Order Code RL33653
CRS Report for Congress
Received through the CRS Web
East Asian Regional Architecture: New Economic
and Security Arrangements and U.S. Policy
September 18, 2006
Dick K. Nanto
Specialist in Industry and Trade
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
East Asian Regional Architecture: New Economic and
Security Arrangements and U.S. Policy
Summary
The end of the Cold War, the rise of China, globalization, free trade agreements,
the war on terror, and an institutional approach to keeping the peace is causing
dramatic shifts in relationships among countries in East Asia. A new regional
architecture in the form of trade, financial, and political arrangements among
countries of East Asia is developing that has significant implications for U.S.
interests and policy. This report examines this regional architecture with a focus on
China, South Korea, Japan, and Southeast Asia. The types of arrangements include
bilateral free trade agreements (FTAs), regional trade pacts, currency and monetary
arrangements, and political and security arrangements.
The East Asian regional architecture is supported by two distinct legs. The
economic leg is strong and growing more intense. A web of bilateral and regional
FTAs is developing. Both an East Asia FTA (with 13 nations) and an Asia FTA
(with 16 nations) are being discussed. In contrast, the political and security leg
remains relatively underdeveloped. The most progress has been made with the
Association of South East Asian Nations playing the role of convener and has taken
the form of the ASEAN Security Community (10 Southeast Asian nations) and
ASEAN Regional Forum (25 nations, including the United States). In Northeast
Asia, the six-party talks aimed at resolving the North Korean nuclear program have
been operating on an ad hoc basis.
As U.S. policy toward economic and security arrangements in East Asia
evolves, it is turning on matters of intensity, inclusiveness, and final structure.
Should the United States intensify its efforts to either hinder or support the
architecture? Who should be included in the arrangements? Should the groupings
be exclusively Asian? On the economic side, current U.S. policy appears to hedge
by not trying to block attempts to create exclusive Asian FTAs but doing deals to
keep from being cut out from their benefits. On the security side, U.S. interest in
stability, counter-terrorism, and nonproliferation in East Asia is so great that the
United States has sought a seat at the table when Asians meet to talk and often leads
in attempts to resolve contentious issues. The East Asian Summit excluded the
United States, but Washington has called for a Northeast Asia Regional Forum that
would include the United States, China, Russia, Japan, and South Korea.
At the core of U.S. concern over the developing regional architecture in East
Asia is the growing influence of China. A danger exists that if China comes to
dominate regional institutions in East Asia, it could steer them down a path inimical
to U.S. interests. Some Asian nations, however, are wary of excessive Chinese
influence and are hedging and maneuvering against possible Chinese dominance.
Others would reject an overt American policy of containment of China.
The final question for the policy deliberations on trade and security
arrangements in East Asia is what form the architecture will take. The industrialized
world seems to be evolving into three distinct blocs, but a trans-Pacific trade and
security arrangement is possible. This report will be updated periodically.
Contents
Reshuffling the Asian Deck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Why Join Together? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regional Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Regional Economic and Financial Arrangements . . . . . . . . . . . . . . . . . . . . . . . . 10
Existing FTAs and Those Being Negotiated . . . . . . . . . . . . . . . . . . . . . . . . 10
Asia Pacific Economic Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Proposed Asia Free Trade Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Cooperative Financial Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Regional Political and Security Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ASEAN and the ASEAN Security Community . . . . . . . . . . . . . . . . . . . . . . 19
ASEAN + 3 (China, Japan, and South Korea) . . . . . . . . . . . . . . . . . . . . . . . 20
ASEAN Regional Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
East Asia Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Shanghai Cooperation Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Six-Party Talks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Proposed Northeast Asia Regional Forum . . . . . . . . . . . . . . . . . . . . . . 24
Track Two Dialogues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Pacific Command . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
U.S. Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Visions for East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Asian Regionalism and U.S. Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Economic Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Disengage from Regional Institution Building in Asia . . . . . . . . . . . . . . . . 35
Continue Current Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Increase Regional Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
List of Figures
Figure 1. Types of Trading Arrangements (by Intensity) . . . . . . . . . . . . . . . . . . . 9
Figure 2. East Asian Regional Arrangements — Existing and Proposed . . . . . . 20
List of Tables
Table 1. Regional Trade Agreements, Negotiations, and Discussions by
Selected East Asian and Other Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
East Asian Regional Architecture: New
Economic and Security Arrangements and
U.S. Policy
The shrinking of the remnants of the Cold War in Asia is causing a fundamental
rethinking of interests and relationships among the countries and economies of East
Asia. For a half century following World War II, East Asia was divided into two
blocs: communism on one side confronting the United States and U.S. allies on the
other. Smaller countries at sundry times were ensnared in the confrontation, and in
cases — such as in Korea and in Vietnam — the great power rivalry manifested itself
in intense, but limited, warfare. International trade patterns tended to follow political
alliances with the American market serving both as the anchor of the Asia Pacific
economy and as the preferred export destination for many of the non-communist
countries.
Now a tectonic shift is occurring in the landscape in East Asia. Five forces are
driving these shifts: (1) the rise (re-emergence) of China and its jockeying for
influence and leadership with Japan and South Korea and other Asian countries, (2)
globalization and the cross-border expansion of corporations and supply chains,
including supplies of energy and raw materials, (3) liberalized trade and investment
flows, (4) the global war on terrorism, and (5) the rise of the European security model
(keeping the peace through progressive institution building and increased stakeholder
relationships) to challenge balance-of-power realism (keeping the peace through a
confrontational stalemate among big powers).
The purpose of this report is to examine the developing regional architecture —
the growing trade, financial, and political arrangements among countries of East Asia
— and what that implies for U.S. interests and policy. The focus is on China, South
Korea, Japan, and Southeast Asia with some mention of links with Australia and
New Zealand. The types of arrangements include bilateral free trade agreements
(FTAs), regional trade pacts, currency and monetary arrangements, and political and
security arrangements.
The East Asian regional architecture is supported by two distinct legs. The
economic leg is strong and growing more intense. A web of free trade and regional
monetary agreements is developing rapidly. It is driven primarily by the quest for
business profits, for economic stability, and for high rates of economic growth.
While East Asia lags behind North America and the European Union in the extent
and depth of economic integration, the region is catching up quickly despite strong
historical animosities that chill otherwise warm economic relations — particularly
among Northeast Asian nations.
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East Asia is home to many of the most dynamic economies in the world, and
competition is intensifying to join in regional trade agreements. Beginning with the
ASEAN1 FTA in 1992 (an agreement that lowered but did not eliminate
intra-regional tariffs), the momentum for countries in Asia to conclude FTAs both
among themselves and with countries outside the region has been increasing.
Singapore, in particular, already has FTAs with ten nations and is negotiating a half
dozen more. Indonesia, Thailand, Malaysia, the Philippines, and Vietnam in ASEAN
as well as Japan, South Korea, and Taiwan also have been reaching out to establish
free trade with willing partner countries. China also has ridden the crest of FTA
fever with a notable deal with ASEAN.
The political and security leg of the East Asian regional architecture remains
relatively underdeveloped. The most progress has been made with ASEAN playing
the role of convener and has taken the form of the ASEAN Security Community2 and
ASEAN Regional Forum (ARF).3 In Northeast Asia, the six-party talks aimed at
resolving the North Korean nuclear program have been operating in fits and starts on
an ad hoc basis. Unlike closer economic ties that tend to benefit both sides (positive
sum), security arrangements may pull in strategic competitor countries in an attempt
to resolve difficult issues that benefit one at the expense of another (zero-sum).
Political and security fora, furthermore, usually exclude the very officials most
involved with security issues — the military. In Asia, military relations tend to be
conducted on a country-to-country basis rather than through regional institutions.
Regional security meetings tend to be attended by foreign affairs ministers or their
representatives rather than by defense chiefs, and they often result in “talk and photo-
ops” rather than in actual problem solving or confidence building. Still, pressures for
greater security cooperation are being driven by the boom in economic interchange
and its concomitant requirement for political stability. Also, the transnational
character of security threats (particularly with terrorism, illegal narcotics, and
weapons proliferation), and a need to replace the Cold War structure with something
more cooperative and less prone to generating hostility begs for a political/security
organization for East Asia that is less process-oriented (meetings) and more directed
toward functions and achieving concrete results. Asia, moreover, still is rife with
nationalism and power rivalries operating in a 20th century fashion with interstate
conflicts and territorial disputes flaring up on occasion.
As U.S. policy toward economic and security arrangements in East Asia
evolves, it is turning on matters of intensity, inclusiveness, and final structure. The
whole region is moving toward formalizing trading and investment relationships
through free trade agreements or other such preferential trading arrangements. The
1 The Association of Southeast Asian Nations, or ASEAN, is an economic and political
association that includes its five 1967 founding members (Indonesia, Malaysia, Philippines,
Singapore, and Thailand) plus five countries who joined later (Brunei, Vietnam, Laos,
Burma/Myanmar, and Cambodia).
2 The security side of ASEAN.
3 The 25 participants in ARF include the ten members of ASEAN, the United States, China,
Japan, European Union, Russia, Australia, Canada, New Zealand, South Korea, North
Korea, India, Pakistan, Mongolia, Papua New Guinea, and East Timor.
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further development of these FTAs is likely to proceed regardless of U.S. action. The
United States also is in this game with negotiations ongoing for FTAs with South
Korea, Malaysia, and Thailand plus an existing FTA with Singapore. The United
States further is working toward an FTA with ASEAN as a whole, and various
interests have pushed for FTAs with Taiwan and Japan. A change in U.S. FTA
policy, therefore, seems one of intensity rather than direction. A question is whether
the United States should speed up the work by the U.S. Trade Representative to
conclude more FTAs with Asian economies or whether it should halt further efforts.
The questions of intensity and inclusiveness dovetail with each other. As the
intensity of FTA negotiations rises, the question of inclusiveness looms ever larger.
It is clear that many in Asia wish for an Asian-only organization that would be a
counterweight to the European Union and the North American Free Trade
Agreement. American interests in Asia, however, are so deeply ingrained and the
American presence so large that some argue that American interests need to be
represented whenever Asians meet. If the United States is not there, some feel that
China will assume the leadership mantle and work at cross purposes to American
interests. Should a future Asian FTA, for example, include only East Asia or should
it cross the Pacific Ocean as the Asia Pacific Economic Cooperation forum does?
For example, some are proposing an ASEAN + 3 (China, Japan, and South Korea)
FTA. Others may see, instead, an ASEAN + 4 FTA to include the United States.
Japan has proposed a 16-nation Asia free trade area to be coordinated by an
organization similar to the Organization for Economic Cooperation and
Development. The 16 nations would include the ten members of the Association of
Southeast Asian Nations, Japan, China, South Korea, India, Australia and New
Zealand. Current U.S. policy is to conclude bilateral FTAs with individual Asian
countries and work toward a U.S.-ASEAN FTA that would serve as a counterweight
to the China-ASEAN FTA now being implemented.
The reality with Asian nations is that some do not have the institutional and
industrial development necessary for a comprehensive FTA that meets U.S.
standards. With some countries, therefore, the United States can negotiate toward
an FTA (Malaysia, Thailand, and the FTA with Singapore already concluded), but
with others a TIFA is more appropriate (Trade and Investment Framework
Agreement that may specify areas for improvement needed before considering an
FTA). And with some, such as Vietnam, a bilateral trade agreement that may
establish normal trading relations status and other basic conditions in the relationship
may be more appropriate.
By relying on bilateral FTAs for now, the United States seems to be hedging its
bets — not trying to block attempts to create exclusive East Asian FTAs but doing
deals to keep from being cut out from their benefits. The danger seems remote at this
time that an exclusive and inward looking trade bloc will emerge in East Asia. The
spaghetti strands of the FTAs in the region curl around both within Asia and across
the oceans. An inclusive trans-Pacific FTA, moreover, could be considered,
especially since that is one of the main goals of the 21-nation Asia Pacific Economic
Cooperation (APEC) forum whose membership includes the United States, ASEAN,
China, Japan, South Korea, Taiwan, Canada, and Mexico.
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On the security side, the issues of intensity and inclusiveness have a more direct
bearing on U.S. national interests. The United States already is viewed as a
hegemonic power in Asia with as many as 100,000 military personnel forward
deployed in the Pacific Command and strong alliance relationships with Japan, South
Korea, the Philippines, Thailand, and Australia/New Zealand plus close security
relations with Singapore and Taiwan. East Asia also includes three of the world’s
six largest armed forces — those of China, North Korea, and South Korea with
Russia nearby. China is a nuclear power; North Korea aspires to be one; Japan is
upgrading its defense forces; terrorist attacks are frequent in Southeast Asia; and
flashpoints exist along the Taiwan Strait and on the Korean peninsula. U.S. security
interests in East Asia are so great that in issues related to Asian security the United
States has sought a seat at the table and often leads in attempts to resolve contentious
issues. The United States has joined with Tokyo and Seoul in calling for a Northeast
Asia Regional Forum that would include the United States, China, Russia, Japan, and
South Korea. This forum, a counterpart to the ASEAN Regional Forum (that also
includes these countries plus others), could institutionalize cooperation in Northeast
Asia on issues related to security, energy, or disease.
