Search Sunday October 26, 2003

Southeast Asia: Bold ambitions hobbled by petty rivalries
By Philip Bowring (IHT)
Tuesday, October 14, 2003

SINGAPORE: The Association of Southeast Asian Nations, or Asean, is a master of visionary documents. And China, Japan and South Korea are masters of the rhetoric of cooperation with their southern neighbors. Asean's goal, announced last week in Bali, of a single market by 2020 is bold indeed. Heart-warming, too, was the northern countries' eagerness to offer free trade deals with Asean. But most East Asian countries are less community-spirited when it comes to today's issues.

By rights, most countries in the region should be feeling self-assured. Economies are flourishing and neither North Korea nor sporadic Islamic terror are imminent threats to stability. Yet insecurity and xenophobia lurk close to the surface. They may prevent the region from playing the bigger role in global economic affairs that could benefit itself as well as the world.

Such progress as had been made toward freer Asean trade has mostly been driven by the private sector. Governments - Thailand and Singapore excepted - continue to protect favored industries from regional competition. Central bankers are cooperating to fight the "last war," the Asian crisis, rather than jointly address today's issue - their bloated trade surpluses, lack of regional cooperation on exchange rates and the very real dangers of a trade war with their Western customers.

Rivalry has led to a reluctance to accept that currency realignment is the logical result of economic success. Instead realignment is presented as a threat or viewed in beggar-my-neighbor terms. Ever-mercantilist South Korea is doing its level best to gain advantage over Japan by preventing its currency from rising as fast as the yen, even though its trade position is stronger than Japan's. Ditto Taiwan which, together with Malaysia, has Asia's largest trade surplus in percentage terms.

One exception to this picture is Thailand. Prime Minister Thaksin Shinawatra now accepts a stronger currency as the natural outcome of economic recovery and a large external surplus. The Thai baht has been allowed to rise 10 percent against the dollar this year, or about the same as the yen. But Thailand has had scant success in persuading its neighbors to think likewise. As a result it will face more competition from the likes of China and Malaysia.

The Thais argue that Asia's best hope for continuing rapid trade growth lies with intraregional trade, which would benefit from realistic exchange rates and an informal understanding to keep Asian currencies in stable relationships with each other and to avoid currency-based competition.

This is an issue that goes beyond currencies to attitudes. Thailand has taken the rough with the smooth in being open to the outside world despite the ravages of 1997. But despite big social changes since the Asian crisis, South Korea often seems stuck in an overtly nationalist mind-set. The LG Group is currently using blatantly xenophobic language to try to prevent foreigners from acquiring control of a South Korean telecom company. This is the very same LG which purports to be a global citizen, selling its products in all corners of the world.

Asia will hardly be able to continue to develop cross-border trade and investment to compensate for slow growth in the West if companies and nations follow South Korean examples of conduct.

China, meanwhile, continues to indulge in bouts of anti-Japanese fervor that spill over into trade. Japan is likely to lose a major railway contract as reprisal for accidental deaths caused by Japanese munitions left from 1945. China's news media have been in a frenzy of denunciation of the Japanese on account of an orgy alleged to have been laid on for Japanese tourists in Shenzhen. The xenophobes conveniently forget that sex tourism is routine in southern China. Most customers are Chinese.

The upcoming Bangkok meeting of APEC, the Asia-Pacific Economic Cooperation forum, could be an occasion for East Asians to decide on a joint approach to their trade and financial imbalances and address the legitimate concerns of the International Monetary Fund and their Western trade partners. But don't bet on anything that requires bold actions, a degree of unselfishness, or an understanding of the precarious state of world economic cooperation. Just get ready for more empty rhetoric.