The paper provides a political economy analysis focusing on the uneven bargaining power between the Asian nations and the hegemons under Pax Britannica and Pax Americana. It explains how the Washington pressure on Asian nations to adopt the American model had the unintended consequences of pushing these nations to form their own Free Trade Areas. It deals with the quality of American economic “advice” to Asian nations, before and after the 1985 Plaza Accord.
The paper treats the post-1997 steps towards closer economic integration as part of a continuum aimed at increasing the Asian nations bargaining power in the global economy. The analysis recognizes the obsolescence of the post-1945 global financial order, being incompatible with Asia, currently the largest net lender in the world. The paper details the hurdles facing Asian nations in their attempt to weave closer cooperative arrangements and juxtaposed them with their counterparts in existing trading blocks.
The concept of integrating the Asian economy is not a new one. In the 19th century
the British toyed with the idea of setting up a Commercial Union that would haveincluded its colonies in Asia. In the late 1930s, Tokyo took active steps to establish
the Greater East Asia Co-Prosperity Sphere in order to translate this promise into
reality.
The proliferation of Preferential Trade Agreements (PTAs) in Asia has become a
major global trend in the post-cold war period. One form of PTAs involves the signing of
bilateral and regional Free Trade Agreements (FTAs). A free trade area is formed when a
group of nations agree to eliminate tariffs between themselves, but maintain their
external tariffs on imports from the rest of the world.
4
In the last few years, most Asian
fi
rms and governments have expressed their strong support for the formation of free trade
areas in Asia.
Most PTA
’
s represent a regional approach to trade liberalization as they involve
geographically contiguous countries. Other than the FTAs, they include, customs unions,
5
common market
6
and economic union.
7
A related arrangement is that of a monetary union
which establishes a common currency among a group of nations. A central monetary
authority determines the monetary policy for the entire group.
8
The 1997
fi
nancial South East Asian crisis provided a major reason for Asian nations to
seriously consider the formation of FTAs in the region. Asia is a continent with tremendous
potential. For example an FTA that would consist of ASEAN and China has a market that
represents a population of 1.8 billion, an annual GDP of more than $2 trillion and total trade
of $1.2 trillion (
Hefeker & Nabor, 2002
, p. 14). It would be one of the world
’
s major free
trade zones, similar to those of the EU and the US (
Chung-ming, 2003
). The EU has already
succeeded in making the European region an in
fl
uential block that is on a par with the
United States in many
fi
elds.
It is rather misleading, however, to treat Asian integration as a mere reaction to the
1997 crisis. The formation of FTA
’
s in Asia is intimately related to the process of
modernization in the region. The struggle for modernization in all Asian countries
invariably has involved close interactions with vastly powerful hegemons. This was true
under
Pax Britannica
in the 19th century and equally true after 1945 under
Pax
Americana
.
Due to the large
inequality
in the bargaining power between the Asian nations and the
important trading powers, for decades these nations have been subjected to frequenteconomic pressures. Thus, in a global environment where the bargaining power between
Asian nations and the hegemons has not been equal, it is more appropriate to consider the
formation of FTA
’
s in the region not as a singular event but as
part of a continuum
aimed at
pushing the Asian modernization process along the upward spiral. Though the analysis
deals mainly with developments in the second half of the 20th century, a logical starting
point is the 19th century when the Asian countries were still underdeveloped and, except
for Japan, colonized.
The paper is divided into the following sections.
1. Modernization under
Pax Britannica
2. Modernization under Pax
Americana
3. Theoretical discussion of free trade pacts
4. Post-1997 steps towards Asian integration
5. Asian integration in a comparative setting
6. Challenges to Asian integration
7. Conclusions
Given the long history of the uneven bargaining power between the developing nations
in Asia and hegemons, it is more appropriate to consider the formation of FTA
’
s in theegion not as a singular event but as part of a continuum aimed at redressing historical
inequities.
Under the liberal trade system of
Pax Britannica
and
Pax Americana
international
relations were based on
realpolitik
. The trade system under
Pax Britannica
was not
conducive for modernization. Most Asian nations were unable to industrialize because of
their inability to impose protective tariffs.