At the core of U.S. concern over the developing regional architecture in East
Asia is the growing influence of China. Beijing aims to reclaim its position as the
leader of Asia. It already is displacing Japan and the United States among Southeast
Asian nations as their primary trading partner and an increasing source of economic
assistance. It also has pursued a “charm offensive” that appears to be winning the
“hearts and minds” of many people in the countries there. China has accomplished
this through skillful diplomacy, use of aid resources, by presenting a more friendly
face, and also through formal trade and other agreements. The danger exists that if
China comes to dominate regional institutions in East Asia, it could steer them down
a path inimical to U.S. interests, much as Beijing has already done with the Shanghai
Cooperation Organization. In the future, when security issues arise in East Asia,
policymakers may face a question: Will countries look toward the United States or
toward China for a solution?
Chinese recent successes, however, should not be over emphasized. The United
States still is the world’s preeminent military and economic power, and while many
global supply chains include China, they also include the United States —
particularly in product design, technology, and marketing. Although Asian nations
are seeking to broaden international options with major powers, they also engage in
a continuing round of hedging and maneuvering for advantage and against possible
Chinese dominance. In this process, they are seeking closer ties with each other and
also with the United States. The United States still is seen as the region’s security
stabilizer and economic partner of choice.4
The final question for the policy deliberations on trade and security
arrangements in East Asia is what form the architecture will take. This includes
whether the economic and security organizations are to be separate or merged, how
countries are to be grouped, where the center will be located, and how much voice
4 Sutter, Robert. China’s Rise: Implications for U.S. Leadership in Asia. East-West Center
Washington, Policy Studies 21, 2006. p. vii-ix.
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each participant will have. So far, U.S. policy has been to allow the Asian nations
to take the lead in proposing various organizations. Most have either an economic
or security focus or are divided into two parts, one providing for an FTA and another
to address security issues.
Reshuffling the Asian Deck
The end of the Cold War and demise of communism triggered two revolutionary
movements. The first was political — symbolized by the fall of the Berlin Wall and
the breakup of the former Soviet Union. The second was economic — symbolized
by the privatization of state-owned enterprises, the loosening of centralized control,
and adoption of market principles not only in the former Soviet Union but in East
Asian countries such as China and Vietnam. On the economic side, a global
consensual philosophy is now evolving that the economic system that provides the
highest growth rates, greatest consumer satisfaction, and best standard of living is
market-based with private ownership, access to global markets, freedom of capital
movement, and government intervention/regulation primarily in cases of market
failure. Autocratic governments, moreover, have found that they can use the market
system and the growth it generates to gain legitimacy, repress opposition, fund their
military, and build nationalistic pride in their countries. Eventually, however, experts
see economic growth as creating a middle class and competing power centers leading
to more democratic societies and less chance of military confrontation with the
industrialized countries of the world.
During the Cold War, trade patterns followed security relationships. The United
States became a major (if not the main) trading partner of Japan, South Korea,
Taiwan, and several countries of Southeast Asia. Communist countries likewise
gravitated to China and the Soviet Union and were rewarded with special trade
credits. Currently, however, those trade patterns have changed. Globalization knows
no political philosophy. Businesses seek low cost, high quality production bases
regardless of where they are located. China is rapidly becoming the preferred
manufacturing platform for companies from Japan, South Korea, Taiwan, the United
States, and other countries. Formal trading arrangements are following the newly
developed trading patterns. The structure overlaying the individual market
economies is rapidly becoming crisscrossed by bilateral and regional preferential
trade agreements.
During the Cold War, the security overlay for countries often coincided with the
philosophy underlying the organization of government and their economies.
Communist blocs arose among socialist countries, while the United States formed
explicit and tacit alliances with the more market oriented economies. On one side
was a U.S.-led arrangement with the United States as a benign hegemon supported
by bilateral security alliances with key non-communist Asian countries. The United
States maintained strategic and allied relationships with Japan, South Korea, Taiwan,
the Philippines, Thailand, Australia, and New Zealand in a type of spoke and hub
configuration. This U.S.-protected block dominated peripheral Asian and Pacific
Ocean countries. On the other side was a communist China that shared a hostility
toward the United States with the Soviet Union and dominated the interior of the
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Asian land mass. China and the Soviet Union supported countries with communist
governments, such as North Korea and North Vietnam. The result was bifurcation
of East Asia into U.S.-dominated and communist-dominated blocs with some
countries attempting to follow more independent paths. The two sides intersected
with a balance of power regionally that derived from the Cold War balance of terror
globally. Some intra-Asian or world organizations existed, but none of them could
effectively deal with overarching security, political, or economic issues in Asia.
The political and security arrangements that were formed among East Asian
nations, moreover, tended to be anti-China or anticommunist in nature. ASEAN or
SEATO (South East Asia Treaty Organization5) are two cases in point. Currently,
however, the economic and political arrangements are crossing philosophical lines,
and China is emerging as a regional hegemon in Asia. These changes are manifest
in intra-Asian organizations such as the East Asia Summit, ASEAN Economic
Community, ASEAN + 3 (ASEAN plus China, Japan, and South Korea), the ASEAN
Regional Forum, and the six-party talks, as well as track-two fora, such as the
Shangri-La Dialogue or the Northeast Asia Cooperation Dialogue.6
Why Join Together?
Countries join in bilateral agreements and multilateral arrangements in order to
prevent or limit armed conflict, ease tensions, gain economic advantages, and, in
cases, raise standards for human rights. On the security side, the uncomfortable fact
faced by all nations is that the space above the level of countries is basically anarchy.
Throughout history, nations have attempted to step into that anarchy to pursue narrow
national interests. Until World War II, countries countered such behavior mainly by
creating security alliances. No global institution with global sovereignty existed.
Now, international laws and norms have been established, and institutions (e.g. the
United Nations) exist, but the institutions wield sovereignty only to the extent that
individual countries cede power to them. In many cases, a primary benefit of such
institutions is to provide a mechanism to resolve international disputes and to bring
countries face to face in a diplomatic setting rather than on the battlefield.
On the economic side, the space above national economies also is anarchic, but
unlike many zero-sum security exchanges (such as conquering territory), international
economic transactions are positive sum and usually provide gains for businesses and
consumers on both sides. In cases, however, private trading gains may conflict with
national policies (such as in illicit trade). The role of nations in legitimate economic
activity is to provide the crucible for it to occur, to facilitate it, to regulate it, and in
5 The SEATO alliance was organized in 1954 by Australia, France, Great Britain, New
Zealand, Pakistan, the Philippines, Thailand, and the United States after the French
withdrawal from Indochina. It was created to oppose further Communist gains in Southeast
Asia. It was disbanded in 1977.
6 For information on the Shangri-La Dialogue, see:
[http://www.iiss.org/conferences/the-shangri-la-dialogue]. For information on the Northeast
Asia Cooperation Dialogue, see:
[http://www-igcc.ucsd.edu/regions/asia_pacific/neacddefault.php].
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some cases, own it. In facilitating trade in the anarchic space among nations, for
example, governments establish trading rules and cede preferential benefits to other
nations through formal mechanisms. These include granting normal trade relations
(most-favored nation) status, establishing the World Trade Organization (WTO),
adopting free trade agreements, or organizing special financial institutions such as
the World Bank or International Monetary Fund.
Trade and security arrangements and institutions also provide a platform for
countries to take leadership roles and to spread their influence. The end of the Cold
War brought unipolarity with the United States sitting at the top. Asian nations
recognize that the United States will continue to exercise major influence in the
region, but Beijing, in particular, sees the formation of an exclusive Asian
organization as an opportunity to help reclaim what it considers to be its historical
position as the regional leader in Asia. China also would like to weaken the
relationships between the United States, Japan and South Korea (India also) and see
countries in Asia more acquiescent to its own desires.7 ASEAN, likewise, sees itself
as a more neutral party in the big power rivalry as it plays out in Asia and a moving
force for regionalism. Southeast Asians observe that it matters not whether the big
elephants are courting or fighting, in the process the surrounding spectators can get
trampled.
Academic studies of the results of economic interdependence and security
indicate the following:
! Among nations, the greater the interdependence (the greater the costs
of exiting from an economic relationship), the greater the probability
that the nations will not seek political demands that could lead to
conflict. On the other hand, economic interdependence also can be
used as leverage to extract political demands.8 The greater the extent
that internationally oriented coalitions in a country (actors with
interest in expanding foreign markets or in importing) have political
clout, the more likely that outside, economic incentives or sanctions
will be effective in influencing policy in the country in question.9
The more democratic and market-oriented a country is, the more
likely this will occur.
! The expectation of future commercial gains between nations helps
to dampen political tensions and deter the onset of hostilities. Such
7 Roy, Denny. China-Japan Relations: Cooperation Amidst Antagonism. Asia-Pacific
Center for Security Studies. Special Assessment, October 2004. Available at
[http://www.apcss.org/Publications/SAS/AsiaBilateralRelations/China-Japan%20Relatio
ns%20Roy.pdf]
8 See, for example: Crescenzi, Mark J. C. Economic Interdependence and Conflict in World
Politics (Lanham, MD, Lexington Books, 2005) p. 6.
9 Papayoanou, Paul A. And Scott L. Kastner, “Sleeping With the (Potential) Enemy:
Assessing the U.S. Policy of Engagement with China,” in Jean-Marc F. Blanchard, Edward
D. Mansfield, and Norrin M. Ripsman, Power and the Purse, Economic Statecraft,
Interdependence, and National Security (Portland, OR, Frank Cass, 2000) p. 159ff.
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future gains are enhanced by preferential trading arrangements, such
as FTAs. Membership in preferential trading arrangements tends to
inhibit interstate conflict.10
! Economic and security arrangements increase opportunities for
communication, establishing personal ties between people, and
cooperating in diplomatic endeavors. This reduces the chances for
miscalculations and misperceptions and increases the chances for
direct diplomacy and back-channel communications. On the other
hand, economic arrangements may increase competition for
domestic industries and invite blowback from trade liberalization.
Regional Trade Agreements
The motivation for trade and financial agreements is usually to gain benefits for
exports, imports, or investments that are not available through global concessions
agreed to multilaterally through the WTO. Under WTO rules, bilateral and regional
trade agreements can lower barriers between signatory countries but cannot raise
barriers to other economies.
Trade agreements have both trade diversion and trade creation effects. They
divert existing trade toward the signatory countries but also may create more trade
overall.11 Free trade and other trade agreements also may lock in market access or
other benefits provided by one government that are under risk of being withdrawn by
successive governments. They also may induce governments to take politically
difficult actions, such as opening agricultural markets or providing labor rights or
protection for the environment. Any change in the rules of trade creates winners and
losers — those who can take advantage of the new trading regime and those who are
hurt by it.
As with the European Union or the North American Free Trade Area,
preferential trade arrangements usually follow trading patterns. FTAs do not spring
into existence ex nihilo (out of nothing), although in cases FTAs are pursued for
political more than economic reasons. FTAs typically proceed through evolutionary
stages with respect to intensity (greater liberalization) and expansiveness (more
members). As shown in Figure 1, trading relationships begin with unorganized trade
and investment flows based on comparative economic advantage. Trade then can
come under broad international trading rules such as those stemming from normal
10 Copeland, Dale C. “Trade Expectations and the Outbreak of Peace: Dètente 1970-74 and
the End of the Cold War 1985-91,” p. 93 and Edward D. Mansfield, Jon C. Pevehouse, and
David H. Bearce, “Preferential Trading Arrangements and Military Disputes,” p. 16, both
in Jean-Marc F. Blanchard, Edward D. Mansfield, and Norrin M. Ripsman, Power and the
Purse, Economic Statecraft, Interdependence, and National Security (Portland, OR, Frank
Cass, 2000) 343 p.
11 For discussion of free trade agreements, see CRS Report RL31356, Free Trade
Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy, by William H.
Cooper.
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trade relations (most favored nation) status or from the WTO. Trade then can be
placed under a preferential trading arrangement with special access privileges or
reduced barriers but not necessarily free trade. As a precursor to a preferential
trading arrangement, the United States uses Trade and Investment Framework
Agreements (TIFA) to strengthen bilateral trade and support economic reform in the
partner country through regular senior-level discussions on commercial and
economic issues. Other countries use Framework Agreements that may provide for
an “early harvest” of trade concessions and launch discussions on a future FTA.
Figure 1. Types of Trading Arrangements (by Intensity)
Source: Congressional Research Service
Japan and other countries often negotiate partial FTAs called Economic
Partnership Agreements (EPA). These have established free trade in most
manufactured goods, but they also may exclude sensitive sectors, such as agriculture.
In some cases, they include only a few actual trade concessions. They also may map
a path toward a full FTA. An FTA usually provides for eliminating tariffs on goods,
liberalized access in services and investment flows, as well as other provisions. The
most extensive trading arrangement is a common market which goes beyond an FTA.
Its members have free trade among themselves plus common external barriers and
allow for free movement of labor and capital among member states.12 As trade
12 In a customs union, members have common external tariffs but not free trade among
themselves.
