Asia and the Pacific || East Asia: Economic Interdependence and Regional Security

East Asia: Economic Interdependence and Regional SecurityAuthor(s): Ralph A. Cossa and Jane KhannaSource: International Affairs (Royal Institute of International Affairs 1944-), Vol. 73, No. 2,Asia and the Pacific (Apr., 1997), pp. 219-234Published by: Wiley on behalf of the Royal Institute of International AffairsStable URL: http://www.jstor.org/stable/2623825 .

Accessed: 21/09/2013 21:01

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Wiley and Royal Institute of International Affairs are collaborating with JSTOR to digitize, preserve and extendaccess to International Affairs (Royal Institute of International Affairs 1944-).

http://www.jstor.org

This content downloaded from 128.135.12.127 on Sat, 21 Sep 2013 21:01:10 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=black

http://www.jstor.org/action/showPublisher?publisherCode=riia

http://www.jstor.org/stable/2623825?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


East Asia: economic

interdependence and regional

security

RALPH A. COSSA AND JANE KHANNA

The post-Cold War political/security environment has fostered both economic growth and cooperation in the countries of East Asia. Nonetheless, potential serious security challenges and uncertainties continue to exist which could threaten thefuture of regional peace and stability, while economic cooperation provides an opportunity to generate greater trust and confidence. This article discusses the vehiclesfor creating better habits of cooperation such as the promotion of natural economic territories and participation in subregional growth triangles, while accepting that the lack of political and of economic transparency remain fundamental challenges in the search for an improved Asian security environment.

The end of the Cold War has coincided with the dawning of a new, more peaceful and prosperous era in Asia, characterized by growing political and economic cooperation and interdependence, even among traditional rivals. Sustained regional economic growth rates have been unprecedented in world history. And, as a recent study on Asia-Pacific security and economics notes, 'this economic growth has been attributed to two principal factors: prudent market-oriented economic policies on the part of individual countries and a secure regional environment of international order'.'

This US military study understandably attributes the secure environment, in large part, to 'decades of US engagement in Asia'. While there are certainly other factors at play-not the least of which is the willingness and ability of the Asian states to set aside historic rivalries in the interest of enhanced economic development-the continuous US military presence in Asia is widely seen as a prime contributor to regional peace and stability. Meanwhile, the economic and political facts about the region speak for themselves.

I Lee H. Endress, Mark G. Harstad, and Jacquelyn Grizzard, Asia-Pacific economic update (Honolulu, Hawaii: US Pacific Command, Summer I996), p. i i. This annual report provides a wealth of data on US-Asia and intra-Asian trade and carefully documents the interrelated nature of economic and security issues and concerns.

International Affairs 73, 2 (I997) 2I9-234 219



Ralph A. Cossa andJane Khanna

Economic success story

According to the World Bank, Asia's share of the world's economic output has soared from about 4 per cent in I960 to 27 per cent of world output in 1994, when measured on an exchange rate basis. When measured on a purchasing power parity (PPP) basis, Asia accounts for one-third of world output. The world's second and third largest economies are in Asia, with Japan ranking second and China third on an exchange rate basis; China placed second and Japan third in terms of PP].2

Meanwhile, the most dynamic growth of exports worldwide has been in developing Asia.3 According to the International Monetary Fund, between I985 and 1994 the value of exports from this region grew 14 per cent annual- ly, outpacing Japan and the rest of the world's 9 per cent growth rates. About half of developing Asia's exports are intra-Asian, with 13 per cent going to Japan and the lion's share (37 per cent) remaining within the developing Asian community of nations. (The United States receives 22 per cent, with the remaining 28 per cent going to the rest of the world.) The fastest growing component is intraregional, with exports among developing Asian states increasing five-fold, from US$59 bilion in I986 to $295 bilion by 1994.4

Since its founding in I989, the Asia Pacific Economic Cooperation (APEC) grouping of regional economies, has become increasingly significant, in part due to the annual leaders' meeting, established by the US in 1993 when it hosted the first APEC ministerial meeting.5 The leaders' meeting has become an important vehicle for fostering political relations in addition to raising the level of economic dialogue and putting pressure on the region's leaders (and especially the host state) to move the process forward.

Of particular note was the agreement reached at the 1994 Bogor meeting in Indonesia to set a fixed target of the year 2020 for developing states and 2010 for industrialized states to create free and open trade and investment among the member economies.6 The 1995 Osaka meeting established a set of common principles that all APEC member economies would adhere to in achieving the Bogor goal. Given the economic diversity of APEC members and the fact that APEC is a consensus-driven body, agreeing to one set of guidelines was controversial.

2 World Bank, World Bank atlas, I996. Unless otherwise stated, comparative economic statistics in this article will be based on the more traditional exchange-rate method.

