East Asia and the Pacific in the 21st Century: Geopolitical and Economic Dimensions

Chaired by Malcolm Fraser
14-15 March 2001
Seoul, Korea

East Asia and the Pacific in the 21st Century: Geopolitical and Economic Dimensions

1. East Asia and the Pacific enters the 21st century recovering from the major financial crisis. Even so, much work remains to be done to create a real sense of regional unity and cooperation, which will allow the region containing one third of the world's population to fulfil the aspirations of those people.

2. There have been a number of developments that, if they come to fruition, signal a bright future for the area. The most important of these are:

- President Kim Dae Jung's ''Sunshine Policy'' has for the first time in half a century opened a path towards the effective reduction of tensions and possible reunification of the two Koreas.

- The international community with the United States as the sole super-power, overwhelmingly continues to pursue a one-China policy.

- China is on the verge of joining the World Trade Organization and the InterAction Council urges a speedy end to the remaining negotiations so that China may take its full place as a member of WTO.

- Japan is searching for a new commitment to a global role, but needs to solve economic and political problems at home before it can fully find its global voice.

- Indonesia is faced with serious internal difficulties, but a process of democratization appears to be making progress.

- ASEAN continues to evolve, although it has faced some problems in the aftermath of the financial crisis of 1997.

- The opportunity seems more ready than ever before for a regional forum of all the East Asia and Pacific states to get together regularly to discuss mutual problems.

- The countries of the region have become increasingly aware of the need to develop new financial instruments capable of responding quickly to unexpected future financial problems.

- The United States remains engaged as a cornerstone of regional stability, but its role needs to be more constructively defined in the current strategic circumstances.

3. Each of these policy issues faces difficulties that will challenge the region. It is urgent for regional governments to coordinate more and discover a greater sense of cooperation in order to fulfil the high hopes and aspirations of the two billion people living in East Asia. Better cooperation will strengthen the economic foundations, extend prosperity to the furthest reaches of the region and allow East Asia and the Pacific to play an important role in the world commensurate with its size and economic importance.

The Korean Peninsula: Sunshine Policy

4. President Kim Dae Jung of South Korea has taken a bold initiative in opening the way to dialogue and potential reunification with North Korea. There is still a long road to travel, which will be full of pitfalls. But the important thing is that enemies on the two sides of a peninsula divided for more than 50 years by a bloody war have now started to talk.

5. The big powers, particularly the United States and China, which were party to the conflict that blighted the lives of so many people, now have a constructive role to play in helping to keep the doors open and sustaining the road to reunification. Washington, which maintains a military presence in Korea, holds an important key and should take more positive means to facilitate the initiative fostered by President Kim.

6. Even though it may be necessary to test each step along the way, the road that the two Kims have opened across a bitterly divided land offers the best hope not just for Korea but for the whole region.

7. Although the Korean economy has restored high growth, financial reform, management reform of chaebols (conglomerates), labor reform and public enterprise reform should be undertaken energetically.

China

8. The world overwhelmingly recognizes the policy that there is one China. Taiwan's future remains best as part of China, but moves towards unity should be achieved peacefully. The business community has recognized this, and Taiwan and the mainland are increasingly linked economically in a prosperous partnership that has seen $40 billion in investment and $25 billion a year in Taiwan exports going to China.

9. The Taiwan Relations Act was designed to protect Taiwan from unreasonable attack by China, but the Act was also designed to facilitate negotiations in good faith between China and Taiwan. Taiwan needs to respond to the imperative for genuine negotiations.

10. China has increasingly opened its own doors to the rest of the world, a move that was itself helped by the US policy of engagement with Beijing. The transfer of sovereignty over Hong Kong to China was achieved smoothly, and the ''one country, two systems'' policy has worked well, with Beijing keeping its promises of allowing Hong Kong great autonomy. Unity with Taiwan is altogether a bigger task, but one that should be tackled with integrity. Mutual efforts are required to achieve peaceful reunification.

11. The development of central and western China as incorporated in the 10th five-year plan is welcomed to narrow income gaps in the country. But to fulfill stable growth and development, diverse structural reforms will be required.

Japan

12. Japan's wish to play a bigger role in global affairs has been handicapped by its growing internal problems. Although the government sees the decade-long economic stagnation is ending, there are uncertainties including in consumer demand. While the government has placed top priority in economic recovery, full-scale efforts in structural reforms, including fiscal reform, financial system reform and deregulation, are indispensable.

13. Japan is the world's largest provider of official development assistance (ODA) and it wishes to remain so. However, the government faces a growing long-term financial burden, which has increased because of money spent on propping up the faltering economic recovery and is likely to be further strained by the aging population. It means this will lead to increasing scrutiny and prudence across all parts of the budget including ODA.