CRS-10
arrangements become more intense, they also can become more expansive by
including other countries (such as is occurring with European Union enlargement).13
In East Asia, most trade agreements have been driven by the market. They also
have been competitive. The benefits available under a preferential trade agreement
usually induce other countries to seek the same trade advantages or risk losing
business for their exporters or investors. In some cases, the arrangements (or lack
thereof) are politically driven, particularly in the case of Taiwan as Beijing attempts
to isolate it diplomatically while Taipei tries to counter the diplomatic snubs that
belie existing underlying trading relations. In other cases, politics and disputes over
history (especially between Japan and China and South Korea) have hindered the
conclusion of free trade agreements.
Regional Economic and Financial Arrangements
Regional trade agreements (RTAs), including FTAs, have become a major
vehicle to achieve trade and investment liberalization. They are being negotiated
both as a supplement to and concurrently with multilateral trade negotiations under
the WTO. While some see RTAs as stumbling blocks to global trade liberalization,
others see them as building blocks to eventual global free trade. WTO agreements
tend to result in “lowest common denominator” outcomes, whereas RTAs can go
beyond WTO agreements with deeper concessions made by like-minded nations.
The complex web of free trade agreements in the world, sometimes referred to
as a “spaghetti bowl,” is becoming denser each year. The WTO reports that more
than 170 regional trade agreements are currently in force and that the large number
being negotiated could bring their number close to 300.14
Existing FTAs and Those Being Negotiated
In East Asia, home to many of the most dynamic economies in the world, the
competition is intensifying to join in regional trade agreements.15 In 1992, ASEAN
created an ASEAN FTA (AFTA) among its member nations. Under this
arrangement, ASEAN states have already made significant progress in lowering
13 One author claims that bringing other countries into the European Union changes them
forever and creates a zone of power rather than one of weakness. The author claims that this
process eventually will allow Europe to lead the world in the 21st century. Leonard, Mark.
Why Europe will Run the 21st Century. New York, Fourth Estate, 2005.
14 World Trade Organization. RTA Gateway at
[http://www.wto.org/english/tratop_e/region_e/region_e.htm].
15 For a listing of regional and bilateral free trade agreements, negotiations, and those under
discussion (with links to official documents and press releases) by APEC members, see:
[http://www.apec.org/webapps/fta_rta_information.html#others_fta].
CRS-11
Table 1. Regional Trade Agreements, Negotiations, and Discussions by
Selected East Asian and Other Nations
C
J
S.
T
A
S
I
T
M
A
N.
I
U
E
O
h
a
K
a
S
I
n
h
a
u
Z
n
S
U
t
i
p
o
i
E
n
d
a
l
s
e
d
h
n
a
r
w
A
g
o
i
a
t
a
i
e
Country/
a
n
e
a
N
a
n
l
y
r
l
a
r
Group
a
n
p
e
a
s
a
a
o
s
n
I
l
n
r
I
d
a
I
d
e
a
a
China
D
PF
PF
PF
PF
PF
N
N
D
a
Japan
D
N
N
F
N
F
F
D
D
b
S. Korea
N
PF
PF
PF
N
PF
D
D
N
c
Taiwan
d
ASEAN
PF
N
PF
N
N
F
e
Singapore
PF
F
F
F
F
F
F
F
F
F
f
Indonesia
PF
N
F
F
F
F
N
N
D
D
g
Thailand
PF
F
N
F
F
F
F
F
PF
N
h
Malaysia
PF
F
F
F
F
F
N
N
D
N
i
Philippines
N
F
F
F
F
F
F
N
N
D
j
Vietnam
N
N
F
F
F
F
F
N
N
k
Australia
N
D
D
N
F
N
F
N
F
F
l
New Zealand
N
N
F
N
F
N
F
m
Source: Various news articles and Asia Pacific Economic Cooperation Secretariat.
Note: F = Existing FTA (may not be fully implemented). PF=Partial FTA (many sectors not included or plan for
future FTA implementation). N = FTA Negotiations. D = FTA Discussions.
a. China has an FTA with Hong Kong, Macao. Partial FTA with Chile. Negotiations with Pakistan with early harvest
agreement. Discussions with Gulf Countries.
b. Japan has an FTA with Mexico, Negotiations with Brunei, Chile.
c. Korea has an FTA with Chile, EFTA. Negotiations with Canada.
d. Taiwan or Chinese Taipei has an FTA with Panama, Guatemala.
e. ASEAN has a Closer Economic Partnership with India.
f. Singapore has an FTA with EFTA. Partial FTA with Jordan. Member of Trans-Pacific Strategic Economic
Partnership Agreement with Brunei, Chile, and New Zealand. Negotiations with Mexico, Canada, Peru,
Bahrain, Egypt, Pakistan, Kuwait, Qatar, UAE, and Sri Lanka.
g. Indonesia is a member of the South Pacific Regional Trade and Economic Cooperation Agreement.
h. Thailand has negotiations with Peru. Malaysia has an FTA with Chile, Brunei.
j. The Philippines has an FTA with EFTA, negotiations with Israel.
k. Vietnam has an FTA with Andean Community, negotiations with EFTA, UAE,
l. Australia has talks with UAE, Egypt.
m. N. Zealand is a member of the Trans-Pacific Strategic Economic Partnership Agreement with Brunei, Chile, and
Singapore.
CRS-12
intra-regional tariffs. The ASEAN-6 ( Brunei Darussalam, Indonesia, Malaysia, the
Philippines, Singapore and Thailand) have reduced tariffs to 5% or less on 99% of
the products agreed to under the Common Effective Preferential Tariff Scheme for
AFTA. Cambodia, Laos, Burma/Myanmar and Vietnam have been given more time
to lower their tariffs.16 This FTA covers all manufactured and agricultural products.
However, 734 tariff lines in the General Exception List, representing about 1.09
percent of all tariff lines in ASEAN, are permanently excluded from the free trade
area for reasons of national security; protection of health and human, animal or plant
life; and for artistic, historic or archaeological reasons. In 2003, ASEAN also
established the ASEAN Community. This has three pillars: the ASEAN Security
Community, the ASEAN Economic Community, and the ASEAN Socio-Cultural
Community.
While ASEAN has been fostering closer political, economic, and cultural
relations among its member states, the organization also has concluded various
agreements with other nations that provide some immediate trade liberalization and
contain provisions for negotiations that are to lead to formal free trade agreements.
In November 2002, ASEAN and China signed a Framework Agreement on
Comprehensive Economic Co-operation. This provides for an ASEAN-China Free
Trade Area (ACFTA) by the year 2010 between China and the more industrialized
ASEAN-6,17 and by 2015 for Cambodia, Laos, Myanmar, and Viet Nam.18 ASEAN
also has signed a Closer Economic Partnership Agreement with Australia and New
Zealand, and in 2005, began negotiating an FTA with those nations. In 2002 and
2003, ASEAN and Japan established the ASEAN-Japan Comprehensive Economic
Partnership. This includes elements of a possible free trade area and is to be
implemented by 2012 (with five additional years for newer ASEAN members).
ASEAN has a similar Agreement with India.19 With South Korea, ASEAN has
signed an FTA pact that covers goods trade only. In December 2005, Thailand
refused to sign the agreement because South Korea excluded rice from the 4,000
items that are to have import tariffs cut to below 20% and then to zero by 2009 (with
an additional five years for the newer ASEAN member nations).20
16 Association of Southeast Asian Nations. Trade/The ASEAN Free Trade Area (AFTA).
On Internet at [http://www.aseansec.org/12021.htm].
17 The ASEAN-6 are Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
18 Association of Southeast Asian Nations. Do Business with China under the ASEAN-
China Free Trade Area (ACFTA). c. 2003. At [http://www.aseansec.org/4920.htm]
19 Association of Southeast Asian Nations. Ministerial Declaration on the AFTA-CER
Closer Economic Partnership. September 14, 2002. Framework for Comprehensive
Economic Partnership Between The Association of Southeast Asian Nations and Japan.
October 8, 2003. Framework Agreement on Comprehensive Economic Cooperation
Between the Association of Southeast Asian Nations and the Republic of India, October 8,
2003.
20 South Korea Signs Free Trade Pact with ASEAN, Excludes Thailand. Jakarta Post,
December 13, 2005. Accessed through [http://www. Bilaterals.org]. ASEAN. Joint Media
Statement of the Third ASEAN Economic Ministers-Republic of Korea Consultations,
Makati City, Philippines, May 16, 2006.
CRS-13
Since ASEAN is not a common market, it may negotiate an FTA agreement, but
each individual member must sign it and implement it as if it were a bilateral
agreement. ASEAN does not have common external tariff rates. Individual ASEAN
countries also may pursue bilateral FTAs on their own. Singapore has been most
aggressive in doing so. It has concluded free trade agreements with the United
States, European Free Trade Association (EFTA),21 Japan, and Australia, as well as
partial FTAs with China, India, and Jordan. Singapore is a member of the Trans-
Pacific Strategic Economic Partnership Organization (an FTA among Singapore,
New Zealand, Chile, and Brunei). It has ongoing negotiations with Mexico, Canada,
South Korea, India, Pakistan, Peru, Sri Lanka, Egypt, Bahrain, Kuwait, Qatar, and the
United Arab Emirates.
In addition to being a member of the ASEAN FTA, Thailand has concluded
FTAs with Australia and New Zealand22 and has framework agreements with India,23
Peru,24 Bahrain,25 and BIMSTEC.26 It has an agreement in principle for an FTA with
Japan. Thailand is negotiating FTAs with the United States27 and EFTA. In 2005,
Thailand and Pakistan agreed in principle to draw up a free trade agreement under the
Economic Comprehensive Partnership existing between the two nations.28 Thailand
also is considering an FTA with Morocco.
Likewise, the Philippines, Indonesia, and Malaysia have been initiating talks
and signing various types of trade agreements. Negotiations for a U.S.-Malaysia
FTA began in June 2006.29 Cambodia, Vietnam, and Laos are far behind in the
process. They barely have been able to sign trade agreements, let alone free trade or
other types of preferential trade arrangements. Laos and Vietnam are not members
of the WTO, and Cambodia just joined in 2004. Still, all ASEAN members are
committed to trade liberalization within ASEAN and generally have attempted to
21 EFTA (European Free Trade Association) members are Iceland, Liechtenstein, Norway
and Switzerland.
22 For details, see [http://www.thaifta.com/english/index_eng.html].
23 Framework Agreement for Establishing Free Trade Area Between the Republic of India
and the Kingdom of Thailand, October 9, 2003. See text at [http://www.thaifta.com/english/
index_eng.html].
24 See text at [http://www.thaifta.com/english/index_eng.html].
25 The agreement provides for initial tariff reductions with zero tariffs phased in by 2010.
See text at [http://www.thaifta.com/english/index_eng.html].
26 BIMSTEC was established in June 1997 to foster socioeconomic co-operation leading to
an FTA among Bangladesh, India, Sri Lanka, and Thailand. Myanmar was admitted in
1997, and Bhutan and Nepal were admitted in 2004. See [http://www.bimstec.org ].
27 See CRS Report RL32314, U.S.-Thailand Free Trade Agreement Negotiations, by
Raymond J. Ahearn and Wayne M. Morrison.
28 Phanayanggoor, Preeyanat. Plan for FTA with Islamabad. Bangkok Post, May 10, 2005.
Accessed through [http://www. Bilaterals.org].
29 For details, see CRS Report RL33445, The Proposed U.S. Malaysia Free Trade
Agreement, by Dick K. Nanto.
CRS-14
negotiate bilateral FTAs parallel with ASEAN’s FTA agreements with other
countries.
The People’s Republic of China has taken an aggressive stance toward
establishing FTAs with trading partners. In 2002, it signed an FTA (Framework
Agreement) with ASEAN that would create a zero-tariff market for China and the six
original ASEAN members by 2010 and in 2015 for the other four members. This
includes an early harvest program that eliminates tariffs on goods. China also has
FTAs with Hong Kong and Macao and an FTA in cargo trade with Chile. It has
discussed FTAs with 27 countries and is negotiating with Canada, Pakistan (agreed
to an early harvest program), Australia, New Zealand, Iceland, and Chile. China also
has signed a framework agreement on economic cooperation with the countries of the
Arab Gulf Cooperation Council that may lead to FTA negotiations.
China also is a major force in the ASEAN + 3 process (ASEAN-1030 plus China,
Japan, and South Korea). This reportedly has become China’s preferred regional
forum in which both political/security and economic issues are addressed. In
November 2005, the ASEAN + 3 group held its ninth summit immediately following
the ASEAN summit. Since bilateral trading arrangements already exist between
most of the more advanced ten countries of ASEAN and China, Japan, and South
Korea, the building blocks exist for a future East Asia Free Trade Area (EAFTA).31
This, however, would require that the stalled negotiations on the Japan-South Korea
FTA be completed and that FTA agreements be concluded between China and Japan
as well as between China and South Korea.