3 Developing Asia is defined by the International Monetary Fund as all the countries of the Asia-Pacific region, including the newly industrialized economies or so-called 'Asian tigers' (Hong Kong, Republic of Korea, Singapore and Taiwan), but excluding Japan, Australia and New Zealand.

4 International Monetary Fund, Direction of trade statistics yearbook, various annual reports. s APEC is referred to as a gathering of economies rather than a gathering of nations or states owing to

the presence in its ranks of Hong Kong and Taiwan which, diplomatically speaking, remain part of 'one China'. Taiwan's head of state is specifically not invited to attend the annual leaders' meetings.

6 For information on the Bogor meeting, see John J. Harter and Eugene Brake, Econtomic cooperatiotn itt the Asia Pacific area: perspectives atnd commnetnts on the Bogor declaration (Washington DC: US Department of State, I995), based on a I4 Oct. 1994 Washington DC symposium on the same topic.

220



East Asia: economic interdependence and regional security

At the I996 meeting in Subic Bay in the Philippines, members agreed to the Manila Action Plan for APEC (MAPA) which agreed on further details about how individual member economies can achieve the market liberalization goals of the Bogor declaration in a complementary fashion. The 1997 meeting will be in Vancouver, Canada and is expected to continue to move forward on Bogor's goals while also promoting cooperation in such areas as technology and the environment.7

Stable security environment

In addition to these individual and collective economic success stories, the overall security situation in the Asia-Pacific region is as good as or better than it has been at any time during this century.

To summarize briefly, the nations of South-East Asia continue to cooperate politically and economically within their Association of South-East Asian Nations, sweeping most of their historic rivalries under the carpet in the name of ASEAN unity.8 They have also taken the lead in creating a promising new multilateral dialogue mechanism-the ASEAN Regional Forum (ARF)-in order to engage all their Asia-Pacific neighbours, including China, Japan and the United States, for the first time in a structured dialogue on wide-ranging Asian security issues.9

Vietnam has joined ASEAN and the ARF, and the long overdue normaliza- tion of relations between the United States andVietnam has finally happened. The planned expansion of ASEAN to include the three remaining South-East Asian nations appears on track, with Cambodia, Laos and Burma, all already in the ARF, expected to join, perhaps as early as summer 1997.10

Meanwhile, democracy has taken root in the Philippines, South Korea, Russia and Taiwan, and continues to evolve elsewhere in the region. In most cases, this has either coincided with or been preceded by economic liberalization which has helped to set the stage for subsequent political reform. The belief that economic reform will lead inevitably to political liberalization also lies at the heart

7 For more information on APEC, see Jane Khanna, 'Asia-Pacific economic cooperation and challenges for political leadership', The Washliitgton Quarterly i9: i,Winter I995, pp. 257-75 and Perspectites ott the Manila Action Plan for APEC (Manila: Pacific Basic Economic Council, I996).

s ASEAN, the Association of South-East Asian Nations, was formed in I967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand, to accelerate economic growth, social progress, and peace and security in South-East Asia. It was later expanded to include Brunei and, nmost recentlyVietnam.

9 The ARF consists of the seven ASEAN states, plus Australia, Cambodia, Canada, China, India, Japan, the Republic of Korea, Laos, Myanmar, New Zealand, Papua New Guinea, Russia and the United States, as well as a representative from the European Union.

IO The major stumbling block is Myanmar (Burma), which continues to pursue a repressive domestic policy despite 'encouragement' from its ASEAN neighbours to reform. The United States (among others) has pressured ASEAN to delay Burma's entry. ASEAN's response has been to link together the entry of the remaining three South-East Asian states. While this somewhat reduces ASEAN's leverage over Burma, it sends a clear message regarding ASEAN's view of outside pressure on ASEAN's internal decision-making.

221




of the US decision to continue to grant 'most favoured nation' status to the People's Republic of China (PRC) despite its current lack of progress in the area of human rights.

In North-East Asia, Japan has demonstrated an increased willingness and capability to take on a more active leadership role in multilateral forums, hosting the 1995 APEC conference and leaders' meeting, and agreeing to co-chair the ARF's 1995-6 Inter-sessional Support Group on Confidence Building Measures (CBMs). I In addition, retired Japanese Ambassador Nobuo Matsunaga has been elected co-chair of the non-governmental Council for Security Cooperation in the Asia Pacific (CSCAP), a multilateral grouping of regional research institutes, security specialists and former and current government officials.

China's continued emergence, politically and economically, has also con- tributed positively and substantially to the general sense of well-being in the region. China seems irreversibly committed to economic reform and to a more market-oriented system, albeit under the rubric of 'socialism with Chinese characteristics'.

China's leaders have signalled an increased willingness to participate in multilateral settings such as the ARF, APEC, and most recently CSCAP, and have made significant gestures demonstrating Beijing's commitment to economic integration and the peaceful setdement of disputes. Beijing's willingness to co- host (with Manila) the ARF Inter-sessional Support Group on CBMs during I996-7 provides further evidence of this commitment. China's 1995 White Paper on Arms Control and Disarmament was also a welcome, if modest, first step towards greater Chinese military transparency.

