countries as a whole
the share of exports destined to East Asia in their total exports increased from 22.1 percent in 1980 to 40.1
percent in 2002.
Turning to the import sources of East Asian countries, the importance of East Asia increased, similar
to the pattern observed for their export destinations. For East Asian countries as a whole, the share of imports

This pattern was detected by many studies including Urata (2001a) and Kawai and Urata(2004).
182

from East Asia in their total imports increased from 22.2 percent in 1980 to 45.9 percent in 2002. A
comparison of the findings on export patterns and import patterns shows that for East Asia, East Asia is more
important as an import source rather than an export destination. This observation reflects the patterns of tradeand production, in which East Asian countries procure parts and components from other East Asian
economies to produce final products to be exported to non-East Asian economies such as the US and the EU.
This “triangular trade” pattern indicates the role of East Asia as a world factory, which produces products not
only for East Asia but for other parts of the world.
Commodity composition of foreign trade for East Asian countries changed dramatically (Table 4).
One particularly notable development was rapid increase in the share of manufactures in total exports for four
Association of Southeast Asian Nations (ASEAN4) countries (Indonesia, Malaysia, Philippines, andThailand). Among manufactures, electronic products show interesting developments. The NIEs had relatively
high share of electronics in total exports already 1980s and then they increased their shares in the following
periods. Malaysia and Thailand increased their shares in the 1980s, while the Philippines and China increased
their shares in the 1990s. These sequential developments of the increasing importance of electronics exports
for East Asian economies are the essence of multi-layered development process, resulting from the formationof the trade-FDI nexus, which will be discussed later.
These observations may indicate that many East Asian countries are large exporters of high-tech
products such as electronics products, but one should note that many countries are engaged in labor-intensive
production process such as assembling of high-tech products rather than in high tech-intensive production
process such as development of new products. Recognizing this point, one may argue that East Asian
countries have a comparative advantage in labor-intensive processes of high-tech products but not inhigh-tech intensive processes. We will examine this point again, when we examine regional production
network in the section on trade-FDI nexus.
Although not shown in the table, it is interesting to note that light manufactures such as textiles,
clothing, and other consumer goods accounted for a relatively large share of exports for many countries
including China and Hong Kong, reflecting the fact that many East Asian countries still have a comparativeadvantage in the production of these products.
When compared to dramatic change in the pattern of exports observed above, the change in thepattern of imports was less pronounced, as the share of manufactures in total imports for many East Asian
countries remained around 60-80 percent throughout the 1980-2003 period. Despite more or less stable shareof manufactures in total imports, there was a marked change in the compositional shares of imports among
different manufactures. Specifically, electronics increased their shares for many economies similarly to thepattern observed for exports.
Increasingly high shares of electronics products in both exports and imports for East Asian countries
suggest the expansion of intra-industry trade in these products among the East Asian countries.
II.2. Foreign Direct Investment
Foreign direct investment (FDI) inflows in East Asia started to increase in the latter half of the
1980s (Figure 1 and Table 5). After a short period of stagnation in the late 1980s and early 1990s largely
because of the world recession, they started to rise again in the mid-1990s as the world economy recoveredfrom the recession. The rate of increase accelerated in the mid-1990s before reaching a peak in 1997. FDI
inflows declined in 1998 because of the financial crisis, but they recovered quickly to reach a record highlevel in 2000. FDI inflows to East Asia declined sharply in 2001 largely because of the decline in the world19

economy, which in turn was attributable to the bursting of the IT (information technology) bubble and theterrorists’ attacks.
One observes a sequential pattern of expansion of FDI inflows for the NIEs, ASEAN4, and China
from the mid-1980s to early 2000s. FDI inflows to NIEs expanded rapidly first before those to ASEAN4 or
China in the latter half of the 1980s, and then toward the end of 1980s FDI inflows to ASEAN4 began toincrease notably (Figure 2). Finally, FDI inflows to China saw a sharp increase in the early 1990s andsurpassed ASEAN4 and the NIEs. Divergent trends started to show toward the end of the 1990s, as FDI
inflows to the NIEs and China continued to increase while FDI inflows to ASEAN4 started to decline.
Expansion of FDI inflows in East Asian developing countries resulted in the increased importance of
MNCs in economic activities for these countries. Such development can be confirmed by the increase in the
FDI inflows-GDP ratio for many countries in Table 5.
Let us examine the changing patterns of FDI inflows to East Asian developing countries from four
different perspectives; source countries, sectoral composition, sources of finance, and types of FDI.
Table 6 shows the changing patterns of FDI source countries for the selected East Asian developing
countries. Unlike the pattern of increasing importance of intra-regional dependence observed for many
countries concerning foreign trade, the patterns of FDI sources as well as their changes do not appear to show
any such patterns for many East Asian countries. Indeed, the importance of intra-regional FDI in total FDI in
East Asia declined in several countries from 1990 to 2002, largely reflecting a decline in the importance of
FDI from Japan. Although one can not detect a clear tendency of increasing importance of developing East
Asian countries in FDI inflows in developing East Asian countries in terms of proportions shown in Table 7, it
is important to note the increasing importance of FDI from developing East Asian countries in absolute terms
because FDI inflows to East Asian developing countries increased substantially 3 .
Concerning the sectoral patterns of FDI inflows, one common feature is high and increasing
importance of electronics industry in either overall FDI or manufacturing FDI for many East Asiandeveloping countries (Table 7). Among them very high shares of electronics are recorded for Malaysia andSingapore. For Malaysia the share of electronics in total manufacturing FDI inflows fluctuated around 20 to50 percent in the 1990s, but since the end of 1990s, the share remained high around 50 percent. For Singapore,electronics maintained consistently high shares around 40 to 50 percent of total FDI. Korea and Taiwan also
witnessed rapid increase in the share of electronics industry in manufacturing or total FDI. The share for
China is significantly lower compared to others, because FDI inflows in services such as real estate are verylarge. A possible inconsistency in Chinese FDI statistics should be mentioned here, as a substantial part of
FDI inflows are not registered in any specific sectors, but they are included in “others.”
III. The Emergence of MNC-Driven Regional Production Network
We have seen rapid expansion of foreign trade and FDI flows in East Asia since the mid-1980s. The
speed of expansion was particularly fast in the 1990s and particularly for FDI inflows. Indeed, foreign tradeand FDI flows expanded at tandem by forming virtuous spirals between them. There are several reasons why
they are closely related in East Asia. Realizing that FDI brings in various benefits including the use ofwell-developed international sales/export networks of foreign firms and that export expansion would promoteeconomic growth, many East Asian economies pursued policies to attract FDI and promote export, as we willsee below. Faced with an expanded opportunity to exploit comparative advantages in East Asian countries
3

It should be noted that substantial FDI was withdrawn from Thailand in 2002, reflecting in the negativevalues shown for FDI inflows from the US and the EU.
20

under favorable trade and FDI environment, cost-conscious foreign MNCs actively undertook FDI in East
Asian countries. Such FDI resulted in successful expansion of exports from these export bases in East Asia.
The countries that succeeded in expanding exports in turn attracted FDI, because they were seen as capable ofproviding an environment conducive to efficient production. In this way, virtuous spirals of export expansion
and FDI expansion, or the FDI-trade nexus, were formed. Indeed, rapid expansion of FDI inflows resulted in
the creation of regional production networks in machinery sectors, especially in electronics sector. Thissection examines the trading behavior of Japanese MNCs and the creation of regional production network inelectronics sector.
III.1. Trading Activities of Japanese MNCs
An examination of Asian affiliates of Japanese MNCs reveals an increased outward orientation andincreased intra-regional orientation (Table 8).
For Asian affiliates of Japanese MNCs, the share of local sales and local procurement in theirrespective total declined from 1992 to 2001. This change is particularly notable for the sales patterns. This
trend seems attributable to opening up of the host countries in trade policies, to which the affiliates
responded.
The increased intra-regional orientation can be found as the share of sales destined to other Asian
countries under the category “Asia” increased from 11.2 percent in 1992 to 18.3 percent in 2001. Increasing
intra-regional trade by the affiliates of Japanese MNCs appears to result from at least two forces. One is theestablishment of free trade areas such as the North American Free Trade Agreements and the Mercosur in
Latin America. Faced with lowering trade barriers in FTA members, the affiliates expanded trade with FTA
members.
Another factor is the emergence of regional production and distribution network, under which
MNCs break up the production process into several sub-processes and locate a sub-process in a country,
where that particular sub-process can be conducted most efficiently. Such inter-process division of labor
strategy, which has been adopted by many MNCs in electronics, transportation, precision machineries as wellas textiles, increased intra-regional trade by MNCs. We will examine the emergence of inter-process,intra-regional trade in East Asia in a later section.
An increasingly large portion of affiliates’ transactions take the form of intra-firm trade for the
Asian affiliates of Japanese MNCs (Table 9). The share of intra-firm transactions in overall transactions
increased sharply from 1992 to 2001. In 1992 intra-firm trade was substantial for the affiliates’ trade with thehome country, or Japan, indicating a strong relationship with parent company in Japan. However, in 2001
intra-firm transactions amount to a large part of affiliates’ transaction not only in their trade with homecountries but also in their transactions in the host countries and those with foreign countries. The increase in
intra-firm transaction by the affiliates of Japanese MNCs appear to indicate the emergence of regional
production network involving Japanese MNCs, which has been made possible by the increase in the number
of affiliates and by the expansion of their activities.
The findings on high trade-orientation of Asian affiliates of Japanese MNCs and those on their highshares of trade inside Asia appear in some sectors including electronics and general machineries appear toindicate the presence of inter-process trade involving parts and components. This is the subject ofinvestigation in the next section.

21

III.2. The Emergence of Regional Production Networks
An earlier observation of the sales and procurement patterns of Asian affiliates of Japanese and US
MNCs suggests the formation of regional production network in electronic industry, under which parts andcomponents are traded internationally to be assembled to produce final products in East Asia 4 . This section
investigates the formation of regional production networks in East Asia by examining data on foreign tradeand production.
East Asia has become a major production site for electronics products in the world since the 1980s 5 .
As the discussions in the previous sections indicate, a large part of electronics production in East Asia areundertaken by foreign companies from various parts of the world, although in recent years local producers
have increased their production sharply.
Many foreign electronics companies have set up regional production system in East Asia byadopting a fragmentation strategy, under which production process is divided into several sub-processes andeach sub-process is located in a country where that sub-process is conducted most efficiently or at the least
cost through FDI. For example, the production process of a personal computer (PC) is divided into design,
production of parts, assembling of finished products (PCs) 6 . A typical Japanese PC producer undertakes
design in Japan, and assigns production of various parts to different countries, and assembles PCs in China byimporting parts from different locations. As for parts production, for example, the following part-country
assignment is set up, HDD-the Philippines, CPU-the US, memories-Korea, and Crystal Liquid
Display-Taiwan, depending on the suitability of the locations for the production of particular parts.
Foreign electronics producers have adopted the fragmentation strategy for several reasons. One isstandardization of production process, which only requires assembling of components without sophisticatedtechnologies. Another reason is low tariff rates on components trade partly because of EPZ arrangement
adopted by several countries in East Asia. Information Technology Agreement (ITA) under the WTO, underwhich developed and developing members agreed to remove tariffs on IT products by 2000 and 2005,
respectively, has contributed to the reduction of tariffs on IT products. Let us examine how international tradein electronics is conducted in East Asia below.
Table 10 shows the proportion of components trade in overall (components and finished products)
trade in electronic products. Several interesting observations may be obtained from the table. First, trade inelectronics components account for a large share of electronics trade for East Asian countries. Specifically,
electronics components account for approximately 65 and 75 percent of East Asia’s overall electronics exports
and imports with the rest of the world, respectively, while the corresponding ratios for the world trade issignificantly lower at 55 percent. Second, the proportion of components trade is particularly high for
intra-East Asian trade. These two findings indicate the formation of regional production system in East Asia,
where components are traded for the production of final products in East Asia.
IV. Changing Policy Environment: Liberalization of Trade and FDI policies 7
The factors behind the notable expansion in foreign trade and FDI inflows in East Asia fall into twogroups, one concerning domestic factors and the other concerning external factors. The most important
4

Kimura and Ando (2004) found that large part of machinery trade in East Asia is composed of parts andcomponents, providing an evidence for the formation of regional production network.
5
Takeuchi (2004) analyzes the development of electronics industry in East Asia by focusing on trade and
FDI.
6
For details, see Takeuchi (2004).
7
This section extends Urata (2005a)
22

domestic factor was the liberalization of both trade and FDI policies. In addition, a favorable macroeconomic
environment, reflected in relatively stable price levels, predictable and stable business environment andsupporting institutions for private sector activity, relatively well-developed infrastructure, together with anabundant supply of well-educated, low-wage labor contributed to the expansion of exports and FDI inflows.
As for the external factors, the substantial realignment of exchange rates, particularly the yen-dollar
exchange rate in the mid-1980s, was crucial. It should also be noted that the appreciation of the currencies of
the NIEs against the US dollar in the late 1980s promoted FDI outflows from the NIEs to other East Asian
countries. In addition, remarkable technical progress in information technology facilitated trade and FDI by
reducing the cost of communications. Finally, increased competition among MNCs, which resulted partly
from liberalization and deregulation in various sectors in many countries of the world, promoted their global
activities, thereby expanding trade and FDI. The remainder of this section examines liberalization in trade and
FDI policies in East Asia, which contributed to rapid expansion of trade and FDI in East Asia.
IV.1. Unilateral Liberalization
In the 1980s and 90s, East Asian economies embarked on unilateral liberalization of trade and FDI
policies and deregulation in domestic economic activities as part of more comprehensive structural reform
policies. Such policy changes were induced partly by their commitments to the World Bank and the IMF for
obtaining economic assistance and largely by the realization on the part of East Asian economies thatliberalization and deregulation would promote economic growth. Liberalization of trade and FDI policies led
to the expansion of exports and inward FDI because it shifted the incentives from import-substituting
production to export production and increased the attractiveness of these economies to foreign MNCs.
East Asian economies unilaterally liberalized their import regimes by lowering tariff rates andnon-tariff barriers from the early 1980s through the early 2000s (Table 11). The notable exceptions were Hong
Kong and Singapore, which had adopted virtually free trade regime for a long time. In spite of substantial
reduction in tariff rates, some economies still maintain relatively high tariff rates. The average tariff rates for
Korea and Thailand are around 15 percent in the early 2000s. It should be noted that primary sector isrelatively more protected than manufacturing sector, as the average tariff rates for primary products are higher
than those for manufactured products in all the economies in the table except Malaysia and Singapore.
In addition to trade liberalization in the forms of reduction in tariff rates and non-tariff barriers,
several policies adopted by East Asian countries had similar effects to trade liberalization, promoting exports.
One is duty drawback system, which returns tariffs paid on the imported parts and components, which areused for the production of exports, to the producers. This system has virtually the same effect as free trade forthe producers of exported products. Another is export processing zones (EPZs), or free trade zones (FTZs), in
which exporters or producers of export products can take advantage of free trade on imported inputs..
Policies toward FDI inflows started to be liberalized in the mid-1980s and liberalization of FDI
policies has continued since then, because the East Asian economies began to realize that FDI inflows would
promote economic growth. Although it is difficult to quantify the restrictiveness of an FDI regime, it is clearthat many East Asian economies have liberalized their policies toward FDI inflows since the mid-1980s 8 .
Restrictions on FDI take various forms, including restrictions on market access, most-favored-nation
treatment, and national treatment. Many East Asian economies reduced restrictions on market access by
reducing the number of sectors and industries on the negative list and by relaxing the limits on foreign equity
8

Japan PECC (2002) examined the impediments to FDI in APEC economies, and found that many East Asian
economies reduced the number and the level of impediments by liberalizing FDI policies.
23

ownership. Furthermore, recognizing the important contribution that FDI may make toward economic growth,a number of economies introduced incentives such as tax breaks to attract FDI. Indeed, there has been keencompetition among the countries in the region to attract FDI by reducing barriers and providing incentives.
IV.2. Liberalization under Multilateral Framework
Turning to the multilateral level, the Uruguay Round of multilateral trade negotiation under the
GATT started in 1986 and ended in 1994. Although the negotiations lasted eight years, twice as long as wastargeted, the Uruguay Round made substantial progress toward liberalizing trade and FDI. The achievements
include: a reduction in tariff rates; framework agreements on trade in services, on intellectual property rights
and on trade-related investment measures; a timetable for phasing out all quantitative restrictions on trade
including those on textiles under the Multi-Fiber Arrangement (MFA); first steps toward bringing agriculture
more firmly under a multilateral discipline; a stronger dispute settlement mechanism; and the establishment of
the WTO. It should be noted that China liberalized its trade regime substantially in order to join the WTO andit has committed itself to liberalize trade further after joining the WTO.
Since the establishment of the WTO in 1995, it took as long as six years to start a new multilateralnegotiation. The long delay for the start of the new round was mainly due to the differences in the views
toward multilateral trade liberalization between developed and developing members. The Doha Development
Agenda (DDA), the first round under the WTO, started in 2001 but it has not entered real negotiation yet
because of the differences in opinions on the framework of DDA not only between developed and developing
members but also within the respective groups.
IV.3. Liberalization under Regional Framework
Liberalization of trade and FDI policies also progressed in regional contexts in the 1990s in East
Asia. The members of the ASEAN started the ASEAN Free Trade Area (AFTA) process in 1992 to make
ASEAN a competitive region for exports and for attracting FDI. The 1992 agreement provided for theliberalization of tariff and non-tariff measures under the Common Effective Preferential Tariffs. The target
year for achieving tariff and non-tariff liberalization was originally set for 2008, but was later moved forward
to 2002. The AFTA has been in effect among the original five ASEAN members—Indonesia, Malaysia,
Singapore, Thailand and the Philippines—since January 2002 when the tariff rates were reduced to 0-5
percent, though the exclusion list is long and individual country circumstances vary. Furthermore, Vietnam is
to comply with the same tariff standards by 2003, Laos and Myanmar by 2005, and Cambodia by 2007. By
2010 ASEAN is expected to become a complete free trade area free from tariffs with the exception of CLMV
members, which are give later deadlines. FDI liberalization in the ASEAN has been underway after thecreation of the ASEAN Investment Area (AIA) in 1998, which provides coordinated investment cooperationand facilitation programs, market access, and national treatment of all industries. But some ASEAN members
continue to maintain sizeable sensitive and exclusion lists from FDI liberalization.
Another regional framework that promoted trade and FDI liberalization in East Asia is the
Asia-Pacific Economic Cooperation (APEC) forum. This trans-regional forum, which was established topromote economic growth in the region, includes not only East Asian economies but also economies in Northand South America and Oceania. Following the Bogor declaration in 1994 calling for full liberalization of
trade and FDI by 2010 for developed-economy members and by 2020 for developing-economy members,
APEC members agreed to prepare and implement individual action plans specifying near- and medium-term
liberalization measures. Peer pressure has played a crucial role in the implementation of liberalization24

schemes. All APEC members have made significant progress toward freer trade and FDI regimes.
IV.4. Bilateral and Regional Framework: Recent Surge of FTAs in East Asia
East Asia was not active in the formation of regional trade agreements (RTAs), which include FTA
and customs union, until recently (Table 12) 9 . ASEAN Free Trade Area (AFTA) was the only major FTA until
Japan and Singapore enacted Japan—Singapore FTA (formally named a New Age Japan-Singapore Economic
Partnership Agreement, JSEPA) in 2002 10 . However, the situation changed dramatically in recent years. Many
economies in East Asia began to form FTAs with the countries not only in the region but also outside theregion. In light of these developments, one can detect the change in the characteristics of regionalization in
East Asia around the turn of the century from market-driven to institution-driven regionalization as the main
driver of regionalization is changing from the market forces unleashed by trade and FDI liberalization toregional and bilateral institutions such as FTAs.
Besides AFTA, ASEAN as a group as well as its members individually have become active in FTA
discussions with other countries in recent years. One of the FTAs involving ASEAN that has received mostattention recently is that with China. ASEAN and China enacted FTA in goods trade in July 2005 and they are
currently negotiating FTA in services trade. ASEAN is currently also negotiating FTAs with Japan, Korea andothers. Several ASEAN members have become active in establishing bilateral FTAs. Singapore is a
frontrunner in this FTA race as it enacted many FTAs with countries such as New Zealand, Japan, Australia,
the USA, the EFTA, and India and it is negotiating FTA with a number of countries. Thailand has also become
active in establishing FTAs, as it has implemented FTA with Australia, New Zealand, and India, while it iscurrently under negotiations with the USA, Japan and many others. Malaysia signed FTA with Japan and it
agreed to begin negotiations with several countries including the US. Both the Philippines and Indonesia arenegotiating FTA with Japan separately.
Compared to ASEAN countries in Southeast Asia, the economies in Northeast Asia including China,
Japan, Korea, and Taiwan had not been active in FTAs until recently. However, China, Japan and Korea havebecome very active in FTAs. China implemented FTA with ASEAN, Hong Kong, Macau, and it is negotiating
FTAs with over 20 countries. Japan enacted FTA with Singapore and Mexico. It has singed or is very close tosigning FTAs with Malaysia and Thailand, and it is currently in negotiations with ASEAN, Indonesia, thePhilippines, Korea, and Chile. Korea implemented FTAs with Chile and Singapore and is in negotiation withJapan, ASEAN and others. It is scheduled to begin negotiations with the US.
An idea of FTA covering East Asian countries has emerged. At the Leaders’ summit meeting of
ASEAN+3 (China, Japan, and Korea) in 1998 the leaders decided to set up the East Asia Vision Group to
study long term vision for economic cooperation. The group has presented the leaders with recommendations
including the establishment of East Asia FTA. Currently, the Expert Group, which was set up at therecommendation of ASEAN+3 Economic Ministers, is studying the possibility of East Asian FTA, comprising
9

In the GATT/WTO, regional trade agreements (RTAs), which violate one of its basic principles of
non-discrimination, are permitted under GATT Article XXIV with several conditions, which include
liberalization of substantially all the trade of the members, not increasing trade barriers on non-members, andcompleting the RTA process within ten years. For developing members, more lenient conditions are applied
under the enabling clause. An FTA is considered to be a shallow form of regional integration, because it only
removes tariff and non-tariff barriers among the members, while a customs union is a deeper integration, as it
adopts common external tariffs on non-members, in addition to the removal of tariff and non-tariff barriers on
trade among the members.
10
AFTA was discussed in an earlier section. For discussions on FTAs in East Asia, see for example, Aggarwal
and Urata (2006), Lincoln (2004), Urata (2005b), and Pangestu and Gooptu (2004).
25

of ASEAN+3.
Despite heightened interests in FTAs by East Asian countries, East Asian countries have faced
serious obstacles in reaching an agreement. As one would expect, strong opposition comes from
non-competitive sectors, which are subject to competition from FTA members. Besides, some East Asian
countries have political, historic, and other kinds of problems. As such, a number of FTA negotiations havebeen stalled.
Various reasons can be considered behind the recent surge of FTAs in East Asia. First, rapid
expansion of FTAs in other parts of the world has made East Asian economies recognize the importance of
establishing FTAs in order to maintain and expand their export opportunities. Indeed, the number of FTAs
reported to the GATT/WTO by its members started to expand sharply since the early 1990s and the pace ofthe expansion accelerated in the mid-1990s when the WTO was established. Second, a stalemate of thenegotiations under the DDA turned the attention of the WTO members with an interest in trade liberalization
to FTAs. Third, the Asian financial crisis in 1997-98 prompted East Asian economies to realize the need forregional cooperation such as FTAs in order to avoid another crisis. Fourth, rivalry among East Asian
economies over gaining a leadership role in the region has activated their FTA strategies.
One notable characteristic of FTAs in East Asia is their comprehensiveness in coverage. As such,some of the FTAs established in East Asia are named Economic Partnership Agreement (e.g. Japan-Singapore
EPA, JSEPA), or Closer Economic Partnership Agreement (e.g. China-Hong Kong CEPA), and others. These
new types of FTAs typically include facilitation of foreign trade, liberalization and facilitation of foreign
direct investment (FDI), and economic and technical cooperation, in addition to trade liberalization, which isincluded in traditional FTAs. It may be worth noting that the basic philosophy of these new types of FTAs issimilar to that of Asia Pacific Economic Cooperation (APEC) forum, whose three pillars are (1) liberalizationand (2) facilitation of foreign trade and foreign investment, and (3) economic and technical cooperation.
Many FTAs in East Asia are quite new and therefore their impacts may not have been fullymaterialized. However, a number of evidences on the impacts of FTAs in the form of trade expansion havebeen reported. For example, bilateral trade between China and Thailand has been reported to have increased
notably after the enactment of an early harvest program under China-ASEAN FTA.
Although FTA may bring benefits in the form of trade expansion to FTA members, several possible
negative impacts have been pointed out by researchers, business people, policy makers and others. First, some
FTAs that are established in East Asia are of low quality in that a substantial number of commodities and/or
important commodities are excluded from trade liberalization. Critics argue that because of low quality, FTAs
will not generate expected trade expansion effect, but they only create distortions in the market. Second,
proliferation of FTAs with different rules of origin is likely to give rise to the spaghetti bowl effect, which
would reduce trade volume by creating impediments to trade. Third, an increased interest in FTAs is likely tohave a negative impact on WTO negotiations by diverting interests and negotiating resources away from theWTO.
IV.5. The Impacts of East Asia FTA: Simulation Results
Given the emergence of FTAs in the region, it would be of interest to examine the possible impacts
on FTAs on the East Asian countries. Ando and Urata (2006) analyzed the impacts of East Asia FTA by using
a computable general equilibrium (CGE) model. Table 13 reports the macroeconomic effects of East Asia FTA
on selected East Asian countries. The results show that all the East Asian countries will benefit from East Asia
FTA, as all of them can expect an increase in both GDP and welfare.
26

In terms of GDP, East Asia FTA would increase overall GDP of East Asian countries by 1.5 percent.
The impacts will be greater for the ASEAN countries when compared to the plus-three countries (China,
Japan and Korea). Specifically, East Asia FTA will result in 6.4 percent increase of ASEAN’s combined
overall GDP, while the corresponding value for the plus-three countries is smaller at 0.93 percent. Widevariations are found for the impacts of East Asia FTA on GDP among the East Asian countries. The largest
gain can be expected for Thailand, as its GDP is projected to increase by 15.4 percent. Other ASEAN
countries can expect their GDP to increase by 5-6 percent, with the exception of Indonesia, whose GDP is
projected to increase by 3.2 percent. Among the plus-three countries, Korea is expected to experience thelargest increase in GDP by 4.9 percent, while China’s and Japan’s GDP are estimated to increase much less by
1.7 and 0.3 percent, respectively.
East Asia FTA would improve economic welfare for all East Asian countries. Wide variations in
welfare gain per capita can be found among the countries but the ranking order of the countries in terms ofwelfare gain is found very different from the pattern observed for the increase in GDP growth. However, theranking pattern becomes rather similar, if the increase in welfare per capita is compared to GNI (grossnational income) per capita.
The impacts of East Asia FTA on its member countries largely depend on the initial level of importbarriers and the importance of foreign trade in their economic activities, or trade-GDP ratios. We generallyfind the following relationship among the FTA member countries; the higher the level of import barriers,
and/or the larger the trade-GDP ratios, the greater the gain from East Asia FTA.
Having discussed the wide variations in gains among the East Asia FTA member countries, it shouldbe emphasized that all of them gain in terms of GDP as well as economic welfare.
While macroeconomic impacts of the East Asia FTA are positive, some sectors may suffer from thereduction in output, which in turn tend to result in the reduction in employment. This is because cheaper
imports resulting from the East Asia FTA will substitute the domestic production. This substitution effect canbe larger than the income effect, which would result from better resource allocation and would lead to theincrease in demand for domestic production, resulting in the reduction in domestic production.
Table 14 shows the result of the model simulation on the sectoral impacts for the members of theEast Asia FTA. ASEAN countries and Korea generally experience the increase in domestic production for
most sectors because of the large increase in GDP. Some exceptions include Agriculture and food for Korea,transport equipment for Singapore and Vietnam, for which domestic production is projected to decline
substantially. By contrast to these countries, China and Japan are projected to experience the decline ofdomestic production in several sectors, although the magnitudes of these declines are not so large.
We generally observe the sectoral impacts of East Asia FTA in such a pattern that the sectors with acomparative advantage would experience an increase (or a large increase) in production while the sectors witha comparative disadvantage would experience a reduction (or a small increase) in production.
V. Concluding Remarks
This paper began with observing rapid expansion of foreign trade and foreign direct investment inEast Asia, which played an important role in achieving successful economic development in the region. The
subsequent analysis revealed the dramatic changes in trade patterns of East Asian economies in various
aspects. First, intra-regional trade expanded faster than extra-regional trade, resulting in an increase in
intra-regional dependency. Second, composition of trade shifted from non-manufacturing to manufacturing,
especially to machinery products. Among machinery products, electronic and electric products increased their27

importance. Third, trade in parts account for a large part of total trade (trade in parts and finished products)
and the share is increasing. This pattern reflects increasing extent of division of labor inside East Asia as East
Asia has become a factory for the world. Fourth, all these changes in trade patterns observed above appear tohave resulted from active involvement of multinational corporations (MNCs) in foreign direct investment andforeign trade, as MNCs took an advantage of business opportunity arisen from freer trade and FDI
environment, resulting from trade and FDI liberalization policies adopted by East Asian economies. Under
liberalized market environment and efficient communications and transportations systems in recent years,
MNCs fragmented production process into a number of sub-processes and then located the sub-processes incountries, where the sub-processes are undertaken most efficiently. As a result of fragmentation strategy by
MNCs, regional production and distribution networks have been established in East Asia. These notablefeatures of foreign trade in East Asian were generated by market forces. Focusing on increasing intra-regional
trade, observers have described such development as market-driven regionalization.
However, market-driven regionalization seems to be giving way to institution-driven regionalization,
as a number of attempts have been made to establish regional preferential agreements in the form of free trade
agreement (FTA). An interesting and important question to be asked is whether FTAs would lead to further
promotion of the trends and patterns realized so far and to achieve economic growth.
The impacts of FTA on trade among FTA members so far appear positive, being consistent withoutcome projected by the simulation analysis using economic models. Many studies of the possible impacts of
FTAs by using computable general equilibrium (CGE) models indicate positive impacts on trade andeconomic growth of the members. One would predict further development of the recent patterns of foreign
trade in East Asia as FTAs lead to larger and freer trading environment inside the region.
Despite these positive impacts of FTAs, concerns have been raised about possible negative impacts,
which may be caused by the proliferation of FTAs with different rules and contents. It is also important toemphasize the possible negative impacts on non-members.
Recognizing that global trade liberalization is optimum in terms of economic welfare for all the
economies in the world, policy makers and researchers have to devise the scenario and policy to move fromregional trade agreements such as FTAs to global trade liberalization. In this regard, it is important to makesure that existing and future FTAs are consistent with GATT/WTO rules, although these rules themselves
have to be improved so as to successfully turn FTAs into global free trade.

28

1980=1

Figure 1 GDP, Exports, and FDI Inflows in East Asia (1980=199)

4500

4000
FDI inflows
Merchandise exports
GDP

3500

3000

2500

2000

1500

1000

500

0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$billion

Figure 2 FDI Inflows to China, NIEs and ASEAN4: 3-year moving average

70

60

China
NIEs
ASEAN4

50

40

30

20

10

0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

29

Table 1 GDP, Trade and Foreign Direct Investment for East Asia
03/80

2003 （ratio）

1980
Value ($billion)GDP
1,522.9
Exports
258.3
Imports
272.2
2.8
FDI Outflows
FDI Inflows
3.5

1990

2000

4,067.0
641.2
605.6
54.7
22.1

7,071.2
1,532.2
1,349.3
104.4
142.9

7,152.3
1,782.9
1,597.2
45.6
96.2

Share of world total (%)
GDP
13.9
Exports
12.8
Imports
13.3
5.2
FDI Outflows
FDI Inflows
6.3

18.8
18.3
16.9
22.6
10.6

22.4
23.5
20.1
8.8
10.3

19.6
23.5
20.6
7.5
17.2

Share of GDP (%)
Exports
17.0
Imports
17.9
0.2
FDI Outflows
FDI Inflows
0.2

15.8
14.9
1.3
0.5

21.7
19.1
1.5
2.0

24.9
22.3
0.6
1.3

Excluding Japan
Value ($billion)
GDP
460.2
Exports
127.9
Imports
130.9
0.4
FDI Outflows
FDI Inflows
3.2

1,027.3
353.6
370.2
6.7
20.3

2,325.1
1,052.9
969.8
72.8
134.6

2,851.4
1,311.0
1,214.2
16.8
89.9

Share of world total (%)
GDP
4.2
Exports
6.3
Imports
6.4
0.8
FDI Outflows
FDI Inflows
5.8

4.7
10.1
10.3
2.8
9.7

7.4
16.2
14.5
6.1
9.7

7.8
17.3
15.7
2.8
16.1

Share of GDP (%)
Exports
27.8
Imports
28.4
0.1
FDI Outflows
FDI Inflows
0.7

34.4
36.0
0.6
2.0

45.3
41.7
3.1
5.8

46.0
42.6
0.6
3.2

30

4.70
6.90
5.87
16.29
27.68

6.20
10.25
9.28
40.40
28.10

Table 2 Foreign Trade of East Asian Countries
2003/
1980
1990
2003 1980
1980
1990
Exports ($billion)
ratio
Exports/ＧＤＰ（％）
Japan
130.4
287.6
471.8
3.6
12.3
9.5
China
18.1
62.1
437.9
24.2
9.6
17.5
Hong Kong
20.3
82.4
228.7
11.3
71.1
109.2
Korea
17.5
65.0
193.8
11.1
27.4
24.6
Indonesia
21.9
25.7
61.0
2.8
28.1
22.4
Malaysia
13.0
29.5
99.4
7.7
52.0
66.9
Philippines
5.7
8.1
36.5
6.4
17.7
18.3
Singapore
19.4
52.7
144.1
7.4
165.4
142.9
Thailand
6.5
23.1
80.5
12.4
20.1
27.0
Brunei
4.6
2.2
4.4
0.9
na
na
Cambodia
0.0
0.1
1.7
105.6
na
7.7
Laos
0.0
0.1
0.4
13.5
na
9.1
Myanmar
0.5
0.3
2.6
5.5
na
na
Vietnam
0.3
2.4
20.2
59.7
na
37.1
Imports（$billion)
ratio
Imports/ＧＤＰ（％）
Japan
141.3
235.4
382.9
2.7
13.3
7.7
China
19.9
53.3
413.1
20.7
10.6
15.0
Hong Kong
23.0
84.7
233.2
10.1
80.5
112.3
Korea
22.3
69.8
178.8
8.0
34.9
26.5
Indonesia
10.8
21.8
32.6
3.0
13.9
19.1
Malaysia
10.8
29.3
81.9
7.6
43.4
66.5
Philippines
8.3
13.0
39.5
4.8
25.5
29.4
Singapore
24.0
60.8
127.9
5.3
204.9
164.7
Thailand
9.2
33.0
75.8
8.2
28.5
38.7
Brunei
0.6
1.0
1.7
3.0
na
na
Cambodia
0.2
0.2
1.7
9.5
na
14.7
Laos
0.1
0.2
0.5
5.7
na
21.4
Myanmar
0.4
0.3
2.6
7.4
na
na
Vietnam
1.3
2.8
24.9
18.9
na
42.5
Source: World Development Indicators 2005 CD-ROM

Table 3 Intra-regional Trade (%share of total)
East Asia

NAFTA

EU

Exports
1980
2003

33.9
49.4

33.6
55.4

61.0
61.4

Imports
1980
2003

34.8
58.6

32.6
39.9

56.9
63.5

Source: JETRO trade database.

31

2003
11.0
30.9
145.9
32.0
29.3
95.8
45.3
157.8
56.3
na
40.0
17.8
na
51.5
8.9
29.2
148.8
29.5
15.6
79.0
49.0
140.1
53.0
na
40.6
24.7
na
63.5

Table 4 Trade Composition: Shares in Total Trade (%)
Manufactures
Exports
World
East Asia
Japan
Developing East Asia
China
Hong Kong
Korea
TaiwanIndonesia
Malaysia
Philippines
Singapore
ThailandElectronic products

Imports

Exports

Imports

1980

2003

1980

2003

1980

2003

1980

2003

64.1
na
94.7
na
na
95.7
89.5
na
2.3
18.8
21.1
46.7
25.2

76.5
na
93.1
na
90.6
93.4
92.7
na
52.1
76.9
90.1
84.7
75.4

53.7
na
18.7
na
na
75.1
43.1
na
64.9
66.6
47.5
54.1
50.8

74.7
na
57.6
na
80.0
91.5
64.2
na
56.4
83.1
79.5
80.4
75.9

8.6
20.5
23.3
18.6
5.0
15.7
22.1
21.0
0.5
27.9
22.4
36.6
15.3

12.4
30.0
19.1
33.6
26.9
31.6
34.9
35.9
9.1
50.0
67.9
48.0
24.2

8.5
10.5
4.8
13.6
7.6
14.9
11.1
13.6
4.1
19.6
15.7
22.1
10.4

12.0
23.7
14.2
26.5
23.3
33.2
15.7
25.2
3.5
42.0
34.2
38.3
19.5

32

Table 5 FDI Flows in East Asia
2002/
1980
1990
2002 1980
1980
1990
2002
FDI Outflows ($miilion)
ratio
FDI Outflows / GDPJapan
2,385.0 48,024.0 28,800.3
12.1
0.2
1.6
0.7
China
0.0
830.0 1,800.0
na
0.0
0.2
0.1
Hong Kong
82.0 2,448.0 3,769.4
46.0
0.3
3.2
2.4
Korea
26.1 1,051.6 3,429.2
131.4
0.0
0.4
0.6
Indonesia
6.0
-11.0
130.2
21.7
0.0
0.0
0.1
Malaysia
201.1
129.0 1,369.5
6.8
0.8
0.3
1.3
Philippines
1.0
22.0
158.0
158.0
0.0
0.0
0.2
Singapore
97.6 2,033.8 5,536.2
56.7
0.8
5.5
6.1
Thailand
3.0
154.0
557.2
183.4
0.0
0.2
0.4
Brunei
0.0
0.0
4.6
na
na
na
na
Cambodia
0.0
0.0
9.7
na
na
0.0
0.2
Laos
0.0
0.0
76.0
na
na
na
na
Myanmar
0.0
0.0
0.0
na
na
0.0
0.0
Vietnam
0.0
0.0
0.0
na
na
na
na
FDI Inflows ($million)
FDI Inflows / GDPJapan
278.0 1,753.0 6,324.3
22.7
0.0
0.1
0.1
53,505.0
China
57.0 3,487.1
938.7
0.0
1.0
3.8
19.1
2.5
4.3
8.7
Hong Kong710.2 3,275.1 13,560.9
Korea
17.0
759.0 3,752.0
220.7
0.0
0.3
0.6
Indonesia
180.0 1,092.0 -597.0
-3.3
0.2
1.0
-0.3
Malaysia
933.9 2,611.0 2,474.0
2.6
3.7
5.9
2.4
Philippines-106.0
550.0
319.0
-3.0
-0.3
1.2
0.4
Singapore
1,235.8 5,574.7 11,408.9
9.2
10.5
15.1
12.5
Thailand
189.4 2,575.0 1,802.0
9.5
0.6
3.0
1.3
Brunei-19.6
3.0 2,009.0 -102.7
nananaCambodia
1.0
0.0
87.0
87.0
na
0.0
2.1
Laos
0.0
6.0
19.5
na
na
na
na
Myanmar
0.4
225.1
128.1
337.0
na
3.5
0.3
Vietnam0.4
180.0 1,450.0 3696.9
nana
na
Source: UNCTAD, FDI database, World Bank, World Development Indicators 2005 CD-ROM

33

Table 6 Sources of FDI Inflows to East Asian Developing Economies (%)
China (actualized) Indonesia (Approved) Malaysia (Approvedt) Philippines (BOP) Singapore (commited) Thailand (BOP) Korea (Approved) Taiwan (Approved)

1995-99 2000-04 1995-99 2000-04 1995-99 2000-04 1995-99 2000-04 1995-99 2000-04 1995-99 2000-04 1995-99 2000-04 1995-99 2000-04

34

World
East Asia
Japan

100
73.1
8.3

100
61.6
8.6

100
38.3
14.7

100
41.7
9.7

100
45.4
18.6

100
36.4
11.6

100
48.5
25.4

100
37.5
24.3

100
29.0
29.0

100
21.6
21.6

100
52.0
26.5

100
99.1
42.1

100
26.3
8.8

100
26.5
13.5

100
34.8
17.2

100
31.0
15.2

East Asia
ex Japan

64.8

52.9

23.6

32.0

26.8

24.9

23.1

13.3

0.0

0.0

25.5

57.0

17.6

13.0

17.7

15.8

US
8.5
8.8
4.0
1.7
29.7
21.2
20.6
19.1
45.3
42.4
20.4
2.2
31.3
EU
7.7
7.0
24.0
17.0
9.1
30.3
18.7
4.8
23.2
30.8
17.3
-0.2
29.5
Note: The EU includes Italy, UK, the Netherlands, France and Germany. In the case of Singapore, the EU indicate
Source: Country data sources.

31.5
21.6

24.9
7.5

16.6
17.0

34

Table 7 Sectoral Distribution of FDI Inflows (%)
Korea (Approved) Taiwan (Approved)
1995-99 2000-04 1995-99 2000-04 1995-99 2000-04 1995-99 2000-04
Manufacturing
100
100
100
100
100
100
100
100
Food
2.5
3.5
7.3
7.3
11.9
4.4
3.2
3.4
Textiles
2.6
1.9
4.2
2.6
1.3
0.9
2.8
1.3
a
a
Wood
8.2
8.0
11.3
0.9
0.5
1.6
Metals
8.3
9.6
20.2
13.6
3.6
5.1
12.2
6.9
Chemicals
33.0
17.1
9.3
10.2
18.9
18.5
12.6
10.0
General machinery
2.2
1.7
25.9
32.2
8.7
13.2
3.1
5.3
Electric machinery
35.4
43.1
26.9
11.9
29.6
35.9
56.9
61.9
b
b
Transport machinery
2.9
6.5
8.8
12.6
5.3
4.0
Others
4.9
8.4
10.9
22.3
5.5
8.4
3.4
5.5
Malaysia (Approved) Thailand (BOP)

Manufacturing
share of total

na

na

39.6

53.5

49.4

36.4

48.6

35.0

Note: For Thailand Wood (a) is included in others and tranport machinery (b) is included in general machinery.