Japan joined the FTA race relatively late. It is burdened by a highly protective
agricultural sector and a trade agenda that has placed top priority on multilateral trade
negotiations under the WTO. In 1999, officials in Tokyo decided to jump on the free
trade bandwagon and signaled their policy change by calling for a free trade
agreement in Northeast Asia.32 Japan began its quest for FTAs by signing an
Economic Partnership Agreement (EPA) with Singapore in 2003. It then sought to
counter the effects of the NAFTA by signing an EPA with Mexico in 2004. Japan
signed an economic partnership agreement with the Philippines in 2006,33 also signed
an EPA (eliminating tariffs on 97% of goods traded) with Malaysia that went into
effect in July 2006,34 and in 2005 agreed on an EPA with Thailand. Negotiations are
underway under the framework agreement with ASEAN to establish an FTA and
30 The ten members of the Association of Southeast Asian Nations: Indonesia, Malaysia,
Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Burma/Myanmar, and Cambodia.
31 Association of Southeast Asian Nations. ASEAN Plus Three Cooperation. Accessed
December 29, 2005, at [http://www.aseansec.org/16580.htm].
32 Ravenhill, John. A Three Bloc World? The New East Asian Regionalism. International
Relations of the Asia Pacific, August 1, 2002. Vol. 2, Issue 2. P. 179ff.
33 Japan. Ministry of Foreign Affairs. The Signing of the Japan-Philippines Economic
Partnership Agreement, September 8, 2006.
34 Japan. Ministry of Economy, Trade, and Industry. Joint Press Statement on the Occasion
of the entry into force of the Agreement between the Government of Japan and the
Government of Malaysia for an Economic Partnership, 13 July 2006.
CRS-15
with Chile to form an Economic Partnership Agreement.35 Japan-South Korean FTA
talks have bogged down over disputes dealing with agricultural products, history, and
competing claims to an island. Japan also has India and Indonesia on the FTA
agenda and is eyeing talks with the Arab Gulf Cooperation Council.36 In early 2005,
Japan started exploring possible talks with Switzerland and Australia and looks
toward possibly starting talks with Australia in 2007 after a feasibility study is
complete.37 Brazil is a further target creeping into Japan’s bilateral trade agenda.38
Japan reportedly views FTAs with China, India, and Australia as a means to gain
more clout in a proposed East Asian community.39
South Korea also has joined the rush to conclude FTAs. After seeing a surge
in its exports to Chile after its first free trade accord with that country came into
effect in April 2004, South Korea announced in March 2005 that it intended to
initiate trade talks with as many as 50 countries and push for FTAs with more than
15 of them by the end of 2007.40 In addition to Chile, Seoul has signed FTA
arrangements with Singapore41 and EFTA,42 and all the major ASEAN countries
except for Thailand have signed the ASEAN-South Korea FTA agreement.43 South
Korea also has ongoing FTA talks with Japan and Canada.44 In February 2006 South
Korea began negotiations with the United States for an FTA. It also is beginning
35 Japan, Ministry of Foreign Affairs. Joint Press Release of Japan and the Republic of
Chile on the Initiation of Negotiations for establishing the Japan-Chile Economic
Partnership Agreement, November 18, 2005.
36 Tariq Khonji. Japan Pushes for Trade Accord with GCC States. Gulf Daily News,
December 21, 2005, at [http://www.bilaterals.org/article.php3?id_article=3340].
37 Australia Hopes to Start Free Trade Talks with Japan in 2007. Kyodo News Service wire
feed reported by BBC Monitoring Asia Pacific, August 2, 2006.
38 Japan. Ministry of Economics, Trade, and Industry. Japan’s Policy on FTAs/EPAs,
March 2005. On Internet at
[http://www.meti.go.jp/english/policy/index_externaleconomicpolicy.html].
39 Trade Reports International Group. Washington Trade Daily, Vol. 15, No. 2 and 3,
January 3 and 4, 2006. P. 2.
40 Lee, Si-wook. Understanding FTAs: Going Back to the Basics. Korea Herald, posted on
Bilaterals.org on November 14, 2005.Lee, Jong-Heon. Analysis: S.Korea’s FTA Push.
UPI newswire, March 30, 2005.
41 Signed August 4, 2005. Approved by the Korean parliament on December 1, 2005.
Scheduled to come into effect in March 2006. It calls for Korea to remove tariffs on 91.6%
of its trade items with Singapore within 10 years and for Singapore to lift tariffs on all trade
items with South Korea. (Parliament Ratifies FTA with Singapore, Daily Chosun Ilbo,
December 2, 2005.)
42 Signed July 12, 2005, with Iceland, Norway, Switzerland, and Liechtenstein. EFTA is to
lift all tariffs on imports from South Korea as soon as the deal goes into effect while South
Korea is to remove duties on 99.1% of products imported from EFTA over the next seven
years.
43 In December 2005, Thailand insisted that Korea place rice on the list of goods facing tariff
cuts before it would sign the accord.
44 South Korea and Canada held the second round of talks in September 2005.
CRS-16
negotiations with India. South Korea dropped its quest for an FTA with Mexico,45
but still is pursuing FTA talks with China46 and Mercosur.47 South Korea and Israel
are discussing possible FTA negotiations. South Korea also has raised the possibility
of an FTA with South Africa. For now, Seoul is only discussing an FTA with
Australia, a country rich in agricultural products.
With the international status of Taiwan (Chinese Taipei) in dispute along with
a campaign to isolate it by Beijing, Taiwan faces great difficulty in finding partner
countries willing to negotiate free trade arrangements. Taiwan has FTAs with
Panama and Guatemala and has pursued similar agreements with Nicaragua and
Paraguay. Pressure from China, however, apparently has led the South American
trade bloc Mercosur to prohibit its members from signing unilateral trade agreements
with other economies, particularly as Mercosur considers an FTA with China.48 In
2001, Taiwan indicated that the United States, New Zealand, and Singapore were the
top priority for FTA partners.49 Taiwan also has raised the topic with Thailand,
Japan, and ASEAN. Taipei is particularly concerned about being excluded from the
ASEAN+3 group and the East Asian Summit and its discussion of building an East
Asian Community. Taiwan also is wary that a U.S.-South Korean FTA, if
implemented, might divert trade away from Taiwan toward South Korea.
Asia Pacific Economic Cooperation
The Asia-Pacific Economic Cooperation forum, or APEC, was established in
1989 to facilitate economic growth, cooperation, trade, and investment in the
Asia-Pacific region. It operates on the basis of non-binding commitments with
decisions made on the basis of open dialogue, equal weights for all participants, and
consensus. APEC’s 21 member economies include Japan, South Korea, China,
Chinese Taipei (Taiwan), Hong Kong, Brunei, Indonesia, Malaysia; the Philippines;
Singapore; Thailand, and Vietnam in Asia; the United States, Canada, Mexico, Peru,
45 In September 2005, South Korea and Mexico agreed to discuss a strategic economic
complementation agreement (SECA) as early as possible. This would be aimed at
expanding and promoting trade and investment after failing to open talks on a free trade
agreement reportedly because of disputes over South Korean car makers’ possible
investment and imports of Mexico’s farm produce. (South Korea, Mexico to Push for
Limited Trade Talks. Reuters [Seoul], September 10, 2005.)
46 The Korea Institute of International Economic Policy and China’s Development Research
Center of the State Council have been conducting joint research on the feasibility of a
bilateral free trade pact.
47 Mercosur is a trading zone established in 1991 by Brazil, Argentina, Uruguay, and
Paraguay. It was later amended and updated by the 1995 Treaty of Ouro Preto. Its purpose
is to promote free trade and the fluid movement of goods, peoples, and currency. Bolivia,
Chile, Colombia, Ecuador, Mexico , Peru, and Venezuela are associate members.
48 Ho, Jessie. Paraguayan FTA Safe: Government. Taipei Times, February 15, 2005.
49 Chen, Melody. FTA Push Moves Into High Gear. Taipei Times, November 8, 2004. P.
2.
CRS-17
and Chile in the Americas; Australia, New Zealand, and Papua New Guinea in the
Pacific; and Russia.50
APEC developed after objections by the United States to a proposed East Asian
Economic Caucus (EAEC) propounded primarily by Malaysia under former Prime
Minister Mahathir Mohamad. The EAEC was to be strictly Asian and exclude
countries (such as the United States) from other continents. Since APEC’s inception,
it has worked to reduce tariffs and other trade barriers across the Asia-Pacific region.
In the 1994 APEC meetings, it established the so-called “Bogor Goals” of free and
open trade and investment in the Asia-Pacific by 2010 for industrialized member
economies and 2020 for the rest. The focus of APEC is on its so-called three pillars:
trade and investment liberalization, business facilitation, and economic and technical
cooperation.51 Security is not an official APEC area of focus, but increasingly it is
addressing problems such as bio-terrorism and port security.
For the United States, one important feature of APEC is that it includes Taiwan
(Chinese Taipei). Other economic and political groupings generally include China
but exclude Taiwan.
Proposed Asia Free Trade Area
In 2006, Japan proposed a 16-nation Asia free trade area to be coordinated by
an organization similar to the Organization for Economic Cooperation and
Development (OECD). The 16 nations would include the ten members of the
Association of Southeast Asian Nations, Japan, China, South Korea, India, Australia,
and New Zealand,52 identical to the membership of the East Asia Summit. Japan
stated that it planed to launch negotiations for the Asia FTA in 2008.53
The concept was welcomed by ASEAN and India, but China and South Korea
indicated that their first priority would be the ASEAN + 3 FTA proposal.54 U.S.
Ambassador to Japan Thomas Schieffer has expressed some concern about the
proposed Asia FTA saying it could damage U.S. interests in the region. He said that
the United States is uncomfortable “when people start talking about somehow trying
50 For information on APEC, see; Congressional Research Service Report RL31038, Asia
Pacific Economic Cooperation (APEC), Free Trade, and the 2005 Summit in Busan, Korea,
by Emma Chanlett-Avery.
51 APEC’s working groups address agricultural technical cooperation, energy, fisheries,
human resources development, industrial science and technology, marine resource
conservation, small and medium enterprises, telecommunications and information , tourism,
trade Promotion, and transportation.
52 Japan Aims to Launch East Asia FTA Talks in ‘08: Nikai. Jiji Press English News
Service. Tokyo: April 4, 2006.
53 Japan Aims to Launch East Asia FTA Talks in ‘08: Nikai. Jiji Press English News
Service, April 4, 2006.
54 S. Korea, China Snub Japan’s 16-nation FTA Plan. Organisation of Asia-Pacific News
Agencies. August 24, 2006.
CRS-18
to exclude the United States from Asia.” The United States has tremendous interests
there and wants to be a part of Asia, he remarked.55
Cooperative Financial Arrangements
In addition to trade liberalizing agreements, East Asian nations have established
certain cooperative financial arrangements.56 These have resulted primarily from the
adverse effects of the 1997-98 Asian financial crisis. In particular, in May 2000, the
ASEAN+3 Finance Ministers agreed to what is called the Chiang Mai Initiative
(named after the city in Thailand where the meeting took place). The initiative aims
to create a network of bilateral swap arrangements, by which short-term liquidity can
be provided to support participating ASEAN+3 countries in need. The idea is that in
times of currency crisis, China, Japan, and South Korea would swap their foreign
exchange reserves for the currencies of ASEAN countries in crisis. This network of
bilateral swap arrangements has been formalized among China, Indonesia, Japan,
Korea, Malaysia, the Philippines, Singapore and Thailand — the major countries in
ASEAN+3.57 This technical agreement paved the way for closer cooperation and
consultation among these countries and led to the proposal for the East Asian
Economic Community that would encompass the ASEAN+3 members.
Regional Political and Security Arrangements
Security arrangements, in most cases, are designed to reduce the risk of
hostilities by coopting the interests of the signatory nations and also by presenting a
united front to potential adversaries. Such arrangements range from formal alliances
and mutual defense institutions to merely creating a forum to discuss security issues
in order to build confidence and resolve conflicts through diplomacy.
Under the European model of security, intra-European wars, particularly among
Germany, France, England, and Spain, have become a dimming memory as the
countries have joined together under the European Union and, for most, the North
Atlantic Treaty Organization. Trans-Atlantic institutions, such as the Organization
for Security and Cooperation in Europe (Helsinki Commission) also exist that
provide a regularized forum to discuss security and human rights issues. Such
security arrangements underlie what is sometimes referred to as the new security
paradigm: “disconnectedness defines danger.” The threat of the Cold War has been
replaced by terrorism, rogue nations with possible weapons of mass destruction,
competition for energy and resources, and ethnic or religious conflict. Today, most
55 US Envoy Expresses Concern About Japan’s Idea of East Asia Free Trade Zone. BBC
Monitoring Asia Pacific. London: April 19, 2006.
56 For an extensive discussion, see Cowen, David, et al. Financial Integration in Asia:
Recent Developments and Next Steps. IMF Working Paper, WP/06/196, August 2006.
59pp.
57 See UNESCAP. Regional Financial Cooperation in East Asia: The Chiang Mai Initiative
and Beyond. Bulletin on Asia-Pacific Perspectives 2002/03. Chapter 8. Available at
[http://www.unescap.org/pdd/publications/bulletin2002/ch8.pdf ].