Even the once mighty Soviet/Russian Pacific fleet appears today to threaten only the sailors aboard its ships and the personnel involved in protecting or dis- mantling its nuclear warheads and propulsion systems. Russia is seeking to play a positive role in the ARF, hosting an April I996 ARF track two conference in Moscow aimed at developing a Statement of Basic Principles for Security and Stability for the ARF.'2 Moscow is also politely knocking on APEC's door and is seeking to play a more active, positive role in the Korean Peninsula peace process.

While tensions have yet fully to subside on the Korean Peninsula, the imme- diate nuclear crisis has at least temporarily been defused. Pyongyang seems willing, if not eager, to improve relations with Washington and Tokyo, even as it remains reluctant to renew its once-promising dialogue with Seoul.

Cooperation between the United States, South Korea and China in offering to engage North Korea in four-party talks aimed at replacing the current armistice with a permanent peace treaty also holds out promise for future

" For details on the ARF and its intersessional support groups, see Bandar Seri Begawan,'Chairman's statement of the Second ASEAN Regional Forum (ARF)', I Aug. I995.

12 'Track two' refers to unofficial meetings, normally hosted by independent research institutes, that bring - together independent scholars, security specialists,former and current defense and foreign ministry officials and serving officials, participating in their 'private capacities'.

222




progress, now that the dust caused by last autumn's North Korean submarine incident has begun to settle.'3 In addition, a quasi-governmental multilateral mechanism, the Korean Peninsula Economic Development Organization (KEDO) has been established to implement the Agreed Framework between the United States and the Democratic People's Republic of Korea (DPRK) in order to involve more closely the Republic of Korea (ROK) and Japan (among others) in the process.

The economics-security interrelationship

In this post-Cold War era of rising multilateralism and economic interdependence, governments are having to redefine their roles as sole interlocutors for domestic and foreign economic as well as political relations. This creates a dilemma as the traditional nation-state attempts to manage its security, political, and economic interests in a world that both draws entities more closely together and creates more diffuse and fluid ties.

As outlined above, in many respects Asia has already entered a new era where economic pragmatism as a guiding principle for foreign policy has become a major factor in dissolving historical antagonisms in favour of the common good. As Philippine National Security Advisor Jose Almonte recently reminded us:

To our generation, the unity of Southeast Asia under ASEAN may seem a natural development. But, to ASEAN's founding fathers 30 years ago, one Southeast Asia was only a distant, idealist vision. It has had to be nurtured by regional statesmen-by joint projects like the cross-border 'Growth Triangles' that have built political confidence among the ASEAN states.'4

The extent to which economic and security issues were truly divorced in the past is debatable.They were usually approached separately, even if they impacted upon one another. Almonte notes, for example, that ASEAN was justified pub- licly as a vehicle for economic cooperation simply because that was'the least controversial topic with which to start', even though 'fear of communism was really ASEAN's original impetus-although nobody wanted to even say so then'.I5

In Asia today, however, it is practicaliy impossible, and may even be danger- ously naive, to try to separate economic, political and security issues. Almost all political or security decisions have some economic implications, and economic considerations are increasingly influencing political and security decisions.

13 A North Korean infiltration submarine with commandos on board was discovered after mechanical dif- ficulties caused it to be washed up on South Korea's coast. After much negotiation and delay, the DPRK issued an unprecedented 'statement of regret' which the ROK graciously accepted as an official apology.

14 Jose T. Almonte, 'A strategic framework for policymakers in Asia'. Keynote address to the Defense Asia Forum 1997, Singapore, 15 Jan. 1997. Excerpts from this address were also reprinted in Pacific Forum CSIS PacNet Newvsletter, 7, 14 Feb. 1997.

'S Ibid.

223




While the imperatives of the regional and global marketplace have helped to forge improved relations among the nations of the region, their occasionally competing political and security agendas limit the degree of economic cooperation and raise the potential for new conflict as many pursue joint endeavours but with different (and potentially conflicting) long-term objectives.

