The European Union and East Asia
The world economy continues to be dominated by the ‘Triad’ regions - Europe, North America and East Asia. This text analyses the economic relationship that has evolved between two Triadic powers - the European Union (EU) and East Asia - and its future prospects, especiallyin the wake of the recent financialcrises that have shaken the East Asian region. The author examines the development of economic diplomacy and exchange betweenthe EU and its East Asian tradingpartners - Japan, China, South Korea, Taiwan, Hong Kong, and the Association of Southeast Asian Nations (ASEAN) - in both bilateral and multilateral contexts. The inter-regional dimensionprovided by the Asia-Europe Meetings (ASEM) is alsoconsidered,as are theoretical perspectives from the field of international political economy on these different relationships. Furthermore, the economic development and future challenges facing the East Asian states are studied with special reference to the region’s recent financial crises. This text argues that the EU must afford greater priority in the promotion of its economic relationship with East Asia. If it continues to remain the weakest Triadic link, the EU risks future geoeconomic marginalisation as the transpacific axis strengthens into the twenty-first century. It is also proposed that the EU and major East Asian powers must assume greater responsibilities in managing the international economic order. Undergraduateandpostgraduate economists and students of European, International Relations and Asian Studies will find in this book possible answers to the challenges facing Europe and East Asia in the next century.
Christopher M. Dent is Senior Lecturer in Economics and European Studies at theUniversity of Lincolnshire and Humberside and is theauthor of The European Economy: The Global Context (1997).
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The European Union and East Asia An economic relationship
Christopher M. Dent
London and New York
First published 1999 by Routledge 1 I New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge lr an impnnt of the Zylor B Franclr Group
0 1999 Christopher M. Dent The right of Christopher Dent to be identified as the Author of this Work has been assertedby him in accordance with the Copyright, Designs and Patents Act 1988 Typeset in Baskerville by J&L Composition Ltd, Fdey North Yorkshire Printed and bound in Great Britain by Biddles Ltd, Guildford and King's Lynn All rights reserved. No part of this book may be reprintedor reproduced or utilised in any form or by any electronic, mechanical, or other means,
now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval systm, without permission in writing from the publishers. Bn'hsh Library Cataloguing In Publicahon Data A catalogue record for this book is available from the British Library Labrary of Congress Cataloging m Publicahon Data
1999
Dent, Christopher M., 1965The European Union and East Asia: an economic relationship1 Christopher Dent. cm. p. Includes bibliographical references and index. 1. European Union countries-Foreign economic relations-East Asia. 2. East Asia-Foreign economic relations-European Union countries. I. Title. HF1531.24E184 337.405-dc21 CIP ISBN 0-415-17199-7 (hbk) ISBN 0-415-17200-4 @bk)
To Ruth, Thomas and Koshka amorfidelis pertinax est
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Contents
1
2
...
List ofJigures List o f tables
Vlll
Preface Acknowhdgments List of abbreuiations
x111 xiv xv
The international political economy of EU-East Asia relations: theoretical perspectives EU-East Asia economic relations: an overview of recent developments The EU and ASEAN The EU andJapan The EU and China The EU, Taiwan and Hong Kong The EU and Korea Regionalism and inter-regional co-operation Future prospects for the EU-East Asia economic relationship Appendix JV0k.s
References Index
X
...
1 16 36 76 118 152 187 219 250 259 267 287 309
Figures
2.1 World Bank model of East Asian growth 2.2 East Asian group shares of EU trade with the region (1980, 1997) 2.3 EU-East Asia trade (1975-97) 2.4 EU trade with East Asia by member state (1987, 1997) 3.1 ASEAN’s exports to the EU by sector (1980, 1987, 1997) 3.2 EU-ASEAN merchandise trade (1975-97) 3.3 ASEAN member state sharesof EU-ASEAN trade (1987, 1997) 3.4 EU member state shares of EU-ASEAN trade (1987, 1997) 3.5 Inward FDI stocks in ASEAN by geographic origin (1996) 3.6 EU financial assistance to the ASEAN10 group (1976-98) 4.1 Stock of outward FDI from Japanby geographic destination (1981, 1996) 4.2 EU-Japan merchandise trade (1975-97) 4.3 Japanese FDI flows to Europe and USA (198 1-96) 4.4 Sectoral structure of EU-Japan trade (1980, 1997) 4.5 EU trade with Japan by member state (1987, 1997) 4.6 Stock of Japanese FDI in Europe by host country destination ( 1996) 4.7 Inward FDI stocks in Japan by geographic origin (1989, 1996) 4.8 EU direct investment in Japan: netstock invested by member state (1996) 5.1 China’s import and export trade(1 979-97) 5.2 Inward FDI flows in China, 1979-97 (actual realised) 5.3 Inward FDI stock in China by geographic origin (1987, 1995) 5.4 China’s exports to the EU by sector (1980, 1987, 1997) 5.5 EU-China merchandise trade (1975-97) 5.6 EU trade with China by member state (1987, 1997) 6.1 EU-Taiwan merchandise trade (1975-97) 6.2 EU member state trade with Taiwan (1987, 1997) 6.3 Taiwan’s exports to the EU by sector (1980, 1987, 1997) 6.4 Inward FDI stocks in Taiwan by geographic origin (1987, 1996)
19 23 24 25 52 53 67 68 68 69 84 93 102 104 109 111 112 113 120 120 124 133 134 138 168 169 170 171
F@res 6.5 6.6 6.7 6.8 6.9 7.1
7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 8.1 8.2
Stock of outward FDI from Taiwan by geographic destination (1 996) EU-Hong Kong merchandise trade (1975-97) EU member state trade with Hong Kong (1987,1997) Hong Kong’s exports to the EU by sector (1980, 1987, 1997) Inward F’DI stocks in Hong Kong by geographic origin (1987, 1996) EU-Korea merchandise trade (1976-97) EU member state trade with Korea (1987, 1997) Korea’s exports to the EU by sector (1980, 1987, 1997) Inward FDI stocks in Korea by geographic origin (1 989, 1996) Stock of outward FDI from Korea by geographic destination (1987, 1996) International lending to Korea (by end of June 1997) Stock of Korean FDI in Europe by host country destination (1 996) Cumulative stocks of Korean outward FDI (1 980-96) EU direct investment in Korea: net stock invested by member state (1 996) Subregional economic zonesin East Asia Europe’s major growth axis
ix
172 179 180 181 182 198 202 203 204 205 210
21 1 212 215 224 237
er
Tables
2.1
Triad trade flows: percentage shares of world total (1960, 1980, 2.2 The Triadicdistribution of East Asian trade (percentage of total) 3.1 Geographic breakdown of ASEAN’s international trade partner,trade per (percentage 1960-97) institutional relations: framework the 3.2 EU--ASEAN relations: main co-operative activities 3.3 EU-ASEAN economic 3.4 Average utilisation rates of quotas by East Asian countries in EC imports of textiles and clothing under the MFA, 1979-82 (9’0) 3.5 EC non-tariff barriers against imports from selected East Asian 1974 countries, 3.6 Applications approved under Article 1 15 against imports from East selected Asian countries, 1981-5 3.7 EU financial assistance to ASEAN by category and time period (Ecu 3.8 EU anti-dumping duties on ASEAN products (at November 1998) 4.1 Geographic breakdown of Japan’s international trade partner,trade per (percentage 1960-97) EU-Japan consultation 4.2 frameworks 4.3 EU anti-dumping duties on Japanese imports (at November 1998) 5.1 Geographic breakdown of China’s international trade partner,trade per (percentage 1960-97) 5.2 EU anti-dumping duties on Chinese imports (at November 1998) 6.1 Geographic breakdown of Taiwan’s international trade partner,trade per (percentage 1960-97) 6.2 Geographic breakdown of Hong Kong’s international trade partner,trade per (percentage 1960-97) 6.3 EU anti-dumping duties on imports from Hong Kong and (at Taiwan
17 20 39 47 50
55 56 56 58 63 89 99 101 130 141 156 160
T a b h xi Geographic breakdown of Korea’s international trade (percentage per trade partner, 1960-97) 7.2 Major Korean manufacturing FDI projects in Europe 7.3 EU anti-dumping duties on Korean imports (at November 1998) 8.1 The ASEM: main elements
7.1
A. 1 East Asian countries: comparative economic profile A.2 Economic growth in East Asia during the 1960s to 1990s (real GDP growth O/O, average annual for each decade) A.3 Geographic breakdown of the EU 15’s external trade, 1960-97 (percentage per trade partner) A.4 EU-East Asian trade: sectoral analysis in 1997 (Ecu million) A.5 EU industrial trade with East Asian countries: top ten positions of East Asian trade partners in selected extra-EU export markets and import sources (1 997) A.6 Cumulative stocks of foreign direct investment in developing East Asia by Triadic source (1980, 1985, 1993, 1996) A. 7 Extra-EU trade and the East Asian financial crisis (1 997June 1998) A.8 EU anti-dumping investigations initiated against trading partners A.9 Patterns in international trade (percentage shares of total by trading Dartner. 1960-97)
195 197 206 243 259 259 260 26 1
262 263 264 265 266
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Preface
The economic relationship between the European Union (EU) and East Asia remains a much under-researched field, and yet it has become one of the most important structural features of the world economy. This text offers a systematic and thorough analysis on various aspects of this relationship. It not only considers the present state of EU-East Asia economic relations but also their historical development, primarily in a post-war context. Furthermore, the bilateral, inter-regional and multilateral dimensions of EU-East Asia economic diplomacy are examined with frequent reference to the wider ‘Triadic’ framework of relations (i.e. Europe, East Asia and North America). How developments at the substate, state and regional level have influenced the direction of the EU and East also studied by this text. Intheconcluding Asia’s economicrelationshipare sectionstomostchapters,differenttheoretical perspectives fromthe field of international political economy(IPE)areappliedtoenhancethereader’s understanding of the substantive issues covered. The text’s opening chapter provides its initial theoretical framework and introduces some of the running themes found in subsequent chapters. In Chapter 2 an overviewof recentdevelopments in EU-East Asia economicrelations is offered that further introduces the reader to recurrent themes. Chapters 3 to 7 then respectively examine the EU’s economic relationshipwith the Association of Southeast Asian Nations(ASEAN),Japan,China,TaiwanandHongKong (jointly), and South Korea. Regionalism in both East Asia and Europe together with inter-regional co-operation are the focus of Chapter 8. Finally, Chapter 9 considers the future prospects of the EU-East Asia economic relationship. On a technical matter, while the term EU is often used to refer to its precursial guises (i.e. the EEC and EC)before 1993, the date when the Treaty on European Union was fully ratified, there are other times when the terms EEC and EC are used in theirhistoricalcontext. Furthermore, as no EU-based data beyond 1998 has been introduced into the text, ECUs (European Currency Units) instead of euros are accordingly used as reference terms.
Acknowledgements
The author would like to thank a number of people who have made this book possible. From my university, I owe a great deal to Leigh Davison who has both encouraged my efforts and helped facilitate research time and resources. The guidanceandsupportI have received fromDebraJohnsonshould also be acknowledged, as should the administrative efficiencies of Pat Phillips. A long overdue acknowledgementof thanks is also deserved by Clive Piggott, Jan James, Joan Lawrence, Malcom Bee and Lee Miles for inspiration. There are a number of peopleatotherorganisations towhomIam also very grateful. At the European Commission, Jonathan Hatwell, Lenette Kgeldsen, Jonathan Claridge, Peter Guildford, Alastair McDonald, NoreenDoyle, Jean-Pierre de Laet, Willem Noe,MaryvonneCoursin,Carl Asenius, Jean-ChristianRemond,Laurence Argimon-Pistre and Philip van Amersfoortproved particularly helpful in supplying both valuable insight and information. At the various East Asian missions to the EU located in Brussels, I am extremely grateful to Pyung-oh Kwon (Korea), Young Song(Korea),Xian-kun Lu (China),PangEng Fong (Singapore), MohamedZain (Malaysia), ToshikazuInui(Japan)andSongsakSaicheua (Thailand). Masataka Fujita and Lizanne Martinez from UNCTAD provided a wide range of foreign direct investment data crucial to this text. I owe similar thanks to Hayley CrumpleratJETRO,Caroline Millerick (Bank of Korea), Simon Chan (Hong Kong Economic and Trade Office), Pam Lucas (Majestic Trade Centre), Melanie Grainte(Taiwan Trade Centre), Chong-wha Lee (Korea Institute for International Economic Policy), Michael Porteous (Invest in Britain Bureau), Pierre-Yves Leborgn (RJR International) and also SergePerrinwho proffered information on recent Korean investment projects in Europe. I would also like to extend my gratitude to the Routledge team- Andreja Zivkovic, Alison Kirk and Craig Fowlie - for humouring me through the ordeal that is book writing. Iwould finally like to thank my family who have had to suffer an ordeal of their own as a consequence of this project. In this respect, my wife deserves especial mention, as does our son Thomas, to whom I have given the onerous responsibility of writing thisvery last word. Cottingham, England
Abbreviations
Africa Caribbean Pacific anti-dumping duty ASEAN Free Trade Area Asian Monetary Fund AMF ANZCERTA Australia-New Zealand Closer Economic Relations Agreement Asia-Pacific Economic Co-operation forum APEC Association of Southeast Asian Nations ASEAN Asia-Europe Meetings ASEM Common Agricultural Policy CAP Common Commercial Policy CCP Commission of the European Communities (European CEC Commission) Central and East Europe CEE Common external tariff CET Common Foreign and Security Policy CFSP Commonwealth of Independent States CIS Directorate General (of the CEC) DG East Asian Economic Caucus EAEC East Asian Economic Grouping EAEG European Community EC European Community Investment Partners ECIP European Coal and Steel community ECSC European Currency Unit ECU European Development Fund EDF European Economic Community EEC European Free Trade Area EFTA economic and monetary union EMU export-oriented industrialisation EO1 export processing zone EPZ Economic and Technical Development Zone ETDZ European Union EU foreign direct investment FDI free trade area ETA
ACP ADD AFTA
xvi Abbreuiations
FTAA GATS GATT GDP GNP GPA GSP IBRD ILO IMF
IPE IPR IS1 ITA ITTO JERC KMT LDC LLDC MFA MFN MITI MNE MOF MOSS MPD NAFTA NAS NGO NIC NIDL NIDZNAT NME NTA NTB ODA OECD OPEC PAFTA QMV QR R&D RIA
Free Trade Area of the Americas General Agreement on Trade in Services General Agreement on Tariffs and Trade gross domestic product gross national product Government Procurement Agreement Generalised System of Preferences International Bank for Reconstruction and Development (World Bank) International Labour Organisation International Monetary Fund international political economy intellectual property rights import substitution industrialisation Information Technology Agreement International Tropical Timber Organisation Japan Economic Research Centre Kuomintang (Taiwan’s Nationalist Party) less developed country least developed country Multi-Fibre Agreement most favoured nation Ministry of Industry and International Trade(of Japan) multinational enterprise Ministry of Finance (of Japan) ‘market-oriented, sector-specific’ Modulated Preferential Duty North American Free Trade Agreement New Asia Strategy non-governmental organisation newly industrialising country new international division of labour National Industrial Development Zone for New and Advanced Technology non-market economy New Transatlantic Agenda non-tariff barrier official development assistance Organisation for Economic Co-operation and Development Organisation of Petroleum Exporting Countries Pacific Free Trade Area qualified majority voting quantitative restriction research and development Regional Integration Arrangement
Abbreviations xvii SEA SEM SEZ SI1 SPARTECA SREZ SRTA TAFTA TRIMS TRIPS TVE UN UNCTAD VER
WTO
Single European Act Single European Market Special Economic Zone Structural Impediments Initiative South Pacific Regional Trade and Economic Cooperation Agreement sub-regional economic zone sub-regional trading arrangement Transatlantic Free Trade Area Trade-related investment measures Trade-related intellectual property rights township and village enterprise United Nations United Nations Conference on Trade and Development voluntary export restraint World Trade Organisation
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Theinternationalpolitical economy of EU-East Asia relations Theoretical perspectives
Introduction This text is a work of international political economy (IPE). The main aim of this chapter is to introduce the theoretical perspectives from the IPEfield that can be applied to the European Union (EU)-East Asia economic relationship. Such an exercise serves two main purposes.First, it provides an analyticalframework in which events and developments covered in subsequent chapters can be better understood.Second, it presents an additionalintroductory overview of the relationship to that offered by Chapter 2. International political economy can be defined as ‘the interplay of economics and politics in the world arena’, where ‘the economy canbe defined as the system of producing, distributing, and using wealth’,and ‘politics is the set of institutions and rules by which social and economic interactions are governed’ (Frieden and Lake 1995: 1). It emerged (some would say re-emerged) as a sub-set discipline of the international relations (IR) field in the early 1970s after the global shocks of the period, most notably the collapse of the Rretton Woods exchange rate system by the in 197 1, the1973-4 oil crisis and theensuingstagflationexperienced world economy. These raised new questions of economics and politics to which many politics-oriented IR specialists could not provide comprehensive and convincinganswers.’ Other developments in theinternationalarenaduringthe 1970s gave further impetus to IPE studies, for instance<Japan’s ascendancy as the world’s nexteconomicsuperpower andthe growingglobalimpact of the European Community (EC), both of which posed a challenge to the post-war Americanhegemony. More recently, theidentification of new linkages forged between states and societies by the various processes of globalisation has supplied more work for IPE academics. The end of the Cold War and the associated shift from ideological competition to economic competition (and from geopolitics to geoeconomics) have had a similar effect. According to Milner (1998), IPE scholars are principallyinvolved in thc studyof foreign economic policy (FEP) choices (e.g. protectionism, exchange rates), issues of comparative economic development and the impact of international economics on domestic politics. Moreover, they have generally sought answers to the above through the investigationof four categories of explanatory factors:
2 International political economy of EU-East Asia relations 0
0
distribution of world power, with particular reference to the hegemonic state; structure, function and consequences of international institutions; impact of ideas, beliefs and values; effect of domestic politics.
These are recurrentthemes and focal points in the chapters thatfollow. However, the specific organising principle of this text is the study of how the economic relations between the EU and East Asia have evolved to their present state, how these relations are likely to develop in the future and what conclusions can be drawn from the observations made by each chapter. This entails a multi-level analysis in which the process of economic diplomacy, the development of economic exchange, the impact made by systemic factors and different theoretical interpretations on the above are examined.
Theoretical Perspectivesof IPE
In this section, we introduce IPE’s three main theoretical traditions, namely neorealism, neo-liberalism and Marxism, concentrating on the key assumptions of each theoretical perspective as well as their associated theoretical concepts. Neo-realism From realism to neo-realism
As its name suggests, neo-realism is a revision of realist theory, which itself is the most established school of thought in the IR field whose roots can be traced to the writings of Thucydides and Machiavelli. According to realism, the nationstate is the only significant actor in international affairs and all other actors are essentially subordinate to it. Moreover, states are assumed to be power maximisers and behave in a rational manner in seeking this objective. Thus, states are involved in a competitive struggle to advance their position and status within the international community. As no global governing authority exists to cajole states into acting in a certain manner, anarchy prevails in the realm of international relations. Although coalitions between states may arise wherc they assist each stateto attain self-serving goals, these arrangements are loose and inherently unstable. States are more interested in achieving relative gains over other states than receiving higher absolute gains bestowed to individual states that participate in co-operative acts. In addition, the internal characteristics of nation-states (e.g. democracies,dictatorships) are irrelevant. All share the same goal of national advancement and hence function within the international system in a similar manner. Neo-realism is founded on these basic assumptions. However, whereas realism stresses hierarchy between states settled by equilibrium balances of power, neorealism is more concerned with polarity and how centres of power within the international economic system affect state behaviour. Furthermore, neo-realism
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posits that the balance of power between states can change quiterapidly with the frequent shift in interstate alliances. Realist assumptions about the absolute primacy of politico-military objectives in the state’s agenda are also questioned by neo-realists, but only insofar aseconomic objectives canattaintantamount importance wheretheir realisation advances the nation’s international status. Anotherdeparture from realist thinking lies in the neo-realist view that the interstate struggle for power is the result of the anarchic structure of the international system as a whole. Consequently, state behaviour is conditioned, but not determined, by the structure of the international economic system. Hence, neorealism is essentially concerned with both states and systemic structure (Waltz 1979; Gilpin 1984).
Hegemonic stabilig An important aspect of neo-realist theory is the issue of hegemonic stability (Kindleberger 1973; Krasner 1976; Lake 1991). This centres on the role of the world’s hegemonic state to maintain stability in the international system amid the anarchic conditions of interstate relations. It is thus inclined because of the awards conferred with this responsibility. By supporting an open andfree trading system, the hegemon is able to exploit its industrial superiority through exporting to accessible overseas markets. T he hegemon also has the capability to persuade or force other states to comply with international trade rules, which it itself has principally fashioned. This constitutes an exercise in both relational and structural power. Th e former relates to the leverage that an international actor can directly exert on the behaviour of or decisions made by another. O n the other hand,structural power refers to the ability of certain international actorsto shape and determinethe systemic structures within which other actors must also operate (Strange 1994). This pertains not just to an actor’s ability to influence the rules, procedures and scope of international institutions such as the World Trade Organisation (WTO),but also the regulatory environment in which transnational 2 economic activity takes place. Hegemonic stability theory contends that friction in international economic relations will rise as hegemonic power declines. Neo-realists point to the demise of Britain’s hegemonic position after World War I and the trade conflicts of the 1930s as evidence of this. Even though the USA was in a position to assume the hegemonic mantle from Britain during the inter-war period, it was reluctant to do so, preferring instead a policy of isolation and passivity while simultaneously being engaged in a zero-sum game protectionism along with its industrial rivals.3 Post-war policymakers in the USA were, however, determined to avoid any conditions that would lead to another Great Depression. Consequently, the USA adopted a proactive hegemonic position as manifested by both its pivotal role in creating new international organisations - most notably the General Agreement on Tariffs and Trade (GATT), the United Nations, International Monetary Fund (IMF) and World Bank and as architects of the Marshall Plan. Further historical evidence for hegemonic stability was provided by the golden period of P a ~
4
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Americana that followed (late 1940s to 1960s). Moreover, the decline in American
hegemony that was evident by the 1970s’ and the contemporaneous increase in trade friction during the decade were seen as further vindication of neo-realist theory. To a significant extent this originated from US recourse to unilateralism and a more defensive trade policy stance.5 However, the validity of hegemonic stability theory is contested by neo-liberalism for reasons we shall discuss later. There is also a strong case that claims regarding the death of the US hegemonic position have been much exaggerated (Strange 1987, 1994). During the 199Os, the US economy has performed better than its two potential hegemonic contenders, the EU and Japan, and has maintained a technological lead across a broad range of strategic industries. Moreover, even if the EU is predicted to be thc hegemonic succcssor to the USA (‘Thurow 1992; Hughes 1996), history shows that prolonged structural adjustments are required before such a transition is effected. For example, the US economy was around three times larger than Britain’s by 19 14 and sterling persisted as the global standard currency up until the outbreak of World War I1 (Kennedy 1988). Acquiring hegemonic status is thus not automatically conferred upon attaining the world’s highest gross national product (GNP) but rather through a combination of factors. The collective economic weight of the EU may be greater than that of the USA (see Table A. l), yet it lacks the same politico-military weight carried by the USA in the international arena. Thisis a recurrent theme in subsequent chapters as most East Asian countries still look to the USA for leadership in many aspects of international economic affairs. The resurgent economy of the 1990s, as well as the US’S involvement in the Asia-Pacific Economic Co-operation (APEC) forum, have reinforced this position. Neo-mercantilhl
Neo-mercantilism is not so much part of the neo-realist theory but rather an expression of it. Mercantilism was the cowcntional wisdom on trading practices during the sixteenth and seventeenth centuries and much of the eighteenth century, thus predating liberal notions of free trade based on comparative advantage. It stressed the role played by economic activity in ensuring the security of the state and promoting national advancement. This was primarily achieved by accumulating wealth throughcommercial endeavour and regulation, with the ultimate aim of realising higher political objectives. Traditionally, this inferred strengtheningthe state’s militarycapabilities in order tocxtend its sphere of influence within the international community. In modern times, enhancing the nation-state’s industrial capabilities with theadditional objective of improving the material well-being of its people has become increasingly relevant. While the principles of free trade and comparative advantage have more or less dominated the intellectual high ground from the lateeighteenth century onwards,many states have pursued neo-mercantilist tracle policies during the post-war period. Among neo-mercantilism’s most ardent protagonists have been various East Asian countries, most notably Japan, Korea and Taiwan. Some EU
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member states, but particularly France, have also shown strong neo-mercantilist impulses, although national-level protectionism is circumscribed by the framework of the EU’s CommonCommercial Policy (CCP). Neo-mercantilism is essentially a state-centric philosophy, hence its association with the neo-realist worldview. Its most ostensible practices are concerned with the protection and promotion of strategic industries, these being essential to maintaining the longrun political and economic security of thestate.Examplesinclude essential material-based sectors (cg. steel), large globalised sectors (e.g. automobiles and electronics) and high-tech sectors with considerable future growth potential (e.g. information technologies and aerospace industries). The emergence of’ strategic trade theory during the 1980s lent some intellectual support to neo-mercantilism (Krugman 1980, 1986; Brander and Spencer 1985; Krugman and Smith 1993). Adopting an industrial organisation approach, the premise of strategic trade theory was based on the view that imperfect competition prevailed in most of the world’s industries and not perfect competition, a central assumption of the neo-classical theory of comparative advantage. Hence, by assisting its indigenous oligopolistic firms or ‘national champions’ in exploiting attainable economies of scale and scope, greater economic rents and other positive externalities could he generated to the benefit of‘ the whole economy. Such state intervention could involve the granting of export subsidies or orchestrating inter-firm collaborations, hence the promotive aspects of neo-mercantilism. Despite its obvious appeal to policymakers, neo-mercantilism has become an increasingly untenable policy option for two main reasons. First, it is an antagonist commercial policy that islikely to have repercussions, for example, from retaliatoryactions undertaken by other states. Furthermore, neo-mercantilist policies have become increasingly dissonant in the current era of freer markets presided over by thc new multilateral order. Second, because globalisation has blurredthe boundaries of ‘national’economic activity, statesponsorship of indigenous firms and industries has become less effectual. The expanding web of cross-border linkages woven by multinational busincss activity has weakened the internationalised firm’s allegiance to its country of origin. This has narrowed the scope of the state’s ‘national’ industrial policies.
&eo-realism in context At first glance, it may appearthat an application of neo-realist analysis to EU-East Asia economic relations poses some important methodological difficulties. This is not least because the main actor most frequently considered throughout this text, i.e. the EU, is not actually a nation-state butrather a complex ‘system of governance’ operating between a regional group of nation-states (Chapter 8 provides a fuller discussion on this issue). Nevertheless, the general framework of this text is based on the useof territorialreferencepointsthe economic relationship between two regions, or regional groups of states. Like a state, the EU can he defined by its territorial boundaries and employs diplomatic agents to represent its interests in international affairs. With respect to trade, this
6 International political economy
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is principally conducted at the supranational level by the European Commission under the auspices of the CCP In subsequent chapters we analyse the development of the EU’s economicrelationshipwith other territorial-basedunits, whether they are nation-states (Japan, China, Korea), another regional group of states (Association of Southeast Asian Nations, or ASEAN) or territories possessing economic sovereignty but where political sovereignty has either been withdrawn (Hong Kong) or remains contested (Taiwan). This gives scope to apply the basic tenets of neo-realist analysis to the text’s themes. For instance, a central preoccupation of the EU has been to improve its competitive position against East Asian producers and in the region’s expanding markets. Neo-realism’s anarchic struggle for advancement is even more applicable to the East Asian states. The rapid economic development that most have experienced during the post-war period has been achieved because, invariably, both the state and society have been willing to subordinate all other goals to ‘catching up’ with the developed countries. For Japan this specifically related to restoring its position as a major industrial power. Korea’s industrial endeavours were initially galvanised by the state’s ob.jective toachieve‘nation-building through exports’. A similar strategy was pursued by Taiwan in attempts to establish itself as a desacto nation-state and thus augment its political legitimacy. For most ASEAN states, the goal of rapid industrialisation has been part of a postcolonial, confidence-building exercise in nation-statehood. The significant economic achievements made by China in recent years have also demonstrated the willingness of state to make ideological compromises in order to secure national advancement. Furthermore, neo-realists would argue that the EU’s international agenda is only a reflection of inter-state bargaining within the group with more powerful member states able to shape this agenda quite considerably. Throughout this text we will note how EU commercial policy is often influenced by specific national interests, such as France with respect to agricultural trade. However, most neorealistsdidnotexpectthe EU’s long-standingcoalition of member states to endure because of the negationof political sovereignty that is required to make the coalition work. In the context of the international economic system, EU member states have accepted to varying degrees that they must co-operate in order to compete with their common industrial rivals, especially the USA and Japan. Neo-realism’s focus on systemic factors is shared to some extent by this text. In recent times, these factorshave become more important with the strengtheningof both the multilateral trade order under the aegis of the WI’O and other regimes” in which the EU and East Asian states participate. However, the role played by fortified international institutions and new regimes that helps govern the global economic system is stressed more by neo-liberals than neo-realists. The hegemonic stability issue is also highly relevant given the longer-term relative decline in US hegemony over the post-wz-r period, the new multi-polar balanceof power between the Triad regions (Europe, North America, EastAsia) and recent dcvelopments in alliance formation between them (see Chapter 2). Frequent reference will be made tohow the USA is still able to use hegemonic power to brokcr deals
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7
or forge alliances with East Asian states that have been to the actual or potential detriment of EU commercial interests. Finally, we have already noted that some East Asian and EU states have displayed a predilection for neo-mercantilist policies. As a whole, the EU has also been accused of neo-mercantilism, whether in regard to sponsoring major European industrial collaborations such as Airbus in civil aerospace or ESPRIT in information technology, or concerning its ‘managed’ trade policies (Winters 1994). In more recent times, these accusations have subsided as the EU has embraced a more neo-liberal economic agenda.
Neo-liberalism From liberalism to neo-liberalbm Like neo-realism, neo-liberalism is also a revision of an earlier theoretical tradition. The assumptions and emphasis of neo-liberal theory, though, are considerablydifferenttoneo-realism,beingfounded on ‘classic’ liberalnotions of individual self-determination and utility-maximising rationality ‘The laissez-faire principles of free trade and comparative advantage are essentially expressions of the above, that is uninhibited individual endeavour in its quest to pursue laudable economic objectives. Moreover, the private organisations (i.e. firms) trade with each other, not states as such, and hence liberals emphasise the individual as the most significant actorin the international economicsystem. From this leads a preoccupation with competition between firms, rather than interstate competition, and the primacy of markets over states. Neo-liberalism builds on these assumptions but has also expanded its theoretical foundations. The view that non-state actors play a key role in international economic affairs is extended to include transnational and transgovernmental factors. Transnational actors can take many guises, for example, as representatives from non-governmental organisations (NGOs) such as industry associations, officials from supranational or international agencies, or business executives employed by multinationalenterprises(MNEs).’Transnationalrelationscan either work separately or in tandem with interstate relations. Even where statecentricnegotiations determineactual outcomes,transgovernmentalcoalitions may evolve between like-minded state officials whose own self-serving interests may not necessarily be aligned to the state they are supposed to represent. The growth in both the number and scope of international organisations, together with the new interlinkages forged by globalisation, have broadened the nature of transnational relations and introduced greater complexity to the governance of international economic relations (Risse-Kappen1995).This trend has, of course, affected those between the EU and East Asia where transnational actors have become increasingly participative. According to neo-liberals, this proliferation of transnationalised linkages presents an apriori case for interstate co-operation. As interdependence prevails, and with it convergence of different state’s interests, governments are forced to work together to find resolutions to common problems and challenges. This can
8 International political economy
of‘ EU-East Asia
relalions
also manifest itselfin state-firm co-operation and diplomacy(Stopford et al. 1991), where ‘to regain some influence over events, governments and firms have to collaborate with one another; they have to sacrifice their unilateral freedom of action for some degree of mastery over transnational flows of goods, capital, technology, ideas and people’ (Keohane 1993: 48). While there exists a strong neo-liberal consensus against state intervention, it is also accepted that states need to co-operate both to redress market failure at the international level and jointly to provide the public goods required for the international economic system to function in a non-anarchical fashion. Examples of the former include collaborative efforts to regulate global monopoly power (e.g. the Microsoft case involving EU and US competition policy authorities) or international accords on pollution control (e.g. the Montreal Protocol on ozone-depleting substances). Examples of the latter include international organisations such as the WIO and IMF that are ableto ‘facilitate co-operation by reducingtransaction costs, improvingtransparency and elaborating rules and norms that serve to re
Originally conceived by Keohane and Nye (1 977), the notion of ‘complex interdependence’ is acritique of the neo-realist worldview that states are ableto behave in a largely autonomous manner,proposinginstead thatindependent state strategies are often not viable. This derives largely from theneo-liberal observation that multiple transnational channels connect societies, or sections of societies, across different nation-states. ‘These may include workers employed by MNEs, members of international pressure groups (e.g. Greenpeace) and transgovernmental policy networks. The interaction of state and non-state actors through these channelsproducesacomplex interdependence of relationships, while also challenging the neo-realist assumption that states act as coherent units with unambiguous national interests. Furthermore, non-state actors can develop their own agendas independent of nation-states. This process may be mutually reinforcing. For example, international organisations provide an important forum in which transgovernmental alliances are forged, that in turn help support or legitimise the distinct agenda of the international organisation.
Inttmational political economy of BLJ-L
9
Complexinterdependence is also applicableto the foreign policy agenda, whereby issues of concern have become increasingly more eclectic and interconnected with no clear hierarchy established among them. Issues of politicomilitary security thus compete with the new issues of economic security (cg. the environment, drug trafficking). The greater interaction now witnessed between all issues can be largely attributed to the effects and processes of globalisation. Keohane and Nye also suggest that, in the daily minutiae of state affairs, governments are usually engaged more in maintaining or promoting co-operative economic interactions than distracted by traditional security matters. Moreover, the distinction between domestic and international issues has become increasingly blurred as a growing interdependence bctwecn them has emerged.This is explored by Putnam’s (1 988, 1993) two-level games model, whereby the Janusfaced state must simultaneously reconcile both the demands of the international economic system and those of its own domesticstakeholding constituencies. Resolving conflicts of interest that lie therein may he achieved through striking bargains with other states, which must be simultaneously ratified at the domestic level. The relationship between the stateand different stakeholding constituencies in the FEP-making process can also be analysed within Rogowski’s (1 989) ‘commerce and coalitions’ model. The premise of this model is that economic cleavages between domestic stakeholding constituencies are caused by their exposure to trade, which is assumed to have either beneficial or adverse effects upon them. The distribution of effects in turn determinesthe configuration of alliances made between these constituencies that seek to influence the direction of the nation’s forei\gn economic policy.
SuTplm capaci9 The notion of surplus capacity is not so much part of neo-liberal theory, but rather an alternative explanation of trade friction to hegemonic stability that has been proposed from a neo-liberal institutional viewpoint (Strange 1979; Strange and Tooze 1980; Tsoukalis and Ferreira 1980; Cowley and Long 1983). Surplus capacity exists when, for a sustained period and for a large percentage of producers, demand is insufficient to absorb production at prices that can maintain a substantial level of employment and adequate returns on investment. This has been caused by major shifts in the world economy. k’irst, the amount of capital investment per unit of output has risen sharply in many sectors, thus making idle capacity more costly. Second, newly industrialising countries (NICs) that have emerged in recent post-war decades have expanded their world market shares of manufactured products at the expense of established Western producers. Third, post-oil crisis structural changes have been responsible for greater unpredictabilityin patterns of demand for and prices of manufactures.htoreover, cyclical downturns exacerbate surplus capacity predicaments. Where surplus capacities exist in industry sectors, we can anticipate a rise in trade friction as less competitive producer countries, or those with a pronounced over-capacity problem, erect protectionist harriers against more competitive
10 International political economy o f EU-East Asia relations
producer countries. Such sectors have tended to be those in structural decline in the West and where NIC producers have developed a significant comparative advantage. Surplus capacity’s main connection to neo-liberal theory lies in the international agreements that frequently arise between governments, as well as non-state actors, in which an underscanding to limit competition is established. These restrict conflict among countries ‘by softening the costs of cutting capacity for weaker competitors and preserving some of the foreign markets for stronger ones’ (Cowley and Long 1983: 162). However, while a capacity-cutting regime created by relatively uncompetitive producer countries but imposed upon competitive producer countries restricts conflict between the former group, it naturally antagonisesthelattergroup. The Multi-FibreAgreement (MFA) is an example of the above, where Western producer countries agreed to contain NIC competition in the textiles and clothingsectors. As we discuss below, surplus capacity situations have beenan important theme in thc EU--East Asia economic relationship. &eo-liberalism in context
While the EU and East Asia are not engaged in a comprehensive security relahow economicinterdependence tionship, Chapter 2 shows in somedetail betweenthe two regionshasgrownsubstantially in recentyears.East Asia became the EU’s most important regional trading partner by the mid- 199Os, while East Asian firms have been lured by the commercial opportunities presented by the Single European Market. The increase in mutual flows of foreign direct investment (FDI) and other interconnections generated by financial globalisation have expanded and deepenedthe economic linkages between the EU and East Asian economy. Managing the more complex interdependence in EU-East Asia economic relations has increasingly required the participation of various non-stateactors, mademore imperative by thegeneral shift fromstates to markets. Representatives from business have become important constituents in the conductand process of EU-East Asia economicdiplomacyasglobalisationhas necessitated their deeper involvement in international public policy co-operation and co-ordination. For example, the relatively high exposure of European banks in the East Asian financial crisis gave them a considerable stake in helping find effective policy solutions. The growing engagement of business representatives is generally apparent in new initiatives taken withinEU-East Asia bilateral accords and the new Asia-Europe Meetings (ASEM) framework.” State-firm diplomacy has itself become increasingly relevant, for instance, where an East Asian MNE directly investing in the EU seeks the best incentive package from potential host governments. To some degree, the corporate governance practices of European and East Asian companies also bring influence to bear on economic relations. This becomes more relevant where strategic alliances between them have been formed or whereindustrialco-operationbetweencompaniesfromthe two regionshasbeen promoted withinEU-East Asia bilateral or inter-regional
International political economy
of EU-East Asia
relations
11
framework accords. Globalisation can also make the allegiances or negotiating positions of some European or East Asian MNEs difficult to predict. For example, a European multinational that has established operations in an East Asian countrymayrequestthehostgovernmenttoimposeananti-dumpingduty (ADD) against a rival European firm,or even lobby the European Commission to remove its own ADD against its locally produced exports which are destined for the EU market. While business representatives have thus become key constituents in EU-East Asia economic relations, their actual influenceover the direction and governance of these relations is still limited. Within the existing framework of EU-East Asia economic diplomacy, the private sector’s function remains primarily consultative. However, if business is to make an effective contribution to promoting greater economic exchange between the EU and East Asia, its representatives will be required to play a more proactive rather than passive role in the future. This is more likely to be achieved through collective action, for instance, through initiatives undertaken at the industry association level or through certain consortium arrangements. Interdependence is also manifest in the broader range of issues now apparent on the EU-East Asia economic diplomacy agenda. Thisis revealed at the ASEM level and the various bilateral contact groups that have evolved to manage these issues. The latter is especiallyapplicabletothe EU’s economicrelationswith Japan and ASEAN, its two longest-standing partners in East Asia. Such regime building has forged a greater number of transgovernmental alliances and policy networks between EU and East Asian policymakers. It could be arguedthat these developments helped progress EU-East Asia economic diplomacy beyond the more conflictual relations of the 1980s towards the more co-operative trend that was evident by the 1990s. Transgovernmental linkages have also contributed to a mutual support of multilateral regimes, although Chapter 2 discusses how some East Asian states have remainedwary of theemergingnewtradeagenda. However, the EU, Japan and the more advanced East Asian NICs have all been signatories to new WTO plurilateral agreements. Their support of the WTO is especially important given the relative decline in American hegemony and the US penchant for occasional unilateralism in its trade affairs. Despite the co-operative trend in EU-East Asia economic diplomacy, the surplus capacity problem remains an important source of conflict. Many European firms have faced a significant competitive threat from their East Asian counterparts which has accelerated the process of industrial contraction in various sectors. In response, European industry lobby groups have urged EU national governments and the European Commission to defend their interests. Although EU protectionism aimed at counteracting this threat subsided during the 199Os, somemeasures have been retained. Aswe note in Chapter 2, the EU’s antidumping policy has been particularlysingled out for criticism by East Asian states. Theirgraduation fromthe EU’s GeneralisedSystemofPreferences (GSP) scheme, in which trade concessionshave been removed where beneficiaries have become too competitive, can also be linked to the surplus capacity issue.
12 International political economy
of EU-Eart Asla relations
The current dismantling of the MFA regime is, howcver, an example where the EU and other Western powers have taken greater responsibility for tackling their own surplus capacity problems. Most recently, though, East Asia has experienced surplus capacity problems of its own as a result of the region’s 1997- 8 financial crisis. Chapter 2 discusscs the general implications of this for the EU.
Marxism T h e M a r x k fworldview
Marxism’s intellectual origins are themost modern of the three main IPE theoretical approaches,stemmingfromthewritings of nineteenth-century political economistKarl Marx. According to Marxist theory, classes are the dominant actors in the international political economy, although it also acknowledges that states, societies and various non-state actors operate as part of the world capitalist system. Like neo-realism, Marxism contends that international economic rclations are essentially conflictual. This is attributed to theinherent inter-class frictions that arise between capital and labour, and particularly from the capitalist exploitation of workers and the suppression of their interests. Thus, the prevailinghierarchy in theinternationaleconomicsystem is determined not by politico-military power, as neo-realists suggest, but rather by the patterns of productionand exchangeestablished by MNEs.Moreover,globalisationhas enhanced the power of capital which has strengthened firms’ influence over state economic policy. Marxists therefore emphasise the primacy of economic objectives in the foreign policy agenda of states. a Furthermore,internationaleconomic relations mustbeunderstoodfrom historical perspective onthedevelopment ofworld capital (Wallerstein 1979). Marx’sownwritingshighlightedtherelationshipbetweentheexpansionof internationalised capital interests and imperialism.Imperialism arose fromthe exploitation of labour-intensive countries by their capital-intensive counterparts. This involved state governments from the latter organising or sanctioning the colonisation of other countries and regions to safeguard the commercial interestsof their indigenous firms. Interstate competition between capitalist countries for control of these territories was anotherimportant feature of the international political economy. In the post-colonial era, the Marxist interpretation of transnational class conflict has moved on to place greater emphasis on MNE competition for globalmarket shares, thusbrandingthem as thenew imperialists. The FDI of multinationals, in which firms extend their control over factors of production in other countries, is seen by Marxists as a continuation of imperialist practices. Marxist theory also stresses how MNEs use their oligopolistic market power to play off workforces against each other within international production networks in their endeavours to drive down labour costs and maximise economic rents (Frobel et al. 1980). l’he so-called new international division of labour (NIDL) has been facilitated by two main developments: first, advances in transport and
International political econonqy qf EU-East Asza relations
13
communication technologies that have helped create these international production networks which link together different workforces within actual or potential transnationalised divisions of labour; second, new process technologieshave fragmented and standardised specific tasks that can be more easily contracted out to developing countries with low labour costs. The wider diffusion of more mature production technologies in a number of sectors (e.g. textiles, steel) has also contributed to this development. Consequently, greater scope has emerged for competition between workforces from developed and developing country locations which MNEs exploit to their advantage. In analysingthestructure of theinternationaleconomicsystem,modern Marxistthinking focuses on dependency theory to explainthepersisting gap between developed and most developing countries. According to this theory, the core-periphery divide between industrialised regions and under-developed regions is sustained by a subservient economic relationship in which the latter remain dependent upon the former for capital, technology, finance and trade. Marxists propose that this relationship has endured because it has been in the interests of dominant capitalist forces (e.g. statepolicymakersfromdeveloped countries, MNE executives and capital-orientatedinternationalorganisations such as the IMF and World Rank) to maintain the status quo. It could be argued that many East Asian states have managed to cross the core-periphery divide, while the region as a whole has become a new pole of economic wealth in the world economy. However,Marxistswouldpoint to thepivotal role played by to both Japan - the region’s long-established core capitalist power with rrspect these achievements and in determining the current regional division of labour, production and economic exchange. Radicalism, reformism and idealitm
Marxism is placed by some IPE scholars within a broader theoretical and ideological tradition that embraces the notionsof radicalism, reformism and idealism. This is mainly due to its prescription of radical alternatives to market-oriented pluralist democracy, the current leading credible model of economic development. Moreover, the fundamental transformation of the international economic system Marxism advocates, based on the greater empowermentof labour in both its domestic and transnational contexts, is anathema to most of today’s policymakers. The ideals to which Marxism aspireshave also been interpreted by many as utopian. In addition, mainstream thinkers dismiss Marx’s prediction of the demise of international capitalism due to its inherent contradictions, even more so since the retreat of Communism from the late 1980s onwards. Radical alternatives to the current structure, conduct and process of internationaleconomicrelations have been offered by other ‘reformist’movements. Examples include environmentalism, pacificism and feminism, with most tending to emphasise transnational solutions to international economic problems. Links herecan be made withtheneo-liberal view thatstatesalonearcnotableto resolve these and require the participation of non-state actors. Reformism aqgues
14 International political economy of EU-East Asia relations this point further, contending that the pursuance of national sovereignty is ultimately damaging because of thenature of theeconomicproblemsfaced by the whole international community. Again, another link can be made with neoliberalism, on this occasion regarding the prominence of new economic security issues,e.g. ecological crises, drug trafficking, the persistent divide between rich and poor countries, economic migration and Third World debt. Reformists highlight the interconnections between these issues and therefore propose a holistic approach towards managing them. International organisations are seen as playing an important role here, although this is contingent upon them serving higher moral or ethicalinterests rather than simply therepresentations of powerful national interests. Marxism in context
Marxist analysis on capital and imperialism has historic relevance to certain EU member states’ earliestinvolvement in parts of East Asia, and particularly Southeast Asia. The development of the EU’s economic relations with ASEAN has thus evolved within a post-colonial context. Moreover, manyof the EU firms that were responsible for establishing an imperial division of labour in the region have not left. SomeASEANstates, such asMalaysia andSingapore,remain highly dependent upon inward FDI from European sources and EU governments are still concerned about safeguarding the foreign investment interests of their indigenous MNEs in the region. Furthermore, the long-running dispute between Portugal and Indonesia over East Timor (see Chapters 2 and 3) demonstrates how current economic relations can be impeded by post-colonial friction. Notwithstanding these points, the basis of the EU--East Asia economic relationshiphasgenerally moved away from dependency tointerdependency as noted earlier under neo-liberalism. Most analysts would accept that East Asia hasbecomeanew‘core’regionwithintheworldeconomy,althoughthe region’s lesser developedstatesarguably lie on thewrong side of the coreperipherydivide.However,therecognition of East Asia’s newcommercial power and potentialhasbeentheprincipalmotivationbehind EU efforts to promote theeconomicrelationshipbetweenthe two regions.Marxistswould interpret such endeavours as maintaining or extending the international capitalist alliance. Marxists would further argue that the NIDL conceptis highly applicable to the EU-East Asia economic relationship. Competition between both regions’ workforces has intensified witheconomicinterdependenceasEUand East Asian MNEs have greater opportunities to playoff domestic and foreign labour against the other. The emerging parity of unit labour costs between cost-inflated East Asian countries (e.g. Korea) and certain EU member states has broadened the scope of this competition, with companies from the former looking to expand their investments to Europe owing partly to this development. While there may be some truth in this Marxist analysis, other factors that explain the growth in FDI flows between the two regions are examined by this text.
Inbnational political economy of E U - E a s t Asia relations
15
A final note should be reserved concerning the retreat of Marxism in East Asia. This can be most clearly observed in the capitalist experiments recently undertaken by the Communist states of China and Vietnam. Many other East Asian states that have practised variations of state economic planning have also embarked on a new policy direction. To some extent, this has eased the tensions in the EU’s economic diplomacy with the East Asian states owing to a firmer market-oriented,neo-liberalconsensuswhichhasgrown as a consequence of thesechanges. However, both sides have beenincreasinglyaffected by the reformist agenda of new economic security issues, as witnessed by environmental clauses introduced to the EU’s GSP scheme in 1998,joint efforts to combat drug trafficking and various other initiatives.
Concluding note Each of the different IPE theories that we have analysed offer their own perspectives on the EU-East Asia economic relationship. It is not the intention of this author to adopt a dogmatic theoretical position, but rather use these theoretical perspectives to enhance the reader’s understanding of the themes and arguments covered in the text, demonstrating their salience where appropriate. This primarily take places in each chapter’s conclusion where aspecific theoretical evaluation on the preceding analysis will be made.
2
EU-EastAsiaeconomic relations An overview of recent developments
Introduction Over recentdecades the tripolarisation of the world economyhas become increasingly evident. By the mid-l990s, the Triad regions‘ the EU, North America and East Asia - accounted for around 80 per cent of international trade (Table 2.1) and investment. In acknowledging that its rclationship with East Asia remains the weak link in the Triad, the EU has more actively promoted its economic relations with the region in recent times. This has been crucial given the global production centre and new pole of prosperity that East Asia has become. Progress made by the Asia-Pacific Economic Co-operation (APEC) forum in augmenting a stronger transpacific alliance has added greater imperative to the EU’s cause. However, now running parallel to the EU’s established ties with East Asian countries is the recently created Asia-Europe Meetings (ASEM) framework that provides an inter-regional basis for dialogue between the EU and East Asia. Together with the 1995 New Transatlantic Agenda (NTA), APEC and the ASEM represent the completed triangle of inter-regional Triadic links. The EU’s economic relations with East Asia must also be understood in their multilateral context. From one perspectivc, the scale of the inter-regional Triadic links noted above pose a challenge to the multilateral order, presided over by the World Trade Organisation (WTO).Another challenge facing the WTO liesin extending its legitimacy to deal with the so-called ‘new’ trade issues. These have arisen largely because both the gradual post-war reduction in tariff barriers and the exposing effects of globalisation have raised a variety of non-tariff trade barriers to prominence. If the WTO succeeds, this would have sigrlificant ramifications for how international economic relations are conducted and governed in the future. The purpose of this chapter is to provide an overview of the above themes, thus introducing the recent developments in EU-East Asia economic relations. We shall first examine the reasons why the EU has afrbrded increasing priority to developing its economic relations with East Asia. This includes a brief study of East Asia’s economic dynamic and recent financial crisis, and what impact these have had upon patterns of the EU’s economic cxchange with region. We shall then consider the new developments in the EU-East Asia economic diplomacy, which involves an examination of the nature and practice of EU economic diplo-
EU-East Asia economic relations
17
7able 2.1 Triad trade flows: prrcentagc shares or world total (1960, 1980, 1996) 1960
1980
1996
15.6 6. I 2.9
22.7 5.3 4.5
24.8 8.1 12.3
4.7 I .8 1.5
3.5 2.9 1.8
2.9 4.8 3.5
32.6
40.7
56.4
North Ancrica East Asia
37.3 18.6 8.9
42.7 16.9 13.9
39. I 19.0 24.8
Total
64.8
73.5
82.9
Intra-regional EU15 North America’ East Asia’ Inter-regional EU 15 North America North America - East Asia East Asia - EU 15 Total ~
All counties EU15
Source: I M F Lh’rechori q/ ‘ h d e Sk~trrtus%orbook, various editions. Notes:
I US, Canada and Mexico 2 Japan, China, Korea, Taiwan, Hong K o n ~and r\SEhN10.
macy, the EU’s bilateral economic relations with East Asian states, the new ASEM framework and diplomatic intcractions at the multilateral level.
East Asia in the balance: economic dynamism and financial crisis In the chapters that follow, we make separate studics of the dynamic economic development of each East Asian country, or group of countries in the case of the Association of Southeast Asian Nations (ASEAN).? It is usrful at this point, though, briefly to examine the wider regional dynamic of East Asia’s economic development and make reference to the debate over whether the ‘Pacific Century’ is inevitable. ‘l’his relates to the notion that an emergent East Asia that is closely aligned to its North American economic partners constitutes a transpacific axis which could potentially niarginalise the EU in forthcoming decades. However, the 1997-8 East Asian financial crisis changed assumptions regarding the region’s future growth and prosperity, with rnany analysts believing that the economic miracle was eithcr a myth or had come to an end. Hence, each subsequent chapter will also examine how the crisis has affected the East Asian trading power in question and what impression this has made on its economic relationship with the EU.
18 EU--Ea.st Asia economicrelalions
The East Asian economic miracle The economic performance of East Asian countries in recent decades has been stunning. Overa sustainedperiod they have achievedthe fastest economic growth rates yet recorded, both on an individual country and regional group basis (see Table A.2). In thewake of Japan’s post-war reindustrialisation came the advance of the ‘first generation’ newly industrialising countries (NICs) of Korea, Singapore, Taiwan and Hong Kong from the 1950s onwards. These were joined later by the‘secondgeneration’ NICs of Southeast Asia withMalaysia and Thailand in particularachievingthehighestgrowthratesamongstthissubgroup. As Table A.l indicatcs, many East Asian states now enjoy income per capita levels that have overtaken or are approaching those for the EU. There have been numerous studies which have sought to explain the determinants of East Asia’s rapid industrialisation and growth.’ Although the highly diverse political, economic, demographic and socio-cultural complexion of East Asia has made it difficult to formulate a unified explanatory model, certain commonalties can be established between at least particular sub-groups of states and their paths to development. A World Bank (1993) study perhaps offers the most comprehensive attempt at providing such a model in which various multi-linked relationships between different developmental functions were considered (Figure 2.1). However,the study’s ‘marketfundamentalism’ and strongemphasis on ‘macroeconomic basics’ as opposed to ‘micro-institutions that exhibit pervasive state intervention’ were criticised by Amsden (1994: 627) and others,’ many of whom prescribe to the ‘developmental state’ model of East Asian development which emphasises the centrality of the state’s role. Additional determining factors could arguably have been given more prominence by the World Bank model, for example: the facilitatingrole played byJapan in the industrialisation of the region through foreign direct investment (FDI) and accompanying capital, technology andmanagement practicetransfers;’benefitsconferred by US financialaid, other capital investments,domesticinstitutionalsupport and the provision of markets;b socio-cultural factors (e.g. Confucianism) and the positive influence of ‘collectivist’norms on hurnan capital practices, industrial and societal relations.’ What has become clear is that East Asia’s developing economies are moving beyond a dependency on the USA and Japan, thus helping create a more independent momentum for the region as reflected in the growth of its intra-regional trade and investment flows” (Table 2.2). East Asia’s enhanced regional integration is extensively analysed in Chapter 8, but suffice to comment here that the future of a more defined and coalescent East Asian economy and the potential that lies therein have become the subject of much debate. O n the one hand, there are thoseearlyoptimists who believed thattheregion is destinedtobecomethe world’s most prosperous economic region by the early twenty-first century.’ O n theother,there are morescepticalanalystswhoremainunconvinced of East Asia’s assured bright future.“’ The 1997-8 East Asian financial crisis certainly lent increasing credence to the latter view, although its longer-term effects on the region’s economic growth trajectory cannot easily be discerned.
1
!
..
t " " " " " " " "
I
..
I
!
I
I I
I
I
I I I I I I I I I I I I I I I I I
I
I
I
-
20 EU-East Asia economic relations 7abk 2.2 The Triadic distribution of East Asian trade (prcentagc of total)
Japan 6.7 China 25.6 Korea 7.4 ASEAN 17.1 Taiwan 12.0 Hong Kong 13.7
13.4 14.6 15.4 14.3 14.9 27.7
24.4 11.3 28.0 16.5 28.6 12.5
22.9 3.7 34.1 20.7 37.5 29.2
17.0 40.6 38.7 45.4 38.6 54.0
21.5 53.5 32.0 49.4 32.1 20.0
51.9 22.5 cr 2.1.9 21.0 20.8 19.8
42.2 35.2 18.5 15.6 15.5 23.1
8.2 17.1 10.9 16. I 14.1 12.5
13.3 9.0 10.4 1 1.8 6.5 13.8
23.7 14.9 23.0 16.1 28.8 10.2
40.2 9.4 39.1 20.5 52.0 33.2
I985 27.0 49.7 34.4 52.0 36.5 69.3
24.3 58.9 25.3 54.3 23.4 41.0
41.1 18.3 3 I .7 15.8 20.6 8.0
22.2 22.7 25.2 13.4 18.1 12.0
13.4 13.1 11.2 ASEAN 15.0 Taiwan 15.0 Hong Kong 1 1.3
15.6 13.0 11.3 15.0 13.2 14.7
25.3 12.9 21.5 16.3 18.8 8.4
29.6 19.3 17.7 19.7 26.7 23.3
1997 35.0 56.3 39.6 57.1 50.9 74.0
41.1 56.9 47.8 53.8 45.5 51.6
26.3 12.0 27.7 11.6 15.3 6.3
13.7 12.7 23.2 11.5 14.6 10.4
Japan China Korea ASEAN Taiwan Hong Kong
Japan China Korea
Source: IMF orechon uf Eade S/ulu/zrs learboak, various editions. Notes: 1 US andCanada.
2 Includes intra-ASL\N trade for ASEAN.
The 1997-8 East AsianJinancial crisis There is a multitude ofviews on the actual causes of thc 1997 -8 East Asian financial crisis.'' However, the region's high debt-driven economic dcvelopmerlt and misconceivedinternationalfinance policics arcgenerallyacceptcdasthe of instabilityfrom which the crisis cvolvcd (Goldstein1998; mainsources Henderson 1998; Wade 1998; Wade and Veneroso 1998). Bridges (1998)blames theimmediatecause of the crisis on foreign over-borrowing by the region's banks,companies and individuals on a short-term basis and the mountain of non-performing loans that this created. A t a decper level, the structural defects of many East Asian economies were exposed by the crisis but also served to exacerbate it, not least by undermining wider systemic confidcnce. Examples of such 'defects' included the use of political as opposed to commercial criteria in loan allocations(particularly in Indonesia andThailand), surplusmanufacturing capacity (Korea), over-ambitious mega-projects (Malaysiaand Indonesia), macroeconomic weakness caused by sustained current account deficits and inadequate prudential controls in national financial systcms (most affected countries)."
EU--Ead Asia economicrelafions
21
The one specific event commonly cited as having precipated the crisis was the Thai government’s decision to float the baht on 2 July 1997, the day after Hong Kong’s return to mainland Chinesesovereicgnty.‘Ihe baht’s subsequent freefall on the foreign exchangemarketscreatedageneral crisis of confidence in other 13 Southeast Asian currencies, which was later to spread to the region’s stock markets. By November 1997, ‘Thailand, Indonesia and Korea had accepted significant International Monetary Fund (IMEJ rescue packages at $17.2bn, $37.0bn and $57.0bn, respectively. The two other countries most affected by the crisis, Malaysia and the Philippines, avoided direct appeal to the IMF but nevertheless were compelled to introduce a range of austerity measures aimed at maintaining economic stability”’ From July I997 toJanuary 1998, the currencies from all five countries had depreciated by between 40 and 60 per cent against the US dollar. Furthermore, in the latter half of 1997 their stock market indices had fallen by around 50 per cent. Japan’s ability to offer assistance to the wider region was constrained by both its own financial difficulties and prolonged recession. Moreover, its Aqgust 1997 proposal for establishing an Asian Monetary Fund (AMF), backed by secured Ii pledges from China, Hong Kong, Taiwan and Singapore, lacked essential support from the USA which was reluctant to back any initiative that undermined IMF multilateral competence in such situations (see Chapters 4 and 8). Low or negativegrowth was anticipated in 1998 for the five most affectedeconomies with significant spillover and transmission effects for the wider region. However, at time of writing, most estimates predicted a mild recovery towards 1999 or 2000 and beyond. Yet the longer-term impact of thc crisis on the region and its ‘developmental state’ model of economic development remains difficult to determineatthispoint(Burkctt and Landsberg 1998;Johnson1998),but we shall nevertheless return to this issue in subsequent chapters.
The Europeanresponse It was not until Korea’s financial difficulties became fully apparent in November 1997 that the EU’s political reaction to the wider East Asian crisis became significantlyaudible. Even then,the EU’s response was somewhat dismissive. I n January 1998, European Commission President, Jacques Santer, stated that the EU economy would be only slightly affected by the crisis.lb A similar evaluation was given by Yves-Thibault de Silguy, EU Monetary Affairs Commissioner at the time, who argued that the crisis would have ‘only a marginal impact on growth in Europe’.17 However, by the time of the Second ASEM Summit held at London in April 1998, a more foreboding view was taken by EU leaders. Notwithstanding the setbacks, pressuresand dour predictions generated by the crisis, this text will argue that the EU’s efforts at fortifying its economic links with East Asia must remain a priority The region has recently offered some of the most significant commercial opportunities for European companies, as the following analysis on EU-East Asia economic exchange testifies. East Asia’s improvingcompetitiveness in an everwiderrange of industries also poses aserious
22 EU-East Asia ccononzic relations threat to EU producers. Both trends should be anticipated to continue at least over the medium term and hence provide a casefor the EU to develop more harmonious and collaborative economic relations with East Asian states. However, it becomes evident in subsequent chapters that the USA generally enjoys a more developed and encompassing economic relationship with East Asia, which itself is underpinned to varying degreesby US close security ties with many of its allies in the region. Progress made by APEC over the 1990s has further cemented the IU transpacificalliance,thusmakingthe EU’s task of achievingproximate influI ‘I ence over East Asia’s economicaffairs even morearduous. ‘The new ASEM frameworkhas, however, managed to redress this somewhat.Moreover,as Chapters 8 and 9 discuss, the financial crisis had generated considerable tensions in transpacific relations by the end of 1998. In order to obtain a clearer perspective on the above matters, let us now examine a broad overview of recent trends in economic exchange between the EU and East Asia.
Economic exchange between theEU and East Asia Trade For the last decade or so, East Asian countries have been the most dynamic trading partners of the EU. In 1980, East Asia’s share of extra-EU imports was 1 1.7 percentand its share of extra-EUexports 8.4 percent. By 1997these had increased to 26.9 per cent and 20.2 per cent, respectively (see Table A.3). Five years earlier trade flows between the EU and East Asia had overhauled the volume of transatlantic trade,’” thus making East Asia the most important regional tradingpartner of Europe fromthistimeonwards.2‘ Amongthe East Asian group, China has been the EU’s fastest growing import source while Korea and Taiwan have been its fastest expanding export markets in the region (Figure 2.2). In comparison, the EU’s shares of East Asian trade have remained relatively static with a few exceptions (see Table 2.2). For example, the EU improved its shares of Japanese, Korean and Taiwanese import trade over the 1975-97 period although these are still well below those for North America and other East Asian countries. Meanwhile, the EU’s share of Chinese import trade fell sharply in the 198Os, while its share of Hong Kong’s exports almost halved during the period. Like the EU, North America’s shares of East Asian trade have also remained reasonably stable, but it should be remembered that it began the period with generally much higher shares than the EU. The rise of intra-regional trade in East Asia has, though, posed a challenge to both Western regions. The generalregionalbalance of tradebetweentheEU and East Asialies squarely in the latter’s favour, with the EU’s trade deficit standing at Ecu33.8bn in 1997 (Figure 2.3). The deficit’s peak of Ecu51.5bn reached in 1991 more or less coincidedwithJapan’s 1992 peaksurplusagainstthe EU recorded at Ecu34. Ibn. China’s own growing surplus with the EU threatens to reach the same scale as Japan’s, having risen from Ecu5.3bn in 1990 toEcu20.9bn by 1997.’2 Both ASEAN and Taiwan also achieve trade surpluses with the EU on a
E U - h t Asia economic relacionr 23 East Asian group shares of EU exports to the region (1980)
'
East Asian group shares of EU imports from the region (1980)
ASEANA
11.m
__
24.0%
China 6.2%
34.7%
East Asian group sharesof EU exports to the region (1997)
East Asian group shares of EU imports from the region (1997) ; J@amb
Talwan
Hang m
Talwan
g
4.8%
7.3%
8.7%
Korea 9.9%
Chma
11.356
ASEAN
31.3%
ASEAN 25.5% Chlna
20.8%
F i r e 2.2 East A s i a n group shares of EU trade with the region (1980, 1997) Source: Eurostat.
regular basis, although Hong Kong has seen its trade balance with Europe fall further into the red over the 1990~.'~ The EU has also recently moved into a trade surplusposition against Korea. An examination of EU member state trade with East Asia reveals that Germany and the UK are the EU's most prominent traders with the region, with France, Italy and the Netherlands also being key trade partners (Figure 2.4). A closer examination of sectoral trade flows presents a more revealing picture. In general, the EU's chemical industries have retained their competitive advantage over their East Asian counterparts (see Table A.4). However, the technological balance is shifting more in East Asia's favour in manufactures trade.The EU continues to import higher tech goods from Japan in return for relatively lower tech exports. While China's low-tech exports to Europe are still growing rapidly (e.g. clothing, footwearand toys), it has also begun to dispatch higher value-added products to EU markets (e.g. electricalmachinery,telecoms and audio-visual goods). As with East Asia's NICs, though, China has increased its demand for EU capital goods to assist the industrialisation process. Yet the EU's dependence on
24 EU-East Asia economic relations EU-East Asia merchandise trade(1975-97)
200 "_ 150
-100 -50
t
I W EU imports
W EU exports
Balance
I
Fwn 2.3 EU-East Asia trade (1975-97) Source: Eumstat. Note: 1975 figures do not include Korea.
theNIC group'stechnology-intensiveconsumer products is now quitepronounced. For example, in the office machines and computers sector the EU's import:export ratio with the groupis 1:9. Moreover, in both this and thetelecoms and audio-visual sector, East Asian countries represented eight of the EU's top ten import sources for these products (see Table A.5). Notable sectoral imbalances also persist in other sectors at country level, such as Korea's exports of automobiles to the EU which outnumber importsby over 100 to 1.
Foreign d i e c t investment Greater economic interdependence between theEU and East Asia has also been nurtured through FDI links (CEC 1996a). EastAsia has attracted hugeinflows of investment since the1980s and muchof this has come from European companies (see Table A.6). The EU's share of FDI in developing East Asia has nevertheless f d e n marginally since the mid-l980s, although those for both Japan and the USA have declined more sharplyHowever, over the mid- 1990s the EU's share of cumulative inwardFDI in developing EastAsia increased from8.7 per cent up to 1993 to 12.3 per cent by 1996, which contrasted with Japan and USA's falling shares. This was primarily due to the surge of European investmentin Southeast Asia and China over the period. Triad investments in the region have f d e n in proportionate terms, mainly due to the expansion of inter-NIC outward inve~tments.'~ Meanwhile, Europe has F D I projects, particubeen increasingly targetedby East Asian multinationals for larly those from Japan and Korea.25 The escalation of Japanese investment in
EU-Ebt Asia economic relations 25 EU12 member state imports from East Asia(1987)
EU12 member state exportsto East Asia(1987) UK
in?%
-
Belgum-Lux 5.8% Denmark
IIK
"A,
2:
5.1%
Denmark
3 A%
EU15 member state Imports from East Asia (1997)
EU15 member state exportsto East Asia(1997) Bebum-Lux
Darlll"
16.6%
Germany 28.2%
0.3%
Portugal
Netherlands 5.3% ltal 12.3%
"I
23.1%
Germany 26.5%
0.9%
i-
n 3.0%
0.2%
Natherland 13.4c
Figure 2.4 EU trade with East Asia by member state (1987,1997) Source: Eurostat.
Europe, especially during the late 1980s, helpedto increase the region's cumulative share from1 1.6 per centby 198 1 to 19.2 per centby 1996. Large-scale investments made by Korea's senior chaebol companies in Europe during themid-1990s have attracted more recent attention (Dent and Fbnderson 1996), least notbecauseLG and Hyundai still intend to make thetwo largest inward investments into the EU from a third country source.2GEurope has subsequently increased its share of Korean outwardF D I from 6.4 per cent at the beginning of the 1990s to 15.3 per cent by 1996. European investments made by companiesfrom S i n g a p ~ r e ? ~ Taiwan and Hong Kong also are on therise as,like many of their East Asian counterparts, they seek to establisha stronger global positioning (UNCTAD 1997).
The general impact of the East Asian$nancialc*isis Finally, there has been much conjecture about the impact of the East Asian financial crisis upon EU business. There are a number of negative and positive
26
EU-East Asia economic relations
outcomes that could apply, although it is too early to evaluate the long-term balance of effects (CEC 1998a). On the negative side, the depreciation of East Asian currencies has caused the EU an immediateprice competitive loss, although over the longer run this effect will be mitigated by depreciation-induced inflation in East Asian countries. European firms will face additional competitive pressure as their East Asian counterparts and othersseek to re-route exports away from contracting East Asian markets. The general economic slowdown in the region will reduce the demand for EU exports, particularly for luxury or non-essential items, as already revealed by some 1997 and early 1998 trade figures. These figures also suggested that East Asian firms had begun to export more aggressively to EU markets (see Table A.8). One estimate suggested that the crisis could reduce West Europe’s net exports by $55bn a year.’H Furthermore, Europe has already witnessed a decline in inward FDI from East Asian sources as a result of the crisis. On the positive side, the EU can expect to pay lower prices for East Asian imports. Intensified price competition will also force European firms to look for efficiency gains where scope exists. Moreover, the crisis-induced restructuring of East Asian economies will generate marketopening opportunities for foreign firms. This hasbeen perhaps most clearly demonstrated in Korea under theconditions of the IMP ‘bailout’ programme. In addition, East Asia’s asset deflation presents new acquisitional FDI opportunities for EU investors, although these may not be exploited until the path of the crisis has become more determinate. With regards to finance, European banks were even more exposed to the crisis than their US or Japanese counterparts.?“ The subsequent loan defaulting to which they have been subject in the most affected East Asian countries has placed severe pressure upon them. Many have had to work closely with East Asian governments and firms to establish private-sector rescuc packages to resolve shorttermdebtrepayment problems (Bridges 1998). ‘The adversc effect onthe Eurocan financial community’s earning and profit levels hasbeenconsiderable,’ although it is unlikely that any European bank will become bankrupt as a result. While some European banks are obviously more circumspect in their dealings within the region, others have looked to the new commercial opportunities that crisis-related events have spawned. For example, in Korea, where IMF loan conditionality includes liberalising the country’s financial sector, some EU banks are looking to set up subsidiary operations or buy into indigenous operations. In the chapters that follow, the more specific impacts of the crisis on EU-East Asia economic exchange will be considered.
8
New developmentsin the EU’s economic diplomacy with East Asia The nature and practice of EU economic diplomacy Economic diplomacy can be defined as the means and parameters within which trade, investment and any other international economic relations are conducted
EU-East Asia economicrelations
27
between representative agents, the process of which may or may not take place within an institutionalised framework. An important aspect of economic diplomacy concerns the protagonist'suse of defensive and promotive policy measures. Defensive measures are derived from the application of commercial policy instruments, whereas promotive measures stem from trade and economic co-operation accords but also commercial policy concessions. Other key aspects of economic diplomacycentreonnegotiatoryengagementsat the bilateral,plurilateral or multilateral level where conflict resolution may be the primeissue. As a supranational actor, the EU is a relatively young proponent of economic diplomacy with both its Common Commercial Policy (CCP) and EuropeanPolitical Co-operation (EPC)framework3'beginningtooperate effectively fromtheearly 1970s onwards. Since then, the European Commission has acted as the EU's interlocutor in international trade negotiations, although FDI policy remains at the member state level. Thus, in terms of governance the management of the CCP is both a demonstration of the EU's model of common policymaking andits collective exercise of 32 power against third country partners. Its member states accept that it is generally in their own interests to grant the European Commission exclusive competence of the CCP for thestrategicadvantages this confersuponthem in the international economic system. The Commission, though, requires a mandate from the Council of Ministers on CCP decisions,33and hence the levers of direct governance and control over EU trade policylie somewhere between the two institutions. Moreover, the Commission can be viewed as either an initiator or facilitator of EU trade policy, depending on the degree of politicisation surrounding the trade issue at hand. While it is more or less left alone to the technical management of the CCP, it is susceptible to the influence of member state coalitions who desire a certain outcome from international trade negotiations. This is most likely to occur on sensitive issues such as agriculture, France's interventions in the Uruguay Round being a case in point. More recently, the future direction of the EU's anti-dumping regime is being contested by the European Commission, protectionist-minded EU member states (e.g. France, Italy, Portugal) and liberal-minded EU member states (e.g. Germany, UK, Netherlands)."" The expansion of EU-East Asian economic exchange and the accompanying competitivethreatstoEuropeanindustrywhich lie therein have meantthat the European Commission and CCP have become increasingly familiar to the East Asian countries. In the European Commission, Directorate General (DG)l is responsible for conducting the EU's external economic affairs. More specifically, D G l A deals with Northeast Asian states (Japan, China, Korea, Taiwan and Hong Kong) while D G l B managesrelations with Southeast Asian states (i.e. ASEAN) and other South Asian countries (i.e. the Indian subcontinent). This division is significant in that DG1A adopts a more hard-nosed approach towards its group of generally more advanced industrial states, which isin Contrast to DG 1 B's approach that has traditionally been based on the donor-recipient relationship that one expects between developed and developing country powers.35
28 El/-East Asia economic relations However, as we shalllater discuss, attemptsatrestructuringthe basis of EU-ASEAN economic relations has been attempted in recent years to reflect new realities. Each East Asian trade partner also has a designated status within the CCP’s hierarchy of preferences. The EU’s trade relations withJapan function on a ‘most favoured nation’ (MFN) basis. Most developing East Asian countries are bencficiaries of the EU’s Generalised System of Preferences (GSP) which grants them tariff concessions in bothindustrial and agriculturalproducts. The advanced industrial development of Hong Kong, Singapore andKorea led to their ‘graduation’ from theEU’s GSP in May 1998,:’“while their East Asian counterparts that remain in the scheme have experienced a partial graduation in those sectors in which they enjoy a growing competitive advantage. However, of greater impact to East Asian producers has been the EU’s use of anti-dumping duties (ADDS). Since the mid-1980s they have been targeted more than any other group by the EU, attracting 46.8 per cent of all anti-dumping investigations over the 1985-97 period3’ (see Table A.8). These have coincided in industries where East Asian exporters have attained high levels of import penetration in EU markets and hence have beeninterpreted by theoffendersas overtly defensive counter38 measures. Although East Asian fears of a ‘Fortress Europe’ have subsided,”” the consolidation of the Single European Market (SEW heralded important changes to the CCP which have affected the conduct of EU-East Asia economic diplomacy. For instance, the SEM necessitated that the European Commission’s competence in EU commercial policy matters be fortified in order to avoid internal market distortionsthat would arisefromnational level measures. The extension of the Commission’s governance in this area was perhaps most clearly shownby the EUlevel voluntary export restraint negotiated with Japan on its automobile exports to Europe. This replaced five national-level equivalents that had been previously operated by France, UK, Italy, Spain and Portugal. Other similarbilateral arrangements have either been transposed to the EU level or eradicated altogether,whichparticularlyaffectedthe numerous quantitativerestrictionsthat individual EU member states had previously placed on East Asian imports. More promotive aspects of the EU’s economic diplomacy with East Asia have come through new accords being s i g ~ e dwith the region’s countries, or established ones being upgraded. This approach has been underpinned by the EU’s ‘New Asia Strategy’ which it launched in 1994 (CEC 1994a) to provide a more coherent basis for developing its relations with East Asia. l’he EU’s economic diplomacy with each East Asian partner has nevertheless evolved i n its own distinct manner, as Chapters 3 to 7 show. The section that follows offers a summary analysis.
Bilateral developments The conduct and managementof the EU’s economic diplomacy with Japan have proved the most challenging, largely due to its ascendant economic superpower
EU-East Asia economicrelations
29
status and the substantial competitive threats it has posed to a broad range of European industries. Japan's adeptness of playing off one EU country against another in pre-CCP trade negotiations was actually a significant catalyst in the development of the C C P itself (Rothacher 1983).40 Moreover, EU-Japan economic diplomacy can only be fully understood within the context of trilateral relations, i.e. including the USA. Concepts of trilateral co-operation date back to on the work of Rrzezinski (1 973) and others," although this primarily centred issues of high politics. Until quite recently, the EU pursued a largely reactive policy towards Japan by following in the slipstream of USpolicy initiatives. This particularly related to bilateral market access deals brokered by the USA (e.g. on semiconductors) normally under threatof '30 1 ' actions.'2 Some years later,Japan usually concededtograntingthesame or similar access to EU producers." Furthermore, two of the Triad powers have often formed an alliance against the other so as to extract concessions from it. Transatlantic alliancesof this kind have been the most prevalent, invariably at the USA's behest, although a transpacific alliance was deployed to effect at the Uruguay Round from which the EU agreed partially to liberalise its Common Agricultural Policy (CAP).'+ Notwithstandingtheenliveneddebate onTriadic competition (Hart 1992; Thurow 1992; Tyson 1992; Albert 1993), there has been a gathering momentum behind trilateral economic co-operation. The Plaza Accord of 1985 and subsequent G7 meetings on co-ordinating macroeconomic policy were important first steps forward."" By the early 199Os, all three powers had signed bilateral 'declarations' with each other4' inspired by possibilities that the new post-Cold War era could herald. While the 199 1 EC-Japan Declaration enabled the EC somewhat to redress the trilateral imbalance of relations, its influence withJapan remains a considerable distance behind that enjoyed by the USA. However, the EU and USA .*7 have actively encouraged Japan's deregulation programme with equal verve and both have witnessed an improvement in their trade position with the country. In contrast to the underlying geoeconomic basis of EU-Japan economic diplomacy, that between the EU and China was initially determined by geopolitical factors. Before the normalisation of Sino-American relations, Western Europe was a major trade partner and crucial source of advanced capital and technology for China during much of the Cold War period. Nevertheless, full diplomatic relations were onlyestablishedwiththereceding of Maoism and thefirst EC-China trade agreement was not signed until 1978. We have already noted how China has subsequently become a key trading partner for the EU, yet due to a combination of China's state-trading policies and cost-competitive export production, the EU has deployed variousdefensive measures against its imports, particularly ADDS." China's relatively high tariff levels, regularbreachesof intellectualpropertyrights (IPR) and other numerous trade-relatedproblems, together with its growing trade status, have made the EU keen advocates of the country's accession into the WTO (CEC 1995a, 1998b). If this is achieved it will make a significant impact on how EU--China economic relations are governed, not least because it will provide the EU with another legitimatr channel through which to pursue its trade disputes with Beijing.
30
EU-EastAsiaeconomicrelations
The path taken by EU-ASEAN economic diplomacy has evolved from postcolonial links and an initial ‘donor-recipient’ basis. What also makes this relationship different is its inter-regional nature. Furthermore, the 1980 ASEAi-EC Co-operation Agreement has helped create wide a range of joint policy initiatives and business contactgroupsmakingtheEU’seconomicdiplomacywiththe ASEAN states arguably the most interactive of all with its East Asian partners. Nevertheless,attemptstoupdatethe1980Agreement ona‘partnership of equals’ basis (CEC 1996b) has been beset by political obstacles at the national level.49 Parallels here can be drawn with the economic relations between the EU and Hong Kong, which are also now post-colonial and moreover largely hinge on the pivotal role played by onemember state, i.c. the UK. HowthenewSpecial Administrative Region of China conducts its economic diplomacy with the EU and other international economic partners raises interesting questions of gover50 nance. These will undoubtedly be considered very carefully by Taiwan, whose own sovereignty disputeswith Beijing have kept the island state’s economic diplomacy with most third countries at an informal level. As Taiwan is no longer a member of any major international forum after China’s normalisation of relations with the West, its economic diplomacy with the EU has remained the most under-developed of the East Asian group.5’ Yet Taiwan’s current position as the EU’s tenth largest trading partner, higher even than either Canada or Australia, necessitates that a strong informal economic diplomacy be maintained. The EU’s economic diplomacy with Korea was only advanced and formalised after the onset of democratic reform in the country from the early1990s onwards (CEC 1996~).We mentioned earlier that EU-Korea trade and investment flows have expanded considerably during this decade. Yet Korea’s aggressive export practices inkey sectors have alsogeneratedproblems for the EU whichhas responded by applyingacomparativelyhigh number of ADDS onKorean 52 imports.Despiteongoingtradefrictions in EU-Koreaeconomicrelations, Korea’s growing stature within East Asia as its third largest economy holds yet unexplored strategic value for the EU if it can persuade the Koreans to become its advocate in Asia-Pacific affairs (Dent 1998a). This has to some extent been proven by Korea’s past support of the EU when it sought ‘dialogue partner’ status to APEC, although this bid was not actually successful. Korea’s admission to the Organisation for Economic Co-operation and Development (OECD)in 1996 also improved the scope for co-operation with Europe in economic affairs.
ASEM: the new inter-regional framework The most important recent development in EU-East Asia economic diplomacy hasbeenthecreation of theASEMdialogueframework.This essentially emerged out of the EU’s existing inter-regional arrangement with ASEAN to incorporate Japan, China and Korea in new summit-driven negotiations (CEC 1996d). Inaukprated at Bangkok in March 1996, the ASEM’s value at present remains largely symbolic, although it has made better than anticipated progress
EU-East Asia economic relalions 3 1 on trade facilitation and investment promotion initiatives. For the EU, it could provide a strategic counter-balance to APECby reminding East Asia that Europe also has astake in its future. For its East Asian participants, the ASEM constitutes a risk-averse strategy by diversifying their economic relations beyond the AsiaPacific region. TOmany, the EU’s potential as a trade and investment partner is only just being explored. There are a number of observations that should be made regarding how the ASEM functions and its potential impact upon how EU-East Asia economic relations could be governed in the future. Unlike APEC, the ASEM does not aim mutually to align the regulatory environments of its participants but instead to establishbothcongruency in selectedadministrativeprocedures (e.g. customs, standards and certification) and to enhance familiarity among companies of the policy regimes they confront in their opposite region (Dent 199813). Engendering a broader and deeper understanding between the EU and East Asia on economic issues on this basis is also hoped to close the psychic and cultural distances that had previously kept them apart. Like APEC,though,theASEMframework could act as a catalyst for WTO liberalisation by helping to filter negotiating issuesin preparationfor WTO ministerialmeetings.” However, bothinterregional arrangements carry the latent threat of producing considerable diversionary effects upontradeand investment flows. Inother words,the‘open regionalism’ principle to which both ASEM and APEC subscribe is yet to be thoroughly tested. In addition,importantquestions exist surrounding how the ASEM’s interregional framework of relations is supposed to interface at the bilateral level (e.g. EU-China).Althoughthe European Commission believes thatthe two are intended to have mutually reinforcing effects upon the other, this has not been exactly clarified. Furthermore, there exists the potential for confusion over where theactualdemarcation of responsibility lies betweendifferentDirectorate General (DG)l a u t h o r i t i e ~ Ironically, .~~ this will especially arise if the EU wishes to develop a more coherent approach towards East Asia. For example, where the Commission wishes to adopt a jointposition towards both China and Japan on a common issue, should this be driven at the bilateral or ASEM level? There is, though, no reason why both approaches cannot be co-ordinated. Moreover, the ASEM must be allowed to develop in order to judgeif it provides a more suitable approach than bilateral channels in dealing with certain issues. These issues are discussed in greater depth by Chapter 8. The 2nd ASEM summit in London provided an important opportunity for high-level discussions on the East Asian financial crisis. However, EU leaders werenot willing to offer anyreal ‘crisis management’ solutionbeyondtheir rhetoricextollingthegreatermarket and policy reformneeded in East Asia. The only initiative of substance to emerge was the creation of the Asia-Europe Trust Fund, whereby Ecu30.9m would help resource the provision of technical assistance for those East Asian financial sectors in most difficulty.No new significant policy framework was established to deal with potential crisis-induced problems that may affect EU-East Asia economicrelations. Where commercial
32
EU-EasIAsia economicrelations
tensions arose, for instance from those negative outcomes highlighted in the previous section, thesewould be managed through the usual bilateral and multilateral channels. In the financial realm, policymakersand banking represcntatives from the EU and East Asia have worked i n a largely ad hoc Inanncr with the IMF to help resolve the crisis. M’hile this constitutes a new governance structure of sorts, it is a relatively loose arrangement that may have an ephemeral existence depending on the future proportionsof the crisis.
Developments at the multilateral level The conduct of EU -East Asian economic diplomacy at the multilateral level has also become increasingly important. ‘I‘his is primarily due to the more active participation of hoth sides in multilateral economic regimes and the broadening of the new trade agenda. Most East Asian states have become WTO members and those that have notenjoyobserverstatus.55Neo-liberal institutionalists would argue that the responsibility now conferred upon the WTO and other international organisations (e.g. the OECD) to handle the new trade issues makes them part of the governance equation in their own right, although as neo-realists contend, this ultimately depends on just how much responsibility participating members are willing to part with (Qureshi 1996; Jackson 1998). More generally, the growingrelevance and impact of‘new’ trade issueshave both broadened the scope of EU-East Asia economic relations and furthermorr have encompassed more constituents with a stake in how they are governed.“” This relates to discussions concerning the interaction between the domestic and international economic agendas covered in Chapter I . In summary, the new trade issues refer to:
The inteface betwen competition p o l i v a n d trade. As an OECD (1 994a: 2) report argues,‘tradeliberalisation and globalisationchangethe basic features of competitionin ways thatincreasethepotential benefits to bederived from greater competition policy convergence and greater international cooperation’. The OEC1)’s own Committee on Competition Law and Policy already provides a forum for discussions hetween enforcement agencies from developed countries. Zade-Related I?lvestment Measures (7HA1s). The relationship between trade and investmcnt has become increasingly entwined and hence there is a need for FDI codes or rules on matters such as local content regulations and government incentives to attract FDI that are consistent with existing trade rules. Trade-Related Intdlectual Proflerty rights (TRIPS).Breaches of IPR have become an important concern for both the EU and USA in their economic relations with East Asia. Environmental clauses and social clauses (eg. labour standards, human rights) in trade relations. Again, these have been pushed by both the EU and USA, although dif-
fercnt approaches have been adopted.“i The strider and wider a@lication qf the ‘national trealment’ principlr, especially con58 ccrning domestic tax policies and public procurement contracting.
EU-Eusf Asia economic relations
33
Securingwidermarketaccess in sFec$c sectors, particularlywheregovernment restrictions are designed to limit foreign company access. 'l'he Information Technology Agreement (ITA) negotiated at the WTO's inaugural Singapore Ministerial Meeting. held in Deccmber 1996 to which twenty-eight countries 39 became signatories was an important example of this. T h e increase in servicestrade. The Uruguay Round's General Agreement on Trade in Services (GATS) was a key breakthrough in establishing the norms for service trade rules. Since then, WTO negotiations have led to specific agreements on liberalising basic telecoms trade, financial services, electronic commerce and otherservice sectors. Harmonising the results of dgerent regzonal integralion arrtrrlgernents (RIAs).Although the proliferation of RIAs during the early 1990s was not regarded as a threat to multilateralism by the W T O (1 995),this is yet to be proven."" The prospect of W T O negotiations being managed more on an inter-regional basis also carries some interesting questions relating to the governance of the new multilateral order.