Source: Country data sources35

Table 8 Output sales and Input Procurement Patterns of Asian Affiliates of Japanese MNCs
(Percent of total sales and total procurements)

Local
Sales
1992
Manufacturing Total
Food
TextilesWood and Pulp
Chemical Products
Iron and SteelNon-ferrous Metal Products
General Machinery
Electric MachineryTransport Machinery
Precision Instruments
Coal and Petroleum Products

Other Manufacturing
2001
Manufacturing Total
Food
TextilesWood and Pulp
Chemical Products

66.1
46.0
56.1
50.2
64.7
85.5
63.3
53.0
45.7
92.6
36.9
55.9
78.6

Sales
Exports to
Asia
Japan

15.8
26.5
14.2
47.2
4.9
2.1
21.4
23.6
27.2
1.7
51.8
0.0
9.4

11.2
4.9
12.3
0.3
28.6
8.6
14.9
11.3
19.0
1.0
1.9
0.2
5.6

Procurement
Imports from
Local
Procure- Japan
Asia
ments
48.5
72.0
40.7
83.7
71.4
29.0
64.8
49.0
36.6
52.9
34.2
92.6
58.6

37.9
4.5
22.4
13.2
16.9
47.3
9.2
47.8
46.7
43.8
60.2
3.8
27.5

8.9
22.9
12.1
0.3
3.5
22.3
6.2
1.1
15.4
1.1
3.7
2.5
6.2

47.9
24.6
18.3
43.9
36.1
17.4
80.2
7.6
8.9
73.6
8.7
11.8
40.3
35.3
14.5
58.5
25.0
6.9
81.7
13.2
2.8
90.0
6.2
2.2
65.3
8.9
21.7
60.3
17.1
16.1
26.8
52.1
17.9
35.9
2.7
56.1
Coal and Petroleum Products
85.7
1.9
10.1
27.1
63.2
8.7
Iron and Steel
53.7
17.3
25.8
64.2
19.0
11.3
Nonmetallic Products
34.9
40.2
17.1
59.1
36.2
4.3
General Machinery
34.5
28.0
16.9
41.1
32.7
25.3
Electric Machinery
30.1
36.9
23.6
31.5
37.0
29.7
IT Machinery
66.1
8.1
16.4
47.4
46.4
3.9
Transport Machinery
42.3
40.3
12.9
50.9
41.5
7.4
Precision Instruments
49.9
31.4
9.8
43.9
40.8
12.4
Other Manufacturing
Source: Ministry of Economy, Trade and Industry, Kaigai Jigyo Katsudo Kihon Chosa(Comprehensive Survey of Overseas Activities of Japanese Firms), No. 23, 1994 and No. 32, 20036

Table 9 Intra-firm Transactions for Asian Affiliates of Japanese MNCs
(Percentage share of Transaction)

Local
Sales

Sales
Exports to
Japan
Asia

Local
Procurements

Procurement
Imports from
Japan
Asia

1992
6.3
84.2
44.4
4.2
78.0
50.2
Manufacturing Total
7.6
85.4
26.3
0.2
75.8
48.8
Food
4.3
36.1
23.0
19.5
34.2
31.5
Textiles
0.0
57.9
0.0
0.1
79.4
0.0
Wood and Pulp
2.4
49.0
3.2
18.0
57.5
4.3
Chemical Products
0.0
29.0
0.0
5.2
1.1
0.0
Iron and Steel
0.8
82.6
55.1
0.0
26.0
0.0
Nonmetallic Products
3.0
96.7
55.6
4.5
93.9
84.8
General Machinery
8.0
90.0
53.7
2.0
84.6
59.8
Electric Machinery
7.2
73.9
57.9
0.6
81.7
34.6
Transport Machinery
32.4
96.5
77.9
17.5
85.6
100.0
Precision Instruments
0.0
0.0
0.0
0.0
100.0
10.0
Coal and Petroleum Products
6.3
67.0
49.8
7.3
64.1
61.8
Other Manufacturing
2001
49.6
96.0
70.2
86.0
46.7
65.9
Manufacturing Total
48.9
78.7
66.6
98.4
52.3
24.2
Food
28.5
89.8
59.1
89.7
52.2
85.2
Textiles
26.3
82.8
100.0
98.8
100.0
100.0
Wood and Pulp
41.2
77.1
50.5
96.7
74.6
87.4
Chemical Products
88.9
100.0
99.4
100.0
0.0
78.9
Coal and Petroleum Products
8.0
86.6
27.9
86.4
81.9
100.0
Iron and Steel
19.5
97.8
65.4
66.3
54.7
87.8
Nonmetallic Products
61.8
98.7
91.8
84.7
59.1
61.6
General Machinery
45.0
98.3
75.8
89.3
27.7
29.8
Electric Machinery
56.9
95.5
80.8
89.8
44.3
72.6
IT Machinery
56.4
99.5
29.8
73.7
46.4
83.4
Transport Machinery
58.7
99.5
93.7
96.6
50.9
89.2
Precision Instruments
Other Manufacturing
56.5
98.4
78.2
92.1
29.4
77.9
Source: Ministry of Economy, Trade and Industry, Kaigai Jigyo Katsudo Kihon Chosa(Comprehensive Survey of Overseas Activities of Japanese Firms), No. 23, 1994 and No. 32, 2004.

37

Table 10 Proportions of Electronics Components Trade in Total Electronics Trade: 2002
Exports
Imports
East
Japan
EU
World
East
Japan
EU
0.77
0.80
0.57
0.58
China
0.65
0.49
0.29
0.32
0.48
0.71
0.75
0.66
0.50
0.57
0.44
0.47
0.67
Hong Kong 0.78
0.81
0.74
0.66
0.62
Korea
0.71
0.74
0.42
0.43
0.57
0.78
0.71
0.70
0.68
Taiwan
0.85
0.62
0.49
0.50
0.66
0.79
0.88
0.48
0.37
Indonesia 0.77
0.50
0.37
0.16
0.52
0.87
0.88
0.84
0.82
Malaysia
0.86
0.57
0.40
0.59
0.65
0.82
0.89
0.94
0.79
0.66
0.63
0.73
0.76
Philippines 0.88
0.82
0.81
0.69
0.74
Singapore 0.80
0.69
0.52
0.55
0.67
0.81
0.81
0.78
0.49
Thailand
0.91
0.69
0.46
0.56
0.68
0.78
0.79
0.72
0.64
East Asia 0.78
0.61
0.43
0.48
0.62
0.61
0.48
0.50
Japan
0.79
--0.420.43
0.61--0.43
0.42
0.45
0.49
NAFTA
0.72
0.48
0.45
0.48
0.52
0.48
0.43
0.48
0.41
EU
0.64
0.50
0.49
0.41
0.44
0.62
0.61
0.52
0.44
World
0.76
0.57
0.44
0.43
0.54
Source: Computed from ITI (Institute of Internatinal Trade and Investment) trade database.

World
0.74
0.70
0.73
0.74
0.73
0.86
0.87
0.79
0.76
0.76
0.57
0.44
0.43
0.54

Table 11 Trade Liberalization in Selected East Asian Economies
Manufactured products
All products
Primary products
ImportImportImportBinding Unweighted weighted Unweighted weighted Unweighted weighted
Coverage averages
averages averages
averages averages
averages

China

1992
40.4
32.1
36.1
2004
100
9.8
6.0
10.0
Indonesia 1989
19.2
13.0
18.2
2003
96.6
6.4
5.2
8.0
Japan
1988
4.2
3.6
8.3
2004
99.6
2.9
2.4
5.3
Korea
1988
18.6
14.0
19.3
2002
94.4
15.5
9.5
20.9
Malaysia 1988
14.5
9.7
10.9
2003
83.7
7.3
4.2
4.5
Phillipines 1988
28.3
22.4
29.9
2003
66.8
4.5
2.6
5.7
Singapore 1989
0.4
1.1
0.2
2003
69.8
0.0
0.0
0.0
Thailand 1989
38.5
33.0
30.0
2003
75.0
14.0
8.3
16.4
Vietnam 1994
14.8
20.6
20.9
2004
13.7
13.7
18.1
India
1990
79.0
56.1
69.8
2004
73.8
28.3
28.0
30.0
Source: World Bank, World Development Indicators 2005

38

14.1
5.6
5.9
3.1
4.4
3.9
8.3
19.0
4.6
2.1
18.5
5.0
2.5
0.0
24.3
4.4
46.7
16.7
34.1
36.9

40.6
9.7
19.2
6.1
3.5
2.4
18.6
7.8
14.9
7.8
27.9
4.2
0.4
0.0
39.0
13.5
13.9
12.9
79.9
27.9

35.6
6.0
15.1
5.8
2.7
1.6
17.0
5.0
10.8
4.6
23.4
2.0
0.6
0.0
35.0
9.3
13.1
12.5
70.8
25.3

Ad valorem
equivalentof non-tariffbarriers

1.5
0.5
1.6
0.0
1.7
0.4
0.5
0.3

3.2

Table 12 Major FTAs Involving East Asian Economies (as of April 2006)
In Action
In Negotiation
Under Study
Bangkog Treaty (1976)
China-Thailand*
China-India
AFTA(1992)
China-Australia
Japan-Australia
Singapore-New Zealand (2001) China-New Zealand
Japan-India
Japan-Singapore (2002)
China-Chile
Korea-ASEAN
Singapore-Australia (2003)
Japan-ASEAN
Korea-Australia
Singapore-EFTA (2003)
Japan-Indonesia
Korea-New ZealandSingapore-US (2004)
Japan-Korea
Korea-Thailand
Korea-Chile (2004)
Japan-Malaysia*
Korea-US
China-Hong Kong (2004)
Japan-Thailand
ASEAN-India
China-Macau (2004)
Japan-Philippines
ASEAN-US
Taiwan-Panama(2004)
Korea-ASEAN
ASEAN-CER
Japan-Mexico (2005)
Korea-Singapore*
Malaysia-EU
Thailand-Australia (2005)
Malaysia-Australia
Malaysia-India
Thailand-New Zealand (2005) Malaysia-New ZealandPhilippines-US
China-ASEAN(2005)
Singapore-Canada
Singapore-Chile
India-ASEAN(2005)
Singapore-Mexico
Singapore-Taiwan
India-Sri Lanka
Singapore-India*
India-GCC
Singapore-Sri Lanka
India-Malaysia
Singapore-Qatar*
Singapore-Peru
Singapore-Panama
Singapore-Kuwait
Singapore-Brunei-Chile-NZ
Thailand-India*
Thailand-US
Thailand-Peru*
Thailand-EFTA
Hong Kong-New Zealand
India-Mauritius
India-Chile
India-Egypt
Note: '*' indicates conclusion of the negotiation.
Source: Country sources39

Table 13 Effects of EAFTA on East Asian Countries
Increase in Increase in
Increase
WelfarePer capita
Per capita
in GDP (%) ($million) welfare ($)(1) GNI ($) (2) (1)/(2)(%)
China
1.73
14,483
11
900
1.22
Japan
0.31
15,013
118
35,780
0.33
Korea
4.91
17,122360
10,5803.40
Indonesia
3.22
4,663
22
680
3.24
Malaysia
5.64
4,900
207
3,410
6.07
Phiippines
5.06
2,707
34
1,030
3.30
Singapore
5.17
4,805
1,443
21,440
6.73
Thailand
15.37
14,420
230
1,980
11.62
Vietnam
6.05
4,976
34
410
8.29
CJK(+3)0.93
46,619
32
ASEAN
6.39
36,47169
ASEAN+3
1.48
83,09042
Source: Simulation results.
Per capita GNI are taken from World Bank, WDI-CD-ROM

Table 14 Effects of East Asia FTA on output in East Asian Countries(Changes in volume in millions US$, %)Japan
Agriculture and food
Natural resources
Textile and apparel
Wood and paper products
Chemical products
Metal products
Machinery
Electronic machineryTransport equipment
Other manufacturing
Trade
Construction
Transport and communication

Public services
Other services

-2.0
-0.1
2.8
-0.4
1.3
2.2
2.6
-2.1
1.5
-1.6
0.2
0.6
0.1
0.1
0.2

China
5.5
0.1
0.2
-1.6
-1.3
-1.3
-1.6
11.5
-3.7
-0.3
0.6
3.7
0.7
0.8
0.7

Korea
-13.0
-0.7
33.6
5.7
8.0
3.4
1.5
4.0
1.0
35.9
5.1
7.2
1.5
1.7
3.9

ASEAN
5.7
1.8
7.4
8.3
12.0
8.4
20.0
10.0
0.1
8.8
6.6
9.3
4.7
2.7
4.8

40

Indonesia Malaysia Philippines Singapore Thailand Vietnam
2.7
6.9
1.9
51.1
11.4
1.0
1.1
1.5
1.5
1.2
4.6
3.0
3.3
18.9
9.1
-3.2
7.5
10.4
7.7
6.1
5.1
4.4
11.2
14.9
5.5
8.9
6.4
9.7
23.7
16.4
2.6
8.3
7.6
6.8
21.3
2.9
12.8
17.0
19.9
14.6
33.8
14.6
7.4
5.2
7.7
7.6
34.0
0.6
-0.6
4.6
32.5
-11.6
14.7
-23.1
-2.0
8.4
4.7
-0.1
11.3
17.6
3.8
2.3
5.7
3.3
16.2
6.1
4.9
6.7
7.1
8.2
22.4
9.1
3.3
3.1
4.8
0.8
9.9
7.1
1.2
2.5
1.9
4.0
4.8
1.2
2.7
2.1
4.9
0.5
13.3
5.5

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

FDI
inflows

100 185.68 161.07 155.87 168.24 120.15

Merchandise
exports

100 108.34 107.85 112.17 128.72 127.56 136.98 176.75 224.14 251.37 284.49 328.23 376.77 420.71 508.33 619.73 645.61 691.01 658.55 698.57 841.67 793.04 873.27

220.5 420.51

504.6 440.68 622.33

610.8 867.62 1575.3 1890.8 2156.7 2486.2 2748.6 2591.5

3008 4004.4 2718.7 2492.1

41GDP
100 108.05 113.3 119.03 129.49 139.54 140.18 145.08 173.44 199.74 219.76 244.93 272.1 296.18 350.87 424.85 475.03 478.23 404.58 448.61 488.08 494.49 537.33
Source: GＤＰ、exports （World Bank・World Development Indicators 2005 CD-ROM)、FDI （UNCTAD ＦＤＩ database）
FDI inflows（3-year moving average）$billion
1981
1982
1983 1984 1985 1986
1987
1988
1989
1990 1991 1992
1993
1994
1995
1996
1997 1998 1999
2000
2001
China
0.2507 0.4437 0.7747 1.1843 1.5973 1.9493 2.461 2.967 3.358 3.7487 6.3363 14.346 24.153 32.384 36.605 40.089 42.723 42.769 41.614 42.646 46.773
NIEs
3.0351 3.161 2.802 2.2498 2.8793 5.3855 8.4701 9.5586 9.7422 8.9922 9.0087 9.7263 13.127 17.578 21.188 24.999 27.313 36.024 55.564 60.353 51.922
ASEAN4 1.6292 1.9018 1.7594 1.5439 1.2511
1.261 1.9799 3.1647 4.9519 6.5496 8.2667 9.587 10.093 11.415 13.635 15.799 15.053 12.226 8.1553 4.9898 3.2877

41

References

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Study,” Discussion Paper, Economics Department, Keio University
Chia, Siow Yue. 2004. “Inward FDI in Singapore: Policy Framework and Economic Impact,” paper prepared for
the World Bank Institute Project entitled “Foreign Direct Investment and Economic Development: Lessons fromthe East Asian Experience,”
International Monetary Fund. 2002. Balance of Payments Statistics Yearbook, Washington, D.C.
Japan PECC (Pacific Economic Cooperation Conference) 2002. An Assessment of Impediments to Foreign Direct
Investment in APEC Member Economies, Tokyo, Japan.

Kawai, Masahiro. 1997. “Japan’s Trade and Investment in East Asia,” David Robertson, ed., East Asian Tradeafter the Uruguay Round, Cambridge University Press, Cambridge, U.K., pp. 209-226.

Kawai, Masahiro and Shujiro Urata. 1998. "Are Trade and Direct Investment Substitutes of Complements? An
Empirical Analysis of Japanese Manufacturing Industries," in H.Lee and D.Roland-Holst eds., Economic
Development and Cooperation in the Pacific Basin: Trade, Investment and Environmental Issues, Cambridge

University Press, Cambridge, U.K., pp. 251-293.
Kawai, Masahiro and Shujiro Urata. 2004. “Trade and Foreign Direct Investment in East Asia,” in Gordon de
Brouwer and Masahiro Kawai, Exchange Rate Regimes and East Asia, RoutledgeCurzon, London, pp. 15-102
Kimura,FukunariandMitsuyo

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Production/Distribution Networks in East Asia,” paper prepared for the World Bank Institute project entitled“Foreign Direct Investment and Economic Development: Lessons from East Asian Experience.”Lall, Sanjaya and Shujiro Urata eds. 2003. Competitiveness, FDI and Technological Activity in East Asia, Edward
Elgar.
Lewer, Joshua J. and Neil Terry. 2003. “Capital Account and Foreign Direct Investment Policies in the Late
Nineties: What Effect on Trade?” ASEAN Economic Bulletin, Vol. 20, No. 3, pp. 256-271.
OECD. 2002 Foreign Direct Investment for Development: Maximizing Benefits, Minimizing Costs, Paris.
Pacific Economic Cooperation Conference (PECC).1995. 1995 Survey of Impediments to Trade and Investment in
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Perkins, Dwight H. and Moshe Syrquin. 1989. “Large Countries: The Influence of Size,” in Hollis Chenery and
T.N. Srinivasan eds., Handbook of Development Economics Vol. 2 eds. Elsevier Science Publishers, Amsterdam,
pp. 1691-1753.
42

Small and Medium Enterprise Agency of the Japanese Government. 2004. White Paper on Small and Medium
Enterprises, Government Printing Office, Tokyo.(in Japanese)

Takeuchi, Junko. 2004 “The Mechanism of Expanding Trade of Electronics Products in East Asia,” RIM, Japan
Research Institute, Economics Department, vol. 4, no.13 (in Japanese), pp. 29-53
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and Shahid Yusuf, eds., Rethinking the East Asian Miracle (Washington, DC: World Bank), Oxford University
Press, New York, pp. 409-459.
Urata, Shujiro. 2001b. "Europe's Trade and Foreign Direct Investment I Asia," in Vinnod K. Aggarwal ed.,Winning in Asia, European Style: Market and Nonmarket Strategies for Success, Palgrave, New York, 2001, pp.

31-58.
Urara, Shujiro. 2002. "Engines of Globalization: Big and Small Multinational Enterprises in the Global Era,"
Kyung Tae Lee, ed. Globalization and the Asia Pacific Economy, Routledge, London and New YorkUrata, Shujiro. 2004a. “Toward an East Asia Free Trade Area,” Policy Insight, No.1, OECD, March2004.
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Urata, Shujiro. 2004b. “FDI Flows, Their Determinants and Economic Impacts in East Asia, paper prepared for
the World Bank Institute project entitled “Foreign Direct Investment and Economic Development: Lessons from
East Asian Experience.”
World Bank. 2003. World Development Indicators, Washington, D.C.

43

3.

Economic Integration in East Asia: A Financial and Monetary Perspective

Prof. SHIRAI Sayuri
Professor
Keio University
1. Introduction
Since the 1990s, the economies of East Asia have been increasingly integrated due to active private
sector initiatives, as evidenced by an expansion of bilateral trade, FDI, other financial flows, and by tourism.
Intra-regional trade has reached more than 50 percent of total trade. Such linkages are likely to strengthen
further thanks to the prevalence of regional preferential trade arrangements initiated since the late 1990s.
Like other Asian countries (e.g., China, Singapore, and Thailand), Japan has pursued negotiating regional
preferential arrangements—mainly in the form of EPAs (Economic Partnership Arrangements) covering awider range of issues (such as the free flow of goods, money and labor) rather than FTAs (Free Trade
Arrangements). EPAs have already been implemented with Singapore (2002) and Mexico (2005). An
agreement was signed with Malaysia in 2005, and agreements in principle on major elements were reachedwith the Philippines in 2004 and Thailand in 2005. Currently, negotiations are underway with Indonesia,
Brunei, Korea, Chile, and ASEAN as a group.
To date, all the preferential arrangements in East Asia are solely based on bilateral or sub-regional
levels, but do not extend to a regional scale. The proliferation of overlapping preferential agreements tends
to intensify the administrative burden and inefficiencies among the signing countries, due to different
schedules for phasing out tariffs and non-tariff barriers, local content requirements, coverage of excluded
items, investment rules, etc.; the so-called “spaghetti bowl” effect as pointed out by Prof. Jagdish Bhagwati
of Colombia University. Therefore, for reasons relating to efficiency, it is clear that region-wide preferential
arrangements are superior to the existing EPAs and FTAs. Nonetheless, progress toward such a movement isbarely noticeable.
Instead of regional-wide trade arrangements, movements towards regional financial and monetary
cooperation have made some progress, particularly in the aftermath of the East Asian financial crisis of
1997-98. Three strong and increasingly prevalent views have promoted these post-crisis movements. One isthat a regional emergency financial support mechanism is necessary as a “crisis management” measure,given that the timing of International Monetary Fund (IMF) disbursements is often slow and its usable
resources occasionally suffer from shortages. Such a regional support mechanism is feasible in East Asia
because of the high level of savings and substantial amounts of foreign reserves. The second view is that
more balanced financial and capital markets should be developed as a “crisis prevention” measure. Prior tothe crisis, Asian banks appeared to not function properly due to cronyism (among banks, firms andgovernments), an inability to develop risk management skills and a lack of proper prudential risk
management. The crisis underscored the risks associated with financial structures where firms depended
excessively on short-term bank loans to finance longer-term domestic projects, while using non-hedged
short-term foreign currency borrowings to finance domestic investment projects. 1 Thus, reducing these
1 The East Asian crisis was essentially the external debt problems existing between financial institutions in both
lending and borrowing countries. By contrast, crises in other emerging market economies—such as Russia (1998),
Brazil (1999), and Argentina (2001-03)—were associated with external debt problems between sovereign
borrowers and overseas private investors. Both crises were preceded by the growth of capital inflows and44

mismatches by developing more balanced financial and capital markets is crucial to prevent a new type ofcrisis emerging in East Asia. The third view is that flexible exchange rate regimes are more suitable for
economies with open capital accounts, and might even function as a “crisis prevention” measure. This
reflects the observation that crisis-affected countries had adopted a de facto dollar peg prior to the crisis, butwere forced to abandon it and adopt a flexible exchange rate regime in the event of a reversal of massive
capital flows and the resultant depletion of foreign reserves. However, regional currency cooperation isregarded as superior to individually adopted flexible exchange rate regimes, as it reduces exchange rate
volatility and thus encourages further private sector activities.
The growing volumes of capital flows, volatility, and swings in investor risk sentiment increasingly
create turbulence in international markets. This trend might increase the likelihood of contagious crises, likethe East Asian crisis of 1997-98, especially since rapid intra-regional private sector activities havestrengthened trade and investment linkages in the region. Thus, it is becoming important for East Asia to
consider measures to prevent or mitigate crises so as to sustain stable and prosperous economies in theregion. The approach sought by East Asia—namely, a strategy that proceeds with financial and currency
cooperation—would differ from that of Europe, where trade integration took place in the 1950s prior tomonetary and currency cooperation. 2 In Europe, discussion about currency and financial coordination did
not take place until the emergence of speculative currency attacks in the late 1960s and the collapse of the
Bretton Woods system in the early 1970s, because the system maintained global exchange rate stability. Also,
moderate capital controls that had continued until the Single European Act of 1987 did not promote financial
coordination in the initial stage. This chapter critically reviews measures that have been extensively
discussed and are implemented in East Asia, as well as the issues remaining on the agenda.

2. Mechanism of the East Asian Crisis and Policy Response
2-1. Nature of the Crisis
The East Asian crisis erupted in a new environment where massive international capital, largely inthe form of short-term capital, shifted from advanced countries (i.e., Japan, the US, and the EU) to theemerging-market economies in East Asia. The capital inflows took place after East Asian governments in theearly 1990s had liberalized their domestic financial sectors (through interest rate decontrol and entry
deregulation) as well as their capital accounts. Massive capital inflows to the region reflected strong
macroeconomic fundamentals, interest rate differentials and limited exchange rate risk guaranteed under
fixed exchange rate regimes. Until the crisis occurred, the region’s economic performance had beenremarkable: an average economic growth of 7 percent with an export orientation, a high level of savings(about 30 percent of GDP) and a fiscal surplus. Reflecting active private sector investment activities andhigh demand for credit, domestic interest rates had been higher than those in advanced countries.
The amount of capital inflows surpassed the amount needed to finance the underlying international
current account deficits, thus giving rise to a surplus in the overall balance of payments and an increase intriggered by a reversal of capital flows caused by a change in investor sentiment. Nevertheless, conflicts ofinterests among creditors, and between creditors and borrowers, were more complicated in Russia, Brazil, andArgentina than those in East Asia, since the presence of a large number of individual investors in the former madeit difficult to agree on how to restructure sovereign foreign debt. While major borrowers were largely domestic
financial institutions and firms, and major lenders were foreign banks in East Asia, the major borrowers weresovereign and the major lenders were a large number of individual investors in the other regions.
2 The European Payments Union was operated between 1950 and 1958. However, intense discussion overcurrency and financial coordination did not take place at that time. In 1979, the European Monetary System wasintroduced with the European Currency Unit and Exchange Rate Mechanism.
45

foreign reserves. The increase in foreign reserves generated excessive liquidity (as a result of intervention in
the foreign exchange market by the authorities to maintain the dollar peg) and a credit expansion bydomestic financial institutions resulted, thereby giving rise to excessive borrowing by domestic firms. This
led to an expansion of domestic expenditure (or absorption) and thus a widening of the international current
account deficit. The growth in domestic credit amplified the boom-bust business cycle in real estate andstock prices as well as in the accumulation of production capacity, which increased the vulnerability ofdomestic financial institutions and firms by enlarging potential losses arising from a possible burst of the
bubble and the excess production capacity. Massive, short-term and foreign currency-denominatedborrowing by domestic financial institutions (and longer-term, domestic currency-denominated lending bythem) aggravated maturity and currency mismatches (double mismatches). Maturity mismatches widened
because domestic financial institutions borrowed short and invested in longer-term real estate and in
production capacity in the manufacturing sector without carefully examining the creditworthiness of thedomestic borrowing firms. A currency mismatch also grew as domestic financial institutions increased
foreign currency-denominated loans and provided domestic currency-denominated loans to the domestic
sector without adequately hedging the exchange rate risk. The belief that the dollar peg would be sustained
supported this trend.
Excess capital formation and the burst of the bubble, which had become prevalent in 1995-96,
caused the deterioration of the credit quality of domestic financial institutions and thus their balance sheets
by increasing the size of non-performing assets. Triggered by this and a slowdown in economic growth, thetrends in capital flows started to reverse as investor sentiment toward East Asia deteriorated. Subsequently,
sudden and massive capital outflows followed, leading to a deficit in the overall balance of payments. A
drain in foreign reserves left Thailand no choice but to abandon the dollar peg in July 1997. Thai economic
performance deteriorated sharply due to mutually reinforcing currency and banking crises (so-called “twincrises”). The presence of the afore-mentioned double mismatches significantly deepened the twin crises,
since the sharp depreciation of the exchange rates swelled the domestic currency value of
foreign-denominated liability in addition to the increase in non-performing assets. The banking sector
problems brought on a credit crunch, making it harder for domestic firms to get new borrowing and this led
to an abrupt curtailment of domestic expenditure. The Thai crisis triggered speculative currency attacks onneighboring East Asian countries, in the same year generating damaging effects particularly on Indonesia
and Korea (Table 1). The East Asian crisis also generated contagious effects in Russia in 1998, Brazil in
1999, and Argentina in 2001-03 as well as globally in various other emerging market economies.
The East Asian crisis was essentially a “capital account” crisis triggered by flows of massive
foreign capital. Financial sector and capital account liberalization in the early 1990s promoted recklesslending by domestic financial institutions, since the new environment caused by deregulation was notaccompanied by the necessary prudential and regulatory framework. The nature of the capital account crisis
differs substantially from that of a conventional crisis a so-called a “current account” crisis) that generally
arises from poor macroeconomic performance (i.e. low economic growth, a low level of savings, fiscal
deficit financed by money creation and external debt, and high inflation). For a country subject to a current
account crisis, a low level of savings and a fiscal deficit financed by monetization generates a large
international current account deficit that exceeds capital inflows, causing a deficit in the overall balance of
payments (and a drain in foreign reserves) and so leads to a crisis. Thus, a current account crisis is triggeredby poor macroeconomic performance, whereas a capital account crisis is triggered by changes in investor
sentiment and a reversal of capital flows.
46

Table 1. Economic Performances of Thailand, Indonesia, and Korea
1996

1997

1998

R eal G D P G row th (%)
ThailandIndonesia
Korea

5.9
7.6
7.0

-1.4
4.7
4.7

-10.5
-13.1
-6.9

Exchange R ate (to 1US$)ThailandIndonesia
Korea

25.6
2383
844

47.2
4650
1695

36.7
8025
1204

Source: IMF, International Financial Statistics.
2-2. IMF Response to the Crisis
As economic conditions deteriorated sharply and the need for foreign currencies intensified, at
end-July 1997 Thailand requested assistance from the IMF. This move was followed by Indonesia in Octoberand Korea at end-November in the same year. In response, the IMF provided rescue packages (financial
loans together with policy programs as conditionality) in cooperation with the World Bank, the AsianDevelopment Bank and bilateral contributors. The rescue packages amounted to US$17.2 billion for
Thailand, US$23 billion plus a second line of defense for Indonesia, and US$35.2 billion plus a second lineof defense for Korea. IMF loans are generally accompanied by programs of policies to increase theprobability of repayment to the IMF and, at the same time, promote an incentive for recipient countries toundertake better macroeconomic policies. For this reason, IMF loans are phased, and disbursements are
made based on the performance of the agreed programs.
The announced IMF-led financial packages for East Asia were greater than the size usuallyprovided by the IMF, but in this they revealed some problems. First, the IMF’s financial assistance is phased
so that the announced amount of loans cannot be disbursed all at once. Also, governments need to reach an
agreement over the programs of policies with the IMF prior to the disbursement, thus it is difficult for the
IMF to provide immediate loans. The slow and phased style of disbursement may be appropriate for aconventional current account crisis, but not for a capital account crisis. Second, the second lines of defenses
announced by some bilateral creditors (e.g., the US and Japan) were never meant to be disbursed in the casesof Indonesia and Korea. Thus, the amounts of actually available financial resources were smaller than thoseannounced. Third, the IMF-supported programs of policies covered changes in the exchange rate regimes, atightening of monetary and fiscal policies, and a wide range of structural reforms. The phased, conditionaland restrictive bailout lending was criticized by many academics (e.g. Radelet and Sachs [1998], Rose[1998]), who claimed that external assistance did not arrive quickly or massively enough to prevent credit
crunches and recessions, and, further, did not successfully prevent investor panic from deepening in East
Asia.
Moreover, the East Asian crisis and subsequent contagious crises awakened the world to the factthat the IMF‘s financial resources might not be sufficient to cope with a large number of crises. The IMF
could act as a crisis lender for member countries through utilizing fund-raising mechanisms—such as theGeneral Arrangements to Borrow (GAB), New Arrangements to Borrow (NAB), and participation by othermember countries and international financial institutions—as well as the issue of Special Drawing Rights
47

(SDRs). The amount of total IMF’s resources (holding of gold and currencies) was US$283 billion in April
2001. Once non-usable resources and committed usable resources are excluded from this total amount,usable resources were just US$99 billion. Adding in the resources available under GAB and NAB, total
usable resources were up to US$145 billion. If a series of greater massive contagious crises had occurred
globally at that time, this amount might not have been sufficient. Academics (such as Rogoff [1999]) stressedthat the IMF’s resources might not be sufficient to preclude a broad-based attack on emerging market
economies.
In response to some of the criticisms, the IMF invented new financial arrangements so thatcrisis-affected countries could get a relatively large amount of disbursement from the IMF. Typically, themaximum amount of financial resources available to member countries is determined based on the size of
quota applicable to each. In December 1997, the IMF introduced the Supplementary Reserve Facility (SRF),
which aims to provide financial support for one year without any general access limits to a country suffering
serious balance of payments problems caused by a sudden and destructive loss in market confidence, withrepayment due up to 1.5 years later. The SRF is applicable to countries that could recover in a relatively
short term from a crisis once sufficient foreign exchange is provided and appropriate economic policies are
implemented. The SRF is tied to the existing Stand-By Facility and is a conditional lending facility. Theinterest rate is a rate of the normal charge plus 300 basis points for the first year and plus an additional 50
basis points for each six months thereafter with a maximum charge of 500 basis points. Indeed, SRFs wereapplied to Korea, Brazil and Argentina.
As a preemptive measure to prevent a crisis, the IMF in addition introduced the Contingent Credit
Line (CCL) in April 1999. The CCL is applicable to a country threatened with potential vulnerability tocontagion, but is not yet facing a crisis, while the SRF is used for a country already in crisis. The availabilityof CCL is up to 300 to 500 percent beyond the quota. The interest rate is the rate of a normal charge plus 150
basis points for the first year plus an additional 50 basis points for each six months thereafter with amaximum charge of 350 basis points. The CCL is tied to ongoing performance criteria, such as good
performance under annual IMF consultations or under a program, adherence to international standards andmaintenance of constructive relations with private creditors, etc. These criteria were criticized for not being
clearly defined, which could raise concerns regarding transparency. The CCL was abolished in November
2003 without receiving any application from a member country. The failure of its activation reflected thesituation that a country did not have an incentive to apply for fear of concern that the application itself would
be interpreted by investors as a sign of weakness and thus precipitate the very crisis that the arrangement
wanted to prevent.

3. Movements Toward Regional Financial Arrangements
3-1. Asian Monetary Fund Proposal
The vision for establishing the Asian Monetary Fund (AMF) was formed in August 1997, when
Japan proposed the idea with several member countries of the ASEAN at a meeting in Tokyo held to plan
financial support for Thailand. The proposal emerged in response to a request by Thailand to create a schemethat would enable urgent financing for crisis-affected East Asian countries. The AMF was positioned to be
independent of the IMF. In September 1997, Japan officially announced a plan to establish the AMF incooperation with other Asian countries to stabilize Asian currencies and financial markets. Initially, the AMF
aimed to raise US$50-60 billion through contributions from participating countries and another US$50
billion through the contribution of Japan. It was envisioned to initiate within 1997—with possible initial48

membership from the ASEAN-6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand),
Korea, China, Taiwan and Hong Kong—and make up for IMF regional surveillance activities. The AMF
vision was to achieve financial cooperation on a regional multilateral basis in East Asia.
However, the AMF proposal met strong opposition from the US and IMF on the grounds that suchan arrangement would enhance the problems of moral hazard and double standards (two layers ofconditionality imposed separately by the IMF and AMF), and that any challenge to the IMF leadership would
be undesirable. Accordingly, Japan decided to give up the proposal in November 1997. Instead, the Group of
15 economies met in Malaysia and developed a plan to prevent renewed currency and financial market
turbulence. In preparation for an APEC summit meeting, senior finance officials of APEC member countries
met in Manila in mid-November 1997 to design a framework for dealing with crises in the region. This
“Manila Framework” was endorsed by the 18 leaders of the APEC economies at the forum's annual summit
at end-November 1997. The Framework recognized that the role of the IMF would remain central andstressed enhanced regional surveillance through intensified economic and technical cooperation. In
December 1997, ASEAN endorsed the Manila Framework and decided to develop a regional surveillancemechanism that would emphasize preventive efforts to avoid financial crises, and reaffirmed theircommitment to maintain an open trade and investment environment in the ASEAN area.
In October 1998, Japan proposed a framework called “A New Initiative to Overcome the Asian
Currency Crisis” (the so-called “New Miyazawa Initiative”). The initiative was to provide financial support
measures totaling US$30 billion. Of the total amount, US$15 billion would be made available for mediumto long-term financial needs for East Asian countries and another US$15 billion would be set aside tosupport their possible short-term capital needs that could arise in the process of implementing economic
reforms. The financial support focused on assisting crisis-affected countries to overcome their economic
difficulties and to contribute to the stability of financial markets. The US and IMF supported Japan’s
initiative due to its bilateral nature as compared with the previous AMF proposal. Within this framework, abilateral one-way swap agreement was also agreed between Japan and Korea (US$5 billion) and between
Japan and Malaysia (US$2.5 billion).
3-2. Swap Arrangements under the Chiang Mai Initiatives
The Chiang Mai Initiative (CMI), or regional-wide swap arrangements, was formed in 2000 on thebasis of the existing ASEAN swap arrangement. The ASEAN swap arrangement dates back to 1977 when
ASEAN central banks reached an agreement on its establishment by reciprocal arrangements among
Indonesia, Malaysia, the Philippines, Singapore, and Thailand (the ASEAN-5). The arrangement was toprovide immediate short-term swap facilities for the US dollar against the domestic currency of a requesting
member country with temporary international liquidity problems. The swap transaction is for a period of one,
two, or three months and is renewable once for a maximum of another three months. Each member country
provides US$20 million (total amount is US$100 million) and a requesting country is able to borrow up to
US$40 million. In 1978, the total amount of financial resources was increased from US$100 million to
US$200 million and each member country agreed to provide US$40 million. Thus, a requesting country isable to borrow up to US$80 million under the revised arrangement.
Reflecting strong voices among East Asian policy makers to strengthen financial cooperation, theleaders of ASEAN plus three (Japan, China and Korea), or ASEAN+3, held a summit in Manila in 1999 andagreed to enhance self-help and financial support mechanisms in East Asia. Subsequently, the Finance
Ministers of ASEAN+3—whose total foreign reserves amounted to over US$200 billion—agreed in May
49

2000 in Chiang Mai, Thailand on establishing a regional financial arrangement to supplement existing
international facilities in East Asia. This “Chiang Mai Initiative” involved an expansion of theafore-mentioned ASEAN swap arrangement and was to include ten ASEAN countries (ASEAN-10) and a
network of bilateral swap and repurchase agreements (BSA) among ASEAN+3. The CMI stressed astrengthening of the existing swap arrangement initiated by ASEAN and its nature as supplementary to the
IMF facilities. The expected financial support from the plus three countries to ASEAN was based on abilateral agreement, as compared with the multilateral arrangement previously sought for the AMF. Further
discussion was undertaken at the 7 th meeting of the ASEAN Central Bank Forum in August 2000 with an aim
to expand the membership of the ASEAN swap arrangement by including the remaining members and also
by enlarging the size of the facility. In November 2000, the total amount available for swap arrangements
under the ASEAN swap arrangement was increased from US$200 million to US$1 billion.
Regarding the BSA between ASEAN and the plus three countries, and among the plus three
countries, the arrangement was to supplement existing international financing facilities including those of
the IMF. It had been agreed that member countries would be able to withdraw funds without any linkages to
IMF programs through this arrangement, provided that the amount borrowed would be within 10 percent of
the maximum amount determined. Each member country would enter into a bilateral agreement with eachother at their discretion with respect to the terms and conditions of the swap transactions undertaken.
At the ASEAN+3 Finance Ministers’ Meeting in May 2005, finance ministers agreed to take thefollowing measures to enhance the effectiveness of the CMI (called the “Second State”): (1) integration andenhancement of ASEAN+3 economic surveillance into the CMI framework, (2) defining of the swap
activation process and the adoption of a collective decision-making mechanism, (3) a significant increase in
the size of swaps, and (4) improvement of the drawdown mechanism. The total amount available for the
ASEAN swap arrangement was expanded further from US$1 billion to US$2 billion.
Following this agreement, in August 2005 Japan and Indonesia replaced the existing BSA (aone-way BSA between the US dollar and rupiah for up to US$ 3 billion agreed in February 2003) with a newone-way BSA between the US dollar and rupiah for up to US$ 6 billion. Japan and Singapore also replaced
their existing BSA (a one-way BSA between the US and the Singapore dollar of up to US$ 1 billion agreed in
November 2003) with a new two-way BSA (a) between the US and the Singapore dollar for up to US$ 3
billion from Japan to Singapore and (b) between the US dollar and the yen for up to US$ 1 billion fromSingapore to Japan in November 2005. Similarly, in February 2006 Japan and Korea replaced their existing
BSA (a one-way BSA between the US dollar and the won for up to US$5 billion under the New Miyazawa
Initiative and for up to US$ 2 billion agreed in July 2001 under the CMI) with a new two-way BSA (a)between the US dollar and the Korean won for up to US$ 10 billion from Japan to Korea and (b) between the
US dollar and the yen for up to US$ 5 billion from Korea to Japan. In addition, in May 2005 Japan and
Korea concluded a two-way BSA between the yen and won for up to an amount equivalent to US$ 3 billion.
Recently, in May 2006 Japan and the Philippines replaced their existing BSA (a one-way BSA between the
US dollar and the peso for up to US$ 3 billion agreed in August 2001) with a new one-way BSA between the
US dollar and the rupiah for up to US$ 6 billion.
Under the Second Phase of CMI, the size of the swap that could be withdrawn without
IMF-supported programs has been increased from 10 percent to 20 percent of the total swap amount. In the
BSA, the condition of the swap activation has been linked to the Swap Requesting Party's participation in the
ASEAN+3 Economic Review and Policy Dialogue. As of February 2006, the total amount involved in BSAs
under the initiative amounts to US$71.5 billion, covering 16 arrangements among China, Indonesia, Japan,
50

Korea, Malaysia, the Philippines, Singapore and Thailand (Chart 1). So far, no countries have utilized the
BSA thanks to the ample amount of foreign reserves accumulated in each country and the absence of any
crisis. The development of this regional financial cooperation is a welcome step, as it provides liquidity forcountries that might suddenly suffer a balance of payments problem under a capital account crisis and thus itshould help to prevent a crisis from further deepening.
Nonetheless, there is still a need to greatly expand the scope of the BSA network under the CMI inorder to promote financial stability and sustainable growth in the region. In particular, the agreement—that
any financing over 20 percent of the amount available under the BSAs should be conditional on an IMF
program—needs to be further amended to develop a more autonomous arrangement. The arrangement needs
to be designed in such a way that funds can be disbursed quickly to manage a crisis, but that at the same time
the problems of moral hazard are minimized by effective monitoring, and measures are taken to prevent afurther crisis. Also, the CMI does not have its own permanent organization with a surveillance mechanism tomonitor the macroeconomic, financial and capital flow trends of participating countries. Discussion about
the establishment of an institution with a mandate for regional surveillance needs to be launched in the near
future. Ultimately, this type of regional cooperative network should permit more flexible and timely
financing measures and be able to make greater amounts of assistance available, by evolving bilateralarrangements into multilateral ones, while taking measures to avoid unnecessary duplication of IMF
activities and also addressing possible moral hazard problems.

