Heading Off Trade 'Regionalism' In the Pacific Basin

IS the world fated to split into three huge trading blocs - Europe, North America, and East Asia?To some, the prospect is a nightmare; to others, an opportunity. I would have to place myself among those who, like former Federal Reserve Board Chairman Paul Volcker, are troubled by "this vision of a tripolar world." The nightmare school believes that Europe, the United States, and Japan enjoy affluence today in large measure because of the progressive lifting of global trade barriers since World War II. They see further growth endangered by protectionism and by retreat into "fortress" mentalities. Those who want the blocs are mostly protectionists who say that the US should look to its own defenses through free trade agreements with Canada, Mexico, and perhaps others in the New World. The European Community is already a trading bloc. Japan, which has benefited the most from free trade, has been indecisive and slow in opening its own markets. It has yet to respond to a proposal from Malaysian Prime Minister Mahathir Mohamad for an East Asian Economic Group that would include Japan while leaving the US, Canada, and Australia out. A Washington think tank last week launched an initiative to defuse the seemingly inexorable buildup of trade tensions and competing blocs. The organization, which has the unwieldy title of "Commission on US-Japan Relations for the Twenty-First Century," is primarily concerned with US-Japan relations, but looks on the entire Pacific Basin as a region in which Tokyo and Washington could enjoy a cooperative rather than a competitive relationship. The initiative was aired at a conference chaired by Edson Spencer, former CEO of Minneapolis Honeywell. Mr. Volcker was the keynote speaker, and economist Lawrence B. Krause gave a provocative paper entitled "Can the Pacific Save the US-Japan Economic Relationship?" "The forces of economic regionalism are gathering strength," Volcker told the conference. Professor Krause proposed that these forces be deflected and US-Japan tensions be defused by establishing a broader framework for trans- Pacific relationships. The 15 countries of the Pacific Basin, including the US and Japan, have the most dynamic and growing economies in the world, Krause said, and already have close economic relations. In 1988, 65.7 percent of Pacific Basin trade was among Basin countries, whereas intra-EC trade was somewhat less, 58.6 percent. These close relations have developed not because of governmental initiatives promoting integration, as in the EC, but because of private, competing business decisions. Companies invested, bought, and sold where it profited them to do so. Krause calls the Pacific Basin a model of shallow integration, compared to the deep integration the EC is trying to achieve. "Governments in the Pacific Basin promote regional integration by permitting it to advance, rather than artificially stimulating it as in Europe. The region has developed almost silently because governments have not been trumpeting its achievements." One reason is that, the US and Canada aside, the Pacific Basin has several sub-groups. ASEAN, the six-nation Association of Southeast Asian Nations, is one such sub-group that is developing its own intra-regional economic ties. Then there is huge China, not now involved in Pacific Basin affairs but potentially a partner. Coastal provinces like Guangdong and Fujian are already economically tied to Hong Kong and Taiwan, although the political relationship with Taiwan remains tense. BECAUSE of this politico-economic diversity, the Pacific Basin will probably never be the closely integrated entity that the EC is. All East Asian countries still remember harsh Japanese occupation during World War II. Furthermore, Japan's economic muscle looms so large over all the others as to seriously unbalance the East Asia grouping proposed by Dr. Mahathir. Krause wants the Basin to have a more formal system of consultations, perhaps a secretariat and some sort of dispute-settling mechanism that could help assuage the bitterness of US-Japan trade disputes. Others at the conference, notably Malaysian economist Steven Wong and Indonesian economist Hadi Soesastro, questioned whether a Pacific Basin structure could really help the US-Japan relationship except in a very peripheral sense. But the contrary, they believed, was true: Together, the US and Japan could do a lot for the Pacific Basin. There, I feel, is the key. Japan cannot be fully effective in Asia and the Pacific without a continuing US economic presence and continuing American political interest and support. For the US, participation in an open, not closed, Pacific Basin grouping need not be a substitute for a free trade agreement with Canada and Mexico; it could be a very attractive complement.