investment and growth.28) Another idea would be to encourage advantageous cooperative agreements among similar or corresponding economic sectors. Should the governments not act to assist regional private sector endeavors, businesspeople are sure to make their own way.
Increased private sector interaction will eventually propel the governments toward more formal economic arrangements. The private sector is aware of the extraordinary gains to be made from NEA regionalism—indeed economic complementarities are far from being fully utilized. Even if there is little chance of a formal regional integration, Northeast Asian regionalism shows promise.
sharp contrast to North America and Europe, there are at present no regional gas grids to pump in natural gas. The region is virtually crying out for an energy cooperation mechanism or institution. Today, Korea, Japan and China are discussing jointly buying oil from Middle Eastern countries, from which the latter two countries get upwards of 85% of their oil imports. As a block market, they could receive a better price than what they are currently getting separately, and could work collectively to ensure safe passage through shipping lanes.
Going one big step further, Northeast Asian countries can turn their energy cooperation pipedreams into pipelines. Such joint infrastructure- building projects would attract investors and showcase the promise of regional cooperation. With one-third of the world’s natural gas reserves, Russia has no way of easily supplying China, Korea and Japan in absence of a regional gas grid. In December, the Russian government approved a Siberian pipeline, which is expected to increase energy export opportunities to East Asia once it is finished in ten years and at a cost of
$15.5 billion dollars.30)Unfortunately, the current proposal avoids having the pipeline pass through China or the two Koreas; instead, it goes directly to Japan, placing constraints on regional cooperation. Being excluded from this energy pipeline has led Beijing to explore underwater energy reserves, some in territories Japan considers its own. This Sino-Japanese clash is partly the consequence of a lack in energy cooperation.31) Right now regional competition and not cooperation for badly-needed energy resources is the status quo.
However, cooperating over energy resources could result in greater regional stability, not to mention energy efficiencies. Extending that gas grid through North and South Korea would help alleviate the region’s
30) James Brooke, “At a cost, Siberian pipeline to send oil to the Pacific,” New York Times, 22 January, 2005.
31) James Brooke, “Japan draws the line on energy,”International Herald Tribune, 30 March, 2005.
more pressing energy needs, ensure that all Northeast Asian players share in mutual benefits and vulnerabilities (a necessary component of regional cooperation), and potentially turn North Korea from an obstacle to an object of regionalism. Running the pipeline through the Koreas means that Pyongyang would finally have some non-nuclear leverage over other countries in the region, yet it would be in Pyongyang’s interest to keep the pipelines open with revenue from transport fees, guaranteed energy supplies, and regional prestige. Just over 50 years ago, Europe began with the region’s two flashpoint powers, France and Germany among others, connecting their energy markets with an agreement to pool coal and steel resources, which not only helped eliminate the threat of future wars, but also paved the way to regional integration. Japan and China have much to learn from this experience. As long as energy competition undermines energy cooperation, regionalism in Northeast Asia will remain hostage to pointlessly confrontational yet potentially compatible national interests.
The great potential for confrontation over energy resources signals the need of a third party—such as the United Nations—to help mediate territorial disputes and rights to resources.
The transportation sector is another area ripe for joint-infrastructure cooperation. Capitalizing economic growth in Northeast Asia depends on growing transport links within and beyond the region.32)Governments have a common interest in working together to structure the region’s air, land, and sea routes into a more integrated transport network. This will require both hard infrastructure: better roads, developed ports, connected railways, the establishment of transportation hubs and corridors; and soft infrastructure: the simplification of customs clearance procedures, the
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32) Wang Shengjin, “The Role of Dalian in the Transportation Network in Northeast Asia and Multilateral Cooperation for the Establishment of International Transportation Corridors,” accessed from the Economic Research Institute for Northeast Asia (ERINA) website on April 19, 2005, http://www.erina.or.jp.
standardization of transport services, and administration to ensure efficient operations and low transportation costs.33)The challenge to an integrated transport system lies in the different stages of transportation development and administration by country, and competition between (national) transportation enterprises.34)Continuity in transport links across borders will require constant communication and collaboration among administering countries to reconcile their varied transport systems. There are great gains in doing so, for advanced intra-regional transport links will accelerate the region’s development and economic influence by empowering production capability and enhancing international competitiveness. Today, the lack of adequate energy and transportation infrastructure is holding Northeast Asia back from realizing greater and long-term investment opportunities and economic growth.