51

Chart 1. Network of Bilateral Swap Arrangement under the Chiang Mai Initiative52

4. Regional Bond Market Initiatives
4-1. Asian Bond Market Initiatives
One way to deal with the afore-mentioned double mismatches and, at the same time, to mitigate
unnecessary external finance is to develop domestic-currency-denominated (or domestic) bond markets.
Reflecting this commonly shared view, policy makers, international financial organizations, academics, andthe media have paid attention to the idea of developing domestic bond markets in East Asia after the earlier
crisis. This is because domestic bond markets could provide stable sources of longer-term domestic currency
funding to domestic firms, and in the process help to reduce double mismatches and strengthen financial
sector resilience. In addition, domestic bond markets might help to improve the efficiency of resource
allocation through market-determined interest rates, spreading various borrowers’ credit risks among a large
number of dispersed investors, and serving as a buffer when banking sector problems occur. Moreover,domestic bond markets also help to enhance the transparency of financial institutions’ through information
disclosure.
Nevertheless, the reality is that domestic bond markets were largely underdeveloped in East Asia.
This was mainly because (1) there were only a small number of large, reputable private firms that could
regularly issue a large amount of corporate bonds at relatively low costs; (2) there was limited demand forlong-term bonds, since (mostly risk-averse) individual investors, like households, tended to hold their assets
in the form of safe and liquid bank deposits; and (3) underdeveloped informational, legal, and judiciary
infrastructures prevented bond markets from developing further. Given these constraints, it was notcost-ineffective to develop domestic bond markets in each country.
Since the crisis, many countries have made efforts to develop domestic corporate bond markets.
However, fixed costs for establishing institutional infrastructures are relatively high and economies of scale
are limited in small individual markets. As cost-effective and sound bond markets don’t exist, many firms
have been discouraged from raising funds from a bond market and so continue to depend on cheaper bankloans. Instead of developing individual domestic bond markets, many countries have begun to focus on theidea of developing a regional bond market in East Asia. This could exploit economies of scale by regionallyincorporating a larger number of issuing firms and investors—thereby, raising both supply and demand forbonds. Moreover, this regional bond market could help diversify corporate financing, provide extra
investment avenue, and better tap and more effectively mobilize not only abundant regional financial
resources but also improve corporate reputations within East Asia.
Given this background, the Asian Bond Markets Initiative (ABMI) was proposed by Japan in
December 2002 at an Informal Meeting of ASEAN +3 Financial Ministers Meeting. This was subsequently
endorsed at the ASEAN+3 Finance Ministers Meeting in Manila in August 2003. Activities of the ABMI
focus on (1) developing robust primary and secondary bond markets by expanding a wide variety of issuers
and products (expanding the supply base), and (2) enhancing market infrastructure. As for the first purposeof developing markets, the following six issues have been recognized as important steps: sovereign bondissuance by governments to establish benchmarks; issuance by government financial institutions; creation ofasset-backed securities markets, including collateralized debt obligations (CDO); bond issuance in the region
by international development banks and government agencies; bond issuance in the region for funding
foreign direct investment in the region; and expansion of local currency-denominated bonds and introductionof currency-basket bonds.
In respect to the second purpose, to enhance market infrastructure, it is crucial that an environment
conducive to active participation by both issuers and investors exists, in order to develop efficient and53substantial domestic and regional bond markets. In this context, the following six issues are regarded asimportant: provision of credit guarantees through the active use of existing guarantors, and the possible
establishment of an Asian Regional Guarantee Facility; a strengthened rating system through domestic rating
agencies, and the possible establishment of an Asian Credit Rating Board; a mechanism for disseminating
information on issuers and credit rating agencies; foreign exchange transactions and settlement issues oncross-border transactions; capacity building by conducting market research and technical assistanceprograms to promote policy dialogue and human resources development among member countries; andlegal and institutional infrastructures, such as corporate laws, securities transaction laws and tax laws.
Consequently, in August 2003 at the ASEAN+3 Finance Ministers’ Meeting six voluntary working
groups were established at intergovernmental levels to address the afore-mentioned key areas for bondmarket development. The groups encompass the following:
WG1: new securitized debt instruments,
WG2: credit guarantee and investment mechanisms,
WG3: foreign exchange transactions and settlement issues,
WG4: issuance of bonds denominated in local currencies by international development banks,
foreign government agencies, and Asian multinational corporations,
WG5: rating systems and information dissemination on Asian bond markets, and
WG6: technical assistance coordination.
At the informal ASEAN+3 Finance and Central Bank Deputies meeting in November 2003,
ASEAN+3 agreed to establish a Focal Group (FG) to coordinate the work of the six working groups. This
would further strengthen the ongoing work of the ABMI. The FG met for the first time in March 2004 in
Manila, and now monitors the progress of the working groups and coordinates their future action plans.
Since the establishment of the six working groups, ASEAN+3 officials have conducted regulardialogues and discussions among themselves as well as holding talks with academics, think tanks and theprivate sector, to exchange views. As some proposals have already been implemented as reported in Section
4-3 below, some of the working groups have completed their designated tasks. Against these developments,
the ASEAN+3 Finance Minister’s Meeting in May 2005 endorsed the reorganization of the ABMI working
groups and the following changes occurred:(a) establishment of an Ad-hoc Support Team for the Focal Group (ASTFG) and the transfer ofthe role of promoting information dissemination from the WG5 to ASTFG;(b) conclusion of the operations of WG4 on local currency bond issuance by international
development banks, etc., upon completion of the group mission;(c) renaming WG5 on rating systems and information dissemination as WG4 on rating systems;(d) conversion of WG6 to the TA Coordination Team for the Focal GroupAt the same meeting, the Finance Ministers also agreed to take the following measures to further
contribute to the development of deeper and more liquid regional bond markets: (1) introduction of an ABMI
roadmap that proposes (i) a new framework to gather and share information on bond market development in
an integrated manner, (ii) regular self-assessment by member countries on impediments to investment thathave been pointed out by market participants, and (iii) the launch of a study on Asian currency basket bonds;
54

(2) commencement of a study of “Asian Bond Standards” to explore the development of international bondmarkets in Asia; and (3) embracing the voluntary “practical alternatives” for withholding tax treatment onbond holding.
4-2. The Asian Bond Fund As a Way to Expand the Demand Base
Since mid-2002, Thailand and its then Prime Minister, Thaksin Shinawatra, has been a strong
proponent of an Asian regional bond market. In particular, Thailand proposed the establishment of an Asian
Bond Fund (ABF), where regional governments voluntarily contribute 1 percent of their foreign reserves(which would amount to US$1.3 trillion) to a fund designed to purchase regional bonds. Thailand’s ABF
proposal to jointly develop an Asian regional bond market using the region’s ample foreign reserves finallyculminated in an agreement at the Second Ministerial Meeting of the Asia Cooperation Dialogue Forum inThailand in June 2003.
The ABF was launched, with an initial balance of about US$1billion (US$100 million from the
Bank of Japan), under the Executives’ Meeting of East Asia and Pacific Central Banks (EMEAP) Group,comprised of the central banks of 11 countries in the region (Thailand, Indonesia, Malaysia, Singapore, thePhilippines, China, Hong Kong, Korea, Japan, Australia, and New Zealand). EMEAP was established in1991 as a cooperative organization of monetary authorities and central banks in East Asia. Since 1996, thestructure of the EMEAP has been strengthened against the background of the increasing interdependence ofmember economies. The first EMEAP Governors' Meeting, hosted by the Bank of Japan in July 1996,
decided to hold Governors' Meetings once a year and to establish two working groups (financial Market
development and central banking operations) and one study group (banking supervision) to undertake studies
on the primary functions of central banks. The EMEAP launched the EMEAP Internet in July 1998 byconnecting all member central banks with an electronic network that allowed for the quick exchange of
information among members. The ABF is managed by the Bank of International Settlements (BIS) andinvested in a basket of US dollar-denominated bonds issued by Asian sovereign and quasi-sovereign issuersin eight EMEAP economies (China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, andThailand).
In April 2004, EMEAP announced plans to launch a second bond fund (ABF-2). In December 2004,
the establishment of ABF-2 was officially announced by EMEAP with a new fund of US$2 billion. The Bankof Japan decided to subscribe to ABF-2 that was to invest in local Asian currency-denominated bonds. The
amount of the BOJ subscription was up to US$ 200 million. ABF-2 aims to promote the development ofbond markets in East Asia, building on the successful launch of the first stage of the Asian Bond Fund
(ABF-1) in June 2003. While ABF-1 invests in US dollar-denominated bonds issued by sovereign andquasi-sovereign borrowers, ABF-2 is supposed to invest in domestic currency-denominated bonds issued bysovereign and quasi-sovereign borrowers in the eight EMEAP markets.
ABF-2 comprises two separate vehicles for investment in local-currency denominated bonds: theFund of Bond Funds and a Pan-Asian bond Index Fund. The Fund of Bond Funds invests in bond funds inindividual markets, which would in turn be invested directly in bonds. The Pan-Asian Bond Index Fundinvests directly in the region’s local currency denominated bonds, aiming at offering international investors ameans of exposure to a broad range of local-currency denominated bonds across the region. Moreover,ABF-2 is open to investment by private- as well as other public-sector investors. The launch of ABF-2 is awelcome step as it might promote the development of local currency-denominated bond markets in theregion. ABF-2 began operating in June 2005.
55

4-3. Recent Initiatives to Develop the Supply BaseIn line with the ABMI, since 2004 the Asian Development Bank (ADB）has begun to actively issue
local-currency denominated bonds in order to expand the supply base. The currencies issued so far cover therupiah, Hong Kong dollar, Singapore dollar, Malaysia ringgit, Thai baht, and the Chinese yuan. The WorldBank and the International Finance Corporation have also issued local currency-denominated bonds. The
ADB has also launched an Asian Bonds Online Website to disseminate information on the region’s bondmarkets.
Japan has been active in promoting ABMI by initiating several measures to expand the supply base.
From April 2004, baht-denominated bonds have been issued by Japanese subsidiaries in Thailand with apartial credit guarantee from the Japan Bank for International Cooperation (JBIC) and Nippon Export andInvestment Insurance (NEXI). Also, since June 2004 the JBIC has provided guarantees to local-currency
denominated bonds issued by Japanese firms operating in Thailand.
In June 2004, Japan and Korea agreed to work together to promote the development ofasset-backed securities markets in Asia, in line with the Asian Bond Markets Initiative. They pledged theirjoint effort in proposed cross-border yen-denominated Korean collateralized bond obligations (CBO), theso-called “Pan-Asian bond,” that would provide financing to SMEs in Korea. The underlying portfolio
would comprise of a pool of SME loans or bonds that would be selected by a credit committee jointly
managed by the Industrial Bank of Korea and the Small Business Corporation of Korea. The issuance would
be in the form of senior and subordinated bonds, with the Small Business Corporation of Korea subscribing
to the subordinated bonds thereby providing the first loss protection to capital market issuance. To appeal toa broad spectrum of investors in Asia, however, the Korean government is prepared to have the Industrial
Bank of Korea to extend a fully covered credit facility to support the timely payment of senior obligations
under the senior bonds (as a first layer guarantee). Japan would help this process by enhancing the guarantee
operations of the JBIC as a second layer guarantee. In doing so, Japan amended the Ministerial Notification
governing the JBIC guarantee policy, thereby legitimizing the function of the JBIC to take a more proactiverole in its guarantee operations for appropriately structured and credit enhanced debt instruments within theregion. The CBO would be internationally issued for placement by incorporating these dual guarantee
structures, so that they could tap into the Asian investor base and provide much needed liquidity to the
Korean SME sector at an extremely competitive rate. The JBIC had already begun its deliberations to issue
guarantees with the inaugural launch of the CBO.
In August 2005, the JBIC issued Japanese government-guaranteed, fixed interest Thai baht bondsin Thailand. These baht bonds were the first regional currency bond issuance undertaken by the Japaneseissuer in line with the ABMI. In May 2004, Thailand indicated its guidelines for approving, on an individual
basis, bond issuance by foreign governments and official financial institutions. In response, the JBIC
launched a series of discussions with Thailand and obtained approval for baht bond issuances. The baht
funds obtained from these issuances would be used for financing business operations of Japanese firms in
Thailand through Bangkok branches of Japanese banks (i.e., Tokyo-Mitsubishi Bank, Mizuho Corporate
Bank and SMBC). These issuances have made it possible to provide local currency financing without
currency exchange risks. In this way it is expected to meet the comprehensive financial needs of local
Japanese affiliates. In September 2005, the JBIC signed a two-step loan agreement totaling up to 3 billion
baht, with each of Tokyo-Mitsubishi Bank, Mizuho Corporate Bank and SMBC providing one billion baht.
The funding of this loan comes from the baht bonds the JBIC issued. Reflecting the growing numbers ofsovereign bonds issued, the size of outstanding local currency-denominated bonds has expanded in many56

East Asian countries since the crisis. Malaysia and Korea have attempted to extend government yield curves
by issuing longer maturity bonds. Efforts are also being made by Indonesia, Korea, Malaysia, the Philippines,
and Singapore to increase the issue size of benchmark government bonds. The increase in the size of thebond market can largely be explained by the expansion of government bonds in China, Indonesia, Korea, and
the Philippines; reflecting a deterioration of the fiscal balance and a need to raise funds to finance financial
and corporate restructuring. By contrast, the bond market expanded sharply mainly as a result of thedevelopment of corporate bonds in Hong Kong and Malaysia. The corporate bond market in Korea has also
moderately increased. In the case of Singapore, both government and corporate bonds have rapidly expanded.
In terms of relative size, the amount of outstanding total bonds issued has been larger in China and Korea
than in other countries (Chart 2). Chart 3 indicates the relative size of outstanding local
currency-denominated bonds, equity and domestic credit. Reflecting the bond market development, many
Asian countries now have more balanced financial and capital market structures, as compared to those prior
to the crisis.
Chart 2. Sizes of Outstanding Local Currency-Denominated Bonds(US$ Billions, as of September 2005)
700

600

500

400

300

200

100

0
China

Hong Kong

Indonesia

Government

Korea

Malaysia

Corporate

Source: Asian Development Bank, Asian Bonds Online.

57

Philippines

Financial Institutions

Singapore

ThailandChart 3. Domestic Financing Profile (As a Percent of Total, as of September 2005)
100%

80%

60%

40%

20%

0%
C hinaH ong Kong

Indonesia

D om estic C redit

Korea
Bond

M alaysia

Philippines

Singapore

Thailan dEquitySource: Asian Development Bank, Asian Bonds Online.
Nevertheless, the market for local currency-denominated corporate bonds needs to be expanded anddeepened in East Asia. While the ABMI is already being promoted under the ASEAN+3 Finance Ministers'
Process, the issues involved in establishing sound infrastructure (i.e. accounting and auditing standards,
settlement systems, credit rating agencies, guarantee systems) need immediate discussions and to bepromoted. This would lead to increasing the amount of supply and demand for bonds. To expand the demandbase, it is important to consider an increase in the amount of ABF-2 issues, as this will facilitate an increasein public sector investments in regional currency denominated bonds.
Furthermore, Japanese corporations operating overseas have so far been mostly procuring funds
from their parent companies in Japan. In the future, these corporations are likely to increasingly need to
procure local currency-denominated funds by issuing bonds and borrowing from domestic financial
institutions. To encourage the growth of bond-issuing markets for these firms, government-sponsoredfinancial institutions, such as the JBIC or NEXI, should increase the amount of their guarantees to encourage
the issue of local currency- denominated bonds in East Asia until the bond-issuing organizations are highly
recognized and gain creditworthiness. In addition, consideration should be given to obtaining thecooperation of the ADB to establish regional credit guarantee organizations. Such organizations would also
help guarantee confidence in Japanese and other corporations operating in Asian countries that have local
currency denominated bonds.
Furthermore, the asset-backed securities (ABS) market should be further developed based onJapanese corporate financial credits held by non-Japanese Asian corporations in East Asia, and vice-versa.
This type of diversification of financing instruments would effectively stimulate demand for local bonds.
Another front would be the privatization of the Japan Post Office, expected to occur from 2007, and todevelop a more efficient asset management system in the medium to long run. This is likely to create astrong institutional investor in the region, and will encourage investments in financial and capital markets
not only in Japan but also in East Asia.
58

To improve market infrastructure, it is also important to establish favorable regional arrangements,
such as agreements on withholding taxes on profits, dividends, and interest. As redemptions of securities
procured, transmissions of profits and dividends, and transactions between subsidiaries and their parent
companies increase in the region, such arrangements will become important to support intra-regional private
sector activities. Regional coordination with a view to eliminating cross-border investment barriers with thestandardization and harmonizing of relevant legislation and taxation systems is another important item on theregional agenda that should be given immediately attention.

5. Movements towards Regional Currency Cooperation
5-1. Exchange Rate Policies and a Trilemma
It is well known that a large number of emerging market economies face a trilemma: theimpossibility of simultaneously achieving (1) exchange rate stability, (2) full capital account liberalization,and (3) monetary policy independence (or domestic interest rate management). First, if a country attempts toachieve exchange rate stability and monetary policy independence, it needs to introduce capital controls.
Controls over capital flows would allow countries to select domestic interest rates independently of those set
in other countries and maintain stable exchange rates despite interest rate differentials. Second, if a country
attempts to achieve exchange rate stability and full capital account integration, a very rigid fixed exchange
rate regime, such as the currency board system or a currency union, should be considered by abandoning
monetary policy independence. Third, if a country chooses independent monetary policy and full capital
account liberalization, strict fixed exchange rate regimes would not be an option in the presence of massive
capital movements driven by interest rate differentials and possibly frequent speculative currency attacks.
With recent global trends toward capital account liberalization, countries have been increasingly
facing a choice of exchange rate stability (fixed exchange rate regimes) or monetary independence (flexible
exchange rate regimes with inflation targeting). In particular, since the East Asian crisis, the choice overexchange rate regimes has become an important agenda for emerging market economies, since an appropriate
choice of regimes could function as a crisis prevention measure.
In the phase immediately after the crisis, the world paid attention to so-called “two-corner
solutions” of exchange rate regime choices, as being choices preferable to “intermediate” regimes. That is, aflexible exchange rate regime (i.e., free float or managed float with limited intervention) as one corner and astrict fixed exchange rate regime (i.e., currency board, full dollarization or currency union) as the othercorner. The preference toward a strict fixed exchange rate regime arose from the observation that countries
with open capital accounts were not able to maintain stable exchange rates, unless adopting a very rigid (orcredible) fixed exchange rate regime so that any currency speculations driven by the expectation of a regimechange would be trimmed. A credible fixed exchange regime could also function as the nominal anchor formonetary policy, since the lack of discretionary monetary policy eliminates inflationary bias, thereby
lowering interest rates and expanding economic growth. On the other hand, a free float regime is alsopreferable, since limited government intervention and resultant volatile exchange rate movements would
discourage speculative capital flows due to greater exchange rate risks, while allowing for an independent
monetary policy. Supporters of two-corner solutions postulate that the East Asian crisis happened because
these countries had adopted soft-pegs with loose commitments, which can be categorized as intermediate
exchange rate regimes.
However, since the collapse of the currency board in Argentina in 2001, middle-ground exchange
rate regimes have re-gained their popularity. This support also reflects a “fear of floating,” a tendency for a59

country to become reluctant to freely float its exchange rates even though it claims to have adopted a free
float, for fear of excessive volatility and a reduced ability to control inflationary expectations, as pointed out
by Calvo and Reinhart (2002). A country with a substantial amount of foreign debt, an extensive tradeorientation, and a high degree of pass-though, has an incentive to reduce exchange rate volatility. Particularly,
a country with a substantial amount of dollar-denominated external debt and invoicing of trade transactions
tends to stabilize its currency against the dollar. As a result, the exchange rate regime of such a country
appears similar to a fixed exchange rate regime.
Middle-ground exchange rate regimes traditionally include a “crawling peg” that has its parity
adjusted periodically based on past inflation differences with a major economic partner and a “target zone”
that allows the exchange rate to fluctuate within a band. Meanwhile, a regime that has gained popularity
among academics in recent years is a “crawling basket peg with a band”—the so-called a “BBC” (band,basket, and crawl) approach proposed by Williamson (1999, 2000). The basket pegs consists of international
currencies, such as the dollar, euro, and Japanese yen, and should provide some cushion against third-party
exchange rate movements for countries with a diversified pattern of trade and financial relationships withmajor industrial countries. The weights can be determined based on trade volume, thereby placing greater
weights on the yen and euro relative to the dollar peg adopted prior to the crisis. The crawl is supposed toreduce the chance of facing real exchange rate misalignments, which can often be caused by growing
inflation differentials and thus deteriorating international price competitiveness against trade partnercountries. The crawl or an adjustment of the central parities of nominal effective exchange rates could beeither backward-looking (to offset recent inflation differentials) or forward-looking (to offset projected
future inflation differentials). The band needs to be wide enough (i.e., plus and minus 15 percent) to allow
for some flexibility to deal with various exogenous asymmetric shocks and to give a certain degree of
independent monetary policy.
5-2. De Jure and De Facto Exchange Rate Regimes
In examining the exchange rate regimes actually adopted by East Asian countries, both “de jure”(officially announced) and “de facto” regimes have to be considered, as they often differ. For example, thereis the case where a country heavily intervenes in the foreign exchange market and thus adopts a de facto
fixed exchange rate regime, notwithstanding that the publicly announced exchange rate regime is a free float.
Information on de jure exchange rate regimes can be obtained from the IMF Annual Report on Exchange
Rate Arrangements and Exchange Restrictions (as reported for selected East Asian countries on the first row
of Table 2). The IMF report for 1996-97 adopted four classifications (peg, limited flexibility with a basket,
managed float, free float; listed by their order of rigidity), and in 1998 reclassified them into eight moredetailed classifications (no separate legal tender, currency board, peg, peg within horizontal bands, crawlingpeg, crawling band, managed float, independent float). A regime of no separate legal tender indicates acurrency union.
The table indicates that the de facto exchange rate regime for Thailand was a regime of “limited
flexibility with a basket,” while the regimes for Indonesia, Korea, and the Philippines were classified as a(more flexible) “managed float”. After the crisis, all four countries shifted to a (most flexible) “independent
float”, leaping to one corner of the regime choices. Before 1998, the Chinese regime was classified as amanaged float, but since 2002 it has been classified as a peg owing to the narrowing of the band (until the
adoption of a new exchange rate regime in July 2005). Similarly, Malaysia shifted from a managed float to apeg in September 1998 (but has since July 2005 adopted a basket peg following China’s exchange rate60

reform). Singapore has maintained a managed float from before the crisis and continues to do so after it.
On the other hand, a de facto classification adopted by Reinhart and Rogoff（2004）is to classify
regimes based on information about the actual monthly movements of official and dual (parallel) rates alongwith historical information about exchange rate regimes. According to this de facto classification (asreported in the second row of Table 2), Indonesia and Korea have shifted from a crawling peg to a free float(or an independent float); Thailand and the Philippines from a peg to a managed float. Compared with the dejure classification, the de facto regimes for these countries indicate greater rigidity before the crisis, whileboth classifications show an increase in flexibility after the crisis. Thus, the de facto classifications appear to
be more consistent with the generally shared view that crisis-affected countries had adopted a dollar peg or arigid exchange rate regime prior to the crisis.
Table 2. Classifications of Exchange Rate Regimes in East Asia

IMF De Jure Classification
1996

Indonesia
Korea
Thailand
China
Philippines
Malaysia
Singapore

Indonesia
Korea
Thailand
China
Philippines
Malaysia
Singapore

2002
Managed float
Independent float
Managed float
Independent float
Limited flexibility with a basket
Independent float
Managed floating
Peg
Managed floating
Independent float
Managed floating
Peg
Managed floating
Managed float
De Facto Regime
1996
2001
De facto crawling peg
Freely float
De facto crawling peg
Freely float
De facto peg
Managed float
De facto peg
De facto peg
De facto peg
Managed float
Limited flexibilityPeg
De facto moving band
Managed float

Source: Shin K．and J. Lee (2004).
5-3. Cooperation towards Common Currency Arrangements
In the long run, some coordination of currency arrangements aimed at a common currency union
could be a viable option in East Asia. Currency arrangements to stabilize regional exchange rates are likely
to promote trade and investment linkages, thereby bringing about coordinated business cycle movements anda convergence in per capita income levels. The fact that intra-regional trade already exceeds more than 50
percent in the East Asian region supports such a move toward mutual currency arrangements. The vision for
currency cooperation aims to stabilize exchange rate volatility vis-à-vis major international currencies (i.e.
US dollar, yen and euro) and intra-regional exchange rate volatility.
Currently, East Asian countries have diverse exchange rate regimes; indeed some economies haveexpressed strong commitments to maintaining the existing exchange rate regimes. For example, since 1983
Hong Kong has adopted a currency board system. China carried out exchange rate reform in July 2005 with a
2.1 percent revaluation of the yuan against the US dollar and the adoption of a BBC-type regime; however,until today the yuan has continued to remain quite stable against the US dollar as a result of heavy
61

intervention in the foreign exchange market by Chinese authorities. Since 1973 Singapore has adopted an
exchange rate arrangement similar to the BBC system, with a trade-weighted currency basket comprising the
US dollar, yen, euro and other regional currencies, and has regularly modified the band by taking into
account the changes in economic fundamentals. By contrast, since the crisis, Korea, Thailand, and Indonesia
have adopted either free or managed floats, together with inflation targeting.
Thus, it obviously will take some time for the East Asian countries with their diverse economic
structures to set in place structures encouraging currency coordination within the region. While the region’s
member countries remain so diverse in economic structures and development stages, they are likely to faceasymmetric macroeconomic shocks. In such cases, countries are inclined to adjust their exchange rates toabsorb shocks, thereby reducing any incentive for currency coordination. At this stage, the political will forsuch policy coordination is not strong. While the idea of a common currency union has occasionally been
discussed in the context of ASEAN, any immediate application appears unlikely because ASEAN member
countries differ substantially in terms of their degrees of capital account convertibility and economic
structures, and many local currencies are not international ones. Such differences make it extremely difficult,particularly for some economically weak ASEAN member countries, to discuss the loss of monetary policy
independence and the limited use of fiscal policy envisioned under European Monetary Union. At the sametime, however, the difficulty excluding Asian countries with weaker currencies from such a discussion table
would make it an even more difficult task to realize cooperation.
As regional economies become more integrated and income levels converge through market forces,
as a first step each country could begin by adopting a BBC-type regime with weights determined
individually by bilateral trade volumes. By adopting a basket peg against the weighted value of the US dollar,yen, euro, and some other major regional currencies, the region could reduce exchange rate volatility. Thisbasket currency composition is reasonable given the region’s heavy dependence on the US, Japan, and theEU. As a second step, as the economies and trade structures of East Asian countries become further
integrated and become more autonomous, East Asia may consider the adoption of a common BBC regime,with weights and basket currencies being the same among the member countries. The band could be plus andminus 15 percent or greater. A common BBC regime is superior to an individual regime since the latter
generates different basket pegs so that any change in yen-dollar rates, for example, could lead to volatile
exchange rates among member countries.
Alternatively, East Asia could consider the adoption of an Asian Exchange Rate Mechanism similar
to the European Exchange Rate Mechanism that was introduced in 1979. Under the European Exchange Rate
Mechanism, each member country adopted a central parity for its exchange rate against other member
countries’ currencies and was committed to keep that exchange rate within a band of plus and minus 2.25
percent (6 percent for Italy as a later entrant). An Asian Currency Unit (ACU) should comprise only Asiancurrencies and could also be introduced like the ECU as a weighted average of member countries’ currencies
and a unit of account. If the ACU served as a basket currency target, it would mean that East Asia adopted an
ACU basket peg with a band and a crawl. The weights could be based on the trade volume share of eachmember country of the total regional trade volume. The band would need to be sufficiently large. The region
would also need to introduce a short-term financing mechanism, following the “Very Short-Term Financing
Facility” adopted in Europe, so that a country with a weaker currency could borrow from strong currency
countries. When a particular exchange rate reaches the ceiling or floor of the band, relevant member
countries should be committed to intervene in the foreign exchange market. The CMI could possibly bepositioned as a Very Short-Term Financing Facility if the arrangement were to be re-designed to meet this62

purpose.
The Asian Exchange Rate Mechanism could be better than a BBC-type regime, since it would
follow the approach adopted by Europe and thus promote close currency and macroeconomic policy
coordination. Regional exchange rate volatility is likely to be reduced substantially and the degree of income
convergence could be greater, thereby further expanding trade and investment activities. Increased
fluctuations of East Asian currencies against the US dollar (and euro) might encourage member countries to
use East Asian currencies more frequently in their transactions. However, the major drawback is the fact any
Asian Exchange Rate Mechanism would be likely to expand the volatility of exchange rates between East
Asian currencies and the US dollar and euro, making it problematic for countries whose major trade partners
are the US and Europe. For example, a member country which exports largely to Europe might lose its
international price competitiveness by the depreciation of the euro against the yen. By contrast, theBBC-type regime is likely to better absorb yen-dollar and dollar-euro rate movements. Moreover, theadoption of a common BBC-type regime is likely to stabilize regional exchange rates to some extent,
particularly through stabilizing those against movements of the US dollar, yen and euro. For this reason, theBBC-type regime is viewed by as being more appropriate for East Asia than an Asian Exchange Rate
Mechanism.
In recent years, some commentators have proposed the creation of a parallel currency together withexisting individual currencies (Eichengreen 2006). The parallel currency so proposed would be the ACU.
East Asian countries could use it as a unit of account, a means of payment, or the store of value in domestic
and cross-boarder transactions by giving it an official status. The parallel currency approach aims toencourage banks, firms, and investors to increase their ACU-denominated transactions. The region could
collectively issue sovereign bonds denominated in ACU and settle cross-boarder securities transactions in
ACU, thereby increasing the liquidity and efficiency of secondary markets for the ACU. As the likelihood of
adopting the Asian Exchange Rate Mechanism is remote, this parallel currency approach could be moredesirable as a first encouraging step toward a currency union. Parallel use of the ACU may promote theactive use of the ACU. However, such a vision could be optimistic, particularly if one considers theEuropean experience where the ECU was not actively used in settlements of trade and financial transactions,or in the denomination of international bonds and loans. Central parity (expressed in ECU) was used mostly
to compute bilateral exchange rates by central banks and markets. The ECU’s role as a unit of account waslimited to the financial accounts of European Community (EC) institutions and a few firms (Eichengreen2006).
Further, a combination of a BBC-type regime and a parallel currency approach could be considered
as an option. While East Asian countries are encouraged to adopt a BBC-type regime, a parallel currency,such as an ACU, could be introduced in addition to each of the existing regional currencies (Williamson
2005). However, Eichengreen (2006) criticizes this option as being undesirable and mutually non-compatible
because a BBC-type regime promotes the use of international currencies (such as the US dollar, yen andeuro), while the Asian Exchange Rate Mechanism would encourage the use of regional currencies. In otherwords, under this approach the ACU would need to compete not only with existing regional currencies but
also with major international currencies such as the US dollar.
In 2005, the ADB announced a proposal for introducing an ACU sometime in 2006—a step closer
to a parallel approach. The ACU will be a weighted average of East Asian currencies, like the ECU, and be
calculated by the ADB. The weights would be determined based on trade volumes, GDP, etc. The ACU isinitially to be used as an indicator of the stability of member countries’ currencies against the US dollar and63the euro, as well as vis-à-vis a currency basket (or a regional weighted average). This would allow member
countries to monitor the collective movement of East Asian currencies, thereby assisting monetary
authorities in their exchange rate policy formulations. The ACU is expected to include the currencies of
ASEAN+3 and some other regional currencies. If East Asian countries begin to discuss and coordinate
economic policies, and use the ACU as a reference, this move may eventually lead to a consensus that thefluctuations of their currencies should be contained within a certain range and so initiate moves towardcurrency cooperation. Since the announcement of the proposal, however, there have been disagreements
among East Asian countries about which currencies should be included in its scheme. In May 2006, theFinance Ministers of ASEAN+3, meeting on the sidelines of the ADB’s annual meeting, acknowledged theimportance of sharing a long-term vision for financial and currency cooperation and agreed to study theusefulness of creating “Regional Currency Units”. Subsequently, the ADB responded by welcoming theannouncement. While detailed issues remain unanswered and it is unclear whether the regional currency
units proposed are the same as the ACU announced by the ADB, this is a welcome first step toward regional
currency cooperation.
The progress toward currency cooperation, regardless of whether a common BBC-type regime or
the Asian Exchange Rate Mechanism, is closely associated with the internationalization of the yen. At thepresent time, the US dollar is by far the most dominant international currency in the region, but some argue
that including the yen in a basket of currencies would help stabilize effective exchange rates, promotecurrency transactions between the yen and other Asian currencies, and encourage internationalization of theyen. Namely, an increase in the weight of the yen in the basket of foreign currencies may promote the use of
the yen in trade and financial transactions within the region, while an increase in the actual use of yen inregional transactions may also promote a move toward a BBC type regime.
As Japan’s economy has regained sustainable economic growth, and as domestic financial
institutions have reduced their holdings of non-performing loans, these domestic financial institutions havealso improved their financial intermediary capacity domestically and globally. Thus it is again necessary to
encourage Japanese banks’ overseas financing and investment activities, especially those in East Asia. It is
important that Japanese banks be positioned as key players to promote the development of regional foreignexchange and financial markets that conduct direct exchange rate transactions in yen and other Asiancurrencies. In addition, encouraging Japanese banks to make yen- or local currency-denominated loans andto issue financial bonds in the region will increase overseas use of the yen as well as promoting bond market
development—just as development of the international banking market in Europe contributed to theinternationalization of the euro. Since Japanese firms are increasing foreign direct investments in East Asia,
the role of Japanese banks is in parallel becoming important. If Japanese banks could establish financial
networks in the region, overseas Japanese corporations, their affiliates and partner companies would be able
to develop efficient cash management mechanisms involving a networking system to pay only net gains fromtheir mutually held credits and liabilities. This would facilitate business activities and reduce operating andfinancial costs for all involved. It would also increase the need to strengthen financial sector governance inJapan and the region, improve prudential regulations, and increase the effectiveness of financial institution
management systems.
Finally, a major precondition to promoting financial cooperation in East Asia is theinternationalization of Japan’s financial and capital markets. To promote internationalization, measures
should first be taken to encourage non-resident investors to invest in those markets. But such potential
investors would not do so unless Japan’s financial and capital markets are made more attractive, and this will64

not occur until more information is disclosed. Recently, Japan has introduced measures for the sale of its
sovereign bonds in Europe, the US and East Asia (to prepare for major refinancing projects anticipated as
coming in the near future). This measure should likewise be pursued more actively in East Asia and soincrease demand from regional institutional investors for yen-denominated assets. To further promote
yen-denominated capital procurements by non-residents, and to offer better terms for capital procurements
through Samurai Bonds (yen-denominated bonds issued in Japan by a non-Japanese issuer), consideration
should be given to making issuing conditions more cost-effective and reducing the clerical load. It would
also be advisable to introduce measures stimulating the Samurai Bond market, and to promote investments
by Japanese investors in Samurai Bonds. Furthermore, promotion of Japan’s FTA and EPA would increase
the proportion of yen-denominated account settlements and would thus encourage greater use of the yen.

References
Calvo, Guillermo and Carmen Reinhart (2002) “Fear of Floating” The Quarterly Journal of Economics, Vol.
117, No.2, pp.379-408.
Eichengreen, Barry (2006) “The Parallel Currency Approach to Asian Monetary Integration,” mimeo.
Radelet, Steven and Jeffrey D. Sachs (1998) “The East Asian Financial Crisis: Diagnosis, Remedies,
Prospects,” Brookings Papers on Economic Activity, 1998:1, pp.1-90.
Reinhart, Carmen M. and Kenneth S. Rogoff (2004) “A Modern History of Exchange Rate Arrangements: A
Reinterpretation,” The Quarterly Journal of Economics, Vol. 119, No.1, pp. 1-48.
Rogoff, Kenneth (1999) “International Institutions for Reducing Global Financial Instability,” NBER
Working Paper, No. 7265.
Rose, Andrew, K. (1998) “Perspectives on Exchange Rate Volatilities,” mimeo.
Shin, Kwanho and Jong-Wha Lee (2004) “Exchange Rate Regimes and Economic Linkages in East Asia,”
mimeo.
Williamson, John (1999) “The Case for a Common Basket Peg for East Asian Currencies,” in S. Collingnon,
J. Pisani-Ferry, and Y. C. Park, eds., Exchange Rate Policies in Emerging Asian Currencies, London and
New York: Routledge.
Williamson, John (2000) “Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate
Option,” Institute for International Economics.
Williamson, John (2005) “A Basket Peg for Asia?,” mimeo.

65

Preliminary

4.

Political and Security Cooperation in East Asia?

Dr. FUKUSHIMA Akiko
Senior Fellow and Director of Policy Studies
National Institute for Research Advancement (NIRA)
Introduction
Friedberg contends that East Asia is “ripe for rivalry and a place likely to emerge as the “cockpit ofgreat-power conflict.” 1 Does this assertion truly apply? If it does apply, it certainly applies to the politicaland security areas. In East Asia, the development of regionalism has been led by economics, in particular
trade, as discussed in Chapters Two and Three. Regionalization of economies in East Asia has led
regionalism. Regionalism involves the process of institution creation to promote regional cooperation. Such
institutions are designed to deal with transnational issues faced by countries in the region. In contrast
regionalization is a natural process for regional cooperation as has been the case of East Asian economies.
According to 2003 statistics, the ratio of intra-regional trade in East Asia, while lower than that of theEuropean Union (EU), was higher than North American Free Trade Agreement (NAFTA’s) in terms ofexports. Deepening trade interdependence has motivated countries in East Asia to either conclude or
negotiate Free Trade Agreements (FTAs) or more comprehensive versions of Economic Partnership
Agreements (EPAs). Region-wide FTAs or EPAs has also been on the table for discussion. Witnessing
interconnected financial market at the time of 1997 Asian monetary crisis, ASEAN+3 has also establishedinitiatives for financial cooperation, including the Chiang Mai Initiative and a proposal for an Asian Bond
Market, as described in Chapter Three. These initiatives were prompted by the 1997 Asian financial crisis
when countries learned through the impact of a crisis in Thailand spreading to other countries in the region.
This sent a message how the final market is regionalized.
However, in the political and security arenas, regional cooperation, not to mention regional
integration, has been identified as a tremendous challenge at best. Sino-Japanese rivalry and surging
nationalism have often been cited as impediments for regional cooperation. Regionalization in the politicaland security areas has surely been limited but has recently been on the rise on non-traditional transnational
security issues. Meanwhile regionalism in East Asia has not been promoted consciously enough to leadregionalization of security. The post Cold War or post-post Cold War East Asia is still divided, with national
security and sovereignty still strong in the perceptions. East Asia has therefore elements of competitive
security that demands traditional deterrence and crisis response mechanisms against the backdrop of theremaining flashpoints from the Cold War namely Korean peninsula and Taiwan straits. Moreover, Sino-US
military confrontation cannot be excluded with the recent build up of Chinese military power which isreportedly beyond the need for the contingency over Taiwan straits. US Department of Defense in its annual
report to congress on Military Power of the People’s Republic of China in its 2006 edition stated that “China
has the greatest potential to compete militarily with the United States and field disruptive militarytechnologies that could over time offset traditional U.S. military advantages.” 2 Moreover with the advent of
globalization and trigger by 9.11, non-traditional security threats are gaining higher profile than ever before
in East Asia which increases the need for cooperative security and common security approach in the region.
In analyzing East Asia, we need to employ all three theories of international relations, namely realism thatconsiders balance of power and national confrontations, but also liberalism that tries to promote security bymultilateral institutions as well as constructivism that promotes security system based not on power but on66

norms.
In hindsight, the building of a comprehensive East Asian community could not have been a topic ofdiscussion during the Cold War. The region has long been fragmented and has not shown any signs forcohesion. However, with the end of the Cold War, in part due to the impact of the movement towards further
regional integration in Europe, nations in the Asia Pacific region established the Asia Pacific Economic
Cooperation (APEC) conference in November 1989, incidentally in the same month that the Berlin Wall, thesymbol of the Cold War, was dismantled. Given the success of APEC, in the post Cold War setting theprocess was expanded beyond economy, and the ASEAN Regional Forum (ARF), an intergovernmental
multilateral security dialogue process, was launched in 1994. It is worth noting that the regional processestablished in the 1990s took the format of ASEAN+X rather than a pure multilateral form. The most notable
example of this framework was ASEAN+3, the three being Japan, China and South Korea, created in 1997.
The ASEAN+3’s 1999 Joint Statement on East Asia Cooperation took the unprecedented and significant stepof including transnational political and security issues as areas of cooperation, in addition to cooperation in
the traditional economic field. 3
Despite this statement, however, the legacy of the Cold War still lingers in East Asia, and it can beargued that the region has a long way to go in building a collective security community. Since the end of theSecond World War, many countries in East Asia have secured their national and regional security throughbilateral alliances and treaties with the United States, forming the so-called hub-and-spoke architecture. It is
phenomenal that these “spokes” have not developed a “wheel” amongst them. During the Cold War spokes
remained tied to the hub but not each other. When it comes to a collective security community, it has been
consistently argued it does not have a substantial meaning if the current East Asian security environment
remains and if it does not involve its hub, the United States in post Cold War and in post-post Cold War
context.
Americans have argued against an East Asia community concept, particularly after theannouncement of the East Asia Summit to be held. For example Richard Armitage expressed his opposition
to the concept of an East Asian community in May 2005 in an interview with the Asahi Shimbun, assertingthat the attempt to build an East Asian community without the United States would be a serious mistake, andthat China is anxious to exclude the United States from consultations. 4 Should community building in East
Asia progress, the question of US participation in a community in one form or another must be considered.
Since mid-2005, US opposition to East Asian community building and an East Asia Summit has lessened
after it was decided that India, Australia and New Zealand would be added to the list of participants in the
East Asia Summit, leading the United States to believe that the Summit would no longer be a China-centeredprocess. Nonetheless, how to relate with the United States remains an issue for the discussion and practice ofEast Asian community building, particularly in the political and security areas.
With regard to East Asian community building, Japan has its share of opponents and proponents, inaddition to those who maintain a skeptical position. Opponents of the concept deny the possibility ofcreating an East Asian community, even in the area of the economy, arguing that countries in the region do
not share values which would form the basis of community building and thus are not ready to yield
sovereignty for a regional community. Naoki Tanaka, President of the 21 Century Public Policy Institute in
his report to the House of Councilors in 2005 argued that East Asia, despite its growing economic regional
interdependence, cannot complete its regional economic network alone; East Asian nations rely heavily on
the United States for absorption of their goods, and an East Asian Economic community excluding theUnited States does not make sense. Tanaka considers the Korea-US FTA negotiations currently underway as
an example of a move that opposes the building of a community in East Asia. 5 Taro Yayama, a critic, argues
67

that it is impossible to consider an East Asian community that includes China, because the Chinese havebeen indoctrinated by the educational system to hate Japan. 6 Mineo Nakajima, President of Kokusai Kyoyo
University also argues that East Asia’s political and cultural diversity is too overwhelming to make economic
or functional cooperation feasible. Nakajima asserts that China’s continentality, Korea’s pensularity andJapan’s insularity create cultural and civilization differences too large to bridge, making East Asian
community building unrealistic. 7
Skeptics, by contrast, agree with building an East Asian Economic community, but have strong
doubts regarding community building beyond the economic areas of trade and finance. They are strongly
skeptical with regard to the feasibility of a political and security community in East Asia. Toshio Watanabe,
President of Takushoku University, also argues that East Asia community is not possible if China and Korea
must institutionalize anti-Japanese sentiment to survive as a cohesive nation, which is for domestic politicalunity. 8 Watanabe, however, agrees on merit in East Asia regional free trade area. 9 Noboru Hatakeyama,
former Vice Minister of Ministry of Economy, Trade and Industry, also argues that a community building
requires that members share values and are willing to share burdens with other members. Hatakeyama argues
that Japan does not share values with China and South Korea and that an East Asian community is therefore
unfeasible. Hatakeyama though asserts that it is feasible to create an East Asia Free Trade Agreement(EAFTA) which does not require yielding of sovereignty. 10
On the other hand, proponents of community building, with some degree of caution, see apossibility for community building in East Asia that includes the political and security fields. Hitoshi Tanaka,
former Vice Minister of Ministry of Foreign Affairs and currently Senior Fellow of Japan Center forInternational Exchange, argues for the building of an East Asian community, but does not envisage it in thenear future. Tanaka observes that Japanese foreign policy is at a crossroads sixty years after the end of theSecond World War, and faces challenges of relative decline of Japan’s national strength against a backgroundof population decline. Tanaka argues that in ten to fifteen years the economic and military power of China
and India will be comparable to Japan. Although their path towards the future growth may not be smooth,Tanaka observes there is no doubt that several strong countries will emerge in Asia. In that multi-polar East
Asia, Japan would require a stable regional order to survive and community building would be one of thepaths available to the nation. Hitoshi Tanaka also observes that it would be difficult for East Asia to aim at avalue community that shares common values like skeptics but should at first aim towards a functional
community achieved through functional cooperation. 11 Makoto Taniguchi, President of Iwate University,
argues that community building in East Asia would contribute not only to the economic development of theregion but also to political stability, and thus be of tremendous benefit to Japanese economic development
and security. Taniguchi asserts that the development of an East Asian community into a broader Asian
community would strengthen Asian identity, and this community would be comparable to NAFTA and EU. 12
Yoshihide Soeya, Professor of Keio University, also argues in favor of an East Asian community, andexplicitly of a security community. Soeya asserts that this is the ultimate destination of East Asian
community building. When a security community is created in Asia, he argues that it would absorb thefunctions of the Japan-US Security alliance; however, he also argues that during the process of community
building it would be essential for Asia to be prepared for all possible security threats. 13 Takashi Shiraishi,
Vice President of National Graduate Institute for Policy Studies (GRIPS), promotes functional cooperation,
including cooperation in the area of non-traditional security issues, in East Asia and underscores thedifference between community building in East Asia and in Europe. While Europe has built a community inthe classic sense, East Asia is characterized by webs of bilateral relationships; the challenge is how todevelop these bilateral relationships into a community, from webs to network. Shiraishi also identifies that68

the linkage between an East Asian community and the Japan-US alliance as a major challenge in community
building.
While there is a consensus across the board that the Japan-US alliance is essential in maintaining
security from the perspective of traditional security issues, opinions are divided on whether regional
cooperation on non-traditional security issues including terrorism, piracy and arms, narcotics and humantrafficking, energy and environment, and infectious disease can benefit the region and the United States. 14
Proponents of community building believe that it would serve as a vehicle for the achievement of regional
stability and also as a way for Japan to field more effective Asia policy, while opponents and skeptics, as
indicated above, deny the possibility of community building beyond the economy.
This chapter examines the prevailing framework for regional cooperation in political and security
fields in East Asia, a possible road map for East Asian political/security community against a background ofchanging strategic relationships in Asia, a road map for functional cooperation and functional integration,
and a linkage between East Asia and the United States. It concludes by considering the challenges andopportunities for political and security cooperation and conclude with an observation whether or not thediversity of cultures, economies and political systems in the region will enable the establishment of a viableorganization in East Asia.