CRS-19
dangers originate from areas of the world without collective security arrangements
and disconnected from the process of globalization, network connectivity, financial
transactions, and liberal media flows.58 Even in this new age, however, the potential
for a big power confrontation (including one with a nuclear-armed China) still
exists.59
Regional political and security arrangements in East Asia are still in the
developmental stage compared with those in Europe, the North Atlantic, or Gulf
States. The major efforts in Asia include the ASEAN Security Community, ASEAN
Regional Forum, the East Asian Summit, the Shanghai Cooperation Organization,
and the six-party talks. Figure 2 shows current and proposed regional trade,
political, and security arrangements in East Asia. Currently, ASEAN is playing a key
organizing role in several of the arrangements, but it is doing so partly at the strong
instigation of China and with close cooperation from Beijing. The United States also
is a major player and is acting from both inside and outside depending on the
organization. The United States plays a central role in APEC and the six-party talks,
and is a major participant in the ASEAN Regional Forum. The United States also
would be a key member of the proposed Northeast Asia Regional Forum and could
join the East Asia Summit. The security related organizations in East Asia are
discussed below.
ASEAN and the ASEAN Security Community
The Association of Southeast Asian Nations or ASEAN was established in 1967
with five original members: Indonesia, Malaysia, the Philippines, Singapore, and
Thailand. Brunei joined in 1984, Vietnam in 1995, Laos and Burma (Myanmar) in
1997, and Cambodia in 1999. ASEAN was formed at the time of the Vietnam war
purportedly to enhance economic, social, and cultural cooperation, but in reality, it
was a product of the Cold War and part of the U.S. strategy to contain communism,
particularly that being promulgated by China and Vietnam. After the 1975 U.S.
withdrawal from Vietnam, ASEAN increasingly became a vehicle for the Southeast
Asian nations to resolve territorial and other problems through consensual and
informal community building efforts. ASEAN has attempted to coopt the interests
of Cambodia, Burma/Myanmar, and Laos by bringing them into membership, but the
results have been mixed, particularly with respect to the military junta in
Burma/Myanmar.
58 Barnett, Thomas P.M. The Pentagon’s New Map, War and Peace in the Twenty-first
Century, New York : G.P. Putnam’s Sons, 2004, 435 p.
59 See, for example: Office of the Secretary of Defense. Annual Report to Congress, The
Military Power of the People’s Republic of China, 2005. Released July 19, 2005, p. 42.
CRS-20
Figure 2. East Asian Regional Arrangements — Existing and
Proposed
$ = Trade
= Talk and Photo-op
= Security
Six-party Talks
N.E. Asia
India
N. Korea
Regional Forum*
East Asia
Asia Pacific
Summit
Economic
Australia
Cooperation
U.S.
N. Zealand
Russia
East Asia
ASEAN +3
FTA*
$
China
East Asian
Peru
Japan
Mexico
$
Community
S. Korea
$
H. Kong
ASEAN
Taiwan
Chile
Indonesia Singapore
Canada
$
Malaysia Thailand
P. New
Philippines Brunei
Guinea
Vietnam ASEAN FTA
Laos Cambodia
Burma/Myanmar
ASEAN Regional
Forum
European Union Mongolia
Pakistan East Timor
*Proposed
Source: CRS
Currently, ASEAN is playing a leading role (with a strong play by China) in
moving the countries of the region toward organizing into cooperative arrangements.
ASEAN often can take the lead in building multilateral institutions because it is
viewed as more neutral and non-threatening than China or Japan. ASEAN has
created the ASEAN Security Community to foster greater political and security
cooperation and help ensure peace and harmony.
ASEAN + 3 (China, Japan, and South Korea)
ASEAN + 3 came about in 1997 as an unanticipated result of a Japanese
proposal to create a regular summit process between ASEAN and Tokyo with an
agenda that included security. Concerned with possible negative response from other
Asian nations, ASEAN subsequently broadened the proposed summit to include
China and South Korea. The ASEAN + 3 members meet regularly after each
ASEAN summit to discuss finances, economics, and security. China reportedly
favors this organization over the East Asia Summit because it does not include other
big powers, such as India, although Beijing continues to support the EAS.
ASEAN Regional Forum
The ASEAN Regional Forum (ARF) was established in 1994 with the purpose
of bringing non-ASEAN nations from the Asia-Pacific region together to discuss
CRS-21
political and security matters and to build cooperative ties.60 The 25 participants in
ARF include the ten members of ASEAN, the United States, China, Japan, European
Union, Russia, Australia, Canada, New Zealand, South Korea, North Korea, India,
Pakistan, Mongolia, Papua New Guinea, and East Timor.
In a region with little history of security cooperation that crosses philosophical
lines, the ASEAN Regional Forum is the principal institution for security dialogue
in Asia. ARF claims that it complements the various bilateral alliances and
dialogues which underpin the region’s security architecture. ARF was created to
provide the missing link between U.S. security guarantees that appeared to be
weakening in the early 1990s and the uncertainties produced by the prospect of a new
regional multipolarity developing with the resurgence of China. The ARF is
characterized by minimal institutionalization and the “ASEAN way” of gradualism
and consensualism.61 The ARF process begins with transparency (through the
publication of military-spending and deployment information), dialogue, and
confidence-building measures; then moves to preventive diplomacy (discussion and
mutual pledges to resolve specific disputes solely through peaceful means); and, in
the long term, hopes to develop a conflict resolution capability. The vision of ARF
is to manage and prevent conflict rather than engage in it.62
Currently, most of the ARF measures have been at the level of dialogue and
confidence building, particularly with respect to the region’s counter terrorism effort
and the North Korean missiles/nuclear program.63 Still the ARF provides a venue for
foreign ministers (Secretary of State for the United States) from Asia/Pacific
countries to meet and focus on specific current issues. This also can be one of its
weaknesses. Security discussions do not include defense ministers. In the July 2006
annual meetings, eight of the members held talks on North Korea. Although North
Korea was also in attendance, it was not invited to join the talks.64 This annual
meeting also seemed to compel U.S. decision makers to focus on Asian issues at a
time when the Middle East was dominating world attention.
60 The ARF homepage is at [http://www.aseanregionalforum.org/default.aspx?tabid=55].
61 Ooi, Su-Mei. Globalisation and Security: The Role of International Financial Institutions
in Pacific Asian Security. Baden-Baden, Germany, Nomos Verlagsgesellschaft, 2001. P.
106.
62 Asian Anxieties, Pacific Overtures: Experiments in Security. World Policy Journal,
Summer 1994, Vol.11, Issue. 2; pp. 37-45.
63 Australian Government. Department of Foreign Affairs and Trade. Background to the
ASEAN Regional Forum, accessed June 5, 2006.
[http://www.dfat.gov.au/arf/background.html].
64 Wright, Robin. Rice to Hold Talks on North Korea. Washington Post, July 27, 2006.
Online version.
CRS-22
East Asia Summit65
The East Asian Summit (EAS) is a new organization that met for the first time
on December 14, 2005, in Malaysia. It brought together the ten ASEAN nations, the
“plus three” states of China, South Korea, and Japan, as well as Australia, New
Zealand, and India. The United States was not invited to attend. This meeting was
timed to follow the 2005 ASEAN Summit as well as bilateral meetings between
ASEAN and Russia, Japan, South Korea, and India.
Many see the EAS as a reformulation of the East Asian Economic Caucus
(EAEC) proposed in 1990 by former Prime Minister Mahathir Mohamad of
Malaysia. At the time, the United States opposed such an exclusive East Asian
grouping primarily out of concern that it would develop into an exclusive Asian
trading bloc even though it was proposed as mainly a consultative mechanism. Now,
however, the U.S. strategy is not to oppose regional trading and consultative
arrangements but to ensure U.S. access through bilateral agreements, global
institutions, or through close coordination with friendly member nations.
China has played a strong role in promoting the EAS partly as an offsetting
force to the ubiquitous U.S. presence in the Asian rim. Japan and Singapore,
however, reportedly pushed to have Australia and India included, partly to offset the
feared dominance of China in the summit. Since then, Beijing has been less
enthusiastic about the EAS and more willing to retreat to the ASEAN + 3 concept in
which it has a more central position.
At the first EAS meeting, the delegates established the EAS as an integral part
of the evolving regional architecture in Asia. The countries also declared that EAS
efforts to promote community building in East Asia are to be consistent with and the
realization of the ASEAN Community; that the EAS is to be an open, inclusive,
transparent, and outward looking forum with ASEAN as the driving force; and that
the EAS will focus on fostering strategic dialogue and promoting cooperation in
political and security issues to ensure that the EAS countries can live at peace with
one another and with the world at large in a just, democratic, and harmonious
environment.66
For the initial meeting of the EAS, membership required that participants sign
the ASEAN Treaty of Amity and Cooperation, be a formal dialogue partner67 of
ASEAN, and have substantive cooperative relations with ASEAN. Non-ASEAN
signatories to the Treaty include China, Japan, India, South Korea, Russia, Pakistan,
and Papua New Guinea, but not the United States.
65 Based on CRS Report RL33242, East Asia Summit (EAS): Issues for Congress, by Bruce
Vaughn.
66 Kuala Lumpur Declaration on the East Asia Summit, Kuala Lumpur, December 14, 2005.
67 ASEAN dialogue partners include the United States, China, Japan, South Korea, Russia,
Australia, Canada, the European Union, India, and New Zealand.
CRS-23
U.S. concerns with the EAS are that it could potentially work to diminish U.S.
influence in Asia, could replace APEC as the main multilateral forum in Asia on
trade and investment liberalization and economic integration, and could further
marginalize Taiwan (who was not invited to the EAS but is a member of APEC).
Still, the United States has not overtly opposed it.
Shanghai Cooperation Organization
Although the Shanghai Cooperation Organization (SCO) is not an East Asian
organization, per se, it was initiated by China and has adopted a somewhat anti-
American stance. The SCO was organized in 2001 by six countries: China, Russia,
Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Mongolia, Pakistan, Iran and
India are observers.68 Its secretariat is located in Beijing and its Regional
Anti-Terrorist Structure (RATS) is in Tashkent, Uzbekistan. The main goals for the
organization as stated in the 2001 Shanghai Pact are to fight terrorism, separatism
and extremism. China’s initial motive for establishing the SCO seems to have been
to prevent ethnic Kazakhs or Uighurs in China from using Central Asian states as a
haven from which to plan separatist activities in China’s Xinjiang Uighur
Autonomous Region (formerly East Turkestan). As the SCO has developed,
however, it appears now to be a vehicle for China and Russia to curb U.S. influence
in Central Asia in order to establish a joint sphere of influence there. This includes
access to energy resources by China as well as markets for exports and collaboration
against Islamist movements.69 As China, Russia, and other SCO members have
conducted war games under the auspices of the SCO, some observers have pointed
out the potential for it to take on a military role not unlike that of the North Atlantic
Treaty Organization.70
As the SCO has entered into its fourth and fifth years of existence, it seems to
have become an effective vehicle for Beijing and Moscow to pursue geopolitical
aims. It was the first regional bloc to oppose the bid by Japan, Brazil, Germany, and
India to enlarge the United Nations Security Council’s permanent membership. In
2005, the SCO called for a date certain for U.S. troops to be out of Central Asia, and
at the 2006 summit, the Iranian President, while not mentioning the United States by
name, spoke against “the threat of domineering powers and their aggressive
interference in global affairs.”71 Given that Beijing plays a primary role in giving
direction to the SCO, the way that the SCO has developed might provide clues to the
68 The SCO’s website is at [http://www.sectsco.org]. For background on the early years of
the SCO, see CRS Report RL31213, China’s Relations with Central Asian States and
Problems with Terrorism, by Dewardric L. McNeal and Kerry Dumbaugh.
69 Weinstein, Michael. Intelligence Brief: Shanghai Cooperation Organization. Power and
Interest News Report, July 12, 2005.
70 Weir, Fred. Russia, China looking to form ‘NATO of the East’? ; A six-member group,
seeking to balance US power, meets in Moscow Wednesday, The Christian Science
Monitor, October 26, 2005. p. 4.
71 Lim, Louisa. Asian and Central Asian States Meet in Shanghai. National Public Radio,
Morning Edition, June 15, 2006.
CRS-24
direction other regional organizations, such as ASEAN + 3, might take if China is
able to assume a dominant position.
The Six-Party Talks
The potential nuclear threat from the Democratic People’s Republic of Korea
(DPRK) induced five countries with the most direct interest in this issue to join in
talks with Pyongyang. The participants include China, the United States, Japan,
South Korea, Russia, and the DPRK. In early 2003, China hosted the first round of
talks in Beijing, and they have continued sporadically since then. This is another
venue in which China is able to cooperate with other nations and take the lead in
dealing with an issue directly affecting its national interests and on its border.
