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Is EAEC a Reality? By Narongchai Akrasanee, Ph.D. Chairman, MFC Asset Management Plc. Former Minister of Commerce of Thailand Speech prepared for AJBM Meeting The Luncheon Talk 23 November 2005 Plaza Athenee Hotel Bangkok 1 Is EAEC a Reality? By Narongchai Akrasanee, Ph.D. In just three weeks from today there will be the first Summit on East Asia Economic Cooperation in Kuala Lumpur, Malaysia. This Summit was first proposed by Dr. Mahathir Mohammad, former Prime Minister of Malaysia, way back in the very early 1990s, but was not endorsed by some East Asian countries. I remember when I accompanied Mr. Anand Panyarachun, former PM of Thailand to visit Mr. Miyazawa, former PM of Japan in Tokyo in September 1991, PM Miyazawa told PM Anand, in response to PM Anand’s enquiry that Japan could not support the idea of EAEC. Why is the Summit on EAEC possible now? What could we expect to be the outcome of the Summit? What should we do to help steer the outcome to be favorable to the business and economic development in East Asia? I would like to share my thought on these questions with you. We all know that regional economic cooperation is a recent phenomenon in East Asia. In fact, up to the present ASEAN is the only real form of economic cooperation in East Asia. After the second world war in 1945, China soon adopted socialism, followed by the Indochinese states and North Korea. Other East Asian countries adopted market capitalism. Obviously states with socialism and states with capitalism were prone to conflict rather than cooperation. And while the capitalist states were friendly to the West, particularly the US and Western Europe, the socialist states were friendly to the then Soviet Union, thus adding fuel to the rivalry between the US and the then Soviet Union. 2 In 1967 border conflicts among some Southeast Asian countries led to the formation of ASEAN, but nothing much happened apart from the peaceful resolution of conflicts, which was already good enough. The ASEAN process was given a big push in 1975 when the socialist North Vietnam won over the capitalist South Vietnam, leading to the first ASEAN Summit in 1976. ASEAN was doing a lot of business with Japan, Taiwan, Hong Kong and South Korea, but not with other socialist East and Southeast Asian States. A breakthrough was in the 1980s when China under the leadership of Deng Tsio Ping started to invest and trade with the capitalist world. And another breakthrough was in November 1989, when the Cold War was practically considered to be over, after which all socialist states in Southeast Asia adopted some degree of capitalism and market economy. Then, trade and investment among East Asian countries started to flow, and to accelerate. That was when PM Mahathir proposed the EAEC. Obviously it was too premature. However, ASEAN obliquely began the process of EAEC by having the ASEAN + 1 meeting, the 1 being Japan, China and South Korea. Also in the meantime by 1999 the ASEAN 6 expanded to become ASEAN 10, incorporating all mainland and maritime Southeast Asian states. In retrospect it can be said that ASEAN has all along been the prime mover to create some form of EAEC. But while ASEAN was trying to take the lead on EAEC, other countries particularly the US, Australia and Japan would rather have an Asia Pacificwide cooperation, thus the setting up of APEC in 1989-1993. These two opposing forces led to the strengthening of APEC and ASEAN, and the weakening of EAEC proposal. In the meantime on the business front China became a major exporter of the world, accounting for about 5% of world exports by the year 2002, out of the total trade of goods and services of about US$ 2 trillion. On the official front, ASEAN continued to move along towards EAEC. 3 ASEAN declared at its Bali Summit on 7 October 2003, that it would transform itself into ASEAN Economic Community (AEC) by 2020. At the same meeting, it decided to hold summit meeting with China, Japan and South Korea, thus the EAEC. But ASEAN’s words in recent years were not usually followed by actions, partly because for any major move that ASEAN would make, most ASEAN states would want an endorsement or a leadership from Indonesia. I have often said that ASEAN could only go as far as Indonesia allows it to go. Now a good sign is that Indonesia, with General SBY being the new President, may be ready to take the leading role in ASEAN again. So, ASEAN is more ready for EAEC. What about other countries, the ones in Northeast Asia? I think everyone knows the economic imperatives of East Asia, thus the support for the East Asia Summit at this time. But interestingly while economic integration among Northeast Asian economies is very strong, the political rivalry is also very strong. Each Northeast Asian state seems to be trying to position itself on the international arena, but doing so without having other Northeast Asian states playing a role in it. I think there is historical reason for each Northeast Asian state to treat each other that way. And unfortunately the famous Lee Kwan Yue’s dictum of being able to “forgive but not forget” is not being applied to the relationship among the Northeast Asian states. So, what could we expect from the East Asia Summit? On this question my view is that while the economic imperatives are pointing towards a major pronouncement and undertaking on economic cooperation, the political reality seems to imply the status quo of having no formal arrangement. 4 My view is being reinforced by my observation that as of this very day, I have not seen any leader who is performing the role of a champion for EAEC, unlike in the early 1990s when Dr.Mahathir was trying to play that role. My observation has been that for any major regional cooperation arrangement to make a big move, there must be a champion to do so. In 1993 APEC had a big move in the form of the Leadership Summit because President Clinton of the US wanted to play the APEC champion. And prior to that in 1989 when APEC was officially started it was PM Bob Hawk of Australia who wanted to be the champion on regional cooperation. Now it is November 2005, I have not seen any East Asia champion. Nor have I seen any prearranged KL Declaration establishing an East Asia community, or the process for establishing one such organization. So I have to regrettably conclude that there will be nothing of substance coming out of this very historical East Asia Summit. It is regrettable because economically we have every reason to cooperate among ourselves for the sake of our own people. It is regrettable because we are experiencing major economic imbalances between Western Pacific (East Asia) and Eastern Pacific economics, which need to be addressed as groups. Having an EAEC would certainly facilitate the process of consultation and adjustment with the US on the current account surplus / deficit, and the exchange rate. And it is regrettable because the politics of the “neighborhood syndrome” which suggest that “thou shall never love thy neighbor” is often in the way of economic cooperation. Perhaps we, as a business community representing ASEAN and Japan should make our view on the economic imperatives for EAEC heard by our leaders attending the Summit. But, as of now I can only hope that my conclusion is wrong, and that it will be a rare occasion when politics is a part of the solution and not a part of the problem, as it has usually been the case, regional cooperation not excluded. 5