14. At the same time, Tokyo's wish for a larger diplomatic role has been limited by lingering dissatisfaction in the region for its failure in places like school textbooks to tell the full story of Japan's occupation and conquest of large parts of Asia during and before the Second World War. Tokyo faces demands that it should apologize, as openly as Germany did for the Nazi atrocities, or set up a special commission that would try to examine the issue thoroughly and honestly. The Government of Japan should carefully consider ways in which it can set the record straight and remove the historic feelings of resentment of its neighbors.

15. Japan has a peace constitution, the principles of which will be maintained in the new century. The overwhelming consensus in Japan is and will be adamantly opposed to the use of force to settle international disputes.

Indonesia

16. Indonesia has maintained its place in the world headlines as it has struggled with economic and then with political crises. To its great credit, Jakarta remains on the democratic path in spite of the enormous difficulties with which it is coping daily. It is vital, not only for the 210 million people of Indonesia, but also for the peace and stability of the East Asia and Pacific region as a whole, that the territorial integrity of the country be maintained. But Indonesia needs greater support from the outside world, especially in surmounting economic difficulties. The Asian Development Bank and the World Bank should consider providing a special emergency fund which could be disbursed quickly to meet unexpected contingencies.

ASEAN

17. ASEAN, which was formed at the height of the Cold War, has survived and been expanded and remains an important basis for regional cooperation. But the financial crisis of 1997 and its aftermath have caused difficulties. ASEAN needs to examine and strengthen its structures. It could also play a catalytic role in helping to promote a wider and stronger body that will give voice to the demands for greater East Asia and Pacific cooperation.

18. The region should also strengthen multilateral security cooperation, especially the ASEAN Regional Forum, through greater efforts at confidence-building and preventative diplomacy.

Greater East Asia Forum

19. The East Asia Pacific region remains the weakest in the world in terms of its organizational structure, especially in comparison to such areas as Europe and North America. It is especially weak in relation to its economic strength.

20. There is a need to develop a more structured system that will embrace all the countries of the East Asia and Pacific region. Creation of such a new regional body would better help all the countries of the region to protect their interests in responding to the challenges that lie ahead and to maintain the great economic progress made in the decades until 1997. There should be a meeting of all heads of government of the East Asia and Pacific region at least once a year as a forerunner for setting up an East Asia Forum.

21. One of the new body's first tasks should be to examine ways of promoting wider regional confidence and security.

Asian Monetary Fund

22. The 1997 financial crisis and its aftermath demonstrated the importance of a swift response in periods of crisis when massive sums of capital - which have flown in to help the rapid economic growth - suddenly moved out again with massive destabilizing consequences. Under the Miyazawa Initiative, work is being done on currency swaps to enhance considerably the resources available to countries facing unexpected pressures.

23. This work underscores the need for an Asian Monetary Fund. Such a body would allow Asia to respond quickly to financial emergencies in the region. It would also help to set and enhance prudential standards, improve market discipline and transparency across the whole region. It would also promote regular meetings of finance ministers and central bank governors from Asia. An Asian Monetary Fund would not be a challenge to the global system, but would be complementary to the IMF. It would allow Asia to respond quickly in a crisis without having to wait for help from the IMF.

24. In consultation with other Asian countries, Japan should set up a Task Force to prepare for the establishment of an Asian Monetary Fund complementary to the IMF, with dual preventive and crisis resolution roles. Its tasks should be to assist individual countries in the region in avoiding crises; but if they occur, it should work for their speedy resolution.

The Role of the US in Asia

25. The United States has played an important role in assisting the development of the Asian region over the last 50 years. But in the current changing strategic circumstances, it is important to review the role of the United States and to allow the countries of the region to have a stronger voice in their own destiny.

26. In particular, Washington's decision to press ahead with its anti-missile defense system needs to be reexamined. Several technical studies have questioned the effectiveness of such a defensive system. Ingenious terrorist groups or rogue states will be able to get under the cover of such a system by simple devices as sailing a ship with a nuclear weapon into a busy city harbor or releasing lethal anthrax germs in public places.

27. In addition, such a missile defense system will be expensive, and it will also rekindle an arms race as other nuclear powers seek to match and bypass the system.

28. Equally important, the decision to go ahead in the face of skepticism and outright opposition from almost all of its staunchest allies reflects a worrying tendency towards unilateralism on the part of the United States. This has also been seen in Asia on other matters where Washington has taken decisions without consultation. Being the world's sole superpower carries responsibilities to maintain balance and peace in the world. The importance of being consulted in advance is also why Asia needs to find a stronger voice.

29. The United States, which realized the ''new economy'' (high growth rate and low unemployment rate) in the 1990s, has entered an adjustment phase since the latter half of 2000. Since the impacts of the US economic deceleration on the world economy, particularly to her neighbors and Asia, are significant, great importance must be placed on appropriate fiscal and monetary policy management.