Publication in Economics, Politics and Public Policy in East Asia and the Pacific

To talk or not to talk with North Korea

Author: Mel Gurtov, Portland State University

The photograph that came out of an Asian regional security meeting—the ARF (Association of Southeast Asian Nations Regional Forum)—in Bangkok last week told it all: Secretary of State Hillary Clinton walking past her North Korean counterpart without so much as a nod of greeting. ‘We really don’t have any intention of talking to them,’ she said. ‘What we are interested in is North Korea coming back to the table and continuing the negotiation that will lead to a denuclearized Korean peninsula.’ Yet a member of the North Korean delegation did not dismiss the idea of a meeting with Secretary Clinton on the sidelines. ‘It will depend on the situation,’ one delegate from the North Korean foreign ministry reportedly said. Other North Korean spokespersons have reportedly said the same thing since.

To meet or not to meet, that is the question. An assumption widely shared by North Korea specialists is that one purpose of all the saber rattling by Pyongyang in recent months is to refocus American attention on the Korean situation and negotiate a new agreement in bilateral talks with Washington. The Obama administration has not ruled out a new package of incentives, according to some reports, though the price North Korea would have to pay may at this point be too high: complete, verifiable, and irreversible nuclear disarmament, the same demand once made by the Bush administration. So far, however, any such U.S. offer would only be made in the context of the Six Party Talks (6PT).

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Japan: How do you solve a problem like the freeters?

Author: Tobias Harris

One policy area that could see cooperation between a DPJ-led government and the JCP (and the SDPJ) is the treatment of non-regular workers (mentioned here).

The JCP’s position on dispatch workers and other non-regular workers is clear: the party wants to ban the employment of temporary workers in manufacturing work, making an exception only for ‘specialized work.’ The DPJ’s position is a bit more vague, as the party has called for a fundamental revision of the Temporary Staffing Services Law, more support for jobseekers, and a higher minimum wage, but it is unclear how far the party will go in limiting a practice that Kan Naoto argued has contributed to a decline in Japan’s international competitiveness.

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The wisdom of Professor Calvo

Author: Suman Bery

I first worked on Latin America in the late 1980s. At that time many of the countries of the so-called ‘Southern Cone’ of South America (Argentina, Chile, Uruguay, Brazil and Peru) were engaged in the dual tasks of restoring democracy after an extended period of military rule, and stabilising their economies after extended periods of high inflation.

It was at that time that I first encountered the subtlety and sophistication of Latin American macroeconomic theorists. These academics, some home-grown, most the product of the great US economics departments, succeeded after many unsuccessful attempts in purging their countries of chronic inflation.

Listening to them at that time speak among themselves and with their peers and students, they came across to me like a group of particle physicists commenting on phenomena too exotic to be understood by mere mortals. Yet, much as particle physics led to the taming of nuclear energy, so did the deep thinking of these scholars lead to the practical success of disinflation, and the development of a series of ideas that have since become established parts of the toolkit of macroeconomists.

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PNG: FTAs helping or hindering trade?

Author: Ron Duncan, ANU

What of PNG trade policy and the various trade agreements that have been signed and those proposed?

The first thing that I would say is to reiterate Prof. Jagdish Bhagwati’s comments on the question of whether preferential regional trade agreements are ‘stepping stones or stumbling blocks’ for trade growth when he delivered the 2006 Heinz Arndt memorial public lecture at the ANU.

Bhagwati called the proliferation of preferential regional trade agreements a ‘pox’ on the world trading system, noting that they result in trade diversion rather than trade creation. This is especially the case with preferential trade agreements among small, developing countries. I would add that they divert tariff revenue and investment from the smaller, less well-developed countries in such trading blocs to the more developed. As regards the Pacific Island Countries Trade Agreement (PICTA) preferential agreement amongst the Pacific island countries, I anticipate that any benefits will mainly accrue to Fiji and PNG and the disadvantage that they will suffer will only make the other Pacific islands countries even more antagonistic towards freer trade (see my ADB study, Pacific Trade Issues, [pdf])

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Tribute to Hadi Soesastro: CSIS’ best mind

Author: Jusuf Wanandi

On July 17, 2009, the Canberra-based Australian National University (ANU) conferred a Doctor Honoris Causa degree in economics on Hadi Soesastro. He is the third Indonesian to receive such a degree, following the conferrals many years ago to Dr. Masri Singarimbun, a demographer, and Dr. Thee Kian Wie, an economic historian.