Most of these issues acquired their prominence during the Uruguay Round or in subsequent WTO deliberations, although a few have come through bilateral negotiations or OECD attempts to establish plurilatcral codes of practice."' The more technocratically difficult to manage tend to he discussed through the latter channels. However, the OECIYs persistent failure to conclude the Multilateral Agreement on Investment ( M I ) may soon lead the WT O to become the new forum in which any common FDI rules are established, thus further extending its competence into trade-related matters.li2 The process of multilateralising a wider range of trade-relatcd matters that have traditionally been the realm of domestic policy, or indeed work conducted by other international organisations,63 has already led to numerous disputes over institutional governance and ownership. Moreover, such developments have been viewed with more concern by the East Asian states than by the EU.'" In general terms, this stems from both the EU and USA's comparatively stronger structural power over the W T O and how this can be used to shape its agenda. 'Taken to the extreme, this may be interpreted as a new means to legitimise developed country interference in the internal affairs of developing countries."" As I have argued with tackling elsewhere (Dent 1997b), the EU hasbeenmainlypreoccupied 'internal'barriers to internationaltrade in East Asian markets (i.e. nonofficial trade barriers such asdiscriminatorydomestictaxstructures,complex administrativeprocedures and biased public procurcment contracting) rather than the more conventional'external' barriers (e.g. tarifrs, duties and quotas). However, both the EU and USA's respective structural power over influencing W T O outcomes is circumscribed by the organisation's own independent procedural and enforcement capabilities (eg. its trade policy reviews and disputes mechanism)"" which have been enhanced in comparison to the preceding GATT framework. In addition, both Japan and China have the potential to cxert their own significant structural power within the W l O , althoughChina must of
34
EU-East Asia economicrelations
course first become a member. Japan is also helping developing Asian countries to learn how to manipulate WTO processes to their own ad~antage.‘~ A more fortified WTO regime would itself constitute a shift towards a more rule-based rather than a power-based system of international trade relations. As Woolcock (1 993) has argued, the EU is more likely to concur to this change than theUSAbecause Europeanintegrationhasmade EUmember statesmore accepting of rule-based or adjudicative methods of resolving disputes. Nevertheless, the EU’s faith in the WTO’s rule-based procedures may only run as deep as the degree to which it can fashion the rules themselves. In a 1997 article interview, Leon Brittan, the EU Commissioner responsible for external economic affairs, stated that:
WTO . . . tonegotiateopenmarkets The EUhasincreasinglyusedthe worldwide in high technology sectors where European industry has a competitive edge. The unity of purpose required to achieve this -- and to shape WTO policy in the way Europe will colla se if Europc ever takes a pickand-choose approach to individual disputes. -
E
Thus far, the EU has made considerably more use of the WTO disputes mechanism than the East Asian group, both in its general dealings with third countries and with those complaints brought specifically against its East Asian trade partti9 ners. Furthermore, the WTO has assisted the EU’s cause by pressuring Korea intoendin its ‘frugalitycampaign’after it was deemed to have protectionist 73 objectives. With the EU’s advanced technocratic capabilities comes the expectation that it will also more easily subsume the new trade issues into its commercial policy 71 frameworkthanmost of its tradingpartners.This initself couldstrengthen the EU’s bargaining position in multilateral trade negotiations. However, as we discussed earlier, the institutional management of the CCP is a relatively complex process. Higherdegrees of complexity can be anticipated given the encroachment of the new trade issues into areas of EU domestic policy. This will arisefroma more politicised CCP as certain member statesopposeany challengetonational sovereignty thatsuch anencroachment poses, or those decisions perceived as having detrimental effect upon their own internal affairs. Yet the parameters of the C C P have never been clearly defined which gives it an inherent malleability to adapt to a changing trade agenda. Certainly 1)G1 ’S high profile ‘market access’ strategy (CEC 1996e) alluded to such a broadening of the CCP to encompass the new issues. This process has entailed the introduction of new constituentswithadirectinterest or involvement in how the CCP is governed. For example, DGI authorities now have to work more closely with fellow DGs withresponsibility in other policy areas (e.g. social,environmental,competition,marinetransport,energy)and also awider bandof transnational actors with trade-related concerns. The impact of these changes upon EU-East Asia economic relations will be most widely felt where these new constituents wish to use anyinfluentialleverage they have either to seek the
EU-East Asia economicrelations
35
restriction or tighter regulation of certain East Asian imports (e.g. for environmental reasons) or where they want particular ‘internal’ trade barriers to East Asian markets to be removed.
Conclusion While Chapter 1 provided an introductory overview of theoretical perspectives on EU-East Asia economic relations, the purpose of this chapter has been to introduce the main substantive issues that are examined in greater detail in following chapters. In addition, a number of important observations have been made here regarding how new developments have affected the governance of these relations. Although the new ASEM framework has provided an important new basis for enhancing EU-East Asia economic relations, questions still persist over its compatible management alongside existing bilateral links and the new multilateral order presided over by the WTO. The impactof the WTO depends on the extent to which the EU can andwill exert structural power over the organisation, how willing both the EU and East Asian countries are to resolve their trade disputes through its channels, as well as how far the WTO’s own scope and capabilities are allowed to develop. T he new trade issues are not only relevant here but also regarding how they are shaping bilateral governance structures and processes in the EU’s economic relations with East Asia. Furthermore, it has been suggested that while the East Asian financial crisis has changed the immediate context of EU-East Asian economic relations, there has been no substantial change to the structure of how they are governed. We have also shown how the CCP is having to adapt to the encroachment of the new trade issues into the traditional realm of domestic policy, in addition to the institutional pressures and complexities this has introduced to its own governance. At the same time it was noted how there is greater resistance among East Asian countries to accommodate theexpansion of the new trade agenda, not least because of the legitimacy it confers upon the EU and USA to meddle in their internal economic affairs. Yet calls to remove ‘internal’ barriers to international trade are generally being echoed by both EU and East Asian business, which have much to gain from new economic interdependencies being created between the two regions and whose representatives have also become increasingly active in the economic diplomacy process. Thus, the new developments in multilateralism and the globalisation of economic activity that have been highlighted here will bring increasing influence to bear on how EU-East Asia economic relations are governed at every level.
3
The EU and ASEAN
Introduction The EU’s economic relationship with the Association of Southeast Asian Nations (ASEAN) is unique among those studied over the next five chapters in that it represents an inter-regional relationship. Although ASEAN has not developed to the same level of integration as the EU, it has been arguably the most successful and enduring regional integration arrangement (RIA) thathas emerged from the developing world. Thisgroup-to-group relationship is one of the EU’s most established in East Asia. It is made further distinct by the ex-colonial ties between European and Southeast Asian countries. Thus, the development of their more recent economic relations can to some extent be viewed in a post-colonial context. We shall also show how during the 1990s the EU-ASEAN economic relationship madefurther significant shifts from dependence to interdependence, based on Southeast Asia’s continued dynamic economic development. Nevertheless, both the region’s financial crisis of 1997-8 and EU disputes with ASEAN mcmtwrs over certain human rights issues have hindered attempts to recast the institutional framework of this relationship. As well as discussing these and other issues in depth, this chapter also sets a pattern for Chapters 4 to 7, whereby an initial analysis of the EU’s East Asian economic partner in question is made to provide an important background context to the chapter’s main study, namely the development of this partner’s economic relations with the EU. ‘rhis is fbllowed by an evaluativc conclusion which pays more specific reference to intcrnational political economy (IPE) theoretical perspectives on the relationship.
Southeast Asia: economicdynamism and change Southeast Asia has I~ecomeone of the most dynamic regions in the world economy. In this section, we shall consider those factors that have contributed towards the region’s ascendancy. ‘I’he economic development and internationalisation of the ASEAN states are analyscd first, followed by a study of the origins and evolution of the ASEAN organisation itself. We shall then examine in closer detail its amlitions to create a fiec trade area, AFTA, by 2003 and its compatibility with
The EU and A S F M 37 ASEAN’s commitments tothe Asia-Pacific Economic Co-operation (APEC) forum. Finally, the most important economic challenges facing ASEiW in the future are considered.
The ASEAN states: economic developmentand internationalisation Southeast Asia has a long history of international trade. For centuries its peninsula and archipelago territories have been a major thoroughfarc for traders passing between China and the Indian subcontinent. This not only explains why the Southeast Asian states have traditionally been more outward looking than the once ‘hermetical’ economies of Northeast Asia (Lim 1995),but also the former’s relative ethnic diversity as traders migrated and settled across the region. The advent of colonial rule in Southeast Asia continued the legacy of internationalisation by linking conquered landsinto an imperial division of labour. Most Southeast Asian countriessuccumbedto the Western colonialists: Myanmar, Malaysia, Singapore and BruneitoBritain; Vietnam, Laos and Cambodia to France;IndonesiatotheNetherlands; the Philippines to Spainand thenthe USA.’ Independence came to somc by the late 1940s (Indonesia, the l’hilippines, Myanmar)and to most others by the 1950s (Cambodia, Laos, Malaysia, Singapore), with Brunei finally becoming independent in 1984. During the early post-colonial years,much tension surrounded the nationbuilding process in Southeast Asia. Communism’s advance in Indochina(ix. Cambodia, Laos and Vietnam) posed an ideological threat to the US-backed, market-conforming model prescribed toby their ncighbours. There was also concern that the costly civil wars in the former (as well as in Myanmar) would have adverse spillover efyects into the latter. Elsewhere, additional friction was generated by territorial disputes between Malaysia, the Philippines and Indonesia in the early 1960s, and Singapore’sseparation from theMalaysianFederation in August 1965. The formation of ASEAN in 1967 was thus taken as an antagonistic gesture by the region’s Communist states by marking a clcarer ideological divide in Southeast Asia. However, for the ASEAN states themselves it provided an important framework for conflict resolution. The ASEAN group remains a diverse collection of nation-states, yet there are also notable similarities within subsets of membcrs. Singapore anti Brunei are both rich ‘microstates’ with the former having developed arguablythe most sophisticated techno-industrial base of any East Asian ncwly industrialised country (NIC). Moreover, Singapore is the main regional hub for financial and business services and hasthus facilitated thedevelopment of other M E A N states. Most members are resourcc-rich with many being oil and gas producers since the late 1970s (Brunei,Malaysia,Indonesia, ‘lhailand). Malaysia in particular has managcd to shift its dependency from primary to secondary rxports,‘ a strategy that has helped to make it the second most advanced in the group andonethat was later emulated by other resource-rich members. ’lhe Philippines, which has undergone least structural change, has made only limited
38
The EU and ASERN
progress and consequentlyremainsthe least dynamiccoreASEAN member” (see Tables A. 1, A.2). ‘The relatively poor performance of the economy of the Philippines can also be attributed to a series of domestic political prohlems. This contrasts with the political stability and continuity experienced in many other ASEAN countries, notably in Malaysia, Singapore and until quite recently in Indonesia,” which created a generally more conducive environment for enterprise to flourish, allegations of ‘cronycapitalism’notwithstanding.AlthoughmostSoutheast Asian countries have pursued market-conforming economic policies, these have invaria broadstate-planning framework.’ However, ablybeenstructuredwithin ASEAN’s developmentalstateagencies do not exercise thesamedegree of bureaucraticguidance over theeconomy as theirnortherlycounterparts (see Chapters 4 to 7). In recent years, many ASEAN states have also witnessed the cmergence of moreassertive and influential business associationsthat have sought alliances with reformist technocrats in economic ministries, referred to by Iloner (199 1) as a process of ‘inclusionary institutionalism’. Sucha decentralisation of the developmental state hasbeen accompaniedby deregulatory policies in the 1990s acrossSoutheast Asia, yet thestateremainsactive in orchestrating endeavours to accelerate domestic techno-industrial development. Like their East Asian NIC counterparts, the dynamic economic development of the ASEAN states has been principally export led. Singapore’s early switch to export-oriented industrialisation (EOI) in the mid- 1960s had positive demonstration cfrects for the others. Malaysia, Thailand and the Philippines initiated their EO1 strategiestovaryingdegrees of conviction and efrectiveness in thelate 196Os, while Indonesia did not follow until the early 1980s (Ariff and Hill 1985). Table 3.1 shows that the USA has been a prime export market for the ASEAN states while Japan hasserved as an essentialsource of imports. As a group, ASEAN’s share of world trade has risen consistently in recent dccades, with 4.6 per cent of world imports and 4.1 per cent of world exports in 1997 (see Table A.9). Many SoutheastAsian economies have also developed a notable capital dependence on inward FIII flows.“ Singapore actively courted investment from US electronicsmanufacturers from thelate 1960s onwards. Malaysia’s foreiLp to domesticinvestmentratio was as high as 60:40 in 1993,althoughthissubsequently moved towards parity during the latter 1990s. Thailand and Vietnam have increasingly played host to investments from Singapore, Hong Kong and Taiwan as guanxi business links continue to extend across the Chinese d i a ~ p o r a . ~ The region in general experienced a substantial wave of inward investment as a consequence of the 1985 Plaza Accord’s currency realignments that entailed a significant appreciation in the yen and subsequent appreciations in the currencies of East Asia’s first generation NICs. The USA’s withdrawal of its Generalised System of Preferences (GSP) status from the latter in 1989 provided additional incentive for East Asia-based companies to relocate further south. The varying stages of development between ASEAN economies have led to a vertical integration of transborder production systems, with Singapore, Malaysia
Zble 3.I Geographic breakdovm of ASEA”s international trade (percentage per trade partner, 196G97) I970
1975
I980
I985
I990
Imports Exports
Imports E.xports
Imports Exports
Imports Exports
Imports Exports
I995
I997
Imports Exports
Imports Exports
EU15 USA Canada Australasia
20.1 15.1 0.8 4.8
16.7 17.5 0.9 2.5
17.1 15.6 0.9 4.6
14.3 20.1 0.6 2.5
14.1 15.4 0.9 3.7
14.1 16.9 0.5 3.0
16.1 15.2 0.9 3.6
11.8 19.8 0.7 2.4
15.5 14.8 1.0 3.2
15.9 19.9 0.8 2.2
14.7 14.1 0.7 2.7
14.5 18.9 0.8 2.1
15.0 15.6 0.7 2.7
15.0 18.9 0.8 2.4
Japan China Asian NIG’ Intra-ASEAN
25.3 3.2 3.8 16.6
24.2 0.7 5.5 20.0
25.2 2.8 4.6 12.8
26.1 0.6 5.8 16.9
21.8 2.7 3.4’ 17.2
26.8 1.0 5.3’ 18.1
20.9 5.1 7.0 19.0
26.1 8.4 18.4
23.6 2.9 10.7 12.2
19.2 1.8 10.7 19.6
24.3 3.1 12.0 18.1
14.4 2.7 12.6 24.1
20.4 4.0 12.3 20.4
13.6 3.0 13.7 23.5
Middle East Africa Latin ~ m e r i c a ~
5.4 1.2 0.7
1.7 1.3 0.9
13.9 0.8 0.7
2.9 1.4 3.1
16.9 0.8 0.9
3.2 1.8 2.4
9.3 0.9 0.9
3.3 1.3 1.3
7.0 0.7 1.7
3.0 1.2 1.0
4.2 0.6 1.3
2.4 1.0 1.3
5.5 0.7 1.4
2.3 1.0 1.6
Other
3.0
8.1
1.1
5.7
2.2
6.9
1.1
5.1
6.7
4.7
4.2
5.2
1.3
4.2
Source: IhlF Direction of liade Statistics Earbook, various editions. Notes: 1 Hong Kong, Korea and Taiwan. 2 Excludes Taiwan for this year. 3 Includes the Caribbean states.
1.4
40
The ElJ nnd ASEW
and increasingly Thailancl responsible for most high value-added activities while the remainder play host to lower-end production. Horizontal linkages have also been facilitated by guunnxi networks that connect Chinese business communities across Southeast Asia. The region’s export processing zones (EPLs) still play an imporcant role in attracting inwardinvestmen? and have become building blocks for thesub-regionaleconomic zones (SKEZs), or ‘growth triangles’, that have emerged more reccntly (see Chapter 8). In brief, these comprise the Southern Growth ‘Triangle or SlJOKI (Singapore, Malaysia, Indonesia),theEastern Growth Triangle (R4alaysia, Indonesia,the Philippines), the Northern Growth Triangle (Malaysia, ’I’hailand, Indonesia) and the Mekong River SKEZ (Thailand,Vietnam,Cambodia, Laos, Myanmar, China Yunan andGuangxi provinces), each involving contiguousstates in .joint transborclrr clevelopment projects that are frequently geared to promote or extend international subcontracting networks (‘I‘hambipillai 1998). However, the momentum behind Southeast Asia’s economic development was siLgnificantlyabrupted by the 1997 -8 East Asian financial crisis. Among those ASEAN states that experienced severe financial clifficulties were Indonesia, Thailand, the Philippines and Malaysia. ‘These were triggered by speculative attacks upon newly floated currencies, beginning with the Thai baht in July 1997, which later exposed and exacerbated economy-wide liquidity problems. hoth received assistance fiom the International Indonesia and Thailand Monetary Fund (IbIF) in thc form of respective $37.0bn and $17.2bn rescue packages, hut these failcd to prevent a currency collapse and a widespread loss of confidence in Southeast Asia’s financial systems. Japan and Korea’s financial difficultics atthetime compounded the region’s own. Consequently, short to medium-term economic growth estimates for most ASEAN states were downgraded, while far-reachingstructuralreformswerrprescribedas a solution to Southeast Asia’s ailments.
The origins and evolution of ASEAN The Bangkok Lleclaration, ASEAN’s founding document, was signed on 8 August 1967 by its five original memhers - Malaysia, Singapore, the Philippines, Indonesia and Thailand (the newly independent Brunei joined in 1984). ‘The initiative was conspicuously promoted by the USA which was seeking to coalesce a group of ideologically compatible regimes in Southeast Asia to act as a bulwark against further communist advance in the region. Thus, Sum (1 996) concludes that ASEAN’s inception was ‘threat-driven’, yetitwas also an attempt by its members to put their own past conflicts aside and forge an inter-state alliance. Despite such ovrrt political motivations behind filrming ASEAN, the organisation’s main stated ob,jcctives were to facilitate co-operation in economic, social and cultural mattrrs. Yahuda (1 99Ga: 72) argues that this was to ‘minimise communist and non-aligned possible suspicions about its orientation.’ With the exception of the proposal to create a Zone of Peace, Freedom and Neutrality (ZOPFAN) in 1971, which envisaged thecreation of a neutralised
The EU and tlSIGW 4 1 security zone in Southeast Asia, ASEAN lay more or less dormant up to 1975. However, after the communist victory in the Vietnam War that year, ASEAN was prompted into organising its first summit which was held at Rali in February 1976. Members agreed that their economic ministers should meet regularly to develop and implement economic co-operation proposals. The most important of these were thePreferential TradingArrangements (PTA) which commenced operation in early 1977, entailing a reduction of tariff levels on intra-ASEAN trade. Yet widespread exclusions meant that by themid-1980sthe PTA only affected at most 5 per cent of this trade. Moreover, the M E A N Industrial Prqjects (AIPs) and ASEANIndustrial Joint Venture schemes, both initiated around the same time, proved just as disappointing. The Treaty of Amity and Cooperation was also introduced at Bali in which ASEAN states reaffirmed their political loyalties to each other. A second summit soon followed in August 1977 at Kuala Lumpur thatsaw the start of ASEAN’s ‘dialogue partner’ framework. This brought together foreign ministers from ASEAN,the EC, USA, Japan, New Zealand, Australia and South Koreain a forum to discuss Southeast Asian security matters. Regional security continued to dominate ASEAN’s agendathroughout the 198Os, with particular focus on Vietnam’s occupation of Cambodia that lasted from 1979 to 1989. The USA maintained its considerable financial and political support for ASEAN during this period. At ASEAN’s third summit at Manila in 1987, its members also considered the growing economic influence of Japan in Southeast Asia and a five-year plan to extend €‘TA coverage to 90 per cent of intra-ASEAN trade, although this never materialised. Such matters were, however, precursors of substantial change tocome. Up until the 199Os, MEAN’S raison d’ttre had been primarily political, but the end of thc Cold War together with thegrowing trend towards globalisation and regionalism presented new challenges. Central to establishing a clearer economic rational? was a proposal tabled at the group’s fourth summit held at Singapore in January 1992 to creatcan ASEAN Free Trade Area (AFI’A) within fifteen years. This was an ambitious plan given ASEAN’s previous record on economic co-operation. Moreover, the AFIA project has only partially eclipsed ASENV’s security concerns. Although US military presence in Southeast Asia has been substantially downscaled, security threats persist, especially concerning multiple territorial claims in the South China Sea, e.g. over the Spratly Islands. In 1994 the ASEAN Regional Forum (ARF) was established as an enhanced ‘dialogue partner’ framework with new partners (Russia, China, Vietnam and Laos) added to the original list (the EU, USA, Canada, Japan, SouthKorea, Australia and New Zealand) wit11 Indiajoining later in December 1995 (Simon 1998). Vietnam actually acceded to ASEAN membership in July of the same year year, while Myanmar and Laos joined in July 1997 and Cambodia is due to ,join shortly!’ Given ASEAN’s underachievements, especially on matters of economic cooperation, it had done well to survive into the 1990s. As Iiedmond (1992) notes, ASEAN’s success as an organisation, when compared to its counterparts in other
42
The EUand ASEAN
developingregions, owes muchtothedynamiceconomicdevelopment of its members and not the dynamic of the orranisation itself. Nevertheless, ASEAN's future success is likely to be judged on its implementation of AFTA, not just betweenlong incumbentmembers but also new, relatively less developed members.
The ASEAN Free Trade Area(AFTA) While the AFTA proposal constituted the basis for ASEAN's new economic rationale in the post-Cold War era, it can also be understood as a response to external pressures. Both prolonged delays in the GATT's Uruguay Round and intensified regionalist activity in both the developed and developing world during the early 1990s presented a future possible scenario of entrenched protectionism and trade bloc proliferation. Furthermore, many of ASEAN's economic rivals could anticipate preferential access to important regional markets: Mexico to NAFTA and the Central and East European (CEE) economies to the Single European Market (SEM). AITA therefore constituted a risk-averse strategy in the face of such challenges that confronted ASEAN members. Internal pressure has also come from Southeast Asia's business sector that has long been a significant promotive force in calling for further regional integration and of AFTA itself (Lim 1996), seeking toexploittheopportunities that an integrated market of around 470million people would offer. The centrepiece of AFrA is the Common Effective Preferential Tariff (CEPT) scheme which originally aimed to reduce intra-ASEAN tariffs on manufactures and processed agricultural products"' to between 0--5 per cent by 2008. At the ASEAN Economic Ministers meeting of 1994, it was agreed to bring this date forward to 2003 and also to expand the coverage of the CEPT by phasing in the original 'temporarily excluded' products into the scheme's Inclusion List by the year 2000." This means that by this time around 98 per cent of intra-ASEAN trade will be subjected to no more than 5 per cent import tarifb, and by 2003 about 79 per cent of intra-ASEAN trade will be completely tariff free." Vietnam does not have to comply to CEPT targets until 2006, while ASEAN's newest members - Laos and Myanmar - were initially to remain outside the scheme. Of paramount importance to creating a free trade zone within ASEAN has been AFTA's objective to promote the region's efficiency as an export production location in order to attract further inward investment from third countries. Thus, the recently introduced ASEAN Investment Area (AIA) concept, which runs parallel to N T A , can be seen as part of the same process. Tariff rates vary greatly across ASEAN, being comparatively high in Thailand, Indonesia, the Philippines and Malaysia but notably low in Brunei and virtually I :5 non-existent in Singapore. There has, therefore, been much debate about the relative distribution of AETAS benefitswithinthegroup.Singaporestandsto gain not just because of its comparatively liberal tariff regime but also owing to its highlyinternationalisedproductioninterests in Southeast Asia. Moreover, Singapore's facilitative role played in the region's commercial transactions means
The E(/ and A S W
43
AFTA induces. Yet Singapore’s small size implies that it will not receive the largest absolute portion of benefits. Other countries, which like Singapore have relatively high ASEANbased trade ratios, will also gain proportionately more from AFTA’s trade liberalisation. However, intra-MEAN trade remains around only 20 er cent of total ASEAN trade, a relatively low figure for a prospective trade bloc and a common predicament for regional groupings of developing countries whose main export markets and import sources lie in advanced industrial economies. Furthermore, views differ over the impact AlTA will make. For instance, Imada (1993) concludedthatthe CEFT schemewouldleadtoasignificantincrease in intraASEAN trade, while bothKumar (1992) andSantos (1993)contendthat non-tariff barriers (NTBs) may prove to be more significant barriers to intraregional trade than ASEAN’s current tariff regimes. Creating a free trade area within ASEAN has been seen by some as serving another end,this being topromote the region’s efficiency as an exportproduction location so as to attract further inward investment from third countries. Bowles and MacLean (1 996) have argued that AFTA is aimed more at outward-looking investmentcreation than inward-lookingtradecreation. Thus, AETA may be perceived as a collective EO1 strategy, or simply a method for enhancing other more informal but perhaps more significant forms of regional economic integration taking place in Southeast Asia. Tariff liberalisation will work to reduce the transaction costs of the region’s SREZs and other forms of transbordernetworked trade. it benefits further from any increased intra-regional trade
R
Future challenges Notwithstanding the considerable problems presented by Southeast Asia’s recent financial crisis noted earlier, ASEAN faces a series of important challenges elsewhere (Dosch and Mols 1998). The ASEAN group should still be considered as a collection of nation-states whose economic integration owes far more to corporate and sub-regional driven initiatives than institutional design. This is likely to remain the case for some time. Even if AFIA has profound effects on ASEAN’s institutional framework and political economy (Pelkmans 1992), its participating states are expected to resist moves to extend ASEAN’s organisational structure beyond the permanent Jakarta-based secretariat level towards any EU-modelled supranational agencies, for this is not the ‘Asian way’ (see Chapter 8). However, it remains to be seen if AFTA can function effectively under ASEAN’s current governance structure.As we noted earlier, ASEAN’s future success as an organisation will be judged largely on its ability to realise AFT& objectives. In addition to the important political and security-related challenges facing the ASEAN states, theymust also come to terms withother emerging economic challenges. The CEE economies continue to rival the Southeast Asian NICs in both international markets and attracting inward investment. Moreover, the accession of some to EU membership will confer further ‘Single Market’ advantages. We have also noted Mexico’s relative access advantages to the US market over the
44
The ELTand ASLGW
ASEAN states. ’I’his will be broadened to other Latin American NICs under the forthcoming Free Trade Area of theAmericas agreement, albeit on comparatively less preferential terms to NAlTA. Closer to home, the ASEAN economies must also consider how to respond to the potential trade and investment diversionary effects of a booming China, as well as the new source of commercial opportunities it presents (Chia and Bifan 1992; Zhang and Hock 1996). Returning to the issue of AFI’A, there has been much debate concerning its placewithinthebroader APEC regional initiative tocreatea free trade and investment zonc across the Asia-Pacific by phased-in 2010 and 2020 deadlines (Crone 1992; Soesastro 1995; Parrenas 1998). The decision taken by the ASEAN states to bring forward AFliYs intended completion byfive years to 2003 was interpreted by many as motivated by fears that the APEC process would overtake or subsume ASEAN’s own regionalist endeavours. Yet the ASEAN states must AFTA while prescribing to APEC’s achieve a Ilalancing act between creating ‘open regionalism’ principle,wherebytradeliberalisation is conducted on a MFN-consistent and therefore non-exclusory h i s . This would naturally undermine the purpose of maintaining AkTA if it were to become essentially ‘permeable’. However, it is still debatable whether thc APEC zone will ever materialise and the ASEAN states are committed to the 2020 deadline, afull seventeen years after AI;TA’s own. As also noted in Chapter 8, the APEC process could assist the AFIA project by helping ASEAN to reach common positions on future tariff liberalisation. Finally, theASEAN state’s interest i n realising AFl’A is also foundcdon enhancing their collective bargaining leverage in international affairs. Attempts at converting AFIA into political capitalcanthereforeheanticipated in the future. Itmay also provide a firmer basis tocxtend ASEAN’s inter-regional affairs, which began with its Co-operationAgreementwiththe EC in1980. However, for these objectives to be realised ASRAN must come to terms with two main structural problems (Ruszynski 1998). The first relates to its Indochina enlargement which couldpotentiallydilutecohesion within thegroup.This would generally stem fiom a more diversified membership which raises the proclivity for sub-group coalitions to form within ASEAN. ‘The international dispute over the legitimacy of Myanmar’s military regime could provide a catalyst for such cabalistic behaviour, exposing the historic division between mainland and maritime Southeast Asia. The second problem is partly rclated to the first and concerns the future of economic co-operation within ASEAN. We prcviously noted how the Indochina members’ lower level of economic development has forestallrd the full extension ofAPI’A across ASFAN territory. Moreover, the organisational structure of ASEAN is principally geared to manage political issues. ‘The elevation of’ economic issues during the 1990s has often revealed the inadequacies of ASEAN current inter-governmental mechanisms. An example of this was the prolAemof co-ordination that arose between ASEAN foreign i n 1994 and econolnicministersatthe ASEAN -EU meetingatKarlsruhc where, because of their relative lack of influence within the ASEAN framework, the latter were ill-informed regarding mattcrs of economic co-operation being
EU-BEAN economic relations The first direct commercial linkages between Europe and Southeast Asia were forged from the fifteenth century onwards by theeastward excursions of the European maritime powers. From these developed the series of colonial relationships notedearlier that persisted into thepost-war era.Over this period, European firms dominated many aspects of Southeast Asia’s economy. In more recent times, ASEAN hasbecome one of the EU’s most dynamic trade and investment partners and the cornerstone of its New Asia Stratecgy. Despite the new impetusto EU-ASEAN economicexchange that was apparent fromthe early 1990s, economicdiplomacy between the two regional groups has been soured by recent political disputes over East ‘Iimor and Myanmar. However, the new Asia-Europe Meeting (ASEM) framework has provided some distraction to these disputes and enhanced the existing framework in which EU-MEAN relations are promoted. The fbllowing sections analyse thedevelopment of EU-ASEAN economic relations. We shall first examine the initial diplomaticcontacts made hetween both sides, as well as the exploration of mutual interests that followed. ‘The shift from dependence to greater interdependence is then examined. Finally, attempts made in the 1990s to recast the institutional basis of the EU M E A N economic relationship are considered with extensive reference to parallel developments during the decade.
First contacts and exploring mutual interests The centrepiece in the framework of ASEAN-EU relations remains their 1980 Co-operation Agreement. At the time, it constituted a significant event for both parties. The Agreement represented the first inter-regional pact that each had made with another distinct regional bloc of countries.li For the EC member states, the Agreement also provided an opportunity to recast their framework of relations with ex-colonial countries andpromoteEuropean interests in the world’s most dynamic developing region. The ASEAN states hoped the Agreement would help diversify their external relations beyond the confines of the Asia-Pacific region and bolster links with an emergent economic superpower. Let us first plot the events and developments that led to the signing of the 1980 Agreement. While ASEAN’s initial interests concerned the dual process of nation building and reachingmutual reconciliation within the group, a key objective of the Bangkok Declaration of 1967 stated that ASEAN members would strive to ‘maintain close and beneficial co-operation with existing internationaland regional organisations with similar aims and purposes’. ‘The first indication of ASEAN’s interest in establishing close links with the EC camr at thegroup’s
46
The EU and ASERN
fourth Foreign Ministers Meeting in March 197 1. This principally derived from Malaysia and Singapore’s concerns of the potential adverse effects the UK’s then impending accession to the EC would have upon its producers: Britain’s entry into the Community would lead toan effective dismantlingof its Commonwealth tradepreferences system and an adoption of the EC’s Common Commercial Policy (CCP).IG Furthermore, asno ASEAN country appeared eligible for inclusion into the Community’s existing Lomi. Convention arrangement,I7 securing improved access to the wider EC market was also a general MEAN objective.IJI In June 1972, ASEAN set up the Special Coordinating Committee of ASEAN Nations (SCCAN) which consisted of ASEAN trade ministers whose collective task was to improve the group’s standing in the EC’s hierarchy of preferential trade partners. Also in the same month the ASEAN Brussels Committee (ABC), comprisingambassadorsfromdiplomatic missions tothe EC postedatthe Belgian capital, was createdto assist SCCAN’s work and metregularlywith European Commission officials to discuss key issues (Table 3.2). Similar committees were subsequently established in London, Paris and Bonn, which also currently assist in conducting and maintaining EU-ASEANdialo
The EU and ASEiLN 47 Z b l t .?.2EU-ASEAN relations: the institutional framework Irutitution
Function
Joint Co-operation Committre (JCC)
Main institution introduced in the 1980 Agreement. Broadly promotes co-operative activities as well as consultation on filrthering the Agreement’s aims. In 1994 theJCC set up fivc subcommittees to deal with trade, science and technology, economic and industrial co-operation narcotics and forestry. The European Commission represents EU member states and meets with representatives from each ASEAN country every 18 months.
ASEAN Rrussels Committee (ABC)
Origins in the infbrmal ties created in June 1972. Engages
ASEAN ambassadors and European Commissionofficials in ad hoc meetings. Supports thework of the JCC.
Meetings of Foreign Ministers (AEMM)
The first Ministerial Meeting established formal political dialogue in 1978. ’livelve furtherAEblMs have occurred since at periodic intervals of 18--24 months. These have been supplemented by Senior Officials Meetings (SOh4) since May 1995.
Meetings of Economic Affairs Ministers
Unlike the AEMhSls, these have not been formally institutionalised and only three have bccn held, the first in 1985 at Bangkok, the second in 1991 at 1,uxemhourg following the ninth AEMM and the third at Bangkok in 1995.
European Parliamenc Rqwlar meetings between EP and AIPOdelegations to discuss and ASEAN Intercurrent economic and political matters. The first of these took place in 1979. Parliamentary Organisation (AIPO) relations ASEAN PostMinisterial Conference (PMC)
The EU, represented by a troika of forcign ministers, is one of seven ministerial ‘dialogue partners’ who attend the PMC, held immediately after the annual (PMC) meeting of ASEAN foreign ministers to discuss political and economic issues of regional and global significance. PMCs commenced in 1981 with other dialo
ASEAN Regional Forum (ARF)
Forum to discuss Asian security issues. First met in 1994 at Bangkok with EU one of the many dialoLgw partners noted above.
seriously to consider diversifying its external relations with the Western global powers so as to broaden its anti-Communist alliance. This became the central issue of discussion at ASEAN’s Bali Summit of 1976. The EC was an obvious target for alliance building given its growing economic and political significance andanunexploredpotential for partnership (Mols 1990). West European states could also empathise with ASEAN in facing a proximate communist threat. Although Japan was an important economic partner for the ASEAN states (see Table 3.l), political relations were hampered by the fimner’sconstitutional restraints onconducting a proactiveforeignsecurity
48
The EU and ASEAN 22
policy and memories of its war-time involvement in the region. The Australasian countries were too wrak and ASEAN was aware of developing too skewed a dependence on the USA. Hence, promoting closer relations with the EC would serve as a valuable counter-weight to the assertive interests of both capitalist and communist powers alike. After the failure of the EC's 1974 commercial agreement initiative, ASEAN-EC relations moved forward again with the creation of a Joint Study Group inJuly 1975whichpreparedthepath for futureagreementsbetween ASEAN and the EC. This marked the first step towards formalising EC-ASEAN relations. Additional momentum came from a new dialo
sions to resolve theoutstanding trade disputes between the EC and ASEAN (Kedmond 1992). ILIorc gcnerallx there was frustration over the Agreement’s failure to create a new fralncwork for EC-ASEAN economic relations, cvcn though it carried provisions on technical assistance, economic and commercial co-operation. In an early evaluativr analysis, Keyes (1982: 2) commented t h a t ‘ASEAN-LC economic relations may he regarded as an aspect o f ‘ the on-going, albeit pcriodically stalemated North-South dialogue’. As we note later, this was dcspitr the gradual increase in both trade and FDI flows between the two groups. A more positive approach emerged in 1985when the firstASEAN-EC: Economic MinistersMeeting wascomrcneclin 1985 at Bangkok (Table 3.3)’” However, whilethis yielded somepracticaloutcomes, surh as an initiative t o make a detailed examination of investment conditions in the two regions, thrse too were received with limited enthusiasm. Moreover, in Schiavone’s (1 989) view, the European Commission had failrd sufficiently t o engagc the European Ixlsiness community in an interchange ofviews with its ASEAN counterpart across a range of related issues covered at the hlecting. He further argued thatthese issues lacked both breadth and significance. There was also subscqucnt clisapp’intn~~ellt over the ad hoc and infrequent hasis on which these meetings were convened: the secondEconomichlinisters Meeting was not held until 1991 alier thr ninth AEMM at 1,uxemhourg while the third and most recent was convened at Bangkok in 1995. From dependence to interdependence
I n its formative years, the hasis of‘ the EU ASLAN economic rclationship was essentially one o f respectivc donor and recipient. Thus, there was a11 initial focus on developmcntal issues and attempts by ASLAN to improve its position within the CCP hierarchy of trade relations. ‘I’he ASEAN states received a consideralie degree of financial aid from EU member states which \vas often in cxcrss 01’ inward 1111 flows from European firms. Givcm the relative economic weights of each regional group, ASEAN’s dependence 0 1 1 t h e EU was furthcr apparent in respective trade partner shares. I n 1980, the EU 15 represented ASEAN’s third most important external trade partner with 14.1 per ccnt of its total export and import trade(see ‘Ihble 3. l), whereas ASEANwas responsilde for only 3 . 0 per cent of extra-EU 15 cxports and 2.7 per cent of extra-EU 15 imports (see Tahlc A.3). Furthermore, EC l\SEAN trade flows had traditionally ronformed t o the typical North -South pattern of comparative advantage with ASEANexporting labour-intensive products and receiving the EC’s capital-intensive products, thus reflecting Southeast Asia’s technological dependency on European companies. However, by the advent of the 1980s ;I more intra-industry pattern was emrr. ?ti glng. In 1973, ASEAN manufacture exports to the EC as a share of its total I X cxports was 25.5 per cent, but this had risen to 54.4 per centby 1900 (Figure 3.1). This, of course, reflected therapid industrialisation acllievrd 11y thc ASEAN states, which to some extent relicd on imported technology and capital goods supplid by European companics.
50
The EU and A S W
Xiable 3.3 EU-ASEAN economic relations: main co-operative activities
ActiuiQ
Funchon
ASEAN-EC General forum for EU and ASEAN business leaders established in 1983. Includes such projects as the European Business Business Council (AEBC) Familiarisation Annual Programmes (EBFP) inwhich ASEAN executives are introduced to European commercial and management best practices. ASEAN-EC Industrial Standards and Quality Assurance Programme
To promote and develop ASEAN trade and industry through harmonising andco-ordinating the underlying frameworkof standards and norms. Co-ordinatedregionally by the Thai Industrial Standards (ISQAP) Institute.
ASEAN-EC Patents and To establish greater clarity on and more effective enforcernent of Trademarks Programme intellectual property rights. Asia-Invest
Introduced in 1996 to facilitate economic co-operation between EU and Asian business. Links with ECIP and SPECschemes (see bclo~v)as well as other miscdlaneous initiatives.
EC 1992CouncilExtendsfinancialassistance and co-operationto Asian as wellas regulation on financial Latin American developing countries. aid and economic co-operation EminentPersonsConsists of 16 representativeschargedwiththeobjective of Group (EPG) recommending potential strategies for future EU -ASEAN relations into the next century. An outcome of the 1994 Karlsruhe AEMM. European Business To provide two-way channels of informationwiththeaim of InformationCentresenhancingEU-ASEAN business activities and opportunities. (EBICs) The first EBIC was established in 1993 Manila. at Others followed in 1995 at Bangkok, Jakartaand Kuala Lumpur, as well as a regional infortnation centre in Singapore. These combine with the Support Programme for Economic Cooperation (SPEC), a complementary network based in the EU. European Community Established in 1988 as a financial instrument toassist development in Asia, Latin America and the Mediterranean Invcstment Partners Basin through promoting joint ventures between local and EU (ECIP) firms. By 1994, ASEAN countrics had hosted nearly 160 ECIP projects -- a sixth of the total. Human ResourceResponsibleforvariousprojects,includingthe ASEAN-EC Development (HRD) hlanage~nent Centre Brunei, at the EC-ASEAN Scholarship Programme and the European Institute of Public Administration (EIPA) Seminar Programme, that promote education, training and exchangesof personnel. Joint-Venture Training company executives Managementandjoint venturesbetweenEU Industrial Co-operation programme ASEAN-EC Business Management Centre
and civil scrvants to help and ASEAN firms.
facilitate
Established in 1995. Network linkingbusiness management schools in ASEAN and in Europe.
The E l J and A S W 5 1 MEAN-ELI
Business network scheme involving over
Partcnariat
anti ASEAN.
600 SMEs from the EU
First convened in December 1997 with some 40 business leaders from Europeand ASEAN i n attendance. The following issues IndustrialistsRound Table wrrc discussed: investment industrial and co-operation, sharing the benefits of tcchnological progress, the Asian financial crisis and the global information society. ASEAN EU
Sourcr: CEC:.I K I R .
While the ASEAN states had originallylooked tothe EC as a model for regionalco-operation,theonset of ‘Eurosclerosis’ in the1970sswitchedtheir attention to its dcficiencies (Rajendran 1985; Rieger 1991). In subsequent years, a considerahle body of literature has amassed that contrasts the emergentAsianstyk regionalism with European-style regional integration. This issue is explored in greater detail in Chapter 8. However, it is useful to make a brief analysis here, including its bearing on the evolution of EU-ASEAN economic relations. First, the EU’s approach has been essentially contract or treaty based and managed with the assistance of supranational institutions, whereas ASEAN is founded on a consensus-building, inter-governmental model of regionalisation. Such dissimilarity is primarily due to politico-cultural differences and their manifestation in institutional structures, processes and interactions within each region, as well as the approachtoexternal relationspursued by eachgroup (Palmer1991; Langhammer 1997; Palmujoki 1997). We shall note later how ‘value-system friction’ has significantly hampered the progress of EU-LASEAN economic diplomacy in recent years. I n addition, the relatively heterogeneous composition of ASEAN membership has not been conducive to the group aspiringortorealising deeper integrative links betwern themselves. Such factors have also made it difficult for the EU and ASEAN to forge closer economic relations at a politicoinstitutional level. ‘I’he very fact that both the EU and ASEAN are regional blocs has, nevertheless, worked to bring them closer on certain co-operative issues. I n 1975, the EC applied cumulative rules of origin provisions to imports from ASEAN and other drvelopingcountry KIAs?’ Thishaspromotedtransnational export-oriented productionwithin these regions and hence de facto regionalintegration itself, particularly at a corporate and subregional level (ix. SoutheastAsia’s SREZs) but 211 not at the institutional level per se. More recently, the success of the SEM programme revitalised ASEAN’s interest in European integration and had some part in inspiring the AFTA project. In the ycars that followed the 1980 Agreement, the EC andASEAN witnessed a gradual rise in their mutual trade flows. Over the 1980 -85 period, EC exports to M E A N increased by 84.4percent fromEcu5.32bntoEcu9.8lbn, while ASEAN exportstothe EC increased by44.7 percentfromEcu6.89bnto ku9.97bn (Figure 3.2). During this time, their investment relationship was also expanding with the cumulative stock of FDI from EC firms rising by 83.5 per
52
i'h EU and ASERN
-
ASEAN exportsto the EU by sector (1980) Other manufactures 3n90L
Food and live anlmals lA?%
Beveragaaand tobaax, 1.4%
Crude matenals. fuels and energy 25.0% machtnery 5.7% Telecoms and audio-/ wsual products4.4% and computers0.4% metals 6.9%
ASEAN exportsto theEU by sector (1987) Other manufactures
Food and v i e l antmals
Crude matenals, Telecoms and audiowsual products 7.2%
metals '.2%
clothlng 14.9%
ASEAN exportsto the EU by sector (1997)
Other manufactures .O
Food and live anlmals
70,
Ii
Transport equipment 2.5% Chemicals 2.6% MI=. Industrial machinery and equip.2.6%
flectlCal
Footwear 2.9%
machlnery 13.6%
\
Telecoms and audiowsual products 7.8%
F&re 3.1 ASEAN's exports to the EU by sector (1980, 1987, 1997)
cent from $4,183m to $7,675m (see Table A.6). This represented an increase in the EC's share of total inward FDI in ASEAN from 18.7 per cent to 21.7 per cent, second only to Japan whose own share rose by a smaller degree from 25.3 per cent to26.0 per cent, while the third-placed US share rose fastest of all from
fiEU and ASENV 53 EU-ASEAN merchandise trade (1975-97)
45 40 35 c
0
a
30 25
2 20
W
15 10
5 0 -5
I UEU imports
BllEU exports
OBalance
I
Figure 3.2 EU-ASEAN merchandise trade (1975-97) Source: Eurostat.
12.7 per cent to 17.5 per cent. Accompanying the expansion of EU-ASEAN economic exchange were various persisting trade disputes which particularly arose from the range of EU protectionist regimes that faced ASEAN exports:
0
0
the treatment of ASEAN exports within the GSP scheme; the Multi-Fibre Agreement (MFA); the EC’s Common Agricultural Policy (CAP); various EC-level NTBs; EC member state protectionist measures that were permissible under Article 1 15 of the Treaty of Rome and thusoutside the CCP.
Under the EC’s original GSP scheme, selected exports frombeneficiary countriescould enterCommunitymarkets tarifffree, but subjecttoquantitative restrictions (QRs). These became more stringent in accordance with the degree of ‘sensitivity’ of the products concerned.Special arrangements for textiles were made in co-ordination with the MFA. The ASEAN countries have been significant beneficiaries of the EC’s GSP owing toits encompassing a broad range of sectors in which the Southeast Asian countries have a comparative advantage2’ and also because it conferred greater advantages to the more competitivedeveloping country producers.30 One would therefore expect that the GSP scheme helped to facilitate the significant import penetrations madeby ASEAN producers in theEC’s ‘sensitive’ and ‘semi-sensitive’product markets. However, research conducted by Langhammer (1982a) revealed that ASEAN export performance appeared to be better in the USA, where no GSP privileges were forthcomin until 1976, than in the EC during the initial years of the EC’s own scheme.
8
54
The EU and ASEAN
Although Langhammer concededthatarangeof otherdetermining factors might explain this, it nevertheless cast doubt on the effectiveness of the EC’s GSP to promote ASEAN exports. Corbet (1982) and Ariff (1989) also criticised the EU’s GSP scheme for its restrictive rules of origin, low quota provisions and highadministrative costs incurred upon beneficiaries. Such factors explained why the utilisation of GSP quotas were under-optimised by the ASEAN states and most other qualifying 32 countries.WhileASEANmemberswereconstantlyseekingbetter access for particular product lines within the scheme (eg. tapioca, palm oil and plywood), their paramount concern was to approximate the trade concessions bestowed upon rival ACP exporters under the Lome regime. However, changes to the GSP scheme introduced in the late 1980s were to narrow further the scope of benefits cnjoyed by ASEAN, especially the ‘accentuated differentiation’ provisions that limited GSP concessions to non-sensitive sectors. Consequently, ASEAN exports to the EU enjoying GSP status fell from 70 per cent in 1989 to around a third by 1994. ‘The EC’s MFA regime had also beenapoint of significant contention for ASEAN. Under the MFA, whichhasbeenoperative since 1974,””developing country textile and clothing producers agree to restrain export production so as to enable their developed country counterparts to make structural adjustments within the industry in response to more intensified competition. The basic rules of the MFA were negotiated at a multilateral level, although developed country powers could determine how these rules were implemented. The MFA I (1 974-7) was most the liberal regime with 6 per cent growth allocated for export quotas 34 and a significant degree of flexibility built into the quota provisions themselves. However, a new MFA regime was renegotiated in 1977 amid the global recession of the mid-1970s. Under MFA2 (1978-81), a global quota was introduced that effectively limited the growth of imports from all sources.35Indonesia and the ‘41, Philippines became subject to restrictions for the first time. Table 3.4 also shows a declining trend in the utilisation of MFA quotas by East Asian producers over 1979--82 period. To Langhammer (1986), this was indicative of the increasing informational costs and uncertainties borne from the administrative complexities of the regime. The MFA3 (1982 -6) saw a continuation of new restrictions, such as the ‘anti-surge’ clause whichaimed to counter sharp increases of imports from previously unusedquotas. In addition, ‘reasonable departures’ provisions were introduced in the LC’s protocol arrangements that meant it could reduce the quota levels of a number of exporters, with East Asian producers being particularly targeted for this treatment. While the EC’s MFA regime offered more opportunities to developing country exporters in comparison with the US regime, from 198 1 to 1987 o d y Indonesia and Thailand gained in their shares of EC textile and clothing imports, while Malaysia andthe Philippinesexperienced nochangeand Singapore’sshare declined. Under MFA4 (1987-91), the EC claimed to have liberalised its regime since it had made a 25 per cent reduction in the number of categories subject to quotasand removedthe‘anti-surge’clause. However, asPangestu andHasni
The EU and ASEAN 55 716le 3 . 4 Average utilisation rates of quotas by East Asian countries in EC imports of textiles and clothing under the MFA, 1979--82(“10) 1979 1981
Indoncsia n/a R/lalaysia 63.3
n/a
Philippines 86.7 Singaporr 63.2 ‘Thailad 107.4
65.6 73.4 69.9 81.6
Hong Kong Korca
68.2 75.0
1982
1980
72.5 51.0 66.2 40.2 74.6 52.6 65.8 61.7 69.5
74.1 56.9 74.3 52.6 74.6 59.6 70.0
(1 99 1) note, quotas were removed on under-utilised categories and the aforesaid clause had beeninoperablc. In ahroader criticism of the EC’s regime, Langhammer ( 1 986) argued that short-term discretionary changes in MFA market access conditions had discouraged investment in developing Asia’s textile and clothing sectors. Moreover, newcomer exporters were discriminated against in favour of established producers, thus impeding sectoral relocation and restructuring across East Asia. Like other dcwloping countries, the ASEAN group has been highly critical of the EC’s Common Agricultural Policy (CAP). This notonly relates to its inherent protectionism o f the CAP (e.g. variable levies, QRs) but also the dumping of surplus EC agricultural stocks that result in unstable and depressed price levels in world markrts. The more resource-intensive ASEAN economies have naturally been greatly affectedby the CAP’S excesses. The Philippines particularly took issue with the LC oversubsidies granted to European sugar producers which have had injurious effects upon its own industry. Both Indonesia and Thailand suffcred significantly after ORs were placed on cassava in the early 1980s. As a consequence, the volume of ’I’hailand’s cassava exports to the EC fell by 40 per cent after 1982, entailing a loss of $329m or 1 1 per cent of Thailand’s total earnings from cxports to the EC. ASEAN’s agricultural producers were additionally disadvantaged by the discriminatory regime maintained by the EC in tropical products, such as cocoa, palm oil, tobacco, fruits and coffee, which granted the ACP group preferential access.:” During the 198Os, similartradecomplaintsfrom ASEAN aroseconcerning othrr industries where the EC has experienced deep structural decline. This not only applied to EC-level restrictions but also at a national level, where EC member states could invoke the Treaty ofRome’sArticle 1 15 ‘escape clause’ and impose their own protectionist measures if the imports in question were having an injurious efkct upon domestic producers. Table 3.5 shows how ASEAN and other East Asian producers (i.e. Hong Kong and Korea)were affected by various EC-level NTBs in the mid- 1970s. Singapore was particularly targeted by export restraints, licensing ohligations and quotas, the Philippines by health and safety regulations and Thailand by variable levies.However, it is also apparent that
56
The EU and ASiZ4.N
ZbL 3.5 EC non-tariff barriers against imports from selectcdEast Asian countries,
1974 ($m affected)
Indonesia Malaysia Philippines Singapore Thailand KongHong Korea
Heallh knabk r~guhhons ie71ic.s
Export restratrtts
Ltcensq
0.5 16.9 5.6 32.2 10.3
3.6 5.0 I .6 29.9 5.7
1.5 101.1 1.8 2.6
749.4 207.6
200.8 90.8
39.0 4.4
+ quola
mll
(W
0.3 24.8
11.7 24.1 3.5.4 64.2 43.4
2. I 2.3 35.4 15.5 10.2
2.1 0.4
954.3 303.2
64.0 55.8
0.5 0.7
7.1
Sharp of total tmports
1.1
Source: UNCTAD ( 1 979)
ASEAN exporters were not subject to the same degree of protectionism as their East Asian NIC counterparts, largely due to theless significant competitive threat posed by the former to EC industry. A similar situation also applied to the EC national-level import restrictions placed on East Asian countries. As Table 3.6 illustrates, the total number of such restrictions on the M E A N 5 group during the 198 1-5 period was exceeded by every East Asian counterpart listed. After the installation of the SEM in 1993, these were either removed or harmonisedat the EU level to uphold the integrity of the enhancxd CCP. Over the 1970s and 198Os, the EC's tradedisputeswiththeASEANstates mainly concerned high tariff rates and thc expanding rangeof 'internal' barriers 38 to international trade afyecting European exports in Southcast Asian markets. Z b l e 3.6 Applications approved undrr Article 1 15 against imports from srlrcted Last Asian countries, 198 1 - 5
0 0
I
0
I
3
1
1 0 0
I 0 0
1 0
0 0
0 14 0 3
9 17 2 15
24
1
3
1
18
46
21
5 I 4
7
19
4
1
56 93
1
12
7 9
1 65 23 20
12
30
37
127
337
1
Indonesia Malaysia Philippines Singapore Thailand
7 2 2 12
Total )5"(
China Hong Kong Korea Taiwan Total (East Asia group)
22 4
24 36 127
64 78
T h El/ d ASE4.N
57
However, tllcsc did not constitute a significant source of anxiety within the EC; for various reasons. Wc. havc srcn how the EC was able cfl’ectively t o mitigate the competitive threat posed by Southeast Asian exporters through the trade policy regimes analysed above. ‘Ihe ASEAN states also lacked both the inclividual and collective geopolitical power to ctlallenge EC protectionism in either bilateral or multilateralchannels.I:urthrrmorc, I)y the early 1980s thc E G A S E A N track balance was moving towards the EC’s favour (SCT Figurc 3.2) whichgenel-ally abated the prtmurr upon EC track negotiators t o st’curc market access gains. Moreover, their attentions towards Last Asia were attracted clsrwhcre I,y,Japan’s tlurgeoning traclc surplus against the LC which become a major politiciscd issur ‘i!) at this timc.. However, the European perception of ,\SEAN as a minor economic partner was to change o\w t h c course of the 1980s. Southeast Asia’s dynamic industrial dcvclopmcntduring the drcadc had made the E(: incrrasingly aware of the growing interdependent economic relationship that was evolving hetwecn itself and ASEAN. In this context, a numher of trends are worthnoting. By 1990, ASEAN’s share of extra-EU 1.5 exports had risen to 4.8 pcr cent, thus 1)ccoming a larger export market than the whole of Latin America, whilr its share of cxtraEU imports had increased to 4.0 per cent, making it a more important source of imports than Canada and Australasia comhincd (see ’Iahlc A.3). As Iigure 3.2 indicates, the acceleration o f EC-ASEAN trade flows wasespecially apparent from the late 1980s onwards: EU imports from ASI’AN increased by 66.8 per cent over 1987 90, rising from Ecu10.0h to Ecu 16.81)n by the end o f the period. Meanwhile, LU exports to ASEAN had incrcased even fister at 80.5 per cent, rising from Ecu8.9l)n to Ecul6.1 hn. Furthermore, ‘l’able3 . 1 shows that the EU 15’s position as an ASEAN trade partner hac1 improved slightly, with its share of total ASEAN imports and exports standing at 15.5 per cent and 15.9 per cent respectivelyby 1!)90. A growing interdependence was also manifest i n scctoral tradetrends with ASEAN manufactureexportsto the EC as a share o f the group’s total EC rxports increasing from 54.4 per cent i n 1980 t o 58.4 pet- cent by 1987 (1”igure3.1). Among the group, the highrst individual ratcs were attained by Singapore (86.4 per cent), Malaysia (83.7 per rent) and the Philippincs (83.0 per cent). In addition, Southeast Asia had become a new strategic location f i x outward EU direct investmentby the end of tlw 198Os, with a growing num1x-r of I X companies rclocating their labour intensivc sul)-asseml)ly and full assrmldy manufacturing activities t o the region. Over the 1985 9 period, the stock of‘ FDI from 1 X : firms in the ASEAN5 group increased by 57.2 per cent from $7.7bn to $12. I l m , thusmaintainingthe LC’s position as thesecond largest inward itn‘estor in Southeast Asia aftersJapan. h,loreover, in the structureof EU financial assistance t o ASLAN there was a notable switch of emphasis towards economic co-operation and away li-om development co-operation and humanitarian assistance over the 1980s (‘Iahle 3.7), a further reflection of M E A N hcing perceived by thc EC: as a more capable economicpartner. ‘Ihus by the end of the 198Os, there were calls for a more q u a l partnership to be estahlished within the institutionaliseci framcwork
58
The EU and A S W
irable 3.7 EU financial assistancc to ASEAN l y ratcgory and time pcriod (Ecu million) Econonuc co-operntion 1976-80
.~
YO of total
Development co-opmatlon
Hun~anitnrian assistance
%tal
64.98 (65.9)
33.64 (34.1)
98.62
1981-5 total
2.56 (1.0)
205.04 (8 1.O)
45.5 (1 8.0)
253.10
1986-90 of total
46.27 (1 4.8)
22 1.82 (71.1)
44.1 (14.1)
312.19
YO
1991-5 of total
127.89 (2 1.4)
40 1.79 (67.2)
68.23 (11.4)
597.92
O/O
1996--8' of total
1 12.87 (30.6)
21 1.16 (57.2)
45. I 1 (12.2)
369.14
YO
Total (a11 years) 01" of total
289.59 (1 7.8)
1104.79 (67.8)
236.58 (1 4.5)
1630.96
"10 of
NGO co-financing Total ODA
EIB loans
119.12
1750.08 590.0
of EC-ASEAN economic relations (Wannamethee 1989). 'lhis was to set the tone for a new phase of EU- ASEAN economic relations in the 1990s.
Recasting the partnership Moves towards establishing a 'partnership of equals' in EU-ASEAN economic relations duringthe early 1990s were occurringwithinabroadercontext of change. At the multilateral and global level, thecompletion of the Uruguay Round, a growing consciousness regarding globalisation and the post-Cold War ditente had produced both a general shift from geopolitics to geoecononlics. A greater emphasis on economic affairs in EU-ASEAN relations was to emerge as a result of these and other factors. At the regional level, ASEAN had to consider how the EU's post-SEM trade policy would evolve, as well as the cxternal impact of a future European economic and monetary union (EMU). Central and Eastern Europe's market rcformation also posed a new challenge to ASEAN by the region's potential to distract EU trade and invcstment interest away from Southeast Asia. Similarly, the trade diversionary effects of theforthcoming AFTA and ASEAN's participation in APEC: were potential causes of concern for the EU. Furthermore, preparations
The EU and ASE4.N 59 for ASEAN's Indochina enlargement were resonant of the EU's own plans eventually to expand eastwards. In the face of deepening transpacific integration, the EU had to re-evaluate its strategic position vis-&vis the wider East Asia region, and hence the role that its established ASEAN links would play As Chapter 8 discussesin more detail, the new ASEM framework essentially grew out of the EU-MEAN inter-regional link but which also encompassed Japan, Korea and China. At the industrial level, we have already commented on how Southeast Asia's continued rapid industrialisation had brought about significant structural changes to EU-ASEANeconomicexchange by theend of the1980s. These trends showed no signs of abating into theearly 1990s, with manufactured goods as a share of ASEAN's exports to the EU rising from 58.4 per cent in 1987 to 78.6 per cent by 1993."' The intra-industry trade ratios of ASEAN country trade with the EU had all risen over the 1989-94 period: Indonesia from 1 1.7 per cent to 26.3 per cent; Malaysia from 42.2 per cent to 46.2 per cent; the Philippines from 28.9 per cent to 44.7 per cent; Singapore from 45.3 per cent to 47.1 per cent; Thailand from 32.1 per cent to 34.1 per cent. While this offered broader scope for EU ASEAN industrial co-operation, the EU was simultaneously under pressure to maintain or even extend its protectionist regimes against Southeast Asian producers.
k o n o r n i c d$lvrnacy The above issues thus provided the initial background to EU-ASEAN economic relations in the 1990s and the objective of recasting the economic partnership. This wasfirst attempted via institutionalised channels at the ninth AEMM in I99 1, butnegotiationsbecamedeadlockedowing to thepersisting conflict between Portugal and Indonesia over East Timor. Indonesia had annexed this former PortuLguesccolony in 1975 and had been subsequently accused of human rights violations in the territory. Portugal was therefore unwilling to ratify any new agreement with ASEAN that might confer advantages upon the Suharto regime. However, at the following two AEMMs some progress was achieved in adapting the economic provisionsof the 1980 Agreement to new realities." This was most notably achieved at the eleventh AEMM held at Karlsruhe, Germany in September 1994 which produced a number of significant outcomes: 0
0
the consensus that EU-ASEAN economic relations should be founded on the principle of greater equality and partnership; the creation of an ASEAN -EU Eminent Persons Group (EPG), partly modelled on APEC's equivalentr2 (see Table 3.3); a mutual commitment to implement the provisions of the Uruguay Round of GATT, withrespect to developmentco-operation,theneed to prioritise human rcsourcc devrlopmcnt, environmental issues and better targeting of poverty alleviation.
60
The EU and ASERN
Inaddition,Karlsruheprovidedthemomentum for the first ASEAN-EU Senior Officials Meeting (SOM) heldatSingapore in 1995, the twelfth ASEAN-EU JCC (see Table 3.2) i n Brussels in October 1995 and the second SOM Meeting convened at Dublin in 1996 whcre more frank and open discussions on a wide range of issues took place, including those of a sensitive nature such as human rights. The ‘Karlsruhe drive’, as it subsequently became known, also coincided with the 1994 launch of the EU’s New Asia Strategy and helped pave the way for the first ASEM summit of 1996. However, it was the newly established EPG which was specifically charged with generating ideas on how a ‘partnership of equals’ in EU-ASEAN economic relations could be advanced. With this in mind, the main recommendations proposed in their first report published in 1 996‘3 were: more regularconvening of ASEAN EU Economic Ministers Meetings; EU and ASEAN governments to adopt more positive measures to assist trade facilitation and investment promotion between the two regions; to establish a stronger and more efrcctive ASEAN-Europe Business Council to promote corporate links between EU and Southeast Asian firms. In July of the same year, the European Commission published its own policy document entitled, Creating a J%W Qynamic in EU-ASL4.N Relations (CEC 1996b) which echoed many the ideas presented in the above rcport. Within the document, the Commission considered two future directions that EU--ASEAN relations could take. The first was a protocol to the 1980 Agreement with an cmphasis on inter-regional level objectives and mechanisms. The second was the signing of a New Joint Declaration, entitled‘An Active partnership’, which would entail a redefinition of general aims, an action plan to ensure thc dynamic implementation of the original Agreement and the development of new actions within domains other thanthose identified in the Agreement. ‘This approach stressed the need for closer private sector involvement within the current framework of institutionalised relations. Moreover, the Commission emphasised its relative flexibility asgreaterlatitude was availablehere for inter-regionalmechanisms and bilateral dialogues to co-exist. Both approaches, though, aimed to broaden the scope of these relations into specific sectors of economic activity (e.g. transport, telecoms) as well as horizontal matters (e.g. IPR, industrial standards). However, neither option would place the ASEAN states on the same level of co-operative engagement with the EU as enjoycd by other Asian and Latin American countries which were signatories to ‘third’ generation agreements. As previously mentioned,theI980Agreement was a‘second’generation arrangement, but its upgrading could not be achieved while the ASEAN states maintained resistance to the incorporation of a human rights clause into a revised agreement. In the event, the European Commission stated its preference for the second option and after a somewhat dificult ratification at the Council of Ministers it tabled the proposal at the twelfth AEMR.1 held in February 1997 at Singapore where it was duly accepted. Otheroutcomcs from thr meeting included an agree-
The l
-
~
Trade r e l a h m ‘llle difficultirs experienced in the institutional dimension of EU -ASEAN economic relations during the 19‘30s were compountled by both ongoing and nrw
62
The EU and ASERN
trade disputes. Although the Uruguay Round had helped temper the protectionist excesses of the EU’s Common Agricultural Policy, ASEAN’s criticism of the regime hardly diminished. Heavily subsidised sectors such as oilseeds were especially targeted by Southeast Asian trade negotiators (Lim 1997). The reclassification of oleochemicals (e.g. palm oil) anddry fruitproductswithinthe EU’s customs framework, which led to higher tariffs being placed on these goods, was a further cause of ASEAN concern. In October 1995, Thailand also requested WTO consultations with the EU over its import duties on rice. In textiles and clothing, the ASEAN states still faced considerable protectionism from the EU under itsMFA quotaarrangements,althoughunder theterms of another Uruguay Round accord allMFA regimes were to be gradually phased out by 1 January 2005.Whilethe EU was thusobligedtoraise its quota limits by increasing increments leading up to this date, the sectors to which they applied were not reduced. Moreover, two extra product lines were added to thc EU’s quota arrangements with Indonesia from 1995 onwards. A new significantproblem for Southeast Asian producersaroseduringthe 1990s concerning the EU’s anti-dumping regime. Dumping is said to occur if an export’s price is lower than the normal value of the product, whereby its normal value may be based on the domestic price in the country of origin or export, on the supplier’s export price to a third country, or on the cost of production in the country of origin. While dumping is seen to be an aggressive commercial practice, the European Commission only undertakes an anti-dumping investigation where it is causing or threatening to cause material injury to an EU industry and that the imposition of an anti-dumping duty (ADD) complies with EU interests. Such injury - which must at least afAict a major part of an industry is judged accordingtovariouscriteria,includingthe lossof EU marketsharestothe imports in question, unemployment, depressed EU market prices, loss of profits and low capacity utilisation.” Two kinds of ADD exist, these being provisional and definitive. Provisional dutiesare applied for a limited period which allows the European Commission to consider its proposal to the Council of Ministers as to whethera definitive dutyshould be imposed.’“’ Nternativelx theculpable exportermay he offered the‘undertakings’optionwherebythe company promises to increase its pricesto a level thateliminateseitherthe dumping .I7 margin or, if less, the injurious cffects of dumping. Between 1985 and 1990, the ASEAN5were subject to onlyeleven anti-dumping investigations from the European Commission, representing 5.3 per cent of all EU investigations.However, in the following 1991-7 period, this had risen to forty-seven investigationsand 20.9 per centof the total (see Table A.8).Thailand, Malaysia and Indonesia had bccn particularly singled out for attention with sixteen, thirteen and eleven investigations undertaken against them respectively over this period. While these arc high figures for any EU trading partner, relatively few investigations led to the actual imposition of ADDs. Table 3.8 shows that by November 1998 Thailand was subject to ten definitive ADDs, Malaysia eight, Indonesia five, Singapore three, the Philippines one and Vietnam one; Thailand Was also subject to one provisional ADD.’” These were well below China’s own ~~
The EU and A S W 63 7able 3.8 EU anti-dumping duties on ASEAN products (at November 1998) Product
Imposition date
ASEAR' country
22.10.93 0 1.04.95 04.0 1.96 03.04.96 12.04.96 13.04.96 11.11.96
Singapore Malaysia; Singapore; Thailand Malaysia; 'Thailand Thailand Indonesia; Malaysia; Thailand Malaysia Indonesia; Thailand; (Malaysia: 05.06.97) Malaysia Philippines; Thailand Indonesia; Thailand Indonesia Malaysia; Thailand Indonesia; Thailand Malaysia; Singapore; Thailand Vietnam
Definitive duties in force
Electronic weighing scales Televisions (large screen colour) Microwave ovens Tube and pipe fitting (iron or steel) Bicycles Microdisks Polyester fibres (synthetic)
24.01.97 06.03.97 09.10.97 Polyethylene/polyethylene sacks 01.11.97 Footwear (textile uppers) 20.02.98 Fasteners (stainless steel) 23.02.98 Footwear (leather uppers) 27.04.98 Fax machines (personal) Glutamic acid (monosodium glutamate) 24.09.98
Ring binder mechanisms Lighters (disposable)
Provisional duties in force
Capacitors (large electrolyte)
29.08.98
Thailand
Source: DG IC:, Europc.an Commission. Note: A definitive countervailing duty (CVD) had also been in force on ball-bcaring imports from Thailand since 06.07.93 up to this period.
figures(thirty-two definitive) butcomparableonaverage to those for Korea (nine),Taiwan (seven andone provisional) andJapan (seven). However, the ASEAN states have criticised the EU's anti-dumping regime for being generally unpredictable and too susceptible to lobbying pressure from European industry representatives. In the EU's defence, the European Commission maintains that its ADD procedures are WTO consistent and thus comply to a judicial process. Changes made by the EU to its GSP schemeduringthemid-1990s were another cause of concern for the ASEAN beneficiaries.49The group still enjoyed considerable advantages from participating in the scheme, receiving around 30 per cent of its total concessions in value terms in 1993." However, in 1995 the system of fiied and flexible Q R s on industrial products was replaced by preferential C E T duty concessions grantedaccordingto 'sensitivity' classification. Unlimited market access was also offered to GSP imports, although safeguard measureswere still applicable undercertaincircumstances. These revisions meant that GSP imports were no longer eligible for automatic zero-CET rates, butattractedaModulatedPreferentialDuty (MPD) commensuratewiththe degree of sectoral sensitivity associated with the products in question. Four types of classification exist:
64
T h e E I J and /lSbGlW
Very sensitive: a RlPD equivalent to 85 per cent of the CE'I: Lxamples mainly include textiles and ferro-alloys. Sensitive: a 70 percent k1PD rate. A wide range of productsarccovered, including chemicals, consumer electronics, cars and footwear. Smi-.rensitive: a 35 per crnt MPD rate. A similarlydiverse range of products in less sensitive sectors than the above, e.g. jewrellcry, calculators, watchrs. Non-sensitive: a zero MPD rate applied to products deemed to not to possess any degree of sectoral sensitivity. Furthermore,the new schemeincorporatrd a 'graduation'mechanism which allowed the EU gradually to phase outGSP benefits for certain products from the moreadvancedcountries. l h i s is determined by criteriaindicesrepresenting both the level of development and product specialisation found in a beneficiary I!. I country. Fbr industrial products, specified henefits wrrephasedout over 1995-8, while thosr for agricultural products occurred over July 1996 to .JLIX 1999."' Within the ASEAN group the following withdrawn benefits consisted of: Thailand plastics andrubber;leatherand furskins; clothing;footwear; jewellery and preciousmetals;miscellaneousproducts(chapters 94-96); seafoods; vegrtahles, fruits, nuts and horticulturalproducts:miscellaneous prepared foods. Malaysia: plastics and rubher; wood; clothing; consumer electronics; cereals; oils, fats and waxcs. Indonesia: wood; Sootwear; oils, Fats and waxes. Singapore: elcctro-mechanical equipment. Brunei: jewellery and precious metals €"$pines: oils, fats and waxes. Vietnam: unaffected
However, the withdrawal of ASEAN's scctoral henefits was not as drastic as that experienced l y China, Korca and Hong Kong. Moreover, Korea and Hong Kong were completely to graduate from the EU's scheme i n May 1998, admittedly along with Singapore - by far ASEAN's most advancedeconomyig Nevertheless,these changesdid have some significant impact o n Southeast Asia's less advanced economies \+,hosedependence upon the EU's GSP concessions was naturally more pronounced. 'I'he ASEAN states were also sceptical of the new social and cnvironmental clauses that had been incorporated into the scheme which were to take effcct in 1998."' Under the respective terms of the clauses, bencficiarycountries, in complyingeither to certainInternational LabourOrganisationconvcntionsorInternationalTropical 'limberOrganisation standards for sustainable forest management, would 11c eligible for lower R4Pl)s. While this represcnted an award-basedapproach,the MEAN statrs and other dcvcloping countries were cautious of. any attempt by Western powers to cmlnace such issueswithin theframework of trade relations. AS Palnmjoki (1997) obsenwl, the basis ofASEAN's concrrns had alreadybeen
established wit11 thc publication of two European k i r h n e n t IXportSOne 11)’ the Committee 011 thc Environment, Public Health and Consumer Protection (CEI’HCP) andother by theCommitteeon Development and Co-operation (CI)C) -. both of which argued for the introduction of punitive social C h U S C S in anyforthcoming new EU tradeagrcement with M E A N . Morcover, the CEPHCP proposed that a similar environmental clause be incorporated while the C1)C; &fendedtheprinciple of conditionalisingdevelopment and COoperation agreements in accordance with human rights and democracy records. Although such views wcre not adopted as part of EU policy towards ASEAN, the potential for ‘value-system friction’ was nevertheless rclevant by once again demonstrating how EU-ASEAN economic relations wcre highly susceptible to such politico-cultural discordance. ‘I’his is also applicable at the multilateral level where devcloped and developing countries are contesting the form and direction of the emerging WTO agenda. As discussed in Chapter 2, the EU and other devclopcd powers have: advocated the expansion of this agenda to include various new trade-related issues that, by theirnature,encroachontraditionaldomain of domesticpolicy ‘I’he less advanced ASEAN states have bccn critical of this approach which in their view has helped consign the liberalisation of agriculture, textiles, clothing and other labour-intensive sectors to a slow track by comparison. As in the 1980s, EU disputes over ASEAN trade policies and practiccs in the 1990s have hardly registered. As ASEAN does not conduct a common external trade policy, disputesthat have arisencontinuetobemanagedbetweenthe European Commission and cach separate ASEAN state. Becausr no one state has become a significant international power during the decade, these disputes havc not been politicised as those with larger EU trading partners (i.e. Japan, China and Korea). Nevertheless, various commonalities exist regarding EU trade disputeswiththe ASEAN group. For example,theEuropeanCommissionhas expressed concern over the high tariff rates that pcrsist in Indonesia, Malaysia andThailandonboth industrial and agricultural goods. Ithas l ~ e e nmore concerned, though, over theprevalence of certainnon-tariffbarriers in most ASEAN states, most importantly: import licensing, public procurement practices, IPR and TRIMS violations, customsprocedures and miscellaneousimport prohibitions. A singular dispute of significance did arise over Indonesia’s car policy in which the EU, ,joined by the USA and Japan, complained that it breached the ‘I’radcRelated Investment h?easures (‘I’RIPYls) Agreement and various WI’O rules. This specifically related to Indoncsia’s alleged discriminatory trade practices that permitted those conq)anies investing locally to import their products under prcferential conditions. ‘I’he EU and sJapa~lrequested W’I’O disputes pane1 negotiations with Indonesia i n June 1997, with the USA demanding the same two months later. This matter lay unresolved for over a year. Mcanwhilc, EU -MEAN economic exchange continued to expand rapidly ill thc 1990s. ‘The I
66
The EU and A S E ~ J V
indicates how the relative balance in EU-ASEAN trade continued with ASEAN maintaining a minor surplus against the EU in most years. The ASEAN states’ share of EU imports and exports had also risen to 6.9 per cent and 6.3 per cent respectively by 1997 (see Table A.3), although the EU’s share of ASEAN imports and exports dropped to 14.7 per cent and 14.5 per cent in the same year (see Table 3.1). However, the East Asian financial crisis had a dramatic effect upon EU-ASEAN trade over the 1997 to early 1998 period, with Table A.7 showing a sharp decrease in EU exports to ASEAN (-Ecu7.6 bn) and a significant increase in EU imports from ASEAN (+Ecu3.6 hn). Regardingthedistribution of ASEANmember statetrade with the EU, Malaysia overtook Thailand to become the second most important tradcr among the group during the1987-97 period, with Singapore remaining themost important (Figure 3.3). Figure 3.4shows that Germany and the U K remained ASEAN’s over thesameperiod.France and the most prominent EU tradepartners Netherlands also have close trade ties with ASEAN. Trends in scctoral trade patterns showed a continued shift towards intra-industry exchange with the share of ASEAN manufactures as a percentage of total ASEAN exports to the EU rising from 78.6 per cent in 1993 to 84.6 per cent by 1997 (see Figure 3. I). A significant shift to more technology-intensive ASEAN exports was also apparent. In 1997, ASEAN exports of office machinery and computers to the EU accounted for 25.1 per cent of the total, electrical machinery 14.6 per cent, and telecoms and audio-visual products 7.8 per cent. During the 1990s, European FDI flows into Southeast Asia also accelerated. This particularlyoccurred over themid-1990swherethe stock of EUdirect investment in the ASEAN5 group increasedsharplyfrom$23.3bn in 1993to $66.2hn by 1996 (see Table A.6). Consequently, the EU’s share of the total E’DI stock in the group rose from 16.7 per cent to 25.3 per cent over the period, thus making it the largest extra-regional investor in the region (Figure 3.5). By the mid- 1990s, Singapore had also become a major European investor from the East Asian NIC group with an accumulated f3.057m worth of investment in 1995. Much of this investment was acquisitional, concentrated in the financial sector and located in the UK. Moreover, the general small-scale nature of Singaporean FDI projects in Europe explains why they have received less media attention than themulti-billiondollarmanufacturingprojectsinitiated by Koreanfirms in Europe during the mid-1990ss5(see Chapter 7). In the structure of EU financial assistance granted to the ASEAN group there was a continued shift of emphasis away from development co-operation to economic co-operation projects during the 1990s (see ‘Iable 3.7). Figure 3.6 shows that over the total period of EU assistance, the Philippines, Thailand, Indonesia and Vietnam have beenthe main beneficiaries.Sincethemid-I990s,the EU extended its EuropeanIndustrial Bank (EIB)loan facilities to Asia and Latin America. As a result, the EIB were able to finance natural gas transport projects in IndonesiaandThailandand theextension of IlavaoAirport in the Philippines.
%EU and ASEAN 67 Member state shares of ASEAN exports to the EU (1987)
Member state shares of ASEAN imports from the EU (1987)
Phliiwlnes ..
Philippines
8.1%
3
Thailand 20.3%
Thailand
Singapore
singapom
35.8%
23.7%
Indonesia
i m i a 16.8%
Malaysla 14.6%
Malaysla 23.3%
Member state shares of ASEAN exports to the EU (1997) ’hilippines 9.3%
21.2%
-
Thailand
hnalaysla 24.3%
Member state shares of ASEAN imports from the EU (1997) 11.1%-
2.30b
Malaysla 20.2%
Figurc 3.3 ASEAN member stateshares of EU-ASEAN trade (1987, 1997)
The impact of intemjed regionalism Given the ambitious regional agendas of both the EU and ASEAN during the 1990s’ each side expressed a clear interest in how the other’s agenda would be realised. According to Sengupta(1992)’ the initial concerns of the ASEAN states over the SEM programme couldbe summarised as: theenhanced efficiency, andhence competitiveness of rival European producers; the introduction of stricter product standards and the associated costs of compliance; the removalof bilateral concessions given to ex-colonial ASEAN countriesby EU member states; increased levels of EU-wide protectionism(‘Fortress Europe’) and morestringent local content rules to help internalise thebenefits yielded by the Single Market; the diversion of potential F D I to the EU or CEE countries that may have been destined for Southeast Asia.
68
Ihe EU and ASEAJV EU12 exportsto ASEAN by member state (1987)
-
EU12 imports from ASEAN by member state(1987)
Eelglum-Lux 5.4% Denmark
[IK
23.E
P o w
0.2%
19.6'
1
(
-
Eelglum-Lux 5.1% Denmark
"Y
0,401
.no,
Portugal
Germany
Germany
Netherlands 9.1%
( :Net ; eh
33'7x
naly 9.0% Ireland o ,
,
W I 14.4%
Greece 0.1% n 1.5%
,am 3.9% 'Loly
9.8%
vFrance 0.5%
EU15 member state exports to ASEAN (1997)
12.8%
EU15 member state imports from ASEAN (1997)
Germany 26,590
19.4%
0.3% 5.6% It
I
10.0%
-
3reece 0.2% 38111 3.6%
France 16.7%
Ireland 2.4%
Figure 3.4 EU member state shares of EU-ASEAN trade (1987, 1997) Source: Eurostat. Inward FDI stacks in ASEAN 5 by geographic origin (1996) Other A h 1.5% 0.2%
-5.3% EU
Y Other East Asla 34.3%
Other Western Europe 3.8%
A 9% Japan 21.7%
1.3%
F b r e 3.5 Inward F D I stocks in ASJXN by geographic origin (1996) Source: UNCTAD database.
Ihe EU and A S W 69 EU financial assistanceto the ASEAN 10 group (1976-98) Myanmar BNnel
Vietnam 14.6%
10.2%
Fiprc 3.6 EU financial assistance to the MEAN10 group (1976-98)
Source: European Commission. Note: Up to April 1998.
However, as Wagner (1991)observed,ASEAN would also benefitfromthe growth-induced demand for ASEAN imports and the simpler uniform standards now operating in the EU as aconsequence of the SEM programme. However, the overall balance of the SEM’s effects upon ASEAN are difficult to quantify The superior Single Market access enjoyed by Southeast Asia’s close industrial rivals in Central and Eastern Europe nevertheless remains a primary concern. This is currently embodied in the CEE countries’ ‘Europe for an eastern enlargement in the early Agreements’ with the EU and plans twenty-first century thatw l i eventually confer theirfull access to the SEM. In the meantime, the CEE countries still have to contendwith a level of EU protectionism similar to that facedby ASEAN states in certain areas, such as anti-dumping duties. The East Asian financial crisis has raised ASEAN’s interest in EMU and its potentialtorestructureaspects of theinternationalfinancial system. The ASEAN states must also consider whether the euro is a viable reserve currency alternative to the dollar and yen. WhileEMU will further enhanceASEAN perit could ceptions of the EU as an important globalpower, there are concerns that make the EU even more introspective than before. In comparison to its other trading partners, the EU had done little to promote the euro to the ASEAN group or explain to Southeast Asian companies how they would be affected by EMU in general. The EU has, though, taken an interest in how European companies will be affected by AFTA. In its initial 1996 report on EU-ASEAN relations, the EPG stated that countries whichestablish bilateral or regional free trade arrangements with potential diversionaryeffects should reduce tariffs for non-member countries
70
The EU and ASEAJV
concomitant to reducingthose between participating countries. It went on to suggest that ‘alternatively and preferably, countries which wish to form free trade areas should also simultaneously undertake unilateral liberalisation on an MFN basis’ (CEC 1996b: 5), a reference to the notion of ‘open regionalism’ which is explored in some detail by Chapter 8. As I have argued elsewhere, AFTA’s potentialimpactupon EU industry could take many forms (Dent 1998~). Regional integration arrangements such as AFI’A are generally treated with some degree of caution by third country trading partners owing to the potential for new RIAs to have trade diversionary efr’ects. Trade diversion arises when third country producers which offer a more competitive product than producers within the RIA are subsequently disadvantaged by relative tariff changes incurred by the RIKs internal liberalisation that is not matched by similar external liberalisation.For example, we have noted how AETA aims to create a zero or minimal tariff zone within ASEAN. As with all free trade area agreements, each participating country retains the ability to determine its own external tariffs (i.e. on third country imports). Hence, some ASENV members may decide to maintain relatively high tarifr‘s on competitive EU imports if this enables their own comparatively uncompetitive producers to exploit theadvantageous tariff position they nowenjoy in other ASEAN markets. T h e ensuingincrease in marketsharesachieved by these ASENV producers at the expense of their competitive EU rivals will result i n a negativewelfare outcome.This is because ASEAN’s tariff regimes helpsupport inefficient production as well as deny consumers the same tariff-free access to more competitive product alternatives. Conversely, economic theory suggests that the negative welfare effects of trade diversion arc offset by the positive welfare effects generatedby trade creation. ‘Ihisarises when the same internaltariff liheralisation allows more competitive KIA-based producersto expand thcirown share of the RIA‘S markets once held by thcir less competitive neighbouringrivals. While it is not the aim here to present an ex ante quantitative analysis o f what AFTA’s tariff liberalisation would imply for EU business, we can make a number of important qualitative assertions. First, AlTA is supposed to comply with the principle of ‘open regionalism’, and hence ASEAN is committed simultaneously to liberalise its internal and external tariff regimes. ‘This is reinforced by APEC’s even stronger advocacy of open regionalism which its Southeast Asian membcrs are also obliged to support. Depending on how closely this is adherrd to, the trade diversion effects of AFTA on thr EU and ASEAN’s other trading partners should be thus minimised. It should also he noted that current tariff levels vary greatly across ASEAN,beingcomparativelyhigh in Thailand, Indonesia and blalaysia but low in Singapore and Brunei, so most anticipated trade diversion effects will be attributed to the former sub-group. Second, trade diversionwill affect those EuropeanoperationslocatedoutsideAFTA.European firms that have acquired ‘insider’ status through foreign investments should therefore WJOY the Salne benefitsastheirindigenous ASEAN counterparts.MostSoutheast Asian economies have a notable capital dependence on inward FDI flows which implies that many foreig;n multinationals are positioned to take advantage of the
T h e EU and A S f i W
71
C E P r scheme. As previously noted, the stock of EU direct investment in ASEAN is relatively high (see Figure 3.5; Table A.6). Thus, ASEAN-based EU multinationals stand to benefit or lose from the AFTA's trade creation and any longerterm dynamic effects that tariff liberalisation will bestow upon 'insider' firms."" Third, we acknowledged earlier in the chapter the mutually reinforcing relationship between the AIA and AFTA and how ASEAN is using AFI'A to attract further foreign investment into the region. The emphasis on promoting FDI will particularly appeal to multinationals whose Southeast Asian operations are configured and co-ordinated across more than one country, and hence benefit the most from CEPT liberalisation. However, as previously discussed, there exists much debate over the degree to which AETA will stimulate intra-ASEAN trade. Fourth, assuming that AFTA enhances ASEAN's economic growth potential, its trade partners can anticipate an increase in the demand for their imports. This demand could arise through efficiency gains that consequently improve productionfactor incomes (e.g. wages, profits), which in turn lead to higher import expenditures, or through the need for ASEAN firms to acquire foreign capital goods in order to expand into a more unified regional market. The EU is a major provider of capital-intensive and technology-intensive products for Southeast Asian countries, as well as many of the luxury 'boutique' goods that their emerging middle-class consumers aspire to possess.
ASEM: an txtension OJ inkr-regionalzh Another important development in EU-ASEAN economic relations has been the ASEM dialogue framework which was created in March 1996. As Chapter 8 discusses at some lemgth, ASEAN's position within ASEM has been critical. Its original conception can be attributed to a 1994 Singaporean initiative to create a new inter-regional framework between the EU and East Asia that encompassed not just the ASEAN group but also Japan, China and Korea. The EU--ASEAN link provided some form of model on which ASEM was based, whereby a wider inter-regional exchange would be promoted in economic, political and cultural fields. The inclusion of thelatter two dimensions ran the risk of aggravating 'value-system friction', and some ASEAN observers were indeed puzzled over why the EU was so keen to develop a political dialogue in particular when the associated issues were so contentiou~."~ Given that the new framework offered an alternative regime for conducting inter-regional relations, there was also the issue whether ASEh4 would dilute or strengthen the EU-~ASEAN bond. In considering this, Pelkmans (1997) argued that the latter case was more likely owing to a number of factors. First, ASEM provides a new summit-level dialoguebetweenthe ASEAN and EU member states which has consequently raised the level of political contact between both regional groups. Second, the ASEMprocess is managed more in accordance with Asian-style principles of consensus and informality that are in some contrast to the more contract-based features of 1980 ASEAN-EC Agreement. Third, ASEM offers a broader framework in which wider regional issues can be addressed, an
72
T h ELI und .4SIiW
illustrative example 1,cing the first ASEhl Economic hIinisters hleeting held a t ’Fokyo in September 19‘37 whrrc finding possihle solutions t o the l b s t .4sian financial crisis was at the top of the agenda.