Although the talks currently remain stalemated, they have brought together the major
players in northeast Asia to seek a solution to the problem.72
The Proposed Northeast Asia Regional Forum
Some have suggested that the five countries (excluding the DPRK) in the six-
party talks formalize this ad hoc grouping into what might be called the Northeast
Asia Regional Forum (NERF). As proposed by one group of authors, the purpose of
NERF would be to organize multilateral diplomatic meetings at regular intervals to
consider key security, energy, health, and economic issues in the region. The state
representatives attending would have the same diplomatic level as those in the six-
party talks.73
At the 13th ASEAN Regional Forum meeting in July 2006, Secretary of State
Condoleezza Rice expressed the need for a “robust dialogue on Northeast Asian
Security” and for discussions on how to “move forward on issues of cooperation and
security.”74 At the ARF meeting, the five non-North Korean members plus Malaysia
(the 2006 host of ARF), Australia, and Canada met for a discussion on the North
Korean situation. This was held in lieu of a session of the six-party talks, since North
Korea was refusing to attend them.75
A major problem in East Asia is that differences among China, Japan, Russia,
the United States, and South Korea are so vast that the only time the countries get
together and work toward a common end is when they all face a single problem large
enough that they are willing to put aside their strategic rivalries and cooperate to find
a mutually satisfactory solution. The trouble with this approach is that ad hoc
organizations, such as the six-party talks, come into existence only when the
72 See CRS Report RL33567, Korea: U.S.-Korean Relations — Issues for Congress, by
Larry A. Niksch.
73 Bremmer, Ian, Choi Sung-hong, and Yoriko Kawaguchi. A New Forum for Peace, The
National Interest, Winter 2005/2006, Issue 82, pp. 107-111.
74 Rice, Condoleezza. Remarks on Multilateral Talks on North Korea. U.S. Department of
State press release 2006/T19-12, July 28, 2006.
75 Wright, Robin. Rice to Hold Talks on North Korea. Washington Post (Online version),
July 27, 2006.
CRS-25
problems are large, transcend borders, and seem intractable — such as North Korea’s
nuclear weapons program. In tackling such mega-issues, the parties involved are
expected to cooperate and find common ground even when there may be no history
of cooperation between them or the parties involved may even be strategic
competitors and hold antagonist feelings toward each other. Many experts feel that
there needs to be a way to get the major players in northeast Asia together more
often, for them to pursue confidence building measures, and to have more discussions
and joint policy actions. The countries could begin by addressing areas of
overlapping interests where there already is some degree of consensus. Such issues
in the region might include infectious diseases, terrorism, transportation security, or
energy. This process could establish lines of communication and build confidence
much as occurred in Europe with the Commission on Security and Cooperation in
Europe (the Helsinki Commission).76
Track Two Dialogues
In addition to official regional organizations, a number of track two dialogues
also exist. These include the International Institute for Strategic Studies’ Shangri-La
Dialogue,77 the Council for Security Cooperation in the Asia Pacific,78 and the
University of California’s Northeast Asia Cooperation Dialogue (NEACD). These
usually involve top-level officials and academics from countries of the region who
meet to discuss issues of mutual importance. The 2006 NEACD meetings in Tokyo,
for example, included most of the negotiators in the stalled six-party talks.79
The Pacific Command
The U.S. Pacific Command (USPACOM) also works to advance cooperation
in regional security primarily through two channels: the first is country-to-country
with visits by the Commander, joint military exercises, military-to-military training,
and relief operations, such as post-tsunami assistance. The second is through hosting
fora for military officers and civilians from various countries to come to PACOM
headquarters for education and training. PACOM’s Asia Pacific Center for Security
Studies, in particular, provides a venue, similar to track two dialogues, for military
officers from across the Asia-Pacific region to meet in an unconstrained, off-the-
record learning environment to discuss security issues.80
76 For information on the Commission on Security and Cooperation in Europe, see their
website at [http://www.csce.gov].
77 For information on the Shangri-La Dialogue and 2006 conference, see:
[http://www.iiss.org/conferences/the-shangri-la-dialogue].
78 For information on CSCAP, see their website at [http://www.cscap.org].
79 For a summary of the 2006 NEACD meetings, see [http://www.ucop.edu/research/
documents/igcc_newsletter07.pdf#search=%22neacd%22].
80 For information on USPACOM, see [http://www.pacom.mil/about/pacom.shtml].
CRS-26
Policy Issues
The development of new trade and security arrangements in East Asia raises
several issues for U.S. policy makers that stem from essential U.S. interests.
U.S. Interests
Rising regionalism in East Asia enters into U.S. policy considerations because
of its effect on three vital U.S. interests: security, economic well being, and value
projection. With respect to security, the United States has fought three wars in East
Asia and still maintains significant military forces in Japan, South Korea, and the
Pacific. In recent years, terrorist attacks on U.S. businesses and on American citizens
also have occurred there (particularly in Indonesia and the Philippines). China is a
recognized nuclear power while North Korea aspires to be one. Potential flashpoints
in East Asia include not only the confrontations between Taiwan and the PRC and
between North and South Korea but also terrorist attacks on businesses, diplomatic
assets, and citizens of the United States or other countries in the region. Disputes
also are flaring up over islands or resources in various East Asian areas. One author
points out that every major al Qaeda plot since 1993 has had some link to radical
Muslim groups in the Philippines.81
Asia also plays an essential role in America’s economic well being.
Globalization and the growth of supply links that cross the Pacific Ocean have woven
the U.S. and Asian economies into an intermeshed and interdependent tapestry whose
threads are constantly being adjusted. The population of East Asia at 2.1 billion
accounts for a third of the total 6.2 billion people on earth. If the Indian subcontinent
is added, Asia accounts for more than half of the world’s population. These countries
both compete with and complement the U.S. economy. For the many exporting
countries in East Asia, the United States is the market of last resort and the source of
much of their capital, technology, and ideas for product design. The U.S. market,
however, is rapidly being displaced by China and intra-regional trade among the
Asian countries themselves. China’s rapid growth also is generating huge demand
for limited natural resources and pushing up their prices. Asia also is a major
competitor for global energy supplies and is a source of some new infectious diseases
(avian flu and Severe Acute Respiratory Syndrome [SARS]) that can threaten the
essential well being of Americans.
Another challenge for the United States with respect to East Asia is that trans-
Pacific economic and financial relationships are fundamentally unbalanced. China,
Japan, South Korea, and Taiwan alone account for about 40% of the U.S.
merchandise trade deficit. Those same countries have become major financiers of
U.S. budget and saving deficits. Many U.S. jobs once thought secure also are being
outsourced to Asia, and some Asian nations have lax enforcement of intellectual
property rights and questionable labor or environmental policies.
81 Ressa, Maria. Southeast Asia and the Seeds of Terror. New York, Free Press, 2003. 254
p.
CRS-27
In the projection of U.S. values, a major goal of the United States is to help
create a world of democratic, well-governed states that can meet the needs of their
citizens and conduct themselves responsibly in the international system.82 In this
respect, Asia is both a success story and cauldron of concern.83 While democracy in
most of the countries is vibrant and representative, glaring exceptions remain in
Burma, China, and North Korea. Likewise with human rights, these three countries
along with Vietnam, Indonesia, Cambodia, and Laos are often cited for human rights
abuses.
U.S. goals in East Asia include preserving U.S. influence and alliance relations,
fostering stability both with and within the region (particularly with China, across the
Taiwan Strait, and on the Korean Peninsula), reducing the terrorist threat, working
for equitable trade and investment relations, protecting Americans from new threats
(such as a human avian flu pandemic), and developing sufficient supplies of energy
and raw materials needed for economies to grow.84
The policy tools the United States can use include both hard and soft power:
military threats and action, diplomacy, political and economic alliances, trade and
investment measures, and the spread of ideas and ideals. The means to wield the
tools include engagement (cooperating with but not joining), cooptation (joining with
them or bringing them into an existing organization), containment (hindering
progress), and rollback (seeking to turn back gains already made). The means also
include wielding an array of military activities (including pre-emptive strikes) and
an assortment of law-enforcement and diplomatic measures. For purposes of this
report, the focus is on engagement and cooptation through formal international
arrangements as a means to accomplish U.S. policy goals.
The importance of considering these changes in East Asia was stated by Kurt
Campbell, an expert on security affairs. He said that while the most important issue
facing the United States today is the war on terrorism, in 20 or 25 years, we may find
that the dominant issue of today in retrospect was actually the rise of China and that
Asian dynamics actually were more significant than those issues that are likely to be
with us for some time in the Middle East.85 Ellen Frost of the Institute for
82 The White House. The National Security Strategy of the United States of America.
March 2006. p. 1.
83 As one indicator, the Heritage Foundation’s 2006 Index of Economic Freedom categorizes
Hong Kong, Singapore, Australia, and New Zealand as “free,” Japan, South Korea,
Cambodia, Malaysia, and Thailand as “mostly free,” The Philippines, China, Indonesia, and
Vietnam as “mostly unfree,” and Laos, Burma/Myanmar, and North Korea as “repressed.”
The index is based on 50 independent variables divided into 10 broad factors of economic
freedom.
84 The White House. Office of the Press Secretary. President Discusses Freedom and
Democracy in Kyoto, Japan. November 16, 2005. And, Dr. Condoleezza Rice Discusses
President’s National Security Strategy, Waldorf Astoria Hotel, New York, NY, October 1,
2002.
85 Cambell, Kurt. Chinese Ambitions and the Future of Asia. Edited transcript of remarks
at the Carnegie Council on Ethics and International Affairs, October 19, 2005. At
CRS-28
International Economics and National Defense University, a scholar who long has
followed Asian security and economic issues, stated in 2005, “If the United States
continues to downplay Asian regional arrangements — demonstrating an attitude of
“benign neglect” and a preference for bilateral agreements only — it will gradually
lose influence, especially relative to China.86 In short, the ultimate driver of U.S.
concern over East Asian regional arrangements lies in U.S. strategic relations with
the PRC.
The core question for many analysts, therefore, is what to do about the growing
influence of China in Asia. What is clear is that China sees itself as a regional
economic and military power. It is aiming to establish its position as the leader of
Asia, is already displacing Japan and the United States among Southeast Asian
nations as the primary trading partner and source of economic assistance, and has
pursued a “charm offensive” that appears to be winning the “hearts and minds” of
people in many of the countries there. China has accomplished this through skillful
diplomacy, use of aid resources, and by presenting a more friendly face, but it also
has relied on formal trade and other agreements. Nevertheless, the United States still
is the dominant military power in Asia. As one observer noted, the danger in this rise
of China as a friendly economic giant, is that countries in the region could
“subordinate their interests to China’s and no longer reflexively look to the United
States for regional solutions.”87
In addressing the issue of growing regionalism in East Asia, there are first two
basic questions: (1) what is the U.S. vision for Asia and Asian regionalism, and (2)
does Asian regionalism threaten U.S. interests and goals, particularly with respect to
China?
Visions for East Asia
Currently, several visions for East Asia are competing for traction as the
spaghetti strands expand in the East Asian bowl of trade and security arrangements.
The vision of the United States begins with a preeminent position for the country
both as the keeper of the peace, a wellspring for economic prosperity, an advocate for
open markets, and a role model for social, cultural, and political values. The United
States shares leadership with other nations and institutions, but it seeks a seat at the
table when decisions are made affecting its interests in East Asia. U.S. goals are to
prevent any other single power from dominating Asia; to maintain peace and stability
through a combination of military presence, alliances, diplomatic initiatives, and
economic interdependence; and to increase access for U.S. exports and companies
through the World Trade Organization, Asia Pacific Economic Cooperation forum,
and free trade and other agreements.
85 (...continued)
[http://www.cceia.org].
86 American Enterprise Institute. Summary, China and the New Economic Geography of
Asia? July 2005. See [http://www.aei.org/events/filter.all,eventID.1109/summary.asp].
87 Kurlantzick, Joshua. China’s Charm: Implications of Chinese Soft Power. Carnegie
Endowment for International Peace Policy Brief No. 47, June 2006.
CRS-29
China’s vision for East Asia is to establish itself as the leading regional power
and to attain a status in the world community of nations commensurate with its
position as one of the five permanent members of the U.N. Security Council and a
population comprising a sixth of global humanity. China sees a U.S. decline as the
corollary to its rise88 and seeks to displace Japan as the economic leader of East Asia.
China’s strategy is to foster favorable conditions for continuing its modernization
while also reducing the perception that its rise threatens the interests of others. China
needs peace and stability in the region while it grows and resolves numerous internal
economic, political, and social problems. Beijing recognizes that the United States
is perhaps the only power that can thwart its plans to bring Taiwan under its
sovereign control or can impose a system of economic sanctions that could cripple
its economic — and military — rise. China prefers an exclusive East Asian regional
organization that would enable it to take the lead and place the United States and
Japan in secondary roles. Paramount in China’s vision is a region in which countries
respect what it considers to be its territorial integrity (including its claim to Taiwan),
allow for flows of trade and investment necessary to sustain its high rates of growth,
and not interfere with what it considers to be its internal affairs.
Japan’s vision for East Asia is one in which the United States continues to
provide a nuclear umbrella for the region and in which Tokyo relies on its economic
power to exercise leadership. It seeks to be a “normal” nation without vestiges of its
defeat in World War II, particularly the self-maintained constraints on its military.