Dr. Singarimbun was honored for his achievements in the field of demography, and for paving the way for Indonesian students to study at the ANU. Dr. Thee was honored for his long standing and extensive cooperation with the university.

The ANU honored Hadi for his achievements in promoting the idea of regionalism in East Asia and the Asia Pacific. He has tirelessly developed the idea and given it a conceptual framework through various Track Two processes since it was first proposed in the 1970s. He has been instrumental in developing the Pacific Economic Cooperation Council (PECC) into what it is today, and for the establishment of the Economic Institute for ASEAN and East Asia (ERIA). In addition, he is appreciated for his contribution to Indonesian-Australia relations, especially in economics.

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Realizing the Asia Pacific Community: geographic, institutional and leadership challenges

Author: Jia Qingguo, Peking University

Since the end of the Cold War, many have considered what should be done institutionally to secure peace and prosperity in Asia. Some argue that the existing bilateral military alliances offer the best chance for sustaining peace and prosperity in the region. Others argue that multilateral cooperation mechanisms are a better alternative. Many believe the existing matrix of various bilateral and multilateral arrangements presents the best we can hope for in the region. But some argue that none of these is good enough. Instead, they propose the idea of an alliance of democracies, meaning the US, Japan, India and Australia—an alliance which Japanese Prime Minister Taro Aso described euphorically as an ‘Arc of Freedom and Prosperity‘. So far, the third argument appears to have prevailed.

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‘Pain on the road to recovery’ – So what, for consumer (credit) law reform for Australia (and beyond)?

Author: Luke Nottage

The Prime Minister, Kevin Rudd, has just contributed a long essay with this title to the Sydney Morning Herald (25-6 July 2009). Here are some extracts that should be connected to ongoing initiatives and discussions about consumer credit and consumer law more generally:

1. Rudd’s grand plan now for the forthcoming ‘building decade’:

‘It will take time to build the foundations of Australia’s long-term global competitiveness. But we must take time to do it thoroughly. We must take time to invest in the infrastructure of the future, the skills of the future, the competitive tax system we need for the future, an ambitious agenda for competition and regulatory reform, and to maintain the best national balance sheet of major advanced economies.’

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The long arm of the Chinese State Secrecy Law

Author: Peter Yuan Cai, International Relations, ANU

The recent arrest of Australian mining executive Stern Hu under an alleged espionage charge has brought China’s elusive secrecy laws under intense international scrutiny. The allegation is very serious and sparked outrage amongst rights-conscious Australian journalists and politicians. There is puzzlement over how an Australian business executive in the middle of a sensitive commercial negotiation could get involved in espionage against China.

This requires a closer look at China’s State Secrecy Law (comparable to the Official Secrets Act of Australia) [English translation by US Congressional Executive Commission on China]. This legislation was enacted by the National People’s Congress (NPC) in 1988 and came into effect on the first of May 1989. In Article 2, Chapter 1 of the State Secrecy Law, state secrets are rather loosely defined as matters concerning ‘national security and interests’. Article 8 of Chapter 2 further elaborates what may constitute state secrets, apart from the usual inclusion of political, military and diplomatic matters and decisions. The most conspicuous part of the definition, and that most relevant to Stern Hu’s case, is Section 4 of Article 8, which classifies ‘secret matters relating to national economic and social developments’ as state secrets.

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Japan: More realism from the DPJ

Author: Tobias Harris

The emerging realism in the DPJ observed last week has grown in recent days, especially on foreign policy.

The party’s manifesto for next month’s election, due to be released to the public any day now, considerably softens the language on a number of foreign policy issues on which the DPJ had previously taken controversial positions.

