US looks at Asian partners

WILL Asia become North America's new economic locomotive? The prospect is being debated at the highest levels of the Clinton Administration as it seeks to formulate a policy on one of the most under- represented regions of the world. Should such a policy be centred on Japan or go beyond? Equally important, will an emphasis on Asia's vibrant economies be seen as a downgrading of the traditional US- European relationship?

At conferences during the past two weeks in Japan and Korea, ministers, businessmen and journalists sought answers to these important questions as they assessed which way the new US Administration is likely to go. Several key themes emerged: the Asians themselves are forging closer regional ties to counter growing regionalism in the US and Europe; most Asian nations want stronger links with the US, in the form of free trade agreements or other arrangements, to offset what they regard as growing protectionism in Europe; and it is generally believed that the balance of power in Asia will be resolved by China's role in the world economy and the West's reaction to it.

Where does this take American policy? In background papers prepared for Bill Clinton and his advisers, the US Administration is urged to negotiate much closer multilateral and regional ties with Asia. The papers note that by the 21st century, the world's economic centre of gravity will have shifted from the Atlantic to the Pacific as the total gross national product of east Asia outweighs that of the US and European Community combined. And yet the US approach remains focused on bilateral trade deficits with Japan and more recently China, to the exclusion of the rest of Asia.

In making the case for a new US policy, Mr Clinton's advisers have pointed out obvious but often overlooked facts. Last year, east Asia absorbed one third of all US exports, supporting an estimated 2.4 million American jobs. With a potential market of 330 million people, South-east Asia is a large growth area for American companies.

From 1986 to 1991, US exports to Thailand quadrupled, grew threefold to Singapore and more than doubled to Asia as a whole. The value of total exports to Asia now surpasses trade with Europe and there are new estimates that Pacific trade will be double transatlantic transactions by the year 2000.

In addition, Asian countries are becoming an important source of capital in a world hungry for more investment. As the savings rate of the Group of Seven industrialised nations continues to decline to an estimated 7.8 per cent of gross domestic product in 1992, Asian nations are moving in the opposite direction.

Asia's average savings rate is close to 30 per cent, according to the International Monetary Fund.

The seven leading east Asian economies now account for 41 per cent of global bank reserves, compared with 17 per cent in 1980.

The implications of these trends are clear: without broader access to Asian capital, the US will be unable to meet Mr Clinton's ambitious goals for economic revival, which are based on new investment in education and public works projects.

The economic argument for closer American ties with Asia is compelling. Yet in recent years the US appears to have retreated from the region into its North American shell, with the result that Japan's regional power has grown, causing great anxiety among other Asian nations. Mr Clinton's advisers want him to step into the void, forging a region-wide policy that will both contain and include Japan while also making a place for China.

The forum selected for these US- Asian initiatives appears to be the little-known Asia Pacific Economic Co-operation (Apec) arrangement. The US is an Apec member, alongside Australia, New Zealand and most Asian nations. Mr Clinton announced his intention to work through Apec in his first significant address on international economic issues at the American University. Subsequently, in the annual US Trade Representative's report last month, Mickey Kantor also stressed the importance of Apec. Finally, the US will host this year's Apec ministerial meeting in November.

Mr Clinton is being advised to forge broad trade and investment agreements with Apec as a first step towards building a liberalised regime that would mirror the dispute settlement, intellectual property, civil aviation and other unfinished business of the dormant Uruguay Round of trade talks. This would send an important symbolic message of renewed US emphasis on Asia.

In addition, some of Mr Clinton's advisers want him to allay fears in Asia that the new North American Free Trade Agreement (Nafta) will be a closed club by inviting one or more Asian nations to participate in it as members.

The Bush Administration promised that Chile would be next in line for the agreement. After Chile, Korea has indicated that it would like to become a member, and Singapore has also been proposed as a strong candidate. These individual Asian memberships are seen as the foundation stones of a broader, long-term Pacific free trade arrangement with Nafta.

Finally, Mr Clinton must deal with the sticky question of China. As North Korea rattles its nuclear sabre, China has stepped forward to offer help - but only at a price. The country desperately wants closer ties to the world economic community through membership of Gatt, among other forums, and a renewal of its most favoured trading nation status with the US.

However, the Clinton Administration has indicated that it would attach stringent human rights conditions to renewal of the status and backing for Gatt membership. It is unclear how Mr Clinton will meet his human rights goals without further isolating China in the global economic community.

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