Conclusion T h e ma-jor themes running through this chapter have included whether the postcolonial legacy o f dependence has persisted in the EU-ASEAN economic rdationship, how the EU has managedthcSoutheast Asian competitivethreat, ‘value-system friction’ and difficulties cxperirncrd at the ~)olitic.o-institutio~~al level of economic rclations. the role of state and non-state actors, and the impact of each group’s respective regional agrndas. ’l‘hese arc analysed from difkrent IPE theoretical perspectives in the analysis that follows. .Neo-rralists would stress the primacy of the nation-state i n the structure and process of EU- ASEAN economic relations, despite their intcr-regional dimension. ‘The diversity of forcign policy intcrcsts of EU n1eml)c.r states i n Southeast Asia, to a large part detcrmincd by post-colonial links, has Icd in the past to coalition building within the EU on some issues (Rcgelshger 1989). For example, Spain has given strong support to Portugal’s stance against Indonesia ovcr the East ’I’imor issur. Contrasting national interests among the ASEAN states have also been identified in this chapter, such as Singapore’s broader geocconomic perspective on the I’:U--ASE,IW relationship, Rilalaysia’s \vis11 to develop more distincthilateral tics with Europc and the less advanced state’s preoccupation with EU protectionist regimes. The variance of national interests within ASEAN explains why consensus on matters relating to the EU has often been elusive. At an orgatlisational Ievcl, ,\SEAN’S relatively loose intcr-governmental framcwork docs n o t compromise national sovereignty i n the same way as the EU’s supranationalism, thus allowing greater scope for nation-state objectives to be pursurd. Nro-realists admit that this may provc countcr-producti\le, especially where thc achicvement of relative gains within the M E A N group based on an independcnt state strate&? takes precedence ovrr attaining higher absolute gains Ilorne from a common group strategy. This helps explain why lowest common denominator ol?jectives haw pre\,ailed both i n ASEAN’s internal alhirs and its cxternal economic relations with the EU and others. hIoreover, \vc can attribute ASEAN’s frequent failure t o apply greater collective pressure upon the EU (r.g. in making fivourabk adaptations t o its trade p o k y ) t o this predicament. I n addition, Indorf ( 1 983: 105) made the ohservation i n the early 1980s that EC ASEAN relations in gcneral werehindered by ‘the complexity of their organisations,the lack of procedural mobility and the stagnating efkcts of diverse nationalstandpoints’. Neo-realists\vould argue that little haschanged since thcn. They filrthcr point out that where the M E A N statrs have collahoraced closely, this is 1)ecause structural changes to the international economic SYStem have conditioned such brhaviour, the AETA project being a prime example. Maintaining closc links with ASEAN has Iwen important for the EU because of the continuity they rcpresent with an important East Asian economic parttlcr.
The relatively harmonious nature of the EU’s longer-term economic relations wit11 ASEAN in comparison t o other East Asian partners has made this more SO. Yet, neo-realistswould argue how the EU has been willing to jeopardise this olljectivc for the sake of upholding higher political principlrs. By adopting a to@ stance 011 the human rights issues pertainingto East ‘limorand Myanmar, the EU places thedevelopment of its economicrelations at the politico-institutional level atsome risk. Furthermore, ‘valuc-systcm friction’ is simply 21 manifestation of interstate conflict according to neo-realism, whereby opposingsocio-cultural values ha\^ helpedinfluencethe state’s foreignpolicy objectives. The neo-realist concept of hegrmonic stability has also been applicable to EU ASEAN relations. We noted earlier in the chaptrr that thr EC was initially reluctant to develop ties with ASEAN owing t o the perception that Southeast Asia lay more in the US sphereof ‘hegemonic’ influence. DespiteEurope’s cxtcnsive post-colonial links with the region, the neo-realist argument fi)llows that the EC did not want t o compete with US interests over ASEAN and thus risk disturbing American hegemonic stability, which hy the mid- 1970s was alrmdy looking vulnerable. This situation persisted to some degree up until the 1‘380s when security mattrrs continued to dominate the ASEAN agenda. However, the 1990s havc seen a relative shift from politics to economics. As ASEAN’s largest extraregional source of inward l L l 1 and major trading partner, the EU’s potential to exploit this agenda shift is considerable. Howcvcr, while the EU is an ARF dialogue partner, it nevertheless lacks the comprehensive security relationship with ASEAN that neo-realists eInphasise underpins US economic relations with the group. vh%o-libera/.~ acknowledge the shift to a more pluralist agenda in EU .4SEAN relationsbut also stress theimportance of other developmcnts. For example, the role of nun-state actors has become pivotalin theeconomicrelationship, especiallygiven the di.b%clcs over East ‘I‘imor and hlyanmar at the politicoinstitutional level.Failures in thediplomaticrealmcontrasted with therapid expansion of E U M E A N economicexchange witnessed i n the 1990s. More extensive commercial linkages have been forged between European and Southeast Asian firms as a consequence of these trends and also from the numerous business-related contact groups and collaborative activities promoted by the lower politics of EU ASEAN co-operation (see Table 3.3). ’Illus, business representatives and other transnational nun-state actors havr taken greater responsibility for maintaining the momentum o f EU-ASEAN economic relations a t 21 time of a diplomatic impasse. At the outset o f formalised attempts to promote the EU and ASEAN’s economicrelationship, we notedhowboth sides were criticised for f‘ding efkctively t o engage a wider range of non-stat(- actors, and particxlarly business representatives, in this process. A visible complex intrrdepcndence applies not only to the mix of state and non-state actors i n the management of a more transnationalised EU-ASEAN economic relationship, hut also to the wider range of interconnected issues that define it. According to neo-liljcrals, this is evinced by the broaching o f the
74
The EU and A S U N
EU-ASEAN economic agenda to include technoloLq, the environment, human resource development, labour standards and other issues in addition to trade, investment and financial assistance. Moreover, theexpansion of this agenda demonstrates an impulse from both sides to create a co-operative framework of economic relations rather than accept conflict as an inevitable outcome. However, we have seen how conflict has invariably herome a feature of EU -ASEAN relations. Most ASEAN stateshave been suspicious uf the EU’s policy to include environmental and social clauses within its GSP scheme, as well as its role in shaping the WTO’s new trade agenda. Consequently, ‘value-system friction’ has applied not just to human rights but also to the multilateralisation ofdomesticeconomic policywhich many ASEAN states have resisted (see Chapter 2). More traditional instances of trade conflict have also been evident where EU surplus capacity problems have arisen, and hence where ardent protectionist regimesstillface ASEANproducers, e.g. in agriculture, textiles and other labour-intensive manufacturing sectors. Both the EU and ASEAN, though, have embraced the neo-liberal notion of ‘open regionalism’ whereby external and internal free trade are simultaneously promoted by the regional group. Notwithstanding the surplus capacity problems noted above, Southeast Asian fears of a ‘Fortress Europe’ have subsided as more general access to the SEM has improved (Hanson 1998). Conversely, progress towards installing AFI‘A entails a retreat of neo-mercantilist trade policies still conducted by many ASEAN states. This chapter has considered the balance of AFI’As effects on EU firms. A Marxist perspective would emphasise how EU firms continue t o govern a post-colonial division of labour in Southeast Asia. As the largest extra-regional investors in the region, European multinationals play an important determining role in the ASEAN economy Thus, according to Marxists, the link of dependency and subserviencebetweenthe EU and ASEAN member statesremains essentially intact.Southeast Asiastill depends on Europeanfirmsascrucial sources of imports,investment, financ,e, technology and capital. However, wc have shown that a clear shift towards interdependence in the EU-ASEAN economic relationship was apparent from the 1980s onwards. Intra-industry trade between the two regions has grown as Southeast Asia industry has become more capital intensive. Moreover, the AFTA project demonstrates how ASEAN is confident in promoting a greater regional self-sufficiency. It has also turned more to other East Asian NICs as partners in the group’s future economic development. We have noted how these developments pose certain challenges for the EU. Marxist explanations of ‘value-system friction’ arising from tensions between capital and labour interests are somewhat limitcd. Althoughit may be interpreted as an attempt by European firms to raise the level playing field of compctition to suit their interests, the reformist emphasis 011 socio-cultural determinants is perhaps more appropriate. A Marxist critique of changes made by the EU to its GSP scheme would similarly question the motives behind its new environmental and social clauses and the graduation mechanism. From the East Asian group, less developed ASEAN and China will experience most dificulty in romplying
The I?’Uand A S r i 75 with these changes. ‘Yo Marxists, the developed countries’ pushing of new trade issues ontothe WTO agenda ultimatelyserves to reinforcetheir dominant positionagainstdevelopingcountries, as complianceerodesthecompetitive advantage of many ASEAN and other developing country producers. Moreover, we have noted concerns within ASEAN over the evolving WTO agenda and its preoccupation with capital-intensive sector liberalisation at the expense of promotingfreertrade in labour-intensivesectors, e.g. agricultureand textiles. Consequently,developments atthemultilateral levelhave been to the EU’s advantage. At the inter-regional level, Marxists perceive arrangements like the ASEM as part of consolidating the international capital alliance by helping align the interests of European and Southeast Asian capital. Further transnationalised links between EU and ASEAN private and public sector representatives have certainly been forgedby theASEMdialogueframework. The growing momentum behind ASEM may prove vital to EU-ASEAN economic relations as it provides a parallel conduit through which high level politico-institutional contacts can be maintained.
4
The EU and Japan
Introduction Japan remains the EU’s most important economic partner in East Asia, but also that with which its most problematic economic relations have heen maintained. The country’s ascendancyt o economic superpower status has been at the relative expense of European industrial power. During the post-war period, the EU has had to come to terms with the Japanese competitive threat on various fronts. been mostly Consequently, the EU-Japan economic relationship has characteriscd by persistent trade conflicts. Japan’s rise has also altered the global balance of power and thus the nature of the international economic system in which the EU operates. ‘I’he emergence of atripolarstructure of economic power, or Triad (Le. the USA, Japan and the EU) became evident by the late 1980s with thedemise of the Soviet Union and longer-term dec:line i n American hegemony. W’v shall discuss later how ‘lriadic relations providrd the essentially context for EU-Japan economicrelations during the 1990s. It will also be shown l ~ o wthe recent escalation of Japanesc foreign direct investment (FDI) in Europe has significantly transformed the complexion of these rc4ations. Before analysing these issues in some depth, we shall examine the nature of the Japanese economy.
Japan: East Asia’shegemon This section considers rOur broad themes. We shall first examine the emergence of Japan as a new economicsuperpower,analysing thedevelopment of thc Japanese economy Imth from a historical and structural perspective. A study o f ,Japan’s role inEastAsiawillfollow thatacknowledges its part i n generating greater economic interdependence in theregion. Our third theme focuses on Japanese outward FDT, highlighting I d 1 its gcneral detcrminants and the growingintcrrlationalisation of the,Japanesefirms. Finally, aconsideration of the main future challenges facing the .Japanese economy are made, with particular reference to Japan’s recent recessional and financial problems.
T h e EU andJapnrr
77
The emergence of a new economic superpower Japan was the first Asian country to embrace modern capitalism. ‘I’hc origins of this process can betraced to the so-called‘Meiji Kestoration’ of 1868 which broke two centuries ofisolationism underthcprecedingTokugawa regime. KCznewed contacts with the Westrcvealcd Japan’s comparative industrial and military weakness and subsequently galvanised the nation into pursuing a catchup strategy under the Meiji slogan of ‘rich country, strong army’. Wide-ranging economicand social refbrms followed and Westernindustrialpractices were emulated. By the 1930s, Japan had developed a broad and powerful industrial base with its large, family-based ,ylibatsu conglomerates playing a crucial part in realising thecountry’sexpandinginternational tradc and imrstment interests. Japan’s pre-war colonisation of East Asian countries, cuphrmistically phrased the Greater East Asian Co-Prosperity Sphere, was partly driven by the necd to satisfy the burgeoning resource demands of its rapidly growing industries. After dcfcat in World War 11, Japan began the reconstruction of its shattered economy under the stewardship of the US caretakrr administration (1945 53), benefiting li-om theconsidcrablr rcsources and assistance it conferred. US capital was particularlydirectedtowards cnhancing Japan’s export-oriented were initially synonymous in the industrialisation.AlthoughJapaneseexports West with poor quality, suchprrccptionsbegan to change a s innovative production and management techniques (e.g. ‘just-in-time’ dclivery, lean production and totalquality management) pioncered IJY Japanesecompanies graduallyprovidedtheirproductswithacompetitivcadvantage over‘foreign rivals. ‘I‘he implementation and adaptationof new industrial systems were largcly made possiblc by Japan’s highly skilled and disciplined workforce. Thcre has also h e n a commitment in Japan to what Thurow (1992) terms ‘producer economics’, whereby manufacturing activities and the devclopment of process technologies enjoy pre-eminence over rent-sccking, service activities. As a consequence, Japan’s hest graduates havc entered careers in industry a s opposed to accountancy,finance or law the favoured path of many of theirWestern counterparts. Japan’s industrial prowess has been vcry clcarly manifested i n its share of world export trade, which rose from 3.2 per cent in 1960 to 8.4 per cent by 1990,although this sharc fell to 7.7 percent in 1997 (see ’l’aljle A.9). Consistent and sizeable trade surpluses through most of the post-war period I ~ a ~ r e generatcd huge foreign exchange rescwes for the country. By the 1970s, the Japanesr economy had overhauled every Western industrial rival with the exception of the USA. In 1965,Japan’s nominal (;DP was 1 () per cent of the USA but by 1996 this had riscn to 70 per cent and currcmtly stands as the world’s second largest national economy (see Table A. 1). A definitive feature of the Japanese economy’s post-war success has been its underpinning structural relationships, the most important being the keiretsu industrial groups, the special collaborative relationship between government and business, employment relations andJapan’s distribution systems. ‘l’hc keiretsu‘ evolvrd out of halldful of zaibatsu company groups that dominated the economy i n the prcl-war years.'
78
The EU andJapan
These were usually vertically organised with a holding company atthe centre that controlled a number of core operating companies and their subsidiaries. The zaibatsu wereformally dissolved by the US caretakeradministrationbutthe keiretsu emerged in the 1950s in the shape of former zaibafsu-affiliated companies with most closely associated with a major bank. For the six major keiretsu these were the Fuji, Dai-ichi Kangyo, Mitsubishi, Mitsui, Sanwa and Sumitomobanks. These six keiretsu groups have together accounted for around a quarterof <Japan’s post-war GDP Xhretsu can be distinguished either by their vertical integration, such as the major automobile assemblers, or by their inter-market, horizontal integration.” Each keiretsu group has a general trading company (sogo shosha) which in addition toprovidingcommercial services to associatedcompanies also developedthe group’s extensive intelligence networks: these sought to identify potential export markets and cheap import sources. Although the links between kkrefsu members were looser than their zaibatsu predecessors, they wereconnected by both interlocking share ownership and company directorships. This gave each stakeholder a part to play in meeting the group’s ‘shared destiny’ (unmekyodataz)corporate objectives. The specific role of thegroup banks wasto providefinancial capital for the group onfavourable terms. As an outcome,Japan’s capital markets have developed in a contrasting manner to the ‘Anglo-Saxon’ model, aligning more closely the interests of finance and industry while also producing a relative absence of takeovers, particularly of the hostile kind. The above arrangements have encouragedlonger-termplanning,technologicaltransfer,elaboratesubcontracting relationships and general synergetic linkages across the group. Not all of Japan’s large firms grew in such a way (e.g. Sony and Honda) while the vast majority of Japan’s businesses consist of small and medium-sized enterprises (SMEs)that aremostly independent of keiretsu links. While a high level of competitiverivalry exists betweenJapanesefirms in bothdomestic and international markets, the keiretru have been accused of cartelisation and other forms of restrictive practices. Such criticism has especially come from the USA and EU which have expressed concern over Japan’s ‘structural impediments’ to foreign competition. These have been defined by the European Commission as ‘the protracted and unpredictable technical certification and registration procedures and above all the habits and attitudes bred of Japan’s vertically and (CEC horizontallyintegratedindustrial,commercial and financialgroups’ 1985a). Thus, the perceived discriminatory contracting between kPiretsu members to the frequent exclusionof foreign counterparts has been an often cited example of the above. The formation of the keiretsu helped to co-ordinate the policy of partnership that post-war Japanese governments wished to engender with big business and theirrepresentativeassociations collectively referred to as znil;ai (business world). This formed an essential part of Japan’s‘developmentalstate’whosr origins date back to the Meiji period, where an initially underdeveloped private sector led to the government orchestrating Japan’s catch-up with the Western powers. Strategic investment programmes were managed by the government in ~
The EU andJapan
79
close collaboration with the emerging zaibatsu groups, whosescale advantages were promoted and exploited by the state. The legacy has continued through the bonds nurtured between the state bureaucracy,zaikaz and the Liberal Democratic Party (ID€’), which itself had consistentlyheld power from 1955 to 1993 and remains -Japan’s most singmlarly powerful political party. According to <Johnson (1982, 1987), *Japan’spost-wardevelopmentalstateentailedtheformation of development-oriented political elites, which were essentially responsible for devising development strategies, and whose actions tended to be market conforming rathcrthanmarket displacing. The mostpowerfulofthese elites have been ensconced within Japan’s Ministry of International Trade and Industry (MITI) and Ministry of Finance (MOF). Komine ( 1 993) contends that both MITI and the MOF haveworkcd tothree basicob.jectives in compliancewiththeir developmental state partners: 0 0
0
to forecast the way that the economy ought to and can develop;
toindicatethefundamentaldirectionthatgovernment medium-termand long-termeconomic policy shouldtake, as well as identify theirpriority objectives and methods; toprovide‘administrativeguidance’ for bothcorporateand household decisions.
l h e state bureaucracy, in addition to its direct links with the keiretsu, also meets with zaikai throughsrveralindustry associations, mostnotablythe Keidanren (Federation of Economic Organisations), the .Nikkeiren (Federation of Employer’s Associations) andthe heizai-Doyukai (Committee for EconomicDevelopment). These have been joined by a number of deliberative councils (e.g. the Industrial Rationalisation Council and Industrial Structure Advisory Council) that also play a role in forging Japan’s industrial and commercial policy. The developmental state partnership is further reinforced by various informal ties such as amakudari, whereby some retiring government oficials take up high-level executive positions i n business or an industry association. Over timc, MITI has adjusted its policy approach to suit the contemporary needs of theJapanese economy. During the 1950s and 1960s, when the economy was more fragile, it used extensive protectionist measures to insulate key infant industries fromforeign competition as well as strict controls overforeign exchange and the licensing of imported technology. As the economy transformed, the focus of policy soon began to shift away from low-tech, labourintensive industries and their markets to more high-tech, capital-intensive activities. From 1974 onwards, MITI began tocollaborate with industry in fabricating thr consensual ‘long-term visions’ to which the economy could commit itsel[ In more recent times, the il~ternationalisationof the Japanese economy has become an important preoccupation. However, this very process, together with the reining back of the developmental state approach during the 199Os, has diminished the power of MITI’s ‘administrative guidance’ over the private sector. Anothrr key structuralrrlationship of theJapaneseeconomy has been its
80
T h e EU andJojmn
framework of employment relations. Whitehill ( 1 99 1) summarisesthemain defining characteristics of these relations as being:
0
lifetime employmentagreements,especially in largccompanies; consensus decision-making; senioritywage andpromotion; ‘enterpriseunionism’ single company-basedunionsthatadopta adversarial stance towards management. ~
less
In return for worker devotion to the company, Japanese employers have off‘ered their employees a reward package designed both to provide security and inspire further self-sacrifice. Large firms will more than likely agree t o a lifetime contract of employment for certain new recruits. Even in times of recession, Japanese firms are reluctant to dispose of excess personnel, believing that releasingin particular ayoungemployee is a lost investment for the future. Within a keirebu group, personnel in overmanned sections i n one company member arc simply redeployed to companies elsewhere within the group that can moreeasily absorb extra employment. l‘his may involve a temporary move (sIzukko) or a permanent one (kxwkl). Our final structuralrelationshipstudied,Japan’sdistributionsystems, is characterised by interlocking wholesaler- retailer nehvorks that arc oftcn difficult for outsiders to penetrate. Furthermore, go\wmmcnt rcstrictions on sales space and business hours have hindered the progress of Western ‘scale’ rctailcrs (e.g. superstores) in .Japan. While both domestic and foreign latecomers are disadvantaged,the latter, lacking familiarity withJapan’scultural and social environment, are naturally more so. In addition to distrihution factors, foreign of .Japanesrdomestic firmshaveattributedthecomparativeimpenetrability markets to a relatively low consumptionpropensity(andhencea low import propensity in general) andthe overtlychauvinistictcndcncies of Japanese consumers. However, two points should be noted in response to these criticisms. On the first matter, Japan’s economic success owes much to the high saving rates ofits peoplewhich have been essential in facilitating thecountry’srapid investment-driven industrial growth. Second, the Japanese are among the world’s most discerning consumers, demanding high standards on product quality, choice and service which only Japanese-made products are perceivedto deliver. We shouldconclude by notingthatsincetheearly 1990s’ recession of the Japanese economy, there has been mounting pressure upon these underpinning structural relationships to adapt to new realities. For example, many Japanese companieshaveretracted offers of lifetime employmentcontracts for new recruits while also cutting back on their intake of graduates. Another legacy of the recession hasbeentheweakening of the keiretsu enterprisenctworks as members have sought to improve corporate flexibility by linking up with more competitive outsiders. ‘l’his hassometimesmanifested itself in theform of international strategic alliances that have been established with Triad counterparts. As we shall discuss later in this chapter, there has also Ixen irlcreas-
ingfbrrign pressure (qnidsu) on Japan to makc adaptations to its domestic distribution systrms and markets in order to raisr its importpropcnsitirs. Furthermore, in attemptstoeradicatemarket-distorting state practiccs, the relationship bctween government and business has been somewhat cmasculatccl.
Japan’s role in East Asia ,Japan’s position in the East Asian economy has l,rcn the subject of much analysis (Korhollell 1994; 1:unahashi 1995; hlendl 1995). There are several reasons for this. As the region’s economic hegemon, other East Asian countrics havc looked toJapan f‘or leadershipand hence championingtheir rrgion’s cause against competing regional powcrs. Attempts by hIalaysia’s Prime h4inister hlahathir t o persuade Japan to lead his East Asian Economic Caucus (EAEC) initiativc, a rival to thc US-involved Asia-Pacific Economic Cooperation (APEC) forum is a case in point (see Chapter 8).Japan has also been a devcloprncntal role model fix- other East Asian newly industrialising countries (NICs),with the Japanese stateproviddeveloping countrybureaucracies have triedto ing an exemplarthatmany imitate (Francks 1992). Furthermore,the Japanese economy’s rapid industrial growth and development have had positive multiplier cflects on the regional economy. %Japanesecompanies have stimulated the export growth of the Last thrm with capital and technological rc‘sourccs, Asian NICk, pro\idcd dcmonstratcd their innovative ergonomic techniqucs in transplantcd production and servicefacilities, participated in East Asia’s many sul>-rrgionalrconomic development pro-jccts’ and promoted the development of East Asian companies through stratrgic alliance agreements. These processes are analysed within thc: ‘flying geese’ model of regional drvelopment, whcreby the leader alleviatrs the resistance toeconomic progress made by those that followinits slipstream (Akamatsu 1962; Blolnqvist 1996).Japan has also Ilecome the major clonor o f overseas devclopmcnt assistance Ihr many of its region’s less devrlopcd countries (Feldsieper 1997). However, the economic relationship is reciprocal. East Asian NICs have provided Japan with material and component supplies, new market opportunities and location-specific FDI advantages, enabling the Japanese economy to make important structural changes over time (Kojima 1995). For example, the ofTs1m-c relocation ofJapan’s more labour-intcnsivc industrial activities to host East Asian countries has helped maintain thecost competitiveness o f Japanese firms. I n addition, Simon and Jun ( 1 99.5: 22 1) state that :Japancsc firms in aggregate havr Ilegun to create regional sources of national competitive strength and capability through their expanding access to and ability to harness the technological assets of Asian economies.’ The extensive transborder systemsof production and distribution developed byJapanese multinational enterprises(MNEs) across East Asia havealso been instrumental in creating a defacto economic intcgration in the region. ‘I’his, in turn, has enhanced theyen’s position as a rrgional resew(: currrncy, though thc predominance of the dollar in East Asia’s trade and capital transactionsis likely to persist for some time (Ikankel 19913; Ito 1993; Kwan 1994).
82
The EU andJapan
Notwithstanding the advantages that regional economic interdependence has conferred, Japan has been cautious in promoting certain of its aspects. .Japanese firms are understandably averse to imparting too much technology transfer for fear of undermining their own competitive position (Dobson 1993). Recipient East Asian countries are also circumspect, not wishing to become too technology dependent on Japan. Moreover, despite the leading intellectual role played by Japanese academics in formulating the ideas that have shaped East Asia’s, and the Asia-Pacific’s regional economic identity, Japan has been somewhat reluctant in assuming the mantle of political leadership in East Asia (see Chapter 8). This can be accreditedtovariousfactors.Funabashi(1995)notes that for historical and cultural reasons Japan has traditionally seen itself as part of yet separatefrom Asia: aparallelthatcanarguably be drawn withBritain and Europe - a shared ‘island resistance’ to continental forces. Much of this stems from the legacy of the Tokugawa period’s self-imposed isolationism. Japan has alsoavoidedthe possible invoking of memoriesassociated with theinfamous Greater East Asian Co-Prosperity Sphere and the imperial division of labour that it imposed on weaker neighbours (Shibusawa et al. 1992). As Chapter 8 reveals, Japan’s scope for assuming leadership in East Asia has also been overshadowed by the straddling presence of the USA across the wider Asia-Pacific region (Rix 1993). The failure of Japan’sproposaltoestablish an Asian Monetary Fund (AMI;? to help resolve the region’s wider financial problems is a recent case in point.Manyblame this failure on Americanresistancetothe AMF initiative because of its potentialchallenge to the multilateral competence of the International Monetary Fund (IMF), an organisation over which the USA exerts significant structural power. Moreover, Japan’s political upheavals of the early 1990s compromised its ability to adopt a coherent position on APEC when a moreambitious agenda was emergingwithintheforum.Given that APEC’s liberalisation plans imply that.Japan, as a key member, will come under a wider gaiatsu to remove trade and investment barriers on a supposed MFN-driven, open regionalisthasis, it must look toshape APEC’s future agenda withgreater interest.
Japanese outward FDl In the early post-war decades,Japan maintained a highly controlled FDI regime. The US caretakeradministrationdidnotpermitJapanesefirmstoconduct overseas investments until 1951, which thereafter were tightly regulated via the Foreign Exchange and l r a d c Control Actof 1949 for thenexttwentyyears. There were two main reasons for this. First, Japan’s experienced persistent trade deficits until the late 1960s and thus its foreign exchange reserves needed to be carefully husbanded. Second, rapid industrial growth during this period diverted investment towards domestic needs, resultingin a lower priority being afforded to FDI, whichaveraged at a mere $l80m per annum over 195 1-70. However, changing economic conditions led the Japanese government to undertake a fivestageliberalisation programme of outward FDI over 1969~78. Substantial
increases in .Japan’s domestic lalmur costs and a significant appreciation of the yen provided a rationale for relocatingparts of Japaneseindustry overseas. Japan’s growing trade surpluses at this time improved the viability of progressive libcralisation duringthe 1970s. AccordingtoRedies(1990),theexpansion of Japanese FI>I that followed can be understood as an exercise in financial power, with overscas invcstments heing used to re-cycleJapan’s fast-accumulating foreign exchange reserves. The rapid growth of .Japanese exports over the decade is also highly relevant, with trade-supporting investments being prominent in both the EC and USA. As a consequence of the above Factors, Japanese outward FDI on a cumulative basis rose from $3.6bn in 1970 to $36.5bn by 1980. There are important sectoral andstructural factorswhich also explain the escalation of .Japanese foreign investment. According to Ozawa (1 99 l), this must be understood within the context of domestic industrial restructuring in Japan, which could IIC categorisrd into four distinct but overlapping phases of structural change: 0 0
0
Phase I : expansion o f labour-intensive manufacturing (1 950s to mid- 1960s). Pirase 2: scale-basedmodernisation of heavy and chemicalindustries (late
1950s to early 1970s). Phase 3: assembly-based, subcontractingdependent,massproduction consumer durable products (late 1960s to present day). 1’tuz.w 4 flexiblc manufacturing of highly differentiated goods microchip technologies (early 1980s to present day).
of utilising
Between each phase lay three stages of overseas investments. The ‘clementary’ stage of Japanese 1111 evolved from the locational advantages of basing labourintensive production ofl5hore in neighbouring EastAsian countries. I n the second FDI phase, Ozawa(1991)observedthattheJapaneseeconomy fell into a ‘Ricardo-Hicksian trap’, whereby its shift to heavy industry production induced an unsustainable resourcc-dependent position. At the centre of the predicament lay the country’s own lack of natural resource endowments. T h e trap essentially originatrd from constraintsborn horn an ‘irremovable scarcity’ of resources upon the economy’s ability to generate substantial levels of reinvestable profits. Foreign investment provided an escape from this trap hy securing stable supplies of industrialrawmaterials,thetransfer of some resourcc-intensive industrial activity overseas and policy-guidedmoves to restructuredomesticindustry towards less resource-consuming andmore knowledge-intensive industries. Ozawa’s third ‘export-substituting-cum-surplus-recyling’ stage provided the key impetus behind thc surge of FDI into North America and Europe during the 1980s. Aswe shall later discuss, thestructuralchangeembodied in Phase 4 enabledthe k&ztslcr’ overseas subsidiariestocompetewith effect inTriadic markets. ‘Trends in thegeographicdistribution of Japaneseoutward FDI shown by F i p r c 4.1 are indicative of both continuity and change in the global strategies of Japanesc firms. Asia’s high30.0 percentshare of Japanesecumulativenet
84
7Xe EU andJapan Stock of outward FDI from Japan by geographic destination (1981)
Stock of outward FDI from Japan by geographic destination (1996)
Middle East 5.2%
Latin Arne-
Middle East O.%
Asla
30.0%
Figure 4.1 Stock of outward FDI from Japan by geographic destination (1981, 1996) Source: JETRO. investment by 1981partiallyrevealedthehollowingout of labour-intensive production in Japan, as well as the relative strategic importance of mining and other primary sector offshoreinvestments. The almost halving of this share, together with the USA and Europe overtakingAsia as principal host regions by 1996, inferred that fundamental changes to the structure of Japanese outward FDI had occurred. From the mid-1980s onwards, it was apparent that Japanese multinationals were engaged in more proactive and globally integrative foreign investments in adaptingtothe new realities of globalcompetition.This is confirmed by Mason (1992) in his deep historical analysis of Japanese FDI in Europe,whocontendsthatthere was amarkedturn from basically tradethis time. Meanwhile, supporting FDI to a more proactive approach around JapaneseoutwardFDIcontinuedtoescalate globally, risingtoacumulative $590. Ibn by 1996. We shall analyse in depth the EU-Japan FDI relationship later in the chapter.
Future challenges Despite the substantial achievements of Japan’s post-war economic miracle, the country faces a broad range of challenges in the twenty-first century. Although Japan enjoys productive and technological strength in key sectors, such as automotive, electrical/electronic and certain high-tech industries (e.g. biotechnology), it lags behind its Triad rivals in others(e.g. aerospace, pharmaceuticals and chemicals). In many important service sector industries (e.g. retailing), Japanese firms remain at a competitive disadvantage. The improving techno-industrial capabilities of East Asia’s more advanced NICs have also intensified competitive pressure in important Japanese industries such as semiconductors and consumer electronics. Japan’s heavy reliance on imported raw materials, especially oil and other mineral resources, constitutes another strategic industrial concern.
Tire I
8G
The EL’ andJapan
commented on Japan’s hesitancy to assunle a regional leadership role and this may extend to the wider international community.‘ It must also be noted that it usually takes time for ascendant nations to acquire relational and structural power in international relations, just as it takes time for decliningnationsto relinquish it (see Chapter I). Furthermore, while Japan’s significant trade surplus position makes it an important global creditor, it also continues to be an obstacle to establishing cordial economic relations with its main international partners. This has hern a recurrent theme in Japan’s economic relations with the EU.
EU-Japan economic relations ‘The analysis that follows examines both the sequential and thematic development of the EU-Japan economic relationship. We shall begin by exploring the pre-war origins of this relationship and how Japan posed its first competitive threat to the European industrial powers. Early post-war developments reveal the continuation of trade conflict as the underlying theme of Euro-Japanese economic relations which persisted until the 1980s. However, by the 1990s amoreco-operative framework of relations had beenestablished, brought on partly by the growth of Japanese FDI in Europe. Moreover, the Triadic context of the EU-Japan economic relationship had become increasingly relevant during the decade. This is also studied in some detail.
Japan and Europe: the pre-war years Economic ties betweenJapan and Europe date back to the sixteenth century. Not long after theJesuit order had established a base on Japanese soil in 154‘2, a growing number of Portuguese, Spanish and Dutch traders cameto explore the commercial opportunities which Japan had to offer. However, by 1641 the new and isolationist ‘Tokugawa regime had expelled virtually every European from its shores. Some 200 years later,Japan came under pressure from both the USA and a number of European countries to open up its markets for international trade. l’he Tokugawa regime was thus forced to sign new commercial treaties in 1858 and 1866 that obligedJapan to make substantial tariff concessions, consequently leading to a flood of Western imports entering the country. ‘Ihe inauguration of Meiji rule in 1868 produced a modernising and more outward-looking Japanese state whose expansionist aspirations would inevitably bring it into eventual conflict with Europe’s colonial powers in Asia. Along the way, though, Japan was to make alliances with certain European powers, most notably with Britain, that lasted from 1902 to 1923. Japan’s government and its companies were also eager to learn from Europe’s industrial and technological successes. It is with some irony, then, that Wilkinson observed:
I n thenirleteenth century, Europeans regarded Japan as an exotic playground, the ultimate in sophisticated tourism, while the Japanese regarded Europe as a disciplined, group-oriented society possessing the secrets of
The ELI andJapan
87
industrial production. Today, it is the Japanese who flock to Europe for exotic as a tourism and it is the Europeans who increasingly regardJapan disciplined society with amazingly efficient industries. (Wilkinson 1983: 154) By the 193Os, relations between .Japan and Europe had somewhatsoured. Japan’s colonial interests were increasingly perceived to challenge Europe’s own in Asia. Meanwhile, European countries continued to complain about Japan’s aggressive trade practices, such as the dumping of textile products in European markets, rcgular heaches of intellectual property rights and the maintenance of a highly protcctrd domestic market. Yet hy now Japan was a modern industrial state, confident of challenging the Western powers on their own terms. However, its attempt to realise this militarily was to end in an humiliating defeat by the Allies in World War 11.
Coming to terms (1945-68) In the early post-war years, European nations were wary of re-establishing trade links with Japan, not only o n account of it being a former Axis power but also because ofits pre-war neo-mercantilist policies. Forits part, the US caretaker administration sought.fapan’s re-assimilation into the international community as part of its reconstruction strategy Ibr the country. ‘rhus, the USA rigorously supported Japan’s 1952 application to GATT membership which it secured in 1955, although notwithout encountering some resistance. A British White Paper puhlishcd rarlier that year arLpgur*dthat Japan’s accession to the GATT would result i n a bilateral trade war. Furthermore, fourteen incumbent GAT1 membcrs, including the UK, Netherlands, Francc, and Belgium, refused Japan hlFN status on its entry by invoking Article 35, allowing then1 to erect trade barriersagainstJapaneseimportswithoutcompensation on the grounds of ‘injurious’ competition. Tlwre was indeed little doubt that Japan’s post-war ‘developmental state’ was adopting neo-mercantilist policies. Although Japan began to liberalise its tariff regime on GAl*‘l‘entry, it simultaneously enacted compensatory measures such as weakening its anti-trust laws and readjusting its import licensing scheme. At around the samc time, Japan’s long-serving PrimeMinisterIkeda (1 960- 69) initiated a foreign economic policy founded on promoting trilateralist cooperation between .Japan, the USA and E I C n ‘This policy was hampered 11y both European antagonism towards Japanese trading practices and, to a lesser degrre, the drbate among,Japan’s ministries over what approach to economic diplomacy with West European countries would prove the most effective.!’ ’Ihose agencies responsible for formulating and conducting .Japan’s foreign economic policy eventually agreedthat thecountry’s interests would be best served by exploiting European disunity and challenging the rationale of Europe’s discriminatory trade policies. Without a functional Common Commercial Policy (CCP), the EEC were vulntxable to Japan’s attempts to play off onc member
88
The EU a n d j a p a n
state against another. The trade negotiation ‘ofknsive’ of autumn 1962, whereby Japan sent high-level representatives from its ministries and other agencies (cg. the Keidanren) on visits to major West European countries, was a kcy stage in this process. Kothacher (1 983: 132) comments that the initiative ‘was conceptually simple: to flood Europe with successive waves of polite, modest and well-briefed top politicians and business leaders’. The varied nature of EEC member state attitudes to trade policy (e.g. Germanyand theNetherlands a s free traders, France and Italyasprotectionist) was alsoexploited to effect by Japanese I (1 ministerialoficials. By 1964, Japanhad succeeded in pcrsuading allWest European countriesto grant it MFN status in return for whattranspired as essentially symbolicsafeguardclauseagreementsthat had morepolitical than economic significance.” The manifestdesire of the ELK: member states to securerdativegainsat ultimatelytheother’sexpense and notthehigherabsolute p i n s potentially yielded from co-ordinated action towards Japan was to the continued frustration of the European Commission.Suchaction would haw entaileda loss of sovereignty over nationaltrade policy wcll before thr I’EC’s customsunion arrangement came intooperation. Most member states, especially traditional protectionists, were not yet willing to make this sacrifice. ‘Thus, the Commission’s 12 endeavours during 1963-4 to orchestrate a common trade policy, and hence a united front againstJapan, ended in failure. In the meantime, on an individual and collcctive basis, Europeancountries had to come to terms with Japan’s growing international stature both economically and through its integration into global power structures. Japan’s attaining of OECD membership in JUIY 1963 and its ascendancc as a major contracting party within the Dillon and Kemedy ROLIII~S of GATT were clear demonstrations of this. By the mid-I960s,Japan also began to view the EEC as less formidable than initially perceived as a result of its rcvcaled lack of unity France’s withdrawal from Community proceedings over 1965 -6 and the UK’s failure to accede in both 1961 and 1967 only served to reinforce this helief. lluring the early post-war period, the EEC continued to represent a minor trade partner for Japan, accounting for only 3.2 per cent of its total trade in 1956 and 2.0 per cent in 19G4, although this rose to 5.9 per cent in 1968 (‘I’able 4.1).”’ ’Ihe UK was Japan’s most important trade partner in Europe up until the late 1960s, thenovertaken by Germany which was the only EEC courltrynot to sustain trade deficits withJapan by this time. ’l‘heCommunity as a whole has run continuoustrade deficits with Japan since 1968”’ and thesebeganto expand rapidly, rising from $78m in the aforementioned year to $309111in 1970, $1,344m in 1972 and to $3,615m by 1976. It is worth noting that the E E C s trade balance with the rest of the world was in surplus during most of thcse years. The EEC’s worsening trade position with,Japan constituted, both i n industrial and diplomatic terms, a belated recognition by the major European Imwers of Japan’s economic significance and the challenges that lay therein. It also led to thereluctant and haphazard development of a common EEC policy towards Japan LIP tothispoint,althoughtheCommunity’sincompletecustomsunion
Zble -1.1 Geographic hreakdobvn of Japan’s international trade (percentage per trade partnrr, 1960-97) 1960
1965
1970
1980
1975
1985
Inports E.xb0rt.s In$orts- Exborts Imports E@rts Inports Eupoj-tLr Inlport., Exports Ir,$orts
Exhorts
1990 f 995 1997 Itnp0rt.s Exborts Imporls E.xports Imp0rt.i [email protected]
~~
EU15 US.-\ Canada .Australasia
7.9 34.6 4.5 8.4
10.3 27.3 2.9
China 0.5 Korea 0.4 0.5 Hong Kong Other East Asia 15.7
0.1 2.5 3.8 20.8
4.1
7.9 28.9 4.3 7.5
10.7 29.8 2.5 4.5
9.1 29.5 4.9 8.8
13.0 31.1 2.9 3.6
6.7 20.1 4.3 7.8
13.4 20.2 2.7 3.8
6.5 17.4 3.4 5.6
15.4 24.5 1.9 3.1
8.2 20.0 3.7 6.5
13.3 37.6 2.6 3.7
17.1 22.5 3.6 6.0
22.0 31.7 2.3 2.8
14.6 22.6 3.2
2.8 0.5 0.4 13.6
2.9 2.1 3.4 16.4
1.3 1.2 0.3 11.8
2.9 4.2 3.6 16.0
2.6 2.3 0.4 11.7
4.1 4.0 2.5 10.9
3.1 2.2 0.4 17.5
3.9 4.1 3.7 10.4
5.0 3.2 0.6 18.2
7.1 4.0 3.7 9.5
5. I 5.0 0.9 16.4
1.5
5.1
15.9 27.5 1.3 2.2
13.4 22.4 2.9 3.0
15.6 28.1 1.5 2.2
2.1 6.1 4.6 17.0
10.7 5.2 0.8 18.7
5.0 7.1 6.3 24.1
12.4 3.4 0.7 18.5
5.2 6.2 6.5 23.2
Lliddle East Africa Latin ;\mericai
2.1 9.8 3.2 6.4
1.6 3.9 8.1 6.7
3.4 13.5 4.0 8.1
2.5 3.5 9.3 4.8
3.2 12.1 5.5 6.3
2.3 2.9 4.2 4.9
2.4 27.9 4.0 3.7
3.9 10.1 3.8 6.9
31.3 3.1 3.9
2.8 10.4 4.4 6.4
1.3 23.0 2.3 4.7
1.8 6.8 1.6 4.2
1.7 13.3 1.6 4.0
1.1 3.3 1.6 3.4
1.6 9.4 1.3 3.4
0.5 2.2 1.4 4.2
1.6 11.3 1.4 3.3
1.1 2.7 1.0 4.7
Other
6.0
7.9
5.1
7.6
5.6
8.4
6.1
13.7
4.1
9.0
3.3
4.1
2.8
2.0
3.4
2.3
3.7
2.0
CEE’
90
The EU andJapan
arrangementnaturallyimpeded this development.Moreover,Nester (1 993) argued that Japan’s threatto West Europe over the period was perceived more as geopolitical than geoeconomic.SignificantconcernexistedregardingJapan’s neutrality and its possible future alignment with China, and the efyect this would have on the Cold War 1)alance of power.
Japan and ‘One Europe’(1969-go)? The completion of the EEC (hereafter referredto as EC) customs union arrangement in July 1968 formally established a CCP between member states, requiring them t o adopt the LC’s common external tariff on third country imports.’“ In theory, the C C P strengthened the Commission’s executive powers over managing EC external tradc policy. This was soon tested at the first ofIicial EC -Japan level trade negotiations which began in 1970. In the talks, the Commission resisted Japanesepressure to resolve the growing number of trade disputesthat had arisen between them through GATT’s mechanisms and procedures. Instead, the Commission pressed for assurances from .Japan that certain administrative and other non-tariffbarriers(NTBs)beremovrd. ‘I’hese demands were similarly resisted by Japan which furthermore had no incentive to comply to EC-wide agreements given thcproven successofits ‘divide andconquer’strate\q. It therefore proceeded to confound the Commission’s endeavoursby still consorting with a multiplicity of European agencics, such as industry groups, member state governmcntsandnationalanti-trustgroups in addition to EC externaltradc representatives. Indeed,duringthe first EC-;Japantradenegotiations,the Commission’sstance was undermined by the insistence of France andthe Benelux countries on maintaining thcir own bilateral safeguard clauses apinst Japanese imports. From the early 1970s onwards, EC;Japan economic diplomacy also began to be conducted more at a corporate Icvel. Europe’s industry groups were by this time aware of the concentrated market penctrations that Japanese producers weremaking in certain industrial scctors, such as consumer electronics, cars, motorcycles, ships and steel (Shepherd 1982; Ishikawa 1990). In October 197 1, Keidanwn representativesmetwithEuropeanbusinessleaders to discuss the application of voluntaryexport restraints (VEKs) on thoseJapaneseimports deemed to have the most injurious effects on European industry. These measures were favoured by ,Japanese business as theseconferredsome voice and representation on European protectionist decisions and actions taken. Moreover, by shortening their supply to European markets, it also enahled them to exact higher economic rents from European consumers due to the relatively low price elasticity of demand enjoyed by many %Japanese imports.A year later, the first VEK on Japanese consumer electronics imports was negotiated between some European countries and Japan. Others werr to follow on various products, the most profiled of which was on automobiles. Inthecontext of Japan’sgrowingtradesurpluswithEurope andthe stagflatory conditions causedby the 1973-4 oil crisis, LC member states began to
The EU andJapnn
91
exert their demands in unison. On his visit to Europe in October 1976, Toshio Doko, President of thekeidunren, met with consistentand similar calls for Japan to I6 open its markets to foreign competition. Encouraged by this development, the Commission sought to take bolder initiatives. At the Tokyo Round negotiations of GATT, it took a much tougher stance against Japan on a range of issues (Kudo 1994).InFebruary1977, andwithoutprior consultationwiththeJapanese government, the first EC anti-dumping duty (ADD) was applied on a Japanese import (ball bearings). A number of others followed: acrylic fibres, saccharin and stereo cassette heads in 1979; automobiles, numerically controlled machine tools and colour televisionsin 1981; cathode raytubes, light commercial vehicles, quartz watches; hi-fi equipment, fork lift trucks and video cassette recorders over 1982-3; electronic typewriters in 1985.17 Over 1983 to 1989, the EC investigated a total of twenty-twoanti-dumpingcasesagainstJapaneseimportswith seventeen leading to the application of ADDS, the highest number for any EC trading partner over the period. Iluring the late 197Os, theJapanese government became increasingly weary of the EC’s defensive, protectionist stance. In his visit to Brussels in October 1978, Prime Minister Fukuda expressed his regret over the poor state of EC ,Japan relations. This did nothing to induceamoreconciliatoryapproachfromthe Community.InMarch1979,the EC’s Commissioner for external relations, Wilhelm Haferkamp, stated that :Japan has a special responsibility towards her trading partners to eliminate or lower existent restrictions. And we do not like the idea of negotiating every year with the same listofspecific complaints.’ Such blunt language was just the harbinger of worse to come. In an addendum to the original text o f a Commission working paper it was commented: .Japan’s trade expansion was due to hard work, discipline, corporate loyalties, and management skills of a crowded, highly competitive island people only rcccntly emerged from a feudal past, a country of workaholics who live in what Westerners regard as little more than rabbit hutches . . . There is as muchpropensity to import as therewouldbecarnival spirit on a rainy Sundaymorning in Glasgow . . .Japaneseexportersoperate like soldiers venturingoutfroma fortress, and create havoc in concentratedareas of industry in thc Community with major regional unemployment problems. (CEC 1979) ‘I’his markcdthenadir ofEU-Japan economicdiplomacy.‘TheCommission ll formally apologised over this statement, I although the document’s main text was a critique of Japan’s neo-mercantilist policies and called for the EC to adopt a tough stance in future trade negotiations. The uproar caused in.Japan only sewed t o unite the nation to reciprocate in kind. InJanuary 1980, MITI announced that Japan’s automohilr producers wcrr to increase production by 10 per cent with similar targets set for consumerelectronics andthesubsequent offensives on European markets. Once more in its endeavour to pre-empt separate policies being conducted by
92
The EU andJapan
individual EC member states, the Commission constructcd a four-point common policy, subsequently approved by the Council of Ministcrs in November 1980, which proposedthat: VERs shouldheuniform as possible throughoutthe Community; a stronger yen was required to reflect more accurately Japan’s economic strength; various N T B s protectingJapanese markets should be removed; and the EC’s right to similar treatment affordrd by Japan to the USA should be upheld. However, EC member states continued to insist upon bilateral trade policy actions against Japanese imports, the most famous example being the French government’sdecision in 1983 to route all importedvideocassetterecorders I !I through a small customs office at Poitiers, staffed by only eightpeople. ‘The Commission’s 1980 policy plan nevertheless enabled it to stake further ground in conducting the EC’s trade relations with Japan. In February 1983, a Commission delegation visited ‘Tokyo to commence negotiations that were to lead to the first ‘Lo EC-level VERs beingapplied on Japaneseimportslaterthat year.At the politico-institutional level, the EC’s troika foreign ministerialmeetings with the Japanese also began, albeit in an ad hoc manner, in March 1983, although these were actuallysuspended over 1986--90owingtoJapan’sinternalpolitical problems. The increasinglyhigher profile of theCommission in EU~Japaneconomic diplomacycoincidedwith a morecordialenvironment of relations evolving between the two powers as the 1980s progressed.” Various tilateral and global factors could be attributed to this, including the end of the early 1980s’ world recession which helpedeaseinternationalrelationsbrtwcenthedeveloped nations in general, while a furtherframework for dialogue and policy coordination was establishedwithinthe Plaza Accordagreementsignrdatthe historic G7 meeting in 1985. At the meeting, Japan aqreed to revalue the yen in 32 anattempt todepress its substantialtradesurpluses held againstboth ’I‘riad 2’1 partners. Although Japan’s tariff regime was notably liberal, it also resolved to makemoreconvincing and proactive efforts to openup its own markets to 2.1 imports, largely atthebchest of the US ‘market-oriented. scctor-specific’ (MOSS) negotiations of themid-1980s and theeconomy-wide‘Structural Impediments Initiative’ (SII) of 1989-90 (‘Tyson 1995). ‘I’he EC also adopted a more concessionary approach with the number of nationally imposed quantitative restrictions (QKs) on Japanese imports falling from 466 in 1962 to 1 13 by 1989.’5 Another 42 restrictionswereremoved by March that year i n negotiations orchestrated by the Commission as a rcsponse to erlgcnder a more open trade environment between them.”’ EC ;japan relations were further enhanced by the initially favourable view that Japan took towardsthe EC’s Single European Act (SEA) of 1986 and its blueprint for creatingtheSingleEuropeanMarket(SEM).Envisagingthe potentialopportunities which the SEM presented for ‘insidcr’firms,theSEA precipitated a huge surge of ,Japanese dircct investment into Europe during the latter 1980s. However, there was simultaneousconcern about the SEM’s potential to induce autarkic behaviour fromthe Community that led to mounting fears of a ‘Fortress l h o p c ’ emerging as the Single Market coalesc.ed.
The EU andJapan
93
Furthermore, Japan acknowledged that the SEM would inevitably commit EC member statesto conductamoreintegral CCP, andhence increase the Community’s weight within the international economic system. As we discuss later, deepening European integration and the influx of Japanese firms into the EC were significantly to recast the bargaining structure of EC-Japan economic diplomacy Around this time, the Community’s tradedeficit with Japan began tostabilise, with EC exports to Japan actually increasing almost 50 per cent faster than Japanese exports to Community markets in 1988 (Figure 4.2). In preparations made for the SEM programme, the Commission announced its intentions to substitute national level QRS with Community-based measures but that ‘these measures would not result in a higher level of protection than exists at present’ (CEC 1988). A similar arrangement was made for VERs on Japanese automobile imports whereby bilateral measures that had been separately appliedby France, Spain, Italy, Portugal and the UK were replaced with anEC-level equivalent.” Slower Japanese export growth to the Community couldthis at point be partly ascribed to thetrade-displacing effects of rapid Japanese FDI growth in Europe. However, the arrivalof increasing numbers of Japanese multinationalswithin the Community gave rise to other concerns. Some saw the strategy as a means to circumvent protectionist measures imposed upon them by installing low valueadded ‘screwdriver’ assembly plants within the European market. The first socalled ‘screwdriver’ regulationswere introduced by the Commission in 1987, which enabled ADDs to be deployed on foreign imports now produced in the Communitythatonce previously attracted ADDs. Relatedand associated products could also be targeted for similar treatment in accordance with stated EUJapan merchandise trade(1975-97)
60 50 40
30 c
20
z
10
0 .3
s o 1
-10 .
-20
.
-30 . -40 .
I H EU imports
W EU exports
Figure 4.2 EU-Japan merchandise trade (1975-97) Source:Eurostat.
0 Balance
I
94
The E l i andJapan
criteria, while local content rules applied the same measures againstlower valueadded foreign assembly plants. Under the general rules of this regulation, foreign of their materials and assembly plants were obliged to acquire at least 40 per cent components from domestic EC sources. Earlier investigations had revealed that the effective local content found in some Japanese assembly plants varied from 4 per cent to 25 per cent, and in one case the only local materials used was the packaging for electronic typewriters. The regulations were first invoked in July 1987 againstJapaneseball-bearingproducers. When a string of other cases followed,’8 *Japanmadeaformal complaintto GATTonaccountthat they contravened the ‘national treatment’ principle of Article 3, while also negating the Anti-Dumping Code procedures of Article 6.?‘ In March 1990,a G A T 1 panel upheld Japan’s complaint and the Commission had to adjust its policies accordingly. Further consternation for the Japanese was caused by the EC’s new emphasis on ‘reciprocity’, which became a guiding principle of the CCP during the latter 1980s. At thestart of theGATT’s U r u p a y Round talks, the European Commission President Willy de Clerq stated: The Community feels thatmany of thepresenttensionsaffectingworld trade find their origin in the fact that concessions negotiated between the various contracting partieshave in reality not resulted in effective reciprocity. It is therefore essential that the Ministerial Declaration should establish the objective of achievingagenuinebalance in thebenefitsaccruingto contracting parties from the GATT. (CEC 1986: 15) At the European Council meeting at Rhodes in 1988 the reciprocity principle was more euphemistically defined as one being founded on a ‘balance of mutual advantages’ (CEC 1988). Put alternatively, guarantees of similar or at least nondiscriminatory opportunities for EC firms in foreign markets would be sought that approximated those benefits which foreiLgn firmsenjoyed in EC markets. Thishad particularreferencetotheanticipatedgainsthata harmonised European marketplace would not only bestow upon EC companies but also their non-EC rivals, especially thoseforeignmultinationalsoperating as ‘insiders’. Thus, the SEM programme’sassociated‘reciprocity’directives inbanking,:’” capitalmovements and publicprocurementcauscdparticularconcernto Japanese companies and their US counterparts. In an evaluative analysisof EU- Japan economicdiplomacy over this period, a number of points should be made. For Hosoya (l979), the trials and tribulations experienced during the 1970s were indicative of a ‘perception gap’: the EC saw its trade deficit with Japan as a political problem, whereas Japan viewed the situation in economic terms. The EC’s position was essentially defensive in that it attempted to repress the impact of Japan’s expanding competitive advantages ratherthan finding positi\re solutionsto enhance Europe’s own. However, European frustrations could also be attributed to .Japanese passivity, especially
The EU andjapan 95 regardingthe slowness withwhich Japan implementedthe provisions of commercial agreements signed with the EC.Thisapparentbureaucratic prevaricationhasbeenexcused on thegrounds of theJapaneseconsensual approach to decision-making, Hanabusa (1979)alsonotes how thisexplains Japan’s passivity with regard to taking the initiative in international economic affairs. For Yamane (1990), it was the perception of Japan’s ‘insular expansion’ which was at the root of European hostility at this time. In analysing the 198Os, Woolcock and Yamane (1993) contended that discord in EU-Japan economic relationsmainlyoriginatedfromdifferentperceptions over thefundamental ‘rules of the game’. They argued that EU’s position continued to be based on equivalentcompetitiveopportunities for bothEuropeanandJapanese firms whereby bilateral protectionist measures are applied in those sectors possessing an imbalance against them, e.g. machinery, electrical products, automobiles. For theJapanese, the apparent demise of Europe’s industrial prowess during the1970s was symptomatic of eikokubyo: theeconomics of decline and Great Power decadencethatderivesfromlabourtroubles,productivity lags and cumulativeeconomic rigidities. Ina comparativehistoricalanalysis, Masaru (1986) drew similarities between EC-Japan commercial disputes and the AngloGerman trade conflicts of the early twentieth century, where Britain’s relative economic decline was blamed on German industrial practices. Masaru aqgued that, like Britain, Europe as a whole faced its own ‘crisis of capitalism’ and was of anascendant lookingtoattributeculpabilitytothecommercialpractices Japan. Although the USA was also suffering a chronic trade deficit with Japan, it was nevertheless seen as a more proximate industrial competitor owing to US perceived technological and entrepreneurial superiority over Europe. Given the proven success of its ‘divide and conquer’ economic diplomacy with the Community, Japan continued its efforts to polarise EC trade politics and was reluctanttonegotiateatan EC level. Thisapproach becameincreasingly untenable, especially after the signing of the SEA. The gradual implementation of the SEM programme from the late 1980s onwards not only necessitated third countries and their companies to think more in terms of ‘one Europe’, hut also improvedtherelational andstructural power of the EC in international economic affairs. The enhancedcompetencegranted to theCommission by member states in the realm of EC external trade policy was an important part of the latter process. Although never utilised to effect, the ‘reciprocity’ principle was a demonstration of how the EC at least considered converting the SEM into political capital. According to Nuttall (1 996: log), this was a significant missed opportunity at leveraging influence over Japanese trade negotiators, stating that ‘the Japanese would not have abandoned a strong position so easily, and took As it transpired,the EC probably someconvincingthattheEuropeanshad’. gained morc from the externality effects of the MOSS and SI1 negotiations in terms of making Japan moregenerallycomplianttoeradicating its NTBs, although the bilateral market sharing deals which the negotiations yielded (e.g. semiconductors in 1986) would compromise EC manufacturers. EC:Japan economic diplomacy also benefited from the moderate shift from ‘low’ politics
(bureaucratic-driven) to the ‘high’ politics (elected leadcr-driven) of G 7 summits which, especially in the more favourable world economic conditions of the latc l98Os, helped promote more amicable relations between theEC andJapan. Moreover, according to Bourke ( I 996) the bargaining structure of EC-Japan economic diplomacy was significantly recast by the escalation of Japanese k D I into Europe in the latter1980s. This particularly related to how globalisation was creating new patterns of loyalty across national boundaries. Bourke contended that the growing rlurnlxr of.Japanesc firms ensconced within the EC led t o a ‘commercial symbiosis’ between themselves and sub-state or non-state actors in Europe.TheseincludedregionalauthoritieswhichhadattractedJapanese investment and subcontractedlirmsthathadhernincorporatedintothe European-based production networks of ‘insider’ Japanese lirms. ‘This development gave both a morc direct stake in the economic diplomacy process and furthermore madethem a potential ally ofJapan in commercial negotiations with theEuropeanCommission, giving risc to what Bourke refers to as ‘internaliscd co-operative tension’.”’ Gradually, EC member statesbegantoacknowledgethe net advantages of hosting Japanese FIII, in terms of improved domestic competitiveness (e.g. from infused Japanese production and management techniques, tecllnoloLgytransfers, etc.), employment creation and new capital formation. I’crhaps not surprisingly, the U K led the way since it attracted around 40 per cent of inward ,Japanese FDI into the LC. These new Anglo-Japanese commercial links were to make the UK a valuable advocate of *Japanwithin EuropeP‘ As Nuttall (1996) observed, this was to have a significant cll‘cct on Community opinion during thelate 1980s, with especially more liberal-minded member state governments such as Germany and thc Netherlands adopting a more positive and less confrontational attitude towards Japan. Although divisions between membcr states persisted over what approach EC economicdiplomacy with Japan should take, there was nowa clearer consensus for more co-operative rclations to nurtured with the Japanese.
Towards trilateralism(1991 to present) At thebeginning of the l99Os, thcintcrnationalcommunitystood at an important geopolitical and geoeconomic crossroads. The Cold War was thawing, Europe was on the verge of creating its singlr market and.Japan had become the world’s most important creditor nation.\.Yhile thc- U S 4 was seen to have won the ideological contest with communism, it simultaneously faced a more direct challenge to its economic hcgemony from its Triadic counterparts. Furthermore, globalisation was blurring the demarcations of territorial-based loyalties across the Triad powers and requiring closer trilateral co-operation 011 a widcr range of issues. This sets thc general context of LU-Japan economic relations during the 1990s. I n theory, the greatar gcoeconomic weight now alrorded to the EU and Japan and associated structural changes to the international cconomic system had created new opportunities fix these relations to develop beyond an agenda
.Ji
dominated by commercialconflicts. As wc shall later discuss, whilecloser dialogue and co-operation were consequently t o emerge between the two powers, the USA continues t o play the pivotal role in Triadic relations. Moreover, the persistentproblem of advancingthe EU-Ja an relationshipbeyondthe unidimensional realm of commercial issues’ has somewhat impeded the development of economicrelations themselves fbr reasons we shall analysis below.
8
A closer economic pnrlnersh$? We should begin, though, by considering the important steps forward which have been made during the 1990s in dcveloping closer EU”Japan dialogue and cooperation. I n July 199I , both powers signed the landmark E 6 Japan Declaration on the previous year’s E G U S transatlantic which was partly modelled ‘i5 equivalent. Notwithstanding new ideas on how to enhance EC-.Japan relations, for example, on conferring a higher priority to political dialogue and promoting both industrial co-operation and cultural exchange, commercial issues dominated both the content of the agreement and subsequent outcomes. The European Commission was keen to emphasisethe‘equitable access’ aspect of the Declaration with its ol).jcctive of seeking t o eradicate any structural impediments to trade, thus echoing old demands. ‘Those impediments especially highlighted were: 0
0
0
the keiretsu business groups wllose interlocking corporate relationships reduce the scope for foreign competition; an inefrective competition policy that overlooks thepotentialandactual welfare reducing outcomes from the above; thc lack of indelxmdentdealershipnetworks and underdeveloped retail sector; a particularlyidiosyncratictradefinancing system and businessassociations that cnjoy government support and occasional protection; a convoluteclsystemof multiple layersofwholesalers thathasadvantaged domestic producers at the expense of foreign rivals; Japan’spredilection for savings-led growth a s opposed t o consumption-led growth which leads to low import dcmand.
is due This initial emphasis on resolving outstandingcommercialdisputes partly to difficulties arising within thc EC-Japal1,Joint Working Group on Trade Problems which first met iI1,July 1990. The Europeans tabled cighteen issues for discussion while the Japanese submitted only thrcc, a reflcction on the burgconing trade deficit which the EC still carried withSJapan.”’‘I’he slow progress made by the EC at this mec,ting had not cmgendcred the most positive of Europcan attitudes in lx”-p“ration lbr the Declaration’s summit meeting. However, the new dialogue framework established by thc 1)eclaration agrccment enabled the EU t o cultivate a mort co-operative and conccssionary response from thc:.Japanese. An
importantpart of this framework was the annual EU-Japan summitswhich providedafirmer basis for conducting ‘high’ politicalrelations and gave momentum to thedevelopment of certain key initiatives. From acommercial point of view, the most importantweretheTrade Assessment Mechanism (TAM), various industrial co-operation initiatives, economic policy co-operation and co-ordination and Japan’s deregulation programme. The TAM was established in 1993 as a mutual attempt to identify respective underperforming exports in each other’s markets via a comparative analysis in third economies. Although essentially concerned with statistical analysis, it has been particularly useful to the EU in highlighting those sectors of the Japanese economy most resistant to import penetration. I n trrms of economic diplomacy, the ‘TAM hasalsoimprovedthe EU’s positionwith Japan by puttingtrade negotiations on an explicitly objective and reciprocal basis, as well as providing a permanent forum for suchnegotiations(Nuttall1996). Japan hasremained actively participative in the scheme owing to the TAM’S relative Ixmefits ovw a less impartial, more unilateralist assessnlent method. Since the late 1970s there had been discussion at Community lrvel over how economicco-operation with Japan couldbenefitthe EC (‘l’aylor 1990). The EC-Japan Centre for Industrial Co-operation, which trains European business personnel in Japanesemethodsand promotesbilateralinvestment,hasbeen operative since 1987. However, growing interdependence between Japanese and European firms through new investment links and other network relationships had provided a much stronger rationale for prioritising industrial co-operation l ~ y the 1990s. The first round of theannualEU-JapanIndustrial Policy and Industrial Co-operation dialogue talks commenced in 1993 between the European Commission and MITI. This consists of threeworkinggroups on information policy, industrial standards and 1)iotechnology Roundtable discussions between European and Japanesr business leaders have also been held since February 1995 with sub-groups working in various sectoral areas. In addition, policy co-operation and co-ordination between EU and Japanese reprcscntatives have extended into the field of competition, transport, social and lallour issues, energy,science and technology, theenvironment,developmentassistanceand education (Table 4.2). At the November 1994 EU Japan Ministerial Meetillg it was agreed that formal negotiations on Mutual Kecognition Agreements (h,.IKAs) would begin with the objective of establishing conformity in standards, testing and certification practices betwecn the two partners. The main advantage of an MRA is that it reduces the delivery timeof exports to product end users by allowing conformity to host market norms to he tested in homr-based lalmratories. Many of thcse initiatives have fosteredamoreco-operativeenvironment and given new breadth to EU-Japan economic relations. I n light of Japan’sstructuralimpedimentstoimportnotedearlier in the chapter, both the EU and USA welcomed the *Japanese governInent’s undertaking of a three-year deregulation programme which, itwas hopcd l ~ y Japan’stradingpartners, would remove many of thcsebarriers. ‘I’he EU was quicktorespond to Japan‘sopen invitation for views on this exercise and
The EU andJapan
99
7nble 4.2 EU-Japan consultation frameworks ~~
Name
of‘ conmllatioru
Japan-EU Japan-EU Troika Meeting Ministerial ng Ministerial Japan-EU JapawEU High Level Consultations Japan-EU High LRvel Financial Consultations Japan-EUIndustrial Policy and IndustrialCo-operationDialogue Information Policy Working Group Working Group on Quality Standards and Policy Biotechnolo\gy Working Group EC AIST (Agencyof IndustrialScience & Technology)Meeting ration Tradc Japall-EU Competition ‘I’alks on Policy Japan-Europe Forum Communications on Japan-EU Regular Meeting Telecommunications on Japan-EU Forum on Science and Technology Japan-EU High-Level Discussion Transport on Japan-EU Confcrcncc Social Jointon Affairs nsultation Economic .Japan-EU Japan-EU Consumer Consultation on Policy Japan EU High-[xvcl Consultations on thc Environmcnt Dialo
Frequency 1/ycar 2/year I /year 1/year 1/year 1 /year 2/year 2/year 2/ycar 1/year 2/year I /year ad hor 1 /year 1/1-1.5/ycar 1/year 1/year I /yrar 1/ycar 1/year ad /1oc
1/year ad /lac
+2/year ad hoc
I / Y months 1 /year 1/year ad hoc
scvcral x/year 2 /year 4 sectors 2x/year nd
/lor
1 /year 1/year
established a dialogue with theJapanesegovernment in 1994. It was arare occasion whcrc Luropc took the initiative ahead of the USA, which was at the time preoccupied with negotiating their ‘Framework Agreements’ withTokyo. EU was initially sceptical of Japan’s rcsolve Like many other trading partners, the toderegulate over the longer term. However, thedepth of theearly 1990s’ recession, globalisation’s exposure of certainstructural weaknesses inthe Japanese economy and the encroachment of neo-liberal ideas into even the most ‘controlled’ of EastAsia’s economies combined to provide a consensus within
100
The Ell a n d J q k n
Japan for economic liheralisation measures t o be implemented. I n hlarch 1995, the dereAwlation programme was officially launched by thesJapanescGowrnment. Under the terms of their agrcemrnt, the EU_Japan dialogue on dereLgulation was supposed to be a two-way process and the Japanese have suhmitted their proposals for EU deregulation over time. I n reality, though, this process has been essentially uni-directional, with the E U making the most ofits securing of a regular channel of discussion through which Japan’sderegu1ator)i issues could be considered and rcviewecl.” ‘lhc priority which the EU afhrded to this exercise was somewhatgreaterthan the Japanescgovernment first anticipated. I n November 1995, thcEuropeanCommissionsent a list of 180 dcregulatory proposals t o Tokyo that covered matters on transport, industrial standards and certification, sanitary and phtyosanitary regulations and various scctoral issues. Dissatisfied with the speed of implementation in the progranmw’s initial phase, a high-level mission from the EU visitedJapan in February 1996 to persuadc the *Japanese governmentto derqgulate more quickly, although it acknowledgcd that certain vested interests inJapan were resisting the process of economic reform. Furthermore, a s Ishikawa ( 1 990) arguedearlier,previous attempts to remove structural impediments in the Japanese economy required either the deconstruction or reconfiguration of Japan’s socio-economic infrastructure and network relationships. This, it was contended, is never an easy task. Nevertheless, pressure was sustained by the EU on the deregulation issue with theEuropcanCommissionreleasing a prcss statement in March 1997 which expressed its opinion that programme had made ‘slow but significant’ progress. A few months latcra new indicative list was prepared by the European Commission in Au
' T h e E l i nnd]npatl
1 01
National and l ~ U - l c \ dcxport promotion schemes specifically targeting Japan '$8 were first introduced in the early 1990s. European firms in general have become more confident in exporting to <Japan,altlmugh thc: EU continues to stress a range of horizontal and sectoral market accrss problems that are perceived to hamper their e l h t s . In a summary rrport of these prohlems produced in June 1996, the European Commission identified over forty separate sectors in ,Japan where market access for foreign firms w a s Ixdicvcd to IIC particularlyrestrictcd. Various horizontal issues wrrc also highlightcd,namclypublicprocurement,competition policy, standards, testing and certification, Japan's distribution systcms and the keird.nl. This provided anothrr opportunity for the EU to confront ,Japan ovcr the structural impediments t o import issue. Iurthcrmore, the LU's prrsisting trade disputes over Japan's discriminatory liquor tax regime, tariffs and quantitative restrictions on leather products, fish, pigmrat imports and harbourpractices were raisedby the document. While the Europcan Commission achicvcd a positive result from a M'orld Trade Organisation (WTO) panel decision on thr liquor tax issue in Novembrr 1996,"" theother disputesremainedoutstanding. .Japan's 'divide and conquer' approach of playing ofY EU 1ncmlx:r states against each other and the European Commission continues to he practised here, altllough ac1mittec1ly to far less cfKxt+" I n contrast, thr Japanese government has had very few Iilateral complaints with the EU during the 1990s. As Table A.8 shows,Japanese firms wcrc subject to only tcn EU anti-dumping investigations over thr 199 1-7 period, compared to nincteen during the carlier 1985-90 period. By November 1998, the numlxr of actual definitive !\L)l)s in force againstJapanese exports to the EU had fallen to seven (Tahlc, 4.3). 'I'he only major quantitative restriction imposed on *Japanese products entering the EU by this time was thc VER on cars. Moreover, .Japan EU throughmultilateral tendedto resolveits main trade disputcswiththe channels. Yet even here the EU has alsoused the WTO's disputcs settlcmcnt mechanism against Japan on f i r more frequent occasions. 'I'hcse related t o its liquor tax regimc,teleroms and naviS;&mal satellite procurementpractices,
Product Definitive duties in force Lighters (disposaldr)
Elrrtrolyte capacitors Electronic weighing sc;dcs Microdisks Irlcvision camrra systcms Advertising nlacI1inc.s nlachincs (~~crsonal) r .
28.I 1.91 03.12.92 29.04.93 21.10.93 30.04.94 IG.10.97 27.04.98
102
Ihe EU andJapan
sound recordings rules and pork import regulations, Since the inauguration of the WTO,Japan is yet to use its disputes settlement mechanism against theEU. Furthermore, the EU'sinvolvement in the recentFuji-Kodak dispute between WTO is indicative of the growing trilateral contextof the USA and Japan at the EU-Japan economic relations. The US company Eastman Kodakalleged that its ilm and paper market was being restricted by access to Japan's photographic f both government regulations (i.e. the Large-scale Retail Store law) and Fuji's dominance of retail distribution channels. Consequently, the USA took the matter to theWTO disputes panel in October 1996 on the basis of Japan's failure to pursue appropriate competition policy measures to this case. In April 1997 the EU expressed its own concern to the WTO on this market accessissue, thus reinforcing US pressure on Japan in a hope of acquiring positive externalities as 41 an outcome.Apressstatementreleased by theEuropeanCommission in February 1998 further urged Japan to reform its economy's distributionsystem as part of the deregulation programme. An analysis of EU-Japan sectoral trade patterns during the 1990sreveals that there was a further shift in the technological balance of trade towards Japan. Figure 4.3shows that a relatively high proportion of EU exports to Japan in 1997 consisted of primary products at 11.9 per cent, compared toonly 0.7 per cent of Japanese exports to theEU. Moreover, a highproportion of EU exportsto Japan is concentrated in lower technology sectors (e.g. textiles and clothing) while the share of Japan's high-tech exports to the EU has continued to rise. Thus, the Japanese competitive challenge to the EU remains significant. Over the 1990s the EU's importance as a Japanese trading partner had also diminished slightly, accounting for 13.4 percent of totalJapaneseimportsand 15 percent of
Japanese FDI flows to Europe and USA (1981-96) 4
35,000 30,000 25,000
-
.e - 20,000 C
z
15,000
-
10,000
-
3
5,000 . O
C
,
l
"
+
~
-
-
.
-
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
-
.
~ 1991
1 0 Europe
USA1
Figure 4.3 Japanese FDI flows to Europe and USA (1981-96) Source: JETRO.
~
~ 1992 1993 1994 1995 1996
~
"
'
The EU andJapan
103
Japanese exports (see Table 4.1). Finally, Figure 4.4shows that Germany and the U K are Japan’s most prominent EU memberstate trading partners, with France, Italy and the Netherlands also having close trade ties.
Tiodic relations: competition, coalitions and co-operation Kelations between the core Triad powers - the EU, USA and Japan became increasingly important in the 199Os, both in global terms and to each individual power. We can analyse these relations from three perspectives: competition, coalitions and co-operation. At the turn of the decade, there was much debate and speculation concerning which power would emerge as the hegemon of the early twenty-first Century (Hart 1992; Thurow 1992; Albert 1993). Discussions on Triadic cornpetition mainly centred on relative performances in high-tech industries and thepotential leverage eachcould exert within the filture international economic system. Many were predicting that the US then current hegemonic position would be seriously challenged by the EU and Japan by the end of the 1990s. Asit transpired, the US economy outpcrformcd its two contenders on macro-economic criteria and also retained or improved its lead in a head range of high-tech industries. Furthermore, as Strange (1 987, 1994) has argued, the fundamental basis of US structural power remains strong. While the decline of US hegemonyhas perhaps beenoverstated,therehas nevertheless bcen a more discernible shift towards a tripolar balance of power over the postwar period. AlthoughJapan’s economic weight in GDP terms is least of the three, its commercial and financialstrengths are arguablythe most formidable,as demonstrated byits large trade surpluses with both Triadic rivals and the EU_Japan sectoral tradepatterns examined earlier. Despite its industrial weaknesses, the EU’s own geoeconomic weight has itself increased as a consequence of dynamic integration and enlargement. To some degree, globalisation has made the Triadic competition debate somewhat redundant. The proliferation of transnational production, distrihution and service systems across the Triad has made geoeconomic loyalties increasingly difficult to distinguish. Thus, in the context of EU efforts aimed at improving its competitive position vis-&vis Japan and the USA, Bourke (1996) highlights the point that EU firms, by entering into strategic alliances withJapanese partners, challengedthe concept of competitiveness in terms of the EU versus Japan. Furthermore, by playing host to a significant number of Japanese firms some member states were willing to ‘side with Japan in political economic bargains’ which ‘created a counter-force against the assumed bond between territoriality and competitiveness’ @. 86). However, it is easy to exaggerate the case Japanese investment in the EU as a percentage of total EU investment is vcry small, and moreover the level of European investment inJapan is Far smaller. The territorial imperative remains strong among the Triad powers and thus also the sense of acquiring a competitive or other advantageover the other. .12 Given the persistence of the tripolar power structure, game theory would suggest that there are occasions where either ‘two against one’ coalitions or trilateral ~
104
n2e EU andJapan Japan’s exportsto the EU by sector (1980) Iron and steel
Other manufactures 16.9% Photcgraphlc,1and time-keeplng products8.0% and machlnery
Pnmary products
Other mdustnal equ~p.5.3%
machlnery Electncal
General lndustn machlnery and equlp.3.5
emms and audlonsual
Offfce machlnes and products computers 6.196
16.8%
Japan’s imports from theEU by sector (1980) Electncal machlnery Textiles and clothmg MIS. mdustnal machlne
11.l%
3J30~ Telecoms and “ “ ~ ~ S 0 . 8 %
audlonsual
Chemlcals 21.8%
OfAce machlnes and
Speaallsedlndustnal eneral mdustnal machlnery and equlp. Other manufactures 4.3% 20.3%
Fipure 4.4 Sectoral structureof EU-Japan trade (1980, 1997) Source: Eurostat. l i arise. The former of these has long been recognised co-operation outcomes w as a feature of Triadic relations (Ostergaard 1993; McIntyre 1994). With the USA invariably taking the initiative in applying gaiatsu, the Japanese government have been waxy of generating any premise that would lead tothe EU reinforcing this pressure.43However, the close alignment of transatlantic interests in tackling Japan’s structural impediments to import has madethis impossible to avoid. Even when the EU disapproved of the American MOSS and SI1 initiatives, it had nevertheless agreed with its broad aims and moreover was a significant indirect beneficiary. More recently, EU and US pressure has worked to some degree in tandem over Japan’s deregulationprogramme. Yet the USA hasoftennot required European support to achieve its objectives as its relational and structural power over Japan have frequentlysufficed. follow By contrast, theEU’s lower degree of leverage meant it regularly had to in the slipstreamof US bilateral agreements brokeredwith Japan4 by attempting
Ihe EU andJapan
105
Japan’s imports from the EU by sector (1 997) Textilesandclothlng audio-vlsual machlnery lndustnalOther equlp. and
6.8% \
r
Electrical machlnery 4;7% and Telecoms
1.Z
roducis 2.5%
Pnmary products 11.9% Speclallsed lndustnal rnachlnery4.1%
Office machmes and
computers 4.5%
Other manufactu 27.3%
e
General lndustnal machlnery and equtp. 3.7%
Japan’s exports to theEU by sector (1997) Textilesandclothtng 1.2%,
Iron ~
~ ~ ‘ w l
Other manufactures Photographtc. optical and timekeeplng products 3.7O
Mlsc. lndustnal machtnery and equlp.6.8% General lndustnal machtnery andequ~p.5.6%
Office machlnes a audlo-visual products 7.2%
Figure 4.4 Continued.
to match such deals retrospe~tively~~ However, the signing of the EU-Japan ‘national treatment’ agreementin 1994 helped to negate this problem, although theEuropeanCommissioncontinuestomonitor all US-Japan agreements closely to ensure that any market opening measures are MFN compatible. In March 1997, for example, the EU requested formal consultationswith Japan at the WTO regarding Japan’s allegedexclusion of European suppliers from a $40m government contract for a global satellite navigation system. This arose because the Japanese government restricted suppliers to theuse of US technical specifications, thus disadvantaging EU companies and risking violation of the EU-Japan agreement and the WTO’s own Government Procurement Agreement (GPA). Generally, though,Japanhasadoptedamoreimpartial market opening approach in recent years and has been increasingly reluctant to make significant bilateral concessions to the USA.& In addition, therehave been occasionswhere theEUhasdeniedsupporttotheUSA in its attemptsto
106
The EU and.7apan .17
multilateralise gaiatsu uponJapan, mostrecentlydemonstrated i n the USA Japan autos and auto parts disputes of the mid- 1990s. The mutual need t o contain US unilateralism and other hegemonic excesses has provided the strongest basis for an EU-Japan coalition. New trends in global interdependenceapparentfromthe 1980s onwards havealso ofkrrd grcater opportunities for the EU and Japan to explore positions of common interest, facilitated by recent growth in the EU_Japan foreign policy network (Ginsherg 1989).‘The new Asia-Europe Meetings (ASEM) dialogue framework has provided a wider inter-regional dimension to this process. Yet the potential for EU_Japan exploited. Various rcasons have been coalition building has rarely been forwarded to explainthis. Although the EU acts increasinglya s a unitary actor on commercial matters, the same doesnot apply on matters of ‘high politics’.’“’ This is an important US advantage over the EU concerning relations with Japan, enhanced further by a close security relationship that underpins Washington’s economic and political ties with Tokyo.’The relative lackof substance to EU-Japan relationsoutsidecommercial issues thusaccounts for why the EU ranks below the USA in the divisionof ministerial responsibilities withinthe Japanese government. Furthermore, the psycho-cultural distancc betwren both I’acific powers has steadily decreased during the post-war erawhilc that betwern Europe and Japan remains pronounced and has closed little. EU nlember states have been too preoccupied with developing relations with each other rather than distant countries from other continents, despite %Japan’s status a s a key commercial partner. The EU’s ambitious integration agenda of the 1990s has naturally exacerbated this introspection, although this has simultaneously made Japan more aware of the need to develop a firmer ‘European’ policy. Like the USA, Japan’s interest i n the global impact of European rconomic and monetary union (EklU) is considerable, especially regarding its ell’ects on patterns of Japanese trade and investment, as well as its impact upon the glohal financial system. Towards the end of the 1990s the predilection for ‘two against one’ ‘I’riadic coalitionsgenerallydiminished while thepractice of trilateralco-operation increased. We noted in Chapter 2 how the first concepts of trilateral co-operation weredeveloped byBrzezinski (1973),Smith(1974), UIIman (1976) and Sklar (1982), although their analysis was primarily focused on issuesofhigh politics and the work of the public policy elites within the ’l‘rilatcral Commission. Since the mid- 1980s in particular, co-operation on economic issues between tlw EU (or EU member states), Japanandthe USA hart. evolved graduallythrough plurilateral and multilateral regimes. The G7 framework has provided a useful forum in which important international economic concerns and the sometime co-ordination of macroeconomic policy are discussed. This has most recently centredonthe 1997-8 East Asian financial crisis. The OECD forum is a l s o relevanthere. At the WTO, the ‘li-iad powers have.jointly spearheaded thr launch of varioussector-based tradeaccordssuchastelecommunications, maritime transport, financial services and electronic commerce. At the Kio de Janeiro (1992) and Kyoto (1997) eco-summits,theUSA, EU and .Japan were
T h e BU a n d j a p a n
107
primarily responsible for establishing new multilateral environmental agreements. Globalisationhas also generallyunderlain theneed for improvedTriadiccooperation through its creation of greater economic interdependence between the Triad powers. The incentive to find trilateral solutions to common problems is born from the deepening interpenetration of production, supplier and service provider structures across the Triad, hence presenting an a priori case for closer trilateral co-operation between economic policymakers.
EU-Japan foreign direct investment: a closer examination ‘I’hus far, we have made several references to the impact that Japanese FDI in Europe has made to EU-Japan economic relations. In this section, a closer study of the FDI relationship between the two powers is made which also includes an analysis on EU investment inJapan. We shall mainly concentrate, however, on considering theoretical explanations that have been proposed regarding why the EU increasingly played hostto Japanese firms from the mid- 1980s onwards. The reader may wish to re-read the earlier section on Japanese outward FDI as the contextual background to what follows. Japanese FDI in Europe
Japanese investment in Europe has not just been a post-war phenomenon. In a historical analysis on the subject, Mason (1992) notes that during the pre-war period Japanese FDI in the Westwas primarily based on trade-supporting or technology-acquiring motivations. This remained the trend in the early post-war years, although investment levels were very low until the 1970s.From 1951 to 1965, cumulative Japanese F D I in Europe stood at a mere $25m, representin\ 45 only2.6 percent of total overseasinvestmentsmade by Japanese firms. However, by 1971 both figures had risen sharply to f988m and 16.3 per cent. The relaxation of FDI rules from the late 1960s onwards and the contemporaneous surge of Japanese exports to the EC, both noted earlier in this chapter, largely explainthis trend. Much of Japanese investment at this time was trade-supporting in nature withthe sogo shosha expandingtheircommercial distribution networks within Europe, while the newly arrived finance, banking and insurance companies of various keiretsu groups also helped facilitate Japanbasedexporting activities. Overseasinvestment was also a means to recycle Japan’saccumulation of financial capitalgenerated by thesubstantialtrade surpluses which it was beginning to register against the EC. Furthermore,Darby (1997)argued thatthe initial growthofJapanese manufacturing investments in Europe can be linked to *Japan’s environmental crisis of the late 1960s and early 1970s. This especially applied to chemicalrelated industries and the negative externalities generated by Ozawa’s ( 1 99 1) ‘Phase 2’ restructuring(scale-basedmodernisation of heavy and chemical industries) that led to thetransplantation of certain activities to Europeand 50 elsewhere. The extent to which this argument can be applied to all Japanese
108
The E l / antlJnl,nn
manufacturing investments in Europe during this period is debatable. Moreover, most ,Japanese ID1 in Europe was concentrated in service sector industries, a trend which has persisted with these industries accounting fi)rjust over two-thirds of the total.” While Japanese FDI i n Europe continued to rise during the 197Os, standing at a cumulative $3.9bn by thc end of the dccade, its sharc of total,Japanese outward investment fill. ’I’his could be attributed to the rapid expansion of mining and labour-intensive manufacturing imatments in Asia, spurred on by the respectivr needs of Japan’s resourcc-hungry industries and of its firms in low value-added sectors to presenrc cost competitivenrss. By the mid-I980s, though, Europe had once more become the focus of Japanese investment intercsts. I n 1981 cumulative Japanese €31 in Europe was $5.3bn and 1 1.6 per cent of the total (see Ficgure 4. I ) and by 1985 had morc than doubled to $1 1 .Oh with the annual flow of investment at $1.91)n for that year. Over the following four-year period, thecumulativc amount was to ClLIadruple to reach $45.%n in 1989 with the annual inward flow in this year at an historic peak of $14.8bn. Figure 4.3 shows that Japanese investments in the USA were also expanding at a similar rate. The escalation of.Japanese FDI in l~uropcduring the latter part of the 1980s generated much academic debate. Initially, the process of European integration was strongly associated with the signing of the SEA in 1986, which was seen as a catalyst for both reactive and proactiveJapanese inward investments as previously aresponse to acknowledged. By this categorisation, reactiveinvestmentswere theanticipatedemergence of ‘Fortress Europe’ in which heightened EC protectionism was intended to retain the bencfits of market intcgration for ECbased firms (Hanson 1998).Thus, the ‘insidcr’ status that Japanese firms sought was motivated by theneed t o circumvcntanyfuturehigh tariff walls erected around the Single Market (Heitger and Stchn 1990). We have already discussed how the concentrated penetrations made by Japan’s consumer good producers (Ozawa’s ‘Phase 3’ of restructuring) in I’U markets had already elicited a comprehcnsivcprotectionistresponseagainsttheirimports.Similar responses thatwere manifestelsewhere, mostnotably in NorthAmerica,hadalready provided a considerablespur to theillternationalisation o f Japanesefirms. Although more recent research undcrtaken by Belderhos ( 1 997) suggested that Japanese FDI i n boththe E:U and USA remained significantly motivated by ADD circumvention in particular, Nicolaides and ‘Illomsen (1 99 1) argued that proactivefactorswere more relevant. ‘I’hese includedtheexploitation of Japanese firms’ ownership-specific advantages within more systematic global strategies and the repercussions of industrial restructuring back home. I n a later work thatdrew on theproduct lifecycle theory of FDI, ‘I’homsen (1993) proposed that by the 1990s Japanese FDI in the EU was primarily motivated by the need to:
0
0
defend market shares threatened by intrnsified global competition; release resources hack home in order to develop and market new products; draw closer to larger markets within a coagulating SEM.