Geoeconomics versus geopolitics

The relationship between economic and security interests has engendered con- siderable debate in the post-ColdWar era. Some scholars argue that the private sector will overcome political and governmental barriers if the opportunities are attractive enough, and that the nation-state could find itself seriously challenged or marginalized as a result. As one Asian economic analyst has noted:

Globalization is drawing serious attention these days because it challenges the concept of the modern territorial state...the problem raised by globalization is that rapid expansion of the market mechanism cripples the state's power and challenges the inviolabil- ity of sovereignty and the concept of national territory.'6

In the extreme case, this has led to the argument that war between states as a means of settling disputes has become, or will soon be rendered, obsolete. Almonte joins this argument to some extent, noting that'for the richest and most stable portions of the globe-the democracies of Western Europe and the Americas-war has become outmoded as an instrument of competition'.That day has not yet arrived for Asia, however, although Almonte expresses hope that it is near:

Here in East Asia, the vigorous growth of our economies enables us to hope the time will soon come when our mutual security will depend no longer on arms and alliances but on peaceful commerce and integration in the East Asian community.'7

History has shown that, at least to date, increased economic cooperation and interdependence, in and of themselves, provide no guarantee against conflict. True, it can increase the stakes and thus raise the consequences to the point where a potential aggressor will have to think twice before choosing a military option to achieve its aspirations. But it can also create a false sense of confidence which may cause states to push too hard or too far.i8

16 YoonYoung-kwan,'Globalization: toward a new nationalism in Korea', Korea Observer 26: I, Spring 1995, p. I6.

17 Almonte, 'A strategic framework for policymakers in Asia'. Is The case of Iraq's invasion of Kuwait is relevant. During Ralph Cossa's visit to Kuwait in May I990, as

the deployment of Iraqi troops to their mutual border was ringing alarm bells in the West, he was told by Kuwaiti officials,'Relax, Iraq is too dependent on Kuwait economically to ever attack us; they would never bite the hand that feeds them.'This proved to be a fatal mistake for the Kuwaitis, just as the decision to attack ultimately proved fatal for Iraq's occupation forces. The failure of economic sanctions in the long months before operation Desert Storm to convince Iraq to withdraw from Kuwait, and the failure of economic and political sanctions since to convince Saddam Hussein to mend his ways, also point to the flaw in the argument that geoeconomics has rendered warfare obsolete.

224




At the other extreme, it is argued that economic interactions exist only as a result of a nation-state's security interests. Certainly while markets may lead the way towards improved intergovernmental relations, these cannot be sustained without governments agreeing to the bargain, for some argue that global finan- cial flows ultimately do not undermine a state's decision-making authority, since 'if a crisis increases their willingness to bear the consequences, states can still defy markets'.'9 Similarly, governments that attempt economic cooperation based solely on political motivations are bound to fail if that cooperation is not grounded in economic rationality.

This way of thinking leads to the concept of 'natural economic territories' (NETs) put forward by Professor Robert Scalapino.20 The concept is a provocative one because the notion of cross-border economic flows, linking sub-regions of nation-states rather than states' political centres, suggests that economic ties can, and do, outpace political ones. How nation-states are adjust- ing their political and security relations-as well as their economic development strategies-to this new trend of'economics from below' can yield insights into how the interplay of competition and cooperation is shaping the region's economic, political and security dynamics in the tremendous transitions of the post-Cold War era.2'

Later in this article we analyse breifly the NETs phenomenon region-wide and then, using the North-East AsianYellow Sea rim NET as an example, we look at the role that economic integration has played in the political and security agendas of Beijing, Seoul and Tokyo.We also address the role of North Korea as both a motivating and a hindering force inYellow Sea rim cooperation.

Potential areas of conflict

Before looking at the emerging NETs, however, it is useful to review some of the existing uncertainties and areas of emerging potential concern, in order to create a fuller picture of the current environment. As noted above, the security situation in Asia has seldom been better than it is today; just beneath the surface, however, a great deal of uncertainty remains about the future. While the prospects for conflict seem small in the short term, the potential for conflict remains and could grow.

It should also be noted that many of the region's enmities pre-date the Cold War and, in one key region, the Korean Peninsula, the Cold War has not yet ended. In addition, with regard to the two major Asian powers-China and

'9 Louis W. Pauly, 'Capital mobility, state autonomy and political legitimacy',Jourtial of Ititertiatiotial Afairs 48: 2,Winter 1995, p. 373.

20 Robert A. Scalapino, 'The United States and Asia: future prospects', Foreigti Affairs 70: 5,Winter 1991-2, pp. 19-40.

21 For a detailed analysis of Asia-Pacific NETs see Amos A. Jordan and Jane Khanna,'Economic interdependence and challenges to the nation-state: the emergence of natural economic territories in the Asia Pacific',Journal of Itntertiational Aairs, 48: 2, Winter 1995, pp. 433-62.

225



Ralph A. Cossa and Jane Khanna

Japan-the end of the Cold War has reduced the strategic rationale for their close cooperation: namely, mutual fear and suspicion of the Soviet Union. This has increased the importance of economic factors as the prime motivation,jus- tification and vehicle for future Sino-Japanese cooperation.