‘Soften’ is the operative word. The DPJ isn’t necessarily outlining new foreign policy initiatives — it’s simply coming to terms with the foreign policy status quo. The DPJ won’t be taking Japanese foreign policy in a new direction, certainly not in its first year or two. (Although, that said, it is encouraging that the manifesto includes a plank calling for flexibility in negotiations with Russia over the Kirile Islands.) Asahi notes that the manifesto still includes language calling for ‘an equal US-Japan alliance,’ but, if anything, the more the DPJ pursues a more pragmatic course, the more it will rely on rhetoric to distinguish itself from the LDP. Sankei adds that the DPJ has indicated its support for a cargo inspection law aimed at North Korea based on a recent UNSC resolution despite having blocked debate on the government’s bill during the recently concluded Diet session.

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East Asia, the GFC and the G20 – Weekly editorial

Author: Peter Drysdale

East Asia is recovering from the global financial crisis more rapidly than the rest of the world economy. China, which recorded a growth rate of almost 8 per cent in real terms last quarter is ahead of the pack. The rebound in China is playing into developments elsewhere in the regional economy. The export numbers even in Japan are looking better in consequence of what is going on in China and are picking up around the region.

Less noticed, but perhaps more important, the global financial crisis has thrust the big Asian players onto the global stage in managing the recovery and, potentially, as key players in global economic (and political) governance through participation in the G20 process – the Group of 20 leading economies that have coalesced to coordinate the response to the crisis and to look at global economic governance in the longer term. Soo Gil Young and Hadi Soesastro have pointed to the significance of this development for leadership of Asian cooperation.

This week’s piece, by Wendy Dobson, an expert Canadian observer of Asian affairs, draws parallel conclusions. She notes that the crisis was a missed opportunity for cooperation among Asian economies where regional arrangements were unprepared for developing a coordinated response. She concludes, nonetheless, that the G20 has been an important catalyst in addressing the leadership ‘deficit’ in regional cooperation. There is an expectation that the Asian 6 members of the G20 (Japan, Korea, China, Indonesia, India and Australia) will think and act in the global interest and this expectation could translate into this or a sub-group providing strategic leadership to replace the ad hoc initiatives of the past. The Asia 6 in the G20 are key players in the East Asia Summit. The next G20 meeting will be held in Pittsburgh, USA, on September 24. It is early days but, as Dobson argues, these developments could provide the strategic leadership that the region has so far been wanting.

The financial crisis and East Asia

Author: Wendy Dobson, University of Toronto, Canada

East Asian economies were relatively well insulated against the financial impacts of the global financial crisis but their dependence on trade through regional production networks and export-led growth strategies made them vulnerable to the sharp contraction of demand from the North American and European economies. The International Monetary Fund projects sharp real GDP declines in 2009, with Japan’s economy shrinking by -6.2 per cent, Taiwan’s by -7.5 per cent, South Korea’s by -4 per cent and Singapore’s by -10 per cent; China is the outlier, with positive growth expected to be 6.5 per cent. Even so, China has experienced a huge growth contraction from 13 per cent in 2007. Japan was hardest hit by the contraction of export markets: its current account surplus is expected to shrink from 4.8 per cent of GDP in 2007 to 1.5 per cent in 2009. China’s will shrink slightly but Korea’s and Taiwan’s will expand.

There is a strong reaction in the region to this revealed vulnerability. Governments are asking how they can reduce their dependence on exports to the advanced industrial economies and rely more on regional and domestic demand. This reasoning leads to an emphasis on alternative growth engines in the region (such as potentially large demand in China and India) and on ways to deepen the linkages among the region’s economies. Unexpectedly, the G20 leaders’ summits organized on an ad hoc basis to manage the financial crisis may turn out to be the catalyst for a sharper focus on deeper regional integration. Six Asian economies are members, the three Northeast Asians plus Australia, India and Indonesia, and each is an equal at the global table. This new ‘definition’ of the six as equals in global strategy could be the basis for a more strategic approach to trade and finance in the region that replaces current ad hoc arrangements.

