July 19th 2008

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Articles from this issue:

COVER STORY / MERCHANTS OF SLEAZE: Sexualised marketing targets young girls

EDITORIAL: Throwing cold water on global warming

FOREIGN INVESTMENT: Australia's sovereignty at stake

CANBERRA OBSERVED: The economic costs of the Garnaut Report

WESTERN AUSTRALIA: WA Liberals sliding towards defeat

REGIONAL COMMUNITIES: Could an Asian regional grouping work?

EUTHANASIA: I'm not sick - can I commit suicide too?

UNITED STATES: Health care - America's shame

EDUCATION: What is the advantage of rote-learning?

SCHOOLS: Political correctness rules in the classroom

STRAWS IN THE WIND: Faith restored / Buyers' remorse / French resistance / New world disorder / Back to my favourite bête noire / America

Natasha Stott Despoja a trail-blazer? (letter)

Partial-birth abortion (letter)

BOOKS: THE CHINA FANTASY: Why capitalism will not bring democracy to China, by James Mann

DVD: APOCALYPSE? NO! Why global warming is not a crisis, by Christopher Monckton

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Could an Asian regional grouping work?

by Colin Teese

News Weekly, July 19, 2008
Could Kevin Rudd's proposed scheme for an EU-style Asian economic community possibly work? Former senior trade negotiator Colin Teese concludes his two-part discussion of the Rudd Plan (the first part of which appeared in News Weekly, July 5).

Mr Rudd's belief that the Asian region is of a mind to consider some kind of regional grouping is not misplaced. It stems from the fact that the dominant global power, the United States, no longer supports a multilateral, rules-based security system built around commitment to the United Nations. The US has also lost faith in the specialised agencies of the United Nations such as the World Trade Organization (WTO), and seems to prefer bilateralism.

The UN has its faults and deficiencies. Concerning world security, the UN Security Council itself is the problem. It can, and does, work well when dealing with issues of security not touching upon the interests of its most influential players (the US, Britain, France, Russia and China).

These victors of World War II were each given a permanent position on the Security Council, along with a right to veto majority decisions of the Security Council as a whole. They have been prepared to exercise this veto in response to periodic representation from the wider membership of the United Nations. And each permanent member has, in practice, ruthlessly exercised this right in its own interests, even to the point of defaulting on decisions it had previously endorsed and endangering world security.

The International Monetary Fund (IMF) and the World Bank appear to have lost international credibility, even though they have maintained US support.

In earlier UN times, the US used to champion the merits of internationally binding rules. Nowadays, however, the US, compared with smaller nations, no longer seems to believe it should be bound by international rules.

Despite the US decline in confidence and commitment to international cooperation within a rules-based system, support among the smaller nations for some kind of cooperative security and some measure of economic co-operation seems in no way diminished.

By way of contrast, a spokesperson for the US State Department has recently expressed the view, in the context of our Prime Minister Kevin Rudd's recent call for an Asian economic community, that the US prefers bilateral arrangements to wider agreements.

Of course, this contradicts US support, expressed elsewhere, for some kind of conclusion to negotiations in the WTO on trade liberalisation. But it does endorse the reality of the US enthusiasm for bilateral trade agreements which it has been pursuing vigorously for the last several years.

If, as seems to be the case, US support and leadership for the international system is waning, then support for regional groupings is easily explained. In that circumstance, if smaller nations are to evade the dominance of the most powerful, then regional groupings become the next best alternative.

Western Europeans embraced regional cooperation soon after World War II, while the structure of UN architecture was still intact. Their chief concerns were the distressing habit of their countries to fight each other to a standstill every few decades, and the need for them to unite in the face of the powerful neighbouring Soviet empire.

The European experience tells us many things. Most notably, it reminds us that the creation of a comprehensive regional union is necessarily slow. Starting with the European Coal and Steel Community in 1951 and the European Atomic Energy Community (Euratom) in 1957 - both of them security-driven instruments - Europe then moved on to establish the European Economic Community (EEC). That was half a century ago.

The original six member states of the EEC were France, Germany, Italy, Holland, Belgium and Luxembourg. They agreed to abolish their customs tariffs with each other and to adopt the Common Agricultural Policy (CAP). Higher tariffs were imposed on imports from the rest of the world, thus establishing a preferential tariff regime within the EEC.

The member countries set up a bureaucracy in Brussels to administer EEC policy and to negotiate trade deals on the basis of a common policy strategy agreed to by member states. It sounds complicated, and it was. But it worked. Trade and prosperity between the member states grew rapidly - albeit to the disadvantage of countries outside the EEC.

Food security

Under the CAP, agricultural imports into the EEC were effectively blocked - except for those the EEC itself could not produce. This was intentional as a means of guaranteeing farmers an income as an incentive to ensure food security for Europe.