Geopolitical uncertainty

As the current trends and developments in Asia are examined, numerous security questions and concerns become evident. Some of the most prominent include:

* territorial disputes between China andVietnam, China and Russia, China and Japan, Japan and South Korea, Russia and Japan, and between several of the ASEAN states, both over land borders and over contested islands, especially in the South China Sea;22

* a growing independence movement on Taiwan which threatens to disturb the careful equilibrium provided by the current 'one country, two systems' formula;23

* apprehension over Chinese handling of the reversion of Hong Kong-a violent transition would have profound regional consequences, especially vis-d-vis Taiwan, which would conclude that the 'one country, two systems' formula does not work;

* wide-ranging disputes between the United States and China over trade, human rights, and proliferation issues, which often lead to Chinese counter-charges that the United States is attempting to hold back or con- tain China;

* uncertainty regarding the on-going political transition in Beijing and China's growing military capability;

* concerns about potential remilitarization in Japan fed, in part, by misinter- pretation of the April I996 Joint Declaration between US President Clinton and Japanese Prime Minister Hashimoto aimed at reaffirming the US-Japan security alliance;24

A failure peacefully to resolve the South China Sea territorial dispute (between Brunei, China, Malaysia, the Philippines,Taiwan andVietnam) would have broad regional, if not global, consequences. Motiva- tions behind the overlapping claims vary among the claimants but economics is clearly a common dri- ving factor (i.e. the potential for profit in the form of oil, gas, fish and mineral resources and the desire to use claimed territories to extend each country's exclusive economic zones).

23 Last year's tensions between Taiwan and the mainland, as manifested in the PRC's military exercises and missile test firings, also had their roots in each side's overestimation of its respective economic leverage. Our own discussions with Taiwanese leaders convince us that Taipei believed that its economic involve- ment in the mainland-some $25 billion in direct investments and joint ventures-gave it a great deal of flexibility in dealing with Beijing. Unfortunately for Taipei, Beijing leaders at the time expected that Taiwan's investments would cause them to be less adventurous. When Beijing perceived, rightly or wrongly, that Taiwan President Lee Tung-hui was moving towards a formal declaration of independence, it decided to resort to the threat of military force to counter this threat to PRC sovereignty over Taiwan, regardless of the political or economic consequences.

24 For more details, see Ralph A. Cossa, 'Restructured Japan-US alliance is not a threat', The Daily Yotniuri Oapan), 23 Jan. 1997, p. 6.

226




* instability and uncertainty surrounding Russia's still tentative emergence as a democratic free-market society, especially given PresidentYeltsin's poor health;

* North Korea's formidable conventional and suspected potential nuclear military threat and its potentially dangerous economic and leadership crises which could cause economic or political implosion or a devastating military explosion;

* unprecedented economic growth that, while benefiting many, is creating broad'have versus have-not' gaps between and within countries.

* pending leadership transitions throughout Asia, but particularly in South- East Asia, where a new generation of leaders waits impatiendy in the wings;

* potential future threats to the sea lanes that link the vibrant economies of Asia to each another and to the world at large, including piracy and uni- lateral or multilateral attempts to prevent transit through international straits, plus simple congestion, resultant accidents, oil spills and other envi- ronmental challenges;

* arms modernization efforts that add a new dimension to historic concerns over maritime passage and the security of strategic straits and could prompt arms races, especially if the pace of modernization accelerates or tensions in the South China Sea increase.

Economic challenges

Finally, it must be noted that the Asia-Pacific region is at a stage of economic growth where the quality-as opposed to the pace- of that growth is coming under increased scrutiny, by domestic constituencies as well as by external actors. Rapid economic growth in many countries has come at the cost of investment in 'human capital', such as education, health, housing, infrastructure and the environment. One can only expect that if economic growth as a cur- rency for political legitimacy is to continue, Asia's leaders wili have to address the challenges of unequal growth. Some of the negative effects of ongoing economic miracles are transnational in nature and have the potential to resurrect historic rivalries that lie just below the surface. Among these are increased migration, much of it illegal; air pollution and acid rain that crosses borders; corruption within the private and governmental sectors, including the military; and increased competition for resources, particularly energy. There are domestic and regional challenges of continued economic growth that the region's leaders have yet to address.

Also of concern is how well APEC will coexist with ASEAN's call for a Free Trade Area (AFTA) and the prime minister of Malaysia, Dr Mahathir's, wild card, the East Asia Economic Caucus (EAEC). How political or politicized will these economic groupings become and and how do they relate to the emerging phenomenon of 'natural economic territories' or 'growth triangles' that transcend national boundaries?

227




Natural economic territories

The development of subregional economic cooperation is rooted in the tremendous economic growth of intra-Asian trade and investment, dating from the mid-ig8os when country after country adopted economic liberalization packages. The first demonstration case of a natural economic territory (NET)-the economic linkages between two southern China provinces with Taiwan and Hong Kong-carried in its success the question: if cross-border trade and investment can pervade even the political hostility of the Taiwan Straits, what would be the effect if governments were actively to cooperate for mutual economic benefit?25

Since the mid-ig8os, South-East Asian governments have wholeheartedly embraced the 'growth triangle' approach to economic integration.The ASEAN fourth summit in 1992 reflected this when it adopted growth triangles as a par- allel and supporting mechanism for achieving the ASEAN Free Trade Area (AFTA). There are now numerous actual and proposed growth triangles linking various combinations of South-East Asian countries-almost all of which have received official government backing, either at inception or in mid- stream, through memorandums of understanding (MOU).26 Yet, even with the stamp of officialdom that NETs receive in South-East Asia, their value is that they are not an event but a process that entails an evolution of an economic as well as a political testing of the waters.

