Vision of E. Asia common market emerges

Vision of E. Asia common market emerges

By Raju Gopalakrishnan

MANILA (Reuters): East Asia's vision for a common market and
unified currency is perhaps half a century away but a weekend
summit which discussed the issue signals the potential emergence
of a powerful new bloc, some analysts said on Monday.

China, Japan, South Korea and the 10-nation Association of
Southeast Asian Nations (ASEAN) agreed on extending cooperation
in a wide range of financial and trade-related issues at Sunday's
summit in Manila.

Talk of a common market and currency in the future gripped the
meeting, despite the many divisions and suspicions within the
group, not the least of which is the rivalry between China, which
has more than half the people in the region, and Japan, which
produces almost half of the economic output.

The east Asian markets encompass about two-fifths of the
world's population and about US$7.75 trillion in combined GDP.

Such a grouping could rival Europe and the United States, if
it were ever united. But analysts say the staggering differences
in economic development between the 13 nations involved would
take decades to overcome.

Still, the summit moves signaled "a search for a common
identity partly in opposition to a Western identity", said Simon
Flint, currency strategist at Bank of America in Hong Kong.

One sign was Japan's lobbying the summit successfully to back
former vice finance minister Eisuke Sakakibara as the new
managing director of the International Monetary Fund (IMF), a
post usually the preserve of Europe.

The show of strength on Sakakibara was the first sign of the
region's new assertiveness, said Neil Saker, head of economic
research for SG Global Equities.

"It's very much like the formative years of the EU," he said.

The process would be driven by ASEAN, which has entrenched
moves toward free trade in the region, in the same way as
cooperation in iron and steel led to the formation of the
European Union, Saker noted.

In the meantime the 13 countries would "form a very strong
lobby group to counter the U.S.", he said.

ASEAN countries range from impoverished Myanmar, Laos and
Cambodia to the tiger economies of Singapore and Malaysia. Others
include Brunei, Indonesia, the Philippines, Thailand and
Vietnam.

"We are seeing the development of an East Asian focus
group ...which is more of a caucus than APEC," Saker said,
referring to the 21-member Asia-Pacific grouping.

Another sign could be the formation of an Asian equivalent of
the IMF, to stave off the possibility of regional financial
crises, he said. The United States has looked with suspicion on
the proposal, since it would undermine Bretton Woods
institutions.

Aside from overcoming international differences, such as the
wide gulf between the economies and approaches of China and
Japan, members working toward an East Asian grouping will also
have to deal with the sensitive internal issue of surrendering
some independence over economic policy making.

"One of the things you need for common trade areas and free
currencies is some kind of surrendering of sovereignty and
surrendering of independent monetary policy," said Flint.

"And we are so far from that in either Southeast Asia or
greater East Asia...the rise to the hegemony of the East is 50
years away. It's a fascinating subject but not one that my
foreign exchange traders are interested in."

Saker said the process of nations coming together also was
imperative to counter global capital flows.

"What the Asian (financial) crisis has shown is that
sovereignty is really non-existent anyway," he told Reuters.

"Money flows really run the world and countries' sovereignty
is eroded. I think there is a case for saying a bloc like this or
the EU is important...individual countries are now powerless in
the face of capital flows."

But he, too, agreed that a common East Asian market was about
50 years away.

But many things need to be done, said Dewi Fortuna Anwar, a
top aide of Indonesian President B.J. Habibie when he was in
office and a regional political analyst.

"If there is a political commitment towards that vision then
they (should) start coordinating their respective national
policies and then set targets," she said.

"For example, how to make sure that the currencies are not so
different in values...also the stability of the banking sector."

But she said the fact that East Asia was talking about such a
vision was a major shift.

"They shouldn't just talk about it, they should sit down and
talk about the details, what particular technical cooperation
they have to do to achieve such a target by such a date," Anwar
said.

"They should be talking about clear targets, what they want to
achieve in five years, what they want to achieve in 10 years."