Japan would like to bury its World War II history and be viewed as a peaceful nation
and a force for betterment in Asia through economic progress. Prior to the
resurgence of China, Japan characterized the countries of East Asia as flying in a
wild geese migrating pattern with Japan playing the role of the lead goose. Tokyo
recognizes now that Beijing is rapidly assuming the leadership role in East Asia, and
China is becoming the center of gravity for trade and investment activity. Japan,
however, would like to maintain a position of leadership in Asia, accommodate
China’s rise without becoming subservient to it, and continue to be at the forefront
in economic and financial affairs. Japan is attempting to establish itself as a normal
advanced nation in its own right and not as a surrogate in East Asia for the United
States.
ASEAN’s vision for East Asia is to develop a counterweight to the European
Union and NAFTA (and perhaps NATO) with ASEAN taking a prominent
organizational role for regional institutions and providing venues for meetings.
ASEAN also seeks a counterweight to China in the region and, in general, is more
inclusive in terms of allowing countries, such as Australia and India, to participate
in regional organizations. Indonesia traditionally has been the dominant leader in
ASEAN, but now Thailand and Malaysia along with Singapore also vie for
leadership. ASEAN relies on the European model of engagement to influence and
engender change in countries such as Burma/Myanmar and Laos. ASEAN’s basic
goals are to achieve cooperative peace and shared prosperity, and it sees itself as the
88 See, for example: Qiang, Shen. New Developments in Evolving Relationships among
Major Powers. International Strategic Studies, 3rd Issue, 2005. p. 54.
CRS-30
primary driving force in building a more predictable and constructive pattern of
relationships among nations in the Asia-Pacific region.89
South Korea’s vision for East Asia is for the country to become a hub for
economic activity90 and to gain greater security by engaging with North Korea and
pursuing closer relationships with China and ASEAN countries. South Korea also
depends heavily on the United States to maintain security both on the Korean
peninsula and in the region. South Korea seeks to be an export power able to use
North Korean and Chinese labor, generating its own high technology, and with
national champion companies that are highly competitive in the global marketplace.
Taiwan’s vision for East Asia is existential and revolves around whether it can
maintain its de facto independence while finessing its relations with the PRC. It sees
a major role for the United States in maintaining security in the region. Since China
ensures that Taiwan is shut out of regional organizations (except for APEC), Taiwan
pursues bilateral trade agreements and organizations with inclusive membership,
such as the WTO and United Nations.
Australia and New Zealand are pulled between their European heritage and
Asian proximity. Since they trade heavily with East Asian countries and have deep
security interests there, they envisage regional organizations inclusive of themselves
and other nations. Australia was instrumental in ensuring that APEC encompassed
the Asia Pacific and the United States. Australia envisages a strong role for the
United States in Asia. It always is in danger of being excluded from Asian
organizations because of its Anglo-Saxon and Celtic origins, although debates over
an East Asian identity also categorize people by major religion rather than ethnic
origin. Australia and New Zealand continue to engage China and recognize that they
must cope with the challenges of maintaining their close relationships with the
United States. Australia, in particular, has become a target of radical Muslim
terrorism, has irritated its neighbor Indonesia through its participation in the Iraq war
and support for independence for East Timor, and is viewed by China as a segment
of a broader U.S.-Japan-South Korea-Australia axis that could potentially encircle
China in the maritime region of East Asia.91
This brief overview of visions for East Asia indicates that the U.S. vision is
roughly compatible with that of Japan, South Korea, most of ASEAN, and
Australia/New Zealand. All recognize that multipolarity is developing in East Asia
not only with the rise of China but a more normal Japan, a somewhat recidivist
Russia, and a rapidly developing India. There is conflict between U.S. and Chinese
visions with respect to which country will be the preeminent power in Asia. The rise
89 Association of South East Asian Nations. Politics and Security: Overview. Accessed
June 23, 2006. [http://www.aseansec.org/92.htm].
90 The hub concept was first adopted as a policy of the South Korean government in 2002.
See Lee, Chang-jae. “Korea as a Northeast Asian Business Hub: Vision and Tasks.” Korea
Institute for International Economic Policy monograph, 2005.
91 Bordonaro, Federico. Asia’s Dawning Multipolar System Increases Australia’s
Geopolitical Importance. Power and Interest News Report, June 14, 2006.
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of China as an economic juggernaut could be duplicated in the political and security
realms as well.
The U.S. vision also conflicts with that of China (and at one time Malaysia) on
the principle of exclusivity: whether the United States is able to participate as a
member or observer or whether U.S. participation is relegated to being through a
surrogate. By definition, the ASEAN + 3 meetings exclude the United States. The
United States could join the East Asia Summit. The United States (along with the
European Union and Canada) participates in the ASEAN Regional Forum. The
United States, along with Canada, Mexico, Peru, and Chile are members of APEC.
The 16-nation East Asia FTA proposal announced by Japan would exclude the
United States.
In the case of the exclusionary East Asian Economic Caucus (EAEC) proposed
by Malaysian Prime Minister Mahathir Mohamad in 1990, the U.S. strategy took two
tracks. The first was to oppose its founding through diplomatic and other means.
The second was to join with Australia in pushing for APEC, a more inclusive
organization. With the momentum for regionalism now growing in East Asia and
world wide, opposing the trend toward regionalism seems both unnecessary and
futile. The important factor, some say, is to ensure that U.S. interests are protected
and adequately represented and to link into free trade arrangements through bilateral
and other FTA agreements.
Asian Regionalism and U.S. Interests
Economic Interests. As for U.S. interests in East Asia, the new regional
trade agreements, in and of themselves, do not seem to threaten vital U.S. economic
interests. As a State Department official put it, it is not necessary for the United
States to “be in every room and every conversation that Asians have with one
another.” The United States does, however, want to “ensure the strongest possible
continuing U.S. engagement in the region.” The United States also holds that the
strategic and economic geography through which Asia can best build on its successes
so far is through trans-Pacific partnerships and institutions. In other words, the
United States would like for Asian institutions to straddle the Pacific Ocean rather
than stopping at the international date line in the Pacific. The United States also
looks toward multilateral structures in the Asia-Pacific region that strengthen existing
partnerships, particularly bilateral U.S. security alliances and free trade agreements
with East Asian nations.92
The ASEAN FTA and the many bilateral FTAs may result in some diversion of
trade and investment from the United States, but to the extent that they represent true
liberalization of trade and investment flows, and as long as the United States
continues to ink bilateral FTA agreements with Asian nations, they do not seem to
be generating ill effects on U.S. exporters and business interests there. There is some
concern that the proliferation of bilateral and regional FTAs will detract from
multilateral negotiations under the World Trade Organization. While that concern
92 Michalak, Michael. U.S. Views on Asia Regional Integration, Remarks at the International
Institute of Monetary Affairs, Tokyo, Japan, January 25, 2006.
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is real, given the problems with the Doha Round and its collapse in mid-2006, the
opposite case also can be made. In this view, the FTAs represent real progress in
liberalizing trade and can serve as a backup position if trade liberalization under the
WTO fails.
The spaghetti bowl problem of multiple agreements all intertwined but each
with different provisions can actually hinder rather than facilitate trade by raising
transaction costs for businesses. Calculating complicated rules of origin for products
with parts from many countries each with different tariff rates and phase-in periods
for lowering those tariffs can be costly and bothersome. The U.S. approach is to have
a “gold standard” template that provides for similar elimination of all tariffs and
addresses other barriers to economic interaction such as liberalizing investment
flows, enforcing intellectual property rights, and increasing access for providers of
services. Eventually, this “gold standard” template could provide the basis for
regional FTAs that include the United States. U.S. adherence to this “gold standard,”
however, can create ill will as the United States is perceived to be excessively
intrusive in requiring reforms in FTAs. The Asia Pacific Economic Cooperation
forum, however, also is developing best practices and model measures for FTAs that
are working to standardize agreements.
A problem with any liberalization of trade and investment is that each economy
will have winners and losers. The losing sectors typically are agriculture, textiles,
and apparel. In nearly all Asia Pacific countries, including the United States, they are
either protected to some extent and/or subsidized heavily (particularly agriculture).
The proliferation of FTAs threatens the economic viability of these sectors, since the
FTAs remove protection, although each FTA will have phase-in periods and
exceptions.
Security Interests.
The developing regional security arrangements in East
Asia could have a mixed effect on U.S. security interests. To the extent that they
encourage peaceful resolution of conflicts, they correlate well with U.S. goals of
stability and the maintaining of alliance relationships in the region. They, however,
could have some negative effects. They may lead to political and security
arrangements in which Chinese influence is large and Beijing is able to work at cross
purposes to the United States. They also may require further consideration of the role
of U.S. forces based in Japan and South Korea. As Asian populations perceive that
external threats to their countries have diminished because of cooperative regional
security relations, they may question the need to continue to support so many U.S.
troops stationed in their home countries. This sentiments often are reflected in what
is called rising nationalism and may take the form of protests over actions of U.S.
soldiers, resistance to military base operations, and parliamentary pressures to reduce
the budgetary costs of host nation support for the U.S. military.
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China has taken a dual approach to East Asia of both working through ASEAN93
and signing agreements with individual member countries. The United States has
placed emphasis on bilateral agreements. Five of the seven worldwide U.S. mutual
defense treaties are with countries of the Asia Pacific.94
Membership in regional organizations could have a “European Union effect” in
reducing tensions, moderating China, encouraging dialogue, and seeking peaceful
solutions to security issues. The developing regional architecture may work to temper
the excesses of the Chinese government and make it a more responsive stakeholder
in regional affairs. For example, China has joined with the United States in opposing
radical Muslim terrorism (albeit with its own domestic interests at stake), performed
the function of host and “penholder” to draft the Joint Statement at the September
2005 six-party talks, and has stopped forcibly claiming disputed territory between it
and Southeast Asian nations (such as Mischief Reef) in the South China Sea. China
still has overt disputes with Japan, a nation with which it has refrained from
establishing either preferential economic or bilateral security links. In some cases,
moreover, Beijing has used regional meetings to exacerbate problems with Japan.
At the 2005 APEC Leaders’ Meeting, China refused to hold a bilateral summit with
Japan and widened the gap between them. Yet at the July 2006 ASEAN Ministerial
Meeting, the foreign ministers of China and Japan did meet and narrowed that gap
somewhat.
What can be said is that no one knows for certain whether China will be a
military threat in the future and what effect various regional ties and interaction will
have. It is clear, however, that Chinese military strategists define grand strategy in
a broad sense. They pursue their grand strategy by using overall national strength to
achieve political goals, especially those related to national security and development.
Put another way, Chinese strategy, as they define it, is one of maintaining balance
among competing priorities for national economic development and maintaining the
type of security environment within which such development can occur. Beijing uses
the concept of “comprehensive national power” to evaluate and measure the
country’s national standing in relation to other nations. This includes qualitative and
quantitative measures of territory, natural resources, economic power, diplomatic
influence, domestic government, military capability, and cultural influence. Regional
trade and security arrangements in East Asia can assist China in developing its
economic power, diplomatic influence, and cultural reach. Economic power also can
lead to greater military capability and can generate support for the ruling Communist
Party and its lock on domestic government. In this sense, the proliferating trade and
93 In 2003, China signed its first agreement with a regional organization, the China-ASEAN
Joint Declaration of a Strategic Partnership for Peace and Prosperity and followed with its
2003 accession to the ASEAN Treaty of Amity and Cooperation, the first non-ASEAN
country to do so. In 2004, China signed a memorandum of understanding with ASEAN on
Cooperation in the Field of Non-Traditional Security Issues and also endorsed the ASEAN
Code of Conduct for the South China Sea.
94 U.S.-Republic of the Philippines (Mutual Defense Treaty, 1952), ANZUS (Australia -
New Zealand - U.S., 1952), U.S.-Republic of Korea (Mutual Defense Treaty, 1954), South
East Asia Collective Defense (U.S. - France - Australia - New Zealand - Thailand -
Philippines, 1955), and U.S.-Japan (Mutual Defense Treaty, 1960).
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security arrangements in East Asia can contribute to Chinese comprehensive national
power,95 but whether the regional arrangements will also attenuate the aggressive use
of that power cannot now be determined.
Another long-term security related issue for the United States in Asia is the
rising nationalism in Japan, South Korea, Malaysia, Thailand, Indonesia, the
Philippines, and other nations of Asia. These countries appear to be growing weary
of being dominated by outside powers, whether they be the United States, China,
Russia or their sometimes hostile neighboring states. In Japan and South Korea, for
example, although most recognize their dependence for security on their respective
military alliances with the United States, many government elites and a growing
segment of the public have recently been pushing for more independence of action
and for government policies more in line with their, not America’s, national interests.
