Power of three
Global financial dislocation and the economic slump are putting regional co-operation to the test. They also appear to be shaping somewhat different responses in Northeast and Southeast Asia. The latter, which formed the Association of Southeast Asian Nations way back in 1967, has a big head start in institutionalising collaboration. This week it signed a charter that makes the group a legal entity for the first time. Northeast Asia has no equivalent organisation.
But that may change if relations among China, Japan and South Korea continue to improve and the wider, six-nation talks, chaired by Beijing, succeed in persuading North Korea to abandon its nuclear weapons programme and focus instead on economic development and poverty alleviation. Of course, these are big 'ifs' given the historical and territorial conflicts that bedevil ties among Northeast Asian economies.
However, the big three took a significant step forward when they held their first three-way summit in Japan last weekend and agreed to make it an annual event. Leaders have been getting together fairly regularly since 1999, but only on the fringes of other meetings, usually the annual Asean summit.
In this tenuous situation of barely veiled rivalry, it has suited the Northeast Asian trio to let Asean take the initiative in wider regional community-building. That is how ARF, the Asean Regional Forum on security, and the East Asia Summit - 13 East Asian states plus Australia, India and New Zealand - came about.
Asean's scope for leadership in regional initiatives may be constrained if the three-way co-operation in Northeast Asia continues to improve. The potential clout of China, Japan and South Korea far outweighs that of Southeast Asia. Together, the trio accounts for 75 per cent of East Asian economic output and nearly 17 per cent of global gross domestic product. Pulling together, instead of apart, would give them enormous influence in shaping the regional landscape.
This has already started. But the initial sinews of Northeast Asian regional co-operation are financial. When Asean was formed, the emphasis was on political dialogue and foreign policy co-ordination, to pacify the region and increase its heft in dealing with outsiders. Perhaps because the times are different now, Beijing, Tokyo and Seoul have decided to use an alternative building block - one that enables them to put underlying tensions to one side and deal with practical problems of common concern - stabilising currencies and stimulating economic growth in the region.
Shortly before their summit began, Tokyo and Beijing expanded bilateral currency swap arrangements with Seoul. This gave South Korea the equivalent of up to US$48 billion in extra funds to draw on, if necessary, to defend its currency. The heads of the three countries' central banks are to meet regularly to discuss monetary policy and co-ordinate efforts when it is in their interest to do so.
At their meeting, the three leaders called for an early agreement to increase the capital available to the Asian Development Bank, so it can offer more loans and technical assistance to developing countries in the region affected by the current turmoil. They also reiterated their commitment to work with Asean members to hasten expansion of the so-called Chiang Mai Initiative - a patchwork of 16 bilateral currency-swap arrangements worth around US$80 billion that was launched in 2000 but has never been used. The intention is to integrate this network and raise the amount available to at least US$120 billion, perhaps leading to the establishment of an Asian version of the International Monetary Fund.
Last May, Asean members and their partners China, Japan and South Korea - known as 'Asean plus three' - agreed to 'multilateralise' the enlarged reserve pool. The terms and conditions for using these funds are now being hammered out, and an accord is supposed to be finalised by next year. Between them, the Asean plus three economies have well over US$3 trillion in official foreign currency reserves.
Progress in developing a financial buffer for the region was due to have been discussed at the annual Asean summit in Chiang Mai, Thailand, this week. But Thailand, which currently chairs Asean, postponed the meeting because of recent political instability. The summit has been rescheduled for February 24-26.
Meanwhile, the leaders of China, Japan and South Korea agreed last weekend to work more closely together to cushion the effects of the global financial crisis and tighten ties on a wide range of other challenges, providing their tripartite framework with an agenda somewhat similar to that of Asean.
However, their target for economic integration is not as ambitious. Asean aims to establish by 2015 a single market and production base that will be highly competitive and have a free flow of goods, services and investment, with improved movement of labour and capital. The Northeast Asian trio are only at the stage of making joint studies on the feasibility of three-way free trade, investment and business facilitation agreements.
Still, having some competition between Southeast Asia and Northeast Asia as they pursue these goals might hasten progress and prevent backsliding. That would be a plus for Asian integration.