Ihe EU andJaFan 109 EU12 exportsto Japan by member state (1987) UK 18.0%
EUlZ imports from Japan by member state (1987)
Belgum-Lux 55% Denmark
n
Portug 0.4‘ Netherlands 4.8%
-
Belglum-Lux 6.0% Denmark 2.3%
UK
I
Germany 32.8%
I
1 Italy 1.8% Irelanc 1.n rmww
-
I
8.7% Ita1 8.7klandwreece 1.1% France 11.6%
14.0% Spatn G~~~~~ 1.8% o.4y0
EU15 exports to Japan by member state (1997)
1.4% Spaln 4.8%
EU15 imports from Japan by member state (1997)
A” Sweden Belglum-Lux 1.E% 5.0% Denmark mnland\5.g+ 1.9564
UK
A
Germany 28.8%
Germany 27.90, 0.4% Netherlands 4.7% Netherlands 1.2%
3reece 1.4% Italy-
,,,,-,
-rJ’n
Ireland France 3.7%
F i r e 4.5 EU trade with Japan by member state (1987, 1997) Source:Eumstat.
Thomsen went on to state that technological rivalrybetween major Japanese assemblers createdaperpetualneedto develop new products for the home market, with the consequence of outdated product technologies being quickly transferred tooverseas production plants.Yoshitomi (1996a) concurredwith this, proposing that Japanese manufacturing investments in Europe were part of a wider process of relocating more standardised, high volume products abroad while domestic-based activities were left to concentrate on highest value-added manufacturing and improving flexible automation systems. Moreover, Wakasugi (1994) observed that the improving rate and quality of innovation permitted Japanese firms to undertake such a strategy on an increasingly broadscale. AlthoughKumeand Toksuka’s (1991)emphasisontradefrictionasa determining factor behind Japanese FDI in Europe complied with Heitger and Stehn’s hypothesis,they also argued that factor and market access were key motivations. In addition, these investments could be seen as integral to a wider global ‘risk-management’ strategy to minimise both actual and unanticipated
1 10
‘The EU
and Japan
costs. For Akimune ( 1 99 I), the general expansion of the world cronomy and domestic asset price inflation were principally instrumental in driving %Japanese investment into Europe and other regions by the late 1980s. As the 1990s progressed, JETKO annual surveys and other studies consistently testified to globalisation strategies being the prime determinant behind .Japanese FDI in Europe. In the analysis by Morris (199 1) hc made the distinction between how Japanese firms in Europe had moved from ‘simple globalisation’, in which FDI comprised of ‘final assembly operations closely controlled by the parcnt in Japan, where few components are sourced locally and little R&D are carried out’ @. 2), to ‘global localisation’, whereby firms are engaged in a ‘full manufacture’ configuration of activities. This is typically characterised by greater subsidiary control and integrated product and locational strategies. In addition, empirical research conducted by Nitsch ( 1 995) found that defensive or ‘reluctant investors' had performed poorly, suggestingthatreactiveinvestmentstrategiesaremost likely to yield sub-optimal outcomes. Additional references to Dunning’s 0-I,-I (ownership-locational-inter~~alisatio~~) analyticalframeworkprovide other perspectives on Japanese FDI in the EU (Dunning 1993). Some ownership-specific advantages are dependent on ccrtain structural features of the Japanese economy. For example, the potential to emulate or transfer multi-layered systems of subcontracting, on which the practicc of ‘lean production’ is partly based, may be limited in the host country. So too may be the positive feedback effects that originate from sophisticated demand expectations, which Japanese companies usually enjoy from home consumers. O n the otherhand, theearlyintroduction of flexible manufacturingtechniques, as embodied in Phase 4 of Ozawa’s (1 99 I ) ‘industrial restructuring’ model, helped 52 empower Japanese firmsto compete successfully across Europe’s multi-domestic marketconditions. The need closer to observethenuances of European consumer cultures, combined with the ability to ‘mass customise’ products to satisfy them while remaining cost competitive, provided a significant impetus for investment. According to Yamawaki (1993), location-specific advantages have played the incisive role in the decision-making process of Japanese investments i n Europe. From a detailed empirical analysis, he concluded that a host country’s provision of relatively low labour costs, a substantial K&D capability and a large domestic market were the most effective combination of factors in attractinginward Japanese FDI. ‘lhe UKhas perhaps shown thatit possesses thc best combination of these advantages and has maintained its position as the major host nation with 38.3 per cent of the post-war cumulative share in 19% (Ficqre 4.6). This position is now reinforced by certain agglomeration effects enjoyed by investingJapanese companies in the UK, such as an established and large Japanese business community and the network links that lie therein. Moreover, UK suppliers have been attheforefront of embracing Japanese-styleproduction andmanagcmcnt methods in Europe. Yamawaki further stressed the dual function of Japanese FDI, that is to serve the local market while acting as a springboard into the wider European market.
lh EU &Japan
111
Stock of Japanese FDI in Europe by host country destination(1996) Other Europe Belwm 3.6%
7.9%
Norway 0.9% Luxembourg 6.2% 3.1% Netherlanas 20.6%
Spaln
3.2%
Fire 4.6 Stock of Japanese FDI in Europe by host country destination(1996) Source:JETRO. Interestingly, this implied that Japanese firms did notyet perceive the EU as one unified marketplace, as aspired to by the SEM programme. His findings also concurred with Lamoriello’s (1 992) observation that strong investment inflows correlated in those sectors where Japanese firms already enjoyed large market shares in Europe, e.g. automobiles and consumer electronics. A related theme explored by BalasubramanyamandGreenaway (1992) concerned how the inroads made by investing Japanese firmsin European marketshave increasingly been achieved through internalising transactions that reduced thecosts and risks of arm’s-lengthdealings. For example,direct selling and amoreproximate position obtained to end markets bestowed a number of benefits that the external transactions associated with distance exporting could not. Other instances where Japanese firms were using FDI either to exploit or avoid market failure are also pertinent. The above analysis of Japanese FDI in the EU has focused on international production theories, but let us return to the domain of political economy. We noted previouslyhow the expansion of the EU-Japan FDI relationship had profound effects upon their economic relations in general.By ensconcing themselves within Europe, Japanese firms were able to develop alliance relationships with EU state and non-state actors that to some extent altered the matrix of loyalties in EU-Japan economic diplomacy to Japan’s general advantage. While this was convincingly argued by Bourke (1996) and Nuttall (1996), Encarnation and Mason (1994) contended that while the EU policy model towards Japanese FDI which was emergingduringtheearly 1990s promotedsynergetic cooperation between European and Japanesefirms, it also emphasised the need to 53 continue regulating the latter’s investments. Even liberal member states such as the UK maintained various restrictions on Japanese firms which covered local contentandrelatedperformancerequirementsaimedatextractingoptimal value-addedoutcomesfromtheirtransplanted activities. Moreover, many of
1 12 irhe EU andJapan theserestrictionswereblatantlydiscriminatoryinnaturewithotherforeign investors not being made subject to such a tough regulatory regime. As Mason (1994) details, this emerging EUpolicy was most clearly articulated in theautomotive sector. Undertheterms of the July 1991‘Elements of Consensus’ documenton EU-Japan automobiletradeandinvestment,both parties were committed to fulfilling three general objectives. The first of these obliged theEUtoprogresstowards full liberalisation of itsmarkets by 31 December 1999: thus,the VERs of five separate EU memberstates wouldfinally an avoidance of EU disappear by this date. The secondobjectivecalledfor market distortion in the meantime. This implied that Japanese auto transplants in Europe were not permitted to concentrate their intra-EU exports on these restrictedmemberstatemarkets.Inaddition,thethird objectivecommitted Japanese firms to make an appropriate contribution to both generating high value-added activities locally and improve European competitiveness. Protracted negotiations followed with a final agreement signed in 1993. This represented a continuity in the EU’s policy of ‘containment’ with respect to Japanese firms. Toconcludethissection, we shouldnotethattheaccumulatedstock of of Japanese FDI in Europe stood at $1 13.0bn by 1996, representing 19.2 per cent the total outward F D I from Japan (Figure 4.1). Most of this, $100.6bn, was located in the EU itself.
European FDI in Japan The relative brevity of the analysis that follows on European F D I in Japan reflects boththe lowlevel of thisinvestmentandthepaucity of academic research conducted on thetopic. Thus, the questionof ‘imbalance’ in EU-Japan commercial exchange has applied not just to trade butalso to FDI. By 1996 the total stock of EUdirectinvestmentinJapanamounted to $5,792m which represented just 5.1 per cent of cumulative Japan FDI in Europe at the time. Inward FDistock in Japan by geographic origin(1989) EU
Other 38.9%
Inward FDIin Japan by geographic origin(1996) Easl Asla
Other 2.3%
I Easl Asla 21 .0%
USA
-
60.4%
Fipure 4.7 Inward FDI stocks in Japanby geographic origin(1989, 1996) Source: UNCTAD databse.
n e EU andJapan
1 13
However over the 1989-96 period, the EU’s share of total inward FDI in Japan rose from 16.6 per cent to27.6 per cent, although thiswas more than matchedby 4.7). Of the the USA’s increased share from 23.5 per cent to 60.4 per cent (Figure EU’s investors, UK firmshavebeenresponsibleforthelargestshareof investment in Japan, followed by those from Germany, the Netherlands and France (Figure 4.8). The general level of inward investment in Japan has been persistentlylow by international standards withits share of the world’s total inward FDI stock rarely rising above 1 per cent. A number of possible causes forJapan’s low propensity of inward FDI have been cited. These include regulatory obstacles, the failure to harmonise standards and testing procedures with international norms, convoluted distribution networks, market access problems and keiretsu business structures. At the same time, EU firms are at leastequally culpable for not having familiarised themselves adequately with Japanese business culture, distributive practices and thegovernment’s regulatory framework.This being said, Figure 4.7 suggests that they have performed better than their non-American counterparts at overcoming Japan’s inward investment barriers. Furthermore, Mirza et al. (1995) observed from their empirical studies that European firms have become more proactive with respect to their direct investments in Japan. Bourke(1996)attributes part of the reason for this FDI imbalance to the Japanese government’s somewhat passive role regarding the surge of Japanese FDI into Europe, which subsequently failed to produce a linked bargain over reciprocal investment access for European firms in Japan. However, Japan did begin to liberalise its inward FDI regime from the early 1980s onwards. Most recently an objective of thederegulationprogrammehasbeentostimulate inward foreign investment. Its success ultimately depends on the breadth and depth of response which it has been devised to elicit from economic agents and organisations within Japan’s domestic economy. We have already acknowledged thatmany ofthoseimpediments possess definingcharacteristicsthatare EU direct investmentin Japan: netstock invested by member state(1996) Other a s%
Netherlands
3%
France 10.4%
v Germany 24.2%
F i r e 4.8 EU direct investment in Japan: net stock invested by member state (1 996) Source: UNCTAD database.
1 14
The EU and Japan
essentially structural or cultural in nature. Hence, efforts completely to remove them may take a very long time to accomplish or, in some cases, prove fruitless. This will be reinforced by actions of resistance to gaiatsu from the perception that Japan’s economic as well as societal identity is being threatened. Consequently, the imbalance seems set to remain unless European MNEs in general are able to constructmoreinnovativeinvestmentstrategies in Japanor workin closer collaboration with Japanese firms through strategic alliance arrangements. The increasingsignificance of theEast Asian region as an investmentcentre will undoubtedly providesome of the impetus required with Japan providing the location and resources for the more higher value-added activities of European investors. Furthermore, the future restructuring of the Japanese economy as a consequence of recent financial problems should diminish someof the structural impediments to inward FDI.
Conclusion The EU’s economic relationship with Japan continues to be thr most important among those with its East Asian partners. This can be explained in terms of the volume of micro-economic exchange, the breadth of other corporate ties and the Triadic dimension to EU-Japan economic relations. While a more co-operative framework of relations has been established between both powers, we have also shown how inherent tensions within the relationship still persist. We now analyse these general themes from different IPE theoretical perspectives. To neo-realirts, the state-centred aspects of Japan’s economic development and the conduct of its international economic relations have clearly been the most important. The state played the key role in orchestratingJapan’s catch-up with its Western industrial rivals both before and after World War 11. Its European trading partners had first become familiar with its neo-mercantilist tendencies as far back as the nineteenth century. Moreover, theEU memberstates have always had to combat the unified resolve between the<Japanesestate and ‘peripheral’ state actors. The close stateesociety linksin Japan have meant thatthedistinction between state and non-state actors has sometimes been difficult to establish. For example,the hiidanren hasbeenalong-standingagent of Japan’sforeign economic policy, asthe 1962 tradenegotiation offensive in Europe and later VEKarrangementsdemonstrated.Thus,the EU has had toconduct its economic diplomacy with ‘Japan Incorporated’, where the Japanese state extends beyond the usual parameters of government. However, it has been noted that many state-society links in Japan have weakened during the 1990s. While Japan has benefited from unified statism in its economic relations with the EU, it was able to exploit European disunity to its advantage. In the early stages of EU--Japan economic diplomacy, Japan very effectively polarised EU trade politics and played one member state off against another as each aspired to acquire relative gains in preference over absolute gains. The introduction of the CCP did begin to address this predicament, although it took some time before a convergence of joint interests could be maintained on substantive trade policy
issues. It was only \vIlen the SEM and its mandatory removal of various nationallevel measures were cstablished that a coherent CCP towards Japan was finally in place. ‘I’hc col1fict in 1-U japan economicrrlations can also be attributed to the changing balance of geoeconomic power. We have discussed how the EU was SIOW to acknowledge Japan’s ascendancy as an economic superpower and hence anticipate its hilateral and global implications, which itself holds lessons for the EU’s current ecoI1omic relations with China. The inertia among EU industries and economic policymakers in positivcly responding to t h c Japanese cl~allcnge can t)c blamed tbr many trade conflicts, as can Japan’s assertion of its burgeoning commercial strengths. Furthermore, we have shown how a tripolar balance o f power pr(1vided an alternati\Te regimetohegemonicstability in the 1990s. Despite the Ionger-trrm loss of US hegcmony and the frequent descent of thr USA into unilatcralism which neo-realists predict, each Triadic power has proved reluctant to initiate a tradewarorwithdrawfromthemultilateralorder. Moreover, the EU and US promotion of ‘fair trade’ as opposed to free trade in theirdealings with *Japan h a s been more or less accepted, as revealed in the management of the Japanese government’s recent deregulation programme. t i t the same time, US hegemonic power has usually sufficed in cajoling Japan intosigning new market access deals for producers. Thus, while theUS may welcomeEUassistance in applying gaiutsu upon Japan, it is invariablynot requisite to US stratqgy. *Japan’sperception of the USA as a strong unitary actor and thebroadrange of high political issuesin USA-Japan relationsfurther is strengthen the American position in comparison. In these respects, the EU handicapped by its complex system of inter-governmental andsupranational governance, the view held by many Japanese that Europe is destined for longterm economic decline and the lack of high political interests between the EU and Japan, c.g. on security matters. However, some Japanese believe that greater European unity and economic dynamism may stem from the SEM and EMU projects. Neo-rralists would further point out that the relative shift from low to high politics in EU-Japan relationsduringthe 1990s led to a significant improvement in their economic relations. ’I’he neo-liberal perspective otrers ;I diKercnt set of interpretations to the alxwe. While neo-realists emphasise the state-centricity of Japan’s economic relations, neo-liberals stress the crucial role now played by distinguishable non-state actors in this field. ‘I’hey also propose that Japanese MNEs have confused the process of state rconomic policymaking by thetrarlsnationalisatioll of ,Japan’seconomic interests. ’I‘he two trends arc related. %Japanese multinationals and organisations such as the Keidanren work to their own separate non-state agendas, especially now in the era of globalisation where the interests of the keirekru are more determined by transnational factors and hence less by national factors. As far as they have beenable,Japanescpolicymakersmust now considerthe foreign investment concernsof.Japanese big business whose operationsarecurrently dispersed across the EU and elsewhcrcx. A parallel development highlighted by neo-liberals is the growing relevance of
1 16
The ELI and.7apan
domestic-internationalbargains.C;lot,~~lisatiou’sexposure of thedomestic economy to international forces has furthrr incrrasecl the participation of nonstate actors in EU;Japan economic relations. For rxamplr, the EU’s industry associations and trade unions have long 1ol)hied natiottal govcrnmc~ntsa t t d the European Commission to erect defensive Ilarriers against the .Japanese competitive threat and the surplus capacityproblemsin Europe which it has exacerbated. Environmental groups and other non-govcrnmcntal organisations have in the past expressed anxiety over thcnature of certainaJapanesc invcstments madc in lhn-ope (1)arby 1997). Compromisrshctwern khrope’s domesticstakcholdingconstituents and .Japancsv representatives must thus be corlstmtly hrokered by EU governingauthoritics. ‘I’his too can be appliecl t o *Japanat the domestic Ie\d where the government’s deregulation programmes of the 1990s interfaced socio-economic adjustment with E l i cliplomatic pressurc. have seen in this chapter how I D 1 rrconfipres the However, we domestic-international I m p i n i n g prorcss by its realignment of state, sub-state and non-state interests. As the most important host of Jal)a~wscinvcstmcnt in Europe, the UK has 1)ccomc a pivotal ally to.Jnpan in its econonlic relations with N local autlloritics and subcontractor the EU. It was also shown how many l firmswith investment links to ,Japanese multinationals often sidedwith these patrons in the bargaining structure of EU J a p m cconomic diplomacy (Bourke 1996; Urata 1997). In addition t o new transnational economic linkages t h a t have been forged hetween the EU and ,Japan, new trarlsgovcrnmerIta1 coalitions and policy networks have emerged in the more co-operative franmvork of EU J : L ~ I ~ economicrelations. We should, though, I)c careful not t o overstate their irnportartce, cspccially in comparison to their USA-Japan counterparts. Moreover, at the inter-regional level of EU -East Asian rclations there appears to be some uncertainty over Japan’s function within the ASEM.” Nco-liberal institutionalists \ ~ ~ u also l d stress the role played hy international organisations in EU Japan economic rclations. Both powers haw I)ccome central figureswithin the world’s multilateraltrade and financr institutions, a 1 ~ 1have consequently been co-participants in intcrnational regime I d d i n g . ‘I‘hey have alsoincreasingly conducted their ecottomic diplomacy through the WlO and other multilateral chanrlels. It has been generally to the EU’s advantage that it hasbeenable to wield greaterstructural powcar atthcmultilatcral Icvcl. We arguedearlierthat*Japanhasnot yet convcrtcd its ccotlomic powcar into commensurate political capital within the intrrnational community to the same degree achieved by the EU. For hfurxisls, the continued fixation with relative gcocconomic strength is part of the struggle for supremacy betwcen the capitalist po\vcrs. ’l‘hus, to presewe European capital interests, the EU’s economic diplomacy towards.Japan over the post-warperiod can be characterised by endeavours t o contain a significant foreign capitalist threat. This adversarial stance is symptomatic t o Marxists of thedeeper crisis facinginternationalcapitalism. Japan’s emergence as a new economicsuperpowercertainlyprcsmted the I m t opportunities in recent decades for the escalation of ttxcle conflict into a full-hlo\vn track w a r ci /a l~?~Os.
'The EI 1 c1udS70pa11 1 I 7
However, this has thus far been avoided by the Triad powers. 'Ihe glol~alshift towards the neo-liberal policy agenda of domestic and foreign market lilleralisation during the 1W O s , together with the international conseIlsl1s 10 strengthen the multilatcral trade regime, are normally granted credit for this. Notwithstandingthefrequentcomparisons made between the German and Japanese post-war cconomic miracles, thc tensions that have clogged EU;Japl economic relations may derive from a clash of capitalist cultures. In this hattlc, the Japanese capitalist model appears to have prevailed, the pressures of thr rccent linancial crisis notwithstanding. Japan continues to enjoy sizeable trade surpluses with the EU and the production and management techniques of its companies are widcly emulated in Europe and rlsewhere. 'I'he deficiencies in thc Luropean capitalist model explain its retreats to protcctionisrn. O n othermatters,the Marxist heliefin thc primacy of both implicit and explicit economic objectives within the foreign policy agenda of states al~pears highly relevant to EU Japan relations. For most of the post-war years, t h c x have been essentially economic with little political content. However, we have seen that this is beginning t o change and furthermore what impact it has made towards underpinning a broader economic partnership. T h e EU-Japan FDI relationship, while imbalanced, has had a similar emect, although the Marxist theory of the 'newinternational division of labour' emphasises the intensified competition between European and Japanesc workforces which lD1 creates and how capital exploits this to labour's disadvant-age. A counter-argument suggests that capital and lalmur interests betweenthe EU andJapan have somewhat converged through FDI and strategic alliance linkages. As we have shown in this rhaptcr, both conflict and co-opcration in LUYJapan economic relations co-exist within a framework where transnationalised interactions between various statc and nonstatc actors have txcome increasingly relevant.
5
The EU andChina
Introduction Over the 1990s the EU’s economic relationship with China has taken on increasing significance. This relates equally to developments at the bilateral level and multilateral, or global level. By 1997, China had become the EU’s third most important extra-regional trade partner, behind the USA and Japan. Moreover, the EU’s burgeoning trade deficit with China has approached that with .Japan and threatens to reach the same political proportions. As the trade relationship hasexpanded, so have EU’s protectionistmeasuresdeployedagainstChinese imports. Arising trade frictions, however, are now managed within the considerably improved framework of EU-China economic diplomacy that has been nurtured in recent years. Both powers havc come to accept the other as key partners in thenewglobaleconomy, especially in light of China’sindustrial transformation and its growing international impact. Thus, supporting but also
China: an emerging economic superpower The inexorable rise of the Chinese economyover the pasttwo decades has become acentral issuein internationaleconomicrelations.Thissectionexaminesthe path of China’s rapid economic development and its global impact. China’s economic reform process receives special attention, as does the country’s integration into the East Asian and wider international economy. Finally, we shall consider what challenges lie ahead for the Chinese economyin the twenty-first century.
The EU and CXim
1 19
China’s impact on the world economy 1:or many centuries China was the most advanced nation on earth, possessing Inany o f the pre-conditions for industrial development long before the European maritime powers sought extended commercial links with the country fromthefifteenthcenturyonwards. However, China’sowncommercial isolationism led to a technological and economic stagnancy which persisted well into twentieth century The installation of a republican regime in 191 1 after the demise of imperial China did little to revive the moribund state of the economy, exaccrbated further by both thc long civil war between nationalist government and Chinese Communist Party forces and the contemporaneous conflict with Japan. After the communist victory of 1949, the new regime under the leadership of Mao ‘lietuna set about establishing the basis of a command economy. Misconceivedplanstoaccclerateindustrialdevelopment,such as the‘Great 1,eapForward’ initiative of thelate 1950s, continued to repressChina’seconomic potential. However, this was to change in the late 1970s with the rise to powerof DengXiaoping, who lxgan a processof market-basedeconomic refirms in Chinathat were to have a profounddomestic and international impact. Mk shall analyse the p a t h of China’s recent economic reforms in the section that follows and 1)ricfly concentrate here on thc country’s growing impact upon thc world economy I n gencralisedterms, this stemmed from thetechnoindustrialtransformationthathas 1,ecn experienced by theChineseeconomy in the 1980s and 1990s. Over these two decades, China’s economic growth rate averaged at around 9 per cent per annum while its trade sector expanded at an average annual 1 7 per cent. I n 1980, the year after the reform process began, China’s total trade turnover (ix. exports and imports) was $39.0bn and ranked as the world’s thirtieth largest exporting country with 0.1 per cent of total world exports (see Table A.9). However, by 1997 China was ranked as the tenth largest exporter with a trade turnover of $325.1 bn (3.0 per cent of total world) and a trade surplus of $30.3bn (Figure 5.1). Much of China’s economic modernisation and commercial expansion can b e attributed to inward foreign direct investment (FDI) flows. This was particularly relevant in the 199Os, after an escalation of inward FDI flows (Figure 5.2) had made China the most important developing country location for overseas investment. GivenChina’srecenteconomicperformanceandconsiderableeconomic potential for further growth and development, there has been much debate over whether or not it will emerge as Asia’s next economic superpower (Cable and Ferdinand 1994; Harding 1994; Lardy 1994; Overholt 1994; Ash 1995; Goldstone 1995; Huang 1995).Whatever the outcomr, China’s impact upon the world cconomy will continuc to be significant and poses a number of challenges to its main cc-onomic partners and the international economicsystem.
120
The EU and China China’s import and export trade (1979-97)
200,000 180,000 160,000 140,000
-
g 120,000 .100,000 te
5
80,000 -
1979 1980
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
1 0 Imports W Exports
1
F b r e 5.1 China’s import and export trade (1979-97) Source: IMF Direchon of Zdc StatrJlics Earbook, various editions.
::
Inward FDIflows in China, 1979-97 (actual u t i i i s e d )
40 35 E.- 30 % 25
e?
9 20 15 10 5 n ” 1984 197-3
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
Figure 5.2 Inward FDI flows in China, 1979-97 (actual realised) Source: UNCTAD database.
The refomsprocess: opening up the Chinese economy China’s recent economic reforms have been the key to its industrial modernisation and the more prominentposition it nowenjoys in the international economic system. The origins of the reformprocess can be traced to Deng Xiaoping’s return from political exile and his subsequent appointment as China’s primary leader. Seeking a breakwith the previous Maoist era, and the catastrophic economic policies associated with it,’ Deng and his supporters first announced their plans for
The EU mrd (Aina
I2 1
reform at the‘I’hird I’lenum of the Chinese CommunistParty’s eleventh CoIlgress in December 1978.‘I’hus began a reform process oriented hy twin objectives:reorganisingthedomesticeconomyalong more capitalistic lines‘ and integrating China hack into the world economy. ‘The nature of the reform process has heen experimental and often haphazard. Moreover, it has been driven by initiatives at various levels central, regional, local and individual which have helped t o crcate a system of industrial governanceand transaction thatis distinctly non-western (Boisot and Child 1996). It seemed logical for the Chinese leadcrship first t o target the agriculturt, sector for rcsform, given its significance, low levels of productivity and potential to frcc u p resources fbr other parts of the economy. The introduction of the Contract Production Responsibility System tx-ought rudimentary market r c h m s tothe sector in the early 198Os, while land leases were granted to farmers as part of a decollectivisation programme. Opcning upChina’s coastal regionsto inward FI)I also lxxwne an initial priority in what was to he known as thr Government's ‘Open Door’ policy. 111 I979 a,joint venture law was introduced and by 1980 fbur SpecialEconomicZones (ST:&) had beencreated a t Shenzhen,Zhuhaiand Shantou in Guangdong province andXiamen in Fujian province. ‘I‘heir respectivr proximity to Hong Kong, hlacao, Southeast Asia and Taiwan was 110 coincidence, revealing China’s intmtionsto develop closer transnational links with ncighbouring dynamic economies. These links have been largely f:u5litated hy g u m x i (connections) business networks that have evolved between mainland and overseas Chincsc.i In return for the tax and customs duty exemptions which the SEZs offeredforeign investors, thcChineseauthoritirshoped to induce inward technology transfcrs and simultaneously raise the technology-intensit)i of China’sexports,although these remain highly dependent on foreign multinational enterprises (MNEs). ’I‘his wasalso an attempt t o revcrt the Maoist bias against teclmoloLgy andtradethat Dcng recognised had previously hindered China’s rconomir modernisation. From this evolved a I,roader Coastalllevelopment Strategy, whosc overall purpose was to establish avariety of designated areas such as the SEZs i n which foreign capital, tcclmologandmanagementexperience would he acquired and the benefits therein gradually dispersed throughout the rest of the economy (Reardon 1996). In 1984 fourteen coastal cities w c ~ egranted an ‘Open City’status” whichwas roughly 11asec1on the SEZ mocic.1. 111 the same year, Economic and Technology Development Zones (ETlXs) were crcated i n m o s t of these cities’ to serve as spcci:dised conduits fbr new technology acquisition and the assimilation of advanced industrial management practices. ‘The strateky was extended in 1985 t o include the promotion of new ‘open economic development zones’ in the Pearl Ilelta, Yangtze Delta and south-eastrrn Fujian Delta arcas, in which hrther transbordereconomic links were encouraged.” I n 1988, a series of NationalIndustrial 1)cvelopment Zoncs for New and Advanced ‘T‘ecechnology (NIDZNAIi) were set up i n twenty-one coastal city locations, which serve as sciencc parks whose primary role is to improve China’s own indigcnous high-techproductioncapabilities.’ By this time,theEast Jiao and Last Liao ~
~
I22
The EU and China
Peninsulas had become open economic development zones and Hainan Island had been granted full SEZ status.’ Various other economic reforms were undertaken during the 1980s to inject as a whole. These included initial reforms in markctisationintotheeconomy China’s state-owned enterprises (SOEs), new laws and initiatives on shareholdings and financialmarketsthatenabledtheseparation of ownership and managementand widespreadpriceliberalisation.China’strade policy also becameaprimetarget for reform.It had traditionallybeen managed by thr Ministry of Foreign Economic Relations and Trade (MOFERT)” and its twelve centralised Foreign Trade Corporations (FTCs), which performed the business functions of trade. By 1984 MOFEK’r’s control loosened over import trade as F l C local and provincial branches were granted greater independence, while in 1985 the Production Networks for Exports scheme was created to promote closer links between h i g h - t e c h exporting firms. In 1988 a plan for restructuring the foreign trade system was introduced,bringingmoreregionalautonomyand deepening of integration betwcen production and trade activities. Suchdecentralisation of economic and politicalcontrol had becomea key feature of the reform process fiorn an early stage. By 1989 the central authorities, concerned over signs of risinginflation and emergingregionalimbalances in development, endeavoured to regain control over an overheating economy by imposingprice freezes and slowing thepace of reform. However, thecentral government’s ability to achieve this was now limited, owing to its devolution of power to provincial and local government agencies (Zhu 1992).Despite the mood of retrenchment at the centre, infamously symbolisedby the Tiananmen Square massacre in the summer of that year, the momentum of the economic reform process was sustained. I n 1990 two stock exchanges were opened at Shanghai and Shenzhen, while the Pudong New Area Special Economic Zone was created IO in Shanghai to act as a hub for the Yangtze Delta development zone. Deng’s ‘southerntrip’tothecoastalregions in January 1992 bothreaccelrrated the pace of reform and broadencd its agenda to encompass wider aspects of the economy. The State Planning Commission began to formulate a nationally unified industrial policy based on restructuring a range of industries. By 1994 thirteen frontier cities were opened up along China’s north-east and south-westborders, as werc all provincialcapitals and five more cities in the Yangtze Delta corridor. I n addition, approval wasgiven to create twenty-scven economic and technological development regions and fifty-two new and hightech development zones. Furthermore, in anattempt to emulate central qovernment initiatives, provincialgovernments had betweenthemcreated around500provincialdevelopmentzonesbased on similar objectives, while many local municipalities established their own district or county level export processing zones, although many have remained inert. On 1 January1994a new unifiedexchangerate system was introduced, replacing a transitional dual system whereby an official rate adjusted periodically while a more depreciated market rate had been determined at Foreign Exchange AdjustmentCentres. Four months later, Lhc China Foreign ExchangeTrading
The EU and China 123 System was established which serves as a nationally integrated electronic system for foreign exchange trading. The more market-aligned system was intended to give greater incentives for Chinese producers to export, as was a 33 per cent devaluation of the yuan which coincided with these reforms.The early and mid1990s also witnessed a series of other key market-based reforms, especially with regard to China’staxation, legal, financial, commerceandbanking systems. Together, these reforms shared the common objective of creating an economic environment in whichmarket-orientedpracticescan flourish. Thisnot only applies to domestic, private and foreign enterprises, butalso to China’s SOEs and the quasi-state business organisations that have emerged from the reform process. ‘The latter are often referred to as township and village enterprises (TVEs), which are usuallycontrolled by mixture a of representativesfrom local government,privatecompaniesandforeigninvestorsandrunona collective basis with the managers ultimately answerable to local government. The TVEs evolved out of Ileng’s early agriculture sector reforms, yet the majority of them are now preoccupied with manufacturing activities. Moreover, many are located in urban areas and form part of the subcontractor networksof foreign MNEs. In recentyearsthey have madea significant contributiontoChina’seconomic growth (Wing and Yiu 1996) and have provided a new competitive threat to the SOEs, which have had to adapt to new commercial realities. Yeung (1995: 158) suggests that these developments form part of an ‘entrepreneurial state paradigm’, in which ‘the state apparatus or its afiliated agenciesengage in economic activities directly and behave like a private enterprise through having aims of entrepreneurship and profit-generation, which are contradictory to the conventionalbureaucraticnotion of the state and inefficiencyof state-owned enterprises’. One intercsting manifestation ofthisparadiLgm that was apparent from the early 1990s onwards is the new role which the People’s Liberation Army (PLA) plays in theChineseeconomy.Underthepressures of contendingwitha diminishing role, reducedbudgets and flaggingmorale after theTiananmen Square massacre, the PIA began to explore ways in which it could generate extra funds and carvr out a more positive and subsidiary function in Chinese society. This hasrntailedconvertingmilitaryplants to produce civilian outputand acquiring established enterprises across a range of sectors. While these activities provide much needed currency to purchase foreign high-tech military hardware, t11c.y also pose a potentially significant distraction to the PLA in performing its primary function. Additional opportunities and risks have been associated with China’s ‘new economic elites’, spawned as a consequence of the refbrm process and consisting of state capitalists, model managers, suburban executives and new entrrpreneurs. Althoughtheyformthe essential middle-classstratathat is nccessary t o sustainthe shift towardsgreatereconomicpluralism,they also representapotrntialsourcr of prrssureonthe existing monolithic political system (Goodman 1995, 1996). According to Prybyla (1 997), this outcome is the hope of many of China’s trading partners. I L ) I I ~bcforc I k n g Xiaoping’s death in February 1997 at the age of 92, the
124
EU and China
new regime-in-waiting,led by JiangZemin,hadalreadyproclaimed its commitment to maintain the pace of gradual reform at the fourteenth Central Committee Meeting whereChina’s ninth Five-year plan was launched.” China’s negotiations over its accession to WTO and at the Asia-Pacific Economic Cooperation (APEC) forum had also led to a 30 per cent reduction in tariff levels for around4,000productsandthe removal of 179non-tariffbarriersin1995. However, in the wake of the 1997-8 East Asian financial crisis, the new Chinese leadership postponed the opening up of its banking system and stalled other reform measures. Even though the crisis had not spread to China, it made Beijing circumspect of more fully exposing the economy to global market forces.
Integration intothe East Asian and wider international economy
China’s rapid economic development has, of course, been part of a broader regionaldevelopment. The effectiveness of Deng’s ‘Open Door’ reforms has largely depended on theinflux of foreign capital, particularly from neighbouring countries andspecifically from Hong Kong(Figure 5.3).Yet China has also made aconsiderableimpactuponpatterns of tradeandinvestmentoutside its immediate borders, enhancing East Asia’s own potential for dynamic economic growth by offering both a competitive production base in the regional division of labour and increasingly prosperous market of some magnitude. Thus, many of China’s neighbours take a positive view of its role in the East Asian economy (Wong,J. 1995). China’s engagementin the APEC process has thus far reassured fellow members that it can make asignificant contribution to regional economic co-operation. As Kliitworth (1995) observed, this derives from China’s perception of APEC as building a foundation for a goldenPacific age with itself envisaged at the centreof this movement. China hasalso used APEC as a vehicle
Inward FDI stocks in Chinaby geographic origin(1987) AslaEast Other
2.
8.5%
mm
Inward FDI stocks in Chinaby geographic origin(1996) 7.5%
6.7%
6.1%
Other East Asla 9.6%
5.6%
Hong Kong 60.4%
Figure 5.3 Inward FDI stock in China by geographic origin (1987, 1995) Source: UNCTAD database.
K ~ Q
59.0%
The EU and Chirta
I25
to strcngtI1en its bargaining position ois-&vis the USA andJapan, most crucially Over market access issues. For its main trading partners, APEC has bee11a tcsting ground for China with regards to WTO membership and accession to other
multilateral fora. China’sbilateraleconomicrelations with other Asia-Pacific countrics h k ~ e generally devc:loped in a constructive and progressive manner, although a series of territorial disputes still present a source o f political tension in many of the+(: relationships, most notably with Taiwan. In addition, guanxi business nct\vorks, which interlink enterprisesacrosstheChinesediaspora,continue to cultivate deeper interclepcndeIlcies in the region. According to Segal (1 996), these links may develop substantively beyond business relationships to embrace a stronger political dimension i n the future. Japan, and increasingly Korea, arc alsoseen by China as key economic partners. China’s path to developmcnt has only partially drawn on the Japanese model, and moreover it has been carefill not to I2 develop too much of capital a and technology dependence on Japan (Wingrove 1995). With the demise of the Soviet Union, China’s strategic importance to the USA hasbecomemoreeconomicthan political. ‘I’he USA first qranted China most favoured nation (MFN) status in I979 and since the 1970s North America has absorbed large quantities of labour-intensive products from Chinese producers. Even before Ilcng’s reforms wcrc initiated, China’s trade with markct-based for acommunist country. These exchangcs economies was unusuallyhigh increased from the late 1970s onwards as Hong Kong began to play an important intcrmcdiary role for marketing and distributing China’s exports. A s thc 1980s progressed, Chinaendured growing hostility from Westernnations over its market penetrations in ‘sensitive’ industry sectors. This continued into thc 19SOs, where China not only achieved large trade surpluses against the EU and USA but also frequently against Japan. However, as Figure 5.1 indicates, China’s trade balance has swung between deficit and surplus in accordance to cyclical patterns as high spurts of domestic growth have stimulated import demand. China’s continued integration into the world economy has also I~eenachieved via inward FDI flows, whichhave bccn the most important source of foreign capital for the country at a cumulative $220.2bnI3 over 1979-97 (see Figure 5.2). Chen et al. (1995) contend that while inward FDI flows have brought significant benefits to China, they have also contributed towards the uneven developmcnt between coastal and interior provinces, a worsening income distribution and a declining ideological commitment to communist principles. Qurstions have also been raised over China’s dependency on foreign MNEs to produce its cxports: by the mid- 199Os, joint ventures between Chinese enterprises and foreign investors had come to account for around a half of China’s processing trade (Kirchbach and Aguado 1996). Indeed, 110other East Asian country has become more reliant oninward investment for its exportsthanChina. Yet, as Changzhcng (1997) argues, FDI still plays an instrumental part in China’s industrial restructuring and ,joint ventures will continue to be lured by the country’s increasingmarket prosperity and relative factor advantages.
126
The EU and China
Future challenges Although China has made considerable progress with economic reform and its integration into the world economy, various important challenges lie ahead for both the country and for those with a stake in its future development. There is still muchoutstanding work to be done in restructuringChineseindustry, especially regardingthe 100,000 or so SOEs thatemploytwo-thirds of the urban workforce. Almost half of these are loss-making and their mutual debt chaincontinues to increase.According to Wong, Y. (1995),China’srecurrent macro-economicimbalancescanbetracedtothe state’s cheapcredit policy towards loss-making SOEs, thus hindering financial reform on which the country’s longer-term economic success depends. Furthermore, Parker (1 995) argues that the longer the SOEs evade a Schumpeterian ‘creative destruction’ process, the more accumulative the drag effects upon China’s future economic growth. Yet the short-term adjustment costs incurred by withdrawing financial support for inefficient SOEs are prohibitive, at least in a political and socio-economic sense. The Chineseeconomymayalready be containinganunemployment time bomb with the gradual labour-displacing modernisation of the agriculture sector. An improvement of China’stechnologicalcapabilities, and theindustrial upgradingwhichthisimplies,holdtheir own structuralimplications for the advanced industrial economies. The impact of further such advances made in ‘scnsitivc’ industries may be small as traditional producers have already rationalised in response to earlier NIC competition (Michalski et al. 1996). Thus, trade tensions in these sectors are more likely to arise between China and the NICs themselves, Chinacan also be expectedtomaintain its competitive advantage in labour-intensiveindustries, given thedownwardpressurelarge reserves of rural-based workers will exert on industrial wage levels. This, though, is contingent on overcoming structural rigidities that constrain labour mobility and outsourcing in more remote, labour surplus regions. Regional issues within China pose their own set of challenges, particularly with reference to emergingregionalinrqualities and thepotential for regional fragmentation. ‘l’he rapid industrial development of the coastal provinces has exacerbated core-periphery divides within the Chinese economy. The fostering oftransbordereconomic linkages with otherEast Asian countriescould be argued to constitute an additional source of division. However, there has been recent evidence that inter-provincial supplynetworks and markets are dcepenin p1; hence creating stronger interdependencies across the national economy (CVomack and Zhao 1994; Lin 1996).Ethnicunitywithin China alsoremains strong, with the Han race making up 92 per cent of China’s total population. Moreover, the idcal o f a unified Chinese state has a long historyand continues to exert a powerful appeal. In more recent years, China’s interior provinces have also received moreprominentcentralgovernmentsupport to promote their economicdevelopment,although they still encounter difficulty in attracting significant levels of FDI.
T h El/and China 127 Segal (1 994) argues that China’s fragmentation could have an adverse external impact on most of its trading partners. O n the other hand, a more realistic and constructive future dialogue with China could be best achieved by developingstrongerdiplomatic links at aprovincial level. Theenhanceddegree of autonomy now enjoyed by China’s provincial authorities and the new independent role they playin the international economy make this essential. As Zweig (1995) notes, the‘developmentalcommunities’ that have emerged in China’s coastalareashave undermined centralisedcontrol over China’sforeigntrade regime. This has posed a number of problems for China’s trade partners as we shall later discuss. Perkins (1996) argues that it is also in the interests of China’s Wrstern trading partners to avoid taking a strident protectionist stance against its produccrs, as such anapproach couldjeopardiseChina’sreformprocess if its export-led growth is threatened through the aggravation of adjustment pressures and the internaltensionsthat this provokes.While Chinacan expect to maintaina competitive advantage in labour-intensive products, for reasons already discussed,the EUandotheradvancedtradingpartnerscananticipatea substantial demand for theirhigher-techproductsfrom China. ‘lhis depends, though, on thecountry’s continued pattern of economic growth and the extentto which it develops its own capabilities in these sectors. However, Chinamaintainsapronouncedtechnologydependencyonthe advancedindustrialnations,althoughYoshitomi(1996b)contendsthatthe E‘rDZs, NIDZNATs and other similar initiatives have given the country a unique opportunity to develop a high-tech production base at a relatively early stagr in its economic development. There is still much need in China for outside technical assistance andfurther inwardtechnology transfers inkey areas. That which perhaps holds most priority for other countries is the improvement of China’s environmental management systems. The country’s rapid economic development hasbeenaccompanied by severeenvironmentaldegradation.Owing to a reserves), combination ofits heavyreliance on coal(withhugeindigenous enormous population and potential for continued rapid growth, China poses a serious ecological threat to the planet. It is already the fourth largest generator of greenhouse gases. While the annual average growth rate of CO, emissions for OECD group has been estimated at 0.9 per cent over 1990-2050, China’s rate is four times higher at 3.7 per cent (OECD 1992). This implies that the country’s own cumulative global sharesof CO, will rise from 6 per cent to 110 per cent over the same period, the highest of any one single country. These issues are in some way related to the challenge of developing a closer economic diplomacy with China.There are other more direct issues that we havr not yet considered.China’sposition as an increasinglypowerfulhut yetlow income economy poses a somewhat new challenge to the international cconomic system, made more complex by the fact that itis represented by a communist We should political regime in a predominantly market-driven world economy. also note that with ascendant economic power comes the expectation of a commensurateincrease in leveragethatcanbeexerted in international relations.
128 The EU andChina Chinahas already revealed suchintentions,althoughasYahuda (1996a) obsewed, its new assertiveness on theinternationalstage should also be understood as an attempt to substitute the diminishing appeal of communism with an invigorated nationalism, which sc~’\was a alternative unifying force in society. However, China is aware that its further rconomic progress rests on the development of harmonious bilateral and multilateral relations.
EU-China economic relations Having thus explored various issues relating to China’s economy, we shall now consider the development ofits rconomic relations with thc EU.‘I’his initially entails a brief examination of the historic links betweenEurope and China, which is followed by an analysis on theearlypost-wardevelopment of their economic relationship. Wc shall show how the context of LU-China economic relations shifted fromtheCold War’s bipolar geopolitics tothemultipolar geoeconomics of thelate 1980s. From this stemmed a more positive and expanskve phasc of relations duringthe 1990s, althoughthe new competitive threatChina posedtothe EU simultaneouslygainedgreaterproportions. Incorporating China within the multilateral trading system will to some degree negate this threat, which partlyexplainsthe EU’s support for China’saccrssion to the WTO, an issue that is c~xtensivelydiscussed towards the end of this chapter.
Europe and China: the historic links China and Europe are old trading partners. 1:or centuries, the trans-euroasian Silk Kouteprovidedachannelthroughwhichcommodities were exchanged. Commercial networks wc‘re extended further as the competing rnaritimc powers of Europe set up trading posts along the Chinese coastline from the latter half of the fifteenth century onwards. The Portugucse were the first to establish scabornr trade links with Chinaand consolidate a commercialposition. By the early seventeenth century the Dutch had become the dominant European influence, although this too was soon contested by the British a few decades latrr. Britain’s commercial position in China vir-li-vG its European rivals improved throughout the eighteenth century. However, as British commercial interests developed, so did its disputes with the Chinese over the control of commodity trade and issues of extraterritoriality. ‘I‘hese came to a head i n the 1840s when China suffered humiliating defeat i n the First Opium War. Britain’s annexation of Hong Kong after the 1842 Treaty of Nanking further served t o underline its aggrrssive commercial intentions. As Borthwick (1 992) notrs, these were linked to Britain’s growing economic dependence upon China during thc nineteenth century, espccially powcrs over for products such as tea.CompetitionbetweentheEuropran Chinesetradrcontinuedup until the prewar period.Moreovcr,they were increasingly joined hy vying US and.Japanese commcrcial intrrests hy the late nineteenth century onwards.
Cold War geopolitics(1949-70) Radical political changc in China and the country’s position in the new post-war geopolitics were t o have profound effccts upon its economic rrlations with European countries. During earlier post-war decades, Europe’s position in China’s foreign policy was largely determined by Brijing’s relations with the USA and Soviet Union. Krlations with both West and East European states were sought i n s o h as promoting China’s stratcgic advantagr against the Cold War superpowers, and thus they performed a srcondary function (Shambaugh 1996). European governments were also rcluctarlt to develop a foreign policy position towards China illdependent of their rcspectivc superpower ally, although there 15 were exceptions. l h e r e were also indications that the newly installed Maoist regime would, if anything, adopt a belligerent stance towards the West European states, with assets of some European multinationals operating in China being seized in compensation for past colonial ‘atrocities’. Furthermore, Beijing wanted t o dcmonstrate that China’s past subservient commercial relationship with the European powers w a s at an end. However, asthe 1950s progressed,China’s attitude cased in response to new circumstances. The USA had cut off all commercial ties with China after blao’s accession t o power. It had also attempted to orrhestratr its Western allies into restricting the export of strategically sensitive products t o communist statt-s via the Paris Co-ordinatingCommittee,or COCOM.“’ ‘The US total ernbargo thus heightened China’s interest in West Europe as a vital source of technology, capital and markets. A large Chinese delegation was sent to the Moscow International Lconomic Confercncc in 1952 to secure contacts with West Europran Ixwiness Iraders, who formed the majority group in attendance. Later on in 1954, the Geneva Conference on Korea and Indochina laid an important foundation for advancing bothpolitical and economic relations between West Europe and China. At the conference a prime objective of China’s Premier and loreign Minister, Zhou Enlai, was further to extendcommercial links with West European countries, especially in sectors where the Soviet bloc 17 was weak. ‘I’he I d d i n g of such tics paved the way for diplomatic relations to be established between Chinaand some \vest European countries’“ and certain COCOh,f rcstrictions t o be eased. C:hina’s dependency on West European commerccgradually increased with thesouring o f relations betwern Rei,jing and Moscow during thr latr 1950s and evcntual Sino-Soviet split in 1960. Thus,during the 196Os, West Europe played acrucial part in China’s economic diversification strategy. By the middle of thc decade the rcgion had beconw China’s most important trade partner, being responsible Tor around a quartrr of its imports and exports (‘l’able 5 . 1). 111 addition, West European companies incrcasingly supplied China with industrial plants from early 1960s onwards. Yet such dependency was I~ornmore out of necessity than choice owing I ‘! to the state of China’s relations with the superpowers. It should also be noted that Chinaoffbrrd West Europc limited commercial opportunities in gencml, particularly regarding consumrr goods markcts which were practically non-existent.
l a b l e 5.I Geographic breakdown of China's international trade bercentage per trade partner, 1960-97) ~
~
~~~~~
~~
1960 1965 1970 1975 1980 198.5 I990 1995 1997 Imports Exporis Importr Exports Imports Exports Impo& Exports Imports Ezvports Imports Exports Imporh Exports Imports Exports Imports Exports
ECl5 USA Canada Australasia Japan Hong Kong Taiwan Other East Asia'
CEE Middle East Africa Latin America' Other
19.9 0.0 0.5 1.3
11.9 0.0
24.5 0.0 1.2 2.3
31.9 0.0 8.7 8.5
25.8 0.0 1.3 2.6
25.6 5.1 6.2 5.7
14.6
15.3
2.7 1.0
21.0
0.6
27.0 0.0 8.0 14.1
0.1 1.1 0.0 4.0
1.0 10.0 0.0 6.8
20.2 1.0 0.0 2.0
17.6 31.7 0.0 3.3
36.2
17.0 31.2 0.0 0.0
37.7 0.6 0.0 2.3
24.0 21.5 0.0 8.0
28.6
0.7 0.0 0.0
59.9 2.4 1.8 0.4
62.3 1.5
0.0 5.6 5.6 7.9
0.0 5.7 7.1 0.1
0.0 2.1 4.2 0.2
0.0 6.2 8.7 0.1
4.2 1.8 1.9 3.3
4.4 2.9 5.5 0.4
3.5 0.8 1.8 3.7
8.6
4.4
8.6
6.5
7.5
7.1
6.1
14.0
4.9
0.3
1.1 0.1
~
Source: ISIF Dirertion Q.Trade .Statirtic.r liarbook. Yarious editions Notes: 1 Comprises ASE.LV and South Korea. 2 Includes the Caribbean states.
1.7
4.1 5.4 7.0
0.0 3.9
15.7 6.2 0.8
17.1
1.7
3.0
23.1 23.4 0.0 8.3
35.7
4.0
7.4 6.3
2.5 2.4
5.9 0.5 0.7 4.3
10.5
3.9
1.4
12.2 2.7
11.2 0.0 2.8
9.0 8.5 0.9 0.8
20.0 12.2 2.8 2.8
10.0
13.1 11.5
2.3
12.9 16.6 0.9 1.2
2.5
13.0 17.9 1.4 1.3
0.7
1.7
0.8
22.3 26.2 0.0
14.2 27.0 4.2 6.2
14.6 43.2 0.5 7.3
22.5 6.6 11.5 15.6
19.1 24.2 2.1 11.5
20.4 4.9 11.6 19.1
17.4 24.0 1.9 11.6
1.8
5.9 0.9 0.7 2.4
4.3 2.3 1.9 1.0
4.2 1.7 1.4 2.1
2.2 2.3 1.5 2.0
3.8 1.8 1.7 2.6
2.6 2.3 1.8 2.5
6.2
0.7
4.9
1.4
3.5
5.6
2.3
10.4
1.5
8.5
16.5 12.5
1.4
The BU and China
13 1
As Table A.3 shows, China represented only 1.5 per cent of EU15 exports in 1960 and a mere 1 .O per cent by 1970. O n a political level, relations between China and West European countries remained weak, where both geographic and cultural distances as well as ideological differences were contributing factors. Beijing was initially sceptical of the regionalist initiatives inWest Europe (Le. the ECSC,EECand EFTA), describing the Common Market as ‘an internal cartel organised by monopolistic groups of the six West European countries . . . to ease the contradictions among themselves’.2‘’Geopolitics nevertheless dictated that a praLgmatic approach be supported at times. During 1964, Francc’s President de Gaulle’s attempted to develop closer ties with China as part of a strategy to push West Europe forward as a global powcr. Although this plan was ill-conceived and eventually floundered, China was willing to support any initiative that would lead to the ‘global encirclement’ of the Soviet Union and dislocate the transatlantic alliance (Griffith 1981). West Europe remained an important economic partncr for China up to the end of thedecade,but inits last few years Sino-West European diplomatic relations were strained by the events surrounding the Cultural Revolution. While this was to have some detrimental impact upon the economic relationship over thr medium term, new events and developments in the 1970s were to have a much longer-term impact.
Towards multipolarity (1971-89) The normalisation of Sino-US relations in 1971 had a significant effect upon China’s foreign relations with other countries.President Nixon’svisit tothe People’s Republic in I~ebruary1972 provided a signal for other Western countries to re-estaldish contacts and exchange ambassadors that had been withdrawn in the wakc of the Cultural Revolution. Some West European countries established full diplomatic relations with the PRC for the first time.?’ As Dequan (1996) observed, the end of the ‘blockade and isolation’ period also offered new commercial opportunities for EC-China economic relations. Despite the new environment of dlknk and the promising beginnings of an economic partnership, Sino-USrelations continucd to be hampered hy a number of complications. The US position as a guarantor of security for certain East Asian countries brought it into frequent political conflict with China, especially over developments in Southeast Asia. Moreover,the USA was more overtly opposed to China’s political regime than its Western allies and was thus viewed as a more antagonisticinternationalpartner.22 In addition, Beijing’s renewed interest in promoting a more multipolar world implied an undermining of the US hegemonic position. With the latter of these pointsparticularly in mind, China’s view towards regional integration inWest Europc was seen in a more favourable light than previously. The EC9 enlargementof 1973 was welcomed because it constituted a new bloc to challenge thebipolarstatus quo,although the Chinese were
132
Thu E l i and Chinu
simultaneously awarc that it would wield more cconomic power, but not necessarily political power, on thc world stage.’)3Heijing was also encouraged I)y the EC’s growing engagement of relations with the developing world, as demonstrated by the initiation of its Gcneralised System of‘ I’refercnces (MI’) scheme in 197 1, the Euro-Arab dialogue of 1974, the Lomi. Convention of 1975 and the commencement of talks betweenthe EC and the CentralAmerican Common Market countries in the same year. Kapur (1986) notes that the new dikntu in Sino-Mkstcrn relations, and morr specifically China’s interest in new BC dc\~elopments,Ird to the start of what he refers to as ‘communicatory diplomacy’ between Beijing and Brussels. ‘lhis soon led to ‘exploratory diplomacy’ whereby high-level meetings between China and West l h o p e a n leaders were hrld to explore the opportunities for devcloping an EC-level diplomacy. I n turn, this was fi)llowcd by an ‘operational diplomacy’ in EC- China relations whichwas initiatedafter European Commission VicePresident Sir Christopher Soames’ visit to Beijing in thc autumn of 1973. Bilateral trade agreements between individual EC member states and China were due to expire by the end of 1974. ’ l h e EC Council of Ministers agreed in May1974thatfuturetradenegotiations with China should be led by the European Commission, partly as a means to bolster the legitimacy and operation of the C:ommon Commercial Policy (CCP). China received the EC’s proposal in November that ycar and Beijing’s response was generally positive. As Yue ( 1 993) observed, Taiwan was the main point of contention in thc ensuing negotiations. China sought confirmation fivm the EC that it would not pursue formal relations with Taiwan in the future. ‘lhis was accepted by the Commission representatives, albeit with some hesitancy.’“ Formal diplomatic: relations between thc EC and China were established in May 1975 but a comprehensive trade agreement was not forthcoming until April 1978. ‘Thr EC China Trade Agreement of 1978 (CEC 1978) w a s the first that the EC had concluded with a non-market economy (NME).?‘ In the Agreement, it afliorded China modified M l N status as itwas not a nmnber of the General Agreementon TariKs and Trade (GA’ll). ‘I’hus, China couldnotexpectto receive the sanlc degrre ofbenefits a s GATT members. Iluring negotiations, there was much debate as to whether the EC should treat China as a drveloping country or a NME within its Common Commercial Policy. It was decided that the tatter would apply, although China’s low income level qualified it a s a (;SP beneficiary in the LX’s scheme, which it joined in January 1980.2”I:urthermore, the1978Agreementcxtendedthe list of EC imports from Chinathathad hitherto been go\wned by restrictive Inclasures appticxhle t o NMEs under COCOM. An ECXhina Joint Committee was also created t o review annually any outstanding trade issues arising between both parties. The framework of EC China econornic relations [vas further expanded by the 1979 ‘I’cxtile Agreement. ‘l’his was latrr amended in 1984 and replaccd by a new agreement in 1988, both of which marked shifts t o a more restrictive regime (Kapur 1990). Textiles have been a significant export industry for China but one of structuraldecline in the EC ( F i p r e 5.4). I n the 1979 Agreement,the EC
17te EU and China 133 China’s exports to the EU by sector (1980)
-
Other manufactures
Food and lhre
5.7%
1
ChemlCslS 9.5%
mals 17.2%
Metal manufactures 1 .8% Footwear 1 .i%
Other pnmary products 0.8% CNdO matenah
(excl.fuels) 20.9%
Textiles and clolh~ng35.f Mineralfuels 5.8%
China’s exports to the EU by sector (1987) Toys andsporting soods Telecoms and audlo-visual 5B%
~ o o and d BnlmalS 12.0%
Other manufactures
Crude matenals
Chemtcals 8.4% Metal manufactures 3.1 9 Footwear 2..
~
-
Textiles and clothlng 31.4%
China’s exports to the EU by sector (1997) Mlsc. ~ndustnal machlnery and equipment 3.4% Office machlnes and
Elactncal machlnery Textles and clothlng20.0% Toys and sportinggoods
Fwtwear 3.4%
Metal manuf. 4.2%
Telecoms and audio-wsual
-0od and lhre anlmals 2.3% ude matenals, fuels and energy 3.6% 3r pnmary products0.2% Other manufactures 25.2%
F&YC5.4 China’s exports to the EU by sector (1980, 1987, 1997)
Source:Eurostat.
134
%EUand China
nevertheless made concessions beyond those negotiated with other developing countriesunderthen existing Multi-FibreAgreement (MFA).27However, EC protectionism on Chinese exports was increasingly manifest in other sectors by this time. Thisparticularlyrelatedtothegrowingnumber of anti-dumping investigations being made by the European Commission on China’s state-trading producers. The EC applied its first anti-dumping duty (ADD) onaChinese product(saccharinand its salts) in 1979. During the 1979-86 period, China attracted an average of two ADDS per annum from the EC, a relatively high figure for any of its trading partners. Various safeguard measures had also been deployed against low-cost Chinese exports deemed to have ‘injurious competition’ effects againstECindustryThesemainly took theform of quantitative restrictions imposed on a member state basis. The intensification of EC protectionism can be stronglyl i k e d to the onset of Deng Xiaoping’s economic reforms, which began gradually to unlock China’s commercial potential from the late 1970s onwards. China’s exports to the EC increasedfromEcu628m in 1975toEcu1,786m in 1980,and by 1985 had steadily risen to Ecu3,936m. However as Figure 5.5 shows, EC exports to China also expandedrapidly over thesameperiodfromEcu1,089m in 1975to Ecu1,724m in 1980, and then to a decade peak of Ecu7,181m in 1985. Although the volume of EC-China trade was growing at a vigorous rate, West Europe’s importance to China as a trade partner was simultaneously diminishing.In 1975, the EU15 countries were responsible for 25.6 per cent of China’s imports and 14.6 per cent of its exports, but these shares had fallen to 17.1 per cent and 9.0 per cent respectively by 1985 (see Table 5.1). This trend could be attributed to two main factors. First, thenormalisation of Sino-Americanrelationshad EU-China merchandise trade(1975-97)
: -30
1
19% 1997
EU imports
EU exports 0 Balance
Figure 5.5 EU-China merchandise trade (1975-97) Source:Eurostat.
The EU and China
135
allowed US companies to compete with their European rivals fbr Chinese trade forthefirsttimesincethe C O C O M restrictions were imposed. From a nonexistent commercial relationship in 1970, the US share of China’s imports rose from 5.1 per cent in 1975 to 12.2 per cent by 1985, and for China’s exports from 2.7 per cent to 8.5 per cent. Second, Hong Kong’s rapid industrial development had made it a major import source for China’s economy, and in particular its newly established SEZs. Hong Kong’s share of China’s imports hence increased fromamere 0.6 percent in 1975 to 11.2 percent by 1985, and moreover remained the PRC’s primary re-export conduit. Over the same period, Japan a continued to be China’s most important trading partner, providing around third of China’s imports and procuring approximately a quarter of its exports. A similar trend could be observed for the EC’s investment position in China during this time. While EC direct investment in China began to increase as the reform process gathered pace, the EC’s relative position to China’s other major investment partners simultaneously weakened. ‘Ihe cumulative FDI of EC firms in China rose from $300m in 1984 to $1,55 l m in 1987, yet the EC’s share of the total inward stock of FDI in China fell from 13.6 per cent to 6.7 per centovrr the period (see Table A.6). Meanwhile,Japan increased its share from 5.8 per cent to 9.2 percent and the USA maintainedthehighestshareamongtheTriad investors, although falling from 16.9 per cent to 13.1 per cent.The emergence of Hong Kong as China’s most important source of inward investment from the LC’s relative declineasa FDI early1980sonwards also contributedtothe partner. Despite these developments, the EC was still China’s main technolog supplier by themid-1980s. In 1986, EC firms were involved in 290 new technology contracts with China valued at $2.13bn, representing 47.8 per centof thevalue of all such contracts China had entered into with foreignsuppliers (Shiqian 1988). In the same year, China’s imports of high-tech products from the EC accounted for 5 1 .0 per cent of the total in this sector.2R Furthermore, theEC had become an important source of financialassistanceto China during the decade, with most notably Belgium, West Germany and Italy offering soft loans and grants aimed at helping modernise Chinese industry I n return, China was obliged to import a certain quotient of industrial machinery and other capital goods from the donor country.“ The value of EC-level financial aid was much lower in comparisons” to that offered by member states and was mainly concentrated in agriculture and energy projects. Developmentsatthepolitical level during themid-1980s made a positive impact on E G C h i n a economic relations. The 1984 Sino-British ,Joint Declaration on Hong Kong helped to ease the post-colonial tension between the China-ECTradeand two powers. This was soon followed by the1985 CooperationAgreementwhich was effectively an extension of the 1978 Agreement but in addition carried provisions to facilitate EC-level economic cooperation with China.“’Various agreements of this kind had already been signed at the member state levelin thelate 1970s and earlyl980s,” wit11 many establishing bilateral investment treaties (BITS) with China a few years later.33 More vigorous efforts to promote Europe’s commercial links with China had
heen made generally through an incrrasing numlxr o f high-level visits hy LC andmember statr officials t o Beijing. Many EC memlxr stateswere also establishing their ownChina trade promotingagencies, such as the China-Britain Trade Group, the Comiti. France Chine and the I)eutsch-Chinesiscl~e ‘1.1 ~ ~ i r t s c l ~ ~ l f t s v r r e i ~Undcr ~ i ~ uthe ~ ~ gaegis . of’ the Europcan Commission and the Chinese Government, three EC-China ‘Business Weeks’ were organisrd in 198 I , 1985 and 1987,wherebythousands of executivesfrom EC firms convened with Chinrse decision-makers in theeconomicand trade fields to establish direct contacts, improve knowledge of business opportunities in each other’s markets, overcomeohstacles in bilateral trade and eventually promotetradeand ’{ i other economic exchangcs. The opening o f an EC delegation office in Rrijing in 1988 hclped filrther to augment these dcvelopments in EC: China economic diplomacy In conclusion to this section, a nurntm or summary olxcrvations should be made. During the 1950s and 1960s, China’s rrlations with W s t Europe were almost exclusively founded on the imperatives of economic exchange. However, this changedduringthe 1970s whenthe nrwera of d i h t e , among other things, led to the irlstitutionalisation of LC-China cconomic diplomacy by the lattcr half of the decade. China’s interestsin promoting both closer economic ties with the EC and the European integration process rcmaincd an important part of i n an erncr,ying multipolarworld. ’I’hus, advancing itsgeopoliticalobjectives initiatives such as the 1986 Single European Act -- which carried the blueprint fbr the Single Europran Rlarkct (SEM) programme were welcomed by Beijing if it challenged the US-Soviet bipolarity. Thc EC’s geopolitical interests ~vcreto some extent served by China’s economic reform process and the altcrnativr paradigm it offerrd to the Central and East European countries. Yct positive developments in both the context and substance of‘ EC C h i n a economic diplomacy occurrcd simultaneously with the LC’s relative drclinc as an economic partner of China. As the 1980s progressed, China becamc increasingly diverted by the development its economic relations across the Asia-Pacific, although thr LC’s position as an important technological and financial partner remained intact. By the end of thc period, China’s growing importancr as an EC cconomic partner became cver clearcr. During the 19705, China’s share of r x t r a - K trade 1,arely rose above 0.1 per ccnt, but hy 1989 stood a t 2.0 per ccnt of t-xtra-EC importsand 1.5 per ccnt of extra-LCexports.China’spotential for new investment opportunities was being increasingly dcmonstratcd, albeit more by non-EC firms. ‘lhe rapid growth of Chinese exports to the EC, almost tripling over the 1986 9 period to rcach Ecu9. 1bn in 1989, also constitutedthe beginning of a new trade deficit pro1)lem (see Figure 5.5). ‘The numhrr of antidumping investigations undcrtakrll by the European Commission on imported Chinese products rose accordingly with fourteen made during thesame period, a figure matchrd only hy Japan (see Table ’4.7). ‘I’he EC not only had to consider China’sgrowingbilateralimpactbut also thatuponthewiderinternational economic system. ‘I’his covered a I~roadrange of issues, such as the stability of the multilateral trade order and the environmrnt. Thus, I y the end of the 1980s,
or
New horizons (the 1990s)
138
lhEU and China
in a handful of industries, most notably automobiles, telecommunications and pharmaceuticals. The comparative paucity of EU direct investment in China presents a significant business strategy and policy challenge for EU decisionmakers. In noting other trends, Germany maintained itsposition as China'smost important trade partner within theEU, taking 26.6 per centof total EU imports from China in 1997 while being responsible for 31.9 per cent of EU exports to Chinese markets (Figure 5.6). The UK has consolidated its position as the EU's second largest purchaser of China's imports with19.7 per cent of the EU totalin the same year, although British firms were only accountable for 8.1 per cent of total EU exports to the country, France and Italy are the EU's other major traders with China, respectively taking 12.3 per cent and 18.9 per cent, and10.4 per cent and 13.6 per cent of total EU imports and exports. Regarding sectoral patterns of trade, EU exports to China remain concentratedin capital-intensive sectors, withindustrialmachineryandequipment,telecommunicationsand EU12 imports from China by member state (1987)
EU12 exportsto China by member state (1987) UK Eelgum-Lux
Pomgalc
10.~0
UK 16.0%
4.4% b n m a r k 2 . m
Belgium-Lux
5B%
""mark4.1%
Netherlands 2.9
17.0% Germany 29.5% Ireland 0.4% Fran 13.:
:yt
Greece
0.3%
EU15 imports from China by member state (1997)
EU15 exports to China by member state (1997)
UK 8.1% Potiugal0.3% Netherlands 4.4%
Germany 31.9%
I
Portugal 0.6%
1
NeMerlands 8.2%
ltab
13.6%
Spam
UK 19.7%
Ireland
0.3%
hm
2.6%
18.9%
Figure 5.6 EU trade with China by member state (1987, 1997) Source: Eurostat.
Germany 26.6%
3reece 1.1%
The E l i and China
139
audio-visual products, chemicals, road vehicles and other transport equipment constitutillg 75.6 per cent of total exports to China’s markets in 1997 (see Table A.4). However, dynamic change is evident within the structure of China’s exports to the EU. In 1980, primary products represented 44.5 per cent of China’s total EU exports but by 1997 this had fallen to 6.1 per cent. Emerging sectors over the period included industrial machinery and equipment (1 1.9 per cent by 1997), telecommunications and audio-visual products (7.1 per cent) andoffice machines and computers (6.9 per cent). Textiles and clothing have remained the single most important sector with 20.0 per cent of the total, although this share has fallen considerably since 1980 (see Figure 5.4). Moreover, miscellaneous labourintensive manufactures currently make up the largest concentration of China’s exports to the EU. China’scompetitive threat to Europeanmanufacturershasbeenand will continue to beconsiderable. This primarily refers to those EU industries in structuraldeclineandmore specifically producers of textiles, clothingand footwear, metal manufactures and various low-tech manufactures. As Table A.4 indicates, theEU also sustains deficits in higher-techsectorssuch as office machines, computers and electrical machiner).. While the pressure upon the EU to adopt counteractive measures was strong, its protectionist impulses had to be restrained in the light of other factors. Even though China was not a member of GATT, the EU was morally and otherwise obliged to pursue a more liberal trade policy after the completion of the Uruguay Round of GATT in December 1993. Furthermore, the EU was cautious not to aggravate fears of a ‘Fortress Europe’ emerging after the installation of the SEM a year earlier (Hanson 1998). Nevertheless,avariety of new EU restrictions was placed onChinese imports. In a regulation passed by the Council of Ministers in March 1 994,’7 the European CommissionimposedEU-widequantitative restrictions on seven categories of products originating from China, namely footwear, gloves, porcelain kitchenware and tableware, ceramic kitchenware and tableware, glassware, toys and car radios. Certain surveillancemeasureswere also introduced in special circumstances on a number of other products including certain chemicals and bicycles. This new regime replaced the 4,500 or so nationally set quotas that had previouslyaffected China. The rationalisation of the EU’s quota system was further vindicated ‘as part of aglobalpackageincludingacceptance of the UruguayRound results, reinforcement of thetrade policy instrumentsand completion of the Common Commercial Policy’ (CEC 1995~). In1996, the EU discontinuedfour of thesequotas,thusleavingonlythree in operation (toys, ceramic tableware and footwear). Although removalof the old system of national quotas was to China’s advantage,it should be noted that by the mid- 1990s China was theonly EUtradingpartnerthat facedsuch restrictions. Moreover,the survivingquotas still madeanotableadverseimpactonChineseproducers. According to one estimate for China’s toy manufacturing sector this amounted to a $5bn loss of trade. Changes made by the EU to its GSP scheme from 1995 onwards were also to affect Chinese producers. China had been the biggest singular beneficiary of the
140
T ~EP l l and Chiw
EU’s scheme in which trade concessions wereofliered to developing countries. Between 1988 and 1992 the sum of China’s exports enjoying GSP benefits more than tripledfromEcu2. l l m t o Ecu6.6bn. while its sharc i n thetotalscheme benefitsrose invalue terms from 13.7 per cent to 22.2 per cent, three times greater than the sr.cond placed txneficiary. Although China’s low income level ‘iH meant that it did not completely ‘graduate’ from the EU’s scheme, benefits were removed in certain industrial andagricultural sectors, namely: chemicals (excluding fertilisers); leather and furskins; clothing; footwear; glass and ceramics; ECSC (steel) products; base metals (non-ECSC); miscellaneous manuficturcd products;certainproducts of animal origin: oil seeds and oleaginous fruits; miscellaneous grains, sceds and fruit; industrial and medicinal plants; straw and fodder. Despite the downgrading of China’s GSP status, its sharr of the scheme’s hencfits continued to rise, taking 30 per cent of the total in 1997. Chinescexports were also becomingincreasinglytargetedwithinthe EU’s anti-dumping regime. Over the 1990-7 period, China attracted forty-five ADD investigations from the European Commission and thus an annual average figure of just under six, a marked increasc on previous periods studied (see Tabk 12.7). ‘These werr far higher figures than any other EU trading partner, constituting 16.8 per cent of all investigations undertaken by thc Europcan Commission for the period and around a third of those among East Asian countries. As ’I’able 5.2 indicates,Chineseproducts thatare particularlyaffectedinclude low-tech chemicals, metal and miscellancous manufactures. In marly ways, the EU was presented with a situation regarding China that it had faced with Japan two decades earlier, this beingwhat policy shouldbe adopted to an emergent economic superpower against which a divergent trade deficit was developing. ‘Thcre were, of course, important qualitative differences between Japan in the mid- 1970s and China in the mid- 1990s. ‘Ihe latter was a largebut still relatively underdevelopedeconomythat had not hecn fully integratedintotheinternationaleconomic system.Morcover, t h c nmjority of China’s industry remained state-run and its currency was not yet internationally convertible. However, China’s rapid industrial growth and commercial expansion called for the EU to develop a more coherent policy strate
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prcceding US initiatives on I)ilatcml agreemcnts with many East Asian countries. In JLIW 1994 a new arrangcment fix political dialogue was created with one of its main aims bring to encourage China's fuller participation in global af'flirs, cntailing regular meetings between the EU Troiki"' and Chinesc ministers a s wrll a s high-levd consultations involving thc Commission." A year later in July 1995, thr EU's new policystrate&? towards China was articulated in the European Commission's communication document A L q g - Z r m Policy,fir CXnn Europe Krlutions (CEC 1995a). 'This signalled t h c EU's intentions to seck a t m v framework of relations with China, a principal olljectivc Ixing the country's 'integration into intcrnatiotlal structures'. 'The market-lnsed principles on which thew are founded would, it was hopcd, providc the vehicle for dismantling state
142
The EU and China
controlswithintheChineseeconomywhich are still responsible for impeding market access to foreign products and investment. New initiatives proposed to promote EU-China economic relations included establishing a China Experts Group, an EU Business Council inBeijing, ‘Europa Houses’ in China’s major provincial cities, an EconomicandTrade Working Groupand measures to .+2 improvetheEU’sinformationstrategy in China. The European Commission also outlined the five target areas of its new co-operation strategy with China, namely economic and social reform, environmental co-operation, human resource development, business and industrial co-operation and rural and urban poverty alleviation. With respect to the first of these, it was envisaged that EU business and publicauthorityrepresentativeswould work with their Chinese counterparts to advanceChina’sreform process. Furthermore,thedocument carried provisions for the European Investment Bank (EIB) to grant long-term investment loans to China. While the EU’s new policy document represented an important step forward inits economic relations with China,anumber of significant problems and obstaclesremained. The firstof theserelated to questions of authorityand representation in the conduct of economic diplomacy. The Chinese continued to be somewhat bewildered by certain aspects of the EU power structure, especially overmattersconcerningthesubservience of nationalsovereignty to pursue common policiesin foreign afrairs (Grant 1995).China’sperception of EU countries as well-established nation-states, with some being moderately powerful in their own right, contributed towardsthis bewilderment. As we have mentioned earlier, the primacy of the state in China has a long history, particularly with respect to maintaining territorial integrity Thus, Chinesc officials at times had ,I3 difficulty relating to the EU ‘group’ on a supranational basis. ‘I’he EU also faced its ownproblems in China relating to authorityandrepresentation. The decentralisation of power in China under the Deng era had generated confusion among European business representatives and policymakers over what level of authority was to be approached to clarify regulatory issues and other matters. This situation will persist as long as theprovincialgovernments are able significantly to determine the localised regulatory environments in which fixeign firms must operate. O n more specific matters of trade and investment, a survey conducted by the Euro-China Business Association on behalf of theEuropeanCommission in early1997foundthatthe top five concerns of EuropeantraderswithChina were: high tariffs; a lack of transparency in rules and laws; import quotas and licences; restrictions on marketing,distribution and sales; and intellectual property violations. For investors, themainobstacleswereseen as a lackof transparency in rules and laws; dualpricing for locals and foreigners; IPR violations; asymmetric rules across different parts of China; and export performance requirements. The above trade-related concerns were echoed at the 1998 annual high level EU-China trade negotiations held at Brussels in June, with all being linked to the central item on the agenda--- China’s requirementsfor accession to the WTO. At the meeting, a Memorandum of Understandingin the
T h e El/ andChina
143
field of Financial Services was signcd between the two powers. In addition, two environmental programmes were initiated in which EU assistance would be granted to China to implement ‘greener’ policy measures and special assistance would be +en to the province of Liaoning which faced severe environmental ,tk problems. Both sides had also earlier granted trade concessions to the other. The EU secured a freight-forwarding agreement with China in October 1997 which was intended to give European firms the same access to this Chinese market as their US rivals who had enjoyed preferential treatment up until then for some months. Of greater significance was the EU’s decision in April 1998 to remove China’s NME status in relation to antidumping decisions. Under the old system, the EU had calculated its ADDS on Chineseexports by use of the‘analoguepricing mechanism’whcrebytheproblemconcerningChina’sabsence of meaninL$ul market signals was overcome by makingprice and cost decisionsbased on a comparable third country producer of the good in question. This method had attracted considerable criticism from Beijing which claimed that the European Commission was selectingcriteriathirdcountriestosuittheEU’sdesired outcomes,thesebeing relatively high ADD margins(Fu1997). However, in recognition of China’s progress in introducing market reforms to the economy, the European Commission would in future use domestic price information in its anti-dumping investigations if the existence of market economy conditions could be demonstrated. Thus, decisions would be taken on a case-by-case basis which itself provided China with another incentive for furthereconomicreform. Moreover, Chinese producers could not expectto receive less ADD investigations from the EU as a result. EU’s relationswith China was further The priority of advancingthe demonstrated by the European Commission’s publication of another communication document, in March 1998 Building a Comprehensive Partnership wtth China (CEC 1998b), which was intended as a follow-up to its 1995 ‘long-term’ policy paper. While this introduced no significant new initiatives, it did observe several important developments since 1995 that would affect the future direction and nature of EU China relations, thus: the fifteenth Chinese Communist Party’s Congress of 1997 which ushered in the post-Deng era by endorsing an ambitious economic and social reform agenda for the next five years; China’s more assertive and responsible foreign policy in both regional and global spheres; the British handover of Hong Kong to China in July 1997; the East Asian financial crisis which although it had not seriously affected the Chinese economy, did, according to the European Commission, underline the need for continued reform and liberalisation; recentdevelopments in the EU such as preparations for economic and monetary union (EMU) andits eastward enlargement, as well as its own more assertivc role playrd in world affairs;
144
T h e EU andChina
theinitiation of theAsia-EuropeMeetings(ASEM) process in March 1996 which added an inter-regional dimension to EU-China relations. The 1998 document hence called for a general intensification and upgrading of EU-China relations. In economic fields, this especiallyrelatedtoChina’s accessiontothe WTO,strengthening thebilateraltradeagenda,further promoting European investment in China, developing bilateral agreements in 45 certain sectors and continued support for China’s economic reform process and promoting the euro. T h e EU and China’s accession to the WTO
In recent years, China’s accession to the W T O has been a pivotal issue in the EU’s economic relations with the country. China’s non-compliance with multilateral trade rules and norms was central to most EU disputes with Beijing over commercial matters, most notably IPR issues, public procurement, industrial policy, export subsidies and high tariff rates. Furthermore, the EU’s motivations foradvocatingChina’s membership of the WTO derivedfromglobal and bilateral factors. For the emergent economic superpower tobe marginalised from thenewmultilateralordercarriedthe risk of destabilisingtheinternational economic system. As a big trader, it was important for China to abide by the same trade rules as its economic partners. In addition, the scope for conducting EU-China economicdiplomacywouldcontinuetoberestrictedtomainly bilateral channels as long as China was left out of the WTO. China was also aware of the associated costs that accompanied the benefits of joining the multilateral trade regime. O n the one hand, it would have to engage in reciprocal liberalisation which implied a substantial dismantling of its state tradingapparatus.Thosesectors of Chineseindustry which still operatedon outdated technology, equipment and management methodswould also be prone to intensified foreign competition. This would particularly affect the country’s SOEs and TVEs and potentially exacerbate the core-periphery divide between thecoastal and interior provinces. On theotherhand, China’srecourseto multilateraltrade normsand rulesofferedprotection from the cxccsscs of bilateral pressure and unilateral threats from its main trading partners (Wong 1996). Given China’s growing economic and political weight on the world stage, it also hasthepotentialtohelpshapethefuturemultilateraltrade agenda, although this exercise of structural power may take time to perfect. After such risk evaluation, Beijing decided some time ago that the benefits of membership far outweighed the costs involved. China formally requested to join the multilateral trade order in July 1986 when it submitted its application for GATT membership at theadvent of the UruguayRound.More specifically, China claimed that it should be allowed to resume its seat in GATT and not of China (ROC) had become a founding technically accede, as the Republic member of the organisation in 1948. According toBeijing, the ROC’Sdecision to leave GATT in 1950 (by then Taiwan) was not the desire of the vast majority of
T h e ECJ and C t h u
145
to
Chinese people. Prior to s~hmittingits application, China had acquired observer status to GA’I’‘1 in 1982 and later serured special observer status in 1984 .ti which enabled it to take part in G A T 1 meetings a s a non-voting member. Aftcr its submission for full membership, a GATT working party was set up to study and report on the matter in March 1987. Over a drcade later, China was still waiting for its application to be acccptcd in what had become the longest delay to GATT/WTO memhrrship by far. The reasons for this delay wcre varied. Not only were large sections of its economy run on non-marketprinciples but a large and rapidly expanding GDP meant that its impact upon the multilateral trading system would be considcrablr. China’s burgeoning trade surpluses against the EU and USA raised the stakcs further for both powers in getting the accession formula right. To join thc M I T O , China had to comply with its fundamental principles: non-d~rcrinlit~ati,,n,in which trade concessions granted to one W’TO mrmber
have to be extended to others under MFN rules; national treafrnmt, whereby foreign products are not disadvantaged by regulations, internal taxation structurcs or certain policy measures in relation to domestic products; the prevalence oJ price-basedmeasures (eg. tal$), with the aim of enhancing transparency within trade policy; the avoidance of unfair trade practicps, e.g. export subsidies. Acknowledging that its state trading prartices were essentially irreconcilahlc to the above, China had worked towards establishing a more MrTO-compatible -111 tradc regime by thcmid-1990s as part of themarket reform procrss p a n g 1995; Casadio 1996). It also hoped that formally declaring its intentions to reform further would satisfy thc demands of EU and US negotiators, who had hecomc central players in the determination of China’s accession. However, both powers wanted concrete results from China and a demonstration of progress in key areas, such as IPK. ‘I’here was also a common conccrn over how China would cope with the emerging WTO agendaand the continued multilateralisation of thetraditionaldomestic policy realm, which would entail a subservience of national sovereignty to the international negotiating process to a degree that few thoughtChina was willing to embrace. Problems were also deemed to arise from deccntralisation and ccntralgovcrnment’s inability t o identify the WTO-inconsistent practices of its provincial authoritirs. The irregularities and patchiness of the Chinese legal system were another significant worry, although the EU and USA were offering technical assistance on these and other matters that would improve the WTO-con1patil)ility of China’s commercial structures. China’s failure to negotiate the rcsumption of its status as a GATT contracting party before the Wl’O’s inauguration in 1995 meantthat it was obliged t o negotiate its accession tothe WI’O with existing memberson the basis o f separate bilateral talks. ‘I’hisconsequently gave more leverage to WTO memhers
146
The EU and China
to acquire market access gains from China, which in turn were multilateralised to all members through the MFN principle. In return, existing members were not compelled to offer market access deals to China above those already conferred upon othermembers. Moreover, any leniency grantedby WTO members regardingChina’sconformityto W T O rules was accompanied by the demand for reciprocal concessions which could include special safeguard measures to protect against ‘injurious’ competition.4“Both the EU and USA hadtabled a broad list of issuesin their bilateral negotiations with China. For the EU, these specifically comprised:
improvingmarket access for industrial and agriculturalgoodsthrough significant cuts in China’s tariff rates, including the renloval of tarifr ‘peaks’ (i.e. duties of 15 per cent or higher), and by removing all WTO-inconsistent quotas and specific non-tariff barriers; removing the current monopolies on foreign trade to enable all Chinese or foreign nationals to engage in export and import practices; a substantial opening of China’s services market in distribution, telecoms, professional services, tourism, travel and medical services; opening the financial sector (banking, securities and insurance) in a morc systematic and comprehensive, if gradual, manner; improving the conditions for foreign companies establishing in China; making China’s industrial policies WIO-compatible, including regulations on subsidies, standards and various state-trading practices; implementing the WTO’s Trade-Related Intellectual Property Rights (TRIPS) Agreement, Information ‘lkchnology Agreement, Government Procurement Agreement and Civil Aircraft Code. Successive failures to complete an accession agreement led to Beijing accusing both the EU and USA of delaying tactics to serve their respective market access objectives. The dispute over whether China qualified for ‘developing country’ status on entry to the W T O was an additional source of frustration. If achieved, it would allow China to claim certain derogations from WTO rules (e.g. being able to protect infant industries) and provide a transition period to implement pre-condition measures (e.g. on existing tariff levels and licensing requirements). However, the USA had consistentlyopposedtheconcession of developing country status to China,preferring instead to classify it as an NME as it had done since the 1974 Trade Act. While the EU had applied the same classification to China within its antidumping regime until April 1998, it had made the country a GSP beneficiary in 1980, thus recoppising China as a developing country in its widertrade policy framework.This was typical of the EU’s morepragmatic approach towards China which contrasted to the US traditional hard-line policy. Part of the US case rested on the notion that China should be judged on a commercial basis; because its export performance was indicative of a non-developing country this inferred that ‘developing country’ status should be denied. However, the US position was also implicitly based on a continued proclivity for bilateral
The EU andChina
147
agreements wit11 China and these were used as a benchmark for China’s comlnitment to ope11 market reforms.”’ This provided greater incentive for the EU to promote China’s accession to the WrO so as to circumvent these agreements which were effectively disadvantaging European firms (Acharya 1995). Atllouglgh the EU was n o t willing fully to accept China’s right to developing country status within theWTO, it did seek a compromise. In 1994 the EU Trade Commissioner Sir Ltwn Brittan first proposed the idea of awarding transitional melnbership status wherely China and ”TO members would be releascd from some WTo ol>ligations, thus enahlingChina gradually to conform to WrO rules after entry t,utto scheduled deadlines. This solution was not acceptable to the USA, in 1996 thc EU revised its approach by suggestingthatacase-by-case, sectoral approach bp adopted in an effort to secure consensus. Here, the EU was acknowledging the dualistic nature of the Chinese economy in that some aspects were reasonably advanced while othrrs remained significantly underdeveloped, and 11enc;egave scope for flexibility. Clearly defined transition periods for the latter were thusproposed by the EU in which China would phase in wmcompliantmeasuresbeyondthedate of accession. Once again, the USA was reluctant to concur, although its own position did soften somewhat after President Clinton’s re-election in 1996. Another positive development occurred in October 1997whenthe European Commissionachieved what is referred to asa ‘conceptualbreakthrough’ inits bilateral accession negotiations with China, namely thata scries of preciseprincipleswereagreed that providedclearer parameters for negotiations over China’s detailed tariff commitments. A provisional cleadline of Dccember 1998 was set for China’s W T O accession negotiations to be completed, by which time Taiwan would also hopefully achieve the same (see Chapter 6). While ‘l‘aiwan’s negotiation process was on track to meet this deadlinc, significant outstanding prohlems remained in bilateral talks with Beijing which made a decoupling of the twin accessions probable. As noted Asian financial crisis had undermined China’s earlier i n the chapter, the East confidcnce to open up its markets further to foreign commercial interests. This particularly relatrd to the financial sector where 80 per cent of banks were still state-owned. ‘Ihe Chinese government announced that it wishcd to resolve issucs of domestic reform (e.g. in the financial sector, the SOEs, rtc.) before liberalising thoseparts of thenationaleconomy most exposedtothevagaries of global market forces. ‘I’he EU was critical of this sequential approach, contending that domestic reform and lil>eralisation should be a simultaneous process. European Commission representatives argurd, for example, that foreign banks could play a significant role in maintaining stability within China’s financial sector through the expertise, prudential management controls and other bcnefits they had to offer. Other outstanding problems concerned China’s tariff‘ rates, which remainedcomparatively and China’s apparent rcluctancetodismantle its monopoly trade regime. By the autumn of 1998 it therefore seemed unlikely that China would accede to the WTO by the provisional deadline. Establishing the multilateraldimension of EU-Chinaeconomicdiplomacy was hence also delayed.