East Asian Political/Security Cooperation: Reality Check
Since the achievement of peace in Cambodia in the early 1990s, there has been no major war in
East Asia. Since the end of the Cold War, compared to other parts of the world East Asia has been relatively
stable and free from violent conflicts. Against this backdrop of political stability, despite the Asian financial
crisis in 1997, East Asian countries have prospered economically. Smooth economic growth has encouraged
stability in the region and vice versa.
However, in the early twenty-first century East Asia still carries legacy of the Cold War time
confrontations. It has been suggested that if a Third World War should break out, the first shot would most
likely be heard in East Asia, in particular Northeast Asia. Given the existence of potential security risks in
the region, is the establishment of a political and security community feasible?
In the past half a century, peace and stability in the Asia-Pacific region has been maintained by a
web of bilateral security relations with the United States, forming a hub-and-spoke architecture. These
alliance relations, combined with national defense capabilities, have maintained deterrence and provided for
response to potential contingencies in the region. Since the end of the Cold War bilateral alliances with theUnited States have evolved from a focus on a specified threat to a focus on regional security. In the post-post
Cold War era non-traditional security threats such as terrorism have surged as a focus in the region. The
bilateral security treaties in East Asia, in addition to their traditional role, have gained a feature of being
public goods for regional security.
America’s allies in the region, the “spokes,” did not develop relations among themselves during theCold War. It is only recently in the post Cold War that “spokes” have started to form a partial “wheel,” asillustrated in the TCOG talks and Japan-Australia-US trilateral talks. In the area of military exercises, third
countries have started to either participate in or send observers to bilateral exercises. For example, Team
Challenge, held in May 2002 combined bilateral exercises between the US and Thailand (Cobra Gold), theUS and Australia (Tandem Thrust) and the US and the Philippines (Balikatan); 22 countries sent observers tothese exercises. China sent observers to the Cobra Gold exercises. The background to these multilateral
exercises was a 2001 article entitled “From Wheel to Webs: Reconstructing Asia-Pacific Security
Arrangements” by Denis Blair of CINCPAC. 15 The security community proposed by Blair is different from69

the pluralistic security community proposed by Karl W. Deutsch. 16 The precondition of Deutsch’s security
community is the sharing of common values such as a commitment to freedom and democracy. In such a
community national conflicts can be solved peacefully without resorting to military force. In contrast, Blair’s
proposal was to establish a security community by deepening bilateral relations and creating a network or
web of alliances. His proposal was, however, not further pursued due to 9.11. Following 9.11 the UnitedStates opted for a coalition of the willing in the war against terror, which has provided support for theinvasions of Afghanistan and Iraq.
Another example of the coalition of the willing is the Proliferation Security Initiative (PSI). PSI
was proposed by the Bush administration in December 2002 to control the flow of weapons of mass
destruction, their delivery systems and related materials to and from states and non-state actors. President
Bush announced the PSI concept during his visit to Poland in May 2003 and called on countries toparticipate. From Asia, Japan, Australia and Singapore are participating in the PSI. In September 2003
Australia hosted the maritime interdiction exercise “Pacific Protector,” and in October 2004 Japan hosted“Team Samurai 04”off Sagami Bay and Yokosuka Port. Australia, Singapore, Cambodia, the Philippines,
New Zealand and Thailand participated in the latter. In PSI, principles are agreed by a series of conferencesand exercises are conducted with an emphasis on preventive interdiction. Participants voluntarily participate
in PSI when they share the objective. This is due to the fact that the existing arms control and disarmament
negotiations at the United Nations are based on consensus which often prevents substantive progress

ASEAN Regional Forum (ARF)
During the Cold War, Asia went through the hot wars such as the Korean War and the Vietnam War,and regional security was not addressed. Since the end of the Cold War, against the backdrop of relative
regional stability, regional security has come to be recognized as a viable approach.
The major considerations from the perspective of regional security are (1) whether or not threats
are specified or unspecified, (2) whether threats are internal or external and (3) whether security measures
are limited to military means or more comprehensive political, diplomatic or economic means. When threats
are specified and external, security must be ensured by military means and by establishing alliances. On theother hand, unspecified internal threats should be responded to by preventing disputes from escalating into
conflicts by means of a national and regional framework. When internal disputes develop into violent
conflicts, the national/regional framework will be used to solve them peacefully. Especially when national
governance is failing, multilateral regional and/or international framework is useful to settle conflicts.
Regional mechanisms can also be effective in curbing and preventing both unspecified internal and external
threats, i.e. non-traditional threats. In East Asia today, both specified and unspecified, internal and external
threats exist, which should be addressed by military as well as cooperative security measures. Thus, inaddition to the traditional alliance network, the region also needs a regional framework to deal with complex
non-traditional security threats.
The ASEAN Regional Forum (ARF) is an example of such a cooperative security framework,
although it does not possess means of coercion. In 1990 when Australia and Canada proposed an Asian
version of the Conference on Security Cooperation in Europe (CSCE), ASEAN countries declined the ideaon the grounds that the security environments of Asia and Europe were different, and the European security
approach therefore did not apply to Asia. However, in 1993 the ASEAN Post-Ministerial Meeting agreed tocreate the ARF as a venue to discuss regional security issues. ARF Ministerial Meetings have been held
annually since the first in 1994; North Korea has participated in the ARF since 2000. 23 Asian Pacificcountries, or almost the entire region, and the EU currently participate in the ARF. In 2004, an ARF unit was70

created in the ASEAN Secretariat to support ARF activities. In the intervals between the annual Foreign
Ministers Meetings, the ARF holds Senior Officials Meetings (SOM) and Inter-sessional Group (ISG)
meetings.
The ARF is not institutionalized like frameworks for cooperative security in Europe such as theOrganization for Security Cooperation in Europe (OSCE). It is still a framework for discussion and does not
implement actions like election monitoring, protection of minorities and field missions for peace building as
the OSCE does.
At the Second ARF Ministerial Meeting held in 1995 a concept paper was adopted that indicated aroad map of ARF, from phase one of confidence building measures, phase two of preventive diplomacy andphase three of approaches to conflicts. The ARF today thus functions as a venue for participants to discuss
regional security issues. When the ARF was launched, some regional countries were skeptical with regard to
multilateral security dialogue. The ARF therefore could not take up sensitive issues like the Spratley Islands
dispute as an agenda for its meetings. Over the years, however, the ARF has helped to reduce mistrust andnurture a sense of mutual assurance among its members. After 1997 Asian financial crisis the ARF stalledsomewhat, but has come to take up sensitive issues such as the Korean Peninsula as well as the SpratleyIslands. Although the ARF has developed a dialogue role in the region, its effectiveness has been questioned.
When it attempted to move from phase one, confidence building measures, to phase two, preventive
diplomacy, China asserted that there was an overlap between confidence building and preventive diplomacy,
and the ARF could not agree on moving to the preventive diplomacy phase. After some difficulties in July
2001 the Eighth ARF ministerial meeting adopted the Paper on the Concept and Principles of Preventive
Diplomacy and the ARF Register of Experts/Eminent Persons. Due to Chinese pressure owing to its concern
on a possible interference by the ARF members into its domestic affairs under the name of preventive
diplomacy, preventive diplomacy at the ARF was defined as applicable to inter-state conflicts and not to
intra-state conflicts. The ARF, however, could not make any significant progress in preventive diplomacy; it
was not able to take effective measures in East Timor after the referendum for independence, and had to rely
initially on multinational forces and subsequently UN peacekeeping missions. For its peace building, it had
to rely on UN mission. In the recent instability caused by unsatisfied former soldiers in May 2006, East
Timor has to ask the dispatch of Australian troops to recover peace and safety.
Although East Asia certainly needs more time before a pluralistic security community can becreated, the ARF and ASEAN+3 despite their shortcomings can in the interim work on non-traditionaltransnational security issues. In Karl Deutsch’s concept of a security community, the nations of the region
must basically trust each other and share common values. East Asia, in conceiving its future collective
security community, must start from building trust among countries in the region. As a roadmap for regional
cooperation and for an eventual community building East Asian way, functional cooperation in
non-traditional security fields such as counter-terrorism, piracy, energy, environment, infectious disease anddrag trafficking would be productive both for trust building and for practical benefits it would generate. The
growing number of transnational security threats would increasingly demand such cooperation in the region.
In preparing and planning such cooperation, political/security dialogues are necessary. When the
ARF was created in 1994, opinions were divided as to whether multilateral politico-security dialogues were
useful and sustainable. However, multilateral dialogues like the ARF have come to be recognized not as a
substitute but as a supplement to hub-and-spoke alliance relations. The EASR announced by the US
Department of Defense in 1995 also recognized that dialogues do not substitute for alliance relations or
forward deployment of the United States, but rather supplement them. The 2003 Japanese Diplomatic Blue
Book indicated that Japanese security policy centers on the nation’s alliance with the United States but also71

seeks to strengthen bilateral or multilateral dialogues for the peace and stability of the Asia Pacific region.
However, other than ARF and ASEAN+3, there is no intergovernmental politico-security dialogue in theregion specifically. What we have are track two dialogues, as described in the following section.

Track Two Dialogues
Dialogues initiated by the private sector, generally think tanks and research institutions, are termed“track two,” as opposed to “track one” intergovernmental dialogues. Government officials may, however,participate in track two meetings in a personal capacity. This is sometimes referred to as “track one and ahalf.” At track two meetings, participants can float new ideas which it is perhaps too early to propose at
official intergovernmental meetings, and can speak their minds in ways that they cannot in official meetings.
Track two discussions can therefore help to trigger intergovernmental dialogues or prepare the groundworkfor official discussions on sensitive and complex issues. Together with scholars, former government officials
play an important role in track two meetings. Regional epistemic communities such as the ASEAN Instituteof Strategic and International Studies (ASEAN-ISIS), the Council for Security Cooperation in the
Asia-Pacific (CSCAP) have played an important ideational role in support of inter-governmental regional
institutions. In the context of East Asian community building, the East Asia Vision Group (EAVG)
established by ASEAN+3 and the Network of East Asian Think Tanks (NEAT) that was established on thebasis of EAVG’s recommendations are good examples of track two processes.
The number of track two dialogues in the Asia pacific region has increased since the 1990s, as
shown in Figure 1. Figure 1 is based on data from the Dialogue and Research Monitor, 17 initially compiled
by Canadian universities and subsequently by the Japan Center for International Exchange (JCIE). Given
that the number of meetings varies depending on how they are counted, these numbers should not be
considered absolute; however, they do give a good idea of trends of track one and two meetings since the1990s.
210
200
190
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
34
30
20
10
3
0
1993

Figure 1: Evolution of Politico-Security Dialogues in Asia Pacific Region

196

Track 1
Track 2
149

93

90

85

112

70
81
46

49

49

48
45

20
19
1994

23

1995

18

17

11

10

1996

1997

1998

1999

17
2000

9
2001

2002

2003

2004

Source: Japan Center for International Exchange(JCIE) "Dialogue and Research Monitor Towards Community Building in East Asia"(http://www.jcie.or.jp/drm/index.html)

Figure 1 includes a variety of track two processes: bilateral and multilateral, for specified
72

Year

objectives and for general exchange of views, institutionalized and ad hoc. During the 1990s the number oftrack two meetings in the region peaked at 93, but this figure had declined to 20 in 1999. Because the region
had little experience of track two meetings in the preceding decades, they were initially organized withconsiderable enthusiasm; however, they were soon criticized for excessive growth and a lack of results.
Jokes circulated recommending non-proliferation of track two meetings, and suggesting that CBM referred
to “conference building” rather than “confidence building” measures. The decline in the number of track two
meetings was further influenced by the 1997 Asian financial crisis, which deprived track two meetings offunding. During the same period of time, track one meetings have been fairly constant in terms of thenumber of annual meetings. However, the benefit of track two meetings as a way of deepening mutual
understanding and trust has been recognized; as Figure 1 shows, the number of meetings has registered a
substantial increase since 2000, reaching 196 meetings in 2004. This phenomenal growth reflects the factthat non-traditional and human security issues have been taken up at track two meetings since 9.11. The
latest Research and Dialogue Monitor of 2005 observes that “terrorism featured in one quarter of all Track 1
meetings and proved to be the most frequently dealt with of any single issue…topics such as maritime
terrorism, piracy, and cyber crimes were prevalent, particularly in Track 1, indicating the level of concern
about these issues at the governmental level. Other non-traditional security issues that were important
subjects of discussion included transnational crimes, especially human trafficking, drugs trafficking andarms trafficking.” 18 It is also worth noting that the number of track one meetings, which had been around ten
or twenty at the maximum in the 1990s, grew to 112 in 2004. This is partly due to meetings convened by
ASEAN+3, which can be classified as functional cooperation, 19 as described in the next section. Both track
one and two meetings have taken up non-traditional security issues which have been increasing with greater
regional interdependence and the concomitant increased flow of people and goods across national borders.

A Road Map for Functional Cooperation in East AsiaThus, because East Asia has not reached the stage of creating a pluralistic security community in
Karl Deutsch’s sense, the region cannot rely on a collective security community to ensure regional security.
East Asia has to remain dependent on a web of bilateral alliances with the United States. However, regional
security cooperation can play the role of “peacekeeper” in East Asia. The process can be commenced fromcooperation in practical areas, in which participants share common benefits, i.e. functional cooperation. In
other words, given lack of trust and common threat perceptions, East Asia cannot adopt an institutional
approach in promoting regional cooperation in political and security fields in immediate future. East Asia
can move forward to substantive collaboration on the myriad complex issues In hindsight, the germ of theEuropean Union, which has reached the stage of developing a common foreign and security policy, was thecreation of European Coal and Steel Community, which was nothing but functional cooperation. In fact,
triggered by the financial crisis the region went through in 1997, ASEAN+3 has embarked on the creation ofa network of functional cooperation in the financial area. The report of the EAVG recommended concrete
functional cooperation. These recommendations were further examined and grouped into short-term andlong-term goals by the inter-governmental East Asia Study Group (EASG). As short-term measures, thereport recommended strengthening mechanisms for cooperation on non-traditional security issues andpoverty reduction. As medium-term and long-term measures, the report recommended numerous fields
including building a framework for energy policies, strategies and action plans. Incidentally, among the
medium-term and long-term measures, the EAVG recommended promoting the evolution of the ASEAN+3
Summit into an East Asian Summit. The latter has been realized in December 2005 although it was not theevolution of the ASEAN+3 Summit but the simultaneous holding of the two Summits. Of the numerous
73forms of functional cooperation envisaged by ASEAN+3, the next sections consider cooperation in the areasof counter-terrorism, energy, environment and piracy as illustrations.

Counter-terrorism Cooperation
Terrorism is not a new security threat. Neither is it a particularly new phenomenon to Asia,
although the current terrorist threat is clearly different from the secular communist insurgencies during theCold War Moreover, the scale of the 9.11 attacks and the means used in them drastically increased theperception of the security threat represented by terrorism.
Asia has its own indigenous terrorist groups, for example the MILF in the Philippines andal-Jemaah al-Islamiyah (JI) in Indonesia. In recent years JI, which declares its goal to be the creation of apan-Southeast Asia Islamic caliphate has been responsible for a series of bomb attacks in the region
including bomb blasts in Bali in October 2002 and October 2005, attack on the J.W.Marriott Hotel in Jakarta
in August 2003 and attack outside the Australian embassy in Jakarta in September 2004. Figure 2 shows thenumber of terrorist attacks in 2005 by region based on data from the Report on Incidents of Terrorism
published by the US National Counterterrorism Center. The combined figures for East Asia and the Pacificand South Asia are higher than for the Near East, which had the highest number in 2005.
Figure 2: International Terrorist Attacks by Region (2005)

10,000

8,728

9,000

Dead - 14,602

8,000

Number of Attacks - 11,111

7,000
6,000
5,000

4,230

3,974

4,000

3,017
3,000
2,000
1,000

875

760
253

1,007

851

780

867

371

0
AfricaEast Asia and Pacific Europe and Eurasia

Near East

South Asia

Western Hemisphere

Source: National Counterterrorism Center (NCTC) "Report on Incidents of Terrorism 2005"(http://wits.nctc.gov/Reports.do)

After 9.11, the US government launched a war against terror, regarding terrorism as a war.
Although the international community was initially sympathetic with the US, opinion has since been divided
over the attack on Iraq and other aspects of US policy. In Asia, Indonesia, Malaysia and South Korea haveexperienced a surge of anti-Americanism. Nonetheless, by contrast with Europe, most East Asian
governments supported the Bush administration’s war against terror. Some argued that 9.11 forced the US totake an interest in Asia again, and that terrorism in Asia can only be controlled by the United States. East
Asian governments have been criticized by the citizens of their nations for their support of the US, but
terrorism represents a considerable threat in the region. Moreover, the attacks in London during the G8
Summit in July 2005 were a reminder that international terrorism not only targets specific countries, but also
the infrastructure and values of the civilized world.
74

Prevention of and countermeasures against transnational terrorism are common interests of East
Asian countries. No country opposes cooperation in the area of counter-terrorism. In fact, since 9.11 existingregional frameworks have promoted concrete cooperation in this area. As an illustration ASEAN on
November 4 adopted
Prevention of transnational terrorism is certainly a common interest of East Asian countries. No
country opposes cooperation to counter terrorism. As terrorism is most often transnational in terms of actors
and victims, regional cooperation would be effective in addition to than national measures. In fact, since 9.11
existing regional cooperation frameworks in Asia-Pacific have been promoting concrete cooperation toprevent terrorism. As an illustration, immediately after 9.11, on November 4, 2001, ASEAN adopted the
Declaration on Joint Action to Counter Terrorism, which included practical measures, with ASEAN nations
agreeing to “review and strengthen […] national mechanisms to combat terrorism” and to establish “regional
capacity building programmes to enhance existing capabilities of ASEAN member countries to investigate,
detect, monitor and report on terrorist acts.” 20 ASEAN meetings have continued to condemn terrorist attacks
and have suggested numerous regional cooperation initiatives for preventing and combating terrorism
The Asia Pacific Economic Cooperation (APEC) conference, despite its focus on economic
cooperation, also reacted to 9.11 and has taken up international terrorism as an agenda every year since 2001.
On October 21, 2001, APEC leaders, at the strong urging of the United States, declared their condemnationof and determination to respond to international terrorism. 21 On October 26, 2002, APEC leaders announced
the Los Cabos Statement on Fighting Terrorism and Promoting Growth, declaring their commitment toblocking the financing of terrorist organizations, promoting cyber-security and cooperating in capacity
building through counter-terrorism-related training. 22 The Los Cabos Statement led to the creation of theCounter-Terrorism Task Force (CTTF). 23 On 21 October, 2003, the APEC Leaders’ Statement, under theheading of “Enhancing Human Security,” declared a commitment to “dismantle, fully and without delay,transnational terrorist groups that threaten the APEC economies.” The declaration also mentioned theimplementation of a Health Security Initiative to “help APEC prevent and respond to regional health threats,
including naturally-occurring infectious disease and bio-terrorism,” in addition to the establishment of a“regional trade and financial security initiative within the Asian Development Bank to support projects thatenhance port security, combat terrorist finance, and achieve other counter-terrorism objectives.” 24 With thecampaign on Secure Trade in the APEC Region (STAR), APEC has cooperated in countering terrorism fromthe economic perspective through measures that protect cargo, ships, international aviation and people intransit and prevent money laundering. In their 18-19 November 2005 Declaration, APEC leaders made acommitment to further strengthen their efforts on counter-terrorism beyond the economy by dismantlingtransnational terrorist groups, eliminating the danger posed by the proliferation of weapons of mass
destruction, their delivery systems and related items, and confronting other direct threats to the security of
the region. 25 Previously, when it was proposed that security be included in the agenda, APEC participants
could not reach consensus as Taiwan, which is not a country, participates in APEC, and some members
resisted the idea of discussing security issues with such a participant. However, since 9.11, APEC has cometo collaborate on the terrorism issue which has significant implications on economic activities.
The ARF has also condemned and responded to terrorism. The ARF issued “the Statement on
Measures against Terrorist Financing,” making a commitment to freeze terrorist assets, exchange informationand outreach and provide technical assistance “in developing and implementing necessary laws, regulations
and policies to combat terrorist financing and money laundering.” 26 ARF created the Inter-sessional Meetingon Counter-Terrorism and Transnational Crime (ISM on CT-TC). At the first meeting, held in Karambunai,
Sabah, Malaysia in March 2003, co-hosted by Malaysia and the United States, the adoption of the ARF
75

Statement on Cooperative Counter-Terrorist Actions on Border Security was proposed. In 2004 ARF
ministers adopted the ARF Statement on Strengthening Transport Security against International Terrorism,
and agreed to review its implementation every year. 27
East Asian countries have held numerous meetings on counter-terrorism issues which havecontributed to the growth of track one meetings and have held intensive discussions under existing regionalframeworks to combat terrorism since 2001; they have also embarked on improving law enforcement
programs and operations, disrupting terrorist financing, capacity building on intelligence collection, analysis,
distribution and exchange, and the enhancement of global commitments in the region. In Malaysia theSoutheast Asia Regional Centre for Counter-Terrorism (SEARCCT) has been established to conduct training
to counter terrorism. East Asian countries share a practical interest in preventing and responding to terrorism,
due to the practical benefits of doing so.

Maritime Cooperation: Fighting against Piracy
The Straits of Malacca extends approximately 900 kilometers; 80,000 vessels cross it a year,
including numerous oil tankers transporting crude oil from the Middle East to East Asia. Due to theeconomic growth of East Asia, the number of ships crossing the Straits of Malacca has increased
significantly, and the quantity of oil transported is growing every year. According to Institute of Defence andStrategic Studies based in Singapore around 30 percent of world trade and 50 percent of world energy needs
pass through the Straits each year. 28 However, ships in the Straits are the targets of pirate attacks. It is also
reported that piracy has become more violent in recent years. Pirates are now armed with stronger weapons
such as AK47 assault rifles and even rocket launchers.
In March 2005, the Japanese tug boat Idaten was attacked by pirates during a voyage through theStraits of Malacca. Its crew were taken hostage, but later returned to Japan. The case sent a message home
once again that the Straits of Malacca is prone to piracy.
According to International Maritime Organization (IMO) statistics, the South China Sea and theStraits of Malacca record a high incidence of piracy, as shown in Table 1. The combined incidence of piracy
in these two areas gives East Asia the highest incidence of piracy in the world. Because of this highincidence, functional cooperation to combat the problem is already underway. Thus, due to multilateral strict
control measures the number of incidents of piracy and armed robbery against ships in the Straits of Malacca
which reached 112 in 2000 has reduced to ten in 2005. After Tsunami off Sumatra and Indian Ocean in
December 2004, incidence of piracy has declined which is reflected in the figures in Table 1. It was analyzed
Table 1: Piracy and Armed Robbery against Ships
1998

2000

2002

2003

2004

2005

Malacca Strait

6

112

24

15

35

10

South China Sea

94

140

112

114

86

81

Indian Ocean

25

109

46

77

31

39

East Africa

19

29

14

11

7

22

West Africa

22

33

39

59

43

21

South America

38

41

53

60

40

24

Mediterranean Sea

2

2

3

1

-

-

Source: International Maritime Organization (IMO)" Report on Acts of Piracy and Armed Robbery against
Ships Annual report ", regional analysis of reports on acts of piracy and armed robbery against ships which werereported to have been allegedly committed (http://www.imo.org/HOME.html)

76

that pirates themselves were hit by tsunami and could not act. Moreover pirates are afraid of relief ships
which led them to be cautious. However, they have started to be active again because economy has recoveredfrom Tsunami damage and ships which are targets of piracy have resumed their voyage. There is therefore no
room for complacency on piracy.
Why are there so many pirates in the region? According to Yoshihiko Yamada of the Nippon
Foundation, when the Kingdom of Malacca became a colony of Portugal in 1511, Malaccans resisting thecolonization fled to islands on the Indonesian side and earned their living by fishing. However, seeking moreincome in addition to fishing and sometimes as resistance to imperial powers, they became pirates. 29
Pirates have aimed at cargoes and ships themselves in the past. The ships seized have been
repainted in unpopulated harbors and their names are changed, after which they are used in acts of piracy.
Cargoes are sold on the black market. Petroleum products, particularly refined gasoline and kerosene, whichhave high added value, have been specific targets of piracy. Recently although sea robbery remains to be themost common type of attack, pirates are increasingly going after kidnap-for-ransom. Thus, it is a recent trend
to hijack smaller vessels rather than larger vessels. Since pirates are after ransom, they attack smaller tankers
and tug boats which are slow in their speeds and easier to board and seize than larger boats.
The trigger for regional cooperation against piracy in East Asia was the Alondra Rainbow incident.
This Panama-registered ship was owned by Imura Kisen in Imabari City, Ehime Prefecture, Japan. When
attacked by pirates in October 1999, the boat was on loan to Tokyo Senpaku and manned by a Japanesecaptain and chief engineer and fifteen Filipino crewmen. On October 22 1999, the ship loaded 7000 tons ofaluminum ingots at an Indonesian port and departed for Miike port in Fukuoka Prefecture. However, soonafter its departure from Indonesia, contact with the ship was lost. It was attacked by pirates in the Straits ofMalacca and the entire crew was forced to board another ship. The Alondra Rainbow was taken to Sarawak,
Malaysia, repainted and given the new name of Global Venture; it was later seized by the Indian coast guard.
The search for the ship and the investigation of the case involved eight countries, clearly indicating that
regional cooperation is absolutely necessary for countering piracy. For example, when a vessel is inIndonesia’s jurisdiction, the Malaysian authorities cannot pursue it and vice versa, which impedes the pursuitand arrest of pirates. Action against piracy clearly requires transnational cooperation to be effective andefficient.
Given the need of regional cooperation to deter and respond to piracy, the late Japanese Prime
Minister Keizo Obuchi thus proposed an international conference to combat piracy in the region at theASEAN+3 Summit Meeting on November 28, 1999. In April 2000 his proposal was realized. Japan hosted
the Regional Conference on Combating Piracy and Armed Robbery against Ships involving coast guard
agencies and maritime policy authorities in East Asia. The conference produced an outline of piracy
measures for Asian countries to forge partnerships in implementing. Since then Asia Regional Experts’
Meeting on Piracy has been held every year.
Sovereignty and different national priorities have, however, been obstacles to cooperation, notallowing “hot pursuit.” In the case of the Idaten, Malaysia, Indonesia and Singapore have been conducting a
joint patrol, but the three countries did not share the information that the vessel used by the pirates was astolen boat. Collaboration after the attack was also reported as insufficient, due to the complexity ofterritorial issues in the straits. As it involves sovereignty of the littoral states, the dispatch of coast guard
vessels is decided by each county.
In November 2004 ASEAN, China, India, Sri Lanka, Bangladesh and Japan negotiated theRegional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia, which,once ratified, will be a legal framework for regional cooperation. An information center has also been77

established in Singapore for sharing of information on piracy. Functional cooperation is thus alreadyunderway against piracy. It is worth noting that anti-piracy measures are being promoted not by naval
cooperation but by coast guards. Countries that do not possess coast guards are creating them, as in the caseof Malaysia and Indonesia. Anti-piracy cooperation, however, faces the challenge of surmounting thequestion of jurisdiction among countries in the region which prevents pursuit and other effective control
measures. Pirates are transnational in their activities and control measures must therefore also betransnational. However, police agencies and coast guards cannot exercise their powers beyond national
borders. Pirates are taking advantage of these limitations and are escaping.
In addition to piracy there are other potential threats on the sea, including terrorism. East Asia
needs to develop a scheme whereby maritime security including sea lanes of communication (SLOCs) can beensured without infringing sovereignty and jurisdictional limits. Maritime security is so closely tied toeconomic and energy security of East Asia as described in the following section. Sea lanes of communication
constitute the lifeline of East Asian economies reliant on energy from other regions and on exports to others.

Energy Cooperation
The need to secure an energy supply has at times acted as a causative factor of war. The pursuit ofoil resources was one of the reasons for Japan’s expansion into Asia and attack on the Allied powers morethan half a century ago. Following the occupation of southern Indochina by Japanese troops in June 1941,
the US, the UK and the Netherlands froze Japanese assets, ensuring that the nation, which does not possess
significant indigenous oil resources, was unable to purchase oil. Japan therefore made plans to gain access tooil resources in Southeast Asia, leading to the attack on Pearl Harbor and the seizing of Indonesian oil fields
owned by the Dutch East India Company by Japanese paratroop units. Energy has therefore been directly
related to security.
In hindsight, functional cooperation on energy in the form of the creation of the European Coal andSteel Community after World War II was the commencement of the process of European integration. The
intention behind this initiative was to prevent a third world war by controlling coal and steel, which areessential materials for warfare. Energy security was the main agenda during the oil crisis in 1970s, and has
once again emerged as a common topic in the region in the twenty-first century, against a background of
spiraling oil prices. Energy has been politicized. Some resource rich countries have opted to limit FDI and tonationalize energy related companies. Some buyers on the other hand have opted to buy up resources
overseas.

Energy security has two facets; at the macro level energy security means competition for natural

fossil fuels and is a national security issue with geopolitical and geo-economic aspects, as demonstrated by
the fact that energy supply can be a factor in causing war and territorial disputes. At the micro-level, energy
security is a question of how energy supply is secured, including sea lane security. At the latter level, energy
cooperation has been explored since the 1990s in Asia, in particular in Northeast Asia. This is due to the factthat energy demand in Asia has increased significantly due to the phenomenal economic growth of the region.
Some former oil exporters, including China, have become oil importers. Since the 1990s, proposals havebeen made for the creation of a Northeast Asian Energy Community, in which resource-rich countries like
Russia and the Central Asian states and resource-poor but financially rich and technologically advanced
countries like Japan and Korea cooperate in a variety of ways, including the construction of oil and gas
pipelines. Energy cooperation has long been identified as the most promising form of functional cooperation
for the region since 1990s, but the proposals have remained at the stage of discussion. This is because of low
crude oil prices in the past 15 years and competition between oil consuming countries over bilateral tradewith oil producing countries, a situation that has not been conducive to multilateral cooperation in oil and78

gas import.
Both the EAVG and the EASG also recommended functional cooperation on energy within theframework of ASEAN+3. The ASEAN+3 Energy Ministers’ Meeting has been held since 2004. APEC alsoorganized a working group on energy cooperation and has promoted dialogues among member countries.
With higher oil prices, the oil demand and supply situation in the region is making energy cooperation moremutually beneficial than ever.
Figure 3: Trend of World Primary Energy Consumption

Mtoe
18000

16487
16000

East Asia

14000

World

14404

12194
12000
10579
9951
10000
8628
8000

7156
5458

6000

4684
3936
3158

4000
2343

2679

1716

2000

1169
506

0
1971

1980

1990

2000

2003

2010

2020

2030

Year

Source: International Energy Agency (IEA), Energy Balances of OECD Countries 2002-2003: 2005 Edition , Energy Balances of Non-OECD Countries 2002-2003: 2005
Edition , and World Energy Outlook 2004
Note: East Asia in the projection of 2010, 2020 and 2030 includes Japan, Korea, China and the following countries according to the OECD's regional definition: Afghanistan,
Bhutan, Brunei, Chinese Taipei, Fiji, French Polynesia, Indonesia, Kiribati, Democratic People's Republic of Korea, Malaysia, Maldives, Myanmar, New Caledonia, Papua
New Guinea, the Philippines, Samoa, Singapore, Solomon Islands, Thailand, Vietnam and Vanuatu.

Figure 4: Share of East Asia in World Primary Energy Consumption (2003)

China 13.48%
Japan 4.89%
Korea 1.94%
Indonesia 1.53%
Thailand 0.84%
Malaysia 0.54%
Vietnam 0.42%
the Philippines 0.40%
Singapore 0.21%
Myanmar 0.13%
Brunei 0.03%

others 75.63%

Source: International Energy Agency (IEA), Energy Balances of OECD Countries 2002-2003: 2005 Edition, Energy Balances of Non-OECD Countries 20022003: 2005 Edition , and World Energy Outlook 2004

79

In addition to soaring energy prices, East Asia has more consumers than producers of primaryenergy. According to the International Energy Agency (IEA) of the OECD, world primary energy
consumption will increase by 2.1 percent per annum from 2000 to 2030, as shown in Figure 3. Compared tofigures for 1971, Asia’s primary energy consumption has increased five-fold while overall worldconsumption has increased only two-fold. As shown in Figure 4, Asia’s share of world energy consumption
increased from 9.3 percent in 1971 to 24.4 percent in 2003, and is predicted to reach 28.4 percent in 2030. In
terms of increase from 1971, Malaysia and Thailand have increased their consumption by eight times,
Indonesia and Korea by five times, China by three times and Japan by two times. China now consumes moreenergy than Japan. Excluding Japan the increase of primary energy consumption in East Asia due toeconomic growth has been phenomenal, greater than that observed in any other region.
Particularly China’s oil consumption has grown due to its economic growth, its low energy
efficiency, increasing automobile ownership and surging petrochemical production. Since 1990 the numberof automobiles registered in China has risen roughly twenty-fold. China is the fastest growing automobile
market in the world. With five million car sales in 2004, it is already the world’s third largest car market, andThe Economist predicts that it will become the largest between 2010 and 2015.

Almost all of China’s

automobiles will use oil-based fuels, and virtually all of the oil required will come from imports. China’s oil
consumption passed Japan’s in 2002, and the nation became the second largest consumer in the world after
the United States. According to the IEA forecast, Chinese oil imports will grow from the current 2 million
barrels a day to 10 million barrels a day in 2030. Although China is still the world’s fifth largest oil producer,
continuing to draw on large fields in the northeast, such as Daqing, environmental and infrastructuralproblems and the nation’s reluctance to offer incentives for foreign investment in oil development make itunlikely that China will produce significantly more oil in future. In addition, again according to IEA
statistics, East Asia’s intraregional oil production in 2002 was 308 million tons, which represents only 8.4
percent of the world total. It is predicted that other oil producing nations in the region, such as Indonesia andVietnam, will reduce production from 2010 unless they discover new reserves. Indonesia has not conducted
new oil exploration, and had to reduce its gasoline supply by 5 percent in 2005. Declining oil reserves arealso affecting electricity supply in the country.
This imbalance between demand and supply of oil in East Asia may become an Achilles’ heel for
economic development and stability of the region. Moreover, East Asia depends heavily on Middle Easternoil. According to IEA data, dependence on Middle Eastern oil in 2003 was 87.1 percent for Japan, 79.8
percent for Korea, and 50.9 percent for China. Oil stockpiling is not well-developed in East Asia, and if
supply from the Middle East should be disrupted for some reason, it may have a major effect on economic
activity in the region. In addition, the oil import route from the Middle East involves a long and dangerous
sea route termed an “arc of instability,” including the Strait of Malacca.
Thus, demand for oil in East Asia is growing and intra-regional supply is on the decline, and thismay lead to competition over drilling rights for oil and gas, including offshore rights. The Sino-Japanesedispute in the East China Sea is one such example. In East Asia, a shortage or disruption of oil supply would
undermine energy security both at the macro and micro level. East Asia has numerous reasons to identify
common interests and promote functional cooperation in the area of energy.
First and foremost, stable energy supply should be achieved not by competition but by cooperation.
An oil pipeline from Russia to East Asia, in particular to China, South Korea and Japan, would be an option
to consider. It is reported when Russia develops untapped oil and gas resources particularly in its Far East,
the world supply and demand would improve. The region must also work on geographical diversification of
its energy supply. Meanwhile, the region must make collective efforts to secure sea lanes for the80transportation of oil, given its high level of reliance on Middle Eastern oil.
Secondly the region should also seek improved energy efficiency. Improvement in energy
efficiency is said to be worth a major discovery of a reservoir. China has already implemented efforts tobetter energy efficiency. In 1993, China’s energy efficiency was one-twentieth Japan’s, but that figure has
now been reduced to one-seventh. In July 2005, China began to introduce automobile fuel efficiency
standards that require new cars to achieve up to two miles more per gallon. The introduction of a fuel tax is
also being considered in China. The nation has also started to work on the achievement of increased energy
efficiency in industry. It is claimed that increased energy efficiency can reduce consumption in China by
30-40 percent. Japanese companies have started their cooperation to China for example in steel making to
improve their energy efficiency.
Thirdly, the development of an oil stockpile that can be used in case of emergency by creating an
Asian version of IEA has been proposed. East Asia must diversify its energy supply towards nuclear power,hydroelectric power and natural gas. There is currently no natural gas pipeline in the region. Supply of gas
by pipeline to Japan, Korea and China from the abundant reserves in Eastern Siberia has been proposed. 30
This long-standing proposal now has a greater economic incentive than ever, given the higher prices of oil.
Such transnational pipeline will have significance not only for energy supply but also for regional security.
Fourthly, the region should also attempt to develop new, alternative and renewable energies such as
nuclear power, solar power, wind power, bio-fuel etc. Collective development projects and sharing of
information would prevent the duplication of effort in this area.
Numerous regional energy initiatives have been proposed or are currently underway; ASEAN+3
has launched ASEAN+3 Ministers on Energy Meeting since 2004 with one of the ASEAN countries serves as
co-chair in alphabetical order and one of the +3 countries serves as co-chair. ASEAN+3 SOM has also
launched an annual meeting on energy in 2002 by the Japan’s proposal to discuss common issues. They havealso created Biomass-Asia Workshop which is an annual event involving Asian countries which use biomass.
East Asia would benefit from combining these initiatives under a regional framework. Regional cooperation
should be linked to global initiatives, including the Joint Oil Data initiative, in which many Asian countries
are participating. Functional cooperation on energy can offer visible benefits for participants and has apotential for a good model case for cooperation when designed well. With skyrocketing oil prices, energy
cooperation is more promising than the preceding decade.