Pax Americana
, on the other hand, gave many
Asian nations an opportunity to industrialize their economies. It was in Washington
’
s self-
interest to see that pro-west nations in Asia modernizing their economies to prevent them
from falling to communism. By allowing Japan and its neighbors to follow a policy of
export-promotion in a multilateral trade regime,
122
underpinned by the purchasing power
of the huge American market, Washington played a constructive role in region
’
s
modernization. A by-product of this policy was that over the years the Asian nations have
been able to expand trade relations among themselves. This will prove quite advantageous
in the formation of Asian FTAs.
After the Plaza Accord in the mid 1980s there was the rise of American domestic
pressure groups, which succeeded in making their narrow-minded agenda top government
priority. These groups were able to control Treasury Department and through it made the
IMF put pressure on the developing nations to prematurely liberalize their capital accounts.
It is rather interesting that Washington
’
s lofty ideas of equating laissez-faire economics
with political freedom converged conveniently with the interests of Wall Street. The desire
of Wall Street to lend short-term capital to Asian
fi
rms was a serious development that later
proved detrimental to the Asian economies.
The IMF has always been an instrument of American foreign policy. In the post-1945
economic order, Asian nations were completely excluded from having any voice in global
fi
nancial affairs.
123
Westerners control both the World Bank and the IMF. Asian nations,
unlike their counterparts in Europe, were not allowed to determine their own economic
agenda. Washington vetoed attempts to establish any forum that concerned itself with an
Asian-initiated economic agenda.
124
To remedy the above inequities, nations in the region have been clamoring to form
FTAs. The FTAs are a direct response to the establishment of the EU (1993) and NAFTA
(1994), the rise of China and the 1997
fi
nancial meltdown. The crisis was a catalyst that
replaced the pre-1997 apathy with a collective determination to
fi
nd a common vision.
Asian nations are now realizing that they can attain more of their goals by acting together
than by going their separate ways.The formation of Preferential Trade Agreements in Asia is bound to produce much more
bene
fi
ts to the members of Asian FTAs than their counterparts in the EU and NAFTA in two
major areas: substantial improvement in bargaining power and in the quality of policy
making. One bene
fi
t of integration is that it will considerably strengthen the ability of the
Asian nations to withstand external pressures and preserver their system of industrial
organization. Despite its imperfections, the
dirigiste
system has proved its ability to
achieve rapid modernization in the region. Concomitant with effective modernization is the
increase in the size of the middle-class, which is a prerequisite to the rise of democratic
institutions. Thirdly, on the political front, the creation of FTAs means that each nation has
a stake in one another
’
s economic interests, thus reducing political frictions. Fourthly,
FTAs have the potential of serving as a regional security framework.
The challenges facing the region, however, are immense. They are institutional,
economic and political. There is a lack of institutional setup to serve the cause of
integration. On the economic front, the huge disparity in the levels of economic
development among the Asian nations must be abridged, and the productivity gap between
world class manufacturing sector and other sectors should diminish. The
fi
nancial sector
must be strengthened in order to achieve higher rate of returns on the Asian large savings.
This is particularly true as some Asian nations in the region face the problem of aging
population.
125
It must be admitted that liberalizing the
fi
nancial sector while keeping the
basic systems of Asian industrial organization functioning is a matter that requires delicate
balance and deft policy making.
There are also the painful memories of the past which must be honestly faced. Tokyo
and Beijing should settle past historical issues and prepare themselves for the day when
both will jointly carry the mantle of leadership in the region. There is far more that unites
the two nations than divides them. Speci
fi
cally, deep economic ties are becoming a more
powerful and uniting characteristic of the two colossal giants. Both are indispensable for
the establishment of viable Asian leadership.
126
The long-term prospects of the American
economy makes it incumbent on Asian policy makers to plan for the day when the US is no
longer the
fi
rst among equals. This is great opportunity of our time. It can be seized as long
as Tokyo and Beijing become engaged in the task.In short, the economic forces are pushing the nations in the region to embrace the cause
of modernization under conditions that in the long run would help to promote stability and
peace. The policy measures undertaken by Asian nations after the 1997 crisis paints a
picture of guarded optimism. Notwithstanding the rivalry between Tokyo and Beijing,
small countries in the region have been able to bridge the differences between the two
powerhouses of Asia. Despite negative initial reactions to certain proposed initiatives, there
has always been willingness to draw on the Asian values of patience,
fl
exibility, relations of
trust between policy makers, and personal networking in order to achieve necessary
compromises. If this spirit is to continue, this bodes well for the future of Asian integration
and to the rise of a vigorous trading block that will be able to negotiate with existing ones
from a position of equality.