148
T h EU and Cllina
Conclusion By the 1990s China had becomeone of the EU’s most important economic partners. At thebilateral level, tradeand investment flows betweenthe two powers had expanded rapidly during the decade, notwithstanding the imbalances that lay therein. The framework of EU-China economic diplomacy had also improved considerably, owing partly to theEU adopting a more strategic, longertermperspective on developing its relationswith China. This was somewhat fortunate given thescopefortradefrictionbetweenthe two powers.China’s burgeoning trade surplus with the EU and the EU’s own trade policy regime towards Chinese imports nevertheless both have the potential to spark a bilateral trade war. However, mutual endeavours to develop the multilateral dimension to their economic diplomacy make this scenario even more unlikely. Let usnow, though, evaluate the overall development of EU-China economic relations from different IPE theoretical perspectives. As neo-rualists would concur, the salienceof the state and state-centric objectives in EU-China economic relations have been highly apparent, especially in the early post-war decades. The state’s power and authority have a long history in China, as has the association between the state and society. At the height of the Cold War’s adversarial geopolitics, China’s economic relations with the EU were only a means to an end, this being to ensure survivalof the state in the face of the blockade and isolationary conditions that confronted it. Furthermore, maintaining the territorial integrity of the Chinese state has been a consistently relevant issue. The EU has had to exercise extreme sensitivity over matters pertaining to Taiwan and Hong Kong which, as Chapter 6 explores in considerable detail, largely explains why the EU’s economic relations with thesetwo ‘tiger’ economies arecomparativelyunderdeveloped. We have alsoseen how Beijing hasbeen reluctant to surrender many of its neo-mercantilist practices as part of the W T O accession process. China’seconomicreformprocesshasalreadyentaileda significant degree of relinquished governance by central state authorities, which may explain such reluctanceto forsake a furtherloss of control over the economy. Thus, Beijing’s attempts to preserve China’s state-centricity, despite the devolvement of power to sub-state actors noted in this chapter, may pose certain problems for the EU, particularly over establishing a partnership at the WTO. At various points in the development of the EU-China economic relationship, EU member states have played a pivotal role. France’s early efforts to promote the Europe-China link were part of astrategy to advance its own national interests and those of the EC. Other ‘global’ EU member states were also at the forefront of developing economic relations with China. Britain’s colonial links with Hong Kong provided a special imperative here. In later years, the bilateral economic agreements madeby member states with China paved the way for their EU-level equivalents, e.g. the 1985 EC-China Trade and Co-operation Agreement. As China’s economic stature within the internationalcommunity has grown, though, the need for EU-level negotiations with Beijing has become more important. This relates both to the changing balance of power at the bilateral
The I d 1 ard Chino
I49
which can Ile most effectively countered by a unified EU front and thc growing impact made by China on the international trading system, which thc European Commission takes much responsibility for managing on the collective behalf of EU member states. A trend that has bren stressed in this chaptrr is how thc general context of EU China economic relationshas shifted fromthc Cold War’sgeopolitics to multipolar geoeconon1ics. Neo-realists would nevertheless insist that high politics is stdl very rrlevant in the determination ofthese relations. Examplrs include issues relating to ‘I’aiwan and Hong Kong and Beijing’s reluctance to compromisc the state’s control Over theeconomicsecurity of China mentionecl earlier. of power’brtwcen States remain Moreover, mattersconcerningthe‘balance pertinent. The EU was initially slow to recognisc thr shift in geoeconomic power that China’s rapid economic growth and industrial transformation w r e cxrrting within the international economic system. To an important extent, the fiU was abletolearnfrom its pastfailure to react in timetoJapan’s own economic ascendancy a few decades earlier (see Chapter 4). ’I’he neo-realist concept of ‘hegemonic stability’ can also be appliedtothc development of’ EU-China economic relations. Before the Sino-US ditenk was established,the USA led themarket-democracycoalitionagainstcommunist statessuch as Chinaunderthe COCOM arrangement, which Washington looked to the EC to uphold. While LC member states complied, we saw how West Europe nevertheless established itself as one of China’s major economic partners. However, the drcline of U S hegemony and other changes to the global economic order have created new conditions for superpower relations. I t is conceivable that China will join the EU, Japan and the USA in taking rcsponsibility forsustainingpost-hegemonic stability in the twenty-first century. China must first, however, fully participate in multilateral economic regimes. ‘Thc prolonged and at times fractious bilateral negotiations with China over its accession t o thr WTO are indicative of theinter-stateanarchy and conflict that neo-realists believe still characterise the nature of the international economic system. Bcijing has also lxcn wary o f the EU and US exercise of structural power i n shaping the parameters of China’s accession to the W1‘0. Neo-realists would also emphasise how China has been increasingly subject to systcmic conditioning since the introduction of its market reform proctw from the late 1970s onwards. Not only was this part of a global trend towards more market-friendly policymaking, butit also led to China’s closer integration into the internationaleconomic system (Kapur 1990). On cntry t o the W’I’O, China’s systemic conditioning will increase further, bringing long-term benefits for the EU owingtoChina’s new accountability to multilateral normsand rules. However, the EU’s recourse to protcctionistmeasuresagainst China will IIC circumscri1)ed by the same norms and rulcs. As a consequence, any outstanding EU quantitative restrictions on Chinese exports are likely to be removcd, while China may take the EU to the WI’O’s disputes pancl over a numbrr of antidumping cases. 1 he rolc played by international organisations in the glohal political economy
level
,>
150
T h e EU and China
is emphasised by neo-liberalism, or more specifically by neo-liberal institutionalists. Negotiations concerning China’s preparation for WTO membership have been central to recent dcvelopments in EU-China economic diplomacy. The impact of China’s actual accession to thc WTO will be even more profbund. O n the one hand, Beijing mayreact negatively to theEU pushingthemultilateral trade agenda, along with the USA, further intothetraditionalrealm of domestic economic policy. This could be construed as ‘foreign meddling’, with China being pressured into complying to new multilateral norms and rules that are sovereignty. O n the otherhand, thefuture perceived to compromisestate expansion of the Chinese economy partly relies on Beijing working with the EU and other W’TO members to maintain an open international trading system. Moreover, neo-liberals would also stress how non-state and sub-stateactors have become more prominent in EU-China economic diplomacy. We have noted how the decentralisation process in China has permitted the provincial authoritiessomelatitude in determining their own forcign economic policies. While the EU mustnaturallycontinue to deal with Beijing on key issues, a rationale exists for conducting certain trade and FDI negotiations at the local government level.““ A greater role played by EUand Chinese business representatives has also been evident. It was shown that they were instrumental in initially consolidating the basis of a China- West Europe economic relationship at thebloscow and Genevaconferences of the early 1950s. New EU-China business contact groups have continued this work, assisting the development of transnational linkages through the mutual trade and investment networks they have helped nurture. However, the comparatively low level of European FDI in China has meant that these linkages are not as strong or extensive as those round in other EU economic relationships with East Asian partners. Thus, the application of complex interdependence with regard to EU-China economic exchange has its limitations, although the new salience of sub-state and non-stateactors has produceda greater range of permutations within the economicdiplomacy equation. Both the EUandChinaare also affected indirectly through each other’s impact upon the international economic system and by the new interconnections being created within the system, e.g. financial globalisation and the wider impact of the East Asian financial crisis. Complex interdependence is also apparent concerning the more eclectic but related set of issues on the foreign economic policy agendashared by China and the EU, including the environment, nuclear proliferation, labour standards and trade, and economic migration. Whereas neo-realists suggest that declininghegemonic stability is the main cause of international trade friction, some nco-liberals have alternatively proposed that surpluscapacityproblems are largely to blame. Chapter 4 discussed how Japan has exposed the EU’s own surplus capacity problems in higher technology industries since the 1980s onwards. Chinese produccrs, along with their ASEAN counterparts, have had a similar effect in the EU’s lower technology industries. ‘I’he EU’s si\gnificantsectoral trade deficits with China can be strongly associated with the accelerated contraction of many EU industries in
The EU and China
15 1
structural decline, c.g. textiles. At the partial behest of European industry lobby qoups, the Chinese competitive threat has been countered by special protectionist measures, a wide-rangingGSP sectoral graduation andthe broadest application of ADDS by far on any EU trading partner. However, as Eglin (1997) argued, the strain on EU industry could be eased by further advances in China’s economic reform and modernisation that will eventually create its own largest market and hence divert exports internally, thus diminishing pressure externally. For hfarxktr, themain issuesin EU-China economic relations concern the lingering neo-imperial legacy, the relevance of dependency theory and ideological compromises that have been made by China in its dealings with market democracy partners such as the EU. In the first of these issues, European and other foreign multinational involvement in China has historic resonance. Marxists would stress that once again foreign capitalist powers are culpable of cawing up Chinese markets between them, as well as exploiting its natural and in the new human resources. Leading on from this, China’sparticipation international division of labour has made it subservient to Western multinational capital interests through the expansion of foreign investment projects. ‘I’his idea was subscribed to by the opponents to Deng’s Open Door policy, whereby the new SEZs were criticiscd as being ‘enclaves of imperialism’. ‘I’he persistence of neo-imperial legacy highlighted by Marxists is closely related to the theme of dependence. This chapter has discussed how the earliest developments of China’s post-war economic relations with EU member states were driven by its dependencyon West European technology, capital and markets.Marxists would contend that the fundamental aspects of EU -China economic relationship have not changed, as respective trade shares differences technology transfers reveal. and thc: mono-directional flow of bothFDIand However, in terms of geoeconomic distribution, China’s reliance on European technology is the only aspect of dependence which remains important. Far more capital enters China from Hong Kong, Japanese and US sources, while the AsiaPacific has become the principal destination for Chinese exports. Marxists would also comment on how the Chinese government’s experiments with capitalism represent an ideological compromise in the pursuit of improving the country’s position within the international economic system. Dependency theorists may also suggest how this constitutes an attempt by China to traverse the core periphery divide in the world capitalist system, although the cycleof dependence has proved difficult to break. For most of China’s economic partners, the economic reform process has been key to establishing a more cordial basis to economic relations. The EU has generally benefited from China’s shift towards market friendly policies, especially with regard toimprovements made in the framework of economic diplomacy. However, developing the multilateral dimension to this diplomacy is contingent on China making further ideological compromises. I n addition, the compctitivc threat to European industry that has been unleashed by China’s market reforms will pose a significant challenge to the EU for many years. ‘I‘hus, the EU’s policy towards China will continue to be one of simultaneous containment and engagementfor the foreseeable future.
6
The EU, Taiwan and Hong Kong
Introduction Taiwan and Hong Kong are among the EU’s most important and dynamic economic partners. In 1997 Taiwan was its seventh largest source of imports while. Hong Kong was ranked as its eighth largest export market. The EU’s other commercial ties with the two maturing ‘tiger’ economies have also flourishedin recent times. However, the EU’s economicdiplomacyframeworkswithTaiwan and HongKongremain the most underdeveloped amongthe East Asian group, owing largely to issuesof realigned and contested sovereignty. As discussed in Chapter 5, the EU’s economic relations with China, Taiwan and Hong Kong cannot be easily disaggregated. The return of Hong Kong’s political sovereignty to China in July 1997 and Beijing’s sensitivity over the conferring of any international recognition to the ‘province’ of Taiwan have both narrowed the EU’s economic diplomacy options and triangularised the diplomatic equation. Nevertheless, ‘Taiwan’s and Hong Kong’s ascendancywithintheinternational economic system has placed pressure upon the EU to greater prioritise the development of its economic relations with them. This predicament for theEU is considered by this chapter, which itself can be seen as a continuation of Chapter 5 . Before moving on to analyse the EU’s economic relations in detail, let us first introducetheeconomies of Taiwan and Hong Kong as wellas the issues of soverei
Taiwan and HongKong: mature ‘tiger’economies In this section, we shall initially considerthepathstodevelopmenttaken by Taiwan and Hong Kong. Both were first-generation ‘tiger’ cconornies, although a different developmental paradigm was adopted by their governing authorities. However, both form part of a ‘Greater China’ economy with both now playing instrumental roles in the economic development of mainland China. This too is analysed by this section, as are matters of economic sovereignty.
Paths to development %wan
The modern economic history of Taiwan (formally kl1own as Formosa) has becll shaped not just by the Chinese but also by various foreign occupying powers. ‘rhese included Dutch and Spanish trading companies in the mid-seventeenth century ar~d,Japan,which ruled Taiwan from Ixtween 1895 to 1945. Over this latter period, ‘Taiwan achieved a reasonable standard of cxonolnic devc-lopment through capitalist industrialisation, infrastructural investment, the raising of cducation standards and the development of its financc and tradc sectors. However, these advantages came at a price, with ‘I’aiwan’s economy a ~ l dworkforce made subsen+nt to the demands of the .Japanese ~ C O ~ O I I aI ~fate that a h befell Korea over a similar time-span (see Chapter 7). \vhik ‘l’aiwan suKered rchtively little war damage, theeconomy fell victim to lawlessness, corruption, hyperirlflationary conditions and general inefficiencies under the management of the local Nationalist Party, or Kuomintang (KM‘I’) administration during the immcdiate post-war years (Cold 1986, 1988). This changed, though,after the retreat of Chiang Kai-shek, the KRl’l”s leader, from mainl;md China to Taiwan in 1949, which made the island haven the last enclave of the incumbent Republic of China (ROC)regime. With the substantial assistance of the USA, which was t o halt the advance. of Communism in East Asia, the new KhlT administration set about the modernisation and refi)rm of Taiwan’s economy A land reform progranm1e implemented over 1949 to 1953 diversified the island’s industrial base with incentives given to rural landlords to invest in manufacturingenterprises. US financial aid, at an average annual $1 O O m between 195 1 to 1964, madea major contribution to upgrading Taiwan’s industrial capital and improving economic cficicncy.’ During the 1950s Taiwan recorded an annual avcragc ccormnic growth rate of 8.2 per cent. Industrial production was concentratcd on food processing, tcxtiles and constructionmaterials. A relatively early switch toexport-oriented industrialisation (EOI) li-om import-substitution industrialisation occurred towards the close of thedecade as domesticmarketshrcarnesaturatcd andmany of Taiwan’s producers were in a position to compete internationally. ‘I’his helped boost the economy’s growth rate still further to an annual average 9.2 per cent over the 1%Os, with ncw industrial capabilities also being de\doped in ;Issrmhly productionconsumerelectronics,electrical and plastic products. I n thecarly 1970s, the government embarked on a he;wy and chemical industry drive, promoting the cconomy’s petrochemical, metallurgic, machine tool and shipbuilding activities. Economic growth rates reachedeven greater heights with a 9.7 per c ~ n t annual average increase for the decade. Although this slowed to 7.1 per cent during the 1980s (see ‘Ikblr A.2), Taiwan continued its advancc into higher technology activities, such as industrialmachinery and illformatioll-b~lseclindustries. ‘I’his reflected the economy’s search fbr new comparative advantages as inflated
154
T h e EU Z i w a n and Hang Kong
domestic cost structures (ix. rising wages and rents) rendered its more labourintensive producers less competitive. By the 1990s consumer and producer services had become the predominant sector in Taiwan’s economy. A common feature of both its service and manufacturingsectorshasbeentheextremelyhighdensity of family-based small and medium-sizedenterprises (SMEs) thatcomposethem. Extensive network links between Taiwan’s SMEs and the synergetic collaborations these yield have produced flexible production structures within the economy that have enhanced its ability to respond and adapt to changing competitive conditions in international markets (Whitley 1992; Orru et al. 1997). While suchlow industrial concentration ratios have reduced the scope for internal economies of scale t o be generated, the common agglomeration of networked SME clustershasyieldedconsiderable external economies. These networks can be categorised into two types:
off a m i b e n h p r i s e s : where profits from core business activities are used for conglomerate diversification; productionnetworks, or satellite assembJy systems: wherebyexport-oriented SMEs are linked up with local or foreign buyers and usually represent the production end of a global commercial network. horizontal ownersh$ netaorks
Furthermore, Taiwan’s largefirms and large business groups arc usually upstream suppliers of intermediate goods and services to SME manufacturer networks, which in turn rely heavily on the external demand from foreign contractors. As Orru etal. (1997: 8 1) observed, ‘every level of the economy . . . is segmented and driven by downstream demand’, and hence Taiwan’s economy is essentially ‘buyer-driven’ in contrast to the ‘producer-driven’ economiesof Japan and Korea. The role of the ‘developmental state’ in Taiwan’s post-war economic development has also been significant (So and Chui 1995). The KMI; which has continually held power in Taiwan, has pursued proactive economic policies centred on facilitating capitalist activity while simultaneously guiding the strategic decisionmaking of Taiwanese companies through setting national economic development objectiveswithin‘plan’frameworks. l h e government has, for example,prioritised key sectors for investment,directly promoted thedevelopment of new industrial capabilities, selectedcompanies for promotion in international markets and in the past imposed state control over many of the economy’s ‘commanding of state” heights’.2 Yet such d i r e s m e is tempered by thecollaborativenature business relationships in Taiwan, and moreover a less interventionist approach has been evident during the 1990s. As withmany other East Asian countries, human capitalinvestments have played a crucial role in Taiwan’s economic development with a strong emphasis placed on mass education and training.Idowinflationhas also beenaprimc objective of KMT economic policy that has been achieved through a combination of tight monetary policy and non-inflationary fiscal incentives &on 1995). However, inflationary pressures have begun to build up within the economy as a
The EU %‘wan and Hong KO%
155
consequenceofincreasingpublicexpenditures on defence, social welfare and infrastructure. For example, in 199 1 the government launchedits six-year National Development Plan, the centrepiece beinga publicly funded $300bn infrastructure a I993 review scaleddownthesum invested to investmentproject,although $2291,~. 111 addition, ten strategic high-tech industries were prioritised for development under the plan.” By 1994, various key industrial technologies for localised development were also afforded priority,’t with technology transfers from Japanese firms encouraged toassist this development. Furthermore, thegovernment offered t u 1lreaks for investmentsmade in research and development (R&D),automation, pollution control and energy-saving techniques. Since 1990, Taiwan hasalso promoted itself as an Asia-Pacific Kegional Operations Centre(APROC) a regional hub for finance, communications and commerce, especially in relation to the axis of international trade and investmentin China’ (Islam and Chowdury 1997). AS a resource-poor economy with relatively small domestic markets, Taiwan’s economic success owes much to its EO1 strategies. It maintains a high trade ratio (57.2 per cent in 1996) with imports concentratedin machinery, chemicals, industrial materials and transport equipment.Around half of Taiwan’s exports consist of machinery and electrical equipment products. ‘lextiles and clothing remain thesecond most importantsectoralexportsgroup,although a growingshift towards higher-tech niches has been evident for some time. Consistent and substantial trade surpluses have provided Taiwan with one of the world’s highest accumulation of foreign exchange reserves. Taiwan has also benefitedfrom economy-wide, trade-induced learning effects that, according to Chuang (1996), have yielded significant external economies.These have been estimated to generate over 40 per cent of Taiwan’s manufacturing output growth during 1975-90, which is not explained by total factor inputs. As Table 6.1 show, Taiwan’s producers have retained a considerable import dependency upon the USA and Japan. Moreover, Taiwan’s SMEs often serve as subcontractors for large US firms and medium-sizedJapanesefirms. Inward flowsof foreign direct investment (FDI) have also played an important role in Taiwan’s economic development. US firms were early investors, riding on the back of the aid programme of the 1950s and early 1960s. Taiwan’s pioneering export processing zones (EPZs), established first at Kaohsiung in 1965 and then at Nantze and Taichungin 1969, also did much to stimulate multinationalinvestment in the economy by offering a mix of attractive location-specific advantages.‘i Levels of inward FDI peaked in 1989 when they accounted for around 25 per cent of the economy’s gross capital formation. However, inward FDI is now only a significant dctrrminant of development within a few sectors of the economy, such as electronics. Outward flows of Taiwanese FllI have risen dramatically since the mid- 1980s as Taiwan’s firmsstrived to maintain a competitive cost advantage in more labour-intensive activitiesby shifting production offshore, principally to mainland China and Southeast Asia. Most overseas investments have been lowrisk and small scale in nature with original equipment manufacture arrangements remaining an important vehicle of internationalisation. This is the case eve11 for large -
Table 6.I Geographic breakdown of Taiwan’s international trade (percentage per trade partner, 1960-97) 1960
Imports Exports
1990 Zmports Exports
1995 1997 Imports Exporis Imports Exports
1965 Imporis Exports
1970
1975
1985
Imports Exports
Inports Exports
Imports E x p o h
10.0 22.0 2.0 1.2
10.6 23.8 1.1 3.4
11.3 39.7 3.6 1.5
12.0 27.8 0.8 3.1
14.9 34.5 3.0 2.5
14.1 6.5 23.4 49.4 1.5 2.6 2.5 3.9
21.4 21.5 1.3 2.8
11.6 34.6 2.6 2.3
14.1 18.6 1.2 2.7
11.7 24.2 1.6 1.8
15.0 17.8 1.0 2.7
13.2 24.9 1.8 1.8
EU15 USA Canada Australasia
10.0 38.2 0.7 1.3
5.6 11.5 0.2
7.1 32.1 1.2 2.2
Japan China Korea Hong Kong ASEAN
35.4 0.0 0.1 1.6 3.4
37.5 0.0 3.6 12.5 13.2
40.2 0.0 0.4 1.1 5.4
31.1 0.0 1.4 6.5 18.4
42.7 0.0
1.o 1.8 7.3
15.1 0.0 1.9 9.5 11.8
30.5 0.0 1.0 1.3 5.8
13.2 0.0 2.2 6.8 9.9
25.2 0.0 0.8 3.6 6.9
9.5 0.0 0.9 7.5 5.5
28.8 0.6 2.3 6.4 7.4
12.3 3.3 2.1 10.8 11.8
28.0 3.0 3.8 4.5 10.8
11.2 11.5 2.0 13.0 13.3
24.1 3.0 4.0 4.1 15.7
9.2 12.2 1.8 11.9 10.4
Middle East Africa Latin America’
6.7 0.7 0.1
10.9 2.2 0.1
4.3 2.4 2.6
2.1 2.8 0.2
4.1 0.7 3.4
1.4 3.0 1.o
11.7 2.3 1.0
4.2 3.8 1.9
5.9 2.2 3.0
8.0 1.3 1.5
2.5 0.9 2.4
4.6 0.3 1.9
2.0 1.3 2.6
3.0 1.4 1.9
2.2 1.1 3.0
3.1 1.8 1.9
Other
1.8
2.0
1.0
2.3
0.1
0.2
2.7
3.1
9.5
4.8
1.7
1.8
7.4
3.4
6.1
6.1
0.7
~
Source: IhlF Dimlion
cf
~
Eade Sfatistics fiarbook? various editions.
Xote:
1 Includes the Caribbean states.
The EL! Kiiwan and Hong h o q
157
firms such as ACER and Tatung, owing to their lack of access to overseas distribution outlets (Chen,J. 1997). In Taipei’s endeavours t o redirect Taiwanese 1:I)I away from mainland China to Southeast Asian locations it has promoted a ‘ G o South’ policy with this objective in mind. In January 1998, Taiwan dispatched a high-profile, sixty-person trade mission to Indonesia, Malaysia, the Philippines and ‘I’hailand to promote closer commercial ties with ASEAN. The 1997-8 financial crisis that affected much of Southeast Asia also provided Taiwan with the opportunity to expand its informal diplomatic role in the region, by offering funds and expertise to the most troubled ASEAN states. Taiwan w a s relatively unaffected by the crisis with its banks having been comparatively unexposed and the majority of its overseas investments in industrial plants, many of which subsequently benefited from newly devalued currencies. The economy’s sound financial position, with around $80bn of foreign exchange reserves, has also helped to sustain investor confidence through the crisis. ‘laiwan was nevertheless affected by the crisis in indirect ways; for example, Southeast Asian and Korean currency depreciations undermined the competitiveness of Taiwanese companies in both its domestic and export markets, while a crisis-inducrd slowdown in the East Asian economy reduced the demand for Taiwanese products. Other factors that could inhibit ‘I’aiwan’s future economic development include the uncertainty over a possihle political reunification with mainlandChina, persisting labour shortages, a still narrow technological base andinadequate infrastructural provision.
Hong h l q Most analyses of Hong Kong’s economic history commence from the 1840s onwards, marking the advent of British colonial rule in the territory during the Iirst Opium War (1839 42) with China.’ Although Hong Kong is normally associated with being Asia’s principal entrep8t ccntre, before 1949 it was a relative backwater, mainly facilitating the trade of <;uangdong province. Morcover, Shanghai served as the primary distribution hub for China’s international trade. Hong Kong’s comparativelyhumble position was furthcrcompromiscd by Western attempts to isolate the newly formed People’s Kepuhlic of China (1’RC) through the use of trade sanctions.‘’I n response, Hong Kong hadto develop various manufacturing capabilities in order to diversify its economy. Tht. arrival of the Shanghaiese capitalist class, seeking refuge from Mao’s regime, l m q h t the technical know-how and capital that proved instrumental in developing many of Hong Kong’s new industries, particularly textiles. Up until the early 1970s, Hong Kong experienced a phase of rapid industrialisation, leading to average annual growth rates of 6.1 per cent during the 195Os, 10.0 per cent in the 1960s and 9.3 per cent over the 1970s (see Table A.2). From the mid-1970s onwards, the Hong Kong economy diversified further by beginning to develop a broader range of service industries, especially within the financial sector(Cheng 1995). By the time Deng Xiaoping’s economic reforms commenced in the latr 197()s, Hong Kong was thus poised to exploit the benefits that a new ‘opcn’ China
158
The EC: iraiwan and Hong King
would confer. The granting of Special Economic Zone (SEZ) status to neighbouring Shenzhen in 1979 and the designation of the Pearl Delta region as an ‘open economic development zone’in 1985 more thanrestored Hong Kong’s fortunes as an entrep6t centre, acting as the conduit through which muchof China’s rising levels of both exports and imports passed (see Chapter 5). Meanwhile, Sino-British negotiations over Hong Kong’s future had begun in 1982 as the UK’s lease on the inland territories was due to expire in 1997.“ The Sino-BritishJointDeclaration was signed in August1984,dulyratified by Westminster in May 1985, and carried provisions for Chinese sovereignty to be restored over the territory on 1 July 1997. However, it was agreed that Beijing would apply the so-called ‘one country, two systems’ principle, whereby Hong Kong would become a Special Administrative Region( S A R )able to function in a relatively autonomous manner up to the year 2047. Hence, it is to a large extent a self-governing entity with its own legal code (except on defence and foreign affairs , having separate customs territory status and maintaining its own curIo rency. The rationalebehind Beijing’s approach is relatively simple: while it wishes to exercise ultimate political sovereignty over the territory, it is not in the PKC’s economicintereststodisturb Hong Kong’s pre-existingcommercial regimes and networks that lay the proverbial ‘golden eggs’. We can therefore expect many salient features of the Hong Kong economy to remain unchanged. While Hong Kong’s political sovereignty lies cast within a Communist state, it is still oftencited as the most laksez.-faire economy in the world, with minimalist government intervention being concentratedon providing essential infrastructure, law and order, property rights and a free trade regime. Since its inception, the rakon d’ltre of the Hong Kong state has been primarily defined by capitalist imperatives. Moreover, private capital interests have always exerted a powerful influence over the form and direction of government economic policy.Yet, the HongKong government’s ‘positive non-intervention’ approach has not been devoid of attempts to stecr the economy’s path of development (Lethbridge 1993). As Castells (1992) notes, it has created agencies to helpco-ordinatenetworkproduction (especially in textiles), promotetrade, enhance productivity, disseminate market information among firms and helped engineer structural adjustment in theeconomy in accordance with their own devised strategic plan. Like Taiwan,Hong Kong’s industrialstructure is dominated by networkbased, small family-run firms that are able quickly to respond to the vicissitudes of internationalmarkets.Compared to other newly industrialisirlgcountries (NICs), though, the level of sophistication found in Hong Kong’s manufacturing base is relatively low with limited automation, low R&D and most high-grade and key components being imported (Eng 1997). Furthermore, the economy’s value-addedperlabour cost ratiohasbeen falling sincethe 1970s. The consequent loss of momentum in Hong Kong’s EO1 activities led to the publication in 1979 of a wide-ranging study conducted by the state-appointed committee to investigate those factors contributing to the economy’s flagging competitiveness. However, their findings became obsolete with the advent of the PRC’s economic
The E q Taiwan and Hong Ii‘ong 159 reform programme in the same year. The opening up of China to inward FDI enabled Hong Kong’s manufacturers to restore cost-competitive advantages by relocating production over the border. This was an ideal opportunity given their small size and hence the constraints they faced in managing long-distance offshore production (Ho and So 1997). The relocation of Hong Kong industry to inland China has been extensive. Around three-quarters of Hong Kong firms’ industrial activities now take place in the PRC, employing an estimated three million workers in the Guangdong province. Consequently, the principal function of the Hong Kong economy is as a business services centre, especially for those companies with commercial interests in China. Hong Kong’s manufacturing sector represented only 8.3 per cent of GDP in 1996,downfrom24.3 per cent in 1984.Textile and clothing, on which Hong Kong’s industrialisation was originally founded, remains its most important domesticmanufacturing sector. Its continuedprominencecanbe partlyattributed to theoptimal utilisation of China’sMulti-FibreAgreement (MFA) quotas which has limited the scope for Hong Kong’s textile and clothing production to relocate to lower cost Chinese destinations. Electronics is Hong Kong’s second largest domesticmanufacturingsectorwheresemiconductors, audio-visual equipment,computer systems and telecommunications are key product lines. Inward F D I has played an important role in Hong Kong’s manufacturing industries, the electronics sector being thelargest recipient with approximately 30 per cent of total inward investment. The significant structural changes in Hong Kong’s industry have had profound effects upon its trade patterns. The most notable trend since the 1980s has been the shift from domestic exports to re-exports, the latter of which now account for around 80 per cent of Hong Kong’s total exports. EntrepBt ports such as Hong Kong and Singapore perform the task of distributing exports on the behalf of other countries, thus counting as re-exports. This exercise usually requires some form of processing (e.g. final packaging, providing cargo insurance), whereas the simple ‘transshipment’ of goods does not. However, China’s improved capahilities in product processing and auxiliary commercialservices in more recent times have led to a marked increase in transshipment trade via Hong Kong.” A number of rules-of-origin disputes have arisen owing to the possibilities that transshipment offers to circumvent the trade restrictions of third parties. We shall later examine a case of this involving the EU’s anti-dumping regime. Although Hong Kong’s commercial ties with China have flourished,it has also diversified its economic links across East Asia (Table 6.2). While not succumbing to a full-blown financial crisis in the late 199Os, the exposure of Hang Kong’s financial sector to the wider regional crisis meant that the adverse indirect efrects were considerable. This particularly related to a loss of confidence which produced both a significant decline in asset prices and the collapse of various securI:! ities firms. However, in acknowledging Hong Kong’s role as a beaconof prudential management in the region, it has received support from the EU and other powers aimed at fortifying market confidence in the territory. China’s relative immunity to the crisis proved a further boost to Hong Kong.
-C?wr'o! w m - m w m
- - co
(00-
L 0
@?o!0?"? -m
. I
Towards a Greater China? The discussion concerning the emergence of a ‘Greater China’ came to the fore in theearly 199Os, as linkages bctwccnTaiwan, Hong Kong and other constituent parts of the Chinese diaspora’:’ have deepened and broadened. There exists much ambiguity, though, over what the Greater China concept actually refers to, while to some it is a pejorative term denoting the expansionist aspirations of the core nation. However, Harding (1993) contends that the notion of a Greater China subsumes three relatively distinct themes: economic integration, cultural interaction and political reunification. Wcx have already analysed how Taiwan and Hong Kong have heen part of a de.ficto economicintegration with Chinathrough extensive tradeand investment links that haw developed within the so-called South China Sea ‘growth triangle’,”’fostering an economic symbiosis Ixtwccn all thrre economies (see Figure 8. I). Hong Kong was China’s biggest trade partner between 1985 to 1992 and is still its biggest inward investor, with highly diversified activities covering small-scale, labour-intensive manufacturing to large-scale infrastructure projects. I hese aremainlyconcentrated in Guangdong province,providingfeedback demand for Hong Kong’s business services back home. Investment from PRC enterprises in Hong Kong is similarly diversified and almost matches opposite flows of FDI from Hong Kong. Taiwan still relies 0 1 1 Hong Kong to act a s an intermediary through which indirect economic linkages have formed betwcen the island’s producers and the Chinesemainland. It was only in 1991 that the K M T govcrnment began to remove significant barriers t o trade and investment flows with the PRC, and in 1995 that it decided on principle to permit direct track with China.” ‘I’hrse and other factors explain why Taiwan’s economic integration with the PRC is less advanced in comparison with Hong Kong’s, although this situation has engendereda closer economicinterdependencybetweenthe two NICs. However, Taiwan’s invrstments on mainland China are diversifying and cxpanding out of small-scale, labour-intensive activitiesand into more techuolo~-intensivcsectors. As with Hong Kong investments in the PRC, those of Taiwan’s firms are concentrated in their neighhouring economic development ZOIICS, i.e. the Xiamcn SEZ and Fujian province. Economic intcgration within a Greater China has been contingent upon culturalinteractions, and in particular guunxi business relationshipsthat have evolved 011 atransnational basis. Such links can f i l l intotheextra-firm(illvolving political agents), inter-firm (business alliances) or intra-firm (trusted family membersor close associates) category. Yeung (1997)attachesprimacy to guunxi networks in determining trade and investment decisions and argues that theyformtheir own distinctgovernancestructures.Hence,trade and investment flows ktween Taiwan, Hong Kong and the PKC owe much to the social to bindtheir economies organisation of transnationalactivitiesthatcontinue closer together. Political reunification is the least dcveloped of Greater China’s three aspects, I
.
162
The EG E i w a n and Hong k‘ong
despite Hong Kong’s recent return to China. Taiwan’s politicalintegration into the PRC is still one of Beijing’s prime policy objectives.’G Yahuda (1993: 698) noted that ‘as seen by the leaders of the PRC the importance of reunificationwith Taiwan is amatter of finishingthe civil war, completingthe nationalist tryst with Chinese history and finally triumphing over the demeaning effects of past humiliations at the hands of western powers’. Consequently, two systems’ frameworkforreBeijing hasproposedasimilar‘onecountry, establishing sovereignty in Taiwan to that applied to Hong Kong. The KMT government remain strongly opposed to such a plan, as do the pro-independent Democratic Progressive Party (DPP). Logically, it is in Taiwan’s interest first to observe the demonstrative effects of the ‘one country, two systems’ principle at work in a post-1 997 Hong Kong before any decision is made. Besides, Taiwan is unlikely to give up hope that further economic integration across a Greater China may provide the impetus for political change in the PRC itself (Cheung 1995).
Maintaining international status As notedearlier,China’sleaders will permit Hong Kong to fulfil its international economic role, although Beijing will oversee most aspects of its foreign affairs (Yahuda 1996b). However, in the previous chapter we observed how the recent decentralisation of power in the PRC had spurred the coastal provinces in particular to develop autonomous foreign trade and investment policies that had subsequently led totheirestablishingquasi-diplomatic links with othrr states. Thus, the retention of Hong Kong’s economic sovereignty has been part of abroaderprocess of changewithin China. Nevertheless, HongKong remains a unique economic territory within the PRC. It is an independent signatory to various international economic agreements, a member of key international organisations (e.g. the and APEC) and is able to manage a relatively distincteconomicdiplomacywith other states.Perhapsthemost important threat posed to Hong Kong’s international status from a mainland China source is thepredictedre-emergence of Shanghaias Asia’s primary entrep8t centre. Taiwanhasmeanwhilestruggledtoreassert its international status, at least among diplomatic circles, after US acknowledgement of the PRC’s political legitimacy in 1972. As a consequence, Taiwan was expelled from various international organisations, most importantly the UN, IMF, World Bank and GATT. When Taiwan re-applied to join theGATT in January 1990 underArticle 33, the PRC insisted that its own application for membership which was submitted in 18 1986 - should be accepted either before or at the same time as Taiwan’s. In 1992 an understanding was established within the GATT forum for the coupling of the two applicationswherebyboth would simultaneouslyaccede.While Taiwan secured membership of APEC in 199 1 ”) and of the South Pacific Forum a year later, it is yet to re-establish or develop formal diplomatic relationswith ally of its main economic partners.2” ~
The El( %wan and Hong
k’ong
163
Yet Taiwan’s growing impact on the international economy cannot be easily ignored with a rank of the world’s fourteenth largest trader (see Table A.8) and a major overseas investor. Given the political sensitivity of the Beijing-Taipei relationship,the EUandothermembers of theinternationalcommunity have attempted to foster informal diplomatic relations with Taiwan. In 199 1 Western trade and economic ministers began to make visits to Taipei, including in 1992 fromthe UK, USAand Germany.AccordingtoKlintworth(1996:392), Taiwan’s position has also been recently strengthened by ‘the end of the Cold War tensions in East Asia, the consequent decline in the strategic importance of China and thecontrastbetween Taiwan’s domesticpoliticalreforms and the bloody events in Beijing in June 1989’. Moreover, Klintworth further argued that attempts to apply economic leverage against Taiwan would rebound as it would demonstrate that China was an untrustworthy economic partner at a time when it continued to seek membership of multilateral fora (most notably the WTO) anda morecomprehensiveintegrationintothe world economy.Taiwan is, though, unlikely to proclaim political independence so long as economic sovereignty remains intact” (Clough 1993). Italso remains the case that the USA plays a key part in guaranteeing Taiwan’s political survival.
The EU’s economic relationswith Taiwan and Hong Kong To a significant extent, the EU’s economic relations with both Taiwanand Hong Kong can only be understood in the context of EU-China relations. BeforeJuly 1997 the EU’s relations with Hong Kong were essentially driven by the UK’s ties with itsold colonial possession.2’ Indeed,the UK still plays aprominent commercial and diplomatic function in EU negotiations with Hong Kong and Beijing. Owing to the EU’s ‘oneChina’ policy, its relationswithTaiwanare informal and relatively under-developed.Moreover,becauseTaiwanhasnot been able to participate at multilaterallevel negotiations, its relations with the EU have been resigned to the bilateral levelonly. Thus, issues of sovereignty have largely orientated the EU’s economic relations with Taiwan and Hong Kong. While this has brought difficulties to managing the economic diplomacy process, their growing importance as EU economic partners has equally made it imperative to prioritise the development of relations.
EU-Taiwan economic relations Early encounkrs and the becginnings of economic diplomacy
I n historical terms, interactions between Europe and Taiwan have heen limited. Mercantile contacts were first formed in the early seventeenth century, where for a time Dutch and Spanish trading companies efyectively controlled the island of Formosa,as Taiwan was known then, betweentheyears1624to 1662 (Klintworth 1996). After a victorious Franco-British war against China, the con-
164
The EL! Z i w a n and Hong AOng
ditions of the 1858 Treaty of ‘I’ientsin gave French and British ships access to two ports on Formosa’s eastern coast. In a later conflict with China, the French navy partially blockaded the island during periods in 1884 and 1885. It was not until the KM‘T’s rctreat to Taiwan in 1949 that more positive diplomatic interactions were established with the European powers. However, disputes over Taiwan’s sovereignty continued to make this difficult. It could be said that early developments in ‘Taiwan’s post-war diplomacy with West European countries fbllowed a more or less inverse path to Sino-European relations. As a condition of forming official diplomatic ties with Beijing, countries were obliged to discontinue those with’l’aipei: only one legitimate China could be recognised. ‘I’hus, the decision of the UK, Netherlands and Denmark to curtail diplomatic relations with Taiwan in I950 was a precursor to commencing those with the PRC (see Chapter 5). France’s diplomatic advances towards China during the early 1960s led thel‘aipei government voluntarilyto break ties with Paris in February 1964. Up until the Sino-American normalisation of 197 1, Luxembourg, Spain andPortugal remained the onlyWest European nation-states to keep formal diplomatic channels with Taiwan.’” Moreover, Taiwan’s attemp:s to formalisc links with the LEC during the early 1960swerethwarted by objectionsraised by the French andDutch governments.”’ However,an agreement on textiles trade was signed between the EC and ‘Taiwanin October1970,but this simplyimposed restrictions on Taiwanese exporters andlasted for only three years. Any chance o f . other agreements arising or formal channels being createdwas ended with the openingof official relations between Beijing and the European Commission in 1975.’5 Consequently, Taiwan was denied membership to the EC’s Generalised System of Preferences (GSP) scheme and other economic assistance afforded to its rival ,4sian NICs. ’ h i and Ming ( I 990) have blamed l‘aiwan’s foreign policy failures of the early post-warperiod on the inflexible position adopted by the K M T government. They argued that the pursuing of a ‘two Chinas’ or ‘dual representation’ policy after China’s rapprochement with the West would have improved their chance of maintaining official relations with many countries. As it transpired, the number of states recognising Taiwan’s sovereignty fell from sixty-six in I970 to twentythree by 1983. During this time, Taiwan had also developed a very pronounced economic and military dependency on the USA. A significantly high proportion of its imports also originated From Japan (see T a l k 6. I). Certain similarities can be made with Korea in this respect. Likc Korea, in more recent years‘Taiwan has also diversified its trade relations towards Ihrope to such a dependency. This process has also helped broaden indircct support for its sovereignty (Cooper 1996). While the EU’s ‘one China’ policy means that it cannot confer political recognition to the ‘Taiwanese state, it has had to adopt a dej i t r t o economic recognition, given l‘aiwan’s growing commercial status in the international economy. Indeed, ‘I’aiwan is currently a more important trading partner to the EU than Canada or Australia (see Table A.3). ,is a result, thc EU has had to afford a relatively high priority towards developing an economic diplomacy with the island territory within the confines of
non-political tics. The latter has necessitated a low level of representation and an absentinstitutionalisation of formaldiplomacyeither at the member state or supranational level. However, both sides have established non-official institutions that have acted as the conduit through which an informal diplomacy has evolved. Where higher level representation has occurred via mutual visits, a certain informality of contact has been clearly demonstrated so as not to ofYend Beijing. This is referred to as the 'flcxible diplomacy' approach. The PRC has ncverthrless been very sensitive to any high-level interactionsbetween 'I'aiwanese government 21; of EU- 'I'aiwan ministers and foreign officials, although it hasbeentolerant bilateralnegotiations on Taiwan's W'IO accession a processwhich the PKC must simultaneously undergo. The development of a framework for EU-Taiwan economic diplomacy, albeit informal, began in the early 1980s. Three trends should be noted. First, a growing number of bilateral economic co-operation committees were being set up around this time Ixtween EU member states and Taiwan. Belgium set the trend in 198 I , followed by Spain (1 982), the Netherlands ( 1 983), Sweden (1986), West Germany (1 988), thc UK (1 988), Ireland (1988) and Italy (1989). In each case, companies from each country were directly involved in establishing theselinks with both sides, conspiring on issues such as regulatory environments and public procurement bidding. Second, and in a similar vein, eleven European countries had by 1988 set up fourteencommercial-basedinstitutions in 'I'aiwan between them, thcir main function being to promote mutualbusiness and techImlogical co-operation a s well as cultural exchanges. 'I'hcsc, are not official diplomatic representative offices, and hence their level of politicised authority remains limited. However, as Mengin (1 997) notes, most have become reasonably close substitutcs for embassirsby performing many of the tasks usually associated with them," e.g. issuing visas. In Europe, Taiwan had also created fourteen commercial representative ofIices by this time,with one based in Brussels to manage contacts with theEuropean Commission and other EC institutions. l'hird, delegations from the European Commission and 'I'aiwanese government convened for their first round of informal trade talks in Dccemher 198 1. In the 1980s there were seven such rounds but these remained shrouded in secrecy.'" Neither their full agcnda nor the namesof participants were publicly disclosed. It is known that discussions were reduced to minor level, bureaucratic matters (eg. visa applications for commercial travellers) rather than substantive talks on major gcoeconomic issues.'This could be partiallyattributedto ?%wan'slack of engagement in international economic organisations which somewhat narrowed thescope of discourse.'. However, a widerrange of technical discussions on various commercial issues were to follow during the 1990s and these are examined latcr. 'rhus, thr scopelorconducting aninformaleconomic diplomacybetween 'Taiwan and the E<: was reasonablydeveloped a t thc end of the 1980s. The quasi-diplomatic functions performed by business representatives from both sides continue t o play a relatively prominent rolr in EU-Taiwan tymnomic relations, ' W
166
The EU Taiwan and HongKong
filling the vacuum of a non-existent political diplomacy. The European Commission even used Eurochambres (European Chambres of Commerce and Industry) as its agent to conclude two agreements with Taiwan over 1990---91. These were the ‘Protocol on Income Tax Exemption on Shipping Enterprises’ (1 August 1990) and the ‘Agreement onthe Organisation of a System of International Customs Deposits with China-Taiwan for the Temporary Admission of Goods’ (29 December 1990-20 March 199l).”” The weakness of the European Commission’s commercial policy regime in this respect has prompted the European Parliament (EP) in particular to compete for influence over the evolving EU position towards Taiwan. ‘The EP has often been a strong advocate of promoting the EU’s relations with Taiwan beyond that level conceded by the European Commission and Council of Ministers. As a democratic agency, the EP has felt obliged to safeguard Taipei’s sovereignty against pressure from Beijing to undermine it. To some degree, this has been a question of relativity: theKMT’s presiding‘one-party’ democracy in Taiwan offers a more palatable alternative to monolithic Chinese Communist Party rule. Furthermore, the EP has been encouraged by KMT’s recent political reforms, its support increasing with the pace of democratisation in Taiwan. A 1985 EP resolution, under the initiation of MEP J. Van Aerrsen, called upon the EC to upgrade its trade relations with Taiwan where latitude permitted. Among the measures suggested were: 0
0
0
informing Taiwan of changes in EC policy towards other East Asian countries; the EC was to incorporate Taiwan where it could into the international economic system; the simplification of existing commercialprocedures,including visa insurance and certainfinancial arrangements.’”
Despitethe fact that the EP’s proposals were dismissed by theEuropean Commission and the Council of Ministers, Taiwan announced that 1986 was the ‘Year of Trade with Europe’ in response to this support from within the EC. A trade promotion group from Taiwan was dispatched to Europe in the spring of that year, visiting theNetherlands, UK, Belgium, Sweden, Ireland, West Germany and Austria. The EP have also been strong supporters of Taiwan’s accession tothe WTO. In May 1993,theHindley and Reding Reports were presented to the EP as the basis for discussions over the reintegration of both Taiwan and the PRC into the GATT and the wider international economic sys92 tem in general.Adelegation of MEPs visited Taiwan in November1995 at the invitation of Taipei. A few months later in March 1996,the EP publicly condemned the PRC for conducting high-level military exercises in the Taiwan Strait on the eve of the island’s first ever direct presidential election. The folso called ‘Role of Taiwan in International lowing July, theEPadoptedthe Organisations’ resolution in which support was registered for Taiwan’s return to the UN and thewider international community. Most recently, some MEPs
T h e EU X i w a n and Hong Kong
167
have also pushed for the European Commission to establish an EU-level representative office in Taipei.33 The dispersed commercial interests of Taiwanese business across the Chinese diaspora has meant that the EU’s economic relations with China, Hong Kong SAR and the ASEAN states have a significant impacton those with ’I’aiwan.This may relate to the EU’s trade disputes with East Asia’s Chinese-based economies (e.g. anti-dumping duties on goods produced by Taiwanese firms that are based there)”” or to the promotional aspects of these relations where Taiwanese firms have benefitedasa result..’.’ In anattempt to promote its APROC initiative, ‘Yaiwan has also encouraged European multinationals to link up with Taiwanese companies jointly to develop new business opportunities in China and Southeast Asia.“ This was the main focus of the first EU-Taiwan Industrial Co-operation meeting held in June 1996, in which fourteen European industrial groups and sixteen private and public sector groups from Taiwan convened to discuss the potential for joint ventures in the regi~n.’’~ Security considerations have played some part in Taiwan’s economic relations with the EU, which in turn have affected EU-China relations. ‘The dispute over Taiwan’s sovereignty has led to Beijing’s frequent resistance to Taipei’s attempts at diversifying its military procurement sources beyond the USA. Given the comparative strengths of European arms producers, this has frequently involved EU member states. In 1981 the Dutch RSV shipyard secured a contract from the two diesel-poweredsubmarines. Beijing conTaiwanesegovernmenttobuild sequently downgraded its diplomatic relations with the Netherlands from amhassadorial to charge‘ d’ufiires 1evt:l.”Full Sino-Dutchdiplomaticrelationswere restored in 1984 when the Dutch government informed China that it did not intrnd to bid for anyfurthermilitarycontractsfrom ‘1Biwan? In 1990the Frenchgovernment cameunderpressurefrom Beijing notto sell sixteen LaFayette frigates to the Taiwanese Navy but the $4.8bn deal went ahead anyway. Later on in 1992, France also sold sixty Mirage jetsto Taiwan worth $3.2bn. It is noted in Chapter 5 how Beijing responded by closing the French consulate office in Guangzhou and barred French companies from bidding for the contract to build the city’s new subway system. Undeterred, France went on to sell a further $2.6bn worth of military hardware to Taiwan in 1994, although this policy was soon reversed after the inauguration of a new French government that year. Meanwhile, by 1991 a Belgian amiate of a French firm, Thomsen-CSF had sold rocket propulsion systems to the Taiwanese air force, while Italy had sold torpedoes to the Taiwanese navy and a German shipyard received an order from Taiwan to build four minesweepers. However, in January 1993 the German government refused to accept a DM12bn contract from Taiwan to sellits armed forces ten submarines and ten frigates. A few years later, Taiwan’s Ministry of National Defence had set up an arms procurement offke in Europe by the end of 1997. Ii
168
irhe El-J %&an and Hong Kong
Developments in EU-Zaiwan economic exchange Trade and investment flows between the EU and Taiwan during the early years of their economic relationship were minimal. In 1958, the newly formed EEC imported just $6million worth of products from Taiwan and exported $18million to the territory. By 1968, thesefigures had only risen to $70m and $77m.As Table 6.1 indicates, the EU15 groupwas a poor third import partner for Taiwan during the 1960s and 1970s, well behind Japan and the USA which between them supplied the Taiwanese with well over half their imported goods. In 1975 Taiwan accounted for a mere 0.3 per cent of extra-EU15 export trade and 0.5 per cent of extra-EU15 import trade(see Table A.3), representing in value terms Ecu389m and Ecu643m, respectively. However, by the early 1980s Taiwan had Its shares of extra-EU 15 become oneof the EU's most dynamic trading partners. imports and exports had both doubledby 1985 to 1.O per cent and 0.6 per cent, while in value terms they had risen to Ecu4.0bn and Ecu2.3bn. By 1997, these shares had more than doubled to2.3 per cent and 1.8 per cent, andin the same year the EU imported Ecu5.6bn worth of goodsfrom Taiwan and exported Ecul2.6bn to theisland. Figure 6.1 shows that the EU sustained a continuous trade deficit with Taiwan over the 1975-97 period, peaking in 1991 atEcu6.Obn. By the end of the period, Taiwan had become the EU's seventh most important import source and the fourth largest outside Europe behind the USA, Japan and China. The EU's position as one of Taiwan's import partners hadalso improved slightly over the same period from a 12.0 per cent share of the total to 15per cent. Table6.1 also shows how the EU has remained relatively a important export market for Taiwanese proElkTaiwan merchandise trade(1975-97)
2o
-10 -5
m
t
I W EU imports
EU exports 0 Balance I
Figure 6.1 EU-Taiwan merchandise trade (1975-97) Source: Eurostat.
l’hEQ %wan and Hong Kong
169
ducers. In termsof member state trade, Germanyis still Taiwan’s most important EU trading partnerfollowed by the UK, France and the Netherlands (Figure 6.2). The rapid expansion of EU-Taiwan trade over the 1980s and 1990s can be attributed to Taiwan’s techno-industrial advancement. This has required various imported capital-intensive goods from Europe (e.g. industrial machinery, chemicals), but has simultaneouslycreated a demand within the EU Taiwan’s for more technology-intensive, competitively priced products. Recent sectoral patterns in Taiwan’s exports to the EUreveal thisstructural shift. Figure 6.3shows that more labour-intensive exports such as textiles, clothing and footwear have fallen proportionately, while Taiwan’s more technology-intensive exports have increased. For example, office machinery and computers accounted for only 1.4 per of cent Taiwanese exports dispatched to the EU in 1980 but by 1997 they represented 34.4 per cent, making Taiwan the EU’s thiid largest import source for these products (see Table A.5). Electrical machinery’s share of the total also rose markedly from 7.1 per cent to 16.0 per cent and that for roadvehicles increased from 1.3 per cent in 1987 to 5.7 per cent ten years later. EU12 imports from Taiwan by EU12 exports toTaiwan by member state (1987)
member state (1987)
Belgum-Lux 6.% Denmark 1.7%
UK 12.1%-
3.9%
2.1%
Denmark
21.!
Portugal0.2 Netherlands 16.2%
Belgu
UK
1
Germany 28.6%
Italy 10.3%
i.7:
lrela
V s Ireland 12.8% 1.1%
EU15 exportsto Taiwan by member state (1997)
12.2% Germany
Portugal
0.1%
‘ - 3 a C e
1.1%
c
UK 20.190
33.9% Netherlands 11.1%
Ireland
France
F~~~~
l
n 1.1%
4.5%
SwedenBelglum-Lux N s m a 1.7% 3.3% 3.5% Finland % 0 - .1
Belglum-Lux
Portugal 0.Ph
a
EU15 imports from Taiwan by member state (1997)
Sweden 4.3%
reece p
2.1%
18.2%
Fipum 6.2 EU member state trade with Taiwan (1987, 1997) Source: Eurostat.
1.9%
Germany 24.5%
170 Ihe EQ Za ’w i anand Hong Kong Taiwan’s exportsto the EU by sector (1980) Food and l i v e anlmals 6.5% oducts
Other manufacw-* 2!
--L
”ther pnmary 0.9%
1
Ofticemachlnery and wmputers 1.4% Elechcai machlnery 7.1% S m . lnduslrial machlnen 1.2% Travel goods : handbags 4. Toys and sporting goods 8.4%
-
Chemmls 1.O% eta1 manufactures5.3%
Telecoms and audiovisual products 12.8%
Taiwan’s exportsto the EU by sector (1987) Other manufactures
Pnmary pmducts 22%
l e s and cloth~ng12.5%
Chemmls 1.5%
M e t a l manufactures5.0% o(Rca machlnery and computers 14.6%
wauel
Spec. lnduslnal machlne
machlnery and equlp. 1.2%
Taiwan’s exportsto the EU by sector (1997)
Eledncal machlner 15.09 General industrial machinery and equlp. 2.6%
Spec.lndustnal machlnery 1.7%
F@e 6.3 Taiwan’s exports to the EU by sector (1980, 1987, 1997) Source: Eurostat.
Ihe EQ %‘wan
and Hong KO%
171
Up to 1979 annual European direct investments in Taiwan numberedless than five with the total amount invested not rising above $3Om per annum. However, inflows of European FDI in Taiwan steadily rose during the 1980s and by 1996 the stock of EU direct investment totalled $2.293m, although this only represented 9.3 per cent of Taiwan’s total inward stock of FDI. Figure 6.4 shows that this compared to theUSA’s 25.8 per cent,Japan’s 26.6 per cent and Hong Kong’s 10.6 per cent. Dutch and British firms have spearheaded EU direct investment on the island with 39.1 per cent and 34.2 per cent, respectively, of the EU total. The British firm IC1 has been particularly prominent, establishing six industrial plants in Taiwan,with Volkwagen, Peugeot and Renaultalso operating largefactories. Many of the current 600 or so European investment projects involve major public works and joint ventures in high-tech industry. Taiwan’s six-year National Development Plan has especially attracted European investment interests. For example, the $l4bn high speed train programme has brought many European commercial ministers to Taiwan to promote key contracts for their domestic producers, with the European Commission also playing an active lobbying role. Taiwan’s SME-based economy largely explains the relatively few and smallscale nature of Taiwanese investments in Europe, especially in comparison to Japan and Korea.By 1996 total Taiwanese FDI in the EU amounted to$420.4m representingamere 1.0 percent of all Taiwan’s outward FDI (Figure6.5). However, this figure rises to 3.4 per cent if China is removed as a host destination. The largest Taiwanese direct investment in the EU has been Chung Hwa Picture Tubes’ manufacturing project in Lanarkshire, Scotland, which supplies Digital, IBM and other I T producers in Scotland’s Silicon Glen. There have, though, been other developments which may signal a greater influxof Taiwanese FDI into Europe. In 1995 Lodz in Poland and Plzen in the Czech Republicwere investors. Under this specifically targeted as industrialzonesforTaiwanese inward FDIstocks inTaiwan by geographic origin(1987)
Inward FDIstocks in Taiwan by geographic origin(1996)
F i r e 6.4 Inward FDI stocks in Taiwan by geographic origin (1987, 1996) Source: UNCTAD database. Note: Approved investment.
172
% EQ Ziwan and Hong Kong Stock of outward FDI from Taiwan by geographic destination (1996) A
~
h
0.2% Olher mEast r \OB%
!SA Hong Kong 1.8% EU 1.O%
Figure 6.5 Stock of outward FDI from Taiwan by geographic destination(1996) Source: UNCTAD database. Note: Approved investment.
project, Taiwanese firms are to assist the development of the zones to perform as low cost, export production platforms fromwhich EU markets could be served. The anticipated accession into the EU, and hence the Single Market, of the two host countries hasalso been an instrumentalfactor. Furthermore, similarities with the EPZs that Taiwan pioneeredin the 1960s can be made with these zones.
Major issues and disfites in EU-Xiiwan economic relations In the past, the lack’of formalised economic diplomacy between the EU and Taiwan meant that each was often subjected to the unilateral actions of the other (Shen 1995). Only in recent years has there been a moreconsultative approach, especially via Taiwan’s WTO accession negotiations. Towards the end of the 1980s, the EC’s outstanding commercial disputes with Taiwan concerned its taxes on maritime and air transport, import tariffs, liquor and tobacco taxes, public procurement, IPR and agricultural import licence regimes. Meanwhile, Taiwan expressed concerns over the EC’s quotas ontextile, footwear and various consumer durable products and anti-dumping regime, Most of these disputes persisted up to the mid-1990s and it was only at the beginning of WTO accession negotiations that anyeffective resolutions to these were found. As with other East Asian NICs, Taiwan’s trade disputes with the EU have centred on its ‘external’ barriers to trade,i.e. more conventional or official trade barriers such as tarif%, duties and quotas. The EU’s anti-dumping regime has particularly been criticised by Taiwan’s government and firms, as have certain trade restrictions placed on EU imports from China. These not only relate to ADDS but also the number of quotas placed on China’s non-textile exports. However, as we shall discuss later, this regime has had a bigger impact on Hong Kong.
Table A.7 shows that Taiwan had attracted sixteen anti-dumping investigations by the EU over the 1985-97 period. This w a s a relatively high number when compared to most of its East Asian rivals, being over twice as many for either Hong Kong or Singapore, althoughonly half that of’ Korea’s figure. As ’I‘able 6.3 shows, ‘laiwanese producers of synthetic polyester fibres, microdisks, electrolyte capacitors, glutamic acid, polyester yarns, personal fax machines and stainless steel fasteners all faced definitive ADDS in November 1998. 1,aursen (1 995) observed that specific Taiwanese criticism levelled at the EU’s anti-dumping regime concerned its ‘producer-driven’ approach, and hence its apparent failure toconsider European importers’ interests. ‘I‘his was manifest whenthe European Bicycle Importers Association registered its complaint in 1998 over the new ADD which the Commission had imposed on bicycle imports .)I1 from Taiwan. To circumvent this, Wan9 (1993) o h s e n d that many Taiwanese SME firms had adopted a strategy of becoming suppliers to EU producers, thus providing them with a disincentive to 1 o b y for anti-dumping actions on Taiwan imports. Taiwan isjoined by some state-trading economies (Vietnam, North Korea and Mongolia) in not participating in the MFA. It has therefore heen prone to frequent unilateralactions from the EU in the textile and clothing sector. The 1970~7 3 EC-Taiwan l’extile ‘lrade Agreement did allow ‘Iaiwan son~elatitude ’ cotton texfor negotiation, but set a import quota of 1 1,445 tomes of ’I’alwanese tile products that could enter EC markets.+’ However, textiles and clothing have gradually become a less important export for Taiwan, constituting only 6.6 per cent of its total exports to the EU in 1997, down from 19.2 per cent i n 1980 (see Figurc 6.3). Both Ibll;.A and non-MkA restrictions are nevertheless to be phased out by 1 January 2005. ‘I’aiwanese producers have hccn liable to other non-tcxtile trade restrictions. A series of European VEKs operatcd on ‘I’aiwanese footwear
Pfodurt Definitive duties in force Synthetic polyrster fitms Microdisks Electrolytc capacitors Microdisks Glutamic acid (monosodium glutamate) Polyester yarns Fasteners (stainless stcel) Fax machinc,s (personal)
22.10.92 2 1.10.93 18.06.94 10.09.94 20.01.96 14.06.96 20.02.98 27.04.98
Provisional duties in force BicyclesTaiwan
27.08.98
Sourre: 1)G IC:, E u r o p e a ~C~wnrnission. ~
174
The E u Taiwan and Hvng Kvrg
products and umbrellas during the 1970s. In 1988 the European Commission imposed quantitative restrictions on Italian and French imports of footwear originating from Taiwan. After a request from the Spanish authorities inAuLgust 1994, the European Commission applied safeguard measures on garlic imports the issueof import certificates beingcurtailed originatingfromTaiwan,with until the following June. Since then, Taiwan has encountered no further quantitative restrictions on non-textile trade. Moreover, Taiwan’s relative position in the EU’s hierarchy of trade relations received a boost when its NIC rivals from East Asia and elsewhere were either partially or completely graduated fromthe EU’s GSP schemefrom1995 onwards. As previously noted, Taiwan had never been a GSP beneficiary and thus never gained from the tariff and quota-based concessions which the scheme afforded. After these changes to the EU’s GSP, many Taiwanese manufacturers gained because they now competed with their East Asian counterparts on more equal terms. Taipei was quick to seize this opportunity. When it was announced that Taiwan’s closest NIC rivals - Korea, Singapore and Hong Kong would be fully graduating fromthe EU’s scheme in May1998,theTaiwaneseBoard ofForeign Trade drew up plans to send forty trade promotion teams to EU locations. Th e EU’s trade disputes with Taiwan represent a departure from its usual preoccupation over ‘internal’ barriersto international trade, i.e. non-officialised barriers such as discriminatorydomestic tax structures. Positionedoutsidethe GATT/WTO framework, Taiwan has been able to resist the downward pressure on tariffs andother ‘external’ barriers to trade such as miscellaneous duties, quotas and importlicences. Taiwan’s relatively high level of import tariffs on certain products has thus been of significant concern to the EU, especially on cars, agricultural goods and alcoholic beverages.As part of its WI‘O accession negotiations with the EU and other trading partners, Taiwan has had to make many tariff concessions, as we discuss shortly. Despite bucking the trend, Taiwan’s ‘internal’ barriers to international trade have nevertheless presented various problemsto EU exporters, suchas its domcstic tax regimes on alcoholic beverages and tobacco. In Taiwan, liquor attracts veryhigh rates of so-called‘monopoly taxes’, which on whisky are NTS440 (around US$15) er litre and on brandy and cognac up to NT$l,OOO (approx4Y imately US$35). T he EU argued that its liquor producers were being unfairly discriminated against and wantedthese reducedto NT$l98 and NTf490, respectively. EuropeanCommissionnegotiatorsmanaged to securetheseconcessions during the February 1998 W T O accession negotiations, although higher rates on whisky continued in some instances. T he EU also expressed concern over some 150 lookalike brands produced indigenously in Taiwan.”’ O n another matter, Taiwan’s testing procedures for pharmaceutical products intended for a medical use have also elicited complaints from European producers. Furthermore, the EU’s negotiations with Taipei have involved matching the advantages conferred upon the USA by its bilateral deals brokered with Taiwan. A recent example was the preferential access that US shipping firms have enjoyed ~~
The EU %wanand
Hong kimg
175
at Taiwanrse ports where European rivals seek the same rights to establish their own terminals. As other chapters testifx this has been a recurrent theme in the EU’s economic relations with its East Asian partners. We shall return to this issue in the chapter’s conclusion.
The E l i and “hiwan’s accession to the WTii As with China, Taiwan endeavours to accede to the WIO during the 1990s were pivotal in the development of its economic relations with the EU. Taiwan’s entry to the organisation would also add a multilateral dimension to EU-Taiwan economic diplomacy. I t was noted in Chapter 5 how the WTO accession process entailspreliminary bilateral negotiations that each prospective member must conduct with incumhent memhers who request such talks. This requires a mutual complianceto estahlishcd multilateral rules and accords with Taiwanconsequently making various market opening concessions to the EU. The previous absence of multilateral discipline within Taiwan’s trade regime implies that the EU and others thus had much to gain from its accession to the WTO. As part of this process, Taiwan also signed up for the W””O’s plurilateral accords on public procurement, information technology and financial services. Conversely, WTO membership hrings important advantages for Taiwan regarding its economic relations with the EU. For example, the EU’s application of unilateral trade policy actions against ‘laiwan will be circumscribed by WTO rules and procedures. Like many other East Asian states, Taiwan will especially gain if multilateral competition policy rules are incorporated into the WTO framework which can be expected to tempcr the EU’s anti-dumping regimc. By the spring of 1998 the EU, along with Switzerland, was the last of the twenty-six contracting partics of the W T O to conclude pre-entry bilateral talks. an However, it was the intention of EU and Taiwannegotiatorstocomplete agreement much earlier. Prior to the Tenth EU--Taiwan Trade Talks in February 1994, EU officials stated that the possibility existed to secure Taiwan’s membcrship of the WTO by the end of that year. In a pre-negotiation tactical move, the EU stated, though, that this was contingent upon Taipei undertaking certain reforms t o its trade regime. ‘lhree years on and numerous rounds of talks later, both parties were again hopeful of concludingtheir negotiations on Taiwan’s WT’O accession hy July 1997. However, persisting EU concerns on automobile .I+ import quotas and tariff rates, high tariff rates on industrial and agricultural products (average rates of 6.9 per cent and 2 1 .0 per cent,respectively), liquor tax rates and the Taiwan’s price review system for medical products impeded this outcome. Taiwanese and EU dclegatcs met again in February 1998 wheresome notable progress was made towards an accession agreement. A meeting between EU Trade CommissionerBrittan and Taiwan’s trade minister Wang to this end. More positive dcvelopin May 1998 made a further contrihution ments stcmmed from subsequent ad hoc negotiations with the result thata final agreement seemedprobable by the end of that year. However, this
176
The ElJ Taiwan and Hong Kong
depended on the decoupling of Taiwan’s accession to China’s own, the negoruninto diffitiations of which with the EU and other WTO members had culties by early1998 (see Chapter 5). It was noted in aprevioussection how the two accessions had been linked by an understanding established within the GATT forum in 1992. For boththeEUand USA,adccouplingwouldnot pose a contradiction to their respective ‘one China’ policies as statehood is not anecessaryprerequisite of WTO membership.Prospective members must, though, operate as a separate customs authority and exercise control over its commercial policies, thus qualifying laiwan. Moreover, this was a de-politicised issue as Far as the EU was concerned as the W l O was a trade-based organisation.Nevertheless, Beijing remained sensitive to anyrecognition of quasisovereignty concerning Taiwan.
EU-Hong Kong economic relations Owing to its past British crown colony status, Hong Korlg’s economic relationship with the EU has been significantly affected by UK interests and policy. This relates to both the conduct of economic diplomacy and patterns of trade, investment and finance where British firms have generally dominated. Suchclose political links between an EU member state and Hong Kong hadlargcly negated the need for the European Commission to develop a separate EU-level diplomacy has with theterritoryuntil recently. This is notto suggest thatHungKong avoided the machinations of the Common Commercial Policy (CCP): it has a place in the EU’s hierarchy of trade prefercnces. Morcover, the return of Hong Kong’s political sovereignty to China has arguably created greater scope for a more distinct EU policy towards it to be developed, although the UK can be anticipated to have a strong influence here. As previously established, Hong Kong’s economic sovercignty will remain intact as an independent customs authority with its own currency and a member of the WTO, IMF and other intcrnational economic institutions. However, as with Taiwan, the EU’s future economic relations with Hong Kong cannotbe disentangled from those with the PRC. The ‘one China, two systems’ framework implies that the EU often has to defer toBeijing’s wishes when conducting its economic diplomacy with Hong Kong, depending on how politicked the issue at hand. Conversely, the EU is able to use its links with Hong Kong to aff’ect change in the PRC. By helping fortify the redoubt of economic liberalisation that Hong Kong has become, the EU is lending defacto support to a possible future political liberalisationbeingrealisedwithin China.Interdependence in EU---Hong Kong-PRC relations is also manifest in economic exchange. Intertwined flows of trade, investment and finance between the two Chinese economies have made it difficult to disaggregate EU trade patterns with Hong Kong. These and other complexities face the EU in managing its economic relations with its ninth largest trading partner.
Tho El.( irnlzrlnn n t d H o t g hOtg
1 77
The dez>eloptnontOJ E L - H o t g h o t gcconotnic dipkotmcy The UK’s colonial relationship with Hong Kong up to,Junc 1997 meant that an EU-level economic diplomacy with thc city state was confined to C C P actions and occasional nlultilatcralcontacts Lvithin theGA’I’T/WTOframework. In anticipating the reversion to Chinese rule, the European Commission carried o u t various initiatives that would help delineate a post- 1997 EU policy towards Hong Kong.In 1993,the European Commission established an EU representative office in t h e city statr to help manage commcrcial issues and other matters of concern. Over the. followingyears, EU ExternalKrlationsCommissionerSir Lron Brittan made several speeches i n Hong Kong which outlined how the EU rnvisaged its economic relations with the territory would develop in the hturr. The first of these occurred i n November 1994 where Brittan took the opportunity to defend the EU’s anti-dumping regime and highlight how the quantitative restrictions o n the EU’s non-textileimports from China have heendrastically curtailed.”” T h r favourwas returned in April1995when Hong Kong’s Chief Secretary, Anson Chan, paid a visit t o Brussels to explore how EU -Hung Kong relations wouldevolve afterthe handover. At theconvention of the Foreign AEairs Council i n Ilecemher 1995, EU foreign ministersagreed to pursue a ‘principle of continuity’ policy towards Hong Kong, whichwassuitably vague enough not to upset Br$ng. I n Junr 1996 thr Council of Ministers conlirmed EU support I’or a smooth and succc.ssfu1 transition of power in the territory. This laid theground for talks held thc following month betwccn HongKong Governor ChristopherPatten with EuropeanCommissionPresidentJacques Santer over the EU’s placc in Hong Kong’s economicand political futurc.4‘J In the I3ackground of the merting, ncgotiations were conducted between the EU and Hong Kong delrgatesresponsible for trade (including customs), industryand intellectual property rights protection. During theshort time in which EU-Hong Kong rconomic diplomacy has formally existed, the tonc of relations has been generally positive. Hong Kong’s commercial openness has m r a n t that F,U businesses have not encountered the same market access problems expericnccd in other East Asian economies. Highly drvelopedmutualtrade,investment and finance links have bred a significant degree of interdcpendencr Ixtwecn the two powers and hence a broad range of common economic interests at the hilateral and multilateral level. The ‘bridging’ role played by the UK LIP until mid-1997 also helped to create a firm kamework of relations in the initial stagcs. ‘li, providepointsofreference for the future development of these relations, the Luropcan Commission puldished a ‘communication’ document which it prescntcd to the Council of Ministers i n April 1997 (CEC 1997). ’I‘his was relatively thin on detail and mostly devoted to analysing how democratisation in Hong Kong could be safeguarded. Thrre was no suggestion of any \vide-ranging EU-Hong Kong trade and co-operation agreement being signed to help auL;mcnt relations, either because Hong Kong’s advanced economic position did n o t necessitate it or, as is more likely, because this wo~~lc{ sendthewrong signals t o Beijing. Signingsuch anagreement would ha\^
178
T f l e El/:
%wan and H o q hon
appearedtothe PRC leadership as an EUattempt to subvertChinesereunification. However, the document did recommend publication of annual reports on EtJLHong Kong relations, starting from 1998 onwards, to help monitor and promote developments. ‘Thr creation of the EU- Hong Kong Business Council in 1997 also represented anew structurc for promoting commercial links between the two powers. The EU and Hong Kong have forged ever closer ties at the multilateral level. Both had supported the idea for a broad sweeping ‘Millennium Round’ of W1‘0 .I 7 trade negotiations. They had also been signatories to recent W T O plurilateral agreements on financial services, electronic commerce and information technolow. On the latter, the EU and Hong Kong formed an alliance to cajole other WTO members into signing the telecommunications agreement as part of the ITA. In addition, China’s accession to the WTO has been an important issue for both partners. However, Hong Kong is unlikely to participate in the ASEM’s inter-regional framework of relations because its political aspect extends ‘beyond the competence of the SAR government’ (CEC 1997: ti). Hong Kongmust therefore depend on Beijing for its interests to be upheld in the ASEM process.
Economic mchange Hong Kong is not only a significant commercial partner for the EU in its own right hut also has an important strategic function in China’s dynamic economy. Itremainsthe key entrepbtcentre for Europe in its trade with thePRC. Furthermore, Hong Kong acts as the primary hub for business and financial services in the southern China region and currentlyplays host to over 100 European 48 banking, insurance and securities companies. hlany EU companies are engaged in securities and commodities trading in Hong Kong. Its highly developed communicationsinfrastructurepartlyexplains why over 250 European companies have also based their regional headquarters there.4!’ In 1960 Hong Kong accounted for only 0.5 per cent of extra-EU 15 import trade arid 0.9 per cent of extra-EU 15 export trade. By 1997 these shares had hot11 roughly tripled to 1.2 pcr cent and 2.8 per cent, respectively, with Hong Kong beingthe EU’s eighthlargestexportmarket and fifth largestoutside Europe. Over the 1980- 97 period the EU’s exports to Hong Kong hadrisen from Ecu2.Obn to Ecu20.4bn while EU imports from the territory had increased from Ecu3.5bn to Ecu8.2bn. The EU has sustained continuous tradr surpluses against Hong Kong since 1988 and Figure 6.6 shows an accelerated growth in these surpluses from 1992 onwards. This trend can be largely attributed to the mass relocation of Hong Kong’s export production to the I’RC during the early 1990s in response to the new wme of economic reforms then introduced by the Chinese government (see Chapter 5). Over thc. 1960-97 period, the EU’s position as a Hong Kong trading partner has declined, with only1 1 .?I pcr cent of its imports (down from 20.6 per cent) and 14.7 per cent of its exports (down by 21.6 per cent) by the end of the time-span (see ‘lahle 6.2). To some extent the EU, like the USA and other trading partners,
Ihe EQ Ziiwan and Hong Kong
25
r
179
EU-Hong Kong merchandisetrade (1975-97)
01
-5 -
I OEU imports
WEU exports
UBalance
I
Fpre 6.6 EU-Hong Kong merchandise trade (1 975-97) Source: Eurostat.
has been marginalised by Hong Kong’s closer integration into the Chinese and wider East Asian economy studied earlier. It is perhaps not surprising that the UK still remains HongKong’s most important EU memberstate trading partner, with 26.4 per cent of total EU imports from the territory and 23.6 per cent of total EU exports to it in 1997 (Figure 6.7). Other key member states have been Germany, France, Italy and the Netherlands, who actually accounted for a higher share of EU imports from Hong Kong than the UKin the same year with 28.1 per cent. Like Taiwan, there has been a structuralshift in the sectoral pattern of Hong Kong’s exports to the EU over the last two decades, although this has been less marked. Figure 6.8 indicates thatwhile there have been increases in the shares of more technology-intensive products (e.g. electrical machinery, office equipment and computers), textiles and clothing exports and products from other labourintensive sectors remain prominent. With specific regard to textiles and clothing, it was previously mentioned how the relocationof Hong Kong’s export production in these sectors has been constrained by the PRC’s near optimally utilised MFA quotas, which largely explains this relative lack of structural adjustment. As with trade, the UK‘s investment and financial ties with Hong Kong are more extensive thananyotherEUmember state’s. Moreover, Hong Kong’s mode of capitalism shares many similarities with the Anglo-Saxon model. The prominence of the UK and Hong Kong financial sectors in their respective economies provides another commonality The level of British investment in Hong Kong is also the highest among the EU memberstates with 38.6 per cent of the EU total in 1996, followed by the Netherlands with 26.8 per cent, France
180
Ihe EG laiwan and Hong Kong EU12 exports to Hong Kong by member state (1987)
EU12 imports from Hong Kong by member state (1987)
Belgtum-Lux 8 . 3 0 ‘
I
nanmark
-22.4%
Denmark
U1
Yo
31.?
30.6?
IG--
Germany 35.9%
23.3%
I Portugal0.4% Netherlands 4.1%
Greece 0.1% Spam 2.1%
Portugal 0.3%
Ireland 14.4%
0.7%
EU15 exportsto Hong Kongby member state (1997)
EU15 Importsfrom Hong Kongby member state(1997) Sweden Aushla
UK 23.6%
1
;1
Germany
Greece 0.2%
Portugal0.2% Netherlands 4.9% Ireland
3.6%
BlUS
Italy 17.3%
1.3%
28.1%
Figure 6.7 EU member state trade with Hong Kong (1 987, 1997) Source: Eumstat.
11.6 per cent and Germany 10.4 per cent.50 In the same year the EU’s overall share of inward FDI in Hong Kongwas 13.8 per cent, afigure not much altered over the 1987-96 period and still relatively low compared to the USA’s 28.1 per cent andJapan’s 33.4 per cent (Figure 6.9).
% d e dirputes and economic co-operalion As noted earlier, Hong Kong’s highly deregulated and open economy has meant that the EU has hadvery few market access disputes with theterritory. virtually all EU exports enter HongKong’s markets undertariff-free conditions. European firms have also had little to complain about regarding ‘national treatment’ issues, exportsubsidisation ortrade-relatedinvestment measures. However, as with many other East Asian economies, high excise duties on alcohol, tobacco and some hydrocarbon oils still persist in Hong Kong. The new liquor tax rates introduced during early 1990s by the Hong Kong administration brought French
;The EG %wan and Hong Kong Hong Kong's exports to the EU by sector (1980) CNde matenals, fuels and energy 2.0% Ottmr manutactures -4 J DnmaW
E!r
and clothmg
F
Travel goods and handbags 2.5% Watches and clocks 9.3% ' TO~S and sportinggoodsr( lotwear 1.2% Ch$r;s 1 -0 . Telecoms and audio-wsu'al manufactures products 6.2% 2.3%
Hong Kong's exportsto the EU by sector(1987) CNde matenals, fuels and energy 0.8% I . Other Dnmaw Other manutactur -
nd cldt
Watches andclodt
. .- Telecoms and audio-nsdal products 11.946 manufactures 2.4%
Hong Kong's exportsto the EU by sector (1997) Watches and clodts PnmW Toys and sporting s 7.6% pmducts o .l % Textiles manufactures Other
clothlng and
Eleclncal machlnery products 6.2% Office equipment end computers 11.1%
Figure 6.8 Hong Kong's exports to the EU by sector (1980, 1987,1997) Source: Eurostat.
181
182
The EG Ziwan and Hong Kong
inward FDIstocks in Hong Kong by geographic origin (1987)
Inward FDI stocks in Hong Kong by geographic origin (1996)
EU 13.9% W a r Western
Other Western Europe 2.4%
Japan 26.7%
I
Europe 3.0%
Japan 33.4%
IUSA
28.1%
USA 38.8%
Latin Arnerlca 1.7%
china Latin Amenca 5.8% 2.0%
Figure 6.9 Inward FDI stocks in Hong Kong by geographic origin (1987, 1996) Source: UNCTAD database. Note: Secondary sector investmentonly.
protests over the adverse discriminatory effects which these were deemed to have on its wine and brandy e x p ~ r t s . ~ ‘ During the 1970s in particular, European manufacturers frequently voiced their concern over the flood of cheap imports from their Hong Kong rivals. The EC signed textile trade agreements with Hong Kongin 1976 and 1980as part of the wider MFA regime which aimed to restrict the flow of Hong Kong’s main export (see Figure 6.8) to European markets (CEC1976, 1980). However, protectionist anxieties generatedby Hong Kong producers began to subside somewhat as they increasingly shifted their production to mainland China, and with it the focus of European attentions. Yet the growing economic integration of the PRC and Hong Kong also meant that the latter has often become entangled in SinoEuropean trade disputes. The EU’s microdisk ADD case and EU quantitative restrictions on Chinese imports are demonstrationsof this. Regarding the first of these, the EU began its so-called ‘anti-circumvention’ investigations in early 1995 into the claim that someHong Kong firmswere fakingcountry-of-origincertificatesto avoid paying relatively higherADDSon microdisk exports. This allegedly involved the transshipment of these products from mainland China and Taiwan via Hong Kong, Chinese and Taiwanese firms faced more punitive ADD rates at 39.4 per cent32.7 andper cent,respectively, in comparison with the 6.7 per cent to 27.4 per cent ratesimposed on Hong Kong origin microdisks. In total, twenty-four Hong Kong firms came under the EU’s study. Hong Kong’s TradeDepartmentconsequentlyregisteredacomplaint tothe WTO’s anti-dumpingcommitteeonthe basis thatthe EU’s ‘anti52 circumvention’ procedures were not WTO consistent. The EU’s investigations were eventually dropped in July 1996 after the European Commission failed to establish whethercircumvention by HongKongfirms was beingpractised. However, the ADD circumvention issue re-emerged in February 1998 when the
European Commission had identifiedChinese silicon metalexportsthat had heen relabelled and transshipped through Hong Kong. The fact that there are no silicon producers in Hong Kong naturally aroused suspicions in Brussels. Many Hong Kong producershave been aff’ected by the EU’s widespread application of ADDS on its Chinesr imports where their factories produce goods of designatcd PRC origin. For example, after the EU’s imposition of an A1)D in 1997 on leather handbags produccd in China, Hong Kong producersestablished a coalition with thcir European suppliers to protest against the decision. At this time there were around 1,500 Hong Kong-owned handbag factories in China and 3,400 i n both territories. The EU’s justification for imposing the ADD was based on estimates that European competition was being undercut by an average margin of 28 per cent. Injurious competition was also cited by claiming that the number of EU handbag manufacturers fell from 76,000 in 1992 to 57,000 by 1996. Other Hong Kongfirms were also affectedhy the EU’s quantitative restrictionsplaced on certainChinesenon-textileimports,namely toys, footwear, glo~es,porcelain kitchen and tableware,ceramickitchen and tableware, glassware and radios (see Chapter 5). The EU’s tougher MFA restrictions on China 11x1similar eff‘ects.’” Hong Kong itself has been subjected to only seven EU anti-dumping investir;ations over the 1985-97 period and no new direct investigations since 1992 (see ‘Ihble A.7). ‘1Bblc 6.3 shows that in November 1998 the EU applied just one ADD on Hong Kong producers (of microdisks). Of greater concern for Hong Kong firms were the changes made to the EU’s GSP scheme during the latter 1990s. For some time Hong Kong was a GSP heneficiary of the ICU and thus received tradeconcessions on selectedindustrialexports. As with other East Asian economics we have studird, Hong Kong experienced sectoral graduation in various industrial product lines, beginning in 1995 and ending in 1998. These sectorsincludcdlcather and furskins,clothing,jewellery and preciousmetals, consumer electronics, optical instruments, clocks and musical instruments, and miscellaneousmanufacturedproducts.‘logetherwithKorea and Singapore, Hong Kong completely graduated from the scheme in May 1998. On the promotive side of EU-Hong Kong economic diplomacy, hoth partners signed a customs co-operation agreement during Sir Leon Brittan’s visit to Hong Kong in February 1998. ‘This was the first international agreement concluded by the post- 1997 regime. Brittan noted the contribution that this would make to uphold the territory’s economic sovereignty and commented that the agreement ‘will be a clear signal to the outside world of Hong Kong’s autonomy and Hong Kong’s confident exercise of its own autonomy’.’’’ Maintainingtheintegrity of Hong Kong’s estahlished economic system up until its full integration into the PRC (i.e. in 2047) lies at the centre of any current or future EU strategy towards the territory. ‘I‘his is deemed important not least hecause of the need to maintain Hong Kong’s stability as a regional financial centre, made more critical by the East Asian financial crisis. Hong Kong is seen by EU member states and firms as a beacon of sound financial managemcnt and prudentialcontrol to neighhouring East Asian economies, and as such has a key function to play in safeguarding
184
The EU %wan and Hong Kong
Europe’s wider commercial interests in the region. Given its status as a global financial centre, Hong Kong will take particular interest in the EU’s moves to economic and monetary union and its external impact upon the international trade and finance systems.