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The rise of China: the impetus behind Japanese regionalism

Author: Takashi Terada, Waseda University

With a crisis of leadership looming large in the ruling LDP and the elections right around the corner, it’s easy to forget the leading role Japan has played in its region. Aside from Japan’s crucial role in APEC, the move towards ASEAN+6 began in earnest with a speech by Junichiro Koizumi in 2002, when the former Prime Minister called for Australia and New Zealand to be included as ‘core members’ in the process towards creating a community in East Asia, along with the ten members of ASEAN and China, Korea and Japan.

With the inauguration of the East Asia Summit (EAS) in 2005, and Prime Minister Abe’s proposal towards a Comprehensive Economic Partnership Agreement in East Asia (CEPEA), East Asian nations, and Japan in particular, have been positive about progress towards a more functional framework for cooperation.

However, a tangle of regional institutions competes for attention and resources, and as long as the 16-nation ASEAN+6 framework continues to coexist with the 13-nation ASEAN+3 framework in East Asia, the argument as to which is the more effective framework for regional cooperation continues to linger.

Japan, through all of this, has pushed for moves to strengthen regionalism. But why is Japan so interested in promoting ASEAN+6 as an ‘expanded’ East Asian regional concept, despite the existence of ASEAN+3?

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Is the love of finance the root of all evil?

Author: Jagjit S. Chadha

There is a syllogism that has gained currency just as financial markets have been devalued. And it goes something like: (i) finance is dangerous (ii) the economy is in danger (iii) finance must therefore be constrained. I regularly attend conferences and hear a panoply of dirigiste sentiment directed against the financial sector, arguing that not only are financial markets and banks the root cause of the financial crisis but that they must now be bound like Prometheus to a stone. Though such a conclusion is tempting, it may not be quite right.

The critiques are well known: financial markets underpriced risk, created excessive liquidity and leverage, unbundled exotic near-worthless debt instruments and at the limit, often via hedge funds, promised semi-permanent excess returns. All activities that rewarded participants on the upside ended up having government support on the downside. The argument then is that faced with such a skew in returns, too many resources have been devoted to financial activity. It is said that banks and financial institutions have become too large both in absolute size and as a proportion of the economies they service, and consequently they cannot then be allowed to fail without creating systemic risk. Maybe.

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China, national security, and investment treaties

Author: Luke Nottage

Peter Drysdale’s weekly editorial,  along with related postings to this blog and enormous media attention in Australia and elsewhere, focuses ‘on the continuing detention of Rio Tinto executive, Stern Hu, in Shanghai on allegations of espionage’. Drysdale signposts some future analysis of ‘the legal framework under which Hu’s detention has taken place’. He also emphasises that we need ‘a cooperative framework—bilaterally, regionally and globally’ for ‘China’s authorities to avoid damage to the reliability of markets and for Australia to avoid the perception of investment protectionism’.

The most pressing legal (and diplomatic) issues concern China’s criminal justice system, especially when ‘national security’ is allegedly involved. But we need to consider some broader ramifications, including investment treaty protections. Part of the backdrop to the Hu saga could be that nations retain considerable sovereignty when it comes to deciding on the operational ambit of foreign investments. Investment treaties – which may be bilateral or regional, stand-alone or folded into broader Free Trade Agreements – now often entrench substantive liberalisation. But these treaties maintain exceptions for national security or subject investments to national interest tests. So even if Australia and China conclude their current FTA negotiations making it broadly easier for firms from either country to invest in the other, that sort of exception could be invoked by Australia, for example, to block or restrict an investment like the now scuttled proposal by Minmetals to acquire Oz Minerals back in March 2009.

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Can the global financial crisis actually deliver Doha?

Author: Philippa Dee

Everyone is calling for a Doha conclusion by 2010. The G5 and the G8 are doing it. The APEC Member countries are doing it.

But Jagdish Bhagwati warns ‘Everybody’s talking a good game, but the question is whether they can play a good game … You have to distinguish between containing protectionism and actually liberalising further. I can’t think of any example of liberalisation when the macroeconomic stress is this enormous.’

‘This is just a ritual assertion,’ Bhagwati adds, referring to the G8+G5 statement. ‘When it comes to actually liberalising trade, they have to face their parliaments and their publics.’

But let’s think about this.

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