Fifty years on, what is now called the European Union now comprises 23 member countries, and the degree of national sovereignty surrendered to the European Commission in Brussels has increased. Today, more than ever, European policy is made by the Commission under the direction of the member states.

In 2001, the EU established a currency union. Most members have accepted the euro as a national currency, and the euro is perhaps the strongest currency in the world.

Britain, however, has stood aloof from adopting the euro. Though a member of the EEC/EU since 1973, the British have a troubled relationship with the continent, reflecting perhaps their long-standing difficulty in accommodating to non-English speaking partners.

Beyond Europe, other parts of the world are looking at the idea of regional cooperation. After some bruising experiences with US economic and political domination, Latin America seems to be heading towards some kind of regional cooperation. And, sadly, bungled commercial and political diplomacy by the United States seems to have driven the Latin Americans towards that end. Handled differently, relations between the US and Latin America could have better developed to sustain the interests of both.

Africa already boasts the beginnings of a union, though it can hardly be considered a success. It is in the news currently, and unfavourably, in the context of the problem of Zimbabwe. The fact that it cannot agree on whether to condemn the dictator Robert Mugabe, who, having lost a democratic election, has proceeded to jail his successful political opponents, suggests a dysfunctional organisation.

As to Asia, in a polarising world, it too is exploring the possibilities of regional cooperation. The collapse of the multilateral rule-based system for security and economic management is obviously a consideration. But in Asia the case for coming together is perhaps less compelling than was the case in Europe - nor is it as pressing as seems to be the case in Latin America.

The 1997 Asian financial crisis mostly harmed South East Asia. Rightly or wrongly, members of the Association of Southeast Asian Nations (ASEAN) blame Western financial institutions - including, in particular, the International Monetary Fund (IMF).

The IMF on that occasion demanded belt tightening for ASEAN, while today it is endorsing the opposite for the US in its present financial crisis.

Asians have not forgotten the West's negative response to Japan's proposal at the time for an Asian Monetary Fund to head off the possibility of another financial crisis in Asia. Japan even offered to provide seed money for such a fund.

Nevertheless, the idea was firmly rejected by the IMF and most Western countries. Australia's Treasury, it should be recalled, lined up firmly with the West.

But what might bring the Asians together and who might comprise an Asian grouping? China, North Asia (specifically Japan, the two Koreas and Taiwan), along with the ASEAN membership, seem obvious choices.

What about India, Pakistan or Bangladesh? Probably not - at least, initially. The subcontinent may not fit comfortably in any emerging Asian community. No less important, India, for one, may prefer to be outside.

It also seems improbable, despite Mr Rudd's views, that any non-Asians - including Australia and the United States - would be acceptable in the group, certainly during the negotiation stage. The US has already poured cold water on the idea of its own participation anyway.

As to the purposes of any Asian community, unquestionably regional security would be important. So would even closer and more enduring economic ties among the partners. The group would also want to establish closer relationships with both Africa and the Middle East. China, the biggest of the likely partners, is already doing this on its own initiative.

China and Japan would unquestionably play a key role in any such grouping, matching that of France and Germany in the early EEC. Like France and Germany, both China and Japan harbour lingering and bitter enmities towards each other from World War II. Difficult as those issues are, dealing with them, in the spirit of France and Germany, would be made easier within the cooperative atmosphere of a regional grouping.

It is also possible that some kind of free trade area could emerge, but a measure of currency alignment seems more likely. Such an alignment would certainly not, at least in the short term, match Europe's. But an agreement to maintain some kind of fixed currency relationship among the partners could be a starting point. There has already been some vague talk to such an end.

Now comes the point of Mr Rudd's initiative. One thing seems clear. To try to thrust ourselves into any negotiations would be a serious mistake.

What we could do is to aim to develop in our own way closer and, if possible, more exclusive associations with countries in the region. What we have done with bilateral trade agreements may be useful, though how much further these can be taken is questionable. We certainly don't seem to be making much headway with China and Japan.

Investment in the region

One further idea we could look at is the idea of investing more in the region - not by trying to set up Australian-owned companies (that does not seem to have worked very well in China), but by investing in local companies. At least with China, of course, this opens up the sensitive issue of Chinese investment in Australia. But, eventually, we will have to address that issue.

Getting ourselves accepted into an Asian regional grouping won't be easy. For Mr Rudd's initiative to gain anything worthwhile for Australia, he must gather around him a team capable of thinking the way Asians will be thinking about their regional aspirations, and from there to develop policy responses. Do we have a sufficient pool of suitably trained diplomats to help the PM succeed?

- Colin Teese is a former deputy secretary of the Department of Trade.

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