Conclusion In drawing conclusions, we shall as usual consider IPE’s main theoretical perspectives with regard to our preceding analysis. For neo-realists, the salience of the state and state-centric imperatives in the EU’s economic relations with Taiwan and Hong Kong is clear. Taiwan’s promotion of its relations with the EU is a means to promote the political sovereignty of the island territory. However, the EU recognised some time ago the contestable nature of this sovereignty which has narrowed its diplomatic options. Despite such constraints, the EU has possessed both the motivation and latitude to promote ‘laiwan’s own economic sovereignty. As we have seen, Taiwan has become an increasingly important trade partner for the EU and has therefore necessitated its higher prioritisation within theframework of EU economic diplomacy By upholdinglaiwan’s rightto function as a separate custom’s authority, the EU is able to establish more definitive parameters for negotiation with Taipei. At the same time, the EU will be wary not to offend Beijing, especially now that China’s own ascendancy to economic superpower status seems likely and how this affects the future balance of geoeconomic power. Hence, maintaining cordial relations with China has become an even greater priority for this and other reasons discussed by Chapter 5 . This does not, though, prevent the EU from adopting the ‘principle of continuity’ inits general relations with Hong Kong. Notwithstanding the PRC’s own policy of establishing discontinuity insofar as repelling European political influence over the territory, Beijing also accepts that safeguarding Hong Kong’s commercial potential relies on the maintenance of harmonious relations with the territory’s major trading partners. This permits scope for the EU to continue to advocate Hong Kong’s own economic sovereignty. Neo-realism’s emphasis on systemic factors and their conditioning of interstate relations is perhaps most relevant to Taiwan’s accession to the WrO. In its endeavours to join the multilateral trade regime, and thus integrate itself more closely into the international economic system, ‘Taiwan has had to temper its neomercantilist policies. This has offered specific benefits for the EU and other trading partners, who will also generally gain in the future from an important world trader complying to multilateral trading norms and rules. Neo-realists would also highlight the primacy of politico-security objectives in determining Taiwan’s and Hong Kong’s economic relations with the EU. We have already discussed how Beijing’s desire to maintain the territorial integrity of the Chinese state has been a central factor here. It has also noted how the USA’s security rclationship with Taiwan underpins their economic relationship, which has thus made Taipei more inclined to confer preferential market access or key contract deals to US produc-
186
The ElJ Xiwan and Hong hong
and EU importers. ‘The interdependencies associated with financial globalisation, underlined by the 1997-8 East Asian financial crisis, have also emphasised the need for closerpolicy co-operation and co-ordinationbetweenthe EU, Hong Kong, Taiwan and othcr partners. For A;klrxUls, difficulties experienced in the EU’s economic relations with Hong Kong in particular originate kom post-colonial tensions. It was previously mentioned how the EU’s ‘principle of continuity’ policy could be easily interpreted by Beijing as ‘foreign meddling’. Moreover, most British and othcr European multinationals - the new imperialagents,according to Marxists have remained in post-1997 Hong Kong and thus form partof a post-colonial I e g q . Hong Kong is still seen l y the PRC’s communist hard-liners as an ‘enclave of imperialism’. Although Taiwan has very distant colonial links with Europc, it is interesting to note that Dutch trade and FDI links with the island territory are notably strong. Marxists would also stress how the primacy of capitalist interests is rcvealed in issues covered by this chapter. Inmany respects, the EU hascompliedwith Beijing’swishesover matters concerning ‘Taiwan and Hong Kong in order to safeguard European commercial interests across ‘Greater China’. Furthermore, Marxists would contend that the capitalist interests of Hong Kong, Taiwan and the EU have becomeincreasinglyaligned now that the two ‘tiger’ economies have maturedinto fellow capital-intensive powers. Notwithstandingtheconstraints placed on their exercise of sovereignty, it is crrtainly the case that both ‘Taiwan and Hong Kong have become increasingly important partners for the EU within the global economic system. However, Taiwan and Hong Kong’s part in the equation of EU-China economic relations, in addition to theirspecial economic territory status,will continue to generate particular challengesfor the EU’s conduct of economic diplomacy towards them.
7
The EU and Korea
Introduction As Last Asia’s third largest national economy, Korea has an important part to play in the EU’s economic relations with East Asia.European attentions to Korea have been heightened by frequentlyheardprophesies regarding the country’s supposed destiny as ‘the next*Japan’. There are certainly many similarities that can be drawn between them, as this chapter alludes. For some time, EU Korea economic relations werealmost exclusively preoccupiedwithresolvingmany ongoingtrade disputes. However,thesurge of Koreandirectinvestmentinto Europeduringthc1990s in particularmadetheEUmoreaware of Korea’s potential significance as an economic partner in the twenty-first century. As a consequence of this and other developments, there has been a discernible shift from conflict to co-operation in EU-Koreaeconomic relations. Nevertheless, these relations continur to be hampered I>ypersisting trade friction in key sectors andcertain cross-sector issues. Furthermore, Korea’s1997-8 financial crisis brought a new complexion to the economic relationship, and therein various challenges to EU businesses and policymakers. ‘I‘llese are the main themes that are considered by this chapter. Following the pattern of previous chapters, we first analyse different aspects of the Korean economy to provide an important background context to our discussions.
Korea: Asia’s next giant? Korea’s post-war industrial transformation has perhaps been the most rcmarkable of the four principal East Asian ‘tiger’ economies.’ From the agrarian-based economy of the 195Os, it now stands as onc of the region’s industrial powerhouses. ‘Thefirst task of this section is to study Korea’s path to modern industrial statehood. ‘fhisis followed by a closer examinationof Korea’s chaebol conglomerates that have spearheaded the country’s export-drivenindustrialisation. Finally, a consideration of future challenges facing the Korean economy is made, paying esprcial attention t o the impact of the 1997 -8 financial crisis.
188
The EU and Korea
Korea’s path to development
Korea’s geographical location, sandwiched between China and Japan, has given it considerable strategic importance in East Asia. While it was able to resist the exertion of European colonialinterests, Korea hasfrequentlybeensubjectto 2 interference from its powerful neighbours. During the years 19 10 to 1945,Japan exercised an aggressive and exploitative colonial rule in Korea: the Korean people were forced to learn Japanese, endure other forms of cultural imperialism and suffer general economic hardship, while the economy became subservient to the material demands of the Japanese economy (Kwak and Lee 1997). At the same time, Korea benefited from investments made in its infrastructure and education systems, a codification of modern civil laws, increased monetarisation of the economy, the introduction of a new financial system and the development of the country’s export sector in this period. Hence, like laiwan and otherparts of EastAsia,Korea’seconomicdevelopment in theearlyhventiethcentury was shaped by the forces of Japanese colonialism.” After 1945 Korea becamethecentre of acomplexgeopoliticalstruggle betweentheemergent Cold Warpowers. The Korean Civil War of 1950-3 ended in stalemate, with the consequent divide between the newly formed states of North Korea and South Korea” being established along the thirty-eighth parallel. North Korea remains the lastCold War bastion of totalitarian Communism and continuestoexperiencesignificanteconomicdificulties.South Korea’s (hereafter Korea) embrace of a different economic system has led to a far more successful path of development5 (Soon 1994).However, economic growth was not the immediate priority of President Syngman Rhee’s post-civil war administrationbutratherthepoliticalobjective of reunification.Koreanevertheless embarked on a somewhat haphazard, yet effective import substitution industrialisation policy at this time that helped insulate domestic producers from foreign competition while simultaneously promoting indigenous techno-industrial development, particularly in food and textile sectors. The economy also benefited from USA, thatwerededicatedto large inflowsof foreignaid,primarilyfromthe Korea’s reconstruction.” In April 1960 Rhee’s government collapsedaftera period of widespread civil disquiet due to a combination of political corruption, repressive acts andthe effects of an economicslowdown. The replacement administration, led by Chang Myon, was not able to deliver quick solutions to problems generated by an ill-managed economy and subsequmtly fell victim to a successful coup d’dat organised by Major-General Park Chung-hee in May 1961. The reformsintroduced by thenew Park government were to have farreaching consequences for the Korean economy, shaping many ofits current salient features. As part of a high growth strategy, export-oriented industrialisation became the main priority of economic policy from the early 1960s onwards. The government’smaxim of ‘nationbuildingthroughexports’galvanisedthe country into meeting new developmentobjectives, with exporttargets set for business and sanctionsimposed if thesewerenotrealised.Italsodrew upon
many aspects of thr Japanese development model, which had already proved highly success1111 in the early post-war years. Korra’s conglomerate cnterprises the chaebol were Ixomoted t o acquirr the same scale production advantages achirvcd by Japan’s prewar Zaibatsu and post-war kelretsu company groups (SCT Chapter 4). ‘l’hc new Fivr Year Plan (E’YP)framework, introducedin 1962, took its inspiration from Japan’s sector-based rationalisation plans of the 1950s, although the former represented a more comprehensive attempt to state-orchestrate thc country’s economic development (Bridges 1993). Later on in 1975, a framework was established for thr c.//aebol groups to emulate the Japanese sogo sho.rhn through limning their own general trading companies (G’I‘Cs), and hence furthcr promote Korea’s exports. Further comparisons c.xtcnd to the close state-business relationships that have been nurtured i n ImthJapall and Korea. This particularly relates t o the ‘de~~rlopment alliance’ that was estaldished Iwween the Korean government and the chaebol i n the formative ycars of thc Park go\‘ernrncnt, itself motivated by the expedient of securing its political legitimacy (Koo and Kim 1992; Lee 1997). Owing to their scale and dominant position in the Korean economy, the chaebol alsooffered the statc the advantage of requiring a narrower span of administrative control (Song 1994).The statc c/~aebalnexus remains a key determinant of Korea’seconomicdevelopmrnt and hasled to mutualdependencies evolving hetwecn both sides. l b r most of the post-war period, thechaebol havc spearlleaded Korea’s industrial restructuring and export drives, largely in accordance with the government’s FYI’ olljcctives. To rcalise these, the clznebol were assisted by soft loan policies and other incentive mechanisms. Korea’s brand of ‘guided capitalism’ took its main orientation from the 19’1’ framework. The principal ohjective of the First I T P ( 1 962-6) was the expansion of the country’s infrastructure, while the Second ITP (1967-7 1) was primarily focused on drvcloping labour-intensive manufacturing capabilities. In its ‘I’hird FYP (1972-6), the Korean governmentinitiatedKorea’s heavy and chemical industry (HCI) that provided the economy with a broader industrial foundation on which higher value-addrd sectors could hr developed and economies of scope captured. Both txport promotion and industrial policy had been broadly sectorneutral until the HCI drivc, but thereaftrr Ixcame more sector-specific, as well as firm-specific in character.’ hslorcover, thelatc 1970s were to becomethe high watermark of Korca’s developmental statc with the continued extensionof cheap credit,discretionaryincentivemrchanisms and selected sectoralinten‘rntiolls. The Fourth FYI’ (1977 -81) also heralded a shift i n industrial priorities towards the development of moretrchnoIo~~-intensive activities, c.g. e1ec.trollic.s and automohilrs. However, Korea cntered a period of crisis around this time wit11 the assassination of President Park in Octolxr 1979 and the pressures exerted by thc glol,;il ‘shocks’ of the early 198Os, i.e. oil price hikes, currency and interest ratr fluctuations. 111 response, the 1:ifth FYP (1982-6 ) of the new reginlc of (;enera1 Chun Doo-hwan ( 1 5180 ~ 7 introduced ) dercgulatory measurm that aimed t o i11jec.t morc flexibility intotheeconomy, in additionto provisions t o help rasr t 1 1 ~ ~
~
I90
The El/ and kbrea
growing labour unrest that arose as a consequent effect of the above pressures. It also signalled the start of a less interventionist role by thestate, with a new emphasis placedon economic liberalisation. This trendwas continued by the Sixth FYP ( 1 987-9 I), whose inaucguration coincided with the receding of military governance under the new presidency of Roh Tae-woo (1 988-92). Constitutional and social reforms soon followed, with the effect of releasing pent-up wage demands. The subsequent rise in wage levels during 1988 and 1989 seriously eroded the competitiveness of the Korean economy, converting much prized trade surpluses into deficits. Nevertheless, Korea had achieved the highest average annual growth rate of any East Asian country during the 1980s at 9.7 per cent, a slight improvement on the 9.5 per cent rate for the previous decade (see ‘Iahle A.2). When President Kim Young-sam took ofice in 1992, the developmental state continued to makeits retreat, albeit at a gradualised pace.Under the auspices of the 7th FYP (1993-7)” Korea’s finance sector was further liberalised, numerous protected homemarkets opened, competition policy strengthened,greater transparency introduced to trade policy, domestic rcgulations made more consistent with international standards and numerous restrictions lifted on foreign investment (both inwardand outward) and import licensing. These all became elements of the government’s segyehwa (globalisation) policy. Korea’s commitment to uphold the Uruguay Round andWorld Trade Organisation (”TO) accords also extended the scope of liberalisation to othw areas,such as agriculture, government procurement, retail and financial services. Furthermore, Korea had to liberalise its capital markets in order to meet the membership criteria forjoining the Organisation for Economic Co-operation andDevelopment (OECD),which it secured in October 1996. However, it was the country’s 1997-8 financial crisis that led to the most important advances in liberalising the Korean economy. The origins of the crisis lay in the stntr’s cheap credit policy towards the chnebol which had encouraged them to maintain high debt equity ratios. By 1997 the fragility of the cizneboCs financial structures had become increasingly apparent. In January, Hanbo Steel became insolvent while KiaMotors was nationalised in October afterbanks refused the company further loans. Korea’s liquidity problems were exacerbated by both the cvidesprcad practice among its hanks of borrowing short-term capital to finance long-term investment and the unravelling of a widcr financial crisis across East Asia. By November, the country was on thc verge of bankruptcy. The failure of the Kim Young-sam government to provide a convincing policy solution led to the intenrention of the International Monetary Fund (IME) and the election of the new Kim Dae-jung administration in Tlecember 1997. In return for $571~1worth of fbnds to help restore Korea’s financial stability, the new government was obliged tointroducefar-reachingeconomicreforms under the terms of the IMF ‘hailout’ programme, comprising: 0
0
the tightening of monetary and fiscal policy aimed at reducing Korea’s trade deficit-induced external debt; a comprehensive restructuring of the financial system based on a firmer exit policy, increased competition and strong market and supervisory discipline;
T h e ELI and Korea 0
0
0
19 1
atimetable to liberalise trade in accordancewithcommitments set by the WTO, including the removal of trade-related subsidies, restrictive import licensing and the importdiversification programme;9 wider foreign accessin Korea’s financeand capital markets (including majority share ownership); a more flexible labour market, including the lifting of restrictions on lay-offs and strengthening employment insurance.
The implementation of these measures would further accelerate the retreat of Korea’s ‘developmental state’. While the legacy of the financial crisis will most likely involve a decade of si,pificant financial and industrial restructuring, the Korean economy’s capacity for growth is anticipated to stay relatively strong. Korea can also be expected to remain an important international trade partner and one of East Asia’s major industrial producers. Thus far it has achieved considerableexport success in globally significant industriessuch as automobiles, consumer electronics, semiconductors, electrical and industrial machinery, steel, ships, chemicals, textiles, clothing and footwear. Table A.9 shows how Korea’s share of world exports has risen from less than 0.1 per cent in 1960 to 2.5 per cent by 1997. Like their Japanese counterparts, Korean companies have made concentrated penetrations into Western markets and continueto endure counterreactionary protectionist measures.
Korea’s chaebol conglomerates: a closer examination Most chaebol companies were created and remain largely controlled by self-made founding families. Throughout the 1960s and 1970s, thechaebol took advantage of cheap state-providedcredit andrapiddomesticandexportmarketgrowth. Moreover, as Chen (1 995: 162) observed:
The rapid industrialisation and fast-changing industrial structure have forced chaebol to continuously look for new opportunities. If they do not constantly form new businesses they will suffer from lower growth rates and lose their relative share of the market. Therefore,chaebol tend to diversify into products and markets that are not related to their current lines of business. Consequently, the corporate interests of many chaebol are dispersed across a wide spectrum of activities. For example, the Samsung group’s industrial portfolio includes ships, semiconductors, PCs, consumer electronics, financial services, chemicals, industrial machinery, telecommunications, real estate and textiles. T he chaebol’s broad range of industrial interests has meant that a high proportion of their output is still generated in Korea. However, during the 1990s most chaebol acknowledged the need more actively to internationalise their operations, especially in those sectors where global competitive forces dictate. As with Chinese guanxi links, but in contrast to Japanese keiretsu connections, family ties play an instrumental role in chaebol organisation and ownership. At its extreme this can takr the form of a dynastic, usuallypatrilineal succession within
192 The E l i and horea the company. 'I'his has been perhaps most clearly seen in the LG group, where the male desccndants o f its founder, In Hoc Goo, have held key executive positions. It is also commonplace fbr other relatives to be appointd to senior positions, furtherreinforcingthecentralisation of powerwithin the group.This produces a more hierarchical structure which differs to the keireh's more flexible and adaptable network arrangements between group companies ("hitley 1990; Orru et al. 1997). Inrelative terms, chaebol organisational structures arc more akin to inter-market keiretsu as opposcd to their vertically integrated equivalents. Simple subcontract networking hasevolved within many chaebol's span of control, in contrast to the elaborate relational subcontracting thatprevails among Japan's major assemblers and their suppliers. 'I'hc chaebol have also traditionally lacked the financial independence of thc keiretsu with no group bank at their core. An important advantage of the chnehd model is that it allows the strategic decisions made by the group's top executiveship quickly to be converted into palpable actions. This has been particularly demonstrated within the Daewoo group II) whose large overscas investments in commercially remote locations during the 1990s aroused much interest. Due to the Japanrsc predilection for consensual decision-making, such an approach is much Icss likely to occur within the keiret.su. According to Hattori (1989), the chaebol can becategorisedinto one of three types, namely those based on: direct and .sole ownershil,, i n which the family founders ownall the chaebol subsidiaries, e.%.thc Hanjin group; a dominateholding conlpaly,,,wherebythefoundersowntheholdingcompany, which i n turn OWIS the subsidiaries, e.g. Daewoo; inter-lurkkg mutual ozor~er.sh$,whereby the founders own both the holding company and an intermediary founclation,whichitself owls the group's subsidiaries. Linksof ownership and co-operativeinteractionbetween these subsidiaries arc particularly high, e.g. Samsung. Inthe 1990s a general shift towardsthethird orgallisatiorlal paradigm was apparent(Chen 1995). This inferred that the chaebol's ability tocapture economies of scale and scope had improved. Furthermore, they had become less organisationallyindependcntthroughenteringinto extcwsive subcontracting links with domestic and fbreign ShlEs. However, chaebol primacywithinthe Korcan economy has come under threat as a consequence of t h c b 1997 8 financial crisis. Somr have becomc bankrupt (e.g. Kia)" while others were on the verge of collapse. The rationale of maintaining the state-clzaehol nexuswas also seriously questioned by the Kim Dac-jung government. Its ambitious plans to promotethc ShlE sector wcrcseen a s centraltotherestructuring of Korean industr): and thus as part o f the crisis-managerncnt process. 'I'hc opening up or many cllaebol-dorninatcd domesticmarkets to breigncompanieshas posed another challenge. In response, most chaebol have undertaken rxtensivc rationalisation cxercises i n which their range of diversified activities has heen reduced and longer-term domestic and overseas investmcnts scaled back.
Tlu EU and horen
193
Future challenges In the aftermath of the 1997-8 financial crisis, thr Korean economy has had to make a number of important structural acljustments. ‘These especially relate to industrial restructuring, financial sector reform, deeper market liberalisation and accomlnodating wider foreign access to both domestic product and capital markets (Matthews 1998; Mok 1998). In many respects, the crisis had simply raised the importance of fulfilling pre-established economic policy olljectives. For example, the Korean government’s segyelma policy was supposed to liheralisr domestic markets and remove constraintsuponinward foreign directinvestment(FDI) flows. This policy, though, had been criticised by Korea’s trade partners for its lack of scope and slow pace of implementation. However, undcr thc conditions of the IMF bailout programme, the Korean government was compelled to adopt more convincing policy reforms. The future challenge for the government lies in effecting desired structural change in the economy and overcoming sources of resistance that impede this objective (Dent 1998d). In addition, the crisis raised questions concerning Korea’s future rolein the international economic community. As an emerging trade powcr, its compliance to multilateral trade rules and norms will become increasingly critical. Korea’s government and companies will also be expected t o hehave in a more finarlcially responsible manner given the impact of the crisis on the international financial system. Generally, Korea has become more aware of its position and rcsponsibilities attheregional level (Sakong 1993). Itsgrowingstature and geographical location give it a unique position in the Asia-Pacific, acting as a potential mediator between APEC’s larger members (Le. the USA, Japan and China) andalso a key provider of new capital and technological assistance to less developed neighbours. In axis with .Japan, it will prove a strategic partner in the hroader economic development of Northeast Asia, as already evinced in the Turnen River Area Development Project (see Figure 8. I , p. 224). Various other challenges facing the Korean economy arc apparent. Korea’s education and training systems have helped to produce a numerate, technically adept and diligent workforcc with a large proportion educatcd to a higher level. However, given the country’s relatively high labour costs there remains considercrisisable pressure to raise the level of human capital investment. While the depressed wage and exchange rates led to an improvement in price competitivenessduringthelate 199Os, another generalpredicamentforthe Korean economy remained. This relates to Korea being caught in a transitional on low-wage, low-tech activities and stage of development hetween that based those of ahigh-productivity and knowledgc-intensivc. nature. Hence., Korea needs to develop the capability to compete more on qualitative terms across a range of industries. l o achieve this, other persisting structural weaknesses in thc Korean economy must be overcome. For examplr, it maintains a pronounced technological depend12 ency on .Japan and thc USA, even in its coreindustriessuchaselectronics whereoriginal equipment manufacture and licensing agreemcnts with foreign
194
The EU and hkea
firmshave accounted for the vast majority ofKorea’s exports in this sector (Hobday 1994). Korea also relies heavily uponJapaneseand US component suppliers that make up a broader dependence on import trade from Japan and the USA (Table 7.1). Achieving greater technological independence, or at least diversifying this dependency, has become a strategic objective for many chaebol. This is mademore imperativefromthenumerousJapanesefirmsthat have restrainedtheirtechnologytransfers toKoreancounterparts since theearly 1990s so as to limit feedback competition effects (Ursacki and Vertinsky 1994; Smith 1997). Another structural weakness lies in the high degree of industrial concentration that prevails inmostsectors of the Korean economy. Chaebol industrial domSME sector, subsequentlycreating a dearth of inancehas‘crowdedout’the domestic suppliers and hence an import dependency on foreign supplier firms. Furthermore,theeconomy lacksinnovative SMEs and smaller, more flcxiblc forms of business organisation found in otherEast Asian NICs such as Talwan ’ and Hong Kong. Future attempts to unravel the mutual dependencies cntwined in the state--chaebolnexus will, however, prove to he a difficult task with potentially undesirable outcomes. Those Korean bureaucrats and chaebol rxccutives with a vested interest in maintaining the status quo will resist such attempts. Moreover, most Korean SMEs are highly dependent upon the chaebol, and thus structural adjustment towards less industrial concentration is likely to he slow Finally, the ultimate future challenge of the South Korean economy is reunification with its Northerncounterpart. ‘Thisis both Seoul’s‘holy grail’ and ‘poisoned chalice’. Llismantling the last barrier of theColdWar is likely t o improve the unified country’s international standing in the long run. However, the potential economic h r d e n s associated with reunification are proportionately far greater than those carried by Germany. North Korea’s G1)P per capita was a mere one-seventh of South Korea’s by the late 199Os, and the former’s widespread social andeconomicstructuralimbalances would undouhtedlyrender integration an extremely costly cxercise on many accounts. Yet despite the economic sacrifices involved for SouthKoreans,reunification will remainthe nation’s prime political and societal objective for the fixesecahle future.
EU-Korea economic relations Korea’s rise to modern industrial statehood has meant that the EU’s economic relations with the country have become an increasing priority. In the analysis that follows, we shall show how the early period of these relations was charactrrised by infrequent diplomatic contact and prolonged conflicts of interest over a numher of trade issues. However, more co-operative acts were to emcrgc in the 1990s with the formalising of EU- Korea economic diplomacy and growing economic interdependence between the two powers. We shall also discuss how various trade frictions nevertheless persisted intothe decade, as well as the intensification of the EU-Korea FDI relationship. The impact ofKorea’s financial crisis is also considered.
TabL 7.I Geographic breakdown of Korea's international trade (percentage per trade partner, 1960-7)
1960 1965 1970 1975 1980 I985 1990 I995 1997 Imports Erports Imports Exporls Imports Exports Imports Erporis hnporis Exports Imports Exports Imports Erports Imports Esporis Imports Exports EL15 USA Canada Australasia
20.9 41.2 7.9 2.7
12.9 11.7 0.0 0.0
8.7 39.4 0.3 1.0
11.9 35.2 1.4 0.8
10.5 29.5 1.2 0.8
8.7 46.0 2.3 1.0
7.4 25.9 2.1 3.0
15.4 30.2 3.9 1.7
7.8 16.7 21.9 26.4 1.7 2.0 3.4 1.5
10.9 21.0 2.0 1.3
10.4 35.5 4.1 4.0
12.0 24.3 2.1 4.4
13.6 29.8 2.7 1.7
13.4 22.5 1.9 4.2
12.2 19.3 1.4 1.4
11.2 19.9 1.6 4.5
11.3 16.4 1.3 1.7
Japan China Taiwan Hong Kong
20.2 0.0 1.9 0.4 6.9
63.7 0.0 1.2 8.1 2.1
36.0 0.0 2.3 1.6 8.9
25.1 0.0 1.1 6.2 15.8
40.8 0.0 1.7 1.0 6.3
28.0 0.0 0.8 3.4 4.1
33.5 0.0
25.4 0.0
26.3 0.0
17.4 0.0
24.3 0.0
15.0 0.0
3.6 2.0
0.4 6.8
4.7 6.6
1.4 8.8
5.2 5.1
24.1 5.5 1.9 0.6 7.1
13.7 7.4 3.1 8.5 14.3
19.7 7.2 1.7
0.3 7.7
26.6 19.4 0.0 0.0 ~ 2.1 1.9 0.9 5.8 7.2 6.0
9.6
10.6 10.7 3.4 7.6 15.5
kIiddle East Africa Latin America'
0.0 0.1 3.2
0.0 0.0 0.0
0.5 0.9 0.4
0.6 1.2 0.2
3.9 0.3 0.3
0.6 1.9 0.5
16.2 0.6 0.7
5.1 3.9 1.0
24.6 11.3 0.5 2.7 1.6 2.7
9.3 1.4 6.0
5.2 2.2 3.4
7.5 0.7 2.5
3.1
8.6 0.9 2.4
3.1 1.2 4.7
11.5 1.4 2.1
3.4 1.4 4.7
Other
0.6
0.3
0.0
0.5
3.0
2.0
2.6
7.8
13.6
9.9
9.7
11.4
6.9
9.7
8.2
12.0
ASEAV'
Source: IMF Direction sf Eude Stulittics Timarbook, various editions Note: I Includes the Caribbean states.
~
~
-
5.0
-
8.0
-
3.1 1.5
1.4
1’36 The Ell nnd hbrea First contacts and initialprolonged conflicts For much of post-war period, and like so many other East Asian NICs, Europe has played the ‘Cinderella’ role i n assisting Korea’s economic development. In other words, the EU group has remained a somewhat distant third in Korea’s leagut: of internationaleconomic partners behind both Japan and the USA, which havc proved to he the country’s closest and most constant economic allies. Over thc 1960s and 1970s we can ohserve (l’alde 7.1) how their relative positions switched as major import sourcc and export market providers, with the USA initially serving a s the former and Japan tllc latter. Korea’s tradc dependency on the US andJapanese economies peaked in the early 1970s: at the heginning of the decade thcse two main partners were rcsponsible for over 70 per cent of its trade. Up until this time, Korca’s dependency on EU 15 import and export markets had dwindled,although Europc h t , g a n t o attract a higherproportion of Korean exports l y the end of the 1970s. By 1‘380, however, thc EU 15 supplied a mere 7.8 per cent of Korea’s imports. Foreign investment flows between Koreaand Europe over this period remainedat an cven lower level of significance. By 1977 Europe had only attracted twenty-seven minor invcstmcntsfromKorea’s multinationals totalling $1.8!?m or 2.7 per cent of total cumulative Korean outward F1)I since 1968, the date horn which overseas investments were permittcd. Almost rvcry one of thcse projects was concerned with esta1,lishing exportmarketing and distrilxltion Glcilitics. Although the Irvel of Korean net investment in Europc had risen to $23.2m hy 1987, ncw FDI prqjects maintained the ‘tradc facilitating’ trend while the region’s share of thecumulativetotal dropped slightly to 2.5 percent. However,from theearly 1980s onwardsthe rhneDo1, andSamsung and LG I
1982
1986 1987 1988
1989
1990 1991 1992 1993
1994
1995
1996
1997 1998
Ihe EU and Korea
198
0
-2 -4
I UEU imDorts
~ E exDorts U
OBalance
I
Figure 7.1 EU-Korea merchandise trade (1976-97)
Source:Eurostat. alcoholic beverages. Whileconflicts of interest became apparent during the early years of the 1980s, it was not until the following decade that these disputeswere resolved. To begin with, the EC’s conflict with Korea over its IPR and telecommunications procurement regimes existed more at the multilateral rather than bilateral level. Korea’s weak IPR protection and thering-fenced domestic market for government telecommunications contracts were a general concern for all its major trading partners.However, the rulesof the game changed when the USA secured its own bilateral deal with Korea over IPR protection for US producers in 1986. In reaction, the EC, Japan, Sweden and Switzerland called for parallel treatment. It was not untilfive years later that the EC managed to broker its own IPR agreement with Korea in November 1991. I 3 Furthermore, US producers had in the meantimebenefited from certain first-mover advantages owingto theeasier accommodation of their demands,as manifest in the nature of the ‘retrospective’ agreements signed. Under threat of the US ‘301’ provisions,14which initially had been invoked against Korea in February 1989, the Korean government eventually capitulated and signed two simiiar bilateral deals on telecommunications procurement in January 1992 and January 1993.15 Frustrated by two years of unresolved bilateral negotiations to match this deal, the European Commission finally took the dispute to the WTO in June 1996 where an agreement was secured the following November. The EC’s tradedisputeover Korea’s discriminatoryliquor tax andtariff regime also entailed protracted negotiations between the European Commission and the Korean government. Inseeking entry to the Korean alcoholicbeverages tax and import tariff rates, market, European producers faced high domestic
The EU and Korea
199
which by the end of the 1980s were respectively applied thus: whisky (200 per cent and 40 per cent), brandy (150 per cent and 25 per cent) and beer (150 per cent and 50 per cent). In comparison, the tax incidence on indigenous rival products was considerably lower. For example, Soju not only benefited from a much lower 35 per cent liquor tax rate but also from its exemption from ‘education tax’. I I; The EC had made little progress in persuading Korea to comply to the ‘nationaltreatment’principle on thisissue until September1987, whenthe European Commission won its GATT panel dispute with Japan over its traderestrictive liquor tax laws (see Chaptcr 4). This precedent subsequently emasculated Korea’s own position but it took another five years before the EC was able to obtain an initial agreement from the Korean government. The agreement was signed in July 1992 and eventually formalised by the 1993 Korea-EU Agreement 17 on Tariffs and Taxes. During the 1980s Korean exporters were mainly concerned with the various EC member state level restrictions aligned against their products and the EC’s anti-dumping regime. Over the 1981-5 period, a total of sixty-four member state trade restrictions were applied to Korean exports, a figure comparable to China and Taiwan’s (see Table 3.6, p. 56). While these were to subside with the implementation of the Single European Market (SEM) programmewhich began in the late 198Os, Korean firms found themselves increasingly subject to the European Commission’santi-dumping investigations. From1985 to 1990,eighteenantidumping investigations were undertaken against the EU’s imports from Korea, and many of these in key product lines such as consumer electronics (see Table A.8). This represented 8.6 per cent of total EC investigations and 22.0 per cent of all such investigations conducted against East Asian countries over the period. Korea was topped only by China and Japan, which were much larger trading partners for the EC, withnineteeneach.AlthoughKorea’saggressiveexport practices had been severely penalised by the EC, other major trading partners had followed a similar line. I n 1990, 29.5 per cent of the total value of Korea’s exports to EC markets were subject to anti-dumping duties (ADDs). For Korean exports to the USA this figure was 19.7 per cent and to Canada 22.3 per cent, while only 8.5 per centwere affected for those destined for Japan. Both the EC and Korea remained convinced of the arguments underpinning their respective positions i n this dispute. T he Korean state, in itsad\rocacy of neo-mercantilist practices, perceived dumping as a legitimate competitive strategy to which traditional producers in the West had no reply. Thus, in its view, the recourse Europe’s of industrial lobbyists to pressurising the European Commission into applying ADDs was indicative of ‘Eurosclerosis’ and furthermore a reliance on a political rather than an economicresponse to the challenges posed by NICS in general. Moreover, Korea has long been critical of how this ‘politicised’ processconstitutesareactive ratherthanarationalapproachof applying ADDS. As previously stated in Chapter 3, the European Commission has nevertheless maintained that its ADD procedures are judicial in nature with limited scope for arbitrary decision-making. ’Towards the end of the 1980s Korea also became preoccupied with allother
200
The LlJ arrd him
EC trade policy. For some time it had been a 1x:neficiary of the EC’s Gcneralised System of Preferences (GSP) scheme which afforded trade concessions t o a large group o f devcloping countries. Owing to the EC’s fiustrated trade negotiations with Korea ill the policy areas analysed earlier, it suspended the country’s GSP privileges from 1989 to 1992. Consequently, Korea faced a host of new quantitaIfI tive restrictions on its ‘scnsitive’ sector exports destincd for thc EC. ’I‘hc growing significance of EC-Korea trade disputesfromthemid-1980s onwards was understandable givcn the commensurate increase in the magnitude of their mutual trade flows. LC: Korea trade growth was particularly rapid over the 1985-8 period when the LC’s exports to Korm rose by an annual average 21.7 per cent and Korea’s exports to EC markets grew at an evcn faster annual average of 26.7 per cent“’ (sce Figure 7.1). Although various f‘actors e.g. Korean wage rate hikes, the appreciation of the wo11,~” the EU’s suspension of its GSP benefits for Korea and thr onset of a European recession led to fluctuations in EC Korea trade during I989 -92, both parties rcprcsentcd dynamic trade partners to each other. ‘I’hus, by the early 1990s the confluence of persisting trade disputes, an emergentdynamictraderelationship and democratic: reforms the basis for more fbrmalisedcconomicrelations t o be in Koreaprovided establishcd.
Formalising economic diplomacy It should bc noted that, with the exception of l’aiwan, the EU’s economic diplomacy with Korea was the last to he hrmaliscd amongthe Last Asian group.” We have seen in previous chaptcrs how the origins of’ an institutionalised EU-level economic diplomacy withJapan, China and the ASEAN states dates back to the 1960s and 1970s. I n EU--Korea economic relations, these could not be identified until the late 1980s. As with other sets of rclations we have examined elsewhere, diplomatic links between Korca m d I:U memhrr states had long prr-dated those created a t thc supranational level. ‘I’his latter process began with the setting up of an EU Chamber of Coxnn1ercc in Seoul in 1986 which was soon followed by an EU delegation oflice, established in 1989. \Yhilc these two agencies did much to improve the extent of Korea- EC bureaucrat and business networks: the rnd of quasi-military rule in Korea provcd instrumcntal in un1)locking the impasse to ,,,I closer diplomatic relations bcing k)rged.“ As with many of the EU’s economic partners, the seal of this new relationship was to be marked by a ‘li-adc and Co-operation ,4grccnnrnt, as agreed at the first Korcx--EU hlinistcrial Meeting held in November 1993.’” Negotiations towards this end commenced in May 1994 and were concluded twoyears later in October 1996. ‘I%e stated objectives of the EU -Korea Trade and Co-operation were: Agreement (CEC 1996~) 0
0
the accordance to each other of ‘most f:n\,oure.dnation’ (h1FN) status; new concerted c,fTorts t o eliminatenon-tarifi’barriers (NTBs) and introduce more transparency on trade matters;
The E l i and h a r m 0
0
20 1
improvedmutualmarket access in bothtelecolnmunications and financial service sectors; the encouragement of greater bilateral flows of FDI bctwccn both parties.
T h e first of these points had particular relevance to the US Kort-a bilateral deals discussed earlierthat hadbeenthebane of EU tradediplomats.Withthe accordance of h4FN status, Korea was thus obliged to extend any market access or other commercial advantages it initially conferrcd upon the LJSA t o the EU as well. Hence,the inclusion o f this clause was central to the LU’s stratqgy of redressing its relative lack of lcvcrage o\w Korea’s foreign economic policymaking. While the actual real impact of such accords on the LU’s commercial relationshipswith thirdcountrieshas a t times beenquestionahlt-,thercwere early a nrw imprtus as a indications of EU-Koreaeconomicexchangercwiving consequence of the Trade and Co-opcration Agreement. For example, a large number of European and Korean firms began to participate i n various industrial co-operation schemes which covered SME business networks, business represcntative exchanges and .joint training schemes. At the policy level, preliminary discussions on establishing a Mutual Recognition Agrerment on industrial standards were held modelled on an earlier transatlantic agreement.?” ’I’hc new accord also helped paved the way for an EU -Korea customs co-operation agreement which was signed in April 1997. More generally, it helped formulatc clearer points of reference for thefutureorientation of economic diplomacy. Furthermore, the Korean government’s rhetoric of seeking to move from a position of ‘conflict to co-operation’ with the EU was to hecomr incrcasingly resonant in EU Korea economic relations from this time onwards. ‘I’his w a s largely due to thc opportunities presented by new developments in their mutual trade and invcstmrnt flows and the broader economic interdependencies these were creating.
Towards a broader economic interdependence By themid-I990s, LU Koreaeconomicexchangehadenteredinto a more dynamic phase. 1,etus consider some trends i n trade and invcstment patterns which reflected this. Over 1980 to 1997, Korea’s share of extra-EU imports and exports rose from 0.8 per cent to 2.0 per cent and from 0.6 per crnt t o 2.0 per cent, respectively (see Table A,{), becoming the EU’s ninth largest import partner (up from twentieth) and twelfth largest export partner (up from thirty-ninth) by the end of this period. Meanwhile, thr EU’s share of Korea’s import trade had grown from 7.8 per cent to 1 1 .2 per cent during this time, although this higher position remained significantly below the USA’s 19.9 per cent and Japan’s 19.7 per cent for 1997 (see Table 7. I ) . Furthermore, the EU had become a less important destination for Korean exports since its peak 16.7 per cent share in 1980, falling to 1 1.3 per cent by 1997. While the decline in the EU’s ovrrall relative significance as an Korean export market appears to undermine thc case for greater EU- Korea economic interdependence, two things should be remembered. First,
202
7he EU and Korea
Table 7.1 also reveals that the USA and Japan experiencedeven sharper declines in their own shares. Therefore, the EU's position relative to the other core Triad powers has improved. Second, EU-Korea trade in value terms increased substantially during the 1990s: 1 1 7.6 per cent over the 1990-7 period, compared to 35.5 per cent for Japan and 37.7 per cent for the USA. Regarding EU member state trade with Korea, Figure 7.2 shows that Germany has remained Korea's most important trading partner overall, although in 1997 the U K was the largest importer of Korean goods within the EU. Closer interdependence has also been apparent in sectoral trade flows. The EU-Korea intra-industry trade ratio rose from 36.1 per cent in 1989 to 56.8 per cent by 1996. Early indications of this trend were suggested by research conducted by Kim (1993). His comparative advantage analysis showed that Korean producers were shifting away from lower-tech, more labour-intensive exports to the EU in the face of increasingly acute competition from their Chinese and Southeast Asian rivals. Commensurate with this was a move towards higher-tech, EU12 exportsto Korea by member state (1987)
-
Korea by EU12 imports from member state (1987)
Belgrum-Lux
UK
5.7%
-
Belgum-Lux 2.9% Denmark 2.3%
Denmark "-",
U1
23.39
Portugal 0.59
Germany
, 30.6%
Netherlands
I
6.0%
Italy
9.9% lrelan 0.7%
France T a l n G r e e c e 0.1% 1
17.5%
Ireland-4 "0 .
4.6%
EU15 imports from Korea by member state (1997) Austna, 1.1% Finland 0.6%
UK
UK 24.1 %
Netherlands 6.8%
France
Spaln
13.7%
,9y0
EU15 exportsto Korea by member state (1997)
Portugal0.2%
3ece 3.3%
Italy 8.9
Germarry 31.5%
1
Portugal 1.9%
Netherland
F&re 7.2 EU member state trade with Korea (1987, 1997) Source: Eurostat.
fi EU and Korea 203 Korea’s exportsto the EU by sector(1980) Food and
live antmals
Telecoms and audio-vtsual
Chernlcals 1.1%
7.6%
Koreas’s exportsto the EU by sector(1987) Othermanufactures
Pnrnary products2.5%
Textiles andc l o t h t n g
Electrical rnachtnery
sporting and Toys
gwds 3.P Telecomsandaudio-vlsualIronand products 16.3%
hemicals 1.8% manufactures eta1 2.8% steel 1.1%
Korea’s exports to the EU by sector (1997) OMer rnanufactu
Pnmary pmducls 1.8% Textiles and ddhtng
Metal manufactures 2.3%
Road vehldas 18.9%
Mlsc. machtnl lnduatnal aqu~p. and
Footwsar 0.9%
I
Telecoms andaudlo-wsual products 8.1% Travel goodsand handbags 0.4%
~ l e c m c a machlnery l 5.3%
17.5%
Office equlpment and computers 16.8%
Fire 7.3 Korea’s exports to the EU by sector (1980, 1987, 1997) Source:Eurostat.
204
T h EU and Korea
morecapital-intensiveKoreanexportstothe EU, especially inelectronics, machinery,automobilesandothertransportequipment.Withregardto EU exports to Korea, Kim‘s evidence revealed that their position against Japanese and US counterparts was either strengthened or maintained in machinery and transportequipment, chemicals, textiles and miscellaneousmanufactures,but had been weakened in metals and electric-electronic products. Figure 7.3 provides further evidence of the shift to intra-industry exchange in EU-Korea trade. Furthermore, Table A.5 shows that Korea remains an important export market and import sourcein key sectors. The growth of EU-Korea intra-industry trade has particularly createdwider scope for co-operation and competition between European and Korean firms, thus engendering greater economic interdependence. This has also been reinforced by an even greater increase in EU-Korea FDI flows during the 1990s. Promoting mutual direct investment flows was, of course, an objective of the 1996 Trade and Co-operation Agreement but these had already flourished well b e f ~ r e h a n d . ~ ~ EU’s T h e share of total inward FDI in Korea increased from 6.6 per cent ($24lm)in 1986 to 22.8 per cent ($4.021m) by 1996. This was still somewhat below those for both the USA and Japan 28.8 at per cent and30.5 per cent, respectively (Figure 7.4; see Table A.6). Meanwhile, Europe’s share of Korean overseas direct investment had risen sharply from 2.5 per cent ($23.2m) in 1987 to 15.3 per cent ($2,104m) by 199626(Figure 7.5). We shall discuss later the causes and wider consequences of rising EU-Korea FDI flows. Suffice to state here that this trend, together with new patterns in EU-Korea trade, were creathg both new network links between Korean and European firms and new potential complexities to trade relations themselves. The former were evolving through supplier relationships, joint ventures, local sourcing and other collaborative relationships (Dent 1998e). Examples of the latter could arise via emerging trade-FDIlinks: it was conceivable that the‘insider’ interests of the foreign investing firm would lead it to side with the host trading Inward FDIstocks in Korea by geographic origin (1989)
inward FDIstocks in Korea by geographic origin (1996) Other Other East
1.7%
E,,
her Western trope 3.2%
Japa 51.4
1.4%
1.5%
Figure 7.4 Inward FDI stocks in Korea by geographic origin (1989, 1996) Source: UNCTAD database.
%EU and Korea Stock of outwardFDI from Korea by geographical destination (1987)
.
205
Stock of outwardFDI from Koreaby geographical destination (1996)
...
1.296
Eire 7.5 Stock of outward F D I from Korea by geographic destination (1987, 1996) Sources: Bank of Korea; UNCTAD database. authorities on certain matters,e.g. a Korean firm ensconced in the EU supporting the European Commission’s decision to apply an ADD on the exports of a rival ‘outsider’ chaebol or other company.” In more general terms, however, such developments were engendering a greater convergence and alignment of mutual interest between Korean andEU firms. A deeper understanding of each other’s corporate, political and regulatory culturesalso formed part of this process. This was important if persisting EU-Korea trade disputes were to be resolved.
Old problems and new challenges While developments in EU-Korea economic exchange were flourishing during the mid to late 199Os, both the Korean government and European Commission remained preoccupied with resolving various trade disputes, some of which had been ongoing since the 1980s. As with most of its other economic relations with East Asian countries, the EU’s main concerns continued to relate to Korea’s ‘internal’ barriersto international trade, i.e. non-officialised barriers such as discriminatory domestic tax structures andbiased public procurement contracting. Conversely, the chief priorities of Korea’s trade diplomats were to tackle the EU’s ‘external’ barriers to trade, i.e. more conventional or official trade barriers such as tariffs, duties and quotas.Korea’s concerns were heightenedby the fact that in 1993 its trade balance with the EU hadmoved into deficit for the first time in22 year:’ (see Figure 7.1). For the Koreans, the most contentious issue remained the EU’s anti-dumping regime in which ADDS continued to be applied to key Korean exports entering the Single Market (Table 7.3). Although the average annual numberof new antidumping investigations ontheseproducts was gradually falling in absolute terms, they still represented a relatively high fi re sharing second place with Thailand over the 199 1-7 period (see Table A.8). From a global perspective, the
Y
206
The EU and horea
Zble 7.3 EU anti-dumping duties on Korean imports (at Novembcr 1998)
Product
Definitive duties in force Televisions (small scrcencolour) Synthetic polyester fibres
Glutamic acid (monosodium glutamatr) Electronic capacitors Microdisks Televisions (large screen colour) Microwavc ovens Fastencrs (stainless stcel) Fax machines (pcrsonal)
27.04.90 15.0 1.93 04.09.93 18.06.94 10.09.94
nI . o m 04.0 1.96 20.02.98 30.04.98
EU wasresponsible for 28.0 per cent of all ADDS placed on Korean exports compared to the USA’s 24.0 per cent, Australia’s 111.0 per ccnt and Canada’s 10.7 per cent. Additional frustrations for Korea at this time originated from the introduction of a ‘graduation mechanism’ to the EU’s GSP scheme in 1995. As noted in other chapters, this entailed the phasing out of GSP privileges for certain product lines from particular countries based on criteria indices that related to both their level of economic development and degree of product specialisation. For Korea,the affected sectors were plastics andrubber,leatherand furskins, textiles, clothing, footwear, steel, electro-mechanical ecpipmcnt (including consumer electronics), automobiles and other miscellaneous manufactured products. Given that many of its East Asian rivals sufYered a similar fate, Korea’s relative position in the EU’s hierarchy of trade preferences was n o t altered much by these changes. However, Korea was later to join Hong Kong and Singaporeas the only three GSP beneficiaries which were completely to graduate from the scheme in May 1998. Thus by this time a large number of Korean exporters faced higher EU tariff barriers than their Southeast Asian competitors while they also had to compete on more even termswith ‘I’aiwanese counterparts, which had never been eligible for GSP privileges (see Chapter 6). As with adjustments made to the JO GSP schemes of other developed country powers, the EU’s ‘graduation mechanism’ was a compensatory device that removed tariff concessions in those sectors where concentrated penetrations of NIC exports in home markets wcrc apparent. Hence, these changes were anticipated by most Korean exporters and factored into their international strategies. Moreover, other EU ‘external’ barriers to trade were being removed.By the mid- 1990s, Korea was no longer suhject to any 31 Europeanvoluntaryexportsrestraints whileits textile producersgained from the gradualdismantling of theMulti-FibreAgreement as an outcomr of Uruguay Round negotiations. By the time negotiations towards establishing the EU Korea Trade and Cooperation Agreement were underway, the European Commission had outlined in
The EU and k‘orea
207
some detail what it believed to be the principal impediments to EU exporters in Korean markets (CKC 1993, 19941)).Many of these related to areas where trade disputes had lingered sincr the 1980s. Although the same documents acknowledged Korea’s progress in liberalising its markcts, they nevertheless took painsto stress the salience 01’ various outstanding problems: the exclusivr concessions granted to US producers in some sectors; fiscal discrimination in high import ratio sectors, especially luxury products, e.g. automobiles and alcoholic beverages; various NTBs (r.g. sanitary-phytosanitary regulations, productlabelling, technical standards, customs procedures, import financing) a f k t i n g the imports of industrial consumer goods and agro-food products; inadequate actions undertaken by the Korean Fair Trade Commission in enforcing competition rules, particularly with respect to the c/2apbol conglomerates’ activities; deficient protection of intellectual, industrial andcommercialproperty rights; the c/~aebol’svertically integrated distribution and supply-chain networks that render rntry a costly and dificult task for European firms; therecurrence of anti-consumptionor ‘frugality’ campaignsand their adverse effects upon EU import demand. The above formed the basis of the EU’s trade concerns with Korea throughout the rest of the 1990s. We noted earlier how the EU’s long-standing disputes from the1980soverKorea’sliquortax, IPK and telecommunicationsprocurement regimes had persisted well into this decade. The latter issue was not resolved until ‘32 1996 while the former was to re-emerge as a \VTO-level dispute in 1997. One other issue that was previously of minor significance became increasingly prominent i n KU Koreatrade relations. For sometime, Koreahad usedanticonsumption or ‘frugality’ campaigns as a means to help curb import demand and hence easr pressurc on thecountry’sstructural trade deficit problem. Imports are not the directly stated targets of these campaigns per se but rather luxury products in general. However, in Korean markets these tend to originate from overseas sources. In the summer of 1996 a nrwfrugality campaign was initiated by the Citizen’s Movement Centre for Anti-Consumption, allegedly under no behest from the Korean government although the EU and other trading partnerswere suspicious of indirect state support for the movrment’s activities. After seeing EU automobile exports to Korea l-dl by approximately 50 per cent and exportsof cosmetics and alcoholic spirits by 10 per cent soon after the campaign had begun, the EU threatcnrd to take Korea to the WTO overthematter. The European Commission drew bark, though, afterreceiving firm assurances from the Korean governmcnt in May 1997 that the prime aim of this campaign was to encourage ‘rational and reasonable consumption patterns by way of efficient use of ecoIn this statemrnt, it nomic resources and rcduction of environmental
208
T h EU and Korea
was half conceded that reductions in import demand may occur as a secondary effect as consumers are advised ‘to live within their means by purchasing the highest quality products at the lowest possible prices’. Nevertheless, given that price competitiveness was one of the chaebol’s main strategic advantages against their rivals - especially in products such as automobiles, consumer electronics, computers and semiconductors -we can construe their benefiting from this prescribed advice to Korean consumers. The EU’s continued focus on Korea’s ‘internal’ barriersto trade and the manner in which it has conducted its economic diplomacy with Korea in general bear certainsimilaritiesto EU-Japan economicrelations. As with Japan, the EU hasimpelled Korea extensively toliberalise its marketswiththe aim of removing the economy’s ‘structural impediments’ to import. Again, like Japan, this has frequentlyfollowed in the wake of initial advantages first acquired by the USA in bilateral deals, such as those previously discussed. Korea’s frugality campaigns present a further comparison with Japan, whose low marginal import propensities for consumer goods in particular have been carefully scrutinised by EU andUStrade authorities alike. Thus, economicliberalisationmeasures undertaken by the Korean government in the 1990s wereunequivocally welcomed by the country’s major trading partners. The complete retreat of the Korean neo-mercantilist state would still, though, cover someconsiderabledistanceyet.Deeplyentrenchedinterestswithinthe state-chaebol nexus provide a formidable redoubt against moves that undermine the fundamental balance of industrial and market power in Korea. Thus, EU pressure upon Korea to remove those internal barriers to trade that in some way disturb or threaten this balance may fail, at least in the short term. The EU’s relative lack of leverage when compared to the USA on influencing Korean state decision-making represents an additional handicap. Furthermore,as we have discussed elsewhere, the EU’s focus on East Asia’s internal barriers to trade is generally problematical insofar as its contesting of matters which have traditionally been confined to the realm of domestic policymaking. However, whercas in the past such foreign meddling in the internal affairs of nation-states could not be easily legitimised,developments in theglobaleconomy and multilateraltrade regime have changed the rules of the game. As noted in Chapter 1 , globalisation continues to expose new barricrs to trade and investment that are inherently ‘internal’ in nature, which in turn have shaped WTO agenda. The implications for relatively ‘controlled’ the emerging economiessuch as Korea were initially spclledout by the \\‘TO’S DirectorGeneral, Renato Ruggiero, to the Korean Business Association in April1997: Korea would have to liberalisemuchfurther, especially on issues of market access, if it wished to be considered a responsible WTO member.:”Itshould therefore come as no surprise that part of EU stratygy has been to encourage Korea’s more comprehensive engagement in the multilateral process. The structural power wielded by the EU over the multilateral trade order is to its advantage here. Future developments at the plurilateral and inter-regional level will also have
The EU and ICorea
209
significant impact on EU-Korea economic relations, notwithstanding the effects of the 1997-8 financial crisis. Korea’s membership of APEC could further divert the attention of its exporters to emerging East Asian markets and hence away from EU markets. O n the other hand,its compliance with APEC’s ‘open regionalism’ principle - and the MFN-based liberalisation of the trade and investment regimes associated with it - could prove beneficial to EU producers. However, as Chapter 8 discusses, it remains unclear what impact APEC liberalisation \vi11 have on global trade. Both Korea and the EU, though, will be drawn increasingly together to debate commercial policyissues within other fora. Korea and EU member states have alreadyexaminedthe basis for establishingmultilateral investment rules at the OECD, although a concluding agreement proved elu35 sive. The Asia-Europe Meetings (ASEM) have recently provided another framebvork where more co-operative EU-Korea economic relations can be nurtured. As Chapter 8 makes clear, the ASEhl’s inter-regional ‘dialogue framework’ is intended to complement existing bilateral relations between EU and East Asian partners..”’ The 1997-8 financial crisis presents anotherimportant new challenge for EU-Korea economic relations. Korea was the most affected by the crisis of thr: four principal East Asian NICs and the implementation of the IMF ‘bailout’ programme could have a far-reaching impact on EU--Korca economic exchange.:” Under the programme’s conditions, Korea’s trade regime is affected in two main ways. First, various import restrictions mustbe removed with thr aim of injecting morc flexibility and openness into the economy. These relate to \VI‘O commitments to eradicate trade-related subsidies and restrictive import licensing in addition to introducing measures that improve the transparency o f import certificationprocedures.Second, Korea’s trade position is also aff’ected by the external debt-reducing measures of the IMF programme, spccifically hy the use of tight macro-econonlic policies that should mitigate the country’s demand for imports. For example, income and expenditure tax rate increases can bc antiripated to curb thr demand for foreign consumer products and particularly luxury Furthcrmore, thc comgoods which bear a comparatively high tax incidence. bincd effect of lowerpublic expenditures,the rise in corporate tax rates and highrrintrrcstratesaspart of a strictcr monetary policy thatKorea is now obliged to pursue should lead to a fall in investment lcvcls and thus a sul)scqurnt decrease i n demand for capital good imports. As a consequence of thcsc changes t o Korra’s trade regime, tllcre arc both costs and benefits fbr the EU. O n the one hand, theremoval of numerous importrestrictions in compliance with the IMF programme offers certain European exporters new opportunitics tbr market access. On the other hand,those mcasurrs aimed at reducing Korea’s demand for imports have most adversely allbcted EU capital and luxury good producersand moreover could prove a further irritant to cxisting EU-Korea trade disputes. For instance,increases in Korea’sexcise duties and luxury goods taxes could bring ~ l e waggravations to the frugality campaign issue while also frustrating Europe’s alcoholic beverage exporters. Furthermore, the EU telecommunicationsproducerswho were expectingconsiderable benefits from
2 10
n e EU and Korea
the newly liberalised Koreantelecoms market have also suffered from reductions in Korean public expenditure. The extent to which Korea’s IMF d t b k l e wiU affect its future trade relations with the EU andits other major trade partners is highly debatable. In some areas we have discussed, such as Korea’s new fiscal commitments, only a short-term impact on the pattern of EU-Korea trade should be anticipated. An examination of 1997 and early 1998 trade data indicates acrisis-induced pattern change. As Figure 7.1 and Table A.7 show, the growth trend in EU exports to Korea fdtered over those years, while the marked increasein the EU’s imports from Korea could be attributed to the more aggressive commercial practicesof Korean companies (e.g. com etitive price strategies, intensified marketing)broughton by crisis conditions! Inthemediumterm,Europeanexportersshould also be encouraged by predictions of Korea maintaining arelatively high growth trajectory and the associated market opportunities which this presents. In the longer run, the EU may substantially benefit where Korea must comply to removing many of its ‘internal’ barriers to international trade as part of crisis-related restructuring and liberalisation programmes. With regard to the financial sector, the relatively high exposure of European banks to Korea’s crisis has generated substantial bad debt problems for them(Figure 7.6). However, the gradual liberalisation of Korea’s financial sector should also provide compensating market opportunities in the future.
The EU-Korea FDI relationship Korean FDI in EumFe We established earlier that the growing significance of EU-Korea economic relations cannot just be attributed to the expansion of trade but also to mutual direct investment flows. The recent escalation of Korean FDI in the EU and Europein International lendingto Korea (by end of June 1997)
Figure 7.6 International lending to Korea(by end of June 1997) Source: Bank for International Settlements.
IheEUandKorea
211
general has become a notableissue for various reasons. Although the cumulative net invested by Korean firms in the region remains far below their Japanese counterparts? itneverthelessrepresents apotentially significant inward FDI source. Moreover, the inevitability of comparisons with Japan has stirred considerable media attention over this trend, as has the large-scale nature of many senior chaebol investment projects in Europe.40 These included LG Electronics $2.6bn project in Wales (UK) and Hyundai’s $3.7bn project in Scotland (UK), for the largest planned inward direct investboth of which set consecutive records ments to enter the EU from a third countryFinally,Korea’s stock of ‘greenfield’ F D I in Europe is second only to that of Japan among the EastAsian group and the largest for anyNIC.*’ We previously noted howthe EU’s share of total Korean outward F D I had risen to 15.3 per cent by 1996 (see Figure 7.5). O n a countrybasis, the UK has recently overtaken Germanyin becoming the prime investment location for Korean firms with 17.7 per cent of Europe’s total in that year (Figure7.7). Similarities here can be drawnwith the established concentration of Japanese FDI in the UK. The consolidation of the UK’s position can be anticipated at least overthe medium term, especially if new phasesof planned large-scale investments are initiated(see Table 7.2). However, Korea’s recent debt problems did cause these to be postponed or subsequently scaled-down and theUK’s longer-term prospects of hosting similar projects are to some extent contingent upon whether it joins the EU’s single currency area. The agglomeration effects of existing projects in the U K may, though, exert a strong enough pull on subsequentinvestments, particularly where investments the chaebol’s key Korean suppliers are enticed to make complementary themselves. In sectoralterms,‘trade-facilitating’investments made by Korean firms in Europe still represented a relatively high proportion of the total net invested (around athird). Manufacturing accounted for over a half of this total and here a large concentration of FDI is evident in the electronics and autos sector.
Stock of Korean FDI in Europe by host country destination(1996) Other Germany
CIS 15.8%
Romanla 7.5%
Figure 7.7 Stock of Korean FDI in Europe by host country destination(1996) Source: Bank of Korea.
212
lhEUandKorea
The preponderance of Korean manufacturing FDI in Europeis in contrast with Japanese FDI in Europe, which is mostly concentrated in the finance and other service sectors. It was noted earlier in the chapter, though, that the dearth of SME supplier networks in the Korean economy remains one of its prevailing structural weaknesses. This and other such weaknesses - technological dependencies, uncompetitive cost structures,a relatively underdevelopedfinancesector - havebeen important determining factors behind the surgeof outward Korean FDI during the 1990s (Figure 7.8). Together with recent developments in the Korean government’s FDI policy, these form the ‘domestic-push’ motivations for Korean firms expandingtheir investments into regions like Europe(DentandRanderson 1996). Let us now examine eachof these factorsin the context of Korean FDI in the EU. In contrast to Korea, the EU hashigh a density of SMEs and this is especially apparent in countries suchas Germany, Italy and the Netherlands.By undertaking ‘greenfield’ investments in the EU, the chaebol are able to diversify their suppliernetworks amongindigenousEuropeanSMEs, which are also liielyto possess markedly superiortechnologicaland logistical capabilitiestotheir Korean SME counterparts. Acquisitionalinvestments of and joint ventureswith European SMEs have enabled the chaebol to capture even greater benefits either through procuring their key proprietary assets or through more intimate collab-
Cumulative stocksof Korean outward FDI (1980-96)
.5 .-
14,000
1
12,000
-
10,000
.
8,000 .
E
0
2 6,000 .
Fwre 7.8 Cumulative stocks of Korean outward FDI (1980-96) Source: Bank of Korea; UNCTAD database.
L
2 14
Thr EU aud Kor1.a
scale and scope economies. This is at least the intention of the Samsung, I C and Hyundai industrial complexes built in the UK. It was commonly accepted that initial Korean manufacturing investments in the EU were typically tariff-circumventing in nature (Lee 199 1; Min 199 1 ; Young et a/. I99 1 ; Han 1992). ‘This could be largely attributed to the proportionately high number of ADUs confi-onting Korean exporters in EU markets.”” While the pretext for such investments has not diminished significantly, as we have already established, thr motivations for Korean FDI in Europe had become far more complex by themid-1990s.Accordingto Dent and Randerson (1996), more proactive patterns of investment were discerniblefrom around this time, as demonstrated by the chaebol‘s strategic (rather than tactical), larger-scale, crosssector FDI projects.’” ‘The ‘domestic-push’ and ‘global-pull’ factors discussed earlier are also relevant here in that they help explain the increasingly divcrsified purposes of Koreaninvestment in theMoreover, this pattern ofFU1also applies to Central and Eastern Europe (CEE), although, as Perrin (1997) contended, the preponderance of Ilacwoo’s investments in this region make a firmspecific analysis essential” (see Table 7.2). Part of Daewoo’s bold FDI strategy in the CEE region has been based on anticipating future access to the EU’s Single Market from low-cost production centres. Under the ‘Europe Agreements’, the company already enjoys preferential tariff treatment on exports dispatchedfrom its CEE locations to EU markets.
EU direct inrleslrnent in kbrra The degree of EU direct investment in Korea has also become increasingly significant. European firms have been attracted to both the rising levels of prosperity evidentin Korea’s markets and new technologicaldevelopmentsthat are apparent in Korean industry. These have provided EU multinationals with a important export production platform, for medium-tech products in particular, fi-om which other dynamic East Asian markets can be served. This is revealed in a sectoral analysis of EU direct investment in Korea which shows that chemicals, pharmaceuticals, machinery and electronics are among the main industries to .Itl attractEuropean firms. The influxof EuropeanFDIintoKoreahas also enabled the chaebol to contract EU firms directly into their supplier networks. This has been most visible in Korea’s automobile sector where European autocomponent manufacturers have become increasingly participative. Nevertheless the level of EU direct investment in Korea in absolute terms is quite low at only J4.0211n in 1996 (22.8 per centof the total). ‘lhis can belargely attributed t o Korea’s traditionally restrictive inward FDI regime, whose origins could be traced to a lingering mistrust of forei\gn capital interests and the Korean state’s imperative of maintaining the levers of control over the domesticeconomy. ‘l’hus, in comparison to most of its regional neighbours, inward FDI has played only a minor part in Korea’s economic development. Hence international borrowing has been preferred as a means of capital acquisition and licensing arrangements as an alternative conduit for technology infusion. It was not until
The EU and Korea
2 15
1962 that inflows of FIII were first permitted, while outward FDI was allowed from 1968 onwards. At thebeginning of the 1990s prospective EU investors facedarange of impediments. These wrrecategoriscd by Pangratis (199 1) with respect to Korea’s legal environmcnt (e.g. property rights and insurance arrangements), administrative environment (cg. complcx customs and financial transaction procedures) and business environment (e.g. difficult access to distribution systems and other supply chain constraints). Later on su~veyresults revealed in a World Economic Forum (1995) report suggcsted that Korea’s FDI regimeremainedthemost difficult encountered by foreign firms in Asia. While the provisions of the IMF ‘bailout’ programme have helped rvinforcc previousattemptsto removethose impediments falling into the first two categories (e.g. majority share ownership by foreign firms),many‘structural’barriersprevalentinthethirdcategory are likely to prove moreintractable. However, thefinancial crisis could also produce new acquisitional FDI opportunitiesfor EU investors in Koreaas asset deflation reduces the cost of h y i n g Korean companies. Yet as Chapter 2 generally noted, these opportunities arc unlikely to be exploited in full until the path of the crisis has become more determinate. Finally, Figure 7.9 shows that up to I996 Dutch firms had heen the mostactive European investors in Korea with 36.3 per cent of the EU total, followed by Germany with 17.9 per cent, Ireland 16.1 per cent, the U K 13.2 prr cent and France 1 I . 1 per cent.
Conclusion In examining thc development of EU Korea economic relations we have seen how a shift from conflict to co-operation was apparent by the 1990s. This could be attributed to the closer pattern of intra-industry trade, the emergingFDI relationship, greater intrractions within international economic fora and other miscellaneousdevelopmentsthathavr hrcn discussed in this chapter.Korea’s
EU direct investmentin Korea: net stock invested by member state (1996) Other . . 6.3%
Germany
69 17.9%
Ireland 16.1%
UK 13.2%
France 11.1%
Nelherlands 36.3%
2 16
The EU and Korea
financial crisis has the potential either to lend further momentum tothis trend or revertit to the past conflictual mode of EU-Korea economic relations where trade friction prevailed.Indrawingconclusionson these andotherrelated themes that have been considered here, we shall IIOW analyse them through different IPE theoretical perspectives. Neo-realism’s emphasis on the primacy of the nation-state in international economic relations is highly relevant when examining the conductof Kowa’s foreign economic policy towards the EU and other trading partners. As we discussed in Chapter 4 with Japan, there hasbeen a strongstatecentricity to Korea’s economic development and engagement in the international economic system. Sincethe 196Os, Koreangovernments have adopted fervent neo-mercantilist policies asa means of nationaladvancement. ’I‘hese were largely efrective because of the ‘development alliance’ formed between the state, business and society in which enhancing Korea’s international statuswas the unifying comnml objective. For some time, then, the EU has had to conduct its economic diplomacy with ‘Korea Incorporated’ and hence has encountered similar negotiating predicaments that it has experienced with Japan. Moreover, Korea’s unwillingness to concede to past EUdemandsandgeneral foreign pressurehasbeen excused on the basis that it remains in some respects a developing country. These factors,togetherwiththecompetitiveadvantageswhichKoreahas developed, explain why trade conflict persists as a feature of the EU’s economic relations with the country. It also complies t o the neo-realist view of perpetual anarchy in internationaleconomic relations. Notwithstandingthemorecooperative frame of EU-Korea economic relations that evolved during I99Os, the 1997-8 financial crisis could yet undermine the many positive developments of the decade. The crisis has thrown Korea back into a new game of national economic survival. Although the country is obliged to dismantle most aspects of the mercantilist state under the terms of the IMF ‘bailout’ programme, trade friction can be anticipated from the intensification of aggressive commercial practices by Korean firms andthe lower propensity of Koreanconsumerstopurchase imports in the wake of the crisis. More subtle ‘internal’ barriers t o international trade may also emerge in an attempt to restore equilibrium to Korea’s external financial position. The EU and other trading partnersof Korea thus face important challenges ahead. A different challenge that has confronted the EU throughout the period of its relations with Korea is associated with the neo-realist theory of hegemonic stability. A running theme of this text has been how the USA’s more intimate relations with most East Asian states have often disadvantaged the EU’s commercial interests. As with Japan, Taiwan and others, Korea h a s pursueda ‘policy of obligation’ towards the USA owing to the fact that US hegemony has bren perceived as the Llltimatc guardian of Korea’s economic and political security over the longer post-war period. Not only does the USA continue to lx”\ride important military support to Korea, and hence a deterrentto a11y NorthKorean assault, but also key export markets, capital and technologies through established economic linkages. I:urthermore, US hegemonic power has upheld the multilat-
2 18 The EL’ and kbrea Mar.uid themes are also germaneto developmentsinEU-Koreaeconomic relations. Like neo-realism,Marxismpredictsthat conflict is the predominant feature of international economic relations. Trade friction between the EU and Korea is simply aproduct of adversarialcapitalismwhere each side has attempted to upholdthecommercialinterests of its own tirms. Korea’sown recent ‘crisis of capitalism’ has only senled to intensify the competitive struggle, while the imposition of the IMF programme’s market reforms is seen by Marxists as a means of maintaining the stability of the international capitalist system. Furthermore, as one of the system’s core power’s, the EU may use the IMF as a conduit through which influence over the future direction of Korea’s economic policy is exerted. Whether any such conspiracieshave been hatched remains conjecture, although the EU’s structural power over the regimes in which itself and Korea participate cannot be denied. WhileKorea’sentry to the OECD in 1996 didmark a recognition of its advanced industrial statehood, it still remains highly dependent on European, US andJapanese tcchnology and capital. Thus, Marxist dependency theorists would suggest that Korea continues to lie in the periphery of the international capitalist system and hence ultimately subservient to the capitalist interestsof core powers. Although this too is highly debatable, the validity of the proposition would have important implications for EU-Korea economic relations as the nurturing of a more co-operative, interdependent relationship is partly based on a growing convergence of techno-industrial capabilities. Recentdevelopments in the FDI relationship suggest thatthe interests of European and Korean multinationals could increasingly influence the agenda of EU-Korean policy co-operation, as Marxists would predict. ’The primacy of economic issues in EU-Korearelations is also no surprise to Marxists,although security and nuclcar issues relating to North Korea (e.g. the KEIIO initiative)“’ became important agenda items hy the mid- 1990s.”’ ‘The broader array of issues now discussed between the EU and Korea is indicative of the establishment of a more co-operative approach to their relations. Finally, to conclude, both sides have important geocconomic reasons for promoting thcse rclations further. l o r Korea, the EU must be central to any stratqgy that aims to diversify the country’s economic relations and commercial interests of its tirms. For the EU, Korea represents an increasingly important export market, import source and FDI location for its firms. While Korea perhaps lacks the weight to alter the halance of power in East Asia, it could play a key advocacy role for 1)U interests i n the region5’ (Dent l998d). ‘Thus, both sides have yet to fulfil the considerable potential that an enhanced economic partnershipofl‘ers.
8
Regionalism and inter-regional co-operation
Introduction Thus far we have mainly rxamined the EU’s economic relations with its separate East Asian partners. In this chapter we shall concentrate on the regional and inter-regional dimensions aspects of the EU- East Asia economic relationship. As we shall discuss, regional dynamics are an important aspect of this relationship, a derper mutual understandingof which will help close the sicpiticant cultural and psychic distance that persists betwcen both regions. Hence, in the analysis that follows, the dcvclopment of regionalism in East Asia and Europe is considered in some detail with comparisons and contrasts made where appropriate. ‘Ihe third section of the chapter examines the Asia-Europe Meetings (ASEM)and its introduction of an inter-regional ‘dialogue framework’ to EU--East Asian economic relations. It will he argued that the potential geoeconomic significanceof the ASEM is considerable, although it may he some time before this is realised.
Regionalism in East Asia East Asia has been responsible for some of the most interesting new forms and structurcs of regionalintegrationto have emerged in recent years. Whereas regionalintrgrationarrangements(RIAs) in Europe have tendcd to evolve throughformalisedinstitutional processes, thosr in EastAsiahave developed through morc informal paths. This has been manifest at a sub-regional, interstate and pan-regional level.EastAsia’sown brand of regionalismhasbeen shaped by four inter-relatcd factors:
0
the dynamics of its own regional economic development (see Chapter 2); thepressures and hrcrs of globalisation; the rcgion’s historiccommercial networks,especially acrosstheChinese diaspora; varioussocio-culturaldeterminants.
‘Illese determinants, and tht. forms and structures of regional integration which theyhave created,areexamined below.We first considertheevolution of a
220
Regionalism and intrr/-regzonal co-o/leration
regional economic identity in East Asia that is then followed by an overview of the various sub-regional networks and other arrangements which have appeared. Integration agreements between nation-states such as the Association of Southeast Asian Nations (ASEAN) and the Asia-Pacific Economic Co-operation (APEC) forum are also studied in greater detail. We shall conclude by considcring the potential conflicts and future agendas that lic ahead rcgarding regional integration in East Asia.
East Asia andthe evolution of regional economic identities Most attempts to foster a common regional identity among East Asian countries have been hound to the notion of developing a broader, pan-Pacific community. This is not only revealed in the current APEC initiative but also in its most distant anteccdents, andcan be mainly attributed tothe USA's long-standing involvement in East Asia. According to Woods (1 YYY), US initiatives to found the Pan-Pacific Union in1907 and the Institute ofPacific Relations in 1925 (both based at Honolulu) represent the earliest endeavours at forging such a community However, these were essentially epistemic communities consisting of distinguished public figures and academics who worked to a relatively unambitious, non-specific agenda based on the general exchange of ideas and opinions. The Institute was eventually disbanded in 196I , thusjoining otherpartly US-inspired, post-war regional movements that eventually failed, namely the Asian and Pacific Council (ASPAC), Southeast Asia Treaty Organisation (SEA'L'O) and Association of Southeast Asia (ASA). Others neverthelcss remained, such as the Economic and Social Commission for Asia and the Pacific (ESCAl'). As Chapter 3 discusses, the USA was instrumental in establishing ASEAN in 1967 with the objective of creating a bulwark against the communist advance in the region. This reflected the nature of US strategic interests in East Asia during the early post-war decades, which were arguably determined morc by political than economic imperatives. The intellectual development of ideas pertaining to Pacific economic regionalism only really began in the 1960s and originated in Japan, or more specially the Japan Economic Research Centre (JEKC). It was at thc JEKC's first international conference in November 1965 that the notion of a Pacific free trade area (PAFI'A) was conccived i n a paper presented hy two leading economists, Kiyoshi Kojima and Hiroshi Kurinmto (JERC 1966). They argued that the fivr developed Pacific economies (Japan, USA, Canada, Australia and New Zealand) could form thecore basis of this arrangement, eventually leading to a broader membership of states.' Japan was also the source of two other key regional initiatives during the late 1960s. The first of thcse was the PacificBasin Economic Council (PBEC), an extension of an original Austra1ia;Japan privatesectorforum which came to include the USA, New Zealand and Canada whose aim was to enhance commercial co-operation across the Asia-Pacific. PBEC's inaugural mccting was convened in 1968, the same year that Japanese agencies organiscd the first Pacific Trade and Development (PAFI'AD) conference which provided a parallel forum
Regionnli.vn and inter-regional co-oflerntiorl
22 1
for acadelnic debate on regional economic co-operation. I t was at the P,AFl’Al) conferences that much of the early technical discussions on economic integration in the re@on took place and also where the delnte over a filture PAITA continued, alt11ough it transpired with subsequent conferences that therc existed little support for the idea. US involvement in these initiatives rrmained low kcy until the late 1 9 7 0 ~\vI~c*~I it \ q p 1 to see closer Pacific regional co-operation as both economically desirahlc and politically feasible (Morrison 198 I). In 1978 the US Senate commissioned 8 study 011 creating a Pacific regional trade organisation and helped engage intcl1ectu:d interest in the related conceptual issues. I n the mcantimc, Japan’s Premier for a CJhira and Australia’s Primehlinister Frxzer announcedthcirsupport &in-Pacific Association which inter alia would aim to definr the parameters li)r an emergent rrgional community of nation-states. From its initial exploratory meeting the Canberra Seminar stemmed the first of many Pacific Fmnomic Co-operationConferences (PECC) thatwere to follow. Alter a somewhat shaky start,’ these grew in significance as a wider range of both countries anti issues were cmhraced into the framework.” Howcver, PECC’s ability to convert intentions into concrete actions came under increasing criticism from participating countries. By the late 198Os, as a consequence of these frustrations and other developments, most PECC memlm-s conspired to raise the lrvel of’ political co-operation between them. ‘L’aking the lead, Australia’s Prime htinistcr Bob Hawkc in I989 proposedthenotion of installing an intcrgovernm~~ntal forumfor Asia-Pacific Economic Co-opcration (APIX) that would serve such ends.’ I n its original conception,APEC was to resemble an OECD-styleorganisation Ibr the I’acific economies.Howrver, many EastAsian countriesresentedtheprinciples of ‘Western formalism’on which theproposedforum would he tmsrd,and expressed an alternative preference for a looser, less institutionalised, conscnsusbuilding arrangement (Kahler 1995). This latter approach was to becomethe conceptual model which guided APEC’s evolution through the199Os, a s wc shall later examine. The 1980s also witnessed the introduction o f other regionalist initiatives in thc Asia-Pacific region. in particular new sub-regional trading arrangements (SRTAs). In 198 1 the South Pacific Kegional Trade and Economic Co-operation Agreement (SPAKTECA) was formed, through which its membrrship Australia, New Zealand and thcir neighbouring Pacific Island states has pursued a series of minor regional co-operation projects. Two years later in 1983, Australia and New Zealand signed the Closer Economic lielations Agreement (ANZCEKTA) that committed both parties to establish an Australasian Free trade area, reinforcedwithpublicprocurement,export subsidy and other auxiliary agreements. In 1990, just one year after the first APEC meeting, Malaysia proposed that an East Asia Economic Grouping (EAEG) be created a s an cxclusivc Asian regional initiative, another issue to whichwe shall return. Suflice to say here that many commentators saw the EAEG as a rival initiative t o AI’EC, and furthermore as an antagonistic gesture that was particularly directed towards the ~
~
222 Regionalism and inter-regional co-operation USA. Notwithstanding the political tensions of the early 1990s over the issue of regional co-operation in the Asia-Pacific, Elek (1992a) suggests that its economies faced four pragmatic challenges on how to enhance economic co-operation between them: 0
0
0 0
improving mutual market access in traditionally well protected sectors, e.g. agriculture, textiles; reducing uncertainty in regional economic relations, e.g. about future market access; redressing infrastructure bottlenecks; harmonising domestic legislation and rules on commercial practice.
These were to provide the basis of APEC’s focus of activities as the 1990s progressed. Regional economic integration in East Asia during this decade has also been advanced at a sub-regional level. We noted in Chapter 3 how the ASEAN countries have embarked on a programme to establish their own free trade area (AFTA)by 2003. In addition, various sub-regional economic zones (SREZs) have developed further corporate network links between East Asian economies. A number of conclusive observations and related points can be made regarding the evolution of regional economic identities in East Asia. We have seen how Japan was responsible for much of the intellectual work and policy initiatives that provided Asia-Pacific regional co-operation with its initial momentum. Despite East Asia’s most prominent economic power adopting this lead role, there were important geopolitical and historical reasons why the destiny of any significant East Asian regionalist initiatives was tied to a broader Pacific canvas. First, any attempt by Japan singularly to champion such initiatives would carry resonant memories of its own expansionism in the region during the 1930s and 1940s) with particular respect to the infamous Greater East Asian Co-Prosperity Sphere (see Chapter 4). This meant that Japan had to proceed with the assistance of its new Western partners, which were themselves perhaps the only Pacific powers equipped to achieve the goals of effective economic co-operation at the outset. Second, many East Asian countries were too preoccupied with their own nationbuilding endeavours to be distracted by attempts to develop a stronger regional identity Moreover, they were also all too aware of the economic, political and cultural differences that separated one regional neighbour from another, and hence prima facie evidence that such a coherent identity was unlikely to emerge. Third, the USA’s economic and political involvement in East Asia was such that it could not easily be disaggregated from any substantial pan-regional cooperation projects. According to Harris (1994) the processes of Asia-Pacific regional co-operation owed much to the initiatives of powerful individuals and intellectual elites, which in turn relied on a convergence of values among these elites whose own cultural backgrounds were highly diverse. This partly explained why many Asia-Pacific regional initiatives have not progressed. Furthermore, Higgott (1995: 379) observed that Asia-Pacific regional co-operation has been mainly promoted by
Regionalism and inter-regional co-operation 2 2 3 numerous ‘policy-network-cum-epistemic communities’ founded on neo-liberal principles that do not conform to ‘neat Weberian patterns of decision-making and opinion-forming’. As we shall discuss later, there are important contrasts to be made here with the approach that has been adopted by EU member states.
Sub-regional economic integration East Asia has witnessed more varied forms of sub-regional economic integration than any other global region. These have evolved through contiguous transborder corporate linkages, often fortified by joint policy initiatives, that create a subregional economic zone (SREZ), or so-called ‘growth triangle’. The development of SREZs has challenged conventional assumptions regarding economic scope, political sovereignty, spatial boundaries and state-centred regional integration. Their main purpose has been to attract investments that utilise local resources to produce competitive manufactured goods, usually for export. Examples of those that have emerged between East Asian countries are shown in Figure 8.1. Chia and Lee (1993) have identified five factors that can explain the development of SREZs:
0
0
Economic conzplementarip: what each sub-region has to offer the other in terms of resources, capital, technology, labour, etc. Geographicalproximip: an SREZ’s supply chains and other network links (e.g. ethnic ties) require spatial proximity if they are to function effectively. Conducivepolicyframework: created by participative governments, usually entailing relaxed rules on commercial practices and factor mobility. Infrastructure: supportive investments in public goods to help facilitate crossborder exchanges. Market access: the creation of efficient production and distribution systems in SREZs ultimately depends on acquired access to regional and world markets.
We can also categorise SREZs through their chosen path of development. Some have evolved from metropolitan cross-border spillovers into a hinterland, such as Singapore and SIJORI (the Southern Growth Triangle). The central metropolitan area provides the SREZ with its network hub for key financial, production and infrastructural services. Sometimes neighbouring metropolitan areas link up or merge to create transborder ‘development corridors’ (Rimmer 1994). Other SREZs have emerged as joint development of natural resources and infrastructure projects (e.g. the Mekong and Tumen River Regional triangle^),^ while some encompass whole nation-states (e.g. Singapore in SIJORI, and Laos and Vietnam within the Mekong River Triangle). It is often the case that SREZs incorporate, or are founded on Intra-National Free Economic Zones (INFEZs). An INFEZ can be defined as a designated domestic location which has been granted special commercial status by the government. Companies based here typically enjoy a liberal regulatory environment and proactive government support, e.g. subsidies, infrastructure investment.
F@re 8. I Subregional cconomic zones in East Asia Source: Chcn, X. (1995).
liegionalismandintm-regional
co-operafion
22.5
Examplesincludeexportprocessing zones (EPZs), which grewto proninence from the mid-1960s onwards as part of the advanced NICs export promotion strategies, and China’s array of Special Economic Zones (SEZs), Economic and TechnologicalDevelopmentZones (1XDZs) and National Industrial Development Zones for New and Advanced Techno1oLgy (NIlXNA’l’s).I t is also common for family-t)ased network links to play h t h a key role in SKEZs, as epitomised through p a n x i connections across the Chinese diaspora (see Chapters 5 and 6). The comparative economic advantagesof participating sub-regional members ofkr greaterscope for flexibility and specialisation. Furthermore, they enable smallerfirms to acquireaformativeexpericncc at internationalisation. IAcss devcloped partners also often benefit from technology transfers, sut)sidised infrastructure and capital upgrading. However, problems can arise conccrning the balance of relationships both at a provincial and central government level,” diverted investment away from peripheral subregions, infrastructure bottlenecks and negative externalities generated by lax commercial standards (e.g. on environmental management). Many of East Asia’s SKEZs have txgun to interlock and overlap, hence contributing to a wider regional integration,
The Asia-Pactj?c Economic Co-operation(APEC)f o r u m In general terms,APEC’s role has been to facilitate inter-governmental consultationswiththepurpose of enhancingeconomicco-operation, as opposedto specifically building an ‘economiccommunity’betweenEast Asian and other Pacificeconomies. From thebeginning itwasenvisaged that this was to be achieved through convergent directions in policymaking within APEC but avoiding EU-style, treaty-driven integration. Althoughnotablevariance existedacross APEC’s mcmbershipconcerning what the remit of the new organisation should be, a significant commonality of aims was also apparent. We noted earlier that.Japan had long expressed an interest in creatingaregionalframework for economicco-operation in the AsiaPacific. Similarly, the East Asian NICs hoped that APEC would promote closer regionaleconomicinterdependencebutmainlythrough joint projects. Some ASEAN countries were nevertheless concerned over what impact APEC w o ~ ~ l d have upontheir own regionalist initiatives, particularlythat ofAFTA (Crone 1992). Subsequently, they agreed t o participatc suhject to ‘three nos’: that APEC should have no I c p l bindingauthority, no negotiatingright and pursue 110 regional agreements beyond those permitted under (;AlT/W’IO rulcs. However, what linked all East Asian states was the use of APEC to guuarantce access to US markets. Meanwhile, the smaller developed Pacific countries of .4ustralia, New Zealand and Canada recognisedtheadvantages of aligningtheir own economies more closely to East Asia’s dynamic regional economy. Hence, APEC was txen perceived by them as a means to this end. The USA originally desircd a loosely structured consultative forum to evolve on trade-relatcd issues, but soon adopted a more proactive and ambitious position towards APEC.‘ All APEC membershopedthat itwould helpstrcngthcntheirinternationalbargaining
226
Regionalismandinter-regonalro-oberation
power vis-a-vis non-APEC countries. At the time of the Uruguay Round this was especially relevant in their dealings with the EU. The first APEC ministerial meeting, hosted in Canberra in November 1989, was attended by theforeign and economicministersfrom twelve countries, namely the five developed Pacific nations, the ASEAN states and South Korea. It was agreed that APEC’s basic objectives should be to promote regional economic growth and development and to uphold the open multilateral trading system. Thus, there was to be no recourse to building a Pacific trade bloc but rather to foster a constructive economic interdependence between members. It was also agreed that APEC’s ministerialmeetings be held annually, while regular and intermediate Senior Officials Meetings (SOMs) would be held to oversee and coordinate, with ministerial approval,work in progress. At APEC-11, held at Singapore inJuly1990, seven working groups were set up whose purpose was to help engender a ‘habit of co-operation’ and demonstrate the economic benefits thereof through: trade promotion; enhancing technology transfer and human resourcedevelopment;promotingco-operation in energy, telecommunications and marine resources; improving regional data on the flow of goods, services and investment. Three more groups transportation, tourism and fisheries were later added to the framework. By APEC-111, which was convened at Seoul in November 199 1, China, Hong Kong and TaiwaI? were admitted to membership. Thc meeting yielded the Seoul Declaration which laid out the scope of activity, mode of operation and the principles of participation in APEC. The scope of activity in APEC comprised: ~
0
0 0
exchange of information and consultation on policies relevantto common efforts to sustain growth, promote adjustment and reduce economic disparities; development of strategies to reduce impediments to trade and investment; promotion of ob,jectives setwithin APEC’s workinggroups, e.g. technolo
With regards to participation in APEC and its mode of operation, there was a strong emphasis placed on consensus-building and open dialoguc. it was WhileAPECdidnot seek tocreateanysupranationalinstitutions, agreed at APEC-IV, held at Bangkok in September 19911, that a permanent secretariat be established to enhance its co-ordinative capabilities. This was implemented by January1993and is based in Singapore.It was alsodecidrdat Bangkok tocreate an Eminent Persons Group (EPG) that would ‘enunciatca vision for trade within APEC to the year 2000 and identify constraints and issues which APEC should consider in advancing regional trade liberalisation over thc nextten years’.‘ In addition, there were proposals to help achieve this in the shorter term, such as the improved harmonisation of customs procedures and practices between members. A number of important developments came at APEC-V, hosted by the USA at Seattle in November 1993. Mexico and Papua New Guinea were acceded into APEC-VI. Existing members membership and it was agreed to admit Chile at
Regionalirmandinter-regonal
co-oberation
227
reconfirmed their adherence to the GATT system and the expansion of regional trade and investment. A Committee on Trade and Investment (CTI) was established, upgrading the former Informal Group on Regional Trade IAiberalisation. More private sector involvement was to he encouraged through the new Pacific Business Forum (PBV that brought together corporate executives from member countries to discuss matters relating to thebusiness sector’s role in and contribution to APEC processes. ‘Ihis entailed promoting the development of business networks across the Asia-Pacific. A Budget and Administration Committee was also established to manage APEC’s increasingly complex tasksin these twin areas. Furthermore, the EPG submitted its first report, A V k i o n f o r APE(,’: %wards A n that recommended a programme of trade and Asia-Pac$irEconomicCommunig, investment liberalisation measures to be adopted within APEC (APEC 1993). This paved the way for the El’G’s key second report which carried a more ambitious and well-defined set of recommendations thatwas to emerge at APEC-VI. Also at Seattle, ormore accurately at thenearby Blake Island,the first Al’EC Economic Leaders Meeting (AELM) summit was held which procredcd afterthe usual APEC ministerial meeting. ’lhcattendance of practically all member premiers raised the status and profile of APEC to a new level. A key outcome of the summit was the notion of a ‘community’ of Asia-Pacific countries being created through APEC. Accordingto the EPG’s American Chairman, C. Fred Bergsten, ‘the leaders in Seattle began the process of converting APEC from a purely consultative body into a substantive international institution’. However, this was accepted with reservations by many East Asian states who saw this as a departure horn APEC’s original aims of promoting informal I (1 economic co-operation. At the APEC-VI ministerial meeting held in Jakarta in November 1994, two further agencies were added to APEC organisationalstructure: an Economic Committee whose main function was to improve APEC’s capability for analysis of economic trends and studies of specific economic issues, and a Policy Ixvel Group on Small and Medium Sized Enterprises. Further inland at Bogor, economic leaders at the second AELM summit endorsed the EPG’s proposals for creating a free and open trade and investment zone within APEC by the twostage deadlines of 20 10 and 2020(APEC 1994). The developed Pacific economies were to realise this objective by the former date, while the drveloping APEC members were to meetthe latter. All members were, though, to commence implementing their trade liberalisation programmes by the year 2000 at the latest. ‘I‘he EPG’s recommendations, derived from its second report, were incorporated into the summit’s Bogor Declaration which laid out the following main future goals for APEC governments:
Trade in goods: zero tariffs and the removal of all quantitativr restrictions. Eade in services: no limits of travel related to the provision of servicrs for shortterm visits. Eade poliry dk/)ute settlemenf: immediate adoption of anAPECCode of Practice.