Whether in South-East or North-East Asia, NETs are generating innovative means of economic interaction that have limited consonance with traditional economic controls and political arrangements. It is a phenomenon particularly suited to the Asian context where there is a strong predilection for informal agreements rather than legalistic and binding treaties, and for incremental rather than bold systemic change. NETs allow states to experiment with economic reform policies and gradually to expand them if successful. Liberalization, decentralization and industrial restructuring all combine to motivate these countries to develop their'shadow belts'-the peripheries and hinterlands that remained isolated from the political and commercial centres that developed during the Cold War. Much of the untapped potential in these areas can be most efficiently realized by capitalizing on complementarities across political borders, so that these subregions are now being more 'naturally' linked with world markets and emerging regional ones.

25 For a detailed analysis of this NET, see Jane Khanna, ed., Southlerni Chliita, Honig Kotng, atid Taiwvan: evolutiotn of a subregional economny, Significant Issues, i7: 7 (Honolulu, Hawaii: Center for Strategic and International Studies, 1995).

26 The most prominent South-East Asian NETs are (I) the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT), originally known as SIJORI; (2) the Indonesia-Malaysia-Thailand Growth Triangle (IMT- GT), linking North Sumatra and Aceh in Indonesia, Malaysia's northern states of Kedah, Perak, Penang and Perlis, with Thailand's southern provinces of Satun, Songkhla,Yala, Narathiwat and Pattani; (3) the Golden Quadrangle, which encompasses parts of northern Thailand,Yunnan province in Mainland China, northern Myanmar and Laos; and (4) the East Asian Growth Area (EAGA) that links Brunei with Indonesia's eastern provinces of East and West Kalimantan and North Sulawesi; Sabah, Sarawak and Labuan of Malaysia; and Mindanao Island of the Philippines.

228




NETs also allow states to experiment in cooperation which they approach cautiously, given the region's varying levels of economic development, different socio-political systems and complex security and political relationships. As a result, Asian states may find NET cooperation particularly attractive at a time when official mechanisms for economic cooperation-such as APEC, EAEC and the WTO-are proving slow to achieve consensus on a regional (or global) economic framework for trade and investment. Thus, the use of NETs allows states to proceed along their own paths of economic growth and development without the need to agree on overarching regional goals.

North-East Asia NETs

This flexible approach is particularly true for North-East Asia, where cross-border economic complementarities seem to be at least as strong as or stronger than in South-East Asia, yet where political and security rivalries have subdued economic interaction. China and South Korea, for example, had little contact for the 30 years leading up to the re-establishment of diplomatic relations in August I992.

Subregional economic cooperation grows from a foundation of naturally endowed economic complementarities but, importantly, entails a degree of political confidence between political centres-which is not a necessary con- dition for the usual type of transnational trade and investment. One can con- trast the booming economic transactions across the Yellow Sea rim with the Tumen River project which, despite official UN endorsement and Chinese encouragement, has thus far failed to ignite because of lingering security tensions between Japan-Russia and North-South Korea, as well as a perception in Russia that China would gain more. Thus, NETs provide one barometer of how fast and how far countries are willing to engage with each other-not only economically but also politically.

Yellow Sea rim

With the break-up of the Soviet Union and the demise of the bipolar international order, the three key North-East Asian countries of China, Japan and South Korea are all pursuing more diversified foreign policy approaches that emphasize but are decisively less reliant upon the United States. They now view strengthened relations with each other as a priority in this process.

Furthermore, as countries grope their way through the confusion of the post-ColdWar era, they seek to create multiple options for political relations and cast the widest net possible in their search for economic relations, creating a new trend of countries 'being regional and grouped'.27 This trend also

27 Zhong Chen,'Yellow Sea economic cooperation among China,Japan and Korea'; Bum-Joon Lee and Sung-Chul Yang, eds, The chlatngitng world order: prospects for Korea itn the Asia Pacific era (Seoul, South Korea: The Korean Association of International Studies, I992), p. 247.