The value system of unfettered democracy, free trade, and human rights, buttressed
by the ever present threat of intervention and preemption by the U.S. military also
seems to be wearing thin in many Asian nations. There is not the hatred of the
United States that is frequently found in the Middle East, but East Asian nations
often chafe under the weight of U.S. hegemony and a perceived unipolar world and
all that this implies for their independence of action and what they view as their
traditional values.96 For example, in a June 2006 Pew survey of attitudes toward the
United States, America’s global image had again slipped. From 1999/2000 to 2006,
America’s image (those with favorable opinions of the United States) had declined
significantly in Indonesia (from 75% to 36%) and in Japan (77% to 63%).97
The United States also is often blamed for the dislocations caused by
globalization98 and the growing inequality of income both within and among
countries. As one analyst explained it, Americans today are perceived as the world’s
market-dominant minority, wielding outrageously disproportionate economic power
relative to their numbers. As such, they have become the object of the same kind of
mass popular resentment that afflicts financial elites around the world (such as the
overseas Chinese of Southeast Asia).99 It is not clear whether the developing regional
architecture in East Asia will add to or ameliorate the anti-American and nationalistic
sentiments growing in Asia, but those organizations that exclude direct U.S.
participation provide avenues for Asian leadership and values to be showcased,
particularly the process of consensus building.
95 Office of the Secretary of Defense, Military Power of the People’s Republic of China,
2005, op. cit.
96 See, for example: Ma Ying. China’s America Problem. Policy Review, Feb/Mar 2002. p.
43-57. Jeffrey S. Robertson. Anti-Americanism in South Korea and the Future of the U.S.
Presence. Journal of International and Area Studies, Vol. 9, No. 2, 2002. pp. 87-103.
97 Pew Research Center. America’s Image Slips, But Allies Share U.S. Concerns on Iran,
Hamas. Released June 13, 2006.
98 Pearlstein, Steven. World Puts the Brakes on the Rush to Globalization. Washington
Post, July 5, 2006. p. D01.
99 Chua, Amy. A World on the Edge, The Wilson Quarterly, Autumn 2002. Vol. 26, Issue
4; p. 62-78.
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A stronger regional security organization in East Asia could play a role in
quelling terrorism by violent extremists. Since terrorism is a transnational problem,
the United States relies on international cooperation to counter it. Without close
multilateral cooperation, there are simply too many nooks and crannies for violent
extremists to exploit.100 Currently, most of that cooperation is bilateral.
Meanwhile, tensions continue across the Taiwan Strait, disputes over territory
and drilling rights have flared up between China and Japan, and between Japan and
South Korea. (For the United States, there is a growing possibility of nationalist
territorial conflicts between two or more U.S. allies.101) The North Korean nuclear
issue remains unresolved; North Korea has conducted missile tests; and the
oppressive military rule in Burma/Myanmar continues. Added to these concerns are
several regional issues: diseases (such as avian flu, SARS, and AIDS),
environmental degradation, disaster mitigation and prevention, high seas piracy, and
weapons proliferation. Memories of the 1997-99 Asian financial crisis still haunt
policy makers in Asian countries.
These are some of the major U.S. interests and issues as the United States
proceeds with its policy toward a regional architecture in East Asia. Since this policy
is aimed at the long-term structure of East Asian nations, it can be separated,
somewhat, from current pressing problems. A metric by which any architecture can
be evaluated, however, is how well it contributes to a resolution of problems as they
now exist or will exist in the future.
Policy Options
For the United States, policy options include (1) disengage from Institution
Building in Asia, (2) continue current Bush Administration policy, and (3) establish
a stronger presence in existing institutions, particularly in Southeast Asia, and push
for a new regional organization for Northeast Asia.
Disengage from Regional Institution Building in Asia
One policy option is to disengage from direct participation in negotiating
economic and security institutions in Asia and allow Asian nations to determine their
own architecture. The United States already is a member of APEC and the ASEAN
Regional Forum as well as the six-party talks on North Korea. The United States has
relied upon a spoke and hub system of military alliances and forward deployed troops
to look to U.S. security interests. Many feel that regional organizations tend toward
being “talk shops” anyway. The United States could disengage from regional
institution building without disengaging from economic and security ties with Asia.
100 Rosenberger, Leif. A Socio-economic Strategy Against Violent Extremism, in Asia-
Pacific Economic Update, 2005. U.S. Pacific Command. Vol. III, p. 23.
101 For discussion of this possibility, see Unger David C. Asian Anxieties, Pacific Overtures,
Experiments in Security for a New Asia-Pacific Community. World Policy Journal,
Summer 1994, 11, 2. p. 37-44.
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Currently no locus of opinion seems to be manifesting itself in the United States on
this issue.
On the economic side, however, debate is intense over the effects and utility of
free trade agreements. Opposition toward further FTAs has been building in
Congress, although Congress did approve the U.S.-Oman FTA and a U.S.-Peru Trade
Promotion Agreement.102 Legitimate concerns, however, were raised with respect to
issues, such as the large U.S. trade deficit, outsourcing of jobs, protection of
intellectual property rights, and labor and environmental conditions abroad. U.S.
debate over future FTAs appears to be more between domestic interests opposed to
or in favor of more liberalized trade than over the geopolitical and international
implications of closer economic relations with other countries. The creation of an
APEC FTA encompassing 21 nations including the United States seems distant.
An East Asia FTA or ASEAN + 3 FTA could divert trade away from the U.S.
market, but the United States can continue to negotiate bilateral FTAs with countries
belonging to any Asian regional trade arrangement. A system of bilateral FTAs and
security alliances emanating from the United States as a hub should be able to poke
spokes into the various Asian regional organizations existing and being proposed.
Still the United States could use its influence to dampen enthusiasm for new Asian
regional organizations, or Washington could let the Asians wrestle with each other
to determine the size, shape, and reach of any new institution.
A danger of disengagement from institution building on the security side is that
Asian nations may see that as evidence that the United States is distracted by the
Middle East and has lost interest in Asia. Disengagement also opens the way for
China to assume a leadership role and possibly to move the organization in ways that
are inimical to U.S. interests.
Continue Current Engagement
Another option is to continue current policy of engagement in institution
building in Asia as pursued by the Bush Administration and Congress. This includes
seeking bilateral FTAs, a future FTA with ASEAN, strengthening the ASEAN
Regional Forum and the Asia Pacific Economic Cooperation forum, holding
discussions on establishing a security forum for Northeast Asia, and maintaining
current strategic alliances with certain countries in the region.
Current U.S. policy has evolved from historical conditions and through the
tussle of political, military, and economic forces that drive decision making and
provide opportunities for leaders to place their patina on the tenor of relations among
nations. The strategy of the United States at the present with respect to East Asia
appears to be based on two primary factors. The first is the reality that the Middle
East takes priority over Asia. The amount of new resources and energy the United
102 See CRS Report RS22391, U.S.-Peru Trade Promotion Agreement, by M. Angeles
Villarreal, and CRS Report RL33328, Proposed U.S.-Oman Free Trade Agreement, by
Mary Jane Bolle.
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States can devote to issues in East Asia is constrained by commitments in Iraq and
Afghanistan and by the war on terror.
The second factor seems to be that peace and prosperity in East Asia is possible
in the short run only if the United States maintains a strong military and political
presence in the region and in the long run only if nations have political and economic
systems that allow human ambition to be channeled into constructive and peaceful
endeavors. The U.S. military presence in East Asia is based on a series of treaty
alliances. Some of these alliances have required a major adjustment recently, but
they still form the bedrock of U.S. security in Asia.103
As for the rise of China, current U.S. strategy seems to be to engage China but
also to place constraints on activities potentially inimical to U.S. security or
economic interests. Both “idealism” and “realism” come into play. The Pentagon’s
military planning, of necessity, tends to be power- and threat-based and built on
realism as a lens through which to view the world. It considers and prepares for
several scenarios, including the “worst case” in order to provide for the security
interests of the United States. These policies stress contingent military planning,
export controls, strong alliance relations with Japan and South Korea, and rising
levels of engagement.104
Other U.S. policies toward China tend to be based on an idealistic view of the
world. They are aimed at promoting U.S. ideals of democracy, a liberal market
economy, and human rights. In the long run, matters of war and peace depend on
actions of national governments or the lack thereof. In this view, conditions
favorable for peace are generated most generally through political systems in nations
with strong democratic institutions and economic systems that are vibrant and
market-oriented with liberal trading and investment opportunities. Such economic
systems support a knowledgeable middle class that, in turn, forms the foundation for
democratic society. A democratic society is less likely than a dictator-dominated
state to seek to achieve its goals through belligerent means. A country without a
viable economy and functioning representative government also is vulnerable to
becoming a failed state and home to terrorist organizations. This economic-
democratic-peace hypothesis calls for opening borders to foreign trade, liberalizing
domestic economies, developing representative governments, establishing the rule
of law with a court system to back it, and reducing corruption. This is a major
rationale for current U.S. policies of liberalizing trade, facilitating China’s
membership in the World Trade Organization and other international institutions,
encouraging communications at all levels, and engaging Beijing on a multitude of
fronts including through regional institutions.
103 See, for example: CRS Report RL33436, Japan-U.S. Relations: Issues for Congress, by
Emma Chanlett-Avery, Mark E. Manyin, and William H. Cooper, or CRS Report RL33567,
Korea: U.S.-Korean Relations — Issues for Congress, by Larry A. Niksch.
104 See CRS Report RL32882, The Rise of China and Its Effect on Taiwan, Japan, and South
Korea: U.S. Policy Choices, by Dick K. Nanto.
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Increase Regional Efforts
A third policy option overlaps with current policy somewhat and is more
incremental than divergent. It would be to increase efforts to energize or join
existing organizations and to push harder for a Northeast Asia Regional Forum. The
United States first could join the East Asia Summit. Russia, India, and Australia
already have signed the ASEAN Treaty of Amity and Cooperation required for
membership. So far, the United States has not signed the Treaty apparently because
of its provisions that call for renunciation of the use of force to settle disputes and a
commitment not to participate in any activity that threatens the sovereignty, political
and economic stability or territorial integrity of another contracting party.105 Such
commitments, if honored, potentially could obviate the doctrine of preemptive strikes
and hamper other interventions based on use of force.
The United States could do more to reinvigorate APEC. The Bogor goal of
achieving free and open trade and investment among the industrialized APEC
members by 2010 is approaching quickly. While the APEC working groups seem to
be accomplishing considerable trade facilitation, the large goal of establishing a free
trade area that spans the Pacific and includes the United States, Canada, Mexico,
Japan, South Korea, China, Taiwan, Australia, Singapore, and other APEC members
does not seem even remotely feasible within three years as stated in the Bogor
Declaration.
In the absence of strong action by APEC toward realizing its Bogor goals, the
United States could push for the 16-nation Asian free trade area to be coordinated by
an organization similar to the OECD.106 This Asian FTA would parallel the East
Asian Summit, and its wide membership would likely dilute potential dominance of
China — particularly when compared with an ASEAN + 3 FTA.
With the proposal for an Asian FTA, the industrialized world appears to be
coalescing into a three bloc world — three large geographical free trade areas: North
America, Europe, and East Asia. How would a potential East Asian FTA affect the
United States? Judging from U.S. relations with the European Union, the formation
of the EU as a trade bloc meant that the balance of economic power across the
Atlantic became more equal. Rather than the United States with its $12.5 trillion
gross domestic product ($14.4 trillion for NAFTA) negotiating with the UK ($2.2
trillion GDP) or Germany ($2.8 trillion GDP), the United States now faces an equal
in the EU with its combined GDP of $13.4 trillion. An Asian FTA encompassing 16
nations not only would constitute half the world population but a combined GDP of
$11.4 trillion that is growing faster than either North America or Europe.
Realistically speaking, however, a 16-nation Asian FTA would be far into the
future, if at all. China and South Korea are lukewarm to the idea, and Japan and
South Korea currently cannot even agree on an FTA between themselves, let alone
105 For the text of the treaty, see Association of Southeast Asian Nations. Text of the Treaty
of Amity and Cooperation in Southeast Asia and Related Information. ASEAN Knowledge
Kit, March 2005. [http://www.aseansec.org/TAC-KnowledgeKit.pdf].
106 Ten members of ASEAN, Japan, China, South Korea, India, Australia and New Zealand.
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one that includes China and 13 other nations. A more probable path for FTAs is for
each of the other Asian nations to complete their FTAs with the ASEAN countries
and for the ASEAN FTA to be the center of a hub and spoke network of FTAs with
the spokes (Japan, China, and India) having more weight than the hub.
On the security side, another measure for U.S. policy could be to convene a
conference to organize the Northeast Asia Regional Forum. Current proposals for
membership are to invite countries with strong interest in Northeast Asia, such as the
United States, Russia, China, Japan, South Korea, and North Korea. Other possible
candidates for membership are Mongolia, Canada, and Taiwan (as an observer).
Current proposals are for such a forum to be attended by foreign ministers.
Attendance could be expanded to include defense ministers or heads of state (as with
APEC). In order to generate interest and participation in such an organization, an
expectation would have to be established that the organization would go beyond a
“photo-op and talk shop.” The organization could be aimed at resolving particular
problems of common concern, those that are tractable, build confidence, invite a high
level of participation by members, and maximize benefits of coordinated collective
action. It could take up issues related to the North Korean nuclear program —
currently the topic of the six-party talks — but also could address issues such as trade
liberalization, combating terrorism and corruption, energy security, and containing
the spread of infectious diseases. It also could work toward resolving disputes
related to history, such as sponsoring the joint writing of textbooks on sensitive
historical topics such as World War II or Japan’s annexation of Korea.