Znternationalinvestment: national treatment o f all firms i n all sectors, including tax and subsidies; common rights of esta1)lishment; compliance to disputesettlement provisions hound within existing internationalinvestment conventions. Conyktitiun policy: adoption of an agreedcod(. of minimum standards for competition policy l y 20 10; no APEC member is to itnposc anti-dumping measures upon another. Administrative /mcedures: full compatibility of customsdocumentation and clearance procedures. Transport: harmonisation of certain procedures and lifting of restrictions 011 landing rights; full compliance to internationallegal conventions for thc carriage of goods. ~lecomnfunications:mutualrccognition of all technical telecomlllullic.atioIls standards; no restrictions on trans-hordcr transmissions; national treatment for access to local common carrier networks. Other cotnnlrrciul le&slatzort or re~gulation:a g r c d minimum standards of disclosure and auditing commercial entities above some minimum six; anAI’EC Code for the taxation of international incomc. Standards (othrr than alreadJ1 noted): by 2005 APEC governments to have completed a programme o f mutual rccognition or harmonisation on par with that achirved by the EU by end 1992, and hy 2020 to have matched the EU’s own level a t this time.
In keeping with APEC’s statedadherence t o theGATT/\VI‘O principle of ‘open regionalism’, the EPG rcport was not suggesting that a conventional free trade area, or PAkTA, be established but rather an arrangement that promoted II ‘free trade in the area’which was simultaneously WTO-consistent. Hence, it was intended that any tariff rcductions would also be extended to non-APEC,M”T0 members on anMFN basis. This approacll canhe explained hy the hroad acceptance that AI’EC’s economic dynamism w a s largely dependent upon an open and flourishing multilateral trading system. Moreover, Drysdalc (199 1: 1) contended that APEC’s commitment to uphold the multilateral tradingsystem is based on one of necessity: ‘without access totheglobalmarket-place,theopportunities for dynamic East Asian trade and investment growth would he severely constrained’. As with its preceding two meetings, the agenda of APEC-VII, hcld at Osaka i n Novcmher 1995, w a s primarily drivcn hy proposals set out in an EPG report (APEC: 1995a). In essence, the LPG recommended that APEC leaders commit themselves at Osaka to halving the period for implementing thc liheralisation measuresagreed at theUruguayRoundtrade talks. For instance, this would imply that AI’EC’s industrialised countrics could choose to accelerate the agreed reductions in theiragricultural subsidies from six to three years; mcanwhile, developing countries could cut hy hall’ thr period t o implement the new ohligations which they have already committcd to accept regarding intellectual property rights (IPK) and Trade-Related Investment Measures (‘I’RIhIs). ’I’hc call to hastenthepace of liheralisation was echoed hy the PBF’s own wide-ranging
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second report, also submitted in advance of Osaka (APEC 199%). ‘Ihere \vas a qeneral lukewarm reception to these ideas from those AI’EC nneml~crs who had already expressed concern ovrr ambitious objectives set at Bogor. Some, such as Malaysia and Thailand, were apprehensivr about the changrs these would h i n g to APEC’s structure ant1 ethos, especially with respect to any aspirations that the USA may have to institutionalising APEC. ’lhe EPG third and final report alsoexpressedits conccrn over the‘intensification of economic disputes in the region’ and APEC: memhcrs’ ‘tendency to ignoremultilateral normsand mechanisms’ (APEC 1995a: i), statingthat, if unresolved, key A P K processes could he derailed. ’I‘he installation of :I mediation servicc was suggested to help overcome regional trade disputes which would complement W 1 ’ 0 procedures. The main outcomc to emerge from the summit was the Osaka Action Agendawhich further delineated the objectives and implementation procedurrs for fllturc APEC rconomic co-operation, as cmhodied in the Bogor Declaration. ‘lb provide advice on the in~~~lel~~erltatiol1 of the Action Agenda, an APEC Business Advisory Council (ARAC) was estahlishcd in early 1996 to serve in this role.” I n addition, APEC member states wcrc charged with preparingtheir own individualactionplansthat would hesubmitted at thc APEC-VI11 ministerial meeting in Manila in November 1996. These were to IK implemented from .January 1997 onward^"^ and were, together with a series of collective action plans, to constitute the basis of the klanila Action Plan (MAPA). The MAPA initkntive revolved around six themes: 0
0
greatermarketaccrss in goods; enhancedmarket access i n services; an openinvestmentregime; reduced business costs; an open and efficient infrastructuresector; strengthenedcconomic and technicalco-operation.
Itsmainpurpose was tomaintain Al’EC memlxr states’ commitmcnt to the Bogor Declaration objectivesby providing a new framcwork in which the progress of national and collective activitirs could be monitored. At APEC-IX, held at Vancouver i n Novemher 1997, the group’s cconomic lcaders and ministers presided over an agenda that added little suhstancc t o APEC’s structure or processes. ‘I’hiscould be partly attrihuted to the East Asian financial crisis, the full scale of which was just emerging. Howwer, by the late 1990s there was a growingconsensus within APEC to promotethe objective o f global free trade 11y 2020. Ikpending on how serious agoal this becomes, it would have major implications for thr multilateral trade order, an issuc to which we shall return. However, by APEC-X, held at Kuala Lumpur in Novern1)cr 1998, the fuller impact of the East Asian financial crisis upon the APEC process was more apparrnt. As Gllapter 9 discusses in further detail, tensions hetween the USA and cert a i n East Asian members emerged after US policymakers sought to us? the crisis as a means to push home wider cwnmrrcial and foreign policy objectives. In his
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speech to the summit audience, US Vice-President A I Gore expressed his support for Malaysia’s nascent democratic reform movement, led hy Anwar Ibrahim, as part of a broader post-crisis political and economic programme suggested for the country. In retaliation,thelong-standingMalaysian Premier, Mahathir Mohamad, accused the USA of blatant ‘foreign meddling’ in the domestic affairs of another APEC member.”’ A few days earlier, US trade diplomats led AI’EC’s other Anglo-Saxon members (Canada, New Zealand and Australia) i n an acrimonious dispute with APEC’s Asian members over the latter’s import restrictions on forestry and fishery products. The unresolved matter was subsequently transferred to the WI’O and was reflective of the poor progress that had l~een made on other trade liberalisation issues at APEC-X. Premier Mahathir’s call for the introduction of greater controls on hedge funds and other large international investors was also squarely rejected by the USA and most other AI’LC members.
The East Asian Economic Caucus (EAEC) Notwithstandingthe positive developments in APEC, many East Asian states were experiencing geoeconomic insecurity by the advent of the 1990s. At the time, the UruguayRound talks had becomedeadlocked while the perceived threat of protectionist trade blocs loomedominously in Europe andNorth America in the form of the Single Market and NAITA (North i\merican Free Trade Agreement)programmes. As Rudner ( 1 995: 43 1) accurately o b s e n d , ‘aware of their vulnerabilities, the M E A N countries and some of the Asian NICs felt pressed to explore alternative modalities for regional co-operation in defence of their economic and trading interests’. Such initiative was most keenly grasped by Malaysia’s Asia-centric Premier, hlahathir Mohamad, who proposed the idea of creating an East Asian Economic Grouping (EAEG) in Decemlxr 1990. The original EAEG blueprint contained plans to form a preferential trading arrangement between Last Asian countries, thus snubhing the USA and other Western APEC members (ix. Canada,Australia and New Zealand). It thus came as no surprise when the USA voiced strong opposition to the idea and ardently petitioned both Japan and Koreato reject it. As it transpired,Japan adopted anambivalent position towards the LAEG proposal. While its leaders were cautious not to undermine its special relationship with the USA, Japan also acknowledged that its strategic interests lay in generally promoting regional links with its immediate neighbours, leading possibly in the longer term to a more prominent leadership role in East Asia (see Chapter 4). Korea was similarly circumspect, principally for the hrmer reason, with China perhaps the most receptive of the three to the proposal. However, it was the less than accommodating response from Malaysia’s ASEAN partners that led to the EAEG’s demise. For their part, both Indonesia and Thailand were adamantly opposed to establishing such an exclusivist and inward-looking trade arrangcment, especially one that would lock out the USA and send contradictory signals to their new, non-Asian APE@ partners. Consequently, Malaysia modified the EAEG proposal to the more innocuous
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23 1
East Asian Economic Caucus (EAEC) whichwas launched in October 199 1. The EAEC, or ‘Caucus without the Caucasians’as it became known in certain quarters, sought to provide the East Asian countries with an informal consultative mechanism on mattersof policy discussions and consensus-building on trade and economic issues. It was intended that the strategic value of such an arrangement would be particularly revealed in multilateral fora, notably at the time of its conception in asserting theregion’s collective interests at the Uruguay Round,’“yet it would also function in a manner consistent with the GATT/WTO, ASEAN and APEC frameworks. I n its endeavoursto seek an endorsementamong its regionalpartners, Malaysiatabledthe new EAEC initiative atthe1992 M E A N summit in Singapore and at APEC-V in Seattle where it was in principle accepted, albeit withsomereservations.Although the position of the USA had become more amenable with the arrival of the Clinton administration, it nevertheless maintained a hostile view towards any attempt to create an exclusivist Asian trade grouping. This response undoubtedly influenced both Japan and Korea’s positions tosomewhatdistance themselves from theEAECarrangement.Hence, Malaysia has had to vindicate the EAEC’s worth by demonstrating how it can enhance APEC unity rather than threaten it. The future direction of the EAEC is contingent on a number of interdependent variables. Other ASEAN countries may join Malaysia in promoting the Caucus as a viable alternative to APEC if open regionalism should, in the words of Rudner (1 995: 433), ‘flounder on the shoals of discriminatory and diversionary trade policies’. Such support may deepenand broaden to embrace other East Asian countries if North America’s strategic priorities alter in favour of a closer economic ali
The global impactand future challenges of APEC Notwithstanding the recent pressures imposed by the East Asian financial crisis upon APEC, theorganisation’s mostsignificant challenge remains the progressive implementation of its 2010/2020 liberalisation programme. In order to provide a
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delight’ (Drysclale and Garnaut 1993; Drysdale and Elek 1996).The concept, an inverted version of game theory’s prisoner’s dilemma, is Ilased on the neo-lil,cral notion that positive-sum games result from markct liberalisation and structural change at home, which not only benefit the domestic economy but also others simultaneously undertaking similar actions. It is further argued that if an initial momentum within APEC for significant li1,eralisation can be achievcd,forthcoming apparent benefits should create thc .justification and motivation for continuedliberalisation. ‘This may be particularly importantwhen convincing governmtwts that any short-term costs incurred will be more than compensated by long-term Imlefits. Nevertheless, such a process ultimatcly relics on a culture of mutual commitment being engendered with APEC, although the Seoul and Hogor Declarations have attempted to achievc this based on the principle of concertrd unilateral decision-making.“’‘The advocates of the ‘prisoner’s drlight’ concept also concedr that the voluntary Ilasis on which this progress depends may not bc ideal. ‘I’here are ‘limits t o persuasion’ which become most apparent when dealing with highly sensitive industries where the costs incurred by lilm-alisation may prove prohihitive, and thus where resistance may be anticipated. However, XPEC does havca thc option of rrvcrting to W ‘ I O mcchanisms to invoke a more binding obligation upon recalcitrant meml)crs. Higgott a d Stuths ( 1 995) have criticised the ‘prisoner’s delight’ concept on the basis that it assumes APEC states arc ultimatcly aspiring to secure alxolute rather than rclati\pe gains within the group. They further argued thatit lacked an underpinning political theory which provides a considered view on this aspect o f intrr-state economic co-operation. hlorcover,i n earlier work, Higgott ( 1 ‘393: 1 15) contended that ‘at a regional level, there is a tactical consensus rather than a cognitive one on theutility of APEC as a vehirlc Tor greater economic co-operation’. Thus, the rationale behind APEC’s voluntary-based approach has come under much critical scrutiny. Even the Rogor Declaration 2010/2020 targets are simply indicative and non-binding with thc liberalisation process to be realised on a ‘hest cndeavour’ basis. More recrntly,Higgott ( 1 9981,) has argued that the 19978 financial crisis has both enhanced the‘East Asianisation of regional discourse’, as demonstrated by regional discussions on establishing an Asian Monetary Fund (AMk], and furthermore weakened APEC through the c.f€ects ol‘ these processes on the attitude and behaviour of the USA (see Chapter 9). There has also been the inevitable debatc surrounding whether APEC should gravitate away from its informal, consensus-building style of co-operation to a more formal, treaty-based approach. The USA has often hcen associatedwith thelatter, and moreover with preferring an orchestrated systcm for reciprocal li concession granting. However, Nesadurai ( 1 996) ar
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liberalisation, or alternatively concentrate on those sectors where frer riding is less likely; for example, where tariff levels are very low or where APEC producers have a proximate global monopoly (e.g. electronics). The present and future relationship between APE@ and the WTO has heen the subject of much analysis. Bergsten (1994) contendedthatAPEC could help spearhead WTO negotiations on new multilateral issues, not least by setting precedents in such areas to be adopted at a global level. This may involve opening APEC arrangements to non-members whereby they undertook corresponding obligations. The Information Technology Agreement and Basic Telccommunications Agreement, which both began as APEC: initiatives but progressed to become plurilateral WTO accords in 1996 and 1997, respectively, were to become notable examples. Notwithstanding these successes, many APEC members are still adjusting to the patterns of negotiation expected within the W T O framework. As Smith (1 996: 7) notes, ‘the process of reciprocal bargaining and accepting contractual international obligations about the trade and investment regime, was, and is, a novel experience for the East Asian developing economics’. Conversely, this infers that open regionalism may bcachieved, at least partly, through encouraging their compliance to WTO codes and accords. ’I‘hus,APEC becomes a conduit through which multilatrral agreements are implemented. This itself poses the problem of APEC evolving into a competing regime for trade liberalisation. Given the geoeconomic weight of APEC, such a challenge to the WTO would be especially si
Regionalism and inter-regional co-operation 235
convergent regulatory environments that APEC members are endeavouring to establish between themselves. Recognising this dilemma, the European Commission stated that
if the countries of East Asia were, as a result of regulatory co-operation within APEC, to align their reLgu1atory systems practicesto those of the United States, this would place the EU ata competitive disadvantage, at least to the extent that a large and dynamic partof the world economy developed as result of a system which diverged significantly from that of the Union. (CEC l995d: 7) For the above and wider geoeconomic reasons, the EU has aspired to establish a constructive dialogue with APEC. In July 1993 it forwarded a proposal to the APEC secretariat and chair that this should be formed at a ministerial level as well as within its working groups. The EU’s request, though, was subsequently rejected by APEC in October 1993 on the basis that it would be ‘premature to
enter into an association with the EU given the fragility of the APEC institutional I >I process’ (CEC 1995e: 22). Strictcr rules on third party participation that were adopted by APEC in 1994 further limited the EU’s options. However, some progress was achieved when the European Commission received an invitation to attend the APEC Sub-Committee on Standards and Conformance in August 1997, although dueto the lateness of the request the Commission could not comply. Informal contacts between EU and APEC representatives were, though, subsequently established in APEC’s Working Group in this field.I9 Before we make a more detailed consideration on how inter-regional relations between the EU and East Asia have recently developed, let us first examine the paths to regionalism that have been taken in Europe. T h e EU
and regionalism in Europe
In the section that follows we make an examination of the European and specifically EU models of regionalism, drawing certain comparisons and contrasts with their East Asian equivalents that have beenstudied above. This exercise also serves as a background analysis to our discussions on the EU-East Asia interregional relationship, as embodied in the Asia-Europe Meetings (ASEM) which are presented in the next section. For some time after its initial conception, the European Community (EC)provided the model of a regional integration arrangement to other regional groups. This model possessed many essential features that were in direct contrast with those associated with East Asian regionalism. The level of regional economic integration that has been achieved by the EU membcr states is extremely deep. Intra-regional trade and investment within the EU remain the most developed for any global region. However, this owes much to the advanced state of EU political co-operation and successive treaty-based agreements that have accompanied progressive stages of integrational development. These date back to the
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co-operation
Treaty of Paris thatestablishedthe EuropeanCoaland Steel Community (ECSC) in 195 I , the precursor to the European Economic Community (EEC) which was founded by the Treaty of Rome in 1957. In 1967 the Merger Treaty coagulated the ‘three communities’ (ECSC, EEC and European Atomic Energy Community which was set up in 1958) into the EC, while the Single European Act of 1986 paved the way for the Single European Market (SEM) and important institutional changes. These were also made by the 1991 Treaty on European Union, or Maastricht Treatyas it is more popularly known, especiallyin the fields of macro-economicco-operation(economicandmonetaryunion,orEMU), social policy (the Social Chapter) and foreign policy (the Common Foreign and Security Policy). Most recently, the 1997 Treaty of Amsterdam ensured that the momentum of the EU’s integration agenda of the 1990s was maintained. The EU has also progressed through more stages of institutionalised regional integration than any other, simultaneously completingan integral free trade area and customs union by July 196820and a common market, namely the SEM, by the December 1992.’)’It already holds the position as the world’s most sophisticated RIA by far and plans to establish EMU, as envisioned in the Maastricht Treaty, between at least a sub-group of EU mernber states will further consolidate this position. Managing the I:U entails the use of advanced and complex forms of dccisionmaking processes that have evolved within multi-level governancc structures. As Marks et al. [1996: 372) commcnt, ‘policy-making in the EU is characterised by mutual dependence, complementary functions and overlapping competencies’. In Chapter 2, we gained some insight into how this related to the conduct of the EU’s Common Commercial Policy (CCP). Trade is one of very few policy areas withinthe EU where its maincxecutivrsupranationalagencythe European Commission, has in effect been granted rxclusivc competrnce. However, EU policy proposals forwarded by the European Commission first require a mandate from the inter-go\~erllmental Council o f Ministers. Numerous other EU institutions andactors (e.g. the EuropeanParliament,European Court of Justice, European Council and Council Prcsiclcncy) also have a stake in or influence over issues arising on the EU agencla. There is much dehatc concerning wherethe. sources of pnwer actuallylie within (1 99.5) and the EU’s highly institutionalised structuresandproccsscs.Nugent others2’)have argued that the Luropcan Commission has devcloped a distinct more leadership role within theEU as deepcr integrationhas necessitated an extension ol‘ competence to supranational agencies.‘I‘his viewis contested hy Riloravcsik (1 99 1, 1993) who asserts that the EU can be best understood as an ‘itlter-go\~er~~n~el~tal regime designed to managc cconomic intcrdcpendence through negotiatedpolicy co-ordination’(1993: 474).”’ If we prescrihc t o this latter notion, then certain comparisons can he made with both MEAN and APEC:, although the EU’s intergovernmental processes and structures arc considerahly more elaborate. We have to some extent assumed that the EU’s institutionaliscd co-operation has had a considerable impact upon stimulating economic integration between its member states. It is therefore worth contemplating whethcr a de,/icto process of
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economic integration,akin to that experienced by East Asia’s essentially privatesector led integration, would have emerged in the absence of the SEM programme and otherinitiatives, Unfortunately, this question is not easily answered, although historic data provided by Anderson and Norheim (1993) suggest that Western Europe had the world’s hi hest levels of intra-regional trade for many 54 decades before theEEC’s inception. O n the other hand, andin contrast to East Asia’s SREZs, the EU’s major inter-firm production networks and agglomerations tend to be based more within and not across national boundaries, some of which have their origins in Europe’s city-region states that emerged in the eighteenth centuryz5Yet there is evidence for the recent growth of new ‘mesoregions’, as Cappelin (1993) refers to them, with the EU’s territory founded on network relationships between various urban areas. Furthermore,relatively a distinct high-tech development corridor or ‘growth axis’ is apparent within the EU economy, as Figure 8.2 indicates. It is within this zone that much of Europe’s most advanced capitaland infrastructure development, high-tech industryactivities and centres of prosperity are located. Figure 8.2 also suggests where the future paths of this a x i s will extend. Continuing on a geographic theme, the EU has had to pay more attention to
F&re 8.2 Europe’s major growth axis Source: Dunford andKafkalas (1 992).
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Regionalismandinter-regionalco-opernlion
how it is viewed by outsiders. During the earliest (ix. EEC/EC) period the EU was seen by many as the epitome of ‘closed regionalism’, especially by those who subscribed to Vinerian theories which highlighted the adverse effects of customs unions on the wider international trading system. However, with globalisation and the increasing openness of the world economy, the EU has become more sensitive to external perceptions of itseK2” This has been particularly apparent since the late 1980s onwards when Europe and its trade partners began to ponder what the potential external impacts the SEhl would be.“ At first it seemed that the EU’s objective was to use Single Market access as a bargaining device in 211 international negotiations to secure reciprocal access in third country markets. Moreover, others anticipated that a high tariff wall would be erected around the SEhil to safeguard its benefits for ‘insiders’ hence the derivation of the ‘Fortress Europe’ concept.29 As its transpired, neither scenario emerged (Hanson 1998). The reciprocity principle was never meaninL;fully deployed, on either a systematic or ad hoc basis, while the EU also used the latter stages of GA’lT’s Uruguay Round negotiations to demonstrate its willingness to conduct external liberalisation simultaneously with the SEM programme’s internal liberalisation. Nevertheless, the EU’s gravitation towards a more ‘open regionalist’ position in recent times has been fundamentally constrained by its depth of integration. In other words, it can be contrived as an even greater contradiction in terms for a regional bloc which is embarking on monetary integration,let alone APEC’s free 30 trade and investment zone. Ironically, though, itis the EU’s plans for further economic integration that could emphasise the divisions between existing and future memhcr states and subsequently create an APEC-style (i.e. 2010/2020) variable speed integration. By the early twenty-first century itis conceivable that the EU will consist of a three strata membership. This would comprise: those countries who are EMU participative; other EU15 which are not; the new Central and East European (CEE) memberstates whose accession to the acquir communautaire the embodiment of EU policy and law - will entail a lengthy transition process and hence form the third tier. Thus, while there exist considerable differences in the nature and aspired level of future EU and APEC integration agendas, they may both face the challenges inherent to the ‘variable geometry’ approach. Further EU enlargements, which inevitably increase the heterogeneity of membership, make this a more assured outcome. The EU already operates an extended family network of geographically proximate ‘associative’ states, practically all of whom wish eventually to become full members themselves. ‘Ihese includethe European Free ‘1 I ‘Trade Area (EFIA) countries (Norway, Switzerland, Iceland and Liechtenstein), the CEE states and those from the Mediterranean Basin, i.e. North Africa, Mediterranean island and near Middle East groups. Under the provisions of its association agreements or otherspecial arrangements made with these states, the EU usually confers trade and miscellaneous cornmcrcial concessions upon them as well as promoting various forms of economic co-operative ventures. Although this network is not on the same scale as APEC’s super-regionalism, it does constitute the basis of a ‘Greater EU’. Furthermore, the EU’s various co-operation ~
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agreementssigled withnon-Europeancountriesand even regional c o u m y q“ups (e.g. ASEAN, Mercosur) should be noted. As we shall discuss in the f d lowing section, the EU has been a pioneer in the field of inter-regional rclationships. O f these, the ASEM has become the most important to the EU. Before we analyse the ASEM in some detail, let us summarise the conclusions that can be drawn from this section. Iirst, the EU model of regional integration and co-operation differs in a number of fundamental ways from those found in EastAsia, which are typically informalised,privatesector or market-led and underpinned by an inter-governmental consensus-building approach. In contrast, the EU represents a more formal, institutionalised and technocratically driven approachthathas evolvedwithin more developedinter-governmentaland supranationalgovernancestructures.Strongcontractualbonds andcommon legislative commitments havealso beenforgedbetween EUmember states, whosr economies are now closely linked through both extensive market integration agreementsandmacroeconomic policy co-ordination. As wesaw with APEC, its ownco-operative initiatives are mainlymicro-economic in nature. and Furthermorc, it lacks the collective political will and theinstitutional adjudicative capability for comparable unitary action (Higgott 1995). Second, it is very probable that, even without the EU’s institutionalised frameworks for enhancing regional integration, \Vest Europc would have still experienced an increased, private sector-led,defacto economic integration, as witnessed in East Asia. However, at the meso-economic level (i.e. inter-firm, inter-industry networks) the EU hasnot witnessed theemergence of SKEZ arrangements, although its core ‘growth axis’ (as shown in Figure 8.2) has certain features in common with some of East Asia’s development corridors (e.g. %Japan’sTokaido Megalopolis) and its more urbanised growth triangles. Third, similarities can also be made between the EU and APEC with respect to the recent and future challenges they have encountered. ‘I’he former refers to a mutual need to vindicate their own regional integrationinitiatives by paying deference to the ‘open regionalism’ principle, although given its degree of integration this has been far more diflicult for the EU to pull off. Depending on how the forthcoming EMU process and ‘eastern’ enlargement are handled, both theEU and APEC arelikely to face the challenge of managing a future integrational agenda based on a ‘variable geometry’ approach. While it was previously acknowledged that the actual content of eachagenda was radicallydifferent,theremay exist somescope for mutual learning that concerns how each regional bloc maintains a balance of member state interests while reaching the group’s common and differentiated objectives. The basis for wider inter-regional co-operation between the EU and East Asia will now bc examined.
The Asia-Europe Meetings(ASEM) framework The following sectionsexamine various aspects of the ASEM ‘dialogw framework’. We shall begin by considering the geoeconomic context of the ASEM and its wider siLgnificanceand potential impact upon the international economic system. The
240 Regionalismand inter-regzonal co-operation ASEM’s origins and development are then examined, leading on to a study of its operational dynamics. Finally, the ASEM’s future prospects are evaluated.
ASEM: the geoeconomic context Inaugurated in March 1996, the ASEM constitutes perhaps the most important development in EU--East Asia economic diplomacy thus Far. The i\SEM is essentially an inter-regional ‘dialogue framework’ between the EU and ten East Asian states, namely the ASEAN7 countries, Japan, China and Korea. The meetings themselves are biennial and summit-based with intermediate work being conducted in between that is aimed at enhancing mutual co-operation and exchange in economic, political and socio-cultural fields.:” It was intended at the ASEM’s outset that this new framework for managing EU-East Asia relations was to complement existing bilateral (e.g. EU-China) links and not supplant them. ‘This new level of partnership that the ASEM establishes between the EU and East Asia can only be fully understood in the context of Triadic geoeconornics and the recent development of inter-regionalism. The ASEM is actually the last inter-regional Triadic link to fall into place, with APECand the New Transatlantic Agenda (NTA) representing its transpacific and transatlantic equivalents, respectively. Thus, the ASEM is an attempt to ‘complete the triangle’ of ‘rriadic relations and hence fortify the weak link in thattriangle (Dent 1996). Plans made by APEC to create its 20 10/2020 free trade and investment zone certainly played their part in galvanising the EU into redressing this imbalance. Like other regional groups, the EU has entered into a series of inter-regional agreements, the most established being that with ASEAN itself.””This trend has become an emerging paradigm of international economic relations owing to the general growth of regionalism and regional groups seeking co-operative ventures with others. Globalisation has also been a motive force here with new economic interdependencies being created on a transnational and transcontinental scale. Where common interests can be identified between two regional powers as a consequence of such processes, potential benefits arise from joint policy initiatives and other collaborative activities that are thoughtto yield mutual gains between them. The ASEM seeks to facilitate a greater economic exchange between the EU and East Asiain a fundamentally different way to both APEC and the NTA. Most importantly. theASEM does not carryprovisions for ‘mutually aligning regulatoryenvironmentsbut rather aimsto establish bothcongruency in selected administrative procedures (e.g. customs, standards and certification) and enhance familiarity amongst companies of the policy regimes they conrront in their opposite region’ (Dent 1998b: 514). However, like the NTA, but unlike APKC, the ASEM is not a mechanism fix trade or investment liberalisation.
Origins and developmentof the ASEM framework ‘The original idea for the ASEM can be attributed to Singapore’s Prime Minister Goh who first raised the issue of establishing an EU-East Asia inter-regional
Re~yionalismandmter-wgional co-opercttion
24 1
arrangement 011 all official visit to Paris i n October 1994. ‘l’his typified the geeeconomic aspirations of Sincaport:, which had also bee11 a fe~-verltaclvocat(’ 0 1 APEC in its earliest stages. As Camroux and I,echel>y (1 996) note, ASEAN \VX proving too small an arena for the prosperous micro-state to conduct collaboraLive iIlternatio1laI economic relations and sought to establish itself 21s a pivotal player within grander li-ameworks. Given the potential for thr EU’s marginalisation in a world economy dominated by a transpacific axis, it was sorncwhat surprising that the ASEM initiative camc from an 1’:ast Asian sourcc. ’I’he subsequent cool reception from the EU’s political leaders is perhaps even more surprising, although Europe’s business community offered a warmcr welcome. The basis for a Inore positive response from the EU was, however, being dcveloped elsewhere. In July 1994 the European Commission had promulgated its ‘New Asia Strategy’ which argued that stronger ties between the lcr 1994 that the impetus for the first ASEM originated. Most of the M E A N statcs Irnt considerablesupport to it, with only hilalaysia’s Asia-centric Prime Minister Mahathir expressing any significant doubts regarding ASERil’s valuc. Othcrs were to arise among other members of the East Asia I O . Japan’s circumspcction at joining thcnew framework mainly derivrd from fear of upsrtting thcUSA, but also because it saw little need to extend its diplomaticcontacts with thc EU beyond established bilateral, plurilatcral (ix. OECD and G7) and multilatcral links. China was also initially rrluctant, but because of an aversion to any intcrnational forum where it could become the target of Western criticism ovcr such issues as human rights or its state-tradingpracticrs. However, Korea sawtlw ASEM as an opportunity to diversify its foreign economic rclations and to assist the global strategies of its chaebol multinationals (Chun 1996). By early 1995 the principle of the ASEM was accepted by both the EU’s Icaders as well as by those doubters on the East Asian side:”‘ The First ASEM summit was convened at Bangkok over 1-2 RiIarch 1996. Ideading upto the meeting, the EU succeeded in securing a high-level and broad consensus among a l l fifteen 1r‘ membcr states.’I’his was an important achievement, given the (:loseties and hence specific interests that some EU countrieshad with some East Asian nations. It could also be contrived as a triumph of neo-liberal over nco-realist logic as EU member states both individually and collectively had much to gain from building a closer economic relationship with East Asia, notwithstanding the salience of certain national interests such as Portugal’s dispute with Indonesia over human rights issues in East ‘I’imor (see Chapter 3). ’Ihc European Commission played a key part in orchestrating this consensus and helped present a common EU agenda on global trade access and other WTO-rrlatccl issucs. Ironically, this consensual approach was not reflectedin the hehwiour of the ASEAN states which were keen to present thrir own distinct ideas about ‘4SEbI. For example, Singapore proposed that a special think-tank should l x formed, the
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Regionalim and inter-regional co-operation
Asia-Europe Foundation, which was subsequently established i n Singapore itself. Thailand was also enthusiastictomake its mark by suggesting that an AsiaEurope Business Forum be created. Meanwhile, Malaysia wanted to use the event to help secure a co-ordinating role in a transasian railway network project. These joined a host of other initiatives that emerged from the Bangkok meeting, which on balance was more focused and of greatcr substancc than anyone had anticipated. This was particularlythe case for economic-related matters Senior which continue to dominatetheASEMagenda. It is herethatthe Ollicials Meetingon lradc and Investment (SOMTI) group plays a central organising role, based on two main objectives. The first is to examine the proposed measures of its working groups to facilitate greater trade and investment between East Asia and the EU, while the second is to discuss MITO issues that have implications for the ASEM process. Economic and Finance Ministers Meetings also provide a higher political level input to these proceedings (Table 8. 1). As with APEC, an intendedpurpose of the ASEM is to pre-discuss WTO ministerial meeting issues so to establish preliminary negotiating positions and possibly resolve anticipated conflicts prior to multilateral talks. This is consistent with aspects of ‘open regionalism’ to which the ASEM has an expressed commitment. The ASEM’s creation of fora within which EU-East Asia dialogue on new multilateral issues can be expanded also concurs with the WTO’s own notion of how regionalist, or inter-regionalist initiatives can be compatible with the multilateral process (WIO 1995). l‘his relates both to how therehasbeena convergence of interest at the regional and multilateral levelin removing similar non-discriminatory trade barriers, and to how KIAs can provide the ‘building blocks’ as opposedtothe‘stumbling blocks’ to cstablishing global free trade through inter-regional agreements. Moreover, as ASEM does not share APEC’s preoccupation with tariff liberalisation or market access issues,it is unlikely to represent an alternative regime to the WI‘O. Nevertheless, the commitment of all Triadic inter-regional arrangements to the principle of open regionalism is yet to be comprehensively tested, thus posing a latent threat to the new multilateral order. However, themain purpose of ASEM is to promotegreater economic cxchangebetween both rcgions. Much of this depends on the success of the Trade Facilitation Action Plan (TFAP), the Investment Promotion Action Plan (IPAP) and the Working Groups on Customs Co-operation (see Table 8.1). The prominence of the ASEM’s economic aspect over its political and socio-cultural equivalents can be largely explained by the fact that trade, investment and technological co-operation all constitute broad common denominators of interest, and hence dyer the most scope for collaboration between the two regions. Both sides concurred with the principle that trade liberalisation should still be pursued through the CVTO and that the ASEM should thus concentrate on promoting economic exchange between them. Business representatives have been conferred a crucial role here, as demonstrated in the TFAP, IPAP and the Asia-Europe Business Forum groups. At ASEM 1 in 1996, EU and East Asian leaders were only prepared to make a
Kegionalirm and inter-regional co-operation
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Tablu 8.1 T h c ASI:M: main t.letncnts Working Group on Customs Co-operation
Investment Promotion Action Plan (IPAP)
Trade Facilitation Action Plan (TFAP)
Senior Officials Meeting on Trade and Investment (SOMTI) Asia-Europe Business Forum
Senior Officials Meeting (SOM) Foreign Ministers Meetings
‘trial-run’ commitment to thc intcr-regional framework by planning for just two further summits. ‘I‘hesc were to take place on a biannual basis, the first in London in April 1998 and the second in Seoul in the year 2000. While no concretc plans were made in 1,ondon to extend the summit schedule beyond Seoul, the better
244 Regionalismandinter-regionalmoperahon than anticipated success of ASEM presents a convincing case to do so. Both sides have already invested much political capital in the ASEM process and have much to gain by its perpetuation for reasons we shall later elaborate. Itis therefor? likely that at ASEM3 in Seoul there will be a consensus to establish an ‘ASEM4 plus’ framework. Two outcomes from ASEM2 provided evidence to support this conclusion. First, the proposal to create an ASEM Vision Group, whose main function was to consider medium to long-term perspectives on how EU-East Asia co-operation could be further promoted, was endorsed at the London summit. Second, a schedule for future core ASEM meetings was also agreed in which the ABEF group would convene at Singapore in 2001.
The ASEM’s operational dynamics Events leading up to and during ASEM1 demonstrated how East Asia’s comparative heterogeneity led to the prominence of state-centred over region-centred objectives, thus lending credence to neo-realist modes of- behaviour. We noted earlier that this contrasted with the EU’s approach, but this was to be expected given both its relatively homogeneous collection of member states and degree of supranational cohesion. In a communication document the European Commission acknowledged that, especiallywith regard to private sector activities, ‘the diverse economicsituationin Asiawouldsuggest that a diversified approach could be preferable’ (CEC 1996d: 9).This may imply that the division of the East Asia 10 into specific country subsets (e.g. Japan and Korea in the industrialised subset)may prove a more useful structure of relations for the EU withinthe ASEM. Mattersconcerningthe ASEM’s operationaldynamics and anyuniqueor complementary functions it could perform have been discussed by Segal(1997) in the context of subsidiarity, that is at which levelof authority is an issue to be managed most effectively. Hence this posed two general questions: what issues can bcst be left to the ASEM process or what can also bc better achieved at the ASEM level? Segal admitted that certain issues were best handled by the subset or ‘variable geometry’ approach noted above, based on where ohvious commonalities of interest or expertise were apparent betwecn rertain EU or East Asian countries. Although he did not suggest what these might be, we could take internationalfinanceasanexamplewhereJapan,the UK, Germany and France couldconsiderforming a separate focus group withinthe ASEM framework. However, thc interdependencies brought on by globalisation make the clisaggregation of national economic interests increasingly difficult and inappropriate. It also may serve to undermine the inter-regionalstructure of ASEM relations. Such an approach, if adopted, should therefore proceed with caution. We noted earlier that the ASEM could be used I)y the EU and East Asia to keep the USA committed to multilateralism. It therefore follows that the more adversarial the USA proves in international economic relations, the closer the ASEhl alliance may become (Ferguson 1997; Higgott l998a). ‘Ihc ASEM may also provide a forum in which both sides ran explore general lessons from the
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other. It was suggested by Segal that the EU could look to East Asia for ideas on how to revitalise their economywhile the more ad\wlced economics of East Asia may examine how Europe has managed the process of ‘mature growth’. For Camroux and Lechervy (1 996), the general interaction I)etwrrn EL1ropra11 and East Asian countries is determined to a significant extent by the sociological features of each region. This relates t o the much peddlrd notions regarding the ‘consensual’ Asian way which contrasts with the ‘contractual’ Europcall \ ~ a yand how this influences EU East Asia diplomaticand business ncgotiations. The degree to which a common set of sociological values has coagulatcd within each regional group is highly disputalde. Furthermore, within Europe atomistic. i\ngloSaxon valurs are frequently at odds with continental communitarianisn~,thr lat30 ter, it has lleen argued, even sharing similarities with Confucian ethics. The ASEM will nevertheless have proved a worthy exercisc if it succc~dsin closing the considerable cultural and psychic distances that exist between both sides. Although the ASEh4 h a s already demonstrated its potential to raise thr EU East Asia partnership to a new level, questions persist ovcr how this new intcrties. regional framework is supposed to interfacr with rstahlishedIdatcral Again the suhsidiarity principlr is relevant here as many ASEM initiatiws have takentheircoursethrough bilateral channels. For examplc, in April 1997 the EU and Korea signed an agreement on customs clearance and mutual assistance as part of theASEM process. We shouldremember, though,thatthe ASEM serves as a dialogue framework and not a forum for resolvingspecific disputes which remains the competence of hilateral and multilateral channels. However, the ASEM’s relative informality has helped ease the path of Idatcral relations in more sensitive areas, such as investmrnt regulations. In addition, the ASEM has provided some new impetus to EU--East Asia Iilatcral tics, if only hy reminding each partner that thrir relations arc now constitncnt t o a broader framework. While the EU may be able to establish the collective authority to conduct‘ o w on-one’ inter-regional relations, the realisation of an Last Asian common position on any significant ASEM issue is highly unlikely for reasons statcd carlirr. Moreover, as I have argued elsewhere, a common agenda that stems from the policy goals of East Asia’s more dominant states may be t o thr dctrimcnt of their weaker neighbours (Dent 1998b). ‘I’his may bc because thc latter group could lack thetechnocratic capability or general resources toimplement rclatively sophisticated and ambitious arrangements to the same cfkct, or keep t o a similar ASEM time-scale as their richer counterparts. Obvious parallels can hc drawn here with APEC in its own endeavours to install thc 20 10/2020 bee tradc and investment zone.
Future prospects for the ASEM: beyond Seoul 2000 ‘I‘he strategic value of the ASEM to the EU in geoeconomic terms should not br understated, given its potential for economic marginalisation in the ‘Pacific ASERI offers consideraldc Century’. For the East Asian countricstoo,the
246
Regzonalismandinter-regional
ro-o,bertrtion
strategic benefits, ryxcially withregardtocounterbalancing US influencein theirregion.Althoughthe ASEM docsnotaspiretomatch APEC’s current ambitions, it is worth noting that the latter’s earliest beginnings were also relat i \ d y humble. Indeed, ASEM’s initial aims and outcomes were arguably more substantial than APEC’s, with it seeking to promotc co-operation and exchange in n o t just ec:ononlic afrairs but in political and socio-cultural affairs as well. Howcver, it is the ASEM’s economic dimension that can be anticipated to make by far the most progress,especially considering East Asian resistance to European calls for greater co-operation on ‘new’ security issues, e.g. the environment and orgmised crime. The EU, though, is more willing to include some liberalisation mcasures into the ASLM process, but its Asian partners are not, which would seem to indicate their reluctance to enter into another APEC-level arrangement. ‘rhus far, outcomes from the ASEM have had more significance for EU-East Asia bilateral relations than those conducted at the multilateral level, although it is more difficult to estimate the full impact of SOM‘TI’s work in preparation for WTO ministerial meetings. ‘rhe initial scntinlcnts felt among the East Asian I O over ASEhl may still determine the policy stance adopted by each power. For Japan, the well-establishcd and broadly institutionalised nature of its economic relations with the EU have meant that ‘l’okyo continues to attach relatively little value to ASEM. Moreover, the country’s discomfiture at assuming even a de.facto leadership role in East Asia, which ASEM has at least some potential to promote, is well documented (sec Chapter 4). China remains wary of ASEM’s scope for includiyg human rights and politicised issues on its agenda,although it has arguablyhelpedfurther legitimise its claim for M’TO membership to some degree by engaging in multilateral agenda issues. More interest in the ASEM has been generated in Korea than in either Japan or Chinaowing to the importance it continues to play in‘globalising’ the country’s international economic relations. Among the ASEAN states, the ASEM is gcnerally perceived as a projection of its pre-existinginter-regionalrelationship with the EU onto a broader canvas. Hence, by being at the original centreof this arrangement, the group see ASEM as presenting new opportunities to imprint more firmly their O\VII interests both in relations wit11 the EU and with their more powerful regional neighbours. ‘The qeoeconomic advantages of including East Asia’s three largest economies into an exte]&d inter-regional partnership with the EU were not missed tly Singapore’s Prime Minister Goh. Other countries from both regional territories have also expressed their desire to participate in ASEM. However, the East Asian side were not enthusiastic &out to join, and moreallowing those of Indian sub-continent and ,4ustralasian origin o\rcr are notperceived by the EU asintegral to the EastAsian economic dynamic. ‘raiwan had expressed interest in being conferred obsenrer status but Reijing’s continued resistance toany initiative that in some waylegitimises ,laitvan’s sovereignty will remain a significant obstacle. Furthermore, as Hong
Kong is o11ly able to exercise economic sovereignty (as a separate customs authority and monetary regime to the PRC) it cannot participate in ASEM owing to its political dimension.
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Regionalismandinter-regionalro-operation
Conclusion This chapter I n s examined the regional and inter-regional aspects of the EUEast Asia economic relationship. We shall, as usual, draw conclusions 011 the prcceding analysis from the perspective of diff‘erent IPE theories. For n e o - r e h t s , the salience of the nation-stat? in the regional and inter-regional processes we haw studied is still apparent. Thc agendas of both APEC and the EU are perpetually contested over by thcir member states, and henceanyinter-regional arrangements will reflect this. Portugal’s ongoing dispute with Indonesia over East Timor is a case in point. Depending on the relative strength of the regiolonal hegemon, these agendas could besignificantly prejudiced by just one state. As we have seen, most East Asian states have been wary o f the hegemonic exertions of thr USA within APEC. M’hile Japan and China also have hegemonic potential, they act as a counter-balance to US influence. Within the EU, Germany’s position is more efkctivelycountrr-balanced by three proximatepowers(France,the UK and Italy) and filrthermore by the degree of authority deferred to supranational agcncirs. East Asia’s proclivity for informal inter-governmentalism partly cxplaiIls \vhy many of the region’s states did not hesitate to project their own national interests onto ASEM, which contrasted with the EU’s more unified approach. Neo-realists would further contend that inter-regional agreements are similar to KIAs in that they are essentially voluntary cxercises in co-operation which ultimately rely on thr convergent whims of states that have identified a common 17 interest or interests to collaborate. In addition, even a supranational position adopted by an inter-regional partner is still derived from the collective authority of states and thrir nccd t o defend national sovereignty against external challenges. ‘lhus, inter-regional relations simply reflect a mixture of separate nationstate interests that seek realisation within an anarchic interstatesystem. This may make the emergence of a consensual position within each participating regional group rather elusive, especially if some member states are more willing to score relative gains over others rather than co-opcrateto generate higher absolute gains enjoyed by all group members. In such an instance,Scharpf(1985) suggested thatgreater executive powerconcededtosupranationalagencies would help secure the absolute gains of collaboration. However, we noted the EU’s unified position a t ASEM1 was due more to a strong consensus of opinion rather than supranational engineering. ‘I‘he nco-realist emphasis on the balance of power between competing states, or evenregions,also has relevance. The ASEM couldperform an important function for the EU by counteracting t h e transpacific alliance. I n its gcoeconomic context, the ASEM is thus thc EU’s potential insurance policy against possible economicmarginalisation in the twentieth-first century. Althoughneo-liberals arguethatthe fixationwith suchterritorialreferenced rivalry hasbecome increasingly redundant in the era of globalisation, APEC’s work towards creating the world’s largest free trade regime nevertheless presents a signilicant challenge to the EU. Yet any gcoeconomic threat that APEC poses to the EU may overstated. Unlike the EU, AI’EC lacks an unitary actor capability for example, to I x x
248 Regionalismand inter-regzonal co-ofwation negotiate in multilateral trade talks - and hence this limits its power of leverage within the international economic system. Depending on how effective its commitment to open regionalism,APEC may also produce considerable tariff-related ‘free rider’ benefits for the EU and,moreover, help drive forward theWTO’s new trade agenda which is also to the EU’s general advantage. The East Asian states also value ASEM in ‘balance of power’ terms. The EU’s plans for EMU and enlargement are expected to raise Europe’s geoeconomic weight and hence the need to promote closer ties with the region. In addition, ASEM is seen by many East Asian states as a means to counteract US hegemonic power and generally diversify their economic relations,with the region’s financial crisis lending greater imperative to the latter. It has therefore been important for the EU to be perceived as a dependable economic partner through the crisis period (see Chapter 9). Chapter 2 noted the somewhat modest assistance that EU member states were willing to confer to help resolve East Asia’s financial problems. Depending on how this crisis unravels, a moregenerous EU disposition towardstheregion should be advised. To neo-liberal theorists the very fact that ASKM is a co-operative regime is crucial to any debate that concerns it. According to neo-liberal thinking, the emergence of theASEMand similar arrangementsarepart of managingthe ‘complex interdependence’ that prevails i n the international economic system. Growing transnational linkages between the EU and East Asia and other commonaltiesproduced by globalisation haveforced representativesfromboth regions to work more closely together. This not only involves statr actors but also non-state actors whose role in the ASEM process and EU East Asia economic diplomacy in general has become increasingly prominent. Business representatives play a key part in ASEM, as demonstrated in the TFAP, IPAP and AEBF groups,not least becausepromotingtransnationaleconomic linkages has emerged as the regime’s principal function. Networking between multinational company executives is thus given tantamount importance to dialogue between public policy officials. Understanding each region’s own transnational economic dynamics (e.g. SREZs), as opposed to just state-defined economies (e.g. France, Malaysia), is also pertinent to developing closer inter-regional ties. On another matter, the more co-operative diplomatic environment engendered by ASEM can have positive externality effects for other fora, such as the WTO. However, Marxists would adopt a different view by suggesting that the ASEMis merely an exercise to underpin the prevailing structures of the global capitalist system. In a converse interpretation of the neo-liberal ‘co-operative’ perspective, the ASEM could be seen as deflecting the focus away from EU-East Asian commercial conflicts and thus simultaneously safeguarding the transnational business interests of both regions. Marxists would also stress how the ASEM fortifies the dominant Triadic structure of the world economy, hence reinforcing the coreperiphery divide betweenindustrialised, or hst industrialisingeconomies and poorer, less dynamic regions, e.g. sub-Sahara Africa, Central Asia and much of Latin America. of the world ‘Ihe extent to which ASEM consolidates the tripolar structure
Kegionalism and utter-regional co-ojantion
249
economy remains, at this point in time, pure speculation. Even if ASEM develops a similarly ambitious agenda to APEC’s, both must take their place among the proliferation of regional and inter-regional arrangementsthat have emerged withintheinternationaleconomic system. By thelate 199Os, ASLhl’s value remained largely symbolic. This may continue to be the case if the EU and East Asia remain distracted by more pressing extra-regional issues or by their o ~ v n introspections, e.g. EMU, the financial crisis. However, for the LU i n particular the geoeconomic motivation for adding greater substance to ASEM is likcly to increase as the twenty-first century proceeds.
9
Future prospectsforthe EU-East Asia economic relationship
Introduction This text has examined thr development anddynamics of the EU -East Asia economic relationship at various levels of analysis. It has studied how the bilateral, inter-regional and multilateral dimensions of EU-East Asia economic diplomacy have evolved to their current svate, cousidcring 1,oth its promotive and defensive aspects. ‘I’hc growth in economicexchangebetween the two regionshas also been analysrd, from which wc have seen how the commercial interests and linkages of Europran and EastAsian firms have bccome incrcasingly interdependent. It has bren shown how developments at the sub-state, state and regional levelhave1,rought their own influcncc to twar upon EU-East Asia economic relations. Finally, this text has considered dilfimmt IPE theoretical perspectives on syntheses of the above to enhance an understanding of the substantive issues covered hy cach chapter. ‘Ihe main aim of this concluding chapter is t o reflect on the future prospects of the EU--East Asia economic relationship. ‘I’his entails a discussion on those fictors most likely to cletcrminc the path of this relationship as the twcnty-first century proceeds.
Future determinants
In assessing thosc determining factors most anticipated to shape future EU- East Asia economicrelations wc shall examinetheimpart and legacyof the East Asian financial crisis, plans for future EU integration, the Asia-Pacific Economic Co-operation (APEC) forum and the transpacific axis, the US factor in these relations, the World Trade Organisation (WIO) and thc new multilateral agenda, the evolution of the Asia-Europc R/lectings (ASEM), the filture dirrction of the EU’s Ncw Asia Stratqgy and the contested relevance of globalisation, geoeconomics and territoriality The impact and legacy of the East Asianjnancial crisis East Asia was the worldeconnmy’s polr of strengthformuch of the 1990s. However, the financial crisis that set root in the regionin 1997 unclermined
t;~tto.p
prospectsfor EL’ -East Asia economic relationsh$
25 1
confidence in its continuation of this role into the twenty-first century If the crisis leads to an eventual atrophication of East Asia’s economic dynamism, and hence a lower order position within the international economic system, then the EU can be expected to afford less priority to the region in its hierarchy of economic relations. If, on the other hand, the crisis has only a short-term effect 011 East Asia’s future growth trajectory, then the region’s importance to the EU will remain. Most of the fundamentals that produced the initial East Asian economic miracle are still intact, e.g. human resource development, fervent entrepreneurship, business network flexibilities. Furthermore as Drysdale F t d . (1998) contends, East Asian growth is still essentially based on industrialisation for the world market. This view, though, presupposes that the global demand for East Asian exports will not he greatly affected by the crisis itself. Haggard and MacIntyre (1998) make the point that any immediate judgement on whether the crisis has invalicite datedthe East Asian model of developmentshouldbereserved,and Mexico’s shift recovery after its own 1994-5 financial crisis as a caution.’ It has been noted in previous chapters that the bilateral and global impacts of EastAsia’s financial problems upon Europe have necessitated the EU’s policymakers helping to find solutions to those problems.This process has produced an expansion of policy networks between representatives from both regions, adding to the work already initiated by ASEM and a general acknowledgement of the ‘complex interdependence’ of interests that links them. As argued in Chapter 8, the crisis also gives the EU an opportunity to demonstrate what a dependable economic partner it can be to East Asia during such a period of diffkulty. This has become particularly resonant in the context of what Higgott (1 99811) refers to as the ‘politics of resentment’ that has developed in East Asia towards US Schadenjeude over the apparent demise of the region’s ‘developmental state’ model, and moreo\w regarding sulxequent US-led institutional arrangements aimed at crisis resolution, for example, IMF prescriptions which have been under heavy US influence. Key US policymakers have been at the forefront of articulating a post-crisis triumphalism of neo-liberal, ‘free market’ capitalism over its Asian-style counterpart.? Furthcrmore, Belo (1 998: 434) observed that the USA saw the crisis as an opportunity to ‘achieve what it has been trying to push over the last dccadc, with little success: the free market transformation of economic systems that are best described as state-assisted capitalist formations’.’’ Generally speaking, EU policymakers have not adopted the same triumphalist stance with respect to the crisis. Despite the fact that neo-liberalism made significant ideological advances i n Western Europe during the 199Os, the prevalence of the Europcan ‘communitarian’ social market model is still apparent in many key EU member states such as Germany and France. This helps explain why many EU politicians subscribe to the view that crisis resolution lies in greater market reregulation as opposed to deregulation, the preferred mantra of US policy elites. Thus, the slight unhinging of the transpacific axis as a consrqucnce of the crisis, together with the relative commonality between the European ‘social market’ rnodcl and Asian-stylc capitalist model, presents a case for fortifying the Eurasian
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Future prospects for EU-East Asia economic relationshii,
axis. As we further note below, in a post-hegemonic scenario, the EU and major East Asian powers must assume greatersystemic responsibilities. Crisis conditions may themselves provide an important opportunity here, for example, by both sides co-initiating a global ‘stability pact’ comprising a jointly engineered framework for closerpolicy co-operation and co-ordination in which the USA and other states participate. However, the ASEM process in which such proposals are most likely to emerge has failed to deliver on this account.
Plans for
further EU integration
Over the next few years, the EU will be preoccupied with its plans for economic andmonetaryunion(EMU)and its enlargementintoCentral and Eastern Europe (CEE). This could affect its economic relations with East Asia in many ways. Depending onhow successful these hvo projects are, the EU’s geoeconomic weight and leveragewithin the international economic system should increase significantly. It is alreadythe world’s largest traderand overseas investor. By establishing the euro as a credible global currency, the EU will pose a serious challenge to US financial hegemonic power. Although we discussed in Chapter 1 how such structural shifts in geoeconomic power can taka time to effect, East Asian state and non-state actors nevertheless must at least prepare for this possibility, leading to a revitalised interest in EU integration. More generally, EMU’s trade and investment effects should also be closely considered. This primarily relates bothto its potentialto enhanceintra-EUeconomicexchange thus diverting extra-EU flows trade and FDI and also how EMU’s dynamic integration efyects could improve the competitive position of EU firms vis-2-vis their East Asian rivals. ‘The extension of the Single European Market into the CEE region also has important ramifications for East Asian producers. Many of the CEE countries are proximata economic rivals to their East Asian counterparts, possessing comparative advantages in similar industrial sectors. It is therefore conceivable that their accession to the EU will have additional trade diversioneffects to East Asia’s detriment. As Table A.3 indicates, the CEE countries’ share of extra-EU imports and exports rose sharply over the 1990-7 period from 5.4 per cent to 9.0 per cent and from 6.2 per cent to 12.1 per cent, respectively. However, this more intimate EU-CEE trade relationship owes much to the gradualised free trade arrangements of the ‘Europe Agreements’, and hence cannot be solely attributed to the CEE’s new-foundcommercial prowess or dynamic economic development. In these respects,East Asian countriesandthe regionas a whole stillhave the advantage. ~
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APEC and the transpacijic axis Chapter 8 discussed at length the impact of APEC and the transpacific axis on EU-EastAsia economicrelations. To summarise,thefuturedevelopment of APEC could have a positive, neutral or negativcoverall e f k t on the EU’s
Fulure prospect.r~forEU-East Asia economir relutionshij)
253
geoeconomic position. By acting as a force to promote global free tradc by 2020, and offering ‘free rider’ tariff-related benefits along the way, APIX should be seen as having a benign influence upon the EU’s commercial intrrcsts. Its contribution to pushing forward the WTO agenda into new areas, a s shown by the APEC-inspired Information Technology Agreement, has already been demonstrated and subsequently welcomed by the EU. Many APEC members also support the EU’s call for a Millennium Round of global trade nrgotiations at the WTO. ‘l’hese developmentsshould serve to improve thc sense of partnership between the EU and East Asian states, although this relies upon a convergence interests between EU and APEC agendas. Even if a shared global agenda emerges between these two rcgional groups, the EU must still take account of APEC’s capability to consolidatr further the transpacific axis. As with the EU’s plans for economic integration noted above, APEC retainsthepotential to marginalise thecommercial interests of nonmember states. Notwithstandingthe ‘open regionalism’ principle to which its members prescribe, AI’EC’s focus both on reinforcing microeconomic linkages across the Asia-Pacific and promoting more extensive policy co-oprration within its territorial boundaries has generated significant concern for EU policymakers and business (CEC l995d). Moreover, APEC could take recourse to the preferential free trade area route if its extra-regional trade partners prove unwilling to comply to its ultimate objective of establishing global free trade. It should be remembered, however, that 2020 remains a distant future date and APEC’s dcstined path is by no means assured. As Chapter 8 observed, the USA’s continurd penchant for specific reciprocity in its trade agreements, which runs counter to APEC intended policy of ‘concerted unilateral liberalisation’, a s well as the crisisrelated tensions that were palpable among APEC’s membership during the 1997 and 1998 summits, provide two important reasons for adhering to this view. o f ‘
The USfactor A central focus of this hook has been the Triadic context of EU -East Asia cconomic relations. This has been approached from different perspectives. First, the strength of the US economic relationship with East Asian states and the rrgion generally was a prime motivating force behind the EU’s development of a ‘New Asia Strategy’ and sponsoring of closer commercial ties with East Asia. However, previous chapters have shown how the USA’s intimate srcurity, political and cultural ties retained with many East Asian states underpins its cconomic relations with them to an extent that continurs to disadvantage EU trade and investment interests. ‘The ‘policy of obligation’ still pursued by states such as Japan, Korea and Taiwan towards the USA, as manifest in bilatcral market access deals, has often frustrated EU policymakers and companies alike. Notwithstandingthe new crisis-related friction inUSA-EastAsia rrlations noted above, the EU is unlikely to develop the same breadth of ties and thus may be condemned to the secondary tier within most East Asian statrs’ hierarchy of diplomatic relations.
254 Future prospectsfor EU-East Asia economic relationship Second, despite the US economic resurgence of the 199Os, we have assumed that a post-hegemonic global economic order has emerged over the longer postwar period. From the East Asian region, Japan and China are the potential candidates to co-manage this new order along with the EU and USA. This, though, assumes that such a communal regime can endure within the international economic system, which neo-realists particularly stress ultimately depends upon the prevalence of hegemonic stability. It is not yet conceivable for any power other than the USA to fill this singular leadership role. Even if the USA continues to play the default world hegemon, the EU and major East Asian states nevertheless must take on greater systemic responsibilities. This itself provides a firmer basis to nurture the EU-East Asia economic partnership. A third perspective has been much less considered by this text, this being the impact of the transatlantic relationship on EU-East Asia economic relations. While East Asia overtook North America in 1992 to become the EU’s most important regional trading partner, Europe’s ties with the USA remain strong for the same sort of reasons that undergird the transpacific relationship.4 The creation of a Transatlantic Free Trade Area (TAFTA)has been supported by a number of policymakers and business representatives from both sides of the ocean. Although TAFTA is an improbability, the US economic renaissance of the 1990s reminded the EU of its importance as a key economic ~ a r t n e rEast . ~ Asia’s financial crisis has served to reinforce this (Lehmann 1998). These developments therefore constitute a further potential distraction to developing the EU-East Asia economic relationship.
The WTO and the new multilateral agenda The future multilateral dimension of EU-East Asia economic relations was explored by Chapter 2, but it is worth re-examining the main themes covered. Many East Asia states remain suspicious of the EU’s promotion of ‘new’ trade issues (e.g. trade and competition policy, trade-related investment measures, environmental and labour clauses) within the emerging WTO agenda. This is primarily due to the focus of these issues on removing ‘internal’ barriers to international trade and hence further multilateralising of the traditional domestic policy realm. A particular concern of less developed East Asian countries is that this trend shifts attention away fi-om liberalising labour-intensive industries, e.g. agriculture, towards the priority concerns of advanced capital-intensive countries. More generally the new or future multilateral agenda is to the EU’s advantage because of its preoccupation with removing East Asia’s ‘internal’ barriers to import. The ELT’s structural power aspects discussed in Chapter 2 should also be considered. However, future pioneering WTO accords relating to ‘new’ trade issues are not likely to be forced upon unwilling members, but rather first established by plurilateral agreements between a core of compliants. Moreover, the domestic structural and policy changes that have been evident in many East Asian economies during the 1990s (e.g.Japan, Korea) have made them more amenable to the new
Future prospecbsfor EU-East Asia economic relationship 2 55 trade agenda. The region’s most advanced and powerful states are also aware of the post-hegemonic responsibilities that they share with the EU and USA in upholding the multilateral trading system - a point previously mentioned. For this and additional reasons discussed in Chapter 5 , China’s accession to the WTO will make a significant difference to the EU’s multilateral economic diplomacy with East Asia. As also noted earlier, the EU will be looking to East Asian WTO members to support its idea for a ‘Millennium’Round of global trade talks, which constitutes an alternative approach to the WTO’s recent emphasis on sectoral liberalisation.
The evolution of ASEM We discussed in Chapter 8 how the new ASEM dialogue framework has provided an important inter-regional dimension to EU-East Asia economic relations. However, the ability of ASEM to move beyond its current largely symbolic importance is contingent upon various factors. These include the ASEM process making a significant contribution to these relations that is not already being performed elsewhere at the bilateral, plurilateral (e.g. via the OECD) or multilateral level. It seems improbable that ASEM will emulate APEC’s trade liberalisation agenda, although it could provide a forum in which embryonic WTO accords are hatched. There must also exist the political will and commercial necessity to push forward ASEM’s own agenda into managing more ambitious inter-regional, cooperative or co-ordinative acts. Both sides will be distracted by their own introspections over forthcoming years, as we have already established. While the considerable psychic and cultural distance between the EU and East Asia further impedes the advance of ASEM, the regular contact between regional representatives that the framework breeds will have distance-reducing effects. The EU and East Asia may also prove reluctant to develop ASEM if it is believed to have certain adverse external effects, for example, jeopardising the transpacific and transatlantic axes. As noted earlier, both sides must also contemplate ASEM’s failure thus far to offer imaginative and substantialjoint-policy solutions to the East Asian financial crisis. Furthermore, ASEM’s future success is highly dependent upon the participation of EU and East Asian business in its dialogue and networking processes. Broadening this aspect of the inter-regional framework is key to enhancing ASEM’s practical value.
The EU’s New Asia Strategy: quo vadis? Launched in 1994, the EU’s New Asia Strategy (NAS) established a more coherent approach to its relations with East Asia. However, a mid-term review is now required to evaluate progress on all fronts. Considerable advances have been made during the 1990s in the EU’s economic diplomacy with the Northeast Asian states (i.e.Japan, Korea, China), although progress with Southeast Asian states (i.e.ASEAN) has encountered problems. Moreover, the development of the EU’s economic relations with Hong Kong and Taiwan remains hampered by
256
Future prospects.for Eli-East Asia economic relationship
sovereignty-related constraints. An evaluation of the above, as well as the ASEM process and EU-East Asia economic relations in their multilateral context, now deserve considerable priority. The East Asian financial crisis lends additional urgencyto conducting this exercise. It is conceivable that a review’s findings would prescribe the renewal of NAS objectives in the light of post-1994 developments, which have been significant and numerous. A more ambitious revised strategy would send a signal to the East Asian states of the importance which the EU continues to attach to the region. For reasons previously discussed, this could pay substantial longer-term geoeconomic dividends for the EU. Any such strategy must also implicitly acknowledge the lessons learned from the comparative development or current state of the EU’s economic relations with separate East Asian partners. For example,the EU’s experience with an emergentJapanduring the 1960s and 1970s should continue to be drawn upon whenrelatingto today’s ascendantChina. Further,therealignment of thedomestic-international bargainingstructure in the EU’s economicdiplomacy with Japan after the surge of Japanese investment in Europe should to some extent be anticipated in EU-Korea economic relations. The EU will also need to observe closely Hong Kong’s reintegration into China’s political structuresas part of any futureeconomicdiplomacy strate
Globalisation, territoriality and geoeconomics The growing economic interdependence between the EU and East Asia can be largely attributed to advancing globalisation within the world economy. In recognising this, those promoters of the EU-East Asia economic relationship will persistin harnessingthe forces of globalisation to achieve their objectives, for instance, by further encouragingbusiness networking between thetwo regions. As this text has revealed, the EU still plays the ‘Cinderella’ role in East Asia in comparison to its core ‘Triadic rivals, though this analogy is not intended to cast any aspersions on US or Japanesebehaviour in the region. European companies started from a low position in East Asia at the beginning of 1990s, especially in Northeast Asia, but have made up some important lost ground as trade and investment figures for the decade indicate. Moreover, many EU firms have learnt important lessons from assimilating Japanese and other East Asian management and production methods. A further convergence of corporate practices between European and East Asian firms should provide important future opportunities for collaboration between them. Related to the above is the issue of territoriality. In analysing the EU-East Asia economic relationship, this text has assumed that a strong degree of home terri-
Iiuturt: prospectsfar EUMast Asia economic relationship 257 torial loyalty and identification prevails in both regions. However, glohalisation confuses the picture somewhat, particularly where transnationalised linkages are most visible. This was perhapsmost clearly seen in Chapter 4 where those European firms and countries such as the U K that have become logistically and strategically dependent on Japanese inward-investing companies were willing to side with them in the EU- Japan bargaining structure. Of course, the loyalty blurring effects of globalisation are easily overstated and a sense of territorial identification remains important for most state and non-state actors. Notwithstanding some serious seismic activity, both Europe and East Asia will also remain distant geographic regions and moreover at a general cultural and socio-political contrast to the other. ‘Thus, while globalisation may continue to shrink or warp territorial space, the EU and East Asian economies will remain two distinct entities with some definable geoeconomic relationship existing between them. l h e flourishing of this relationship in the early twcnty-first century has important implications for less dynamic developing regions. Its further consolidation of Triadic prominence risks exacerbating the core-periphery divide in the world economy betwcen industrial, or fast industrialising countries and less developed countries. However, as argued elsewhere in this text, the EU is faced with a possible economicmarginalisation ofitsown as the two other ‘Ii-iadic regional economies coagulate within APEC’s free trade and investment zone. Thus, the geoeconomicimperative of promoting close ties withEastAsia, its primary regional trading partner, will remain stronger than promoting those with ‘peripheral’ regions.
Concluding note This final chapter has considered what broad factors will determine the future of the EU-East Asian economic relationship. These are reflective of the multiple levels ofanalysis that have been adopted by the text. A l l factors are likely to remain constants in the relationship for the foreseeable future. It is diKlcult to place these factors in order of significance for two main reasons. First, this is because some are mutually contingent upon others. For example, the EU’s future position vis-ct-vis the transpacific axis depends on the interaction between APEC developments, the US position and the unravelling events and developments surrounding the East Asian financial crisis. Likewise, the future path of the ASEM process and the EU’s ‘New Asia Strategy’ are closely connected. Second, these factors afl’ect the EU-East Asia economic relationship in different permutations of levels and types of interaction (e.g. microeconomic, politico-institutional, bilateral/multilateral,geoeconomic) which in themselves cannot becalibratedin terms of importance. Moreover, it has not been the aim of this text to adopt a sin\ylar line of argument but rather offer a synthesis of perspectives from which many objective conclusions can be drawn. If one particular point has been stressed throughout this text, it is that the EU-East Asia economicrelationship has become one of the most important structuralfeatures of the worldeconomy. Whilc this relationshipremainsthe
258 Future prospectsfor ELI-East Asia economic relationship weakest Triadiclink,thistexthasarguedthatthecontinuedexpansion of EU-East Asia economic ties is tobeanticipated. Powers frombothregions should also be expected to undertake more definitive responsibilities in shaping the new economic order of the twenty-first century. Thus, the future evolution of EU-East Asian economicrelationshasimportantregional and global significance.
Appendix 7ahk A . I East Asian countries: comparative economic profile
Population (1996, m)
GDP (199G, Ibn)
125.4 1,232.1 45.3 21.5 200.5 58.7 6.2 3.4 20.6 69.3 75.2
5,149 906 483 275 213 176 153 93 90 a3 22
East Asia I ,858.2 Y O of world total 32.4
7,643 25.9
EU15 6.5
Japan China Korea Taiwan Indonesia Thailand Hong Kong Singapore Malaysia Philippines Vietnam
"In of world total
EU I5 low EU15 high USA
GDPper capita (1996, 8)
Aue. annual growth tn real G D e 1985-95 (% )
4 1,080 750 10,660 I 2,800
3. I 9.4 8.8
3,020 24,760 27,480 4,360 1,160 29 1
6.6 6.5 9.4 6.7 8.2 7.5 3.3 5.1
8,469 28.7
22,729
2.4
0.4 81.9
19 2,365
10,290 45,750
2.0 4.2
269.4
7,434 4.7
27,590 25.2
2.5
'In of world total
I ,080
Source: flconomist Intelligence Unit ( 1 998).
Xhle A.2 Economic growth in East Asia during the 1960s to 1990s (real GDP growth YO, average annual for each decade) 1960s .Japan 5.0 China Korea 9.5 Hong Kong Taiwan 9.7 Singapore Indonesia7.6 Malaysia7.8 6.3 Philippines 'I'hailand
1970s
10.9 1.4 5.2 12.3 5.8 8.6 7.3 10.0 5.5 9.3 9.2 8.8 8.5 3.9 6.5 8.7 5.1 2.9 8.4 7.2
1980s
1990-96
4.1 9.5 9.7 7.1 7.1
6.3
6.4 5.5 5.2 0.9 7.6
8.7 7.7
8.3
Sources: World Bank Development Reports; The Statrrltcal Earbook of /he Republic of Clrzna ( I 993); Asian Ikvelopment Rank's Asran Dmlopmenl O u t h k (1994); Economist Intelligence Unit (1998).
Table A.3 Geographic breakdown of the EU15's external trade, 1960-97 bercentage per trade partner) 1960 ImpoTts Exports Japan China Korea Taiwan Hong Kong ASEAii East Asia total
USA Canada Australasia EITA
CEEC" CIS' Africa Latin America
OPEC' hkditerranean Basin' AC P"
1.6 0.9 0.0 ~
0.5 3.4 6.4'
1970 1975 Imports Exports Imports Exports
1.4 1.5 0.3
__ 0.9 3.3 7.4'
3.9 0.6 0.1 1.0 1.9 7.5'
1985 Imports E.xp0rt.s
1990 Imports Exports
I995 Imports Exports
1997 Imports Exporl~
1.1 2.7 8.1'
4.8 0.6 0.6 0.5 1.1 1.9 9.5
2.2 1.1 0.4 0.3 0.6 2.5 7.1
5.5 0.7 0.8 0.8 1.2 2.7 11.7
2.5 0.9 0.6 0.4 1.0 3.0 8.4
8.1 1.0 0.8 1.0 1.2 2.7 14.8
3.1 2.1 0.7 0.6 1.2 3.0 10.7
11.7 2.6 1.8 2.1 1.5 4.0 23.7
6.3 1.5 1.8 1.3 1.8 4.8 17.5
10.0 4.8 2.1 2.2 1.3 6.3 26.7
5.7 2.6 2.4 1.8 2.8 6.4 21.7
6.9 26.9
18.1 1.8 2.4 12.2 10.3 3.6 9.0 5.7
20.5 19.6 1.9 2.0 1.2 2.1 12.0 10.9 9.0 12.1 4.7 4.6 8.4 7.2 5.1 6.3
6.9 11.3 3. I
7.8 7.2 8.6 11.6 3.4 2.8
2.9 1.0 0.4 -
~
1980 Imports Exports
23.0 5.2 6.3 6.5 4.2 3.4 15.6 11.0
15.5 3.9 6.3 11.6 5.2 3.4 20.3 10.0
23.9 4.6 3.5 8.8 5.7 3.4 18.3 9.1
20.2 3.4 4.2 15.0 8.6 3.7 16.1 8.2
19.0 2.8 2.3 8.6 5.1 4.4 4.9 6.5
13.1 2.1 2.9 12.8 9.8 5.6 18.7 8.0
18.1 2.4 1.6 9.8 4.3 5.4 15.8 6.5
14.0 1.8 2.2 15.5 7.1 4.9 19.1 7.0
18.6 1.9 2.0 11.8 4.8 6.6 17.9 8.1
24.8 2.6 2.7 12.7 4.7 4.7 11.6 4.5
20.8 2.3 1.6 13.3 5.4 4.5 11.6 6.2
21.2 2.6 15.3 6.2 3.8 11.9 4.3
19.0 2.1 1.4 12.8 8.7 4.6 8.6 5.6
15.2 6.3 10.3
11.9 12.5 10.2
17.2 8.7 9.7
8.1 8.4 8.6
29.4 7.1 7.9
17.6 12.6 8.1
29.0 7.9 7.7
19.5 12.3 8.5
18.7 10.2 7.9
13.8 10.9 5.5
10.5 8.2 4.8
9.5 10.0 4.5
7.2 8.3 3.7
2.7
8.9 5.6 2.0 2.3
1.2
5.0 2.3 2.0 1.8 2.8 6.3 20.2
Source: Eurostat Notes 1 Taiwan omitted for these fiqures 2 Central and East European countries: Estonia, Latvia, Lithuania. Poland, Czech Republic, Slot.aliia, Hungaq; Romania, Bulgaria, .Ubania, Slovenia, Croatia, BosniaHerzego\inaYugoslavia and Macedonia. 3 Commonwealth of Independent States: Russia, Ukraine, Belarus, Xloldova, Georgia, Armenia, Azerbaijan, Kazakhstan, Turmenistan, -Tajikistan and Kyrg?.zstan. 4 Organisation of Petroleum Exporting Countries: .Ugeria, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar. Saudi r\rabia, U.4E, Venezuala. 5 Ceuta and Sfelilla, Gibraltar. Malta, Cyprus, Turkes .Algeria, Libya, Slorocco, 'Iunisia, Ee-pt, Jordan, Lebanon, Syria, Israel. 6 .~rica~-Caribbean-Pacific group.
Table A. 4 EU-East Asian trade: sectoral analysis in 1997 (Ecu million)
China
Japan
JVICgroup' EC'imports EC'exports
EC' imports
E L eXpoTfS
EC' imports
EL: expoi-ts
91 346
3,216 1,068
924 1,357
259 387
1,806 1,341
3,818 2,002
3,949 1,455 736 829
5,785 1,511 1,785 427
1,841 708 338 84
1,369 355 289 2 74
1,957 97 5 73 538
8,406 1,528 1,387 1,646
Machinery + transport equipment Power generating mach. + equipment Specialised industrial machinery Metalworking machinery General industrial mach. -k equipment Office machines and computers Telecoms and audio-visual Electrical machinery Road vehicles Other transport equipment
43,604 2,089 1,845 1,221 3,301 7,997 4,262 8,726 13,862 302
14,165 465 1,506 23 7 1,361 1,672 919 1,749 5,842 413
9,929 369 111 79 692 2,582 2,633 3,164 I50 I50
11,197 1,014 2,342 515 1,673 169 1,710 1,236 994 1.543
40,162 736 555 323 1,253 17,324 5,012 10,581 3,565 814
38,994 3,063 5,149 1,155 5,872 1,956 5,303 10,124 3,893 2,478
Other manufactures Textiles I r m and steel Clothing and foot\\ear Alanufactures of metals hliscellaneous manufacture7
10,396 593 289 130 73 1 2,964
10,730 857 162 2,03 I 5% 1,594
22,929 1,254 219 7,490 1,575 5,565
2,473 199 400 41 279 184
19,150 1,788 186 5,997 1,670 3,708
20,204 1,835 1,849 1,877 1,611 1,976
Food, livestock, drink
+ tobacco
Crude materials, fuels
+ energy
Chemicals Organic chemicals hIedicinal/pharmaceuticals Plastics
Source: Eurostat. Note
1 Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand
Zb1e A.5 EU industrial trade with East Asian countries: top ten positions of East Asian trade partners in selected extra-EU export markets and import sources (1997) Extra-EU export market (position)
ChemicaIs Organic chemicals (SITC 51)
Extra-EU import source (position)
Japan (3rd), China (8th), Korea (gth), Taiwan (10th) Japan (3rd) Hong Kong (5th),Japan (6th)
Japan (3rd), China (4th), Singapore (5th), Korea (8th) Japan (3rd), China (4th) Japan (3rd), Korea (5th)
China (7th), Singapore (10th)
Japan (Znd), China (6th), Thailand (10th)
China (4th),Japan (6th) China (4th),Japan (6th)
Singapore (4th), Hong Kong (6th), Malaysia (8th),Japan (9th)
Japan (3rd), Taiwan (7th), Korea (9th) Japan (2nd), China (5th), Taiwan (7th) Korea (8th) Japan (2nd), China (3rd), Malaysia (4th), Korea (6th), Taiwan (7th), Thailand (8th), Singapore (10th) Japan (2nd), Taiwan (3rd), Singapore (4th), China (5th), Malaysia (6th), Korea (7th), Philippines (8th), Hong Kong (9th), Thailand (10th) Japan (Znd), China (3rd), Korea (4th), Taiwan (6th), Singapore(7th), Malaysia (8th)
Transport equipment Road vehicles (SITC 78) Aerospace (SITC 792) Ships, boats, etc. (SITC 793)
Japan (2nd) Hong Kong (6th), Taiwan (10th) Hong Kong (7th)
Japan (Ist), Korea (3rd), Taiwan (5th) China (9th) Korea (1st)
Other manufactures Textiles (SITC 65)
Japan (8th), Hong Kong (10th)
Clothing (SITC 84) Iron and steel (SITC 67)
Japan (3rd), Hong Kong (6th), Taiwan (8th), China (9th)
China (2nd), Korea (7th), Indonesia (8th), Taiwan (9th),Japan (10th) China (lst), Hong Kong (3rd), Indonesia (10th) -
Medicinal/pharmaceuticals (SITC 54) Plastics - primary forms (SITC 57)
Machinery and equipment Power generating machinery and equipment (SITC 7 1) Specidied industrial machinery (SITC 72) General industrial machinery and equipment (SITC 74) Telecommunication and audio-visual (SITC 76) Office machines and computers (SITC 75) Electrical machinery (SITC 77)
Source: Eurostat
Hong Kong (2nd), Taiwan (3rd) China (7th) Japan (3rd), Singapore (6th)
Appendix 263 %b/e 8.6 Cumulative stocks of foreign direct investment in developing East Asia by Triadic source (1980, 1985, 1993, 1996)
Share of FDI (%)
Value (US$m) 1980
1985
1993
1996
1980
1985
1993
1996
4,183 7,675 23,313 66,249 5,655 9,195 33,009 56,855 2,842 6,200 18,488 31,335 12,678 23,071 74,810 154,439 22,329 35,372 139,604 262,322
18.7 25.3 12.7 56.8
21.7 26.0 17.5 65.2
16.7 23.6 13.2 53.5
25.3 21.7 11.9 58.9
1,551 6,430 22,634 9,257 26,420 2,140 3,046 14,897 35,294 6,737 30,584 84,348 23,204 222,234 469,472
13.6 5.8 16.9 36.3
6.7 9.2 13.1 29.0
2.9 4.2 6.7 I 3.8
4.8 5.6 7.5 17.9
-
12.4 21.0 53.7 87.2
12.3 34.1 28.I 74.6
I 3.8 33.4 28.1 75.3
6.6 52.3 29.5 88.5
19.8 39.8 29.1 88.7
22.8 31.5 28.8 83.1
__
7.3 22.9 37.4 67.3
9.3 28.6 26.6 64.5
9.3 26.6 25.8 61.7
16.4 25.1 16.0 57.5
17.9 27.1 24.7 69.7
8.7 13.5 10.8 48. I
12.3 12.5 10.3 33.1
MEANS' EU ,Japan USA Triad World China' EU
300 I 28 372
Japan
USA Triad World
Hong Kong" EU Japan USA Triad World
Korea' EU Japan USA Triad World Taiwan EU Japan USA Triad World Total EU Japan
USA Triad World
aoo 2,202
182 308 788 1,278 1,466
647 1,788 1,474 3,910 5,244
935 2,258 1,897 5,090 6,759
123 1,026 49 1 1,640 I ,866
241 1,902 1,073 3,216 3,634
2,220 4,466 3,259 9,945 11,209
4,021 5,567 5,091 14,679 17,669
-
376 1,182 1,932 3,490 5,160
1,648 5,056 4,716 11,420 17,705
2,293 6,571 6,386 5,250 24,722
-
__ -~ -
~~
-
~
6.6 55.0 26.3 87.9
~
~
Source: UNCTAD, Division on Transnational Corporations and Investment database. Notes 1 Indonesia, Malaysia, Philippines, Sinpipore and Thailand. 2 1980 and 1985 figures are 1984 and 1987 data respectively All figures based on approved FDI flows. 3 Secondary sector only and 1985 fiLyresare 1984 data. 4 1980 and I985 figures are 198I and 1986 data, respectively.
7ableA.7 Extra-EU trade and the East Asian financial crisis (1997-June 1998)
World Japan Korea ASEAN China East Asia group Source: Eurostat.
01-06.97 (Ecubn) Inqorh Exports
Iniports
Extra-EL- Imports and Exports 01-06.98 (Ecubn) Exports Imports Exports
323.8 28.6 6.1 21.6 16.7
339.9 18.3 7.1 22.6 6.8
100.0 8.8 1.9 6.7 5.2
100.0 5.4 2.1 6.6 2.0
361.1 33.2 7.7 25.2 19.9
36 1.8 15.8 4.6 15.0 7 .9
100.0 9.2 2.1 7.0 5.5
100.0 4.4 1.3 4.1 2.2
+ I 1.5 +4.6 +1.6 +3.6 +3.2
+1.1
73.0
54.8
22.6
15.1
86.0
43.3
23.8
12.0
+13,0
- 1 1.5
Of -06.97 (% o f EC totag
01-06.98 (% o f EC: total) In$orts Exports
01-06.98 (Changes) IIT!IOTtS Exports
+6.4 -2.5 -2.5 -7.6
7ZbC ‘4.8 E L anti-dumping investigations initiated against trading partners ?iota1
1985 1986 1987 1988 1989 1990
Japan China Korea Taiwan Hong Kong
2 1 1 2 0
1 2 1 0 0
7 0 5 3 1
4 7 5 1 3
2 5 1 1 2
4 5 1 0
3
Indonesia hlalaysia Philippines Singapore Thailand
0 0 0 0 I
0 0 0 1 0
0
1
1
1
1 0 0 0
0 0 3
0 0
ASEAi5 subtotal
I
1
1
4
Total (East Asia) Total (all countries)
7 36
5 24
17
39
24 40
1991 1992 1993 1994 1395
5 4 1 2 0
0 8 3 1
0
1996 1997
?iota1
Eta1
(1985-90) (1991--7) (1985-97)
0
0 5 2 1 0
2 10 2 2 0
19 19 18 8 6
10 41 14 8 1
29 60 32 16 7
4 2 0 0 5
4 2 1 1 4
1 1 0 0 0
2 4 1 1 4
3 1 0
6
11 13 2 5 16
14 14 2 6 22
2 5 0 1
0 5 4 0
1
1 4 2 1 0
0
0 2 0 0 2
0 0 2
0 0 0
0 2 0 3 1
1
3
0
6
4
11
12
2
12
11
47
58
13 27
16 43
12 20
19 39
12 21
19 43
21 33
10 24
28 45
82 209
121 225
203 434
0
0 0
Source: DG 1. European Commission. Note: Most investigations lead to the imposition of a n .ADD.
0
0
1
Tubk A.9 Patterns in international trade (percentage shares of total by trading partner, 1960-97) ~
Imports
1960 Exports
1970 Imports Exports
I980 Imports Exports
1990 Imports Exports
1997 Imports Exports
Intra-EU Extra-EU Japan China Korea Taiwan Hong Kong ASEAN
13.1 21.5
13.8 19.9
19.9 18.8
19.7 17.3
18.6 19.1
19.3 15.1
23.7 16.5
24.4 15.6
21.9 13.3
24.0 14.9
3.7 1.4 0.3 0.2 0.7 1.4
3.2 1.4 0.0 0.1 0.5 1.3
5.7 0.6 0.6 0.5 I .o 2.5
6.2 0.5 0.3 0.5 0.9 2.2
6.9 0.1 1.2
6.5 0.1 0.9
8.4 1.8 1.9 2.0 2.4 4.1
6.0 2.5 2.6 2.0 3.7 4.6
7.7 3.4 2.5 2.2 3.4 4.1
USA Canada Australasia EFTA
13.1 4.2 2.0 7.6
15.8 4.3 1.9 5.6
12.2 4.0 1.7 7.1
Africa Latin America Middle East Other
5.9 8.6 3.5 12.8
4.9 8.8 3.7 14.8
3.4 4.4 2.9 14.7
1.2 3.3
1.1 3.5
6.9 1.5 2.0 1.5 2.3 4.6
13.7 4.0 I .8 6.4
11.7 2.9 1.3 7.3
11.1 3.6 1.4 6.1
15.1 3.6 1.5 6.7
11.5 3.7 1.4 6.6
15.8 3.4 1.5 6.7
12.6 3.9 1.4 6.6
4.1 4.4 4.0 14.0
4.6 4.5 5.9 11.4
6.2 5.6 12.4 7.1
2.2 3.3 3.1 5.5
2.5 3.7 4.5 5.5
2.2 3.3 3.1 5.5
2.5 3.7 4.5 5.5
-
-
Sources: IMF, Eurostat. Notes: Intra-EL and extra-EL figures refer to EC12 for the 1960-1990 period; E n . 4 figures refer to Austria, Finland, Iceland, Liechtenstein, Norway, Sweden, Switzerland for the 1960-90 period; Latin Amerira includes Caribbean countries.