229




reflects a desire to hedge against security threats that do not have the clarity of those during the Cold War, and a shift in focus away from the superpow- er confrontation back to 'the neighbourhood'. Yellow Sea rim economic cooperation is the furthest along of this type of trend in North-East Asia, as it allows each of the countries to carve out a sphere of influence that is economically grounded but that also fosters political and cultural ties. The China-South Korea component of theYellow Sea 'circle' has made the most dramatic headway in both economic and political terms, while Japan's relations with both China and South Korea are progressing at a more gradual pace. A brief analysis of the bilateral configurations among the three Yellow Sea rim players follows.28

China-South Korea

The impetus for improved relations between Seoul and Beijing was driven by domestic policy changes on both sides of theYellow Sea. South Korea initially floated the idea of a 'Yellow Sea Economic Zone' when it established development of the south-western coast as a national priority in I988. A testament to the strong economic complementarities between North-East China and South Korea was the rapid shift in Korean investment in China from the southern provinces to the Bohai Sea area as political relations strengthened. Even prior to establishment of diplomatic relations in I992, economic flows were locally driven and had a life of their own.

A complementary and perhaps more important policy was South Korea's 'Northern policy', adopted in July I988 to negotiate diplomatic relations with China and the former Soviet Union. This policy has achieved the twin objectives of strengthening economic ties with China and establishing a political dialogue with Beijing on North Korea.29 Although China initially reacted cautiously, the late Deng Xiaoping's pragmatic policy to achieve economic reforms gradually allowed China to alter its traditional aversion to a'two Korea' policy, and agree to diplomatic relations with the South while maintaining its security interests with North Korea. In addition, South Korea figured positively in China's internal policy shift towards emphasizing development of the Bohai Sea to balance the other two economic development centres of Shanghai and the southern provinces.

28 For a more detailed assessment from which this analysis is derived, see Jane Khanna and Chang-Jae Lee, eds, Economic itnterdependence and challenges to the niation-state: econonmic cooperation in the Yellow Sea rim (Seoul, South Korea: Korea Institute for International Economic Policy, I996).

29 See President Kim Young Sam's speech at Beijing University coupling the opening of economic relations in the Yellow Sea with a call for China's support in engaging North Korea in the 'movement towards open globalness'. BBC, Summtnary of World Broadcasts, 30 March I994.

230




China andJapan

As the two leading economic powers in the Asia-Pacific region, China and Japan are important partners as well as rivals. In I993,Japan and China resumed a high-level security dialogue which was broken off in I989. A full analysis of this highly complex relationship, which would necessarily include the United States as the third strategic partner, is beyond the scope of this article. Suffice it to say that China and Japan are being pulled into each other's economic and political orbits: China needs to engage Japan's economic muscle in its development, and Japan endeavours to help China develop as a 'responsible power' in the region by attempting to upgrade its economic clout. Yet Japan's ultimate interest is either to avoid internal instability and chaos in the post-Deng era, or to avoid fostering a China that is a strong military power that becomes a threat to its neighbours.30

For its part, China seeks to achieve a balance between its reliance on Japanese capital and technology and its other bilateral relations, for example with the United States. As one Chinese scholar observed, 'China can use Japan as a balance to United States investment; China is happy to see a contest between Japan and the US for market share. It creates a strategic triangle that only gives China more choices.'3' Among these choices is to engage Japan as a hedge against the United States becoming too dominant. The political and security agendas of China andJapan are thus mediated by a much broader strategic economic relationship of which theYellow Sea rim is but one component.

South Korea andJapan

The historically wary relations between South Korea and Japan have shown signs of improvement and can feasibly be enhanced further with dialogue on the Yellow Sea rim. During recent summit meetings between ROK President Kim and Japanese Prime Minister Hashimoto, both sides have struck a concil- iatory note, although Tokyo's 'inadequate' apology for Japan's wartime acts in Korea and the unresolved issue of compensation to Korean 'comfort women' remain thorns in the relationship.Yet interministerial as well as private sector contacts have increased.

What are the prospects forJapan and South Korea cooperating on theYellow Sea in order to develop strategic leverage over China? At present, it does not appear likely, owing to the predominance of interests that govern bilateral relations between China and South Korea, as well as China and Japan. Neither Japan nor the ROK can currently afford to subjugate their multiple priorities with China to the point where they would make joint demands for mutual

30 See quote by General Tetsuya Nishimoto, chief ofJapan's defence forces, Far Eastern Economnic Ret'iew, I3 April i995, p. 5.

3' Quote by Li Shuguang, legal scholar at the Chinese University of Political Science & Law, Beijing, Business Week, io April I995, p. I I4.

23I




political or economic goals. As one scholar notes, 'China and its provinces have far more leverage and opportunity to play off one partner against the other [in this NET] than in any other [of China's] NETs.'32 Thus, while bilateral relations can be expected to improve gradually, the economic opportunities in the Yellow Sea have yet to prove strong enough to dissolve political barriers in this bilateral relationship.