Infrastructure investment therefore remains a high priority for Northeast Asian governments. But despite being flush with foreign reserves, China, Japan, and South Korea are calling for outside help to finance what will be a multi-billion dollar project extending well into the future. Indeed, building up regional infrastructure will require bountiful foreign capital over the long term.35)Given the short-term political fuse of China, Japan and South Korea and the tendency for politics to trump economics, this will be no easy task. Moreover, it will be a challenge to attract and retain foreign capital.
Last September, Royal Dutch/Shell Group and Unocal Corporation pulled out of a contract with China for exploration and production gas projects in the East China Sea, forgoing billions of dollars in the midst of China and
33) Hisako Tsuji, “An International Logistical Network in Northeast Asia,” Economic Research Institute for Northeast Asia (ERINA) Discussion Paper No. 0307e, November 2003.
34) Wang, “The Role of Dalian in the Transportation Network in Northeast Asia.”
35) Northeast Asia Economic Forum and East-West Center estimates that $7.5 billion in annual net foreign capital is necessary for regional infrastructure development. S. Stanley Katz, “An Option for Northeast Asia: Establishment of the Northeast Asian Development Bank,” in the Korea Institute for International Economic Policy (KIEP) publication Enhancing Investment Cooperation in Northeast Asia, December 2004.
Japan’s increasingly confrontational stance on the disputed territory.36) Northeast Asian countries will have to strengthen their will to diplomatically work together to resolve disputes in order to capitalize on and retain foreign investment in the region.
Private capital is the way to go to finance regional infrastructure projects.
Northeast Asian governments are unwilling to spend precious public funds and unlikely to see adequate funding for infrastructure from the Asian Development Bank and other international financial institutions. Attracting and retaining (foreign) private capital could entail creative joint-partnership schemes. Indeed, the wariness of regional powers to allow foreign investors free reign in their markets makes government-private sector or domestic- foreign investor shared projects all the more probable. Still, more work needs to be done to make the region safer and more amenable to foreign investment. South Korea and Japan in particular will have to remove stringent controls on foreign capital if they are to enjoy fully-funded infrastructure projects.37)China must better manage its bank debt problems and calm investors’fears of political intervention, with the government keeping in mind that its actions speak far louder than its words.
Creating a more favorable environment for both foreign and intra- regional capital is critical. This will be done by necessitating further economic reforms, removing more barriers to investment, and making national economic and investment policies more congruous and easily navigable for outside investors. China, Korea, and Japan could abet investment activities by launching commercially viable public infrastructure projects such as the energy grid or the integrated transport network. Moreover, governments could work together to develop
“comprehensive development plans”linking particular sectors of the three
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36) Erin Watkins, “Japan, China dispute drilling in area of East China Sea,” Oil and Gas Journal, April 14, 2005.
37) Anna Fifield, “Seoul’s new rules anger overseas investors.”
economies in sub-regional economic zones.38)For regionalism to become a reality governments must find compatible and mutually beneficial ways to cooperate and not compete. Whether Northeast Asia’s nationally-driven economies are ready for comparative advantage remains to be seen.
Nevertheless, Japanese investment, Korean technology and, Chinese manufacturing comprise one joint arrangement with economic potential.39 ) None of this will be easy, but the potential benefits are immense.
Regardless, a regional approach that focuses only on economic issues and infrastructure, leaving political and security issues aside, will lack a solid foundation from which to cultivate multilateral cooperation.