The Politics of Asia’s Big Deals

In strategically uncertain Asia, a new wave of big trade deals is often about securing political alliances.

By Christian Caryl

Newsweek International

June 4, 2007 issue - When the United States and South Korea announced their new free-trade agreement last month (details of which were released last week), the news was mainly economic. The deal, which will be the largest bilateral trade pact since NAFTA, would give American farmers and bankers alike better access to Korean consumers, and help Korean companies push more electronics, cars and textiles into the United States. Largely unreported was the political angle-the U.S.-South Korea free trade agreement comes at precisely the moment when America’s military presence on the Korean Peninsula is rapidly diminishing, anti-U.S. nationalism in South Korea is growing and China is playing an ever more important leadership role in the region. "This FTA is about countering China," says Yang Sung Chul, a former U.S. ambassador to South Korea, now professor at Korea University in Seoul. "It’s much more significant in strategic than economic terms."

You could say the same about any number of trade deals in Asia these days. While free-trade agreements have always been somewhat political, solidifying national relationships even as they bolster exports, the use of FTAs in geopolitical jockeying is reaching new heights in East Asia, where a flurry of deals between regional and international players including China, Japan, the United States, the EU, India, Australia, South Korea and others mark new alliances in a strategically uncertain part of the world. Since 1997, the number of FTAs in the region has risen from seven to 38. "The last time we saw this sort of frenzied bilateral activity was back in the 1930s," says Christopher Dent, a professor of political economy at the University of Leeds. That worries some economists, who fear that all the free-trade politicking will further erode an already beleaguered global trading system, and create a snowball effect of countermeasures. "I’m not going so far as to say this might aggravate something [as serious as the Great Depression], but I do say these FTAs are bringing about even greater complexity to an already complicated system, and increasing competition between nations in an unhealthy way."

It’s no accident that the activity in the region has increased since 2004, which marked the beginning of a massive free-trade agreement between China and the Association of Southeast Asian Nations. Chinese policymakers had clear strategic priorities for the deal. Zhang Yungling, a professor at the Chinese Academy of Social Sciences and a key architect of the agreement for China, says that China was conscious that the ASEAN nations felt threatened by its growth, and wanted to woo them with generous trade terms. They offered countries like Laos and Cambodia an "early harvest," unilaterally opening up markets for hundreds of different kinds of agricultural products. That in turn helped smooth the way for a reduction in tension in hot spots like the disputed South China Sea territories. Since then, China has cut a host of other bilateral deals with regional neighbors such as Pakistan and Thailand, and is angling for others with South Korea and Australia. "FTAs are becoming a key instrument for great-power diplomacy," says one Chinese diplomat.

That worries rivals, who are rushing to find their own partners. The Japanese, for example, have always been cautious when it comes to bilateral agreements, but faced with Beijing’s adroit use of trade, they are changing their stance. Japanese Prime Minister Shinzo Abe recently announced a new push for more Japanese FTAs in the region-the two most likely candidates are Australia and India, the same countries that Abe has pledged to recruit as strategic partners in a security alliance tacitly designed to contain Chinese ambitions. Meanwhile, the EU, worried about the KORUS deal, is trying desperately to push its way back into the region, recently announcing plans to negotiate its own deals with both South Korea and the ASEAN nations.

How will all the wheeling and dealing end? Not with more efficient trading. A recent map of Asian trade deals done by Leeds’s Dent shows an increasingly complicated "spaghetti bowl" hindering broader global efforts to liberalize trade. Such deals have a disproportionately negative effect on small and medium-sized enterprises, representing as much as 80 percent of jobs in some parts of Asia. Already, the U.S-South Korea deal is causing grousing in Japan, which would take a hit as Korean competitors no longer have to deal with U.S. tariffs. Still, that probably won’t turn the tide-one recent survey of 175 trade representatives and policymakers in Asia found that the most important criterion in motivating a country to seek FTAs, well ahead of economic reform, was-surprise-politics.

With B. J. Lee in Seoul