Environment Cooperation
The other side of the coin of energy consumption is pollution which is Tran boundary in nature,including global warming and climate change caused by carbon dioxide (CO2) and other greenhouse gases.
The depletion of biodiversity and the issue of disposal of hazardous materials also represent environmental
problems. Because pollution spreads via air and water, its impact is not contained by national borders but
extends to neighboring countries and entire regions. Environmental issues thus demand collective measures.
Given East Asia’s phenomenal economic growth, balancing environmental protection and economic growthis an increasingly important policy agenda. Environmental issues must be approached by global measures
but be augmented by regional measures particularly in East Asia.
The region’s reliance on coal has, for example, produced sulfur dioxide emission causing acid rain,
air pollution and smog. China’s increasing coal consumption has increased the load on the environment
which has generated numerous problems for neighboring countries. East Asia needs to coordinate its
environmental policies, take collective steps and establish common environmental standards to mitigate theproblem of pollution in the region.
81

Being aware that environmental issues have at times led to regional disputes, the EAVG proposed“the establishment of a comprehensive East Asian environmental cooperative body which includes a disputesettlement mechanism and a regional environmental database” 31 and also that “an East Asian Environment
Ministers’ Meeting be organized periodically for the coordination of regional environmental projects.” 32
While the former has yet to be implemented, the latter proposal has already been realized. ASEAN+3
Environment Ministers’ Meeting was launched in 2002 by the proposal of ASEAN Ministerial Meeting on
the Environment which has been meeting since 1981. The meeting has identified ten priority areas; namely(1) global environment, (2) forest fires and cross-border haze, (3) coastal and marine environment, (4)sustainable forest management, (5) sustainable management of natural parks and reserves, (6) freshwater
resources, (7) environmental education, (7) promotion of environmentally suitable technology and cleaner
production, (9) urban environment management and governance, and (10) harmonized monitoring, reportingand database for sustainable development. In addition, the Tripartite Environment Ministers Meeting among
Japan, China and Korea (TEMM) has been held since 2000.
Although these inter-governmental meetings have not yet produced joint projects, awareness of theimportance of environmental conservation has increased in East Asia, prompting the region to work on the
reduction of air pollution in particular. With consumption of fossil fuels projected to increase in future, itwill be essential to enhance environmental standards. As air pollution and acid rain influence health in the
short term, the incentives for adopting the necessary measures are clear, and East Asian nations have alreadystarted to introduce, de-NO X and de-SO X equipment.
The effects of global warming, by contrast, are generated over the long term. The phenomena ofdesertification and climate change associated with global warming occur so gradually that they do not
motivate actors to take immediate countermeasures. However, CO2 emissions in East Asia are certainly
increasing, and action needs to be taken now to avoid future environmental problems.

As shown in Figure 5, worldwide energy-related CO2 emissions increased approximately 2.5-foldfrom 1971 to 2003 while CO 2 emissions in East Asia increased approximately six-fold due to the region’shigh consumption of coal. East Asia’s CO2 emissions represented 12.5 percent of the world total in 1971, but
this figure had increased to 27 percent in 2003.
Figure 5: Trend of World Energy -related CO2 Emissions
MT of CO2

45000
40000

38214

East Asia

35000

33226

World

30000

27817
25597
23906

25000
21324
18659

20000
15000

14662
11829
9771

10000

6898

5798
5000

1827

2833

7659

4273

0
1971

1980

1990

2000

2003

2010

2020

2030

Year

Source: International Energy Agency (IEA), CO2 Emissions from Fuel Combustion 1971-2003: 2005 Edition and World Energy Outlook 2004
Note: East Asia in the projection of 2010, 2020 and 2030 includes Japan, Korea, China and the following countries according to the OECD's regional definition:
Afghanistan, Bhutan, Brunei, Chinese Taipei, Fiji, French Polynesia, Indonesia, Kiribati, Democratic People's Republic of Korea, Malaysia, Maldives, Myanmar,
New Caledonia, Papua New Guinea, the Philippines, Samoa, Singapore, Solomon Islands, Thailand, Vietnam and Vanuatu.

82

CO 2 emissions increased approximately 1.5-fold in Japan, four-fold in China, five-fold in Vietnam,
eight-fold in South Korea and Singapore, ten-fold in Malaysia and Thailand and twelve-fold in Indonesia. It
is clear that East Asia must reduce its carbon dioxide emissions to halt any further degradation of theenvironment.
The Kyoto Protocol took effect in February 2005. The Protocol was an epoch-making step towards
mitigating global warming. However, it entails problems. Major CO2 emitters like the United States andChina have not ratified the Protocol. Moreover, the Protocol does not oblige developing countries to reduce
their carbon dioxide emissions. Emissions by the countries that have committed to the Protocol represent
only 30 percent of world total CO2 emissions. Even when these countries reduce their emissions as requiredby the Protocol, it will only reduce world emissions by two percent. This will represent only a marginal
improvement.
The Kyoto Protocol provides for three measures to supplement emission reduction efforts and toachieve reduction targets, namely Joint Implementation, the Clean Development Mechanism and emissions
trading. The Clean Development Mechanism (CDM) offers the possibility of regional cooperation. If East
Asia utilizes the CDM and developed countries in the region cooperate with developing countries to reduce
their emissions of greenhouse gases, it would lead to further transfer of environmental technology.
Developed countries in return would receive CO 2 emission credits that could be used towards theachievement of numerical targets required by the Kyoto Protocol. As an illustration, if Japan implemented a
CDM project in China, in addition to Japan receiving credit, Chinese emissions of greenhouse gases would
be reduced, thus reducing air pollution. The benefits are mutual.
CDM is a mechanism enabling environmental problems to be ameliorated as economic
development is promoted. However, CDM procedures are cumbersome, and only few projects have to datebeen approved. Cooperation will be required to increase the user-friendliness of CDM. If more countries caneffectively use CDM in global warming measures, it would have a positive influence on post-Kyoto Protocol
framework consultations.
Regional cooperation on the environment in East Asia has mainly been limited to conferences as
described above. Moreover, actual cooperation is still at the level of bilateral or sub-regional cooperation.
Japan for example has concluded a bilateral Agreement of Cooperation for Environmental Protection with
China in 1994 and Japan-China Environmental Cooperation for Twenty-first Century in 1997. The latter has
led to action such as to rebuild model cities for environmental protection namely Chong Quing, Dalian andGuiyang and to build a computer network to gather and disseminate environment-related information.
Southeast Asia has suffered from haze due to forest fires in Sumatra and Kalimantan, leading to a Southeast
Asian action plan on transnational haze pollution And the introduction of regional monitoring and emergency
measures on forest fires.
The Asia-Pacific Partnership on Clean Development and Climate, 33 involving Australia, China,
India, Japan, South Korea and the United States, is also underway. This was originally proposed by President
Bush to substitute for US non-ratification of the Kyoto Protocol. This Partnership involves voluntary
practical measures taken by these six countries in the Asia-Pacific region to create new investment
opportunities, build local capacity and reduce barriers to the introduction of clean, more efficienttechnologies. .
Yellow dust is another trans-boundary pollutant from China, reaching Korea and Japan. In future,these bilateral and sub-regional or voluntary environmental initiatives should be developed into a combined
regional framework for environmental cooperation. With post-Kyoto Protocol frameworks being considered,
it is essential to establish measures for incentives for developing countries to take part in environmental
83conservation efforts. Environmental issues should be approached collectively and have the potential toenable viable regional functional cooperation like in the case of energy cooperation.

Functional Cooperation leading to Functional Integration?
Will these initiatives for functional cooperation on terrorism, energy, environment, piracy andinfectious disease lead to the functional integration of East Asia? Will functional cooperation lead tofunctional integration? As described in the preceding section, it seems the region is heading for multiple
overlapping schemes for functional cooperation sometimes involving different members. Skeptics regarding
East Asian community building argue that functional cooperation will not lead to regional community unlessthe region comes to embrace a common vision and values. Nonetheless, it is too early to indicate thatfunctional cooperation will not lead to integration of any sort in East Asia. If East Asia develops a sense ofregional partnership through functional cooperation, it is plausible that the region will express a common
political will. Regional collective measures in functional areas would certainly contribute to global issues aswell. For example, against a backdrop of soaring energy prices and increased demand, East Asia may havemore opportunities to influence global energy policy by acting as a region.
East Asia still has flashpoints and is not likely to create a politico-security community with
substantive unit of power at any time soon. It is impossible for East Asia to substitute the hub and spoke
bilateral alliance architecture with a community, but it can supplement web of alliance structures. Functional
cooperation on political and security would focus mainly on non-traditional security issues while the region
embraces hard security issues. The purpose of such cooperation would thus be to mitigate politicalconfrontation and to enhance stability in East Asia, that is, to keep the peace. Whether political and security
cooperation in East Asia leads to community building depends on the region’s future efforts. Very skillfularchitects are required to promote political and security cooperation in the region.
This cooperation also needs eventually to be buttressed by common values and visions. The Policy
Report of the CEAC in 2005 states that “ The Community’s ideals must envisage mutual security within asecurity community (no-war community), promote prosperity founded on a balance between economic
competition and cooperation and ensure a community of progress dedicated to such values as freedom,democracy and respect for human rights.” 34

Linking East Asia Community with the United States
Promotion of the East Asian community concept has to be considered in terms of its implications
for Japan’s relations with the United States, which represent the basic pillar of Japanese diplomacy. The
alliance was the only realistic security option for Japan during the Cold War, considering the threat
emanating from the Soviet Union. After the end of the Cold War and the collapse of the Soviet Union, thenecessity for the Japan-US alliance was questioned. A rape incident involving American soldiers in Okinawa
in June 1995 posed a further question on the need of the US troops in Japan. However, with the test launch of
Nodon missiles by North Korea and with the Joint Declaration on Japan US security, the alliance has gained
new momentum and has been strengthened. The Japanese government released the new National Defense
Planning Guidelines (NDPG) in December 2004 based on the recommendations of the Council on Security
and Defense Capabilities, the so-called Araki report. The NDPG stated that the objectives of Japanese
security policy is to prevent any threat from directly reaching Japan and to reduce the chances of any threat
arising in various parts of the world in order to prevent it from reaching Japan. The Guidelines stated thatJapan will achieve these objectives through its own defense preparedness, its alliance with the United States
and cooperation with the international community. Thus, the Japanese government envisions the Japan-US84alliance as a foundation of its security and defense policy. On its part, the United States has deployed
100,000 troops in the Far East and 45,000 troops in Japan as a forward deployment. This forward
deployment is now being reviewed as a part of a transformation of the global deployment of US forces. The
alliance has been serving two purposes; one is defense of Japan and the other is the peace and stability of
Asia-Pacific. In the Joint Statement of United-States-Japan Security Consultative Committee, so-called 2+2,
issued on May 1, 2006 confirmed this point by stating that “The U.S.-Japan Alliance … is the indispensablefoundation of Japan’s security and of peace and stability in the Asia-Pacific region.” It also stated thatrealignment “will lead to a new phase in alliance cooperation and strengthened alliance capabilities in theregion.” 35Some in the United States have argued that the East Asian community concept is a framework to
exclude the United States from Asia and an attempt by China to lead regional integration. In Japan manyargue strongly that the presence of the United States is essential for the stability of East Asia and acommunity concept without the United Sates is simply laughable. Others argue that Japan is overly reliant on
the United States, and that the creation of regional communities such as the EU and NAFTA is the trend of
the times.
Certainly the United States has been an important market for East Asian countries, which havedepended on export-led economic growth. Even in the post-Cold War and post-post Cold War eras, theUnited States is the stabilizer of a security environment which continues to be uncertain and unpredictable.
As mentioned above, there is an argument to the effect that the Japan-US alliance should be further enhanced
rather than instituting security cooperation in the region. 36 The argument should not be a simple discussionof whether to exclude or include the United States. One should remember that Europe has the EU for its
regional economy and NATO for its security, the latter of which surely include the United States. Likewise,
the regional economy and security in East Asia should be considered in a flexible manner. East Asia requires
the presence and engagement of the United States. Simultaneously, the alliance network should not negate
functional cooperation in East Asia and in this respect also the United States would in certain areas be an
essential partner of East Asian functional cooperation. This approach from East Asia would help to keep theUnited States engaged in multilateralism in Asia despite its orientation towards unilateralism andisolationism.
At the same time, an East Asia community should be an open one. There are other regionalframeworks such as APEC and the ARF. Regional cooperation in East Asia should be linked to these Asia
Pacific institutions. In so doing it would be essential to revitalize these existing regional institutions. The
ARF has been in a stalemate, and should be rehabilitated so that it can be linked to East Asian efforts. This
would be the best way to link East Asia and the United States. An active linkage would benefit both. It is
incumbent upon the United States and East Asia to revitalize these existing institutions in exploring
functional cooperation.

In Concluding
East Asian linkages are still less institutionalized. Yet trans-boundary non-traditional security
issues introduced in this Chapter, from counter-terrorism, piracy, energy to environment demands the region
to work collectively for their individual and regional benefits. The region’s emerging connections have,
however, hardly displaced national interest and national identity if not nationalism. The region has lacked
motivations and incentives for ties across the region. National pull has overwhelmed regional pull. National
sentiments remain conspicuously strong. It appears that the achievement of a political and security
community in East Asia represents a more difficult goal than the achievement of an economic community. It
85

has been argued that the politico-security area is the Achilles heel of an East Asian community concept. 37 In
this there is a consensus among commentators, no matter what their position regarding East Asian
community building is.
However, for the peace, stability and prosperity of East Asia, proactive efforts should not belimited to economic regional integration or regional free trade areas, but should aim at an eventualcomprehensive community or partnership including political and security areas. ASEAN proposed a Security
Community of its own in October 2003 at the time of the ASEAN Summit. A road map for building asecurity community is being discussed, but the road has turned out to be rocky, as exemplified by the aborted
agreement for creating peacekeeping forces in ASEAN. Such efforts should not be limited to Southeast Asia.
Northeast Asia should also work on its own regionalism to balance East Asia perhaps as an extension of
Six-party talks on North Korean nuclear development to non-traditional security issues. Energy andenvironment cooperation introduced in this Chapter has attracted numerous proposals for sub-regional
cooperation in Northeast Asia. Security and economy are linked. Peace enhances economic growth andstability and vice versa. Instead of declaring an East Asian politico-security community impossible,
functional cooperation on non-traditional security issues should be given a chance. Meanwhile, we should
explore whether we can extend functional cooperation to community building, with the political objective ofcreating a community without war. This would produce by-products. The vision making would compel Japanand countries in East Asia to conceive their respective Asia policies. When the immediate Korean Peninsula
and Taiwan Strait issues are settled, an opportunity will emerge to create a collective security community inEast Asia. Functional cooperation can at least pave the ground for such discussion to take place when timecomes. Furthermore, multilateralism can sometimes ease bilateral frictions and tensions by offering venue
for bilateral contacts.
The achievement of a community without war can be a strong common vision for East Asia. Nonein the region can disagree to a vision of this sort. Despite many obstacles, it might be worth while to cerate
the backbone of an East Asian community by examining the limits and potential of political and security
cooperation in East Asia. Functional cooperation on non-traditional security threats introduced in this
Chapter can offer experiences for regional countries to harvest merits of working together.

1

Aaron Friedberg, “Ripe for Rivalry: Prospects for Peace in a Multipolar Asia,” International Security 18, 3
Winter 1993; 5-33.
2
Office of the Secretary of Defense, Annual Report to Congress: Military Power of the People’s Republic ofChina 2006, 1.
3
ASEAN Secretariat, “Joint Statement on East Asian Cooperation,” 28 November 1999,
http://www.aseansec.org/2051.htm.
4“Higashiajia Kyodotai ni Hantai [My Opposition to East Asian Community],” Asahi Shimbun, May 1,
2005.
5Naoki Tanaka, http://www.21ppi.org/japanese/hitokoto/tanaka215.html
6
Taro Yayama, “Chugoku no Higashiajia Kyodotai Sakubo ni noruna [Don’t Play Along with China’s
Schemes for East Asian Community],” Sankei Shimbun,December 22, 2005
7
Mineo Nakajima, “Higashiajia Kyodotai ha Genjituron nanoka?” Sankei Shimbun, August 1, 2005.
8
Toshio Watanabe, “Higashi ajia kyodotai ha seiritsu suruka [Can East Asia community be built?]” in Nihonno Higashi Ajia Senryaku [ Japan’s Policy towards East Asian Economic Integration, Toyo Keizai Shinposha,
2005, 207.
9Ibid., 218
10Noboru Hatakeyama, “Higashiajia Kyodotai no Genso wo Suteyo [Give up the Fantasy of East Asian
Community],” Chuokoron, September 2005, 154-161.
11
Hitoshi Tanaka, “21seiki Nihongaiko no Senryakuteki Kadai [Strategic Issues for 21st Century Japanese
Diplomacy],” Gaiko Forum, No.207, (October 2005), 8-13.
12
Makoto Taniguchi, “Kikiteki Ajia Gaiko wo Ikani Tatenaosuka [How Will We Remake Asian86

Diplomacy?],” Chuo Koron,, 2006 April, 314.
13
Yoshihide Soeya, “Higashi Ajia Kyodotai Tenbo to Kadai: Kyuukyoku wa Anzen Hosho Kyodotai [EastAsian Community: Problems and Prospects – A Security Community is the Ultimate Goal],” Nihon Keizai
Shimbun,, November 28, 2005.
14
Takashi Shiraishi, “ASEAN Jiku ni Tenkai [Evolution of East Asian Community around ASEAN],”
Yomiuri Shimbun, September 4, 2005.
15
Denis C.Blair and John T.Hanley Jr., “From Wheels to Webs: Reconstructing Asia-Pacific Security
Arrangements,” The Washington Quarterly, vol.24, no.1, Winter 2001.
16
Karl W. Deutcsh, Sidney A.Burrell, Robert A.Kann, Maurice Lee, Jr., Martin Lichteman, Raymond
E.Lindgren, Francis L.Loewenheim, Richard W.Van Wagenen, Political Community and the North Atlantic
Area: International Organization in the Light of Historical Experience, Princeton: Princeton University
Press, 1957,
17
Prior to 1999 the data on dialogues was compiled initially by the University of Toronto and subsequently
by the University of British Columbia.
18Japan Center for International Exchange, Dialogue and Research Monitor: Towards Community Buildingin East Asia, Vol 3 July-December 2004, iv.
19“Database on the Functional Cooperation Progressing in the ASEAN+3 and Other Regional Frameworks
in East Asia,” compiled by Government of Japan in June 2005 shows 48 regional frameworks by ASEAN+3
for functional cooperation.
20
ASEAN Secretariat, http://www.aseansec.org/5620.htm
21
APEC secretariat, 2001 APEC Economic Leaders’ Declaration: Meeting New Challenges in the New
Century, Shanghai, China, 21 October 2001, http://www.apecsec.org.sg/apec/leaders_declarations/2001.html
22
APEC secretariat, 2002 APEC Leaders’ Statement on Fighting Terrorism and Promoting Growth, Los
Cabos, Mexico, 26 October 2002,
http://www.apec.org/leaders_declarations/2002/statement_on_fighting.html
23
APEC secretariat, APEC Leaders Issue Counter-Terrorism Statements,
http://www.apec.org/apec/news_media/2002_media_releases/261002_mex_leader
24
APEC secretariat, APEC Economic Leaders’ Meeting Bangkok Declaration on Partnership for the Future,
Bangkok, Thailand, 21 October 2003, http://www.apecsec.org.sg/apec/leaders_declarations/2003.html
25
APEC secretariat, APEC Economic Leaders’ Meeting Busan Declaration, Busan, Korea, 18-19 November
2005, http://www.apecsec.org.sg/apec/leaders_declarations/2005.html
26
ASEAN secretariat, ARF Statement on Measures Against Terrorist Financing, Bandar Seri Begawan, 30
July 2002, http://www.aseansec.org/12004.htm
27
ASEAN secretariat, ASEAN Regional Forum Statement on Strengthening Transport Security Against
International Terrorism, Jakarta, 2 July 2004, http://www.aseansec.org/16250.htm
28
Sam Bateman, Catherine Zara Raymond and Joshua Ho, “Safety and Security in the Malacca andSingapore Straits: An Agenda for Action,” Institute of Defence and Strategic Studies Policy Paper, May 2006,
8.
29
Yoshihiko Yamada, Umi no Terorizumu [Maritime Terrorism], PHP Shinsho, 2003, 158-163.
30
http://nagpf.org
31
East Asia Vision Group Report 2001, Towards an East Asian Community: Region of Peace, Prosperity andProgress Paragraph 73.,32
ibid., paragraph 74.
33
The White House, ”Fact Sheet: President Bush and the Asia-Pacific Partnership on Clean Development,”
http://www.whitehouse.gov/news/release/2005/07/20050727-11.html
34
The Council on East Asia Community(CEAC), Policy Report “The State of the Concept of East Asian
Community and Japan’s Strategic Response thereto,” August, 2005, 7
35
United States-Japan Security Consultative Committee Document, “Joint Statement,” May 1, 2006.
http://www.mofa.go.jp/region/n-america/us/security/scc/joint0605.html
36
Toshio Watanabe, “Higashi ajia kyodotai ha seiritsu suruka [Can East Asia community be built?]” in
Nihon no Higashi Ajia Senryaku [ Japan’s Policy towards East Asian Economic Integration, Toyo Keizai
Shinposha,218
37
Masahiro Kohara, Higashi Ajia Kyodotai [The East Asian Community], Nihon Keizai Shinbunsha, 2005,
248

87

5.

Diversifying Cultures and the Concept of an East Asian Community

Prof. AOKI Tamotsu
Professor
Waseda Univesity
Discussion of a possible East Asian Community must proceed on the basis of an understanding
and appreciation of the region’s rich variety of cultures. What can we do to foster a sense of community
among the countries of East Asia, characterized as they are by great linguistic, ethnic, and religious
diversity?

Introduction
The Status of Culture within an East Asian Community
It is not easy to discuss “culture” of “East Asia” area, comprising Japan, China, South Korea, andSoutheast Asian countries. “East Asia” as conceived in international politics since the 1980s has beenvariously defined and does not necessarily correspond to an unified zone of culture. As it can be seen aroundthe world, realms of culture do not always align neatly with political boundaries, and trying to match themup can result in friction and backlash in the political realm. The discussion of possible formation of an "EastAsian Community" often proceeds without adequate consideration of culture but tends to be based on
considerations in the political and economic realm in general. For the purpose of this paper, referring to East
Asia as encompassing Japan, the Korean peninsula, China, and Southeast Asia (as far west as Myanmar), I
will look at the diversity of cultures and value systems that is the key to forging a sense of community in thisregion.
Open to Diverse Influences
One wonders whether any other region of the world has been as open to outside influences as East
Asia, which has absorbed and assimilated incoming cultures from every direction over the millennia. The
cultural center of East Asia in the narrow sense (i.e. Japan, China, and South Korea; hereafter referred to as"Northeast Asia") was undisputedly China, with its civilization formed in antiquity and with its
Confucian-based traditions that spread widely throughout the region. Yet China, like all civilizations, wasitself a composite of countless cultural influences from both East and West—as evident in its long history ofinteraction with the West via the Silk Road and also with the North and South. Historically Chinese culture
has been mainly constituted by Han people and Han culture. It yielded, however, for example, to conquestfrom central Asia by the Mongolians, who established the Yuan dynasty, and to domination by the Qing
dynasty, which brought with it a flood of cultural influences from Manchuria to the north. Thus the great
civilization and the great empire of China were very much hybrid. Southeast Asia, too, has a long history ofcultural contact, standing as it does between the two continental civilizations of India and China as well as
absorbing Middle East culture and Muslim culture along the shipping route known as the "ocean Silk Road."
The diversity of East Asian cultures is above all a product of the region's status as a crossroad between
varied influences carried not only over land across Eurasia but also by sea through the Indian Ocean and thePacific.
In more modern times, of course, came colonialism and with it the influx of Western culture.
Western influences penetrated deeply even in areas like Japan, Thailand, and China that were not directlycolonized by Europeans. Since the 19 th century, the extent to which the region has absorbed Western culture88remains striking, the pressures to modernize notwithstanding. That receptiveness has been equally evident in
the rapid assimilation of American culture that began after World War II. The countries of East Asia, both
historically as well as today, can be said to share openness toward other cultures from not only within theregion but far beyond its horizons.

Linguistic, Ethnic, and Religious Differences
The diversity of the cultures of East Asia, as stated above, remains much more striking than theircommonalities. Let me look at the mosaic of languages, peoples, and religions that covers this vast area andits implications for the creation of a sense of community there.
The World of Diverse Languages
The diversity of East Asia is above all evident in language. Historian Miyazaki Ichisada once
attempted to classify cultures based on their writing systems, analyzing the spread of right-to-left versus
left-to-right writing systems mainly as it occurred in West Asia (see his Tozai kosho shi ron [A History of
East-West Interaction], Chuo Koron Sha, 1998). He explained that left-to-right writing systems spread from
Europe through Greece, Persia, and India, extending all the way to Indochina. Writing from right to leftbegan in Egypt and traveled from Syria to Mesopotamia and Persia—both areas where a combination ofright-to-left and left-to-right systems were used—and eventually across Central Asia to the Chinese border.
Finally, the conquest of West Asia by Islam and the resulting adoption of right-to-left Arabic writing systems"had the effect of splitting the left-to-right group into two parts, the first stretching west of Greece and theother, east of India." Looking at the languages used today in East Asia, we find that Chinese characters are
written vertically, as is Japanese, with its combination of Chinese ideograms and katakana and hiragana
phonetic scripts. Korean Hangul, Thai, Burmese, and Cambodian, meanwhile, are written horizontally.
Vietnamese, Malay, Indonesian, and Tagalog use the Latin alphabet and are therefore also writtenhorizontally. All the abovementioned horizontal writing systems are read left to right, as are Chinese andJapanese when written horizontally. Japanese was once sometimes read right to left even in horizontal form,
much like Arabic. Miyazaki believes that Arabic played an influential role in West Asia in spreading thepractice of horizontal writing going from right to left. While none of the main (i.e., official or semi-official)languages of East Asia use Arabic orthography, we cannot overlook the fact that it is the language of Islam(e.g., the language in the Koran and the language used by their God), the religion that has more followers inthis region than in anywhere else.
In short, while many of the languages of the proposed East Asian Community are written left toright, vertical writing systems take precedence in Northeast Asia and horizontal writing is the norm inSoutheast Asia. Within Northeast Asia, Korea's Hangul is written horizontally, and Chinese and Japanese
may be written either horizontally or vertically.
Thus unlike the languages of the European Union, which share certain basic traits, the countries ofEast Asia differ greatly even in terms of their writing systems alone. There is the considerable regionalvariation of Chinese, with its numerous dialects; although they employ a common writing system, thevernaculars spoken within China's boundaries can be as different as foreign languages. The EU has a policyof using all member state languages in discussions and providing translations in every language for all
meeting records, but this would be extremely difficult, while not impossible, as far as an East Asian
Community is concerned. None of the major languages of East Asia, whether Chinese (spoken by 1.3 billion
people), Indonesian (roughly 200 million), Japanese (130 million), Korean (roughly 90 million in North andSouth Korea combined), or Vietnamese (roughly 80 million), seem suited to serve as an official language for89the entire region. Neither Chinese (Mandarin) nor any other language mentioned above qualifies as aninternational language, when judging by the standard of whether or not it is taught as a required foreign
language in secondary and higher education in the region as a whole.
Establishing methods of communication is one of the most basic hurdles to forming aninternational or regional association. Unfortunately, however, none of the languages used in East Asia
possesses sufficient international status to clear this hurdle. In creating an East Asian Community, the most
realistic option—at least as of the present, if not the future—will probably be to adopt English as an official
language, as in the case of the Association of Southeast Asian Nations (ASEAN). However, in my view, as in
the case of the EU, designating all member state languages in East Asia as the official languages seems to be
the best way for the future. Naturally not to be overlooked are the nearly countless minority languages being
used, from the Turkic languages of the Xingiang Uygur Autonomous District in China to the numerous
unwritten languages spoken across Indonesia, Malaysia, the Philippines, Thailand, and Myanmar. Whateverdifficulties might come along, the community building in East Asia could not be accomplished if we are notprepared to adopt all member state languages as the official language of an East Asian Community.
Ethnicity
The diversity of ethnic groups in East Asia is as great as that of its languages. The most populous
ethnic groups largely coincide with those for the languages given above. All the countries in the region are
multiethnic in makeup, Japan included, but China, Indonesia, Malaysia, the Philippines, Thailand, andMyanmar have a particularly large number of ethnic groups, sometimes resulting in considerable social
friction. In most cases ethnic differences mean differences in language. Every country has majority andminority groups, but often the situation is complicated by the fact that a single ethnic group may straddle
national boundaries. People do not always travel across international borders voluntarily, for example forbusiness, pleasure, or study; some are refugees from political or economic hardship, others minorities fleeing
persecution.
Chinese of Han ancestry are by far the most populous ethnic group in East Asia, followed by
Japanese, Koreans, Vietnamese, and Thai. Indonesia's population, although second only to China's, is a
mixture of Javanese, Balinese, and numerous other ethnic groups. Only in Japan, China, the Korean
peninsula, Vietnam, and Cambodia does a single ethnic group occupy over 80 percent of the population. The
other countries of this region are highly multiethnic, with the possible exception of Thailand, where ethnic
Thai make up just over half of the total population. Ethnic diversity is thus another dimension that
distinguishes Southeast Asia from Northeast Asia.
ReligionIn this region so open to and accepting of outside influences, all the major religions of the world
are represented. Chinese Confucianism and Taoism, especially influential on the Korean peninsula and inJapan, Vietnam, and Singapore, can be found throughout the region thanks to the widespread settlement of
ethnic Chinese. Buddhism, originally from India, is prevalent in Korea, Japan, Thailand, Myanmar, Laos,and Cambodia. Hinduism can be found not only in Malaysia, Singapore, and other areas with significant
Indian populations, but wherever ethnic Indians reside. The majority of the people of Bali, located in mostly
Islamic Indonesia, are Hindu. Islam is the main religion in Indonesia, Malaysia, Brunei, and several otherareas in East Asia, which, as already mentioned, is home to the world's largest Islamic population. A little
less than 100 million Muslims reside in China's Xingiang Uygur Autonomous District alone. Muslims live innearly every part of East Asia, including Japan, which is host to immigrant labor from such Islamic countries90

as Iran and Pakistan. Christianity, the chief religion of the Philippines, is also prevalent in such places as
Hong Kong, Singapore, and South Korea, and has followings in Japan as well as almost everywhere else in
the region. While perhaps not significant in terms of numbers, it still wields considerable influence due to its
association with Western culture. Finally, Judaism is practiced by immigrant settlers in Shanghai and theformer Manchuria, among other places.
East Asia is thus home to all five great religions of the world. Beneath the surface of these
institutionalized world religions, moreover, are numerous regional folk beliefs growing out of indigenous
local cultures. Folk beliefs, like China's dragon worship and fengshui geomancy, Korea's shamanism, andThailand's phi 1 and Myanmar's nats 2 beliefs, are to be found all over East Asia. Japanese Shinto also falls
into this category, the difference being that it alone is an institutionalized religion with a status equivalent to
Buddhism. Shinto nevertheless stems from the same animism that is characteristic of other indigenous
beliefs in the region.
As this overview of the region's languages, ethnic groups, and religions clearly shows, theoverarching cultural trait of the proposed East Asian Community is its intricately intertwined diversity. Eachthread exists never by itself but strictly in relation to others, giving testimony to the openness of East Asian
cultures to influences from beyond their own borders. However, it is noted that the world-wide religion has
the character of a state religion closely linked to the states in the region. In the case of Buddhism, there aredifferent characteristics of Buddhism in Myanmar and Buddhism in Thailand, similarly Muslim in Indonesia
differs from Muslim in Malaysia. Buddhism in Japan differs considerably from it in South Korea.
Three Layers of Culture
While diversity is thus the defining trait of East Asia, the cultures of the region do have one thingin common: they are all hybrids. Since antiquity, efforts by societies in this region to forge their own
traditions while also being exposed to countless outside influences have given birth to unique cultures, eachbelonging to that community alone. Even Chinese civilization is a composite of various regional cultures, as
is evident not only in its language but also in the richness of its lifestyles, arts, and cuisines. The powerful
influence of China did not prevent Korea and Japan from creating their own cultures. Indonesia and Malaysia,
too, maintained their distinctiveness despite influences from India and, via ocean routes, from Islam; and thesame can also be said for continental Southeast Asia, sandwiched between the two civilizations of China andIndia. Modern Western culture has obviously been yet another major influence in East Asia, while local
indigenous traditions of the kind described above in the section on religion also continue to prevail. The
present-day cultures of East Asia can thus be generally described as consisting of three layers: (1) indigenous
local traditions, (2) traditions introduced from the great Asian civilizations, and (3) Western culture from
Europe and the United States.
Societies displaying this three-layered character are to be encountered everywhere in East Asia. In
Japan, for example, the Jomon culture and Shinto, among others, represent our basic and most ancient
heritage. This is overlaid with our own traditions of Confucianism, Taoism, and Buddhism developed out ofinteraction with continental Asian civilizations, finally followed by influences from Western culture
including modern science, technology, and thought. What is most remarkable about these three layers is the1

Spirits, ghosts, phantoms, and any other kinds of presence that can be felt spiritually but not physically. Although originallya form of native animism, phi worship has intertwined itself with Thai Buddhism to the point of becoming utterly inseparable.
2

Also nat, supernatural spirits and tutelary deities similar to phi in Thailand. There are thirty-seven recognized nats,including tree spirits, local deities, village guardians, and hero gods.

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way they mix and mingle within present-day Japanese culture. Although quite heterogeneous elements in andof themselves, thy complement rather than conflict with each other, giving shape to Japan as it is today. Far
from merely absorbing all outside influences as they come, Japan has been selective about what it accepts,
picking out aspects that seem meaningful and, once taking them in, turning every one of them—regardless of
their different origins—into indispensable components of its hybrid culture. In Thailand, to give anotherexample, the foundation layer consists of the indigenous culture of the kind seen in phi worship, which is inturn overlaid by influences from the two great Asian civilizations of India and China. Among these
influences are Hinduism and Brahmanism, traces of which remain most strongly today in court ritual andfolk belief; Buddhism, considered the state religion; Confucianism and Taoism, which is found mostly
among ethnic Chinese but has also penetrated society as a whole, as evidenced by the surprisingly large
number of Taoist deities enshrined in Buddhist temples; and various aspects of daily life culture, for example,
cooking. Finally on top of all these elements comes modern Western culture.
This pattern of hybridization is to be seen everywhere throughout East Asia. The differences in thedetails of the process actually traced by each community account for the variations in their respective
present-day cultures, giving rise to tremendous diversity and making cultures immediately identifiable asJapanese, Thai, or Korean, for example. While it is certainly possible to speak of historically traditional
cultures, there seem to be no purebred ones. Every East Asian culture as it exists today is a product of eachsociety’s efforts to derive its own unique culture out of the ever-continuing processes of hybridization andcultural change. This quality is what both unites and distinguishes these cultures all at the same time.
Globalization and Cultural Exchange
Rapid economic development in East Asia since the late 1980s has resulted in the rise of what may
perhaps be termed an urban middle class in many of its major cities. This stratum, which in Japan first
appeared in the late 1960s, has since then become the dominant social stratum in that country. It now seems,
however, that a middle class composed mostly of salaried workers—what I have elsewhere called Japan’s"middle class society"—is beginning to take shape to varying degrees in other East Asian societies as well.
After first emerging in South Korea, Taiwan, Hong Kong, and Singapore, it has appeared in other cities suchas Bangkok, Jakarta, and Kuala Lumpur since the 1990s, albeit to a somewhat lesser degree. The influence ofits members on their societies has only strengthened following the economic crisis of the late 1990s. Chinese
urban centers such as Shanghai and Beijing, too, are currently experiencing the rise of a similar segment ofsociety.
The urban middle class generally tend to be university-educated professionals in various areas
including business and civil service who are highly cosmopolitan and greatly concerned for the quality oflife both of themselves as individuals as well as of their families. Eager for education but not particularlybound by tradition, religion, or narrow-minded nationalism, they prefer contemporary lifestyles. They givepriority to rational judgments, but tend to be self-centered in their concerns. Prototypically urban in taste,they shy away from the staid or old-fashioned. Culturally speaking, they tend to have broad interests and tobe keenly attuned to international trends. They are among the people most sensitive to the effects ofglobalization, and indeed their lifestyles and activities are largely what provide the driving force behind it.
Such structures as the Shanghai Opera House, the Esplanade concert hall and theater in Singapore,and the concert hall inside the Petronas Twin Towers in Malaysia would never have been built had it notbeen for this segment of society. The first full-fledged concert hall in Japan was built in the late l980s,
followed by the first real opera house in Tokyo in the late 1990s. Now, however, similar cultural facilities are
springing up in many other East Asian cities, providing venues for vigorous cultural exchange among the92

countries of the region. The Esplanade, for example, hosts everything from the London, NHK (Japan
Broadcasting Corporation), and Singapore symphony orchestras to Indonesian gamelan players and female
vocalists from Shanghai. The spread of the urban middle class has also spurred a convergence of cultural
tastes throughout East Asia, fostering similar lifestyles and tastes for representational culture and giving riseto international or region-wide trends.
The "Korean Wave" (K., Hallyu; J., Hanryu) is symbolic of this rise in shared cultural interests
across East Asia, as is the frequent invitation of (mostly classical) international musicians to the concert halls
mentioned above. International exchange or joint productions by singers, actors, directors, producers,
designers, and the like are today quite common in all areas of popular culture, including music; television,
film, anime, manga, computer games, and fashion. Not only do such phenomena bear the seeds of an
emerging pan-East Asian culture, but they also indicate the emergence of the kinds of creators and audiences
necessary in bringing such seeds to flower. Notably, international exchange is also growing in the areas ofhigher education and academic research, leading to such effects as increases in the number of students
studying abroad, greater interaction among researchers, and more partnerships between universities andresearch institutions of different countries.
The degrees to which people participate in the above stated social and cultural phenomena vary
according to place, of course, and naturally not everything is proceeding in exactly the same way in all partsof eastern Asia. Nor does everything actually need to be the same; after all, regional differences are the norm
even within a single country, for example between urban versus outlying areas in Japan. The urban middle
class of Yangon differs vastly from that of, say, Bangkok. Yet when I traveled to Yangon in January 2004 toinvestigate Myanmar cultural policy, I was surprised at how much in common the tastes of university
students and other youth in the city (e.g., as regards pop music, film, television dramas, anime, and manga)
have with those of young people in Bangkok or Tokyo. The budding spread there of people with mindsets
similar to the rest of Asia made me feel that the day might not be so far off when Yangon might become
culturally quite like Tokyo, Shanghai, or Bangkok. Hanoi and Phnom Penh give one the exact same feeling.
Responses to globalization vary from one country to another, and some places will always be more
traditionally oriented than others; in Myanmar, for example, state policy requires citizens to wear traditional
dress (called longyi), so that T-shirts and jeans are never seen even on university students. Still, there is no
doubt that cultures are, in a broad sense, converging all across eastern Asia.
Indeed, such cultural mixing and globalizing as well as the widespread sharing of cultural interests
made possible through information technology seem now to be inspiring the emergence of what may perhaps
be termed pan-East Asian qualities in the representational cultures of Korea, China (Hong Kong), Taiwan,
and Japan, among others—a phenomenon that, coupled with the emergence of a social class willing tosupport such trends and the rapid flow of cultural influences across borders, may have succeeded for the firsttime in laying down the beginnings of what could one day become the cultural foundations of an East Asian
Community. Fostering these beginnings into a fully developed East Asian identity will require unceasing
cultural interaction and efforts to promote deeper mutual understanding as well as cooperation on the part ofpotential member nations in stimulating the mutual growth of their diverse but connected cultures. With suchdue respect for “the cultural diversity”, we are about to lay down the first step to achieve a mutual awarenessin an East Asian Community by creating common “East Asia culture” and promoting mutual understanding
through cultural interaction. The further development of these actions would pave the way for East Asia to
become one community in the future.
(The preliminary updated text of the essay by Prof. AOKI Tamotsu, which originally appeared in the winter 2006
issue of the English edition of “GAIKO FORUM”.)

93

6.

East Asian Community and the United States: U.S. View--One Step Forward, Two Steps Back?

Mr. Ralph COSSA
President
The Pacific Forum CSISIn the past 12 months, there has been a great deal of movement surrounding the effort toestablish an East Asia community. I hasten to add, however, that “movement” does not necessarily oralways mean progress. Not all the movement has been in the forward direction. Some has been
sideways, some even backwards. While it would be unkind to describe the process as “one step
forward, two steps back,” there certainly has not been any “great leap forward” either.
The one step forward was the convening of the inaugural East Asia Summit (EAS) in Kuala
Lumpur in December 2005 and the efforts since then to develop the principles and modalities that willdefine the future role and mission of this new multilateral gathering. But, as continued disputes andconfusion over its composition, direction, and relationship to both broader and more selective existingmechanisms reveal, East Asia community-building still has a long way to go. It is also clear to thisauthor that the EAS will not provide the foundation of an East Asia community, but rather is more
likely to serve as a broader-based endorsement or validation mechanism for a companion East
Asian-only effort. In this respect, the EAS may prove to be one step backwards rather than toward theestablishment of an East Asian community.
Meanwhile, it remains difficult to discuss U.S. attitudes toward East Asia regionalism or thedevelopment of an East Asian community since an East Asian community has yet to really be
defined—much less credibly emerge. Generally speaking, the United States has been an active partner
in many of the institution-building and/or community-building efforts that have emerged in East Asia
during the post-Cold War era, including the two preeminent Asia-Pacific multilateral organizations, theAsia Pacific Economic Cooperation (APEC) “gathering of economies” which includes (at U.S.
instigation) an annual “Leaders Meeting,” and the security-oriented, ministerial-level ASEAN
Regional Forum (ARF).
In recent years (unlike the early 1990s), Washington has been generally supportive of—or atleast not actively opposed to—even those multilateral organizations in which it was not a member,such as ASEAN Plus Three (A+3), which is comprised of the ten ASEAN countries (Brunei, Cambodia,
Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) plus China,
Japan, and the Republic of Korea. In fact, the Bush administration, despite its (sometimes-deserved)
reputation for unilateralism elsewhere, has been particularly supportive of East Asian and broader
Asia-Pacific multilateralism.
Bush administration attitudes may be changing, however. At a minimum, serious questions
are

now

being

raisedregardingthenature,intent,andfuturedirection

of

East

Asia

community-building in general and the EAS in particular, and about the motivation of some of its key
proponents. As noted at this gathering last year, one lingering question, at least from an American
perspective, is the extent of U.S. involvement in East Asia community-building; should Washington be
included as a member, or as an observer, or not at all, in this evolving East Asia community?
Arguments can be made both pro and con. How and why Washington is excluded could be as important94

as whether or not it is invited to participate.
When it comes to the EAS, it is not clear if Washington even desires a seat at thetable—getting President Bush to two Asian summits in any given year, especially if scheduled only a
few months apart, would be no mean feat, not to mention the problem of bringing President Bush into
direct contact with the leader of Myanmar, whose legitimacy Washington does not recognize.
Nonetheless, the Bush administration has made it clear that it is interested in learning more about thecomposition of the group, the criteria for membership, and most importantly (and still largely
undefined) its mission, objectives, and priorities.
To date, the Bush administration has not rejected some form of U.S. involvement in the EAS.
Last year, in the run-up to the inaugural EAS, I raised a number of questions regarding the nature andintent of the EAS and the broader East Asia community-building effort. In this paper, I will revive
those questions and provide answers where possible, while highlighting new and remaining questions
which still preclude determination of a definitive U.S. position.
Before looking at more recent events, it is helpful to remember how we got to where we aretoday. As a result, I will first review Washington’s evolving attitude toward multilateral cooperation
and regionalism in East Asia, to ascertain what kind of ultimate response one should expect from theUnited States regarding regional attempts to further develop an East Asian community—with orwithout Washington’s direct participation. I will provide an American perspective, not the American
perspective. This paper represents my personal views, while merely speculating about the evolving andfuture views of the U.S. government, which remains generally circumspect on the subject.
In the final analysis, much will depend on who leads the East Asian community. Will ASEAN
remain in the driver’s seat? If so, can 10 drivers steer a steady course? If not, who will emerge? As thereal economic giant in East Asia, one could argue that leadership should go to Japan. Ironically, a
decade ago, when others in the region seemed prepared to accept Japan as the so-called “lead goose,”Japan was hesitant to assume this role. Today, Tokyo seems more willing to take a leadership role (thisremains debatable). However, “history” issues, many self-inflicted, have made it difficult for Japan toemerge from the shadow of its own past, even as it seems to be entering into the shadow of theregion’s emerging new giant, China. Will China be the presumptive or de facto leader of this new East
Asia Community? If so, will that leadership be benign or will it be aimed—or be perceived by the U.S.
as being aimed—at limiting or replacing Washington’s (and Tokyo’s) influence in the region
It is also important at the onset to put East Asia regionalism into context. No one seems to bepromoting or anticipating a European Union-type arrangement. Attempts by Indonesia over the past
few years to bind ASEAN more closely together, through the establishment of an ASEAN Community(comprised of an ASEAN Security Community, an ASEAN Economic Community, and an ASEAN
Socio-Cultural Community) have shown just how difficult it is to get these nations—some of whichhave been closely aligned for over 30 years—to think and act as one, especially in the security arena.
Developing a lowest common denominator for security cooperation among these ten diverse nations isdifficult enough; imagine adding China and Japan to the mix (much less one or both Koreas). If
current established multilateral community-building mechanisms, such as the ASEAN, A+3, the ARF,
and APEC are any indication of the willingness of East Asian nations (regardless of how the term isdefined) to seriously address issues of regional governance (and the “interference in one another’sinternal affairs” that true regional governance requires), one should not expect much progress soon.
Most importantly, from a U.S. perspective, will be how an East Asian community relates tothe region’s other multilateral organizations and initiatives—both institutionalize (like the ARF and95

APEC) and ad hoc (like the Six-Party Talks and the Proliferation Security Initiative). Its relationshipto the ARF and APEC in particular will be part of what Assistant Secretary of State Christopher Hill
has referred to as the “Pan-Asianism vs. Pan-Pacificism” debate. Another key factor affecting
Washington’s attitude will be the willingness (or lack thereof) of emerging East Asia mechanisms to
adopt global norms, especially in the areas of counter-terrorism and counter-proliferation and thepromotion of free and open markets. Will the new East Asia community reinforce existing multilateralefforts to accomplish these goals or dilute them? Will it help the states of the region to more
effectively address growing transnational challenges . . . or provide another excuse for avoiding such
efforts? These questions and some preliminary answers will be explored in this paper.