Notes
1 The international political economy of EU-East Asia relations: theoretical perspectives 1 Of course, economics had itself evolved out of the study of political economy but by
the ‘marginal revolution’ of the late nineteenth century had somewhat divorced itself from political science. 2 For example, the power of EU authorities to shape the regulatory environment of the Single European Market. 3This wasmostinfamouslydemonstrated by the US Smoot-Hawleytariffinwhich import taxes rose by an average of 40 per cent. 4 The collapseoftheBrettonWoodsexchangeratesystemnotedearlierinwhichthe dollar was the anchor currency was especially portentous. 5 As encapsulated by the1974TradeActwhichincludedthenotoriousSection301 provisionsfordiscretionaryunilateralactionagainsttheillicitcommercialpractices undertaken by US trade partners. 6 Regimes can be defined as ‘sets of implicit or explicit principles, norms, and decisiona given area of makingproceduresaroundwhichactor’sexpectationsconvergein international relations’ (Krasner 1982: 186). 7 Theycan also taketheformofeepistemiccommunities’whoseideasonhowto enhanceinternationaleconomicco-operationareintendedtoprovideguidingprinciples to the conduct and structure of economic relations. For EU-East Asia economic relations, these have included the Asia-Europe Foundation and the Council for AsiaEuropeCo-operation(CAEC)attheASEMlevelandtheEminentPerson’sGroup (EPG) in EU-ASEAN relations. 8 Examples include the ASEAN-EU Business Council and the ASEM’s Trade Facilitation and Investment Promotion Working Groups. 2 EU-East Asia economic relations: an overview of recent developments 1 In a further distinction, the ‘core’ Triad powers refer to the EU, Japan and the USA. 2 ASEANwascreatedin1967withitsoriginalmemberstatescomprisingIndonesia, Malaysia,Philippines,Singapore and Thailand. Bruneijoinedin1984,Vietnamin 1995, Myanmarand Laos in 1997. Cambodia is due to join shortly. 3 Forexample,see Chen (l979), Balassa (l98l), Lee (198l), Turnerand McMullen (l982), White (l988), Wade(1989),Appelbaum and Henderson (l992), Gereffi and Wyman (1992), Chowdhury and Islam (1993), Henderson (1993), World Bank (l993), Clark and Kim (1995), Das (1 996) and Thompson(1998). 4 See Kwon (1994), Lall(1994), Smith (1995) and Weiss (1995). For further debateon the state-business relationship in East Asia’s development see Johnson (1982, 1987, 1995), Amsden (1989) and Wade (1989, 1990, 1993).
268 Notes 5 Chapter 4 discusses this issue in some dctail. 6 With American involvement in both the Korean and Vietnamese wars came substantial inflows of capital and high levels of demand for locally sourced products. 7 I provide a summary on the general dcterminants of East Asia’s dynamic economic development elsrwhcrr (Dent l997a). 8 For a discussion on the rise of both intra-regional trade and investment in East Asia, scc Naya and Ramstetter ( 1 988), Riedel (199 I), Borrmann and Jungnickel (1992), 1,ucas ( 1 993), Urata (1993), Graham and Anzam (1 994), Kirkpatrick ( I 994), Lloyd (1 994), Kojima (1 995) and Petri (1 995). 9 These include Winchester (199 I), Gibncy (1992), Borthwick (l992), Abegglcn (1994), Fallows (1994), Fingleton (1 995) and Mahbubani(1995). I O Examples here include Coker (l988), Abramowitz (1993), Cumings (l994), Kim and Lau (l994), Krugman (1994a), ManningandStern (1994), Young (1994), Linglc (1998) and Zuckcrman(1998). I 1 For a full list ofEast Asian financial crisis references and compiledreports, see http://www.stern.t~yu.edu/-~~roubini 12 See Montes ( 1 998) for an early evaluation on the origins of the crisis. 13 In August 1997, the Indonesian rupiah was also allowed to float and sufyered a similar fate. 14 Thc Malaysiangovernment also tookthedecisiontoimposeforeignexchange controls. 15 WithJapanesecapitalincluded,theseamounted to $ IOObn ( ~ / z P Econornut, 7 November 1998). 16 Nihon K&ai Sllimbun (12 January 1998). 17 Financial Enles, 29 January 1998. 18 For studies on thewider Pacific economy (Le. includingNorthAmerica and Australasia) see Nemctz (199O),Ariff (1991), Higgott et al. (IYYS), Bergsten and Noland (1 993) and Garnaut andDrysdale (1 994). 19 Textbookstudiesthat specifically analyscthe EU -East Asia cconotnicrelationship have been sparse. Maull el al. (1998) consider the broader relationshipin which historical, political, security and economic aspects arc analyscd, while Slater and Strange (1997) have compilcd a number of disparatc analyses on the business relationships between European and East Asian countries. In another edited work, Drysdalc and Vines (1998) examines thc EU- EastAsia economic relationship in a regional and global context. Rcgarding other studies, Johansson and Spich (1981) and Langhammer (1 986) made respective early attempts at comparing trade patterns and EC tradc policies towards East Asia. In addition, Borthwick(1992) has made a deeper historical examination of the economic relationship between the European powers and East Asia during the colonial period. Myown work has explored different aspects of the EU-East Asia economic relationship in more recent years (see references). 20 It should also be noted that transpacific tradehad overtaken transatlantic tradein 1982. 2I See Von Kirchbach (1992) foran analysis of this historic event. 22 ?‘his compared to Japan’s Ecu23.2bn surplus with theELJ in the same year. 23 As Chapter 6 discusses, most of the exporting activity of Hong Kong’s firms is now located within China, which largely explains this trend. 24 This particularly relates to Hong Kong and ‘Isiwan FDIacross the Chinese dkdSpOrd. 25 See Randerson and Dent (1996) for a comparative analysis on Japanese and Korean FDI in Europe. 26 At $2.6bn and $3.7bn, respectively. However, Korcan debt problemsof 1997-8 caused many chaebol FDI projects to be subsequently downsized or postponed. 27 Singaporehad invested $3,057m in the EU by 1995 (morethanKorea). However, most investments were acquisitional and not of the ‘greenfield’type. Morrover, unlike the Korean cl~aebol,Singaporean firms have not initiated multi-billion dollar FDI projects in Europe.
Notes
269
28 However, this woultl o f k t by an cxI1ansionof non-tradablc activities (equivalent to 1% of gross national product) caused by improved terms of trade, incrcascd capital inflows and subsequent lower intrrest rates (Financial Times, 24 Scptcmlm 19%). 29 According to theBankof International Settlcmcnts, by June 19'37 European banks held $3651111in loans outstanding toAsian banks and companies, c o m p r c d to $275bn for Amcrican banks and f45bn for Japancscbanks. 30 For example, Deutschc Rank, which was estimated to havc around $Ilibn loans outstanding across eight Asia-Pacific countries in January 1998, suffered il 5i'% fall in net profits during 1997 (South China Morning Post, 19 February 1998). 31 'I'hc EPC WilS the precursor to the present Common Foreign and Security policy (CFSP). 32 Scc Smith (1994) and Tome (1994)for a discussion of this issuc in the wider contcxt of thc EU's foreign economic policy. 33 Howcvcr, this is not transcribed into a formal document. hlorcover, national parliaments do not scrutinise such decisions closcly and the European Parliamentstill enjoys only limited influcncc ovcr how the CCP is conducted. 34 Fiiancial Ernes (28July 1998). 35 Other EU trading partncrs arc also subsumed into D G l A (e.g. North America) and DG IB (e.g. Latin America). 36 They all graduated from the US own scheme in 1989 (Kirkman 1989).'Thc dispute over Taiwan's sovcreignty has drnicd its qualification for any fbrmalised schcmc of trade concessions. 37 Ovcr the 1991-7 period this share was even higher at 53.8%. 38 The EU's anti-dumping policyhas been generally criticiscd by thirdcountries for being more politiciscd than judicial. For a debate on this, scc Holmrs and Kcmpton (l99(i). 39 Scc Hanson (1998). 40 'I'he 1970 EC-Japan trade agreement was the firstsignificant EC-levrl tradc agreement signed with a third countly. 4 I I:or cxamplr, see Smith (1 974), Ullman ( I 976) and Sklar (1982). 42 This relates to powerful tradc policy instruments used by the USA wherc a trading partncr is deemed guilty of illicit commcrcial practices. 43 However, in the spring of 1997 the USA actually followcd the EU's own initiativc o n pressuringJapan to 1iI)eralise itsdiscriminatory liquor tax regime. 44 Scc Strange (1'3'35) for a further debate on this general issue. 45 The original G7 group comprised the USA, UK, Canada, Japan, Germany, France and Italy. It is conceivablc that this could bccomc a G4 gathering if the EU wcrc to become a sin
270 Notes 5 1 Although at time of writing Taiwan was expected to gain accession to the WTO by the end of 1998. 52 Over the 1985-97 period, Korea attracted 32 ADD investigations from the EU, second only to China for any EU trading partner. 53 This was apparent in both ASEM’s work on customs procedures and APEC preliminary discussionson the Information Technology Agreement (ITA) prior to the WTO’s Singapore Ministerial Meeting in December 1996. 54 DG 1 is responsible for the EU’s external relations. 55 At time of writing this latter group consistedof Cambodia, China, Laos, Taiwan and Vietnam. 56 This was clearly demonstrated at the firstWTO Ministerial Meeting at Singapore where 335 representatives from 131 non-governmental organisations (NGOs) were in attendance. InJune 1998, theWTO announced plans for enhanced co-operation with NGOs. 57 The EU has preferred to use a more positive incentive approach than the USA, as shownbyrecentchangesmade to its GSP scheme that reward environmental and labour standard good practice. However, at the Second WTO Ministerial Conference held in May 1998, European Commission PresidentJacques Santer confirmed the EU’s commitment to promoting environmental and labour standards as futureWTO issues. 58 The plurilateral Government Procurement Agreement (GPA) of the Uruguay Round, to which the EU, USAand Japan were all signatories, was a major step forward in this area. 59 These included the EU, USA, Canada, Japan, Korea, Taiwan, Singapore, Hong Kong and Indonesia. 60 In its report on regionalism and the world trading system, theWTO concluded that in many areas covering rulesand procedures for trade-related policies both regional and multilateral agendas shared complementary objectives. This especially applied where removingnon-discriminatorytradebarriers(astypifiedbythenew trade issuesin general) were concerned. See debate on ‘internal’ barriers to international trade that follows. 6 1 The origins of certain issues go back some way. For example, the connection between trade and competition policy was considered in the stillborn Havana Charter for an International Trade Organisation. 62 In the summerof1997,the WTO launcheditsWorkingGroups on Trade and Investment, Trade and Competition Policy and Government Procurement. 63 For example, the International Labour Organisation (ILO) on labour standards and the World Intellectual Property Organisation (WIPO) on IPR issues. We should also note how the WTO is working in closer co-ordination with other powerful international institutions such as the IMF, with which it signed an agreement for future cooperation and collaboration on matters of trade and financeattheSingapore Ministerial. Trade and 64 At the WTO Singapore Ministerial, Malaysia’s Minister of International Industry, Dato’ Seri Rafidah Aziz, stated that the WTO cannot be ‘a multi-purpose organisation that can be called uponto debate and address . . . social issues. . . and the various social ills of the world’. 65 For some Japanese, this would specifically relateto Western attempts to multilateralise gaiatsu (foreign pressure) with the objective of removing Japan’s structural impediments to import. 66 The process of enforcement may be either vertical (Le. organisation to member country) or horizontal (i.e. between members and within the member country). Qureshi (1996: 138) argues that for the WTO the latter is more relevant and states that: ‘The WTO enforcement mechanismsare principally dependent for their efficacy on the initiative, disposition and characteristics of individual members - given that the framework of enforcement is horizontally orientated. The system is reliant on individual members’ policing their rights, rather than any external enforcement institution.’
Notes 27 1 67 ‘I’hc most important example of this was the Japanese-sponsored Regional Seminar on the WrO and the Multilateral Trading System forAsian developing countries held at Jakarta in March 1997. 68 The I.inancia1 7ime.r (10 September 1997: 30). 69 In the first 100 disputes brought before the WTO, which covered the periodJuly 1995 to AuLgust1997, twenty were madeby the EU but only fourteen were madeby the East Asian group. Moreover, the latter were targeted in twenty-five cases (Japan and Korea nineteenbetweenthem) while theformer was thesubject of complaint in only thirteen cases. However, the USA was even more active, being a complainant or cocomplainant in thirty-four cases and targeted in nineteen, thus making it involved in over a half of the total in contrast to one-third for the EU.From the group, only Thailand hasrequcsteddisputeconsultationswiththeEU(importduties on rice), whereas the EU has been a complainant or co-complainant in disputes concerning Last Asian countries in 9 cases, these being: Japan’s liquor tax regime, telecoms and navigational satellite procurement, sound recordings rules and pork import regulations; Korea’s liquor tax regime, telecoms sectorand safeguard measures deployedon imports of certain EU dairy products; Indonesia’s automobile industry trade. 70 This derived from the fact that thecampai
3 The EU and ASFAN 1 Only Thailand resisted colonialism through a combination of territorial concessions and diplomatic skill. Colonialrule for theremainderlastedbetween 50 and 350 years. 2 Malaysiamanufacturingsectorrepresentsa relativelyhigh 40percentof GDP Manufactures also account for around 80 per cent of the country’s exports, despite it being an oil and gas producer. 3 The Philippines is the only original ASEAN state whose manufacturing sector has actually contracted in relative GDP percentage terms, falling from 26.0 per cent in 1975 to 23.0 per cent by 1996. The economy also has the lowest growth record of any East Asian NIC (see Table A. I). 4 Long-standing political leaderships include Lce Kuan Yew in Singapore (1959-90), Mohammed Mahathirin Malaysia (1981-present) and President Suharto in Indonesia (1965-98).Godement(1997)notesthatthestrongauthoritariannature of such regimes have been justifiedon account of the need to resist the communist advance in the region. Indonesia’s REPLLITA framework, Thailand’s National Plans, 5 For example, Singapore’s Economic Development Board and Malaysia’s New Development Policy which is also the basis for the longer-term ‘2020 Vision’ programme. 6 The USA’s involvement in thr Korean and Vietnam wars brought an initial surge of investment in the region. 7 See Chapters 5 and 6 for detail on yuanxi networks. 8 Sinplpore can be considered as one large EPZ. Malaysia installedits first EPZ in 1972 at Pcnang, the Philippines at l3ataan in the same year, IndonesiaatJakarta in 1973 and ‘I’hailand at Lard Kranang in 1980. 9 Cambodia’s intended accession to ASEAN in 1997 was postponed after the Hun Sen coup. 10 With at least 40 per cent ASEAN-wide content. 1 I These included unprocessed agricultural goods and other ‘sensitive’ products. 12 Majorsectorsthat will have minimal tariff ratesincludemachinery and electrical appliances, chemicals, base metalsand metal articles.
272 Notes 13 In 1996, their respective unweighted average tariff rates were 17.0 per cent, 13.1 per cent, 15.6 per cent, 9.0 per cent, 2.0 per cent and 0.0 per cent. 14 In 197 1, ASEAN’s intra-regional trade ratiowas 2 1.4 per cent but by 1988 it had actually fallen to 18.0 per cent. However, by 1997 it had risen to 23.1 per cent (see Table 3. I). 15 Although the EC had established frameworksof relations with ‘looser’ country groups that predated the1980Agreement:withAfrica-Caribbean-Pacific(ACP)group through the Yaounde and Lome Conventions since 1963, and by 1975 a Memorandum signed with the Arab League. See Lukas (1989) for further analysis of this issue. 16 As part of the accessionprocess, the three new entrants to the EC- the UK, Denmark and Ireland were obliged to align their trade policies with the CCP in 1972, a year before entry. See Langhammer (1 982a: 13740) for a discussion of this issue. 17 A trade preferences system that had been reserved for the ACP group, mainly consisting of past French colonies(see note no. 15). 18 See Tulloch(1 973) for a discussionof ASEAN’s exclusion from the Lome Convention. as part of its ‘New 19 The concept of the GSP originatedfromtheUnitedNations International Economic Order’ initiative that aimed to redress imbalances between rich and poor countries. access tothe EC marketover GSP 20 ACPgroupmembersreceivedpreferential members. 21 Although according to the European Commission, this was because ASEAN lacked the ‘requisite institutional structures’ to manage suchan agreement (CEC 199613). 22 Notwithstanding these factors, Japan-ASEAN informal relations were established in 1973 and formalised in March 1977 by the ASEAN-Japan Forum which meets on a 18 to 24-month basis. 23 The Committee of Permanent Representatives (COREPER) of the EC Council of Ministers. 24 The third AEMM was held in London in 198I , the fourth in Bangkok (1 983), the fifth in Dublin (1984). Furthermore, the European Parliament and ASEANInterParliamentary Organisation (AIPO)had been created in 1979 (see Table 3.2). 25 Two years beforehand, the ASEAN-EC Business Council had also been inaugurated (see Table 3.3). an analysis of thechangingshape of economicexchange 26 SeeLorenz(1986)for between ASEAN and the EC at this time. 27 The Andean Pact and Central American Common Market groups. 28 In addition, since 1995 inputs suppliedby EU countries may be treated as if they originated in the GSP beneficiary country who first demanded them. 29 Both the USA and Japan’sown GSP schemes omitted textiles, clothing, footwear, leathergoodsand timberwhereasthey were included in the EC’s own.Laos, Myanmar and Cambodia- future ASEAN members - were to qualify as least developed country (LLDC) status within the EC’s GSP scheme from 1977 onwards and hence acquired the highest levelof benefits the scheme offered. However, the EU withdrew Myanmar from the scheme in 1997 over its human rights record. 30 In 1986, the ASEAN5 accounted for around 40 per cent of all GSP imports entering the EC. Inthe same year, 32.4 per cent of ASEAN exports to the EC entcredduty free under MFN treatment, 13.8 per cent entered duty free under the GSPscheme, 8.7 per cent received preferential access under thr GSP and 45.1 per cent were subject to MFN tariffs. 31 Langhammer’s analysis covered the period 1968-75. of GSP-receivingimports in GSP-coveredimports for the 32 By 1984,theshares ASEAN5 were as follows: Indonesia (50 per cent), Malaysia (42 per cent), Philippines (48 per cent), Singapore (33 per cent), ‘Thailand (51 per cent). However, all these rates constituted an increase on their 1978 positions. ~
.Notes
273
33 ’Ihe MFA eflcctively replaced the Long-Term Agreement on Cotton Textiles (LrA) which expired in 1973. It is due to be phased out by 2005 as part of the Uru,qIay Round agreement. 34 The EC deployed t\+,otypes of MFA quota. T h e first consisted of EC-widc quotas that applied to signatories of bilateral agreements and which were further split amongst member states on a ‘l,urden-sharing formula’ basis. The srcond type were national or rcgional quotas. 35 Over 1973 81, ASEAN textile exportgrowthtothe EC grew by 1,780 per cmt. During the same period, EC consumption of textiles incrcased l)y an annual a\’eragc of only 1 prr cent, and EC textile import growth grew at between 21 per cent to 44 per cent. Meanwhile the number of EC textile firms fell from 3 1,000 to 26,000. 36 However, this was compensatedsomewhat by provisions carried within the 1980 ASEAN EC Agreement that allowed ASEAN trxtile cxportrrs to exchange export quotients Iwween thcmselvcs to optimise the allocation of benefits within the quota system. 37 Despite this, ASEAN producers were still able to expand exports in ACP competing agri-product lines, such a s vegetable oils (Langhammer 1982b). 38 See Chapter 2 fix discussion on the ‘intrrnal’ barriers to international trade issue. 39 See Akrasancc (l982), Harris and Bridges (1983) and Rcichcl (1985) for filrthrr discussion. 40Meanwhile, ASEAN importsofmanufactures from the EC hadremainedalmost static at 87.6 per cent of total ASEAN imports from the Chnmunity. In 1980, this f i p r e was 84.4 per cent. 41 In the meantime, a European Parliament report on EU-MEAN economic relations ar
274 Notes 53 Laos and Cambodia also continuedtoqualifyfor ‘least developedcountry’status within the scheme beyond 1998. 54 OJiclalJournal o j the European Communzttes (L160, 4 June 1998). 55 By this time, Korean firms had actually investedlessin Europe than Singaporean firms, although the realisation of the former’s multi-billion dollar projectswill change this. 56 In economic theory, trade diversion and trade creation are essentially part of a ‘static’ analysis on the impact of RIAs on third countries. The ‘dynamic’ effects of an RIA considerthelonger-termimpact it makes on firmbehaviour, e.g. exploitingnew opportunities for economies of scale. 57 Interview with Singapore government representative, September 1997. 4 The EU and Japan 1 Which can be interpreted as ‘linkage’, ‘lineage’or ‘system’ inJapanese. 2 At their peak, the top four Zaibatsu accounted for 25 per cent of allJapanese business. 3 Sometimes referred to as X-zgyo shudan. 4 Most notably the Yellow Sea and Tumen River development schemes. 5 Japan possesses one of the highest dependency ratios in the world, with an estimated 40.3 per cent ofJapan’s population being 65 or over by 2025 (OECD 1994b). 6 Problematic loans were estimated to total Y76.7 trillion ($577bn) by the end of 1997, or around I2 per cent of the country’s outstanding bank loans. 7 As Shihusawa t t al. (1992: 138) comment, ‘Japan has long been conditioned to challenge, rather than facilitate, the existing state of affairs.’ 8 Ikeda was counting on the UK’s imminent accession to the Community, which it was believed would subsequently enhancc the EEC’s international status considerably. 9 When the Ministryof Foreign Alfairs (MFA) published its EEC policy proposals in July 1962, which offered a conciliatory approach to the Community, it was effectively overruled by the more powerfulh1ITI and MOE 10 It was on Prime Minister Ikeda’s visit to France that President de Gaulle infamously dismissed him a s a ‘travelling transistor salesman’. I 1 Inevaluatingtheineffectualsafeguardclause policy of West Europeancountries, Rothacher(1983:201)statesthat‘without it, theItalianscould“protect”their domesticmarketquite cffectivcly, Britain . . . never used it, and France andthe Benelux employed theirs only once each during a decade and on marginal products (uml)rellas and zip fasteners)’. 12 ’The Commission’s proposals included various safeguard clausrsand a common quota on around 200 Japanese imports. 13 However, Table 4. I shows that if the EU I5 member states are considered, then these shares rise quite significantly. For example, in 1965 the EU15 accounted for 7.9 per cent of Japan’s imports and 10.7 per cent of its exports. Table 4.1 also illustrates, though, that North America andEast Asia were far more important trade partnersfor Japan at this time, with even the MiddleEast being a more crucial import partner. 14 The EEC also ran up trade deficits against Japan in most years during the 1958-67 period. The growing trade imbalance was most clearly demonstrated in the automotive sector. In 1958,Japan’s commercial vehicle production stood at 138,000 units compared to the Community’s 384,000 units. By 1968, Japanese producers were turning out an annualtwo million vehicles, over three times the Community’s 634,000 figure. 15However, EC member states were allowed to maintain their own trade agreements with third countries up until 1 January 1970. 16’I‘he J:I~~IIC:SC delegation had underestimatedthedegree ofhostility thatoften accompanied these demands, hcnce explaining why the term ‘Doko shock’ has been used in association with this visit.
Notes 275 17 During the latter 1980s, other ADDS were applied on Japanese electronic weighing scales, photocopy machines, outboard motors, couplers for forgeable pig-iron pipes, semiconductors(bothEPROMs and DRAMS), computer printers, cellularphones, microwave ovens, CD players, and halogen lamps. 18 Theaddendum was written by Sir Roy Denman, supposedlytomotivateother Commission officials to thoroughly scour the 17-page memo for agenda point 1 1 in particular, in preparation for forthcoming trade negotiations with Japan. 19Consequently, a mere 8,000 importswereprocessedper month insteadofthe projected 75,000 to 100,000 as estimated by importers, most of which were Japanese. This high-handed action drew criticism from both insideand outside the Community, forcing France to withdrawthis system after a few months of it being operational. 20 These appliedtocertainaudio-visualproducts. The Commission’s earlier attempts from 1973 onwards to deploy EC-wide VERs had up to now failed. 21 An EC Delegation had beenestablishedinTokyoin1974whichhelpedraise awareness of the EC and the Commission among the Japanese. 22 Japan’s current account surplus peaked at 4.2 per centof GDP in 1986. 23 Over 1981 to 1985, the Japanese government introduced seven packages of market one of the world’s mostopen openingmeasureswhichsubsequentlymadeJapan markets on a tariff basis. 24 For instance, inJuly 1985 the Japanese government’s‘Action Programme for Improved Market Access’ was launched with this specific objective. 25 However, this continued to represent the majority share of all such EU restrictions, which totalled 131 in the same year. 26 By January 1993, Japan faced only around twenty such restrictions and these were all removed soon after the installation of the Single European Market (SEM) with the exception of the VER on cars. 27 In the agreement, these importswere limited to 1 1 per cent of the EC market in 1993 with annual negotiations on further volumesset to take place upto 31 December 1999 when all restrictions on them will be removed. See Mattoo and Mavroidis (1995) for further analysis. 28 O n electronic weighing scales, hydraulic earth-moving shovels, dot-matrix printers, video tape recorders and photocopy machines. O n the latter case, the Commission even imposed a 20 per cent ADD on Ricoh photocopiers assembled in the USA on account of their low local content which thus categorised them as Japanese products. 29 Additional arguments put forward regarding the difficulties that Japanese producers had faced in acquiring intermediate products locally and of a suitable quality were proposed by both the Japanese government and theKeidanren. 30 The Second Banking Co-ordination Directive (SBCD) was the first practical manifestation of the reciprocity principle. 3 I In June 1990, the European Commission hosted its first conference for European subcontractors to Japanese manufacturing firms based in the EC. 32 Other developments in the mid to late 1980s had also led to a noticeable improvement in Anglo-Japancsc economic relations, namely the resolution of the EC’s liquor tax dispute with Japan (which was especially welcomed by British whisky producers), the British VER agreed withJapan on cars and the seats given to U K firms onthe Tokyo Stock Exchange. 33 See Ostergaard (1993) fora discussion on this situation during the early 1990sand also for a widcr analysison Japan and European integration. 34 See Mendl (1984) and Nuttall (1996) for discussions on this issue. 35Somewhatagainstthe usual form of Triadicrelations,the US-Japan‘Tokyo’ Declaration of 1992 was thc last to be signed of the three. 36 In I990 this stood at Ecu14.5bn but increased to Ecu33.0bn in 1991 (see Figure 4.3) 37 Japan’s deregulation proposal list submitted to the EU has covered only minor issues such as driving licences and regulations on cherry and bonsai tree imports.
276 Notes 38 Such as the UK’s ‘Priority Japan’ and France’s ‘ L eJapon: C’est Possible’ campaigns. The European Commission pilotedits own ‘Gateway to Japan’ export promotion campaign over 1993-6 leading on to a more ambitious exercise launched in March 1997. The scheme has subsequently become part of the widerJapan EXPROM programme. 39 The European Commission had won a similar dispute against Japan ata GATT panel in September 1987. 40 According to a European Commission official, this was particularly apparent in the EU’s disputes withJapan’s fish quota and liquor tax regimes. 41 In December 1997, the WTO panel ruled against Kodak, stating that it had failed adequately to prove its case. 42 Krugman (l994b)has nevertheless ar
5 The EU and China 1 Such as those stemming from the Great Leap Forward and the Cultural Revolution. 2 To what became known by November 1993 as a ‘socialist market economy’. 3See Chapter 6 fora discussion on guunxi links between China, Taiwan and Hong Kong. 4 These were Tianjin, Shanghai, Dalian, Qlnhuangdao,Yantai, Qngdao, Lianyungang, Nantogn, Ningbo, Wenzhou, Fuzhou, Guangzhou, Shanjian and Beihai.
~No!es 277 5 With the exccption of Brihai and Wenzhou. 6 See Chapter 8 fbr a more detailed analysis. 7 Also i n thesame year, the Beijing ExperimentalZone for Devclopment of New TcchnoloLgyIndustries was established as China’sown Silicon Vdcy. 8 Preliminary concessions had already been granted in 1985. 9 h,lOFEKT was to later evolve into the Ministry of Foreign Tradc and Economic Cooperation (MOFTEC). 10 Most commentators seem to agree that this zone will become the most prominent in China over forthcoming years. 1 1 Although Dcng onicially remained China’s leader, his incapacity to administrate the post due to ill-health became apparent during the early 1990s. 12 The Sino;Japanese relationship is treated in some detail by ‘Taylor (1996), whilc.Jain (1977) provides an earlier post-war account. 13 This figure is the actual realised amount which contrasts with the approved project figures shown in TdAc A.6. 14 Guangdong has invested in Yunan’s electricity generation and transmission systems on which it relies. 15 For example, France under de Gaulle, Albania and some Scandinavian countries. 16 The Coordinating Committee for Mutual Export Controls. 17 China made trade deals with the UK and France in 1953, and with West Germany and Denmark in 1957. 18 Diplomatic rc-lations were established between China and West European countries in the following sequence:Denmark(1950);the UK (1954);theNetherlands(1954); France (1964); Italy (1970); Austria and Belgium (I97 I); Greece, West Germany and 1,uxembourg (1972); Spain (1973); Portugaland Ireland (1979). 19 WhileJapan’srising share of China’s tradecan a k ~be attributed to these circumstances, Beijingwas reluctant to develop too much of a dependency clue to historical reasons (Calmtan 1990). 20 Hoqqi ( 1 958), 14: 26. 21 Seenote 18. 22 As Shamlmugh (1‘396: 18) argued,‘Europeans do notexhibitthesamemissionary complex about remoulding China that many Americans do.’ 23 O n hisvisit to France in 1975, Deng Xiaoping stated: “I‘he European people may believe that they can always obtain the supportof‘ the Chinese peoplein their cause of safe
2 78 Notes 31 These covered conventional areas such as industry and mining, agriculture, science and technology, energy, transport and communication, environmental protection and co-operation in third countries, as well as measures to promote FDI. 32 Francewasthe first ECmember state to signitsown economicco-operation agrcement with China (December 1978) and was subsequently followed by the UK (March 1979), Italy (April 1979), Belgium-Luxembourg (June 1979), Denmark (Scptember 1979),West Germany (October 1979), the Netherlands (October 1980). 33 The first EC member state to sign a BIT with China was West Germany (October 1983) whichwas then followed by France (May 1984),Belgium and Luxembourg(June 1984), Italy (December 1984), Denmark (April 1985), the Netherlands (June 1985) and the UK (May 1986). 34 The Euro-China Business Association was formed in 1992 as an umbrella organisation for these national agencies. 35 ECRulletins 4-1981, 12-1985 and 3-1987. 36 This was further consolidated by a Sino-French arms deal. 37 Regulation no. 5 19/94, 7 March1994. This came into force on 15 March 1994. 38 A fate that awaited Hong Kong, Korea and Singapore in May 1998. 39 This was also soon joined by a Joint Committee on Industrial Cooperation whose remit covered policy and technical matters. 40 Consisting of past, current and next EU presidents. 41 These are now supplemented by ad hoc foreign minister’s meetings, and twice yearly meetings, both betwcen the ChineseForeign Minister and EUambassadors in Beijing, and betwcen the EU Presidency’s Foreign Minister and the Chinese Ambassador in the EU presidency capital. 42 EarlierinNovember1994,theChina-EuropeInternational Business School was opencd in Shanghai. 43 As a partial solution to this problem, Ncves (1995) argued for a functional division of responsibilities among EU memberstates in alignment with particularnational interests and experience. Hence, those powers with strong economic but weak political intercsts such as Germany, France and Italy should be given responsibilities for trade and investment. 44 Thc first programme’s funding amounted to Ecu 13m over four yearswhile the second offered Ecu48.5m worth of funds over five years. 45Theseincludedmaritimeandairtransport,nucleartradeand safety, customs and science and technology. 46 Furthermore, China insisted that it should acquire W T O membership either beforcor at thc same time as Taiwan, which itself submitted its application in January 1990 under Article 33. A coupling ofChina and Taiwan’s accessions was established within the GATT forum in 1992, although as we discuss towards thc end of the chapter a decoupling seemed probable by 1998 (see also Chapter 6). 47 This was carried forward within the WTO framework in July 1995 with strong EU backing. 48 This involved endingcertainhigh tariff rates,importlicensingcontrols and fiscal discrimination on imports,as well asintroducinggreatertransparencyincertain aspccts of its trade policymaking processes. 49 However,under ”TO rulessafeguardmeasurescannotbcapplicdtodeveloping countries unless its exports of a product to a developed country nlembcr are in excess of 3 per cent of the latter’s total imports of that product, provided that the combined imports of that product from all developing country members with less than a 3 per cent share donot excecd 9 per cent. 50 The collapse of accession negotiations in December 1992 and December 1994 wcrc linked to thc US’S disputes with China ovcr IPK issues. 5 I Although at the April 1998WTO Working Party nlccting, China did offcr to cut tariffs on industrial goods by an a\zerage of I O per cent by thc year 2005. -
-
Notts 279 52 For example, on establishing a more predictable FDI regime where rules in certain localities can changeonafrequent andunannounced basis. The transnational network links of China’s coastal economy must also be considered by EU policymakers.
6 T h e EU, Taiwan and Hong Kong 1 Cooper (1 996) estimates that this constituted approximately 40 per cent of the economy’s gross capital formation from the early 1950s to 1960. 2 Amsden (1985) has argued that Taiwan’s state-owned companies played a key part in the economy’s early post-war development, although Fukuyama (1995) believes that these always formed the least dynamic part of Taiwan’s industry. By the mid-l980s, around 90 per cent of industrial production was located in the private sector. 3 Thesecomprisedaerospace,specialitychemicals and pharmaceuticals, information technologies, consumer electronics, pollution control technology and equipment,semiconductors,communications,precisioninstruments and automatic machinery, new materials and medical equipment. 4 Auto components, LCD devices, integrated circuits, high resolution colour TV tubes and the chemical p-xylene. 5 However, since 1997 the APROC initiative has been downscaled somewhat. 6 Chcn, X. (1995)has argued that the role of Taiwan’s original EPZs in attracting FDI has now waned. 7 British rule waseffectively established in 1841 on Hong Kong Island and formally accepted by the Chinese in the 1842 Treaty of Nanking. By the end of the Second Opium War (1856-60),British rule was extended to Kowloon (the mainland peninsula pointing towards Hong Kong Island) and Stonecutters Island. In 1898, China was forced to cede the New Territoriesand 235 islands to Britain on a 99-yearlease, expiring July 1997. 8 A United Nations embargo on PRC trade was enforced in 195I . 9 The UKwas not technically obliged to returnHong Kong island under the terms and conditions of the 1842 Treaty of Nangking. However, China made it clear that it wanted to reclaim the wholeHong Kongstate. It would have also had been near logistically impossible for Hong Kong island to function as a separate economic entity given its infrastructural dependency on the mainland territories. I O According to Sung (1995), more institutionalised integration exists between Greece and Ireland under EU supranationalism than between Hong Kong and China in the post- I997 arrangement. 1 I In 1996,transshipmentswereestimatedto be worthabout 70 percent of Hong Kong’s re-exports. 12 The most profiled of these being CA Pacific and Peregrine Investment Holdings. 13 This refers to the 60 million or so overseas Chinese dispersed mainly across EastAsia but also in other continents. 14 Also referred to as the ‘Chinese Economic Triangle’. 15 Bcijing had actively encouraged the purchase of Taiwanese imports for while a during the early 1980s. In 1987, travel restrictions between Taiwan and the mainland were lifted. The Taiwan government established an organisation in I990 that could negotiate the modalities of its relations with China that cwntually led to more direct links being created. 16 As we noted in Chapter 5, nationalism is increasingly becoming a substitute for ideology as the principal unifying forcr in Chinese society. 17 HongKong submitted its application for GATTmembership in1986 and W A S acceded in the same year. 18 The ROC originally joined thc G A T 1 in 1947 but left in 1950 after the installation of thc Maoist regime on the mainland, and remained uninterested in GATT for many
280 Nates years. Later on, Taiwan sought and gained observer status in 1965 hut then lost in 197 I after the normalisation of Sino-American relations. 19 Although undcr the name Chinese Taipei. 20 Taiwan maintains forlnal diplomatic relations with thirty or so countries, but these are all small,poornations i n Africa and LatinAmcricathat receivchighlevelsof Taiwanese aid. 21 However, a DPP victory in central governmcnt elections may change this. 22 Hong Kong’s economic diplomacy was closely aligned to UK interests and policy For example, it severed economic links with Argentina over the 1982 Falklands crisis and imposed import restrictions on South African goods in 1986. 23 Taiwan’s diplomatic links with the Vatican have remained intact throughout. 24 When Taiwan was voted out of the UN in 197 I , most West European nations voted no o r abstained, with the exception of Luxembourg, Portugal and Greece. 25 Acting on behalf of the EC,European CommissionVice-PresidentChristopher Soalnes stated that: ‘The Community . . . does not entertain any official relations to enter any agreements with ‘Taiwan. I explained that matters such as rcco
Jvotts 28 1 facturer Latecomer became thefirst European firm to enter into a acrospacc joint venture with aTaiwanese counterpart, this beingthestate-runAerospaceIndustry lkvclopmentCorporation. ‘The vcnturc’sokjective was tomakecomponents for Airbus Industrie. 38 In addition, Beijing orderedtheAnglo-Dutch oil company,Shell,tocurtail its prospecting activities in Shanxi province, commanded Chinese naval vessels to boycott Rotterdam port and refused to grant visas to Dutch nationals. 39 See Chui (1 99 1) for further details. 40 Over half of thc EU’s total bicycle imports originate from Taiwan. 4 1 O~cialJournalL43, 22 February 197 I . 42 A 12.5 per cent tariff and 5 per ccnt business tax were additionally applied. 43 Whisky is the UK’s second largest export to Taiwan. 44 ’The EU wanted tariffS on automobiles and auto parts entcring Taiwan lowered to 15 pcrccntaftertenyearsof W T O membershipademand particularlypushed by France and Italy at a 113 Committee meeting - but ‘Taipei insisted that these would rcmain at a minimum 20 per cent as it had just previously negotiated a 20 per cent rate deal with the USA and Japan. EuropeanCommission negotiatorswere reasonably content to accept this deal, especially because Pcugeot, Rcnault and Volkswagcn had established major assembly plants in Taiwan. In addition, the EU pushed for ban on diesel car imports to be lifted. 45 In May 1996, Brittan delivered a speech entitled ‘Europe and Hong Kong: Prospects for Co-operation’, while in November that year hc spoke again in Hong Kong which was hosting thc World Economic Forum, making references to promoting EU-Hong Kong relations. 46 It made for an intcrcsting event in that Governor Patten was technically a governmcnt representative of an EU member state. 47 This would entail a global rather than a sectoral approach to WTO-led liberalisation. 48 EU banks arc ranked third in Hong Kong in terms of assets and lending, behind local and Japancsc firms. In the insurance sector, EU firms arc Hong Kong’s major foreign provider. 49 Morcovcr, if rcgional offices are included then EU-based companies have the highest representation among forei
7 The EU and Korea 1 The others heing Hong Kong, Singapore and Taiwan.
2 For cxample, whilc unsuccessful attempts were made by France and the USA to open up Korea to international trade during the 1860s, both.Japan and China forced Korea toaccepttheir own one-sidedcommercialtreaties in thc latter quarter ofthe nineteenth century. China urged othcr countries to do the same in an endeavour to counterJapaneseinflucncc. However, China’sdefeat in theSino;Japancsewar of 1894-5 meant that Japan could more effectively assert its position in Northeast Asia.
282
flOtes
3 Korea signed its Normalisation Treaty with Japan in 1965, whose provisions included Japanese reparations and capital inflows to Korea.
4 Officially known as the Democratic People’s Republic of Korea and the Republic of Korea, respectively.
5 This was despite the factthat in 1953 the North had a headstart on the South in terms of capital formation, technological development, income levels and most other economic indicators. 6 Around half of Korea’s industrial base was destroyed in the civil war. 7 For example, in the 1970s Hyundai was virtually compelled to venture into the production of large-scale shipbuilding by the Park government from a practically nonexistent skill base. 8 This had been originally scheduled over the 1992-6 period but was later reconceived as the 1993-7 ‘Five Year Plan for a New Economy’. 9 Introduced in 1978 to relieve Korea’s chronic trade imbalance with Japan. 10 Thcse included Uzbekistan, Kazakhstan and Peru. 1 1 Subsequently bought out by Hyundai in a government-arranged deal. 12 For example,betweenHitachi and LG Electronics in the fieldof microelectronics; General Motors and Daewoo, Nissan and Samsung both in the field of automobiles. However, somechaebol - particularly Hyundai - have attempted to pursue a moreselfreliant approach. 13 The US government also negotiated a bilateral deal with Korea on transport services in whichthe EU gainedequivalenttreatmentto UScarrierssometimeafter in November 1992. 14 These are used against the illicit commercial practices of the USA’s trade partners. 15 This latter agreement was specifically on network equipment. 16 This was lcvied at 30 per cent of the liquor tax rate. 17 Revisions had been made to Korea’s liquor tax regime in July 1991 that eased the tariff and tax burden on foreign imports toa degree. For examplc, the domestic tax rate on whisky was reduced from 200 pcr cent to 150 per cent, thus bringing it into line with brandy and beer whose rates were unchanged. Tariff reductions were, though, made on all three imported products: whisky down from 40 per cent to 30 per cent, brandy from 25 per cent to 15 per cent and beer from 50 per cent to 40 per cent. However, the rate of education tax remained the same at30 per cent of the liquor tax rate. 18 These were applied on VCRs, microwavc ovens, small screen televisions, videotapes, polyester film and yarns, oxalic and glutamic acids. Later the EU suspended Korea’s GSP privileges on woollen tcxtile products in mid- 1994. 19 This compared to 18.3 per cent and 20.1 per cent for the USA, and2 I . 1 per cent and 29.0 per cent forJapan, respectively. 20 Up I 7 per cent over 1988-9. 21 The EU’s links with Hong Kong were largely managed through thc UK up until the J d y 1997 handover of sovereignty toChina. hzloreover. thc Beijing-Taipei sovereignty disputemeantthatthe EU couldnotformalisegcncraldiplomaticrelationswith Taiwan (see Chapter 6). 22 For its part, the EuropeanCommission also commented that a seriesof parallel events and devclopments helped augment this, namely Korea’s strengthening of relations with the USA and Japan after respective summit-level meetings in 1992, thc breakdown of NortbSouth Korca dialogue in the same year and Korea’s normalisation of relations with former Communist countries, includingRussia and China. 23 On the EU side, thiswasfirstofficially suggrsted in a ‘communications’ documcnt published in June that year (CEC 1993). 24 These were still ongoing at time of writing. 25 By July 1996 Korea had signed bilateral investment treaties with cvcry EU member country with the cxception of Ireland (UNCTAD 1997).
JV0te.r 283 26 These fi
284 Notes 41 However, thc level of Sing.aporean FDI in the EU was highcr than Korea’s by the mid1990s, although as stated clsewhcre in this text the former was largely acquisitional in nature. Moreovcr, Singaporean firms are not cxpccted to crnbark on the same ambiKorea’s recent tious multi-billion dollar FDI projects as Korean firms in the future, financial troubles notwithstanding. 42 This was dcmonstrated by Samsung’s interests in acquiring Fokkcr (thc Dutch acrospace group) and Rollci (thc German camera maker), together with Ilaewoo’s own interest in Lotus (the UK sports vehicle manufacturer) and their 65 per cent stake in Steyr-Daimler-Puch (advanced cnginc producers). 43 This rcprescnts somewhat of a departure from the 1980s’ literature on Third World multinationals’whichsuggestedthattheownership-specificadvantagcs of Korcan MNEs and others lay in thcir possession of their labour-intensive tcchnologies and small-scale modes of production (Wells 1983; Lall 1984). 44 I n 1989, 21.3 per cent and 20.3 pcr ccnt ADDS had t,ecn imposed on Haitai’s and Inkcl’s rcspective compact disc products. Both firms subsequently embarked on FDI projects in the EU. 45 McDermott (1995) ar,gued that this was more apparent, or could be anticipated in the automohilc sector rather than the clectronics sector. 46 I n somccontrast with DcntandRanderson (I996), Nam (1997) contendedthat Korean FDI in thc EU remained essentially ‘reactionary’ to newly erected tradc barriers, although thcir sunry research was conductcd in the early 1990s. 47 Primarilyasa result of Daewoo’s large-scale investment in Centraland Eastern Europe, the region’s share o f Korcan FDI in Europe rosc from 13.5 per cent in 1993 to 30.4 per cent by 1995. 48Togcther,thesesectorsaccount for around a third ofall EU directinvestment in Korca, while about hvo-fifths of EU invcstmcnt is located in thc service sector, leaving the vast majority of the remainder in other manufacturing activities. 49 ’I’hc Korcan Peninsula Eneqgy Dcvclopmcnt Organisation (KEIlO) was established in March 1995 with theaim of improvingnuclear safcty and reducingthethreat of nuclear proliferation in North Korea. Non-Korcan membcrs include the EU, Japan and the USA. The EU contributedIku751n over five yearstowardsresourcing KEDO’s work. 50 Both the EU and Korea are also memt)crs of the ASEAN Regional Forum in which Southcast Asian security matters are discusscd (see Chaptcr 3). 51 This has alrcady bcen demonstratcd with respect to the EU’s attempts to establish a dialogue with APEC (see Chapter 8).
8 Regionalism and inter-regional co-operation I See Korhonen (1994) on thc evolution of the PAFTA corlcept. 2Caused by the rcscnations of some M E A N countries,notablyIndonesia and Malaysia. 3 By the late I98Os PECC membrrs had comc to comprise the current APEC membcrship, plus the Pacific islands, Pcru and Russia. 4 APEC did not actudly supcrsrde PECC. As Socsastro (1994) noted, a positive and interdependent rclationship cvolved Ixtwcen APEC; and I’ECC, with the latter generating issucs based on practicalproblemscncountercd by theprivatc sector in the region on which APEC-convened ministers coulcl provide policy solutions to them. PECC continues to provide an umbrella orgmisation for APEC, PAETAD and PBEC representatives. 5 Scc Marton et al. (1 995) and Tan el al. (1 995). 6 For cxamplc, Singaporc’s government has been criticiscd for thc dominant role it has assumed in SIJORI. 7 Especially after thc irlautguration of the Clinton administration.
Notes
285
8 At China’s insistence to be referred to as ‘Chines(> 71ai]~ri’. 9 The EPG ran for four years ( 1 992-5) and produced thrre key reports. 10 It was for this reason, among others, that Malaysia’s Primc Minister hkdlathir decided not to attend the summit. 1 1 Wonnacott (1995: 33) describes ‘open rcgiondism’ as where ‘economic relations may bestrengthenedamongmembernations, while at thesametimetheregion also becomes more open to trade and investment with other parts of the world’. 12 The ABAC’s six main areas of concern are infrastructure, finance and investment, SMEs, human resourrc development, the facilitation of cross-bordcr flows and fostering a deeper sense of community in the APE:<: region. 13 Three years earlier than first agrcrd. 14 After the event, an unrepentant N Gore stated: ‘1)emocracyand frcedom are essential prerequisites. ‘I’hat is the US message, and I am proud to deliverit anywherc I go.’ TIE Financial Ernes, 18 November 1998. 15 This partly rcflcctccl the frustration of Malaysia and other ASEAN countries over the lack of attention being afforded to their concrrns at the GATTtalks. 16 This is applied through three stages: 1 APECmembersagree on follow general Lguidclincsfor implerncntingparticular reforms but these arc voluntary and non-binding. 2 An agreed approach to redising each targetset out by APEC declarations (e.g. zero tariff rates). 3 Establishing confidence in the effectiveness of this approach through regular and objective monitoring andreview. 17 In 1994 Noordin Sopiee defined this Western approach t o regional co-opcration as a ‘Cartesianemphasisonlegalism,form and contractual obligation’ @pan Ems, 24 November 1994). Moreover, President Clinton stated around the same time that ‘any market opening grantedby one country would have to be met with equivalent concessions in other APEC countries’ (Bap$ok Pmt, 14 November 1994), somewhat challenging the ‘prisoner’s delight’ principle. 18 EU Trade Commissioncr,Sir Lxon Hrittan,had received support fromKorea’s President and Foreign Minister in backing the EU’s request. andEU officials wereheldin 19 For example,preliminarymeetingshrtweenAPEC February 1998 at Penang, Malaysia concerning the promotionof mutual awareness of industrial standards in the two regions. However, this contact was established through informal ties rather than through an institutionalisedprocess. 20 A free trade area commits participating countries toremove all tariff barriers on each others’ imports hut each country maintains controlover thrir own external tariff rates and procedures on third country imports. A customs union goes one step further by establishing a common external tariff that is adopted by all participating countries on third country imports. Thus, the 1sC effectivcly skipped the ficc trade area stage by complcting the customs union arrangement at the samc time. 21 Although minor elements of the SEM programme were not in place until the end o f the 1990s. 22 See Sandholtz andZysman (1 989), Cameron (1 992) and Ross ( I 993). 23 See Taylor (1991), Milward (1992) and Streeck (1996) for additional elaborations on this view. For a very recent evaluation of differing perspectives,see Caporas0 (1998). 24 According to these data, Western Europe’s intra-regional trade ratio stood at 53 per cent in 1958. By 1990, this had risen to 72 per ccnt. 25 See Porter’s (1990) discussion on ‘industry clusters’with respect to Italyand other West European countries, 26 Munch (1996) makes a broad discussion of this issue, covering economic, social and cultural aspects. 27 Bollard and Mayes (1992) suggest that the SEM initiative had an important galvanising effect on the formation of APEC.
286
Notes
28 The Second Banking Co-ordination Directive of 1989 was a high profile example of this. See also speeches made by the EU’s External Affdirs Commissioner, h’illy de Clerq, at around the time for an indication that such an approach would be adopted. 29 US President Bush, in his own speech delivered in May 1989 at Boston, stated that: ‘We must work hard to ensure that the Europeof 1992 will adopt the lower barriers of the modern economy, not the high walls and the moats of medieval commerce.’ See Dent (1997a) for a fuller consideration of the EU’s position and impact within the global economy. 30 See Besson and Jayasuriya (1998) for a discussion on the contrasting political rationalities of European and Asia-Pacific regionalism. 31 With the exception of Switzerland, the EFrA countries participate in the European EconomicArea, a virtualextention of the SEM. These are theremainingEFTA members that have decided not to join theEU over time. 32 See Council for Asia-Europe Co-operation (1997) for an introductory discussion on the ASEM’s non-economic aspects. 33 Other significant examples include those made with the Andean Pact (l987), Central AmericanStates (l987),the GulfCo-operationCouncil(1990),Mercosur(l992), SouthAfricanDevelopmentComnnmity(1994) and neighbouringMediterranean countries within the Euro-bled Partnership (1995). 34 The European Council formally granted theEU’s endorsemcnt of the ASEM in June 1995. 35 Only two EU political leaders did not attend theFirst ASEM: Spain’s Felipe Gonzales, whofacedanimminentgeneralelectionathome, and Sweden’s PrimeMinister Carlsson, much to the alleged annoyance of the country’s business community. All ten premiers of East Asia were in attendance. 36 See Thurow (1992) and Fukuyama (1995) for comments on this comparison. 37 See Puchala (1972) for more discussion on this issue.
9 Future prospects for the EU-East Asia economic relationship 1 Moreover, Haggard and MacIntyre (1998) remind us that, notwithstanding the World
2 3
4 5
Bank’s ( 1 993) efforts, the search for a singleEast Asian model has heen elusive and the distribution of the crisis effects upon the region has beenpatchy. These includedCharlene Barchevsky (US Trade Kepresentative), Jeffrey Garten (Under-Secretary of State for Commerce), Kobert Kubin (Treasury Secretary) and Larry Summers (Under-Secretary). Belo further defines developmental statist practices as ‘the complex of protectionism, mercantalism, industrial policy and activist state intervention in the economy’ (1998: 434). As Table A.3 also shows, the US position as an EU export market had almost converged with East Asia’s own position over the mid-1990s. Zuckerman (1998) has gone so far as to prophesy that a second ‘American Century’ is imminent.
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Index
ACP (Africa-Caribbean-Pacific) group
260 acquis communautaire 238 aerospace industry 84 Afghanistan 48 Africa 39, 89, 130, 156, 160, 195, 238,
248 AFTA (ASEAN Free Trade Area) 4 1 4 ,
51,58,69-71, 72, 74,222,225,233 agriculture industry 27, 29, 53, 55, 6I , 65, 74,75, 121, 123,126,140,146,174, 175, 190,222,228,254 aid 57-8, 66, 69, 81, 135, 153, 155, 188 Airbus 7 antidumping duties (ADDS)1 I , 27, 28,
29,62-3,69,91,93-4, 101, 108,134, 136,140,141,143,146,149,151,159, 167,172,173,175,177,182-3,185, 199,204-6, 2 14 ASEAN regional forum (ARF) 41, 47, 73 Asia-Europe Foundation 242, 243 Asia-Europe Meetings (ASEM): APEC 3 I , 240,242,245-6,247-9,255; ASEAN 30,59,61, 71-2, 75, 240-1, 246; Asia-Europe Business Forum (AEBF) 242, 243 -4, 248; Bangkok summit (1996) 30, 241; China 30, 3I , 7 I , 144, 24I , 246; enlargement 246; financial crisis (East Asian)2 I , 3 1-2, 249, 251; future prospects 245-6, 255-6; Investment Promotion Action Plan (IPAP) 242-3, 248; Japan 30, 3I , 59, 71, 106, 116, 241, 244, 246; Korea 30, 24I , 244,245,246; London summit (1998) 243--4;Malaysia 241-2, 248; operational dynamics 244-5; origins and development 240-4; Senior Officials Meetings (SOM) 243; Senior Officials Meeting on
Trade and
Investment (SOMTI) 242, 243, 246; Seoul summit (2000) 243-4; Sinppore 240-2; subsidiarity aspects 244- 5; Taiwan 246; Trade Facilitation Action Plan (TFAP) 242-3, 248; Triad context 240, 248; Vision Group 243-4; USA 240, 244,245-6; W T O 31,241 -2,246,
248,255 Asian and Pacific Council (ASPAC) 220 Asia-Pacific Economic Co-operation forum (APEC): AFTA 44, 225, 233; APEC Business Advisory Council (ABAC) 229; ASEAN 44, 58, 225, 226, 233; ASEM 3 I , 240, 242,245-6, 247-9, 255; Australia 225, 230---1; Bogor Declaration (1994) 227-9, 232; Canada 225, 230-1; China 124-5,226; Committee on Trade and Investment (CTI) 227; EAEC/G 220, 231; Eminent Persons Group (EPG) 226-9; EU 235, 236, 238--9, 252-3, 257; financial crisis (East Asian)229-30, 231-3; free trade and investment zone 227 -8, 23 1--5, 238, 240, 245, 253, 257; general 16, 22, 225-35; Hong Kong 162, 226; Indonesia 230; Japan 81, 225,230; Korea 226, 230; Malaysia 229, 230-1; Manila Action Plan (MAPA) 229; New Zcaland 225, 23Gl; Osaka Action Agenda 229; Pacific Business Forum (PBE) 227, 228-9; origins and evolution 22 1--2, 225-30; Senior Officials Meetings (SOMs) 226; 'Taiwan 162, 226; Thailand 229, 230; USA 4, 226, 229-30, 232--3, 257; working groups 226, 235; W T O (and C A W 225,
227-30, 232,233-4, 253 Asian Monetary Fund (AME') proposal 2 1,
232 82,
310
Index
Association of South-East Asian Nations (ASEAN): anti-dumping duty regimeof EU 62-3,69; APEC 44,58, 225,226, 233; ASEAN Free Trade Area (AFTA)
41-4, 51, 58, 69-71, 72, 74, 222, 225, 233; ASEAN Investment Area (AIA)42, 7 1; ASEAN regional forum (ARF)41, 47, 73; ASEM 30, 59, 61, 71-2, 75, 240- I , 246; Central and Eastern Europe 42, 43,48, 58,69; Common Effective Preferential Tariff (CEPT) scheme 42-3, 7 I ; China (and Chinese diaspora) 38, 40, 41, 44, 47, 59, 62-3, 64, 65, 7 1, 12 I , 150; colonisation 37; East Timor 14, 44, 59, 72, 73, 241, 247; economic development of 37-40, 57; EU (general) 6, 1 I , 27-8, 30, Chapter 3 pns.rim, 236, 255; EU integration 5 1, 53, 56, 59, 61,67-9, 74; financial crisis (East Asian)40, 43, 66, 69;France 37, 66; future challenges 43-5; Germany 66; growth triangles (SREZs)40, 51; GSP scheme (of EU) 46,48,53,63-5, 74; guanxi 38,40; Hong Kong 64; internationalisation of 37-40; inward FDI 38,48, 51-3, 57,66,68, 70;Japan 38, 40, 41, 47, 59, 65, 71; Korea 40, 41, 47, 59, 63, 64, 65, 66,7 I ; Netherlands 37, 66; origins and evolution 40-2; Portugal 44, 59; Preferential Trading Arrangements (PTA)41; regionalism 40,
41, 43, 51, 67-9, 220, 222, 230, 231; Spain 37; Taiwan 63, 157, 167; trade and trade policy 38-40, 41-5, 49, 51-7, 59, 61-9; UK 37, 46, 66; USA 37, 38,
40, 41, 46, 47, 48, 53, 54, 61, 65, 73; WTO 65, 74,75 audio-visual products industry,see electronics industry Australia 41, 47, 48, 206,220-1, 225,
230-1,246 Austria 25, 68, 109, 138, 166, 169, 180,
202 Australia-New Zealand Closer Economic Relations Agreement (ANZCERTA)
22 I , 233 automobile industry 24, 64, 84, 90, 91, 95, 111, 112, 138,174,175,189,191,
202-4,206, 207, 208,2 13,214 banking industry 26, 32, 146, 178 Belgium 25, 68, 87, 109, 138, 165, 166,
167, 169, 180, 202 Benelux 90
bilateral investment treaties 135 Bretton Woods 1, 46 Britain, see United Kingdom (UK) Brittan, Sir Leon, 34, 147, 175, 177, 183 Brunei 37, 40, 42, 64, 70 Burma, see Myanmar Cambodia 37, 40, 41, 48 Canada 39,41,47,57,89, 130, 156, 160,
199,206, 195,220,225,230-1 Central and East Europe (CEE) 39, 42,
43, 48, 58, 69, 89, 130, 156, 160, 195 chaebol 25, 186, 189-92, 194, 196, 204-5,
207,208,210-14,241 chemical industry 23, 64, 83, 84, 107, 138,
139, 140, 155, 169, 189, 191, 204, 206, 214 China: anti-dumping duty regimeof EU
29,134,136,140,141,143,146,149, 151, 182-3, 185; APEC 124-5, 226; ASEAN 38, 40, 41, 44, 47, 59, 62-3, 64, 65, 71, 121, 150; ASEM 30, 31, 71, 144, 241, 246; Bclgium 135; Chinese diaspora 125,161,167,185,225; Cultural Revolution 131; East Asia 124-5; Economic and Technical Development Zones (ETDZ) 12 I , 127,
225; economic reform process 119, 120--4,126-8,134,137,157; environment 127, 136; EU (general) 6, 22, 23, 27, 28,29, Chapter 5 passim; EU integration 13I , 136, 143; financial crisis (East Asian) 124, 143, 147, 150; France 131, 136, 137, 138, 148; future challengcs 126-8; geopolitics 129-3 1, 148-9; Gcrmany 135, 136, 138; ‘Great L a p Forward’ 119; ‘Grcater China’ 161-2, 185-6; GSP scheme (of EU) 132,139-40,146, 15l;guanxi38,40, 121, 125, 191, 225; Hong Kong 121, 124,125,135,143,148-9,151, 157-63, 176-9, 182-6; impact on world economy 1 19-20; inward FDI 119-20, 121, 124,125,126,135,13778,150, 151; Italy 135, 138;Japan 90, 1 18, 125, 135,137,140,149,150,151; Korea 125, 129, 188, 191, 193, 199, 200, 202; MFA regime (of EU) 34, 183; National Industrial Development Zones for New and Advanced Technolocgy (NIDZNATs) 12 I , 127, 225; People’s Liberation Army (PLA) 123; QRs (of EU) 134, 139, 18 1L2; Soviet Union 125, 129, 13I , 136; Special Economic Zones
Index (SEZs) 121-2,123,135,151,158,225; state-owned enterprises (SOEs) 122, 126,144,147; Taiwan 121,132,137,
141-2,148&9,155,157-67,168,172, 175-6, 184-6; township and village enterprises CrVEs) 123, 144; trade and trade policy 22, 23, 1 19-20, 124, 125, 126-8, 129-51, 161; U K 135, 136, 138, 143,148-9; USA 118,125,129,131, 134-5,136,138,143,145-7,149,151; WIO 29, 33, 118, 124, 125, 142, 14650,255 Clinton, William 147 C O C O M (Paris Co-ordinating Committee) 129,132,135,149 Cold War 1, 90, 96, 118, 129-31, 148-9,
188,194 colonialism 37, 45, 153, 157, 163, 176-7,
186 Commission of the European Communities (CEC),see European Commission Common Agricultural Policy (CAP) 29,
53, 55, 61 Common Commercial Policy (CCP): ASEAN 27,28,46,49,53-7,62-5,69, 74; China 27, 28, 29, 132-7, 139-40,
141,143,146,149,151,182-3,185, 132, 139-40, 146, 15 1; general 5 , 6, 27-30, 236; Hong Kong 27, 28, 159, 176, 177; Japan 27-"9, 87-8, 90-5, 114; Korea 27,28, 199-200; Taiwan 27,28, 164,167,172-5 Common Foreign and Security Policy (CFSP) 236 competition policy 32, 97, 101, 102, 175,
207, 228,254 complex interdependence 8-9, 10, 73,
150, 185, 217, 248 Confucianism 18 core-periphery divide 13, 126, 144, 15 1,
233 Council of Ministers (of EU) 27, 60, 62,
132,139,166, 177,236 Cultural Revolution I3 1 Daewoo 192, 197,214 Deng, Xiaoping 119, 120--3, 124-5, 134,
142,143,157 Denmark 25, 68, 109, 138, 164, 169, 180,
202 dependency theory 14, 74, 151, 2 18 developmental state 18, 21, 78-9, 87, 154,
189, 191,251
3 11
Directorate-General 1 (of the European Commission) 27, 31, 34 East Asian Economic Caucus (EAEC) / Grouping (EAEG)220,23 1 East Timor 14, 44, 59, 72, 73, 241, 247 economic and monetary union (EMU) 58, 61, 69, 106, 1 15, 143, 184, 248, 252; see also euro economic security 9, 14, 256 Economic and Social Commission for Asia and the Pacific (ESCAP) 220 eikokubyo 95 electronics industry 23, 64, 66, 84, 90, 91, 1 1 1, 139,153,159,183,189,191,199,
208,213,215,234 environment 8, 13, 14, 15, 32, 34, 59, 64,
74,98,106-7,116,127,136,142,143, 150,207,225, 254, 256 ESPRIT 7 euro 69, 106, 1 15, 252 Europe Agreements 69, 2 14, 252 European Atomic Energy Community236 European Coal and Steel Community (ECSC) 235-6 European Commission: ASEAN 49,60, 62, 63, 65; China 132, 134, 136, 139, 140, 141-3, 147, 149; general 27--9,31, 235,236, 240- I , 244; Hong Kong 176, 177, 182-3; Japan 78, 88, 90-2, 95-6, 100-1, 115-16; Korea 196,198,199, 204-5,206-8; Taiwan 164, 165, 166,
167,171,174 European Council 94, 236 European Court of Justice 236 European Free Trade Area (EFTA) I3 I ,
238 European Investment Bank (EIB) 66, 142 European Parliament 65, 166, 236 European Political Co-operation (EPC) 27,
46 European Union (EU): APEC 235, 236, 238-9,252-3,257; ASEAN 6, I I , 27-8, 30, Chapter 3 passim, 236, 255; ASEM (general) 30-2; China 6, 22, 23, 27, 28, 29, Chapter 5 pmsim, 255-6; East Asia (general) 5-7, 10--12,Chapter 2 passim; enlargement 238 -9, 248, 252; FDI (general) 14, 24-5, 27; financial crisis (East Asian)2 1- 2, 25-6, 250-2, 254,256,257; governance 5-6; Hong Kong 6, 22, 25, 27-8, 30, 176-86, 255-6; integration 235, 238-9; Japan 6, 22, 23, 27-9, 57, Chapter 4 passim,
3 12
Index
255-6; Korea 6, 22, 23, 24, 27-8, 30, Chapter 7 passun, 255.-6; Maastricht Treaty 236; market access strategy 34; New Asia Stratcgy 28, 45, 50, 240, 253, 255-6, 257; regionalism 61, 235-9; sub-regionalism 237; Taiwan 6, 22, 25, 27-8, 30, 163-76, l8+8, 255-6; trade policy, see Common Commercial Policy (CCP);USA 4, 6, 8, 94, 103-7, 252, 253-4,257; WTO 32-5,254-5 ‘Eurosclerosis’5 I , 199 export oriented industrialisation (EOI) 38, 43,153, 155, 158,188-9 export proccssing zones (EPZ) 40, 155, qllc LLJ
financial crisis (East Asian): APEC229-30, 231-3; ASEAN 40,43,66,69; ASEM 21, 31-2, 249, 251; China 124, 143, 147, 150; EU 21-2, 25-6,250-2, 254, 256, 257; general 17, 20-2, 25-6, 35, 250-2; Hang K O I I2~I , 159, 183-4, 186;Japan 2 I , 85, 106, 1 17; Korea 20-2,26,187, 190-1, 192,193, 209-l0,211,2l5-l7; Taiwan 157, 186; USA 21, 251-2,254,257 financial services 33, 140, 142-3, 146,
175,179,190, 191,201 Finland 25, 68, 109, 138, 169, 180, 202 forei
238 France: ASEAN 37, 66, 68; China 131, 136, 137, 138, 148; general 5, 23, 25, 27,28, 25 I ; Hong Kong 179, 180-2; Japan 87, 90, 93, 109, 113; Korea 202, 215; Taiwan 163-4,167,169,174 Free Trade Area of the Americas (FTAA) 44,23 1 Fujian province 1 2 I , 16I gazatsu
81, 82, 104, 106, 1 13, 115
General Agreement on Trade in Services (GATS) 33 General Agreement on Tariffs and Trade (GATT) 3, 33, 42, 87, 88, 90, 94, 132,
139,144-5,162,166,176,177, 238; .see also WTO
199,
Gencraliscd System of Prcfcrenccs (GSP): EU scheme 1 I , 28,46,48,53-4, 63-5, 74.132,139--40,146, 151, 164,174, 183, 199-200, 206; Japanese scheme 233; US scheme 38 Germany: ASEAN 66, 68; China 135, 136, 138; general 23, 25; Hong Kong 179, 180; Japan 88,95,96, 109, 1 13, 117; Korea 194,202,211,212, 215; Taiwan 163,165,166,167,169 globalisation I , 9, IO, 103, 107, 1 IO, 1 15, 186,208,2 17, 240,247-8, 256-7 Government Procurement Agrccrnent (GPA) 105, 146 ‘Greater China’ 161-2, 185-6 Greater East Asian Co-Prosperity Sphere
77, 222 Greece 68, 109, 138, 169, 180, 202 ‘growth triangles’, see sub-regional economic zones (SREZs) Guangdong province 157, 159, 161
guaruci38,40,81,82, 121, 125, 161, 191,225 Hawke, Bob 22 1 hegemonic stability (theory) 3-4, 73, 1 15, 149, 150, 185,254 Hong Kong: anti-dumping duty regimeof EU 159,177,182-3,185; AI’EC 162, 226; ASEAN 64; China 12 I , 124, 125, 135,143,148-9, 151, 157-63,176--9, 182- 6; colonialism 176 7; economic development 157-60; EU (general) 6, 22, 25, 27--8,30, 176-86, 255-6 EU integration 184; financial crisis (East Asian) 21, 159, 183-4, 186; France 179, 180-2; Germany 179, 180; ‘Grrater China’ I6 1-2, 185 ..6; GSP scheme (of EU) 183; p a n x i 16 I ; international status 162-3; inward FDI 182; Italy 179, 180; Japan 180; Korea 183, 194; MIA 179, 183; Netherlands 179, 180; Singapore 183; Taiwan 161-2,167,171-4,179, 18.1-6; trade and trade policy 23, 54,
159-60,176,178-9;UK 135,143,148-~9, USA 157,158,163,176,177,179,186; 178-9,180; W T O 162,176,178, 182 Honda 78 Hyundai 197, 211, 314
IC1 171 import substitution industrialisation (ISI)
153,188
Index India/Indian subcontincnt 41, 47, 246 Indonesia 14, 20-1, 37, 38, 40, 42, 54, 55,
59, 62--3,64. 65, 66, 70, 72, 157, 230, 24 I , 247 Information Technology Agreement (ITA )
33, 146, 234,253 Institute of Pacific Relations 220 intellectual property rights (IPR) 29, 32,
60,65,87, 140,144,196-8,207,228 ‘internal’ barriers to international trade
33, 34, 35, 56&7, 174, 205, 207, 210, 217,233, 254 International Labour Organisation 64 International Monetary Fund (IMQ 3, 8, 20, 26, 40, 82, 162, 176, 190-1, 193, 209-l0,2l3,2l5,216-l8,25l International Tropical Timber Organisation 64 Intra-National Free Economic Zoncs (INFEZs) 223 Ireland 25, 68, 109, 138, 165, 166, 169,
180, 202, 215 Italy: ASEAN 68; China 135, 138; gcncral 25; Hong Kong 179, 180;Japan 88, 93, 109; Korea 202, 21 2; Taiwan 169 Japan: anti-dumping duty regime of EU 9 1 , 9 3 4 , I O I , 108; APEC 8 I , 225,230; ascendant economic superpower I , 77-81; ASEAN 38, 40, 41, 47, 59, 65, 71; ASEM 30, 31, 59, 71, 106, 116, 241, 244, 246; Belgium 87; China 90,
118,125,135,137,140,149,150,
151;
deregulation programme 29, 85, 98--101, 104, 113, 115, 116; East Asia 81-2, 220-3, 256; employment relations 79-80; EMU/euro 106, 1 15; EU (general) 6, 22, 23, 27 -9, 57, Chapter 4 passim,255-6; EU integration 88, 92, 94, 95, 106, 108, 1 1 I , 115; F D I in Europe 24-5,82-4,92 -3,96, 107-12, I 15, 1 16; financial crisis (East Asian)2 1, 85, 106, 1 17; ‘flying geesc’ model 8 1 ; France 87, 88, 90, 93, 1 13; future challengcs 84-6; guiutsu 8 I , 82, 104, 106, 1 13, 1 15; Gcrmany 88, 95, 96, I 13, 1 17; GSP schemc 233; Hong Kong 180; industrial structuring 83-4, 107, 108, I IO; inward FDI 1 12-14; Italy 88, 93; Keidanren 79, 88, 90-1, 114, 115; keiretsu 77-80, 85, 97, 107, 113, 115, 189,191-2; Korea 188-9,191-2,
193-4,196,198, 199, 200, 202, 208, 21 1-12, 213, 216, 217; market access
31 3
issues 101, 113; Mciji regime 77, 78, 86; Ministry of International Trade and Industry (MITI) 79-80, 85, 91; blinistly of Finance (MOQ 79, 85; Netherlands 86, 87, 88, 96, 11 3; outward FDI 82-4; Portugal 86, 93; productionmanagement methods 77, I IO; recession (1990s) 85-6; SEM 88, 92, 94, 95, 108, 11 1, k 14, 115; Sogo ShOShQ 78, 107; Spain 86, 93; structural impediments to import 78,92,97,98, 100-1; Taiwan 153,154,155,164,168, 17 1 ; Tokugawa regime 77, 82, 86;trade and trade policy 4, 22, 23, 57, 77, 82--3, 86, 90-5, 97-107; Triad and trilatcralism 76, 84, 87, 92,96- 107, 115, 116; UK 86, 87, 88, 93, 95, 96, 1 IO, 11 I , 112- 13, 116, 257; USA 4, 77,
78, 82, 84, 86, 87, 92, 95, 98, 102, 103-7,108,110, 112, 115; VERS (of EU) 90, 92, 93, I O I , I 12; WTO (and GATT) 33-4,87,88,90,94, 101-2, 105, 106, 116, 254-5; zaibatsu 77-9 Japan Economic Research Centre (JERC) 220 Kcidanrcn 79, 88, 90-1, 114, I15 keiretsu 77-80, 85, 97, 107, 113, 115, 189,
191-2 Kia Motors 190, 192 Kim, Dae-jung 190-1, 192 Kim, Young-sam 190 Korea: anti-dumping duty regimeof EU
199,204-6,2 14; APEC 226,230; ASEAN 40, 41, 47, 59, 63, 64, 65, 66, 7 1; ASEM 30,241, 244, 245, 246; Australia 206; Canada 199, 206; c/mebol
25,186,189-92,194,196,204-5,207, 208, 210-14, 241; China 125, 129, 188, 19 I , 193, 199, 200, 202; East Asia 193, 2 18;economic development 188-9 I ; EMU/euro 2 1 I ; EU (general) 6, 22, 23, 24, 27-8, 30, Chapter 7 passm, 255-6; FDI in Europe 24- 5, 66, 196, 197, 2 10-1 4; financial crisis (East Asian) 20-2, 26, 187, l9O--l, 192,193, 209-10, 211,215-17; Five Year Plans 188-90; France 2 15;‘frugality’ campaigns 34, 207, 208, 209; f h r e challenges 193-4; Germany 194, 202, 21 1 , 2 1 2 , 2 15; GSP scheme (of EU) 199-200,206; HCI drive 189; Hong Kong 183, 194; IMF ‘bailout’ programme 26, 19&1, 193, 209-10,
3 14 Index 213, 215, 216-18; inward FDI 190, 193, 196, 204-5, 214-15; Ireland 215; Italy 212; Japan 188-9, 191-2, 193-4, 196, 198, 199,200,202, 208,211-12, 213,216,217; KEDO 218; liquor tax regime 196-7, 198-9,207,209; MFA 206; Netherlands 2 12, 215; North Korea 188, 194; OECD membership 30, 190, 217, 218; outward FDI 190, 192, 196,204-5,210-14; segyehwa 190, 193, 2 13; SEM 199,205; Sweden 198; Switzerland 198; Taiwan 153, 154, 157, 164, 173, 174, 188, 194,200; Thailand 205; trade and tradepolicy 4, 22, 23, 24,55, 190-1, 193-210,21 I , 216-18; UK 202,2 1 1 , 2 15; USA 188, 1934, 196, 198, 199, 201, 202, 207, 208, 217; WTO (and GATT) 34, 190, 198,207, 208,209,217 Korean Peninsula Energy Development Organisation (KEDO)2 18 Kuomintang (KMT) 153, 154, 161, 162, 164, 166 labour standards 32, 64, 74, 150, 254 Laos 37, 40, 41 Latin America 39, 44, 46, 48, 50, 57, 60,
66,89, 130, 156, 160, 195,248 LG (Electronics) 192, 196, 197, 21 I , 214 Lome Convention 46, 54, 132 Luxembourg I64 Mahathir, Mohamad 6 I , 8 I , 230, 241 Malaysia: APEC 229, 230-1; ASEAN 37, 38, 40, 42; ASEM 241-2, 248; China 157; EU 20, 46, 54, 57, 59, 61, 62-3,
64, 65, 66, 70, 72 Mao, Tsetung/Maoism 29, 1 19, 120, 12 I ,
129,157 Marxism/Marxist analysis 12- 15, 74-5, 116-17, 151, 186,218,248-9 ‘market-oricnted, sector specific’ (MOSS) negotiations 92, 95, 104 Mediterranean Basin 50, 238 Mekong River Regional Triangle40, 223,
224 Mexico 42, 43, 226, 251 Microsoft 8 Middle East 39, 89, 130, 156, 160, 195 Millennium Round 178, 185, 253, 255 Mongolia 17 3 most favoured nation (MFN) clause48, 70,
82, 87, 88, 105, 125, 132, 145, 146, 200,209,217,228,233-4
multinational enterprises (MNEs)/ multinationals 7, 8, IO, 12, 13, 14, 70-1,74, 81, 114, 116, 121,123,125,
129, 151, 167, 185, 186, 213, 218, 241, 248 Multi-Fibre Agreement (MFA) IO, 1 I ,
53-5,62, 134,159,173,179,
183,206
Multilateral Agrecmcnt on Investment (MAI) 33 Mutual Recognition Agreements (MRAs)
98,201 Myanmar 37, 40, 41, 42, 44, 45,61, 73 national treatment principle 32, 105, 145,
180, 199,228 neo-liberalism/neo-liberal institutionalism 6, 7-12, 13-14, 32, 73-4, 115~-16,
149-51, 185-6,217-18,241,248 neo-mercantilism 4-5, 7, 74, 87, 91, 114,
148, 184, 199,216 nco-realism 2-7, 12, 32, 72-3, 114-15,
148-9, 184-5,216-17, 241,247-8, 254 Netherlands: ASEAN 37, 66, 68; China 138; general 23, 25, 27; Hong Kong 179, 180;Japan 86,87,88,96, 109, 1 13; Korea 202,2 12,215; Taiwan 169 New Asia Strategy (NAS) 28,45, 50, 240, 253,255-6,257 new international division of labour (NIDL) theory 12-1 3, 14, 1 17 New Transatlantic Agenda (NTA)16, 240 New Zealand 41,47,48, 220-1,225,
230-1,246 non-governmental organisations (NGOs) 7, 116 non-tariff barriers (NTBs) 43, 53, 55-7,
90,95,200, 207 North American Free Tradc Agrecmcnt (NAFTA)42,44, 230, 233 North Korea 173, 188, I94 official development assistance (ODA),see aid ‘open regionalism’ 44, 70, 74, 209, 228,
233, 238-9, 253 Opium Wars 157 Organisation for Economic Co-operation and Dcvclopment (OECD) 30, 32, 33, 88, 106, 190, 209, 217, 218, 221, 240,
255 Pacific Basin Economic Council (PBEC)
220
Index Pacific Economic Co-operation Conferences 22 1 Pacific Free Trade Area (PAFTA) proposal 220 -1, 228, 234 Pacific Trade and Development (PAFTAD) conferences 220-1 Pan-Pacific Union 220 Papua New Guinea 226 Park, Chung-hee 188-9 Patten, Christopher 177 Peugeot 17 1 Philippines 21, 37-8, 42, 54, 55, 57, 59, 62-3,64,66, 70, 157 Plaza Accord 29, 38, 92 Portugal: ASEAN 44, 59, 68, 72; China 138; general 14, 25,27, 28,241, 247; Hong Kong 180;Japan 92, 109; Korea 202; Taiwan 164, 169 post-colonialism 12, 14, 36, 37, 72, 74,
I86 realism 2 regional integration agreements (RIAs): .tee also regionalism regionalism: ASEAN 40, 41, 43, 5I , 67-9, 220,222,230,23l;EastAsia51,219-35; Europe 5 1 , 235-9; inter-regionalism 238-46; sub-regionalism 5 I , 222,223-5 relational power 3, 86, 95 Renault 17 1 Russia 4 1, 47 Samsung 191,192,196, 197,213,214 Santer, Jacques 2 I , 177 semiconductor industry 95, 159, 191, 208,
213 Shanghai 122,157,162 SIJORI (Southern Growth Triangle)40,
223,224 Singapore: ASEM 240-2; ASEAN 37, 38, 40, 41, 42-3; EU 46, 54, 55, 57, 59, 60, 62-3, 64, 66, 7 I , 72; general 2 I , 25, 28, 223; Hong Kong 159, 183; Taiwan 173,
174 Single European Act (SEA) 92, 95, 108,
136,236 Singlc'European Market (SEM): ASEAN 51, 56, 61, 69, 74; China 136, 139; general I O , 28,236,250,252;Japan 88, 92, 94, 95, 108, 1 I I , 114, 115; Korea
199, 205,2 14 small and medium-sized enterprises (SMEs) 51, 78, 154, 155, 173, 192, 194,
201,212
3 15
Southeast Asia, see Association of Southeast Asia (ASEAN) Southeast Asia Treaty Organisation (SEATO) 220 South Korea, see Korea South Pacific Regional Trade and Economic Cooperation Agreement (SPAR'I'ECA) 22 1 Soviet Union 125, 129, 131, 136 Spain: ASEAN 37, 68, 72; China 138; general 25, 28; Hong Kong 180;Japan 86. 93, 109; Korea 202; Taiwan I69 Special Co-ordinating Committeeof ASEAN Nations (SCCAN) 46 Structural Impediments Initiative(SII) 92,
95, 104 structural power 3, 33, 35, 82, 86, 95, 116,
144,146, 208,217 18, 233,254 sub-regional economic zones (SREZs)40,
43,51, 161,222,233,237,248 sub-regional trading arrangements (SRTAS)221 -2,233 surplus capacity (theory) 9-10, I I , 74,
116,150 Sweden 25, 68, 109, 138, 165, 166, 169,
180, 198,202 Switzerland 175,198 Taiwan: anti-dumping duty regimeof EU 167,172,173,175,185; APEC 162, 226; arms trade 137, 167; Asia-Pacific Regional Operations Centre (APROC) 155, 167, 185; ASEAN 63, 157, 167; ASEM 246; Austria 166; Belgium 165, 166, 167; colonialism 153, 163; China
121, 132,137,141-2,148-9,155,
157-67,168,172,175-6,184-6; Denmark 164; economic development 153-7; EU (general) 6, 22, 25, 27-8, 30, financial crisis 163-76, 184-8, 255-6; (East Asian) 157, 186; France 163-4, 167, 169, 174; Germany 163, 165, 166, 167, 169; 'Greater China' 161-2, 184-5; GSP scheme (of EU) 164, 174; guanxi 161; Hong Kong 161-2, 167, 17 1-4, 179, 184-6; international status 162-3, 164, 166; inward FDI 155, 171; Ireland 165, 166; Italy 165, 167, 174; Japan 153,154,155,164,168,171; Kuomintang (KMT) 153, 154, 16 I , 162,164,166; Korea 153,154,157, 164, 173, 174, 188, 194, 200; liquor tax regime 172, 174, 175; MFA 173; Mongolia 173; National Development
3 16 Index Plan 155, 167; Nethcrlands 153, 163, 164, 165, 166, 167, 169, 171; North Korea 173; outward FDI 17 1-2; Portugal 164; Singapore 173, 174; SMEs 154, 155, 173; Sweden 165, 166; Switzerland 175; trade and trade policy 4,156,162,164,167,168-70; UK 162-3,165,166,169,171;USA153, 155,163,164,167,168,17+5,176, 184--5; Vietnam 173; WTO 144, 147, 162,165,166,172,174,17556,184-6 telecommunications industry 23, 33, 60, 66,106,138,139,146,159,178,191, 196-8,201, 207, 209-10,226,228 textile industry 54-5, 62, 64, 65,74, 75, 102, 132-4,139,153, 155, 158,159, 164,172,173,179,182,188,191,196, 204,206, 222 Thailand 20-1, 37, 38,40,42.54,55,59, 62-3, 64, 65, 66, 70, 157, 229, 230 Thomsen-CSF 167 Trade Assessment Mechanism (TAM) 98 Trade-Related Invcstment Measures (TRIMS)32,65, 228 Trade-Related Intellectual Property rights (TRIPS) 32, 146 Transatlantic Free Trade Area (TAFTA) 254 transshipment159,182-3,185 Triad 29, 76, 84, 87, 92, 96-107, 1 15, 116, 213, 240,248,253-4, 256-7 Tumcn River Regional Triangle 193, 223, 224 'two-level games' 9 United Kingdom (UK):ASEAN 37, 46, 66, 68; China 135, 136, 138, 143, 148-9; general 3, 23, 25, 27, 28, 30; Hong Kong 135, 143, 148-9, 157, 158, 163, 176, 177, 179, 186; Japan 86, 87, 88, 93, 95, 96, 109, 110, 111, 112-13, 1 16, 257; Korea 202, 21 I , 2 15; Taiwan 162-3,165,166,169, 171 United Nations (UN) 3, 162 United States of America (USA): APEC 4, 226,229-30,232-3,257; ASEAN 37, 38, 40. 41, 46, 47, 48, 53. 54, 61, 65, 731ASEM 240,244, 245-6; China 1 18,
125, 129,131, 134-5, 136,138,143, 145-7, 149, 151; EAEC/G 221-2, 230-1; East Asia (gencral) 4, 6&7, 22, 210-13, 253-4, 256; EU 4, 6, 8, 94, 103-7, 252, 253-4, 257; euro 252; financial crisis (East Asian)2 1, 25 1-2, 254, 257; GSP schemc 38 hegemony I , 3-4, 6, 103, 106, 115, 131,149,185, 247,252, 254; Hong Kong 178-9, 180; Japan 4, 77, 78, 82, 84, 86, 87, 92, 95, 98, 102, 103-7,108, 1 IO, 112,115; Korea188,193-4,196,198, 199,201, 202, 207,208,217; Taiwan 153, 155, 163,164,167,168,174-5,176,184-5; unilateralism 11, 106, 115 LYTO 8, 33 Uruguay Round (of GATT9 27, 32, 42, 58, 59, 62, 94, 139, 144, 190, 206, 226, 228,230, 231, 238
Vietnam 37, 40, 41, 42,46, 48, 62-3,64, 66, 173 Volkwagen 17 1 voluntary cxport restraints (VERs) 28, 90, 92,93, 101, 112,173-4,206 World Bank 3, 18, 19, 162 World Trade Organisation (WTO): APEC 225,227-30,232,233-4,253; ASEAN 65, 74, 75 ASEM 31,241-2,246,248, 255; China 29, 33, 118, 124, 125, 142. 14440, 255; East Asian countries (general) 1 I , 254-5; EU 32-5, 254-5; general 3,8; Hong Kong 162, 176, 178, 182;Japan 33-4, 87, 88, 90, 94, 101--2, 105, 106, 116, 254- 5; Korea 34, 190, 198, 207, 208, 209, 2 17; Millennium Round 178, 185, 253, 255; Ministerial Meetings 33; new trade issucs 16, 32--3, 35, 75, 254-5; Taiwan 144, 147, 162, 165,166,172,174,175-6,184-6; USA 8, 33; (see also G.4TT) Xiamen 12 1 Yangtzc Delta Development Zone 122 77-9, 189 ZOPFAN 40 Zaibatsu