North Korea

A critical element to the calculation of economic cooperation for the benefit of improved political and security ties is each state's concern over North Korea. The isolation of North Korea and its hostility towards the South is the one uncertain question facing regional relations, and North Korea will no doubt seek to play as troublesome a role as possible in the growing entente among these three key North-East Asia capitals. Pyongyang is limited in its ability to do this, and the goal is to convince North Korea to engage rather than continue an adversarial role. Japan and especially South Korea hope that China can play the key role in

opening North Korea to the rest of the world, and the Yellow Sea may provide a natural economic 'bridge' to bring this about. This possibility seems more remote now than when South and North Korea signed a Joint Declaration in I99I aimed at promoting cooperation on the peninsula, and more remote still given the recent food shortages and apparent crisis in the upper ranks of North Korean leadership. And, although the economic and political climate is not yet ripe to 'formalize'Yellow Sea rim economic cooperation, one could imagine that a key motivation for some type of intergovernmental agreement would be to create a strong enticement for North Korea to become involved. As occurred in the early stages of South-East Asian growth triangles such as SIJORI (Indonesia-Malaysia-Singapore), bilateral agreements could occur first, such as between China with South Korea and, separately, North Korea, which could pave the way for broader multilateral agreements to follow. This type of scenario may be years away, and many smaller building blocks need to be achieved first.Yet China and Japan are South Korea's key actors in the region for working towards the peaceful reunification of the Korean peninsula, and thus their mutual interests are intimately wedded in a Yellow Sea partnership. With North Korea included, theYellow Sea rim takes on an especially strategic significance for all three states.

32 Gerald Segal, Chiina chatnges shape: regiotialisnm atidforeign policy, Adelphi Paper 287 (London: International Institute for Strategic Studies), March I994, p. 49.

232




Potential political and security obstacles

Despite much caution, as well as historical fears and mistrust between Beijing, Tokyo and Seoul, all three want to avoid a divisive crisis and look for concrete opportunities for economic cooperation.Yellow Sea rim economic cooperation cannot be expected, on its own, to solve the most intractable problem of North Korea. Over time, joint cooperative efforts will at best work at the margins of this conflict.

Apart from North Korea, there are several possible areas of friction that could emerge to derail the process. The evolution of provincial autonomy in China in the post-Deng era will be important to watch, given that a weak centre may try to curtail decentralization or may be less able to manage macroeconomic levers that in part make the Bohai Sea area an attractive investment area.

A second area of possible friction is how Japan develops its political voice in the region to complement its weighty economic presence.Japan realizes that the region still regards it with apprehension and mistrust, and this 'unsetded history' comes into play as it begins to reassert economic and political interests. Japan is particularly challenged in its relations with China and South Korea to be perceived as a cooperative partner and not solely as a political actor or economic competitor-more so than in South-East Asia. Thus, theYellow Sea is an opportunity for Japan to demonstrate its commitment to cooperative relations, even though it is less a priority in economic terms for Japan.

Finally, as economic interdependence is increased, domestic economic policy decisions will become more inter-connected and the need for coordination on an array of fiscal and monetary policies will become more important. The Mexico crisis has taught the world to avoid the syndrome of rapid economic growth built on speculative capital rather than on solid fundamentals. Mexico's experience is also teaching the world that political democratization should be pursued with the same vigour as economic decentralization in order to develop robust and responsible individual actors in a market economy.

To manage these challenges, nation-states will have to deal with the emerging 'economics from below' by encouraging the development of strong local economic and political institutions, and with globalization-'economics from above'-by being more effective in working through a regional framework for policy coordination such as that envisioned by APEC. In this way, subregional economic cooperation can be a 'training ground' for developing an agenda to achieve the Bogor Declaration of a free trade area.

Conclusion

The nations of East Asia have proved increasingly to be capable of putting historic enmities and suspicions aside in order to participate in, and to sustain, the region's growing economic prosperity. The generally secure post-Cold War political/security environment has both fostered economic growth and coop-

233




eration and been enhanced by it. Nonetheless, potentially serious security challenges and uncertainties continue to exist which could threaten future regional peace and stability.While economic interdependence provides no guarantee against future conflicts (and could even generate such conflict if mismanaged), on the whole, greater economic cooperation fosters greater trust and confidence while increasing the costs of conflict to all concerned.This decreases the likelihood that military force will be used to accomplish objectives or settle dis- agreements among states.

Among the vehicles for creating better habits of cooperation in the region are the promotion of NETs and greater participation in multinational growth triangles. The Yellow Sea rim area offers one of many arenas for Japan, South Korea, and China (and eventually North Korea as well) to overcome their historic animosities.

Some fundamental challenges still exist; there is a lingering perception of a zero-sum game in North-East Asia, where states worry that other states will gain more by cooperation. The lack of political as well as economic transparency helps to feed these concerns.Yet the web of economic and political ties that are being generated in the Yellow Sea rim and other NETs or growth triangles can serve as building blocks in developing a further improved Asian security environment.

234



Documents

Asia and the Pacific || East Asia: Economic Interdependence and Regional Security