Background
During the Cold War and immediate post-Cold War era, Washington’s leaders (and most otherregional policy-makers) viewed the idea of institutionalized East Asia multilateral security cooperation
with a great deal of apprehension and suspicion. In 1991, when then-Japanese Foreign Minister
Nakayama suggested at an ASEAN Post-Ministerial Conference (PMC) gathering that a forum beestablished to discuss regional security issues, his remarks were not well-received. The U.S., under
President George H.W. Bush, was particularly cool to such an idea. More comfortable with aone-on-one approach to security issues in Asia, U.S. officials at the time were hesitant to embrace
multilateral approaches to addressing security concerns.
As the Cold War faded into history, however, there has been a decided shift in regional
attitudes toward, and U.S. support for, multinational security initiatives in Asia. On the U.S. side, thefirst clear signal of this shift came in 1993 when then-Assistant Secretary of State for East Asian andPacific Affairs Winston Lord identified “a commitment to enhanced multilateral security dialogue” asone of the incoming Clinton Administration's ten priority policy goals for Asia.
Of equal importance, voices were concurrently being raised within ASEAN calling for the
introduction of security-related issues into PMC deliberations. One significant example occurred at the
1992 ASEAN PMC in Manila when a joint statement was issued calling for the peaceful settlement ofterritorial disputes involving the Spratly Islands (claimed in whole by China and Taiwan and in part by
Brunei, Malaysia, the Philippines, and Vietnam). While ASEAN had been in existence since 1967, it
had historically been reluctant to delve into security matters, even amongst its own members, muchless with its external dialogue partners.
Regional non-governmental organizations (NGOs) were also calling for greater multilateral
security dialogue both at the official and NGO level. In 1991-92, the Honolulu-based Pacific Forum
CSIS joined forces with the Seoul Forum for International Affairs, the Japan Institute for International
Affairs, and ASEAN ISIS—a loose coalition of Southeast Asian institutes focusing on Asian security
and international studies—to promote formalized track-two (non-governmental) and official security
dialogue. Their leadership led to the establishment in late 1992/1993 of the Council for Security
Cooperation in the Asia Pacific (CSCAP), an NGO focused on multilateral security dialogue andregional confidence building. The CSCAP founding statement also strongly endorsed the creation of
official security dialogue mechanisms.
President Clinton added the icing to the cake in July 1993 when he firmly embraced theconcept of multilateral security dialogue in Asia, calling it one of the four pillars of his vision for a"new Pacific community." This change in attitude was solidified at the 1993 ASEAN PMC meeting
when the PMC dialogue partners met informally over lunch with representatives from China, Russia,
96Vietnam (which was not yet a member of ASEAN), and other PMC observers, to talk about security
matters. The group decided that they would reconvene the following year in the precedent-setting
ASEAN Regional Forum.
President Clinton also proposed and then in the fall of 1993 served as the first host of what
has now become an annual APEC Leaders’ Meeting. (APEC itself dates back to 1989.) While focusedon broader regional trade issues, this gathering of the region’s heads of state quickly took on apolitical and at least quasi-security role, just by its mere existence. This was then followed by the July
1994 inaugural meeting of the ARF in Bangkok, which again provided a clear signal that attitudes
regarding multilateral security dialogue were changing, both in the United States and throughout Asia.
While instituted during the Clinton era, both the ARF and the APEC Leaders Meeting havethus far enjoyed strong support from the current U.S. administration as well, witness President George
W. Bush’s willingness to attend the October 2001 Shanghai APEC meeting in the immediate wake of
September 11 th and the presence of Secretary of State Colin Powell at all four ARF meetings held
during his tenure in office (something neither of his predecessors could claim).
While Secretary of State Condoleezza Rice (deservedly) received widespread criticism formissing her first ARF meeting in July 2005—she was ably represented by her Asia-oriented deputy,
Robert Zoellick—Washington has reaffirmed its commitment to the ARF several times since then andhas sent strong assurances that Dr. Rice will be at the 2006 meeting in Malaysia.
The Bush administration’s early support for East Asian multilateralism was reinforced in the
White House’s September 2002 National Security Strategy for the United States of America (NSS)
which expressed the conviction that “multilateral institutions can multiply the strength of
freedom-loving nations” and further stated that the U.S. would build upon the stability provided byinstitutions such as ASEAN and APEC “to develop a mix of regional and bilateral strategies to managechange in this dynamic region.”
This was reinforced in the 2006 NSS. Consistent with its theme of promoting freedom anddemocracy, it noted that existing institutions like the ARF and APEC can play a “vital role” when it
comes to “the spread of freedom, prosperity, and regional security.” It also noted that “newarrangements, such as the U.S.-ASEAN Enhanced Partnership, or others that are focused on
problem-solving and action, like the Six-Party Talks and the PSI [Proliferation Security Initiative], canlikewise bring together Asian nations to address common challenges.”
In short, the Bush administration has renewed and reinvigorated U.S. interest in the ARF and
APEC and, against some initial regional resistance and criticism, insisted on a multilateral approach,under the Six-Party Talks, for dealing with the North Korean nuclear problem. On a somewhat more
contentious note, it has also placed a great deal of importance on “ad hoc multilateralism”—the PSI,
for example, serves as a primary vehicle in the U.S.-led global effort to counter the proliferation of
weapons of mass destruction. How such “coalitions of the willing” will interact with standing
multilateral mechanisms, or for that matter with Washington’s traditional bilateral alliances, has yet tobe fully determined, however.

Pro-Multilateralism, with Caveats
As a general rule, Washington has historically viewed Asia Pacific multilateral organizations
as useful vehicles both for promoting greater political and economic cooperation and for enhancing
regional security. This support for multilateral institutions—in the Asia Pacific and globally—has one
important caveat, however: No U.S. administration, be it Republican or Democrat, is likely to allow
97

such institutions to be seen as substitutes for or as threats to U.S. bilateral alliances and other security
arrangements.
This was clearly spelled out in the 2006 NSS: “Asian nations that share our values can join us
in partnership to strengthen new democracies and promote democratic reforms throughout the region.
This institutional framework, however, must be built upon a foundation of sound bilateral relations
with key states in the region.” Like the Clinton administration before it, the Bush administration does
not see bilateral and multilateral efforts as being in tension; rather, they complement one another. As ageneral rule, East Asian multilateral organizations are seen as useful tools in pursuing U.S. national
security objectives.
During its first term in office, the George W. Bush administration was also cautiously
supportive of multilateral organizations, such as ASEAN Plus Three and the Shanghai Cooperation
Organization (SCO), which do not include the U.S. In its second term, however, the Bushadministration is starting to cast a more watchful eye, especially on those organizations establishedand/or dominated by China, to ensure that these do not represent efforts to diminish Washington’s (orTokyo’s) involvement or interests in the region.
This has been especially true since July 2005, when the Beijing (and Moscow)-driven SCO(which also involves four Central Asian states: Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan)called for the U.S. to set a date for the withdrawal of its forces from Central Asia during a summit
meeting in the Kazakhstan capital of Astana. The SCO proclamation called on the U.S. and its
coalition partners to “decide on the deadline for the use of the temporary infrastructure and for theirmilitary contingents’ presence” in Kyrgyzstan and Uzbekistan—at the time, the U.S. had roughly 1,000
troops each at airfields in Karshi-Khanabad in Uzbekistan and Manas in Kyrgyzstan—“as the active
military phase in the anti-terror operation in Afghanistan is nearing completion.”
By the end of that month, it became obvious that one of the hosts—Uzbekistan, which hadcome under increasing criticism from the U.S. and the international community in general for its harshrepression of protestors in Andijan in May—was not going to wait for the U.S. to set its own deadline;
on July 29, Uzbekistan gave Washington 180 days to vacate Karshi-Khanabad. While this no doubt
reflects Uzbek President Islam Karimov displeasure over Washington’s criticism of his dismal humanrights record, it is doubtful it could have occurred without Moscow and Beijing’s consent, if not active
encouragement and support. As a result, this action has raised serious questions about Beijing’s (andMoscow’s) motives, and resulted in a more watchful eye being cast on exclusionary East Asia
multilateralism.
While the U.S. is still not attempting to actively block or interfere with East Asia regionalism
efforts like the A+3 and SCO that exclude the U.S., it is closely monitoring their future direction andcarefully examining the motives of those who seek to guide them. Meanwhile, the Bush administration
continues to state its clear preference for “inclusive” Asia-Pacific regional efforts that include
Washington, despite some of the inherent perceived weaknesses.
A brief examination of Washington’s involvement in and attitude toward the region’s two
premier broader Asia-Pacific community-building organizations—the ARF and APEC—may lend someinsight into its view of East Asia regionalism in general.

The ARF: “Very, Very Useful” but Limited
The 25-member ARF brings together foreign ministers from the ten ASEAN states plus
Australia, Canada, China, the European Union, India, Japan, Mongolia, Papua New Guinea, Russia,
98South Korea, North Korea, New Zealand, and the United States, plus Pakistan (since 2004) and mostrecently (2005) Timor-Leste, for annual security-oriented discussions. It received broad support during
the first four years of the George W. Bush administration, being described by then-Secretary of State
Powell as “very, very useful” after his first ARF meeting.
As noted earlier, Secretary of State Condoleezza Rice missed her first opportunity toparticipate in the ARF when “scheduling conflicts” caused her to miss the July 2005 ministerial in
Vientiane. Laos; an omission that openly raised questions about Washington’s continued commitment
to East Asia regionalism and was deemed “unfortunate” by ASEAN leaders. However, the presence ofher deputy, Robert Zoellick (a highly respected old Asia hand) helped to assuage these concerns. At a
10+1 side meeting with ASEAN ministers, Zoellick helped to initiate a US-ASEAN Enhanced
Partnership proposal to deepen U.S. cooperation with the ten Southeast Asian nations on a broad range
of issues.
Various ARF study groups (called Inter-sessional Support Groups or ISGs) have provided avehicle for the U.S. to move the multilateral process along in areas important to Washington, such as
preventive diplomacy, enhanced confidence building, counter-proliferation, and maritime (including
searchandrescue)cooperation;

all

of

which

help

promotegreatertransparency

andmilitary-to-military cooperation. Most importantly, since Sept. 11, 2001, the ARF has helped focus
regional attention on, and has served as an important vehicle for practical cooperating in, fighting
terrorism.
At the ARF meeting in Jakarta in July 2004, the assembled ARF Ministers repeated annual
pledges to fight terrorism and the spread of weapons of mass destruction through ARF Statements on“Strengthening

Transport

Security

AgainstInternational

Terrorism”

anda“Statement

on

Non-Proliferation.” They also confirmed their intentions to further institutionalize the ARF process
through the establishment of “an ARF Unit” within the ASEAN Secretariat to serve as a de facto ARF
Secretariat, to assist “in carrying out the mandates outlined in the paper on the Enhanced Role of the
ARF Chair” and to support the Experts and Eminent Persons Group.
Annual counter-terrorism pledges were repeated at the 2005 ARF Meeting in Vientiane, Laos
in July 2005, with China and Brunei agreeing to host an Inter-sessional Meeting on Counter-Terrorism
and Transnational Crime. The big news coming out of Vientiane was the announcement that Myanmar
would skip its turn, after Malaysia, to chair ASEAN (and hence the ARF) in mid-2006, thus avoiding a
confrontation between ASEAN and Washington (among others), who had pledged to send only
low-level representatives to any ARF meeting hosted by Myanmar.
Generally speaking, the ARF seems well-suited to serve as the consolidating and validating
instrument behind many security initiatives proposed by governments and at non-official gatherings,
and has become a useful vehicle in the war on terrorism. But, from a U.S. perspective, its contribution
to the regional security order remains somewhat constrained.

For example, Taiwan has not been

permitted to participate and the PRC has insisted that "internal Chinese affairs" not be on the agenda,
effectively blocking ARF discussion of cross-Strait tensions despite their obvious broad regional
implications. The Chinese have even been reluctant to address conflicting claims in the South China
Sea at the ARF, insisting instead on separate talks with ASEAN or with the other claimants on an
individual basis.
Few expect the ARF to solve the region’s problems or even to move rapidly or pro-actively toundertake that mission. The agreement to "move at a pace comfortable to all participants" was aimed
at tempering the desire of more Western-oriented members for immediate results in favor of the99

"evolutionary" approach preferred by the ASEAN states, which all too often seems to see the process
as being as (or more) important as its eventual substantive products. The Asian preference for"noninterference in internal affairs" also has traditionally placed some important topics essentially off
limits, although this may be changing (witness ASEAN’s increased willingness to comment on
Myanmar’s domestic politics). Nonetheless, it seems safe to assume that the evolution of the ARF froma confidence building measures "talk shop" to a true preventive diplomacy mechanism (as called for inits 1995 Concept Paper) will be a long and difficult one.

APEC: Cautiously Testing the Security Waters
APEC is first and foremost a “gathering of regional economies”—it is not referred to as agathering of states or governments due to the presence in its ranks of Hong Kong and Taiwan. It
started out as an informal dialogue group, growing from an original 12 members (Australia, Brunei,
Canada, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore,
Thailand, and the United States) in 1989 to 15 in 1991 (with the addition of China., Hong Kong, and“Chinese Taipei”) to its current strength of 21, with the addition of Mexico and Papua New Guinea(1993), Chile (1994), Peru, Russia, and Vietnam (1997). Institutionalization began in February 1993,
when the APEC Secretariat was established in Singapore.
While primarily aimed at managing the effects of growing economic interdependence, APEC
has had an important political and security role as well, especially since the 1993 Seattle meeting
when President Clinton invited the APEC heads of state and government to the first of what have now
become regular annual Leaders’ Meetings designed to elevate the importance of this economic
gathering. The Leaders' Meetings have become an important vehicle for fostering political relations inaddition to raising the level of economic dialogue and putting pressure on the region's leaders (andespecially the host state) to move the process forward.
APEC’s Evolving Political/Security RoleThe political and even strategic significance of the Leaders’ Meetings was first underscoredin Auckland in 1999, a gathering that was significant more for what happened outside the APEC venue
than inside the meeting. Security issues dominated the side discussions and the talk in the corridors.
Not the least of these was the growing (and well-founded) concern over the deteriorating security
situation in East Timor. The Auckland meeting was fortuitous in that it provided an opportunity forregional leaders, including President Clinton and Australian Prime Minister John Howard, to work out
arrangements for the Australian-led multinational peacekeeping mission (INTERFET) that was
subsequently sent to East Timor. Obtaining on-the-spot Chinese approval of this effort, made possible
by Indonesia’s reluctant acceptance of the intervention, helped assure UN Security Council
authorization of the subsequent UN operation, the United Nations Transitional Authority in East Timor(UNTAET). (It should be noted that neither ASEAN nor the ARF were major players in the East Timor
crisis, demonstrating their limited utility as crisis response mechanisms.) This remains the case today,with Malaysia alone among ASEAN providing military assistance to Timor-Leste in response to recent
cries for help.
In similar fashion, APEC 2001 provided an important vehicle for President Bush to explain
Washington’s war on terrorism to his Asian colleagues and to garner their support. In addition to theusual annual APEC Leaders’ Declaration, the assembled leaders also issued an APEC Leaders’Statement on Counter-Terrorism—the first political document to be issued in APEC’s 13-year100history—which unequivocally condemned the September 11 attack and deemed it “imperative tostrengthen international cooperation at all levels in combating terrorism in a comprehensive manner.”
This was considered a real victory for President Bush and no doubt helped to increase APEC’s (or atleast the Leaders Meeting’s) relevance in his eyes.
The APEC Shanghai meeting also provided President Bush with his first opportunity to meet
directly with Chinese President Jiang Zemin, which helped to end the downward slide in Sino-U.S.
relations underway since Bush’s inauguration (and especially after the collision between a U.S.
reconnaissance plane and a Chinese jet fighter over the South China Sea in April 2001). The two
leaders were able to put the relationship back on track, aided by China’s willingness to cooperate in
the battle against terrorism.
Security matters continue to be discussed at the Leaders Meeting, not to mention at thenumerous side summits that normally accompany this gathering. For example, at the October 2003
APEC Leaders Meeting in Bangkok, the final communique referred to cooperation on combating
proliferation of weapons of mass destruction (WMD), while President Bush used the occasion, and hisside meetings with the leaders of South Korea, Japan, and China, to call on North Korea to abandon its
nuclear weapons aspirations, while repeating his offer to provide Pyongyang with written assurancesthat the U.S. does not intend to attack North Korea. Similar efforts took place at the 2004 APEC
Leaders Meeting in Santiago, Chile and at the November 2005 APEC meeting in Busan, Korea.
At the Busan Leader’s Meeting, the major focus was on a strong statement in support of thecritical World Trade Organization (WTO) Doha Development Agenda round slated to take place thefollowing month (with little success) in Hong Kong. In addition to other agreements on energy
cooperation, on a roadmap to assess progress on the Bogor Goals of trade liberalization, and on several
anti-terrorism measures, APEC leaders also agreed to establish the “APEC Initiative on Preparing for
and Mitigating an Influenza Pandemic.” (After the tsunami disaster in late 2004, government leaders
became more alert and responsive to the need for a collective approach to prepare for suchcross-border threats.)
President Bush met jointly with the six ASEAN members of APEC along the sidelines of the2005 APEC Leaders Meeting, in what constituted his first-ever U.S.-ASEAN Summit and which
resulted in a desire, by all concerned, for continued meetings. Discussions are now underway to makethis a regular event. The setting is particularly attractive to Washington since Myanmar is not amember of APEC.
As long as APEC provides a useful venue not only for the promotion of free trade but also forfighting the war on terrorism, we can expect that Washington will continue to be an active player.
However, as with the ARF, it will remain more suited to talking about security problems than toactually helping to implement solutions. In addition to the usual drawbacks associated with East Asian
multilateralism (as discussed below), APEC has the added “problem” of including Taiwan. Rather thanusing this venue as a vehicle for incorporating Taiwanese views and concerns into the regional security
debate in a “non-governmental” setting, Beijing has tried to block any substantive security-oriented
activities and to further isolate Taiwan from the dialogue process.

Multilateral Pluses and Minuses
In short, American policymakers generally believe that Asia-Pacific multilateral organizations
such as the ARF and APEC are useful vehicles both for promoting greater political and economic
cooperation and for enhancing regional security. While such organizations hold many promises for101

Asia, it is important to understand their limits, as well as the opportunities they present. A
comprehensive security arrangement or NATO-type alliance aimed at containing or responding to a
specified threat simply does not apply to a post-Cold War Asia. Rather, East Asia multilateral security
mechanisms should be viewed more as confidence building measures aimed at avoiding or dampening
the possibilities of (rather than reacting to) crises or aggression. Peacekeeping and disaster relief
operations and non-traditional security issues (such as refugee problems, maritime safety, pollution,and other environmental and safety issues) also seemed well-suited to a multilateral approach. In many
instances, the process is as important as the product.
Efforts that build upon and seek to complement, and not to replace, existing bilateral and ad
hoc relationships that already exist in Asia are of particular value from a U.S. perspective. Any effort
that is perceived at undermining U.S. bilateral dealings, and especially those that seek to diminish or
replace America s key bilateral security alliances, are sure to be rejected by Washington both today
and by any future administration.
More generally speaking, Asian multilateral security mechanisms can serve as importantvehicles for promoting long term peace and stability. They provide a framework for continued direct
U.S. involvement in regional security matters. They offer a means for Japan, China, and Russia, among
others, to become more actively involved in regional security affairs in a manner that is
non-threatening to their neighbors. They also provide a forum for exposing North Korea to regional
realities while facilitating bilateral dialogue between the North and South Korea, Japan, and the U.S.,
respectively. They also provide a mechanism for other regional actors to be heard, while contributing
to a sense of regional identity and a spirit of cooperation and confidence building. Since Sept. 11,
2001, they have also become increasingly relevant for coordinating regional views and efforts in thewar on terrorism.
Nonetheless, their utility remains limited, especially in the security arena, for two primaryreasons. First, while steps have been taken since the 9-11 terrorist attacks to put some operational
substance behind cooperative efforts, these organizations still largely remain dialogue mechanisms
which talk about – rather than respond to or deal effectively with—emerging security challenges. And
second, Taiwan has been systematically excluded from many of these mechanisms and one of theregion’s greatest security challenges—cross-Strait relations—has been purposefully kept off the
security dialogue agenda at Beijing’s insistence. As long as these characteristics prevail, the prospects
and promises of multilateral security cooperation in the Asia-Pacific region, at least from a U.S.
perspective, will necessarily be limited.

Ad Hoc Multilateralism: The PSI and Six-Party Talks
If Washington has only limited confidence in institutionalized multilateral mechanisms (likethe ARF, APEC, and the United Nations), it is developing a clear preference for ad hoc or tailoredmultilateralism aimed at a specific task or objective and comprised of a “coalition of the willing.” Themultinational force assembled for the war in Iraq provides one example, as does the aforementioned
Proliferation Security Initiative.
Proliferation Security Initiative
The PSI was first laid out in a speech by President Bush in May 2003 and formalized at a
11-nation meeting (involving Australia, France, Germany, Italy, Japan, the Netherlands, Poland,
Portugal, Spain, the UK, and the U.S.) in Madrid a month later. It is “a global initiative with global
102reach,” under which coalition members have agreed “to move quickly on direct, practical measures toimpede the trafficking in weapons of mass destruction (WMD), missiles, and related items.” As such,it is clearly “task-oriented.” It represents cooperation for a specific, clearly-defined purpose, as
opposed to dialogue for dialogue’s sake or in support of more generic objectives. In Sept. 2003, inParis, the 11 core participants agreed on a Statement of Interdiction Principles “to establish a morecoordinated and effective basis through which to impede and stop [WMD] shipments . . . consistent
with national legal authorities and relevant international law and frameworks, including the UN
Security Council.” Over 70 nations have expressed support for these principles.
Other major Asia-Pacific participants beyond the initial PSI core group include Canada, thePhilippines, Russia, and Singapore. Others, like China and South Korea, claim they support the PSI’s
objectives but have refrained from directly participating, in part due to North Korean objections. PSI
participants have conducted numerous air, ground, and (mostly) sea interdiction exercises to develop
and demonstrate its capability to prevent illicit trafficking in nuclear weapons and fissile material. In
October 2004, Japan for the first time hosted a PSI interdiction exercise in Tokyo Bay, involving ninenaval and coast guard ships from Australia, France, Japan, and the U.S., providing yet another example
just how deeply involved Tokyo has become in bilateral and multilateral security cooperation. The
most recent Asia-Pacific exercise was hosted by Australia.

Six-Party Talks
The best example of task-oriented ad hoc multilateral cooperation in Northeast Asia is the
Six-Party Talks, established by Washington to deal with the specific issue of denuclearization of the
Korean Peninsula. The talks were also intended, and served, to multilateralize what many initiallyviewed as a bilateral U.S.-DPRK problem.
The creation of the six-party process, in this author’s opinion, may represent one of the Bushadministration’s finest diplomatic hours. [Please note that I am addressing here the creation of themultilateral process, not its results to date.] This initiative draws from the lessons learned during thefirst North Korea nuclear crisis, where—despite close coordination and consultation—Washington was
widely perceived as unilaterally cutting a deal with Pyongyang before sticking Seoul and Tokyo withthe bill. While Pyongyang argued for bilateral consultations (and a separate U.S.-DPRK
non-aggression pact), Washington rightfully insisted this time that participation by Seoul and Tokyo
was “essential.” It also acknowledges the important role that China, and to a lesser extent Russia,
must play if multilateral security guarantees are to be part of the final solution (as most would agree
they are). Finally, the Bush administration recognized and tried to work around Pyongyang’s strategyof trying to play all sides against one another by presenting different, conflicting messages dependingon the audience.
All this is not to argue that the crisis could not have been handled better; it is to say that themultilateral approach represents the most logical avenue toward crafting a long-term solution that
achieves not only Washington’s immediate goal of stopping nuclear proliferation but also addresses theneeds and concerns of North Korea’s immediate neighbors. The concept calls for working level
discussions as well as plenary sessions, in order to dig more deeply into the problems associated with
the nuclear standoff and broader peninsula security issues and concerns. It also facilitates bilateral
discussions within the six-party framework, thus providing political cover for direct contact between
Washington and Pyongyang.
All of this presumes a resumption of the Talks and the eventual willingness of the DPRK to103

honor its commitment to bring about “the verifiable denuclearization of the Korean Peninsula in apeaceful manner,” as outlined in the Six-Party Talks Sept. 19, 2005 Joint Statement, the first mutuallyagreed product to result from two years of sporadic meetings in the six-party framework. The Joint
Statement represented the first real sign of tangible progress in identifying common principles andobjectives. It may yet provide a basis for future progress, if or when North Korea makes the “strategic
decision” to abandon its nuclear weapons programs and return to the negotiating table. Unfortunately,
events since that date suggest that this decision has not yet been made by Pyongyang.
The creation of the Six-Party Talks mechanism provides a framework for broader Northeast
Asia multilateral cooperation in the future. If the Talks eventually succeed, most parties agree that amore formalized mechanism must evolve in order to implement the agreement, provide necessary
security assurances, and monitor compliance, as well as facilitate whatever aid packages are associatedwith the final accord. If the Talks fail, some would argue that there will be an even greater need forsome form of institutionalized cooperation in order to manage the danger posed by a presumed (andself-confessed) nuclear weapons-equipped North Korea, if the other parties are prepared for this levelof cooperation. If and how the six-party mechanism transitions into a more institutionalized Northeast
Asia forum will help determine the degree of future security cooperation in this East Asia subregionand Washington’s involvement in it.

East Asia Summitry: Much Ado About Something?
While Washington focused on ad hoc initiatives and Asia-Pacific regionalism, the states ofEast Asia have continued their community-building efforts. As noted earlier, in December 2005,
Malaysia convened the first East Asia Summit. It should be noted that the EAS was not the only
summit taking place in Kuala Lumpur at that time. ASEAN leaders also met amongst themselves, with
their Plus Three partners, and in individual ASEAN Plus One meetings with their Australian, New
Zealand, and Indian counterparts. This was the second time that Canberra and Wellington and the thirdtime that New Delhi participated in this conclave. Russian President Vladimir Putin also appeared on
the ASEAN summit scene for the first time, conducting his first A+1 dialogue. He was also invited tomeet with, but not to officially join, the other 16 assembled leaders at the first annual so-called A+3+3
East Asia Summit.
Whither the EAS?
Was the inaugural East Asia Summit (EAS) “much ado about nothing,” as many critics are
already claiming, or “a historic event whose future impact is likely to be as significant as the first[1976] ASEAN summit,” as Barry Desker, head of Singapore’s influential Institute of Defence andStrategic Studies, argues? [PacNet 55B, Dec. 23, 2006,“Why the East Asian Summit Matters”] The
answer is: it’s too soon to say.
While it remains unclear just what the EAS will eventually become, an analysis of the firstmeeting makes it fairly clear what it will not be: it will not form the base of the much-heralded but
still dormant East Asia community. That role appears destined, in this author’s opinion, to remain withthe more exclusive ASEAN Plus Three gathering. It is also highly doubtful that it will, or wants to,pose a threat to U.S. interests.
The EAS host, Malaysian Prime Minister Abdullah Badawi, made it abundantly clear that theten ASEAN countries and their Plus Three partners constituted the core, noting that “You are talking
about a community of East Asians; I don’t know how the Australians could regard themselves as East
104

Asians, or the New Zealanders for that matter.” “We are not talking about members of the community,”
Badawi continued, even though Australia, New Zealand, and “our immediate neighbor” India have“commoninterests

in

what

is

happeningintheregion.”Thearchitects

of

East

Asia

community-building, he clearly inferred, would all be Asians, with the A+3 (vice EAS) participants
providing the base. While his comments indicated that India might one day be able to slip its nose into
the tent, Australia and New Zealand clearly would not. A+3 would drive he train (with ASEAN hoping
to remain the conductor). The EAS would provide a vehicle for outsiders to endorse thecommunity-building effort; it “could play a significant role,” but would not be an integral part of(much less drive) the process.
For his part, Australian Prime Minister John Howard, while noting that the EAS had“exceeded my expectations,” argued that APEC, rather than the EAS or A+3, should remain “thepremier body.” APEC, he noted, has the “great advantage” of including the United States. We would
note that it also includes Taiwan (a.k.a., Chinese Taipei)—another “great advantage”—but excludes
several of the lesser developed ASEAN states, including Myanmar (which from Washington’s
perspective may be yet another plus).
The EAS Chairman’s Statement underscored, twice, that ASEAN will be the “driving force”
behind East Asian community-building. The KL Declaration on the Summit declares that future
meetings “will be hosted and chaired by an ASEAN Member Country . . . and be held back-to-backwith the annual ASEAN Summit.” Beijing had suggested that it host the second round but ASEAN
remains as concerned about sharing driving privileges with its other community members as it does
allowing outsiders a greater say in the community-building process.
The Chairman’s Statement and KL Declaration both acknowledge that building an East Asia
Community is “a long term goal.” First priority will go toward building “a strong ASEAN Community
which will serve as a solid foundation for our common peace and prosperity.” This should makeIndonesia happy: Jakarta, which had previously put forth its own proposals for building an ASEAN
Community, had believed that pushing for the EAS was premature. Prime Minister Badawi had been
the primary proponent of the EAS, apparently catching Indonesian President Susilo Bambang
Yudhoyono (among others) by surprise when he pushed for the EAS at last year’s summit in Vientiane.
That was before Australia and New Zealand were added to the mix, which clearly curbed Badawi’s
enthusiasm.

Addressing Washington’s Concerns
At present, there is little cause for Washington to be concerned about the EAS. Participants
are quick to point out that the United States is welcome to join (even if this is a bit disingenuous, since
it realized Washington’s stance on the TAC when it made signing this treaty a precondition formembership). It is not clear that Washington even desired a seat at the EAS table—getting President
Bush to two Asian summits in four weeks would have been no mean feat. Nonetheless, Washington
continues to watch the EAS closely to see if certain members attempt to move this embryonicorganization in a direction that runs contrary to U.S. interests.
In an apparent attempt to address one of Washington’s potential concerns, the KL Declaration
noted that the EAS would be “an open, inclusive, transparent, and outward-looking forum in which we
strive to strengthen global norms and universally recognized values.” Washington’s membership would
still require it to accede to the ASEAN Treaty of Amity and Cooperation (TAC), something the Bushadministration (like its predecessors) has been reluctant to do. Observer status appears possible,
105however (and is more likely to be sought by Washington).
Chinese Premier Wen Jiabao seemed to be opening the door for this when he noted that the
EAS should “welcome the participation of Russia” and “strengthen contact with the United States, theEuropean Union, and other countries.” Wen stressed that the EAS would not be “closed, exclusive, or
directed against any particular party.” (Secretary Zoellick had warned Beijing that it should not use its
participation in multilateral organizations like the EAS to “maneuver toward a predominance ofpower” or otherwise be seen as deliberately trying to undercut Washington’s influence or interests.
Beijing, among others, clearly heard this message.)
Still undefined is how the EAS (or the A+3, for that matter) will interact with broader
regional organizations such as APEC or the ARF. Hopefully, this will be one of the modalities to beaddressed by EAS participants when they next convene in December 2006 in Cebu, Philippines. As
noted at the onset, how the EAS relates to the region’s other multilateral organizations andinitiatives—both institutionalized (like the ARF and APEC) and ad hoc (like the Six-Party Talks andthe Proliferation Security Initiative)—will also be a key factor affecting Washington’s attitude, as will
its adoption of global norms, especially in the areas of counter-terrorism and counter-proliferation.
Will the EAS (or A+3, for that matter) reinforce or dilute these efforts? Will it help regional states
more effectively address growing transnational challenges . . . or provide another excuse for avoiding
such efforts?
The answers to these questions will help determine Washington’s attitude toward the EAS andany subsequent East Asian Community. To the extent this new grouping signals its willingness tocoexist with Washington, and is not seen as threatening or attempting to undermine Washington’sbilateral alliances, its own central role in East Asian security affairs, or the broader Asia-Pacificregional institutions in which it participates, there is little reason to expect objections from
Washington or a serious effort to discourage or derail this or any other regional community-building
efforts.

TAC: Why Not Join?
For its part, Washington should begin exploring the possibility of seeking observer status in
the EAS. It should also be asking itself why it continues to resist acceding to the TAC. The oft-statedcontention that this would somehow undercut America’s Asian alliances appears unfounded: two of
Washington’s Asian allies—Thailand and the Philippines—are charter members of ASEAN, while theother three—Australia, Japan, and the Republic of Korea—have now acceded to the TAC without any
perceptible impact on Washington’s network of bilateral alliances.
As a member of the ARF, Washington has already endorsed the purpose and principles of the
TAC “as a code of conduct governing relations between states and a unique diplomatic instrument forregional confidence-building, preventive diplomacy, and political and security cooperation.” Perhaps
it’s time to take the next step, in order to demonstrate its commitment to regional prosperity andstability and to underscore its support for East Asia community-building.
Is Community-building Possible?
While much attention has been paid to the Bush administration’s reaction to East Asia
community-building, the biggest threat to this effort comes not from Washington but from within the“community.” The sad truth is, with or without Washington’s acquiescence, East Asia
community-building is not going to be easy, given rising nationalism in Japan, China, South Korea,
106

and elsewhere. Even within ASEAN, there are clear differences of opinion regarding the focus andintent of the EAS, especially between Indonesia and Malaysia. Meanwhile, unless and until Tokyo,
Beijing, and Seoul can more effectively channel or control their respective nationalist tendencies, it isdifficult to image a true East Asian community taking shape.
The primary catalyst for today’s tensions has been Japanese Prime Minister Koizumi
Junichro’s continued visits to the Yasukuni Shrine—he made his 2005 visit on Oct. 17 and is expected
to go again this year before he relinquishes the premiership (perhaps on August 15)—along withlingering disputes over textbook renditions of history. Japanese textbooks have come under the most
scrutiny, given the approval of one controversial textbook series in particular (which has been adopted
by less than one percent of Japan’s public schools), but textbooks in South Korea and especially China
would also fail most objectivity tests (and we won’t even try to add North Korean textbooks to thismix).
Prime Minister Koizumi argues that he is merely honoring his campaign pledge to continue
paying tribute to Japan’s war dead—there are over 2 ½ million souls interred at Yasukuni,
unfortunately including 14 World War Two “Class A” criminals, the source of the controversy. But, Mr.
Koizumi has also sworn to preserve, protect, and promote Japanese national security interests, and his
continued annual visits to the Shrine are making this increasingly impossible to do, at least when it
comes to promoting harmony in the immediate neighborhood, much less attempting to create a senseof East Asia community.
Meanwhile, the failure of the U.S. to speak out publicly on this issue, combined with the(correct) impression that the U.S. stands firmly behind Mr. Koizumi and his quest for acceptance of agreater political and security role in East Asia, has translated into increased ill will against Washington,
especially from its other key East Asia ally, South Korea. President Bush was questioned repeatedly
during his November 2005 visit to Japan, Korea, and China about his reaction to the “antagonizing”
Yasukuni visits. While he reportedly did discuss the issue with Koizumi in private, in public, Bushrepeatedly ducked the question, responding instead that “I believe a useful role for me, as someone
who is friendly with the three leaders involved, is to remind people that it is best to put the past behindand move forward in the future.” Unfortunately the high profile visits make putting the past behind
impossible. [For more on this topic, see PacNet #53, Dec. 6, 2005, “Yasukuni Shrine: Time to Make a
Deal.”]

Evolving U.S. Attitudes: Pan-Asianism vs. Pan-Pacificism
Until recently, the U.S. has been circumspect regarding the EAS and East Asia
community-building in general, stating that it reserves judgment on the EAS until its mission andobjectives become clear and that, in principle, it supports more “inclusive” approaches. However,during a recent visit to Southeast Asia, Assistant Secretary of State for East Asian and Pacific Affairs
Christopher Hill noted that U.S. “engagement with Southeast Asia continues to broaden and deepen.
The dynamism of the region means that our relationship is in a constant state of evolution, which has
given rise to renewed debate and discussion about regional fora, and whether they should be inclusive
or exclusive. Correspondingly, the concept of pan-Asianism vs. pan-Pacificism has also re-emerged.”
The U.S. has not objection to East Asia regionalism per se, Hill argued, noting that “it isentirely understandable that Asia is looking to strengthen its own regional institutions, just as otherregional groupings in other parts of the world have done the same. This drive is a reflection of theremarkable and still growing pattern of intra-Asian economic and financial integration, and is not107surprising -- and we welcome it.”
Hill then repeated concerns about the proliferation of multilateral initiatives and the danger of“meeting fatigue”: “But we need to think hard and clearly about the question of how we can integrate
pan-Asian and trans-Pacific fora. We have heard much debate about the East Asian Summit. Before
coming to any conclusions, we need to look at the whole landscape—and indeed the seascape—of
proliferating regional for a—ASEAN+3, APEC, ARF, and the EAS—to determine how the pieces can
fit better together. The goal should be to achieve synergy and avoid redundancy and duplication.”
Hill also reaffirmed Washington’s concern about how the EAS would relate to broader-based
multilateral efforts involving the U.S.: “With respect to the East Asia Summit, the U.S. continues towatch with interest how this forum will develop. As I mentioned earlier, APEC and the ARF are vital
components of our relationship with Asia and Southeast Asia. We want to continue to work with you toensure we don't dilute the effectiveness of these institutions and the important cooperation they foster.
The United States is and will remain deeply involved in the transformation of Southeast Asia.”

East Asia Community-Building: Unanswered Questions
One objective of this paper is to stimulate questions for others to answer, in order to better
determine if Washington will see this phenomenon as supportive of its national security interests ordesigned to threaten or inhibit them. Allow me to end this paper, therefore, with a laundry list ofquestions (with limited commentary). Many are left over from last year’s CEAC dialogue.
- What are the objectives of Indonesia’s ASEAN Security Community (ASC) proposal and what are theprospects of ASEAN successfully pursuing this effort? Will the ASC help set a more positive security
agenda for the ARF or for the emerging East Asia community? My guess is that Washington would
welcome a more pro-active ASEAN that put more emphasis on security cooperation and joint
approaches to security challenges. The ASC emphasis on promoting democracy and individual rights,
if seriously supported and pursued, would also be in keeping with Washington’s regional and global
objectives. Merely paying lip service to these objectives, on the other hand, will reconfirm negative
opinions about ASEAN’s seriousness and long-term direction.
- Is Indonesia prepared to lead ASEAN in developing an ASC and in setting the agenda for the EAS?
Are the other ASEAN members (and especially Malaysia) prepared to follow? Will ASEAN remain in
the A+3 driver’s seat for the ASF, A+3, and emerging EAS? If not, who will lead, and in what
direction? Can/will Japan step forward and exercise leadership behind the scenes and act in concert
with other friends of Washington (like Singapore and Australia) to ensure that the EAS does not evolvein a manner that runs contrary to U.S. interests?
- Is the East Asia Summit the primary vehicle for building and sustaining the East Asia community?
Are the two synonymous? I have already argued that they are not, but the distinction has yet to bemade by the EAS itself. The relationship needs to be better defined, since there are many competingviews of what constitutes East Asia and what vehicles will best create this sense of community. Since
the various multilateral initiatives provide a mind-boggling array of combinations (one even includes
Persian Gulf countries), it is getting more and more difficult even to define East Asia, much less todetermine which effort or efforts are helping to establish the desired sense of community. India’s
future role is of particular interest here.
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- Who gets to come to the EAS, in what capacity, and by what criteria? The EAS was initiallyenvisioned as part of the A+3 process but appears destined to go beyond these 13 states. Why? How do
the A+3 and EAS differ? What is the EAS mission statement and objectives? (To date, more time has
been spent debating about who should join than determining what should be discussed.)- The creation of the EAS, as called for in the A+3 Vision 2020 Plan, was seen by some as an effort by
the larger East Asia powers, like China, Japan, and/or even the ROK, to try to gain increased control inshaping the agenda, a role up to now largely played by ASEAN. Is the decision that EAS members
have to sign up to the ASEAN Treaty of Amity and Cooperation (TAC) an effort by ASEAN to reassert
its central role, or just a clever way to keep Washington (among others) out . . . or both?
- Finally, repeating Secretary Hill’s key question, how do members of the East Asian
community—whoever they may be—define the relationship between Asia-only mechanisms such as
A+3 and broader efforts such as the ARF and APEC? Which type efforts will receive pride of place?
Clearly it does not have to be, and is unlikely to be described as “either-or.” But, where will the focus
and bulk of the effort be? Will the outcomes and efforts be mutually reinforcing? Will the East Asia
effort help set the stage for and supplement or even advance the broader dialogue or will it be used as
an excuse for inaction? If the former, how does one create avenues of interaction between East Asianand Asia-Pacific mechanisms to enhance their mutually supporting roles.?
Until the answers to these questions become clear, it will be difficult to determine theprospects for the creation of a true East Asia community and/or Washington’s receptivity to this effort.

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7. An East Asian Community and the United States: A View from ASEAN*
Mr. Simon SC TAY **ChairmanSingapore Institute of International Affairs
Introduction
In December 2005, the first East Asian Summit was held in Kuala Lumpur, Malaysia. While this is a
new and quite unprecedented event, it is one that has been considerably, and variously, anticipated and interpreted.
The summit grows from a growing but still nascent sense of regionalism in East Asia, and may both
mark and add to the momentum and strength of this sentiment. The path to this first summit has been paved byevents in recent years, especially the ASEAN+3 process that has brought together leaders from the ten ASEAN
member states with their counterparts from the three Northeast states of China, Japan and South Korea. Indeed,
the ASEAN+3 process has grown beyond summitry to provide a framework for initial Asian cooperation on
diverse transnational issues such as finance flows, with the Chiang Mai initiative, and public health in the wake of
SARS.
For these 13 states, therefore, the East Asia Summit (EAS) would have represented something of alogical next step forward from the ASEAN+3 process. But the attendance at the EAS was not limited to the
ASEAN+3 states. It was expanded to include India, and Australia-New Zealand. This expansion was quitedeliberately decided, and it both arises from and reflects back on the nascent sense of East Asian regionalism andthe relationship of East Asia to the USA. This is especially when we consider that the ASEAN+3 process willcontinue in parallel with the EAS.
It is in this context that this paper will consider the prospects for an emerging East Asian community,
and its relations to the USA.
What is driving the nascent and growing sense of East Asian regionalism? To what ends is the region
being driven? What factors in international relations among the states—such as the triangle of US-China-Japan
relations, and within ASEAN—can shape the regional architecture?
First, I will examine what would appear to be the main factors that have emerged to drive the current
and still nascent sense of regionalism in East Asia, postulating some reasons that some may wish to exclude theUSA. Secondly, I will seek to characterize the emergent East Asian regionalism and examine some preferredprinciples that would allow the most stable and mutually beneficial relationship of this emergent regionalism.
Thirdly, I will suggest how the USA might best respond to these developments in East Asia, and what Asians
should do, both for the benefit of East Asian regionalism, as well as vis a vis the USA. In so doing, I will glanceupon the triangle of relations between the USA, Japan and China, which is a key to strategic outlooks in the Asia
Pacific, as well as upon the ASEAN.
While ASEAN cannot be considered a major power, the grouping of smaller to medium-sized states issomething of a hub in much of the regional frameworks. I will both describe this role and consider if ASEAN canbe a positive influence on the emerging East Asian regionalism as a “soft power”.
*

Paper for An International Workshop organized by the Council on East Asian Community, Tokyo, June 2006.

Revised from a draft for discussion presented at the 2005 workshop.
**

LLM (Harvard) LLB Hons (National University of Singapore) serves as Chairman, Singapore Institute ofInternational Affairs and teaches international law as an associate professor at the National University ofSingapore, and as a visiting professor at Harvard and the Fletcher School .
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These discussions are necessarily exploratory, given that the EAS and East Asia’s regionalism as awhole and a recent phenomena. Positions are still less than fully crystallized. Views differ from one Asian country
to another, and have evolved over time. Additionally, US attitudes towards East Asia—which will be major
drivers, and perhaps even determinative of the prospects of this phenomenon—are shifting and often seem
ambivalent, especially in relation to China.
This is, as such, a situation in which what states and leaders decide to do would matter; in whichhuman agency is very much at play. Thus while conclusions are not easy, we can hope that what can be exploredand considered may be make small contribution in informing the policy processes in play. The essay does, as such,offer several policy suggestions to Asians, ASEAN and Americans.
To the Asians, I suggest that we should be prepared to develop closer intra-Asian cooperation on issuesof common concern, to deal with both regional issues as well as impacts arising from globalization. However,while we may wish for a rapprochement between China and Japan, this cannot be commanded and there are few
signs of a resolution at hand. Without this, I suggest that East Asians must be prepared to be patient and work forthe long term, and through a series of patchwork and more limited cooperative schemes, rather than expecting aclear regional vision to be annunciated and agreed shortly. Therefore, for the near and middle term, East Asia will
be more of a framework for cooperation and understanding, rather than a “community”; a word that suggests
many more and deeper shared bases and values for coming together.
To ASEAN, I suggest that they must recognize they are presently a hub for East Asia’s regionalism andmust seize this opportunity to contribute to the process positively. ASEAN’s role must however be recognized as
resulting from a default in relations among the major Asian powers, and cannot be taken for granted. ASEAN canand should therefore seek to grow into this default role by moving ahead clearly and quite quickly with its
ambitions for an ASEAN community, in the fuller sense of that word, “community”. As it does go forward withthese ambitions, ASEAN should also seek to emerge as a “soft power” in Asia, with a positive influence arisingfrom the values, norms and institutions that it practices and embodies, as a model for the wider region.
To the Americans, I first suggest that the USA must accept and understand its exclusion from the first
EAS and many of the emerging East Asian frameworks. Secondly, all EAS states and especially those who areallies and friends of the USA should seek to ensure that while the EAS does not include the USA as a participant,the vital interests that they share with the USA are sufficiently accounted for and protected. Efforts to convey thisto the USA, both as intentions going into the EAS and as results emerging from it, should be redoubled. To Asians
and especially Americans, I suggest that we need to work to revive relations across the Pacific and indeed take theexisting relationships and institutions to new and higher levels. In this, relations of the USA with states in Asia
must broaden beyond the almost singular focus on the global war against terrorism that some feel in dealings with
Washington DC and rise above the existing base that provided by the Asia Pacific Economic Cooperation (APEC)
and the ASEAN Regional Forum (ARF) processes.

Reasons for Regionalism: Neutral or Anti-Americanism?
Some suggest that regionalism in East Asia is a natural phenomenon that has little to do with the USA
and does not demonstrate anti-American sentiment. There is considerable truth in this statement. Regionalism thatbrings proximate states together to cooperate is not in opposition to the forces of globalization that link all states
more closely together than ever, and especially to the USA as the primary economic actor and only post Cold war
superpower. Regionalism has been a companion to globalization, and not its opponent. For while globalization
connects all states and societies more closely, proximate and neighboring states are more closely connected toeach other inter se, than to states which further away and/ or are more different in make up.
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Globalization is not a complete and neutral phenomenon in this regard. Simple facts such as the cost of
telecommunication and transport demonstrate its incompleteness and unevenness. Geography and distance havebeen reduced as determining and primary factors, but nevertheless do still matter. Cultures and societies too, while
being much more open to exchange and influence, persistently resist homogenization. This is true not only in Asia.
It is even more clearly visible in Europe and in North America. Regionalism has arisen and thrived in parallel to,and not necessarily in conflict with, globalization. In this view therefore, East Asian regionalism is natural, neutral
and indeed long overdue.
Support for this idea of a “neutral” East Asian regionalism is, for example, evidenced by economic data.
This witnesses both the predominant place of trade and investment between the USA and Asia, as well as the
rapid growth of intra-Asian economic ties. It does not seem to be an either/or situation.
Yet Asia has no strong and enduring history of unity and accepted commonality, whether in polity,
culture, language or religion. The antecedents of East Asian regionalism have been brief and contested. One such
period was in the 15th century, when the Ming Empire of China ruled the waves and, in the pre-colonial period,
extracted acceptance of suzerainty from most of the kingdoms in East and Southeast Asia. A second incident was
the Japanese co-prosperity sphere during WWII. Neither sets a happy precedent for East Asian regionalism. Even
within ASEAN, after nearly four decades of association, national sovereignty has tended to trump integration ineconomics and certainly politics. While this has gathered pace, the ASEAN efforts still do not rival—both inaspiration and even more so in reality—the integration of the European Union. As such, we may conclude that
East Asia has no precedent in regionalism, and only a limited and very recent movement forward in this direction.
Why then East Asia now?
To understand this, I think it is necessary to go beyond the “neutral” factors that I have briefly
canvassed. I would join others in suggesting that less neutral factors are adding to the emergence of an East Asian
regionalism that, in some settings and instances, the USA will not be party.
These factors are, in approximately chronological order: first, attitudes toward the USA during andafter the 1997 crisis that swept through Asia; secondly, the failure of APEC; thirdly, the need for competent andcompetitive regionalism in Asia; fourth, the reception of the US security policies, post 9/11; and fifth, the rise of
China and the responses among different Asian neighbours.

During and After the 1997 “Asian” Crisis
The economic crisis that started in mid 1997, spread quickly among almost all economies in East Asia,with little regard to the real differences in their economic fundamentals and little coordinated response by thecountries affected. While the crisis has abated, the sense among some in East Asia is hat the USA could andshould have done more. For example, in Thailand and South Korea (both US allies), negative comparisons weredrawn to the level of US assistance to the help given to Mexico when the NAFTA neighbour was earlier struck by
a financial crisis.
The role of international financial institutions (IFI), especially the IMF, was also brought into question.
While there were no better mechanisms that were readily available, Asians have been among those who argue thatmany of the prescriptions were ineffective or indeed counter-productive. In the years since the crisis, more havecome to share aspects of this view, including well-known US-based economists like Krugman and Stiglitz. Yetefforts at reform and policy changes within the IMF and IFIs are still wanting.
Criticisms of the IMF and IFIs, moreover, rebound on the USA as—rightly or otherwise—someperceive that Washington DC sets and controls the agenda for them. To some of these critics in Asia andelsewhere, the “Washington consensus” is not named innocently for the headquarters of the IMF and World Bank,but bespeaks a consensus shared by the powers that be in Washington DC itself.
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The Failure of APEC
While the Asia Pacific Economic Cooperation (APEC) process continues, there is some sense that it
has in some ways, “failed”. This sense of failure comes from at least two sources.
The first, and probably quite unfair criticism, is that APEC failed to respond to the Asian crisis. It is
fair to point out that APEC was never intended nor intended to serve such a purpose. But the criticism sticks insome quarters; critics ask that, if little or no response could be made to such a crisis, what is the point of APEC?
The second source of criticism over APEC is perhaps a more measured one. This is that the USA andother major economies have ceased to regard APEC as of being sufficiently important to be used as a mechanism
for enabling and managing economic cooperation and integrations between the APEC members. Some would
trace this to the impasse between the USA and its close ally, Japan, over trade liberalization measures. Focus on
APEC has diminished, as compared to a decade ago. Some now believe that, given the present trajectories, there islittle prospect of achieving the APEC Bogor goals by the stated deadlines.
In the wake of these developments, more and more states in Asia and the Pacific have sought to turn to
the WTO, only to find delays and faltering there too. Again, impasses relate mainly to the major economies. Only
Japan, India and China would have much influence in the WTO negotiations and their positions markedly differ.
Thus, the effort to move ahead in the WTO is beyond the influence of many Asian states.
As such, Asians who have tried to find ways forward for economic liberalization have turned toanother avenue: regionalism and sub-regionalism. While WTO and APEC remain, greater stock than before is
being given to sub-regional and bilateral economic partnerships and trade agreements. Regional agreements
include ASEAN’s efforts to implement its FTA (already in force) and move ahead towards an economic
community with fuller integration, and “ASEAN+1” FTAs with (separately), China, India, South Korea andAustralia-New Zealand. Bilateral agreements also have multiplied, including those concluded between Japan andSingapore, and being negotiated with other ASEAN member states like (separately) Thailand, the Philippines, andMalaysia. A “track 2” experts group has begun to talk about an East Asian FTA. Australia and New Zealand too
have not been excluded in this FTA “fever”, with FTAs concluded or in negotiation with Asian states such as
China, Singapore, and Thailand.
In contrast, non-Asian states have been relatively less active. Exceptions to this are the US-Singapore
FTA, and recently proposed European Union-ASEAN FTA.
Many questions have been raised about the efficiency and efficacy of these bilateral and sub-regional
FTAs in Asia as they relate to business and to the actual creation and liberalization of trade. It is true that manyare complex, while others are superficial, and all are uncoordinated in respect of their terms so there is no
consistency between them. However, in this context, I do not point to their economic use, but rather as evidencing
and influencing broader thoughts about regionalism among Asians.
A Competent and Competitive Asian Regionalism
In the wake of the Asian crisis, Asians have come in these recent years to better appreciate theirinterdependence. This appreciation has gone beyond the question of financial flows that were implicated in the1997 crisis.
Other areas such as trade and investment and environmental pollution demonstrate theinterdependencies in the region or sub-regions of East Asia. Some examples of this are the haze from Indonesian
fires, the acid rain and yellow dust from China that impacts Northeast Asia, and unsustainable and often illegal
logging in ASEAN countries to meet the demand of Japanese and Chinese markets (especially since China hasbanned domestic logging). Public health concerns over SARS and Avian Flu have been other manifestations of
the negative face of an increasing interdependence without sufficient governing structures and regimes.
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Even in sensitive areas such as violent political upheaval and gross human rights abuses, there is a
growing awareness and moral interdependency among many of the people of Asia. While many issues in this area
remain off-limits among Asians, sporadic issues such as the crisis in East Timor after the vote of free choice in
1998, and current developments in Myanmar have attracted wide-spread concern among Asians. Institutionally as
well, the ASEAN regional forum, which includes non-ASEAN members and covers a wider geographicalfootprint in Asia, has begun to move into a phase for developing preventive diplomacy among its members.
In tote, whether in economics, environmental or other fields, Asians now give greater recognition to theneed for cooperation to manage their existing and still growing integration. Regionalism, is this view, is a process
for competently handling globalization and interdependence. It is also a competitive issue among Asians, given
parallel developments in Europe and continued feeling that the USA, with or without allies and neighbours, has
the weight to determine global matters where its national interest is felt to be involved.

US Security Policies, Post 9/11
The fourth factor has been the post-9/11 US security policy and its prosecution of a global campaign
against terrorism. While there was initial support for the USA across Asia, reactions are not uniform. Some states
are staunch US supporters and have been proactive in their own domestic fight against terrorism. Others havebeen ambivalent and even reticent in responses, preoccupied with their own domestic power politics. Criticism
and opposition to the US policies have risen.
Polls and surveys point to this trend across Asian societies, especially in the wake of the US-led“invasion” of Iraq and the revelation of human rights abuses in Abu Gharib and allegations of mistreatment at
Guatanamo. Criticism of the US policies among some quarters also relate to wider issues, such as the question ofPalestine and Israel.
Such sentiment is strongest perhaps in Asian countries, such as Indonesia, and Malaysia, where there
are Muslim majorities. Yet it has grown even in societies where Muslims are only a minority or quite absent.
Indeed, in some countries like South Korea—without Muslims and historically intertwined with and dependent on
the USA—sentiments among common people about the USA have soured. In many cases, this change in attitude
to the USA relates to the US policies not only about terrorism in the global theatre, but its implications in thenational and local spheres. America’s post-9/11 agenda has complicated existing internal conflicts andinsurgencies in Southeast Asia.
The change in sentiments in Asia towards the USA has paralleled changes in many European societies.
However, it would seem that European criticisms more greatly emphasize the questions of human rights and of theobservation of international law.
Indeed, while Asian opinions concerning the post-9/11 USA have shifted, there seems to be aconsiderable difference in the tenor and level of criticism as compared to Europe. Asian states did not join Franceand Germany in leading opposition to the U.S.-led action.
Public opinion is not the chief difference. As in Europe, there is no strong and widespread domestic
support among the peoples of Asia for American action in Iraq. Indeed, in some societies, as noted briefly, antiAmerican sentiments have risen sharply.
The majority of Asian states have nevertheless continued to support the USA or at least measure andlimit their criticisms and opposition, to varying degrees and in different ways. These relate to a realist—if not realpolitick—calculation of the role of the USA in economics and security. There is a calculation of the costs of
openly opposing the Bush administration on post-9/11 issues, after the admonition that, “either you are for us, oragainst us”. There are also some benefits to the governments in the region. In the American post-9/11 agenda,
Asia has again received American attention, and Asian governments have generally been quick to respond to align114

their interests and agendas to America’s. Equally, most have sought to prevent direct interventions into theirterritories and domestic affairs by cooperating with the United States.
Thus, many Asian governments face an increasing tension between their external commitments to
support the United States and these internal views and demands within their societies and among their citizens.
While some Asians dissent, this realist logic prevails in thinking that it is best to ally with the United States. Its
policies of “benign selfishness” offer the closest match to world interest—the desire for free trade, rule of law,free movement of capital and people, as well as security for persons and property. In this view, stability in Asia
may be provided by a hegemonic power, provided it is relatively benign.
However, the prospect of ensuring the US interest in Asia and the world is indeed benign and broadly
supported has to contend with a number of factors. Chief among these is that the post-9/11 agenda in the USA
responds first and most directly to American domestic opinion (some might say, “only”). This means that there
will be severe limits to how much influence other countries, including those in Asia, can have in persuading the
US administration in any direction that is contrary to the views of the American voter. American exceptionalism
in treaties and multilateral settings illustrates the concerns that Asian and other states have about the dependability
and benign character of America internationally.
The necessary corollary of this concern is that Asians should find frameworks to depend less on the
USA and also to collectively influence the USA.

The Rise of China
This brings up the fifth factor that bears mention in context of the East Asian community and the USA:the rise of China. This phenomenon has been long predicted and yet still attracts controversy in interpretation andprediction.
China of late has done much to assure the world and especially the region of its intentions for a“peaceful rise.” This has been well received, bar cross-Straits relations, with increased levels of comfort with
South Korea and, especially, ASEAN member states. With ASEAN as a grouping, China’s initiative in proposing
an FTA and deepening its economic and trade ties have been welcome. On the security front, while much remains
to be done, the agreement on a Code of Conduct in the South China Seas and a generally more forthcoming
engagement with China in the ASEAN Regional Forum and other frameworks have lessened the tensions thatonce marked the relationship, especially after the Mischief Reef episode.
Questions of course remain. This is especially in respect of relations between a rising China and theUSA, as the incumbent and pre-eminent power. Sino-Japanese relations also pre-occupy strategic thinking as well,
given both the historical issues and (even more importantly in my view) the present and forward looking issues ofaccommodating these two giants in the emerging frameworks for Asian regionalism. For the newer ASEAN
members, questions over the headwaters of the Mekong, that lie in China, will continue and perhaps grow in
coming years.
National differences in Asian’s attitudes to China also can be traced to economic competitiveness andprospects of complementarity, as well as to historical differences. There is, as such, considerable variation evenamong the remaining Asians of how we do and should look at the rise of China (which is worthy of further study).
Notwithstanding this diversity, the rise of China raises two primary issues in the context of East Asian
community and the USA. The first of these issues is the ability to imagine an Asia that is less centered on theUSA, as it is at present. If the predictions of China’s rise prove true, there could be a rebalancing of the economic
center for Asia—which still predominately exports to the US market and depends quite considerably on crossPacific investment and trade. In politics and security too, there would be changes, with China’s promises of a115

“multi-polar” world providing a contrast to the existing arrangements that center on Washington D.C. as the hubof various bilateral agreements and alliances.
The second of these issues is connected but different: the need for Asians to proactively pursue ways toengage China and shape its policies towards the rest of Asia. This is especially important if and when the USChina relations grow more competitive and perhaps tense. If so, many Asians would like to have the option of
having an independent policy towards China, rather being reflexively aligned to the US position. At the same time,some in the USA may be concerned that such “independence” merely disguises the slip of these Asian states into
the orbit of a China that they do not trust.
This issue took on more life in 2005, as we approached the EAS, and have continued to gain pace insome quarters. A number of different constituencies in the USA are raising issues of contention with China, suchas the revaluation of its currency, the promotion of democracy and cross-Straits issues and the build up of Chinese
military forces. The US policies towards China have changed in tenor from Clinton to Bush, and from early-term
Bush to post-9/11 Bush, swinging between the poles of “cooperation” and “strategic competitor”. Of late, instatements such as those by Defense Secretary Donald Rumsfeld, the direction seems to be toward the latter poleof China as a strategic competitor. (I shall survey these concerns slightly more below, in discussing the criticaltriangle of relations in the Asia Pacific between USA, China and Japan.)
Taken together, the five factors surveyed have created a much greater sense of doubt among Asians
toward the USA in its global and regional role than has existed during the Cold War or its immediate aftermath. A
strongly “anti-American” sentiment exists but perhaps only among a minority. Asians in responding to the post
Cold War order (disorder) in general and post-9/11 Bush in particular, seem to swing between the poles of fearingthat the US will ignore them and that the US would intervene unilaterally, at the whims of its domestic audiences.
The answer of some East Asians—that we want a sustained, knowledgeable and consultative American
engagement—seems an almost impossible wish.
The post-9/11 USA has declined in “soft power” and suasion in Asia, while China has gained instanding and acceptability: thus, the rise of the Chinese dragon is in parallel with the wounding of the American
eagle, in a coincidence that may bring misgivings and perhaps sudden shifts. Nevertheless, the main driving forces
for the sense of East Asian regionalism are not, in my view, anti-Americanism.
Nor, however, are they completely neutral in my estimate.
There is a growing ambivalence about the USA among more Asians. This “love-hate” attitude finds
expression in the now popular adage, “Yankee go home … and take me with you.” There is an emerging wish fora greater independence and capacity in Asia. More Asians now believe it is the time that their countries and theirregion mature and grow beyond the unequal relationship with and dependency upon the USA, so that Asians can
do about what matters most to Asia.

Versions and Principles of East Asian Regionalism
In surveying the five factors above, I hope that I may not be mistaken to suggest that this is a single orpredominant Asian opinion or perspective on the various issues raised. As I hope has been clear, there is a great
variety among the Asian states and peoples whether we look at Asian perspectives on the rise of China, thedifferent responses to the US actions and policies after 9/11 or the varied experiences in the Asian crises.
Accordingly, there is no single and agreed vision about the future of East Asia as a region. There isinstead a quite broad and even bewildering range of suggestions of what East Asians can and should do together.
Some examples include an East Asian Union, a la Europe, and an Asian currency.

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I do not wish in this section to canvass the suggestions given to date or to add my own to theconsiderable and still growing list. Instead, I would like to list some principles that should, in my view, guide theevolution of East Asian regionalism and also to suggest broad directions or versions of East Asian regionalism.
From the observations of the driving forces and limits of East Asian regionalism, several principles
may be suggested.

Open and Flexible Caucus
First, it should be an open and flexible caucus, not an exclusive group or bloc. This is especially giventhat the United States and other countries may be concerned about being excluded, and the existing reliance ofmany in the region on the United States for both security and economics. The new East Asian regionalism might
therefore serve as a caucus, to discuss and agree on mutually acceptable positions to bring before larger
institutions. Indeed, where positions cannot be agreed, East Asian states can and should have the latitude after
dialogue to take their own position, and expect that it be understood and respected by its neighbours.
This way, East Asian regionalism would not detract from Asia Pacific and international efforts, but
serve to make them more effective and representative. More, the East Asian regionalism can seek out areas ofcooperation and begin to build institutional capacity in these areas. In this regard, the ASEAN+3 and EAS are
significant markers and can evolve as primary mechanisms, but they should not be the only ones. The evolution of
the EAS in terms of the states attending is itself a marker of openness and flexibility needed to move ahead.
Functionality and Interdependence
Second, East Asian regionalism should have functionality and interdependence, not political fixity,
ideology or some easy and false sense of shared civilization. One of the most constructive factors is the need to
manage and cooperate in the face of integration and globalization. This emphasizes that the new regionalism
should be functional. This will test the tendency to include and exclude members on largely political grounds. An
example of this would be in the field of economic and financial cooperation in the region. This has beenemphasized in the ASEAN+3 process and also in the EAS, with the inclusion of India and the Pacific-2. If we
accept the ASEAN+3 or the newer EAS as a fixed or only structures, then we would exclude important economies
such as Hong Kong and Taiwan, in preference to smaller and more isolated economies. The new regionalism
should instead be inclusive, with reference to the function that each member can bring to the issue.
Leadership by Issues
Thirdly, the leadership in East Asian regionalism should be led by issues, and not by great powers. If
we look at traditional modes of regionalism, central leadership seems critical, as discussed earlier in the chapter
for the need of a benevolent great power. However, without a historical reconciliation between China and Japan,
this will not be possible in East Asia. The region lacks a single leader who is acceptable and able. There aresuggestions that the small- and medium-sized countries, such as South Korea, and ASEAN might therefore leadthe region.
They may have a special and larger role to play than expected, but they cannot offer permanent andstrong leadership of the traditional type in the region. East Asian regionalism therefore might have to look atnewer and more limited forms of leadership in the region. This could be offered by having leaders on different
issues. Leadership would arise from the initiative and interests of different state. This would follow principles of
equality more closely than the idea of ‘great power’ leadership. In this way, the new East Asian regionalism might
accord with many of the aspirations voiced in ASEAN and the Asia Pacific.
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It is also important that leadership offered in East Asia be one that is benevolent and takes into accountthe interests of all, especially the smaller and weaker states. If some Asians chaff under the US domination (which
had been relatively benign and even helpful for many during the Cold War), they should not come together only to
exchange one domination for another.

Coalitions of the Willing
Fourth, the region should be led by coalitions of the willing (although some new term may benecessary, post-Iraq). The above principles, in total, suggest that East Asian regionalism and its manifestation in
the EAS should not be a fixed bloc or union with permanent membership and permanent leaders. Instead it should
be a framework for like minded states to caucus and act in coalition. These coalitions can arise from certain issues
or even events. They may then dissolve or evolve to new issues. As the need arises they would work with existingregional and sub-regional institutions.
The idea of the EAS has demonstrated this is extending beyond the geographic definition of East Asia,
to raft together other countries such as Australia and New Zealand and India. But of course in the created form of
the EAS and A+3, where states are agreed participants, the direction of the grouping as a whole needs to proceed
at a pace that all can agree to.
Beyond “Asian Values”
Lastly, in giving voice to regionalism, East Asians should avoid a state-selected version of “Asianvalues” and identity, as we witnessed in the early 1990s. This had argued that, in then predicted rise of Asia toequality with Europe and North America, Asians could and would legitimately differ in questions of democracy
and human rights. Asians would as such be exceptions to what are arguably “universal” aspirations and values.
We should recognize that the map of governance in East Asia has changed considerably in the last decade bylooking at the developments in the states of the EAS.
In ASEAN, the change in Indonesia post Suharto tipped the scales to make the grouping as a wholemuch more comfortable with the ideas of democracy and human rights. After all, in addition to the newIndonesian democracy, there are vigorous (if imperfect) democracies in Thailand and the Philippines and voting
democracies in Malaysia and Singapore (albeit with dominant parties in place). The ASEAN efforts about
Myanmar/Burma may not succeed in changing the regime (and certainly not by ASEAN’s sole efforts), but they
do reflect changes in how ASEAN thinks and seeks to promote and to protect basic standards of democracy,
human rights and governance.
In Northeast Asia, South Korea and Japan are established democracies. In the wider East Asia,
democracy is very much part of the national ethos in India, Australia, New Zealand. 1
I do not mean to argue here that democracy and human rights can and should be entrenched within
what East Asians stand for and collectively should promote. I only mean to argue that defensive and negative
attitudes to these ideals, as seen in the earlier Asian values debate, are unwarranted. From this, my more generalargument is that East Asians should not rush into declaring any agreed, “Asian values”, lest an artificial, state-led
list of such values be foisted on the project. While interactions will increase among East Asians, there are dangers
in tying too tightly the ideas of interdependence (especially economic interdependence) with values or morals in acommunity. We should distinguish between three uses of the idea of increased unity: as interdependence andcooperation; as increasing similarity between the states and societies that are so interdependent and cooperative;
and as a consciousness of a shared humanity or culture.
1

I have excluded mention of Taiwan, a democracy, as it did not attend the EAS.
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East Asians should prefer regional institutions and a growing sense of cooperation and identification
with each other, without exceptionalism. Even as Asians cohere more closely, there can and should be interactions
with international norms and practices. Globalization and regionalization, as such, are running in tandem, and not
as an either/or choice.

Three Models for East Asia
The principles that I have suggested above stand in contrast to others, as a range among three directions
or versions about the possible future of East Asian regionalism. These, for discussion, can be clustered aroundthree “models”.
The first of these would be an “East Asia adrift.” This is much as existed before the ASEAN+3 andEAS processes, and (some might argue) still exists today. While different East Asian states have considerable
strengths in economics, security or other fields, the region as a whole offers little synergy and positive interactions.
Instead, intra-East Asia engagements continue without much function, energy, leadership or high aspiration. The
regionalism remains fragile and indeed fractured. In this version, nothing much happens. Or certainly nothing
happens that upsets that present status quo and the USA as the key actor in East Asian affairs.
On the other end of the range of possibilities for an East Asian future is an “East Asian bloc”. In this,East Asians would aspire to a much higher degree of integration, perhaps ala the European Union. However, theEast Asian bloc would one that would be closed or even opposed to the USA and other non-Asian states. It mightalso be based on a fixed set of “Asian values” as perceived by leaders and elites, rather than being more open to
global influences, and the aspirations of citizens.
In between these two poles, a third possible version is one that can be described as “East Asian Identity
without Exceptionalism”. In this scenario, East Asians develop sufficient processes and institutions to deal withfunctional interdependence and better recognize an emerging sense of institutional identity. Yet these identities,
institutions and processes remain open to influences from other states and from within different societies, andevolve over a longer period, allowing for adjustments.
Some of the principles underlying these three contrasting versions or directions for East Asian
regionalism are outlined in the following table:
East Asia “Adrift”
Membership

Focus on ASEAN, andAsia-Pacific processes.

Use
Leadership

Dialogue
ASEAN-led (ARF), USor leader-less rotation(APEC)
Informal, minimal
secretariats and nonbinding undertakings

Organization

Identity“Pacific Way” withtension between
ASEAN and Western
approaches

East Asia “Identity without
Exceptionalism”
East Asian process, centred on
ASEAN+3, but open to USA,others in region and to global
institutions
Function and interdependenceIssue-led, including smaller
and medium sized powers

East Asian “Bloc”“Coalitions of the willing”,
with bilateral, ASEAN and
ASEAN+1 processes, andgrowing institutionalization
Interdependence andinstitutional identity

Consensus for unified,region wide agreement

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East Asian process, closed
and even opposed to USA
and global institutions.
Ideology
Great power leadershipand rivalry“Asian” Values

Perceptions about ASEAN+3 have warmed both in Northeast Asia and ASEAN. It has also made some
useful contributions with the financial swaps arrangement and with the discussion of the SARS outbreak; bothdemonstrating the usefulness of this framework in preparing for future crisis and even helping deal with present
ones. There is some optimism looking forward to the first EAS, notwithstanding the rise in Sino-Japanese tensions,and possible friction in the US-China relationship.
If East Asian regionalism attempts too much it risks opposition from the USA, which may feel that it isbeing left out from developments that might impact its strategic interests. If so, there are dangers that the US allies
and friends might defect from East Asian efforts. American pressure is traced by a number of accounts to thefailures of the earlier proposal by Malaysia’s Dr Mahathir for an East Asian Economic Grouping and to the ideaof the Asian Monetary Fund, discussed earlier. Given the importance of the US to many Asian states, including its
allies Japan, South Korea, Thailand and the Philippines, strong US opposition is likely to be fatal to the newer
regional efforts as well.
Even left to themselves, East Asians may prefer not to attempt too much, too quickly. The region’s
historical and on-going divides prevent such commitment and pace. There has, for example, been norapprochement between Japan and China. There are also questions of developmental divides among the 13 states:
the gap between Japan and the Lao PDR, for example, is as stark a gap as any in the world, and far beyond
existing gaps in the European Union.
On the other hand, if East Asian regional efforts attempt too little and too slowly, they risk failure and a
downward trend in perceptions with time and perhaps the passing of new events. As in the case of APEC, thedifferences of expectations among members and the failure to respond to crisis may change perceptions frompositive to negative.
Between these two dangers, the ASEAN+3 and EAS processes should have to balance different needs
and tread something of a middle ground. East Asian regionalism should also be nimble in order to progress. In thisregard, we should come to see that the ASEAN+3 and EAS will not, of their own, suffice to bring about an East
Asian community. While significant, it is not determined that the ASEAN+3 or EAS will be the only or main
mechanisms for East Asian cooperation and community.
Many other institutions and processes can and perhaps will play a part—and often in ways that were
not originally imagined. The EAS may well evolve, to include countries that meet its criteria. Some are alreadyproposing Russia and Pakistan to attend the next EAS. There is fluidity in the regional frameworks that we have to
expect, and something of an alphabet soup of dialogues and processes. After all, this seems to have been theexperience in bringing Europe together, when many institutions other than the European Union played their part.
East Asians will need to learn more from those European experiences and adapt (not blindly adopt) them to theirown circumstances. There will be a certain experimentalism in East Asian regionalism.

Sketching a Region: From A+3 to EAS…and Beyond?
But even if the frameworks for East Asian regionalism will be experimental, it will still be easier todescribe or predict them than it will be to try to answer a more central question: Will the various processes—A+3,
EAS or whatever else emerges—be effective? Or will these be epi-phenomenal, without significant and sustained
impacts on the region?
In this section, I shall briefly trace the steps in moving to add the EAS to the A+3, and then briefly
discuss two underlying factors that can determine the success or failure of East Asian regionalism. The first andperhaps major determining factor is the triangle of relations between the USA, China and Japan. The second andless emphasized factor is, I suggest, the development of ASEAN and its ambitions to become a community.
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The original notion of an East Asian Community is traced back to a suggestion by the then premier of
Malaysia, Dr Mahathir Mohammed, in 1990. This suggestion was not however taken up with enthusiasm. Instead,
it was torpedoed. Links across the Pacific were instead preferred, to include the USA and other partners in the
APEC process.
The A+3 process was then launched in the second half of the 1990s, as the first framework exclusively
among Asian member states. While this started slowly, it was notable for increasing engagement among theNortheast Asian states, and generating a number of schemes for functional cooperation among the A+3 states.
This also revived the echo of Dr Mahathir’s suggestion, of a grouping among Asians only.
On this basis, some began to consider the A+3 as a basis for beginning a community among East
Asians. A group was appointed by the governments to set out a vision for this community. ASEAN then agreed tohold the first EAS.
As the first EAS approached, the response from the USA to being excluded from Asian summitry has
been mixed, and has changed over time. For a considerable time, it seemed that Washington DC did not notice the
EAS or did not object to its exclusion. Certainly, the earlier summit meetings among the A+3 leaders elicited nostrong opposition from the USA or request to be included.
Yet more soundings from some in the USA in the run up to the EAS indicate a questioning and perhaps
quarrelsome attitude to its exclusion. This has echoed early positions of the USA against the East Asian Economic
Grouping, mooted by then Malaysian premier, Dr Mahathir Mohammed, even before the formation of the Asia
Pacific Economic Community. Some have also been reminded of the US objection to the idea of the AsianMonetary Fund, mooted by some in Japan and the region, during the financial and economic crises that arose in
1997-98. In both cases, a strong American, “No”, combined with doubts among some Asian states to derail these
initiatives.
Yet, for the EAS, even the allies and closer friends of the USA in the region, such as Japan, South
Korea and Singapore, seem to have agreed that the USA should not be included in the first summit. The EAS,
unlike the earlier suggestion by Mahathir for an EAEC went ahead. Why?
I suggest this was because of accommodations taken to differentiate the EAS from the A+3 and indeed
the earlier EAEC proposal. We should recall that the initial expectation among some was that the EAS would
include only the A+3 member states. The major change expected was not a change in who would attend, but that
the EAS could be hosted and chaired by one or another of the three Northeast Asian states, and not only ASEAN
member states (as is the case with A+3). This would, if adopted, have meant that the Northeast Asian states would
be more equal in the process and, given the greater economic and strategic weight of these states, there would besome danger that the Northeast Asian states—China, Japan and South Korea—might come to dominate the EAS.
This was not to be.
Rather than being limited to the A+3 states, the EAS that emerged took the effort to include other states.
There was considerable discussion on who should or should not attend the first EAS. Criteria was discussed andfinally agreed to decide on states to be invited to the EAS, in addition to the ASEAN+3 states. The criteria
includes acceptance of the Treaty of Amity and Cooperation (TAC), a central agreement on interstate relations
among ASEAN states and others who agree to it, in relation to ASEAN. 2
2

Many find the TAC uncontroversial in that it reiterates principles of interstate cooperation and the peacefulsettlement of disputes that are drawn from the UN Charter. Indeed, to some the TAC has even been criticized as
being too bland. Some suggest, however, that the TAC requires neutrality and may run to counter bilateral defence
alliances with the USA or other countries. This suggestion is held by some notwithstanding that the Philippines
and Thailand, both original TAC signatories, are US allies.
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With this, the EAS expanded beyond the ASEAN+3 states and even beyond the geographic notion of
East Asia in including India and the Pacific-2 of Australia and New Zealand. The EAS has also agreed that stats tohost the future summits will, for the present at least, be confined to the ASEAN member states.
The EAS that has eventuated has several characteristics that differ from the original idea of the A+3
evolving to become the EAS and, of course, the older idea of Mahathir for an EAEC. The first characteristic isthat ASEAN will remain the central hub of the new summit process. For all its relative weakness, ASEAN is themost acceptable central hub with the region, and the EAS recognizes and consolidates ASEAN’s role.
A second characteristic is the effect of the wider membership. To those who feared a possible
domination by China in tension with US interests, this offers expectations that the new framework would be morebalanced since Australia is a close US ally and US-India ties have grown much closer in recent years, and thisadds the US allies of Japan, South Korea, Thailand and the Philippines as well as Singapore (which has a strategic
framework with the USA) within the grouping.
A third characteristic is the decision to make the EAS a process that focuses on leaders, with a minimalof scripting and preparatory work by officials. Even when the leaders met, the format was a “1+1” allowing only
one other person in the main room with the leader. This has meant that the first EAS has provided a useful anddirect exchange among the leaders. It also means that the EAS does not enjoy a fuller bureaucratic system tofollow up (or indeed initiate) proposals. One benefit is that the EAS does not, in this regard, attempt to duplicate
the A+3 schemes of functional cooperation that have arisen.
A fourth characteristic of the EAS results from the first three. Given ASEAN leadership, the broader
membership, and the focus on leaders, we should expect that the EAS will move forward slowly. Indeed, theskeptic may wonder if indeed it will move forward at all. 3

In addition to these four characteristics of the EAS itself, there are external factors thatwill impact the progress of East Asian regionalism, and our perceptions of this phenomenon. Two
key factors are, first, the great triangle of relations between the USA, China and Japan; and,secondly, the developments within ASEAN.
The Great Triangle
It is not possible for this essay to do justice to the fuller considerations of the great triangle of relationsin the Asia Pacific between the USA, China and Japan, or even to any single leg of this triangle. It is however
important to sketch some of the ways in which this triangle impacts on East Asian regionalism.
Where the triangle is stable, and relations among these three major powers is relatively settled, East
Asian regionalism is unlikely to be seen as a possible threat by the USA, or cause fear of American exclusion.
Conversely, where relations within the triangle are tense, this possibility is increased. The prospects of East Asian
regionalism are therefore affected by changes in the great triangle.
This is perhaps most clearly seen in the US-China relationship. This relationship has gone throughvarious ups and downs during the Bush administration alone. At present, it seems to be heading towards anincreased sense of competition and tension. There are economic issues such as the trade surplus and question of
the value of the Yuan. There are security issues such as China’s rearmament, as strongly raised by US Defence
Secretary Rumsfeld, as well as the question of cross-straits ties. There are perennial questions about democracy,
human rights and standards in environmental protection and labour rights. As a whole, some might feel that thereis broad, if strange, coalition of Americans against China: from the union-friendly freeing the loss of3

Looking forward, some now suggest that countries like Russia and Pakistan should join in the EAS. Thisremains to be agreed. If the EAS is expanded to include these states, some fear it may become (more) unwieldly.
122competitiveness and jobs, to the hawkish right wingers, through to those advocating democracy and human rights
abroad.
On China’s part, there is also a segment who believe that a confrontation with the USA is inevitable
over these issues or, more generally, simply because the world has not known the peaceful co-existence of two
great powers. They see the US structure of alliances—both old as well as post-9/11—as efforts to encircle China,
not only in East Asia but also in Central Asia and much of the world. Such thinkers may therefore be supportiveof China’s current “charm offensive” and talk of its “peaceful rise”. But for them, unlike others, these are not aspermanent foreign policy, but only ways to win friends and political space and time for the time being, as thecountry grows and strengthens.
How does this impact the rest of East Asia? Looking at this US-China leg of the triangle, some would
trace one of the reasons for the inclusion of Australia and India for the EAS, as compared to the A+3. In the A+3
process itself, we may recall that when the process started, the USA felt relatively comfortable while it was Chinathat showed some initial resistance. Some among the Chinese expressed concern that the A+3 process was aimedby the rest of the Asian states at corralling China, like Lilliputians trying to tie down Gulliver. China’s emphasis,at that point, was to prefer bilateralism in its dealings with Asian states, notably in relation to conflicting claims
with different ASEAN member states over the South China Seas. However, more recently, China seems too much
more comfortable and indeed supportive of the A+3, and has also embraced intra-Asian multilateralism. On thestill fraught question of the South China Seas, it has supported a code of conduct among the claimant states. China
has conducted a very successful “charm offensive” and increased its influence among Asian states, including mostin ASEAN. Thus China has warmed to the A+3 process and has come to engage actively and prominently in theframework. Indeed, its presence in the A+3 has been so strongly felt that some have feared that, again like
Gulliver, China would not just burst the bonds tied by the Lilliputians, but pull them along at the end of the string.
How China responds to the EAS framework remains to be seen. But at present, my reading is that
China will go along with the EAS but is expecting that the A+3 will remain the more important and functional
regional framework. This view is also taken in a number of ASEAN member states, including Malaysia whohosted the EAS and has developed close relations with China.
The growing regional role and influence of China has impacted another leg of the great triangle,
between China and Japan. Sino-Japanese relations have remained poor and indeed grown more tense in recent
years. The visits by Japanese premier Koizumi to the Yasukuni shrine, and the protests in response to the visits,
are emblems of this, with violent protests in the streets of China and a diplomatic impasse to high-level meetings.
Worse, simmering beneath the shrine visits are wider and deeper differences about war time issues, and history
books. Looking ahead, the view is bifurcated. On one hand, the economic figures of trade and investment show
deep complementarities between the two economies, for mutual benefit. On the other hand, there appears to besome danger of a political competition and even conflict, underscored by China’s efforts to strength her militaryforces and develop its maritime capabilities, in tandem with Japan’s seeming wish to be a “normal” country withan unabashed military capacity. Nationalism in both countries seems to be resurgent and may be of a narrow,nastier type in some quarters.
These difficulties in Sino-Japanese relations matter a great deal to the project of East Asian regionalism.
East Asian regionalism would gain tremendously if these two Asian giants could come to a rapprochement, akinto the French-German partnership that drove European integration. East Asian regionalism can survive andproceed (albeit with some uncertainty and less pace) if Sino-Japanese relations are cool. But if Sino-Japaneserelations turn sharply for the worse—to a frosty cold or even boiling over—this could disrupt the early beginnings
of East Asian regionalism.
123In recent years, ASEAN member states have seen a form of positive competition between the two
giants in relation to them, as China and then Japan have come forward to offer FTAs and forms of assistance. But
this sense of positive competition may be turning for the worse. When we look at Japan’s ties to ASEAN member
states and to its nearest neighbour, South Korea, we may have to conclude that Japanese influence in the region
seems to have ebbed in a number of respects, despite its continuing largesse to many of the states in the region.
Given this, Japan seems to have faced something of a choice in its foreign policy priorities: whether tocontinue and intensify its efforts to strengthen relations with the rest of Asia, or to re-prioritise its relations with
the USA and a more global role, in tandem with the USA. While perhaps the choice is never as stark or clear,
there are signs and statements by Japanese leaders that they have chosen to re-prioritise their alliance with theUSA. An alliance once described as being adrift by the well known Japanese commentator, Yoichi Funabashi, has
now been celebrated by both American and Japanese leaders as a key priority.
There are those who expect that, as such, Japan will begin to play a larger role in global affairs,
including peace keeping and the use of its military power. If this characterization of Japanese policy choices iscorrect, this has a strong impact on the prospects of an East Asian regionalism that, while not being anti-American,
is more independent of the USA than it is presently.

What Can ASEAN Do?
In its near 40 years of existence, ASEAN has had its share of both critics and lovers. Criticisms
mounted especially after the 1997 financial crisis when the grouping was unable to cooperate to address the crossborder flows that affected so many of its member states, and also stood to one side on political and security issues,
such as the separation of East Timor from Indonesia. There was a sharp fall in ASEAN’s standing. In the years
since, the rise of China now occupy many more minds than the happenings in ASEAN. So too does India. A
visible sign of this was the decision by US Secretary of State Rice in 2004 whose first tour of Asia was marked bya visit to India and then to China, leapfrogging over Southeast Asia. In that same year, she skipped the annual
ARF.
In 2006, almost a decade after the crisis, how should we look at ASEAN? Is it a central and influential
player in Asia and the Pacific, or a powerless, marginal association? Has ASEAN responded to the challenges ofthese recent years, and what direction do these responses signal for the grouping?
There was an initial denial in some quarters that ASEAN needed to respond and change to thechallenges of globalization, as revealed in the 1997 crisis and its aftermath. However, more and more ASEAN
leaders and policy-makers have come to recognize that changes are needed. Changes are afoot within ASEAN.
These will evolve the “ASEAN way” and modes of cooperation among its member states. Indeed, these changes
will, if carried through, transform the grouping. These changes, moreover, are important not only to ASEAN
member states and their peoples as “internal” issues to ASEAN. Potentially, these changes will also have“external” consequences, to impact ASEAN’s standing and its ability to influence the relations among major
powers in the wider region.
ASEAN leaders at their summit in 2003 declared their ambition to create an ASEAN community. This
community will feature three pillars—in the spheres of economics, security and socio-cultural affairs—that arepresently being discussed and defined. The leaders have also commissioned an eminent persons group (EPG) toconsider an ASEAN Charter. These initiatives have been followed up with discussions and plans among ASEAN
officials. There is an understanding that grouping must go beyond the ASEAN Free Trade Agreement (AFTA)
towards greater economic integration. ASEAN Defence Ministers met in 2006, for the very first time. The Charter
EPG has met thrice and expects to deliver its report by end 2006.
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The ASEAN skeptic can of course point out that these are merely meetings, with no clear cut
deliverables to date. This is true. However, those watching ASEAN more closely may discern a difference in thelevel of ambition, and the conception of ASEAN. The agreement to move towards “community” is not banal, but
represents a quite radical change in conception for ASEAN, which for so long was seen and defended as an“association”. The differences between these concepts of “community” and “association” are considerable, andportend fundamental changes in how the ASEAN member states cooperate, and to what ends they should
cooperate. A new direction has been set.
The pace in which ASEAN can move in this new direction remains to be seen. Given the diversity ofits member states—in economics, political systems, culture and experience with the wider world—it will likely be
difficult to move quickly. However, the political will among most ASEAN member states to make those changes
is now higher than it has been before. There is more effort and thinking about making ASEAN’s workingsstronger and more efficient. Issues are being considered, like the norm of non-intervention, the weakness of theASEAN secretariat, and the lack of development assistance and transfers amongst ASEAN member states.
The need for ASEAN to go beyond official circles is also more recognized. Consultation with nongovernmental organizations, with businesses and with national Parliaments is beginning to change the circle ofvoices that guides developments in the region. Even more, efforts are beginning to reach out to the wider publics
in the member states; to make ASEAN better known to the peoples.
These internal changes represent a quite radical rethinking about ASEAN; not just by intellectuals andobservers, but also those who are in power, and advising governments. Before the crisis, most ASEANists
disregarded European models of community building as being unsuitable and unnecessary. Today, there is moreinterest in learning from other regional experiments, even if the mandate is to adapt and not to blindly adopt. We
should expect that ASEAN will change, more quickly than in the past, even if not fast enough to satisfy some.
As such developments unfold, ASEAN will move towards what some scholars have termed,“legalization”—with norms and rules that are agreed and then are monitored for compliance. This does notnecessarily mean that ASEAN will become as institutionalized and legalistic as some other regional groupings,
like the European Union. Nor will the ASEAN secretariat and organs be transformed overnight into autonomous
bodies like the European Commission. But these trends in the increased importance of rules, institutions and rule
compliance suggest a marked shift from previous ASEAN habits of informality and having very minimal
institutions. This is important work not only for ASEAN in itself, but for the grouping’s potential in influencing
regional order.
The changes outlined above promise to transform ASEAN internally. They also potentially affect how
ASEAN relates to other powers in the wider region. It has been an oft-declared ambition for ASEAN to be in thedriver’s seat for such relations; this aspiration remains in that place in the ARF. Doubts however have emerged in
the past years of the crisis about the ability and indeed the credibility of ASEAN in this role. Bilateral ties with the
USA have been reinforced. The rise of China and its influence has also been marked and some believe that it willseek to play a larger and perhaps dominant regional role. Others, looking at the continuing role of Japan and therise of India, suggest the rise of a concert of powers to accommodate the different Asian powers.
Some believe that, in this context, ASEAN is doomed to be a marginal presence. Yet, while it is truethat ASEAN cannot and does not harbor ambitions to contend for power, ASEAN is presently a default hub for
relations in the region. Looking forward, I would argue that ASEAN can indeed be a significant player as a “softpower” in the region. This conception of “soft power”, first developed by Joseph Nye, defines the ability to
influence and achieve one’s ends, even without the raw calculations of military strength and of economic prowess.

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ASEAN’s present place as a hub in the region is marked by three phenomena: the free trade
agreements in Asia; the ASEAN+3 process; and the East Asian summit. These are limited to Asian states andpossibly offer the beginnings of a regional order that gives expression to a nascent Asian regionalism.
The evolution of free trade and economic agreements among Asians is an example of this. The offer by
China to ASEAN for a free trade agreement (FTA) may be seen to be a major impetus for Japan to go beyond theeconomic partnership agreement that it concluded with Singapore (the JSEPA), and reach out to some ASEAN
member states with bilateral FTAs. After initial agreements with the Philippines, Thailand and Malaysia, it isexpected that Japan will also negotiate a wider FTA with ASEAN as a whole. These FTA developments have, inturn, played a part in influencing South Korea to begin a negotiation with ASEAN. Taken together with ASEAN
negotiations with Australia-New Zealand, and with India, we may surmise that ASEAN has become a default hub
for economic relations among the Asian states.
While some or much of this may result from the rivalries between China on one hand, and the USA,
Japan and US surrogates on the other, there are positive aspects of these developments for both ASEAN, and(arguably) for the wider region. For rather than splitting ASEAN and the region into two spheres of influence,thus far, these developments have helped East Asia take steps towards closer economic cooperation andintegration – albeit in a patchwork manner, rather than a grand design for community or union. The evolution of
the EAS is imprinted by these same factors. As discussed earlier in this essay, the EAS re-emphasizes the central
position for ASEAN to play in regional order, as a grouping most acceptable to all.
However, ASEAN must recognize the role it currently occupies is a default role. ASEAN is in thecentre not because of its intrinsic and irreducible strength or worth but because there is no other acceptable actor.
In some senses, ASEAN’s main “strength” is its relative weakness and neutrality. While ASEAN enjoys this hub
status, it should avoid choosing between aligning itself with one major power or another, either broadly or (worse)
permanently.
ASEAN should increasing work towards sharing perspectives towards the major powers anddeveloping common stances in their relations. This is ambitious, given the diversity among ASEAN member
states in their economic, political and cultural outlooks. But steps in this direction are not impossible; this isespecially true if we accept that the common points among ASEAN member states need not be comprehensive tocover all issues in advance, and instead seek to develop them more organically, in response to new undertakingsand events. For example, in the negotiation of the ASEAN-China FTA, ASEAN member states are finding that,
despite and because of their differences, they do best to sit down together to discuss and understand each other’s
positions before responding to China. Other examples show the possibility and strength of common agreement onpolitical and security issues: ASEAN’s common stance on China after the Mischief Reef incident in the early
1990s, and of course, the unity of the then ASEAN member states in pursuing their political campaign against theVietnamese occupation of Cambodia. In like manner, if ASEAN member states can confer amongst themselves onvital issues concerning the major powers, on a timely basis, they can similarly seek out shared positions that may
well accommodate their diversity, and better advance their common interests; somewhat akin to a limited form of
a common foreign policy.
In this way, ASEAN should aim to emerge as a “soft power” in the region, whose norms, values andinstitutions are admired as being acceptable and indeed something of a model for the region. Thus far, ASEAN’s
relations with the major powers in Asia (and indeed with each other) have predominantly been viewed through theoptic of realism and calculations of power. But this must change in the future and be complemented by a greater
recognition of the potential role of ASEAN as a “soft power”,
ASEAN is working towards greater integration among its member states and, in the process, reviewing
its norms and institutions for cooperation. We must expect that, in a number of areas, especially concerning
126

ASEAN economic integration, rules and rule enforcement within ASEAN will be more greatly emphasized thanin the past. The institutions of ASEAN, including the ASEAN secretariat and the meetings of the senior officials,
will also need to be consolidated and focused to be more efficient and effective. It is critical that ASEAN mustemphasize and work towards ASEAN community, the “internal” goal discussed earlier.
These internal and external changes and challenges intertwine for ASEAN. The role for ASEAN in theregion cannot be predicated on calculations of power. Rather, if ASEAN is to influence the region, its
contributions and role will be in the nature of developing norms and institutions for the wider region. Part of thesewill inevitably draw from ASEAN norms and modes of cooperation. For example, in the coming together of theEAS, each attending state was required to have accepted the ASEAN Treaty of Amity and Cooperation. This
exemplifies the ability and use of having ASEAN serve to guide the regional development in terms of its norms
and values.
However, while ASEAN ways may be commended for the wider regional order, they cannot andshould not be commanded. Indeed, ASEAN must recognize that its own modes and norms are evolving, andremain open to change and improvement. This often reflects the internal changes within ASEAN member states.
For instance, the emphasis that ASEAN has brought to bear on the domestic situation in Myanmar is not merelyreflective of the downward trend in that country. It also reflects the upsurge in the ethos of democracy amongsome other member states, especially in post-Suharto Indonesia. This emphasis on democracy would have been
unimaginable in the pre-crisis ASEAN. It demonstrates how ASEAN is evolving and incorporating new norms
and values into its expectations for its member states and how they are to cooperate with each other.
Such an evolution stands ASEAN in good stead. The potential contribution of ASEAN lies not intrying to balance power with power in Asia. ASEAN’s potential in influencing the regional order lies instead in a
renewed form of “open regionalism” with norms and values, and the development of ASEAN “soft power” inhandling its own region and also providing possible models for wider regional cooperation and order.

How We Should RespondBased on the observations offered above, I shall now turn to some policy recommendations for those
Asians in the EAS, for ASEAN, and for the USA.
The future of East Asian regionalism and community does not lie, however, exclusively within Asian
hands. Given the role of the USA in the region, what it does and how it responds is important and indeed criticalto the emerging regionalism. There is some sense that East Asian regionalism has come this far, towards the first
EAS, because Washington DC did not notice it, or if it did, that it was comfortable that its primary interests would
not be adversely affected. Otherwise, some believe, that an American “veto” would have been exercised, as it wasagainst Mahathir’s proposal for an East Asian Economic Grouping.
During the ASEAN+3 processes, US suspicion and antagonism was largely avoided. This is due, inpart, to the pre-existing APEC framework that has not been displaced by the ASEAN+3. Another positive factor
was the generally supportive attitude of most East Asian countries to the USA, post-9/11, despite the sentiment ofsome of the peoples of the region. A third factor was that the USA seems to have been preoccupied and, if indeed
Washington DC’s thinkers considered the prospects of East Asian regionalism, thought it very limited. Thisappears to be changing with the EAS. While American interest in East Asia is critical and much wanted, a senseof alarm and American opposition to the EAS and East Asian community are unwarranted and would be counterproductive.
The USA can legitimately rely on its allies and friends in the region to ensure that its/ their vitalinterests are not compromised by whatever might happen at the EAS. Indeed, all of East Asia would be wellserved if such bilateral dialogues between the USA and its Asian allies like Japan, Australia, Thailand, South
127

Korea and the Philippines, and other close friends like Singapore, would be energized and directed towards a
dialogue on the EAS and underlying issues and factors in East Asian regionalism. In this, I would hope that Asian
perspectives on the five factors that this paper has surveyed might be conveyed to the USA. This is especially as
regards different and varied Asian perspectives on the rise of China, and on America’s policies, post 9/11.
We should however have caution over what might be called, “excessive bilateralism” in which one ormore US allies and friends would be seen (or see themselves) as surrogates to protect any and all US interests tothe point that it might up-end the East Asian efforts at going forward. One sign of such “excessive bilateralism”
has been the suggestion that the US will engage in military training with Japan and Australia, which some haveregarded as a warming up of a potential alliance to counter and contain China. To be a useful friend to the USA in
Asia, these states will have to realize that they must be in and of Asia, as much as to be a US friend.
Having said what I hope the USA will not do, what positive suggestions can be offered? Given myargument that the ASEAN+3 and EAS cannot be the only mechanisms, I would point to the possibilities ofincreasing and deepening US engagement with East Asians in different forms. Two existing processes thatdeserve greater attention and effort are APEC and the ASEAN Post Ministerial Dialogue with the USA.
In asking that we relook at APEC, we should be reminded that APEC itself initially represented achange in US policies. In the 1990s, there was a policy shift for the US, through then Secretary of State Baker, toexpress support for a new Asia Pacific architecture, which would comprise a framework for economic integration,
a commitment to democratization, and a revamped defense structure for the region. The Clinton administrationembraced the concept of multilateral security dialogue as one of the four pillows of the ‘new Pacific community’,and expressed support for several potential areas of dialogue including APEC.
There were several considerations that contributed to Washington’s appraisal of policies and APEC,
but none was more important than the prediction that US power could no longer perform the coordinating rolecharacteristic of the Cold War period. The assessment by many in this period was that the two traditional pillars ofAmerican predominance in Asia—the American wallet in the form of its markets and overall financial presence,and the US security muscle from its bilateral alliances and military bases—were both diminishing assets.
This possibility has thus far remained unproven. Indeed, the past decade seems to have gone in the
opposite direction, with the USA emerging as the pre-eminent power.
Nevertheless, I would argue that APEC needs to be re-energized as an overarching relationship withPacific Asia (ASEAN, Northeast Asia, the Pacific-2 of Australia and New Zealand and India). This would be agood forum to address trans-Pacific issues, to place China-US relations in a broader context, and also to serve as asafety net in the event that, as was earlier predicted, traditional sources of American influence—of its economic
wallet and its security muscle—should wane. APEC’s broad agenda of cooperation can also be useful for the USA
to demonstrate a much broader engagement with Asia, beyond the sometimes singular focus on terrorism andsecurity.
Some have already suggested that the USA needs to be more mindful of public relations andperceptions in East Asia. I would go further to suggest that a real dialogue about US policies and theircommunication is needed, to guard against unintended consequences and the continued reduction of their “softpower” to influence and persuade, and serve as an example to be admired and emulated.
In re-looking at the ASEAN-US post ministerial conference, Americans sometimes wonder why theyshould bother at all with a grouping of ten smaller to middle sized countries. Terrorism post 9/11 has provided
something of an answer and reason for American attention to the region. But terrorism is also proving a narrowlens that obscures as much as it reveals.
One thing that seems to have been obscured is the relative importance of ASEAN in East Asian
regionalism. In addition to the ASEAN+3 process, it should be noted that ASEAN is the hub for trade and128

economic ties. There are also separate spokes under negotiation to link it to China, Australia-New Zealand, andIndia, as well as discussions of links to Japan and to South Korea. Much of this has been possible not because of
ASEAN’s strength—whether economic or in terms of security. Rather, it has been because of ASEAN’s politicalacceptability in providing a relatively neutral and positive hub to many different states in Asia.
Additionally, Some ASEAN member states like Singapore and Thailand have also shown themselves
to be capable of taking initiative through bilateral agreements and then helping steer the rest of ASEAN in thesame direction. ASEAN’s own integrative efforts towards an economic community, and with security and sociocultural communities coming after, also bear mention.
In this regard, it would serve the USA well to engage ASEAN more fully and in more rounded
perspectives as a means of remaining engaged and vital to East Asian developments. A free trade agreement withmore ASEAN member states or with ASEAN as a whole would be one policy option. At present, the USA has
only concluded an FTA with Singapore.
Another suggestion would be to have an ASEAN-US summit, regularly if not annually. China, Japanand others in East Asia already have such arrangements with ASEAN. I have previously suggested that, in part,
this can be achieved on the sidelines of the APEC Summit as seven out of the 10 ASEAN member states attend
the APEC Summit (from the US point of view, it is politically significant that Myanmar/ Burma is not one ofthem). This eventuated in 2005, in the months before the EAS. At the very least, this practice should be continued,
with the prospect of a full summit for the future.
In sum, to the Americans, I would make the following suggestions. First, the USA must accept andunderstand its exclusion from the first EAS and many of the emerging East Asian frameworks. Secondly, all EAS
states and especially those who are allies and friends of the USA should seek to ensure that while the EAS does
not include the USA as a participant, the vital interests that they share with the USA are sufficiently accounted forand protected. Efforts to convey this to the USA, both as intentions going into the EAS and as results emerging
from it, should be redoubled. To Asians and especially Americans, I suggest that we need to work to revive
relations across the Pacific and indeed take the existing relationships and institutions to new and higher levels. In
this, relations of the USA with states in Asia must broaden beyond the almost singular focus on the global war
against terrorism that some feel in dealings with Washington DC and rise above the existing base that provided by
the Asia Pacific Economic Cooperation (APEC) and the ASEAN Regional Forum (ARF) processes.
It is not however only the USA to whom I would offer policy suggestions in proceeding with East
Asian regionalism. Asians and ASEAN too have responsibilities to undertake.
To the Asians, I suggest that we should be prepared to develop closer intra-Asian cooperation on issuesof common concern, to deal with both regional issues as well as impacts arising from globalization. However,while we may wish for a rapprochement between China and Japan, this cannot be commanded and there are few
signs of a resolution at hand. Without this, I suggest that East Asians must be prepared to be patient and work forthe long term, and through a series of patchwork and more limited cooperative schemes, rather than expecting aclear regional vision to be annunciated and agreed shortly.
Therefore, for the near and middle term, East Asia will be more of a framework for cooperation andunderstanding, rather than a “community”; a word that suggests many more and deeper shared bases and values
for coming together. East Asians will need a vision of their future, but they will also need pragmatism andpatience in their efforts to achieve those visions. Practically applied, East Asians may well have to accept thatmajor “hard security” issues such as the cross Straits issue and North Korea will be beyond East Asians for thepresent and foreseeable future, and be slower and more diffident in approaching issues of political and security
concerns.
129East Asians may wish instead to focus on issues of functional cooperation and economic agreements.
These are of no lesser importance in many ways. Indeed, given different conceptions of security, if East Asians
can cooperate effectively on issues such as preventing a new financial crisis or pandemics, and dealing with major
natural disasters like the Tsunami and the earthquake in Java, these are arguably contributions that will benefit
ordinary Asians in ways that are as important (if not more so) than the hard security issues. If East Asians wish
for more ambition, their attention and cooperation in the middle term might turn to issues such as Myanmar—
which would centrally involve India and China alongside ASEAN—or Timor Leste.
To ASEAN, I suggest that they must recognize they are presently a hub for East Asia’s regionalism andmust seize this opportunity to contribute to the process positively. ASEAN’s role must however be recognized as
resulting from a default in relations among the major Asian powers, and cannot be taken for granted. ASEAN canand should therefore seek to grow into this default role by moving ahead clearly and quite quickly with its
ambitions for an ASEAN community, in the fuller sense of that word, “community”.
As it does go forward with these ambitions, ASEAN should also seek to emerge as a “soft power” inAsia, with a positive influence arising from the values, norms and institutions that it practices and embodies, as amodel for the wider region. The ASEAN processes and institutions, and the ASEAN Regional Forum, must be
strengthened accordingly. ASEAN member states must also continue to strengthen their habits of dialogue on
issues on which they will face differences and seek to find more common positions and indeed policies in respectof important issues in their relations with the major powers. The national interests of each ASEAN member state
does not need to be abandoned, but skilful diplomacy and some degree of restraint will be needed to bring
ASEAN closer together and make it more effective in the wider region.

Conclusion: Visions, Contingencies and Assurances
Some hanker for a longer-term vision or roadmap for East Asian regionalism. This is notnotwithstanding the fact that an East Asian Vision Group, formed by experts and eminent persons, has concluded
its work some years ago with a broad report. Like Europe, they hope for politicians and others to give regularaffirmation to an ideal of union, of community, or some other form of deeper association and integration in theregion.
There are very real limits to a realism that is bereft of ideals and broader visions and values. Yet I
would argue that ideals, visions and values in East Asia should be more appropriately developed over the longer
term, rather than concocted here and now by governments or their surrogates.
There are doubts, contestation and differences among East Asian members that I have touched upon
and that cannot be wished away. Given this, if we were to attempt another vision, the vision would in some ways
be captive to these differences. As such, rather than a vision that might unify the governments and peoples of theregion, it may instead divide them.
A hasty declaration of visions, values and ideals for East Asian regionalism may also unnecessarily
upset relations with the USA. This is not just an issue for those in the region who are friends and allies of the USA,but also for those whose relations remain in balance, or are in flux.
For much that is happening in East Asian regionalism is necessarily contingent and contested. This is
not only the situation within and among Asians, with different histories, priorities and hopes. The sense ofcontingency and contestation is also present when we think, as we must, of the relations between a more
institutionalized East Asian process and identity and the USA, which has been for so long and is still in many
respects the predominant pillar of the region, even if it is not physically part of it.
What we should therefore seek to offer in the near term, over the next few years, is not a new vision of
East Asia or a categorical decision about Asia-American relations. Assurances instead should be offered.
130

These assurances relate to the principles for East Asian regionalism that should be preferred—such as
its openness and functionality—as well as to the willingness and even fond wish to broaden and deepen
engagement with the USA in parallel to East Asian regionalism.
Such assurances do not of course settle things for the long term. However, I hope that if given andtaken, such assurances would allow the emerging and still nascent sense of East Asian regionalism to go forwardwith an America that is not watching as an outsider in alarm or opposition, nor ignoring these developments.
Rather, with these assurances, Asians can hope for an America that is fully engaged and watchful with both
anticipation and awareness that if things go right, East Asian regionalism can better serve both Asia and US
engagements in Asia.

131

Selected References•

Amitav Acharya, The Quest for Identity: International Relations of South East Asia, Oxford University
Press, 2000.

•

Lowell Dittmer, “East Asia in the New Era in World Politics”, World Politics, Vol. 55, No. 1 (Oct. 2002),
p. 52

•

Louise Fawcett and Andrew Hurrell, eds., Regionalism in World Politics: Regional Organization andInternational Order (Oxford: Oxford University Press, 1995).

•

Rosemary Foot et al (eds.) Order and Justice in International Relations, Oxford University Press, 2003.

•

Funston, J. (1998), ASEAN: Out of its Depth. In Contemporary Southeast Asia, Vol.20 No.1 (April).

•

J. Garofono, “Power, Institutions and the ASEAN Regional Forum”, Asian Survey 42(3) (May/ June
2002), p.502-521.

•

Goldstein, Judith, et al (eds.) Legalization and World Politics, MIT Press, 2001•

JCIE, Cross Sectoral Partnerships in Enhancing Human Security, Third Intellectual Dialogue on Building
Asia’s Tomorrow, JCIE 2000.

•

Victor Mallet, “Introduction: A Miracle that Went Sour”, in the Trouble with Tigers, 1998, p.1-23.

•

Joseph Nye, The Paradox of American Power (London: Oxford University press, 2002).

•

TV Paul and John Hall (eds.) International Order and the Future of World Politics, Cambridge University
press, 1999.

•

Peter Preston, “Reading the Asian Crisis: History, Culture and Institutional Truths”, Contemporary
Southeast Asia, Vol. 20 No.3, Dec 1998, p.241-260.

•

Ruggie, J. (1993). Multilateralism: The Anatomy of an Institution. In J. Ruggie (ed.), Multilateralism
Matters: The Theory and Praxis of an Institutional Form. New York: Columbia University Press.

•

Simon SC Tay, Hadi Soesastro and Jesus Estanislao (editors) Reinventing ASEAN, ISEAS 2001.

•

Simon SC Tay (editor), “Sketching Regional Futures: Pacific Asia in 2022”, JCIE 2004.

•

Simon SC Tay, “ASEAN and East Asia; A New Regionalism?” in Reinventing ASEAN (ISEAS, 2001),
p.206-225.

•

See Simon SC Tay, Asia, America and Global Governance, published in Global Governance (Winter
2003)

•

Simon SC Tay, A More Insecure World: Conflicting Perspectives, Security Dialogue, Vol 36 (3): 402404, Sage publications, 2005.

•

Tay, S. (1996), Human Rights, Culture and the Singapore Example. McGill Law Journal, Vol.41 No.4
(August).

•Tay, Simon, “Asia and the United States After 9/11: Primacy and Partnership across the Pacific”, in the
Fletcher Forum on International Affairs, Vol. 28:1 Winter 2004, at p. 113-132.

•

Walt, S. (1987), The Origins of Alliances. Ithaca: Cornell University Press.

•

Waltz, K. (1979), Theory of International Politics. Reading, Massachusetts: Addison-Wesley Publishing
Company.

132

8. (1)

Program
The 2 nd International Workshop
on “An East Asian Community and the United States”
June 20-21, 2006

Sponsored by the Council on East Asian Community (CEAC)
Co-Sponsored by the Pacific Forum CSIS
Supported by the Japan Foundation Center for Global Partnership (CGP)

Tuesday June 20, 2006
17:30

Registration

18:00-20:00“Aries”, 37 th Floor, ANA Hotel Tokyo

Welcome Dinner hosted by Prof. ITO Kenichi, President, CEAC

Wednesday June 21, 2006
International Workshop“Conference Room,” the Japan Forum on International Relations, Tokyo

9:15-9:45

Workshop Objective and Overall Assessment

Opening

Opening

Prof/Amb. ISHIGAKI Yasuji, Vice President, CEAC

Introductory Remarks (15 min) Prof. TANAKA Akihiko, Professor, the University of Tokyo
Introductory Remarks (15 min) Mr. Ralph COSSA, President, the Pacific Forum CSIS
9:45-10:35

Session 1

Emerging East Asian Community? - Political Process (Chapter 1)

Moderator

Prof. TANAKA Akihiko

Presenter (10 min)Dr. JIMBO Ken, Senior Research Fellow, the Japan Forum on International
Relations (JFIR)

Commentator (10 min)Dr. Prapat THEPCHATREE, Chair, ASEAN Studies Program, Institute of
East Asian Studies, Thammasat University

Commentator (10 min)Prof. Jae Ho CHUNG, Professor and Chair, Department of International
Relations, College of Social Sciences, Seoul National University

Free Discussions (20 min)All Participants

10:35-11:25

Economic Integration in East Asia: Trade (Chapter 2)

Session 2

Moderator

Prof. TANAKA Akihiko

Presenter (10 min)Prof. URATA Shujiro, Professor, Waseda University

Commentator (10 min)Dr. Charles MORRISON, President, the East-West CenterFree Discussions (30 min)All Participants

11:25-12:15

Economic Integration in East Asia: Financial and Monetary Development (Chapter

Session 3

Moderator

Mr. Ralph COSSA

Presenter (10 min)Prof. SHIRAI Sayuri, Professor, Keio University

Commentator (10 min)Prof. URATA Shujiro

Free Discussions (30 min)All Participants13312:20-13:20

Business Lunch

13:30-14:20

Session 4

Seventh Heaven (Chinese Restaurant)
Political and Social Integration in East Asia? (Chapter 4)Moderator

Mr. Ralph COSSA

Presenter (10 min)Dr. FUKUSHIMA Akiko, Director of Policy Studies and Senior Fellow,
National Institute for Research Advancement (NIRA)

Commentator (10 min)Dato’ Mohamed JAWHAR Hassan, Chairman and CEO, Institute ofStrategic and International Studies Malaysia

Commentator (10 min)Mr. Simon TAY, Chairman, Singapore Institute of International Affairs

Free Discussions (20 min)All Participants

14:20-15:10

Cultural Diversity and an East Asian Community (Chapter 5)

Session 5

Moderator

Mr. Ralph COSSA

Presenter (10 min)Prof. AOKI Tamotsu, Professor, Waseda Univesity

Commentator (10 min)Dr. Edy PRASETYONO, Head of Department of International Relations,
Centre for Strategic and International Studies (CSIS)

Commentator (10 min)Prof. Jae Ho CHUNG

Free Discussions (20 min)All Participants

15:10-15:25

Coffee Break (15 min)

15:25-16:15

Session 6

An East Asian Community and the United States: US View (Chapter 6)

Moderator

Prof. TANAKA Akihiko

Presenter (10 min)Mr. Ralph COSSA

Commentator (10 min)Dato’ Mohamed JAWHAR Hassan

Commentator (10 min)Dr. Charles MORRISONFree Discussions (20 min)All Participants

16:15-17:05

Session 7

An East Asian Community and the United States: East Asian View
(Chapter 7)

Moderator

Prof. TANAKA Akihiko

Presenter (10 min)Mr. Simon TAY

Commentator (10 min)Mr. Ralph COSSA

Commentator (10 min)Dr. Edy PRASETYONOFree Discussions (20 min)All Participants

17:05-17:55

General Discussions

Wrap-up Session

Co-Moderators (10 min)Prof. TANAKA Akihiko

Co-Moderators (10 min)Mr. Ralph COSSA

Free Discussions (30 min)All Participants

18:00-20:00

Working Dinner hosted by Prof. TANAKA Akihiko (Lawry’s The Prime Rib)134

8. (2)

Participants List

<Indonesia>
Dr. Edy PRASETYONOHead of Department of International Relations, Centre for Strategic
and International Studies (CSIS)<Japan>Prof. TANAKA Akihiko

Professor, the University of Tokyo

Prof. AOKI Tamotsu

Professor, Waseda University

Dr. FUKUSHIMA Akiko

Senior Fellow and Director of Policy Studies, National Institute for
Research Advancement (NIRA)

Prof. URATA Shujiro

Professor, Waseda University

Prof. SHIRAI Sayuri

Professor, Keio University

Dr. JIMBO Ken

Senior Research Fellow, the Japan Forum on International Relations(JFIR)<Korea>Prof. Jae Ho CHUNG

Professor and Chair, Department of International Relations, College ofSocial Sciences, Seoul National University<Malaysia>
Dato’ Mohamed JAWHAR Hassan Chairman and CEO, Institute of Strategic and International Studies
Malaysia<Singapore>
Mr. Simon TAY

Chairman, Singapore Institute of International Affairs<Thailand>
Dr. Prapat THEPCHATREE

Chair, ASEAN Studies Program, Institute of East Asian Studies,Thammasat University<USA>
Mr. Ralph COSSA

President, the Pacific Forum CSIS

Dr. Charles MORRISON

President, the East-West Center<CEAC>
Prof. ITO Kenichi

President, CEAC

Prof/Amb. ISHIGAKI YasujiVice President, CEAC

<GFJ>
Amb. KAI Noritake

Governor, the Global Forum of Japan (GFJ)
In Alphabetical Order1358. (3)Curriculum Vitae of Participants<Indonesia>
Dr. Edy PRASETYONOHead of Department of International Relations, Centre forStrategic and International Studies (CSIS)
B.A. from University of Indonesia in 1989, and MA and Ph.D. from Birmingham University in 1999
and 2001, respectively. Served as a visiting fellow, Japan Institute of International Affairs (JIIA)(1991), a visiting researcher, Australian Defense Studies Center (1993), and a visiting lecturer, Air
Force Staff College (1992-1997). Concurrently, serving as a member of the Indonesian Committee,
Council for Security Cooperation in Asia Pacific (CSCAP), a visiting lecturer at the Naval Staff
College, Indonesia, and visiting lecturer of Joint Staff College Indonesia. His research interests
include security issues in Asia Pacific, defense and military studies.

<Japan>Prof. TANAKA Akihiko
Professor, the University of Tokyo
B.A. from the University of Tokyo, Ph.D. from Massachusetts Institute of Technology. Served invarious positions including Visiting Professor, Rhur-Universitaet (1986-87), Senior Associate Member,
St Antony’s College, Oxford (1994-95), Member, Asia-Europe Vision Group (1998-99), Member, East
Asia Vision Group (1999-2001), Member, Initiative toward Japan-ASEAN Comprehensive Economic
Partnership Discussion Group (advisory group for Chief Cabinet Secretary) in 2002. His research
includes theories of world politics, contemporary international relations in East Asia, and issues inJapan-U.S. relations.
Prof. AOKI Tamotsu
Professor, Waseda University
B.A. and M.A. from the University of Tokyo, and Ph.D. from Osaka University. Served as Professor,
Osaka University, the University of Tokyo, and National Graduate Institute for Policy Studies, andChairperson of the Prime Minister’s Committee on the Promotion of Cultural Diplomacy of Japan.
Received the Medal of Purple Color from the Government of Japan in 2000. Concurrently, serving as
Chairperson of Cultural Policy Committee of Cultural Agency, Ministry of Education, Science andSports.
Dr. FUKUSHIMA Akiko

Senior Fellow and Director of Policy Studies, National Institute for
Research Advancement (NIRA)
M.A. from the School of Advanced International Studies at Johns Hopkins University and Ph.D. from
Osaka University. Served as Adjunct Professor, Keio University (2000-02), Visiting Professor,
University of British Columbia (2002-03), and Visiting Professor, Kuwait University in 2005. Served
as members for numerous committees of the Japanese government including the Defense Strategy
Study Group and the Defense Agency’s Council on Defense Facilities.

Prof. URATA Shujiro
Professor, Waseda University
B.A. from Keio University in 1973, and M.A. and Ph.D. from Stanford University in 1976 and 1978
respectively. His specialized fields include International Economics and Development Economics.
Served as Director General, Research Institute, People’s Finance Corporation (1997-99) and Professor,
Waseda University, School of Social Sciences (1994-2005), and currently Professor, Graduate Schoolof Asia-Pacific Studies. Concurrently serves as Research Fellow, Japan Center for Economic Research,and Faculty Fellow, Research Institute of Economy, Trade and Industry.
Prof. SHIRAI Sayuri
Professor, Keio University
M.A from Keio University in 1989. M.Phil. and Ph.D. in Economics from Columbia University in1991 and 1993 respectively. Her research interests include international finance, finance/capital
market development, fiscal decentralization in Japan, and the Asian economy including India. Servedin the International Monetary Fund as an economist (1993-98) and the Asian Development Bank
Institute (2000-03) as a visiting scholar. Concurrently a member of various governmental advisory
and research committees including those in the Ministry of Finance, Cabinet Office, and Ministry of
Economy, Trade and Industry.

136

Dr. JIMBO Ken

Senior Research Fellow, the Japan Forum on International Relations (JFIR)
and Associate Professor, Keio University
Ph.D. from Keio University in 2005. Served as Research Fellow, the Japan Institute of International
Affairs (JIIA) (1999-2003), Director of Research, the Japan Forum on International Relations (JFIR)(2003-04), and Executive Secretary at the Council on East Asian Community (CEAC). His researchinterests include Japan-US Security Relations, Multilateral Security in Asia-Pacific, and Regionalism
in East Asia. Also serves as a foreign policy advisor at the Foreign Affairs Division, Policy ResearchCouncil at Liberal Democratic Party (LDP) and as an adjunct consultant on foreign policy at
Democratic Party of Japan (DPJ).

<Korea>Prof. Jae Ho CHUNG

Department of International Relations, College of Social Sciences,
Seoul National University
Ph.D. from the University of Michigan in 1993. Served as Visiting Senior Fellow, East Asian Institute,
National University of Singapore (2004) and NAPS Fellow, The Brookings Institution (2002–2003).
Concurrently, serves various positions including Advisory Council Member, Ministry of Unification,
Advisory Council Member, National Security Council and KIDA-Fellow, Korean Institute for
Defense Analysis. He is the Founding Coordinator of the Korean Association of Chinese Political
Studies (KACPS). Specializing in Chinese politics, especially center-province relations andSino-Korean relations.

<Malaysia>
Dato’ Mohamed JAWHAR Hassan

Chairman and CEO, Institute of Strategic andInternational Studies Malaysia
Served in various positions in the government including Director-General, Department of National
Unity, Under-Secretary, Ministry of Home Affairs, Director (Analysis) Research Division, Prime
Minister’s Department, Principal Assistant Secretary, National Security Council, and Executive
Secretary, Border Security Committee Malaysia/Thailand. Concurrently Member, National Unity
Advisory Panel, Member, Penang State K-ICT Council, and Secretariat Council for Security
Cooperation in Asia Pacific.

<Singapore>
Mr. Simon TAY
Chairman, Singapore Institute of International Affairs
LL.B Hons. from National University of Singapore, LL.M from Harvard University, and Fulbright
Scholar at Harvard Law School (1993-94). Served in various positions including Adviser to theSingapore delegation to the WTO Ministerial meeting in 1999, Senior Member of the Singapore
delegation in the World Summit on Sustainable Development in 2002, and Nominated Member of theSingapore Parliament (1997-2001). Currently serves on a number of international and regional expert
and eminent person panels, including the ASEAN Regional Forum register of eminent persons andexperts, the APEC peer review process on trade, and the Eminent Persons Group on the
ASEAN-Japan Centre.
<Thailand>
Dr. Prapat THEPCHATREE

Chair, ASEAN Studies Program, Institute of East Asian Studies,Thammasat University
B.A. in Political Science (International Affairs) from Thammasat University; M.A. in Political
Science (International Relations) from Ohio University; Ph.D. in Political Science (International
Relations) from University of Georgia. Served positions such as Counsellor, Division 4, East Asian
Department, MFA; Director of Center for International Policy Studies (CIPS), and Associate Dean for
Research and Development, Faculty of Political Science, Thammasat University. His researchinterests are ASEAN, Thai Foreign Policy, Foreign Policy Analysis, International Security, andInternational Political Economy. Also the Vice President of the Association for American Studies inThailand.

137

<USA>
Mr. Ralph COSSA
President, Pacific Forum CSIS
Served in the United States Air Force (1966-93), achieving the rank of Colonel, and last serving as
Special Assistant to the Commander-in-Chief, U.S. Pacific Command. Served previously as Deputy
Director for Strategic Studies, the National Defense University's Institute for National Strategic
Studies. Concurrently Board Member of the Council on U.S.-Korean Security Studies and the
National Committee on U.S.-China Relations (NY), Member of the International Institute forStrategic Studies (London) and the Asia Foundation's Task Force on America's Role in Asia. Also,
Member of the ASEAN Regional Forum (ARF) Experts and Eminent Persons Group and Founding
Member of the Steering Committee of the multinational Council for Security Cooperation in the Asia
Pacific (CSCAP).
Dr. Charles MORRISON
President, the East-West Center
Ph.D. in international relations from Johns Hopkins School of Advanced International Studies.
Serving as an international chair of the Pacific Economic Cooperation Council (PECC). Founding
member of the U.S. Asia Pacific Council, the U.S. National Committee for Pacific Economic
Cooperation and a member of the U.S. Committee for Security Cooperation in Asia Pacific. Served asa chair of the U.S. National Consortium of APEC Study Centers, a director of the Center's Programon International Economics and Politics and a former U.S. Senate aide and a research adviser tobinational Japan-U.S. commissions. He specializes in issues on Asia Pacific international relations
U.S. Asia policy and trade policy.
<CEAC>
Prof. ITO Kenichi
President, CEAC
Graduated from Hitotsubashi University and studied at Harvard University. Entered Japanese Foreign
Service in 1960 and served various positions, including embassies in Moscow, Manila, Washington
and Director of First Southeast Asian Division until 1977. Since then until 2006 he was a professor ofinternational politics at Aoyama-Gakuin University. He concurrently serves as a founding presidentof the Japan Forum on International Relations (JFIR), the Global Forum of Japan (GFJ) and theCouncil on East Asian Community(CEAC). He is also a professor emeritus of Aoyama- Gakuin
University.
Prof/Amb. ISHIGAKI YasujiVice President, CEAC
B.A. in Law from Tohoku University and B.A. in Government from Oberlin College, U.S. Entered
the Ministry of Foreign Affairs in 1959 and served various positions including Director, Southwest
Asia Division, Deputy Director-General, U.N. Bureau, Amb. to the Dominican Republic and Jamaica(1992-94), Lebanon (1994-97), and Finland and Estonia (1998-2000). Concurrently serves as
Professor, Tokai University Law School (International Law) and Councilor, the Japan Forum on
International Relations. Current position since 2005.
<GFJ>
Amb. KAI Noritake
Governor, GFJ
Graduated from Hitotsubashi University. Entered the Ministry of Foreign Affairs in 1964. Served
various positions including Director of the First Africa Division, Deputy Chief of Protocol,
Ambassador to Panama, Ambassador to Lebanon, Ambassador to Tunisia, Professor at Kagoshima
Prefectural College in 2003. Concurrently, Executive Director of the Japan Forum on International
Relations.
In Alphabetical Order138

CC-E-IV-0003

The Council on East Asian Community (CEAC)
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