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A Trans-Pacific Economic Alliance to Confront a New European Unity

<i> Joel Kotkin, co-author of "The Third Century" (Crown), is the West Coast editor of Inc. magazine; Jiro Tokuyama is a senior adviser to the Mitsui Research Institute in Tokyo</i>

Unification of the European economies scheduled for 1992 may impel other regions toward similar association. Shunted aside by European protectionists, some leaders outside the Continent are expressing growing interest in what Sen. Bill Bradley (D-N.J.) has called a “Pacific coalition,” including Mexico, Canada, Japan, Indonesia and other Asian states. Taken together, this economic union would double the combined gross national product of the European Community.

The economic basis of such an alliance--already discussed in Japan for well over a decade--lies in the growing coalescence of the North American and Asian economies. Even before the European integration process began, the flow of American trade had moved decisively from the mother Continent. Between 1983 and 1987, for instance, Canada, Japan and Mexico solidified their positions as the three leading U.S. export markets.

Even more dramatic has been the rapid growth of U.S. commerce with other developing nations in the Pacific. Over the past four years the two fastest growing markets for U.S. products were Taiwan and China. Dirt-poor only two decades ago, Taiwan and South Korea already represent larger U.S. markets than Italy and by 1995 these nations will be bigger export markets than any European country except, perhaps, the United Kingdom.

Although profoundly different in terms of racial and cultural backgrounds, countries abutting the Pacific are increasingly linked by informal business networks. Asian nations, for instance, account for eight of the 10 leading sources of foreign students in the United States; many students either remain here or emerge later as key leaders in their native countries. Asian immigration has also grown dramatically in the United States, Canada and Australia, linking those once highly Eurocentric nations closer to the increasingly “borderless economies” of the Pacific.

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This growing combination of North American and Asian interests underlies the process of what Japan scholar Kent Calder has labeled “trans-Pacific integration.” One prime illustration of this trend is Australia, which in the late 1950s sent more than half of its exports to Europe but today sends nearly two-thirds to Asia and Pacific-facing North America. Australian raw wool is now dyed and woven in Hong Kong, shipped to Korea to be made into garments and then sold in department stores to the huge consumer markets of North America and Japan.

But the prime player in making trans-Pacific integration a reality has been the United States; over the past decade it has emerged as first- or second-largest trading partner of every significant Asian state, including Japan, Korea, the Philippines, Thailand and Singapore. It ranks third, after Japan and Hong Kong, in the commerce of China. In contrast, by 1986 not one European state was among the top three trading partners of any major East Asia state.

The relative absence of European businesses from the Pacific region reflects the Continent’s movement toward its own, decidedly separate economic destiny. Suffering from high unemployment, generally sluggish economic and population growth, the one-time rulers of other continents now increasingly focus attention on home redoubts. In 1958, for example, roughly one-third of European trade was between continental countries. By 1985 intraregional trade accounted for the majority of European commerce.

These trends are likely to be accelerated by the move toward economic union and, as the Economist magazine has noted, it is likely to take on a distinctly “mercantilist flavor.”

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In Europe, 12 million largely inefficient farmers are provided massive subsidies to compete against more efficient producers in countries such as the United States, Canada and Australia. As a result Europe, once the largest market for American produce, now dumps its own surpluses on world markets, depressing prices and cutting potential markets for U.S. farmers. In contrast, despite the much criticized system of quotas and restrictions on rice imports, Japan has emerged as clearly the leading purchaser of U.S. farm goods; Taiwan, South Korea and Hong Kong also buy heavily.

A similar picture is developing in industry, where European interventionist traditions along with high unemployment underlie protectionist logic. Seeking to protect against the industrial and technological might of the United States and Japan, most major European countries provide mammoth subsidies for industry, roughly double those in America and Japan.

In the same vein, American and Japanese companies are excluded from European research projects in high-technology and defense. Although U.S. firms account for nearly 5% of the community’s gross national product, European states increasingly pressure each other to “buy European.” Witness the effort to break up AT&T;'s sales efforts within the French telecommunications system. Projects by Japanese companies in Europe, including the building of new plants on the Continent, also face growing resistance from Brussels.

Driven by such policies, leaders in the Pacific nations are beginning to reconsider the economic world order. Some broad features of the new thinking surfaced recently in testimony given by Asian government officials before the U.S. International Trade Commission. Key political leaders from those countries--convinced of the growing need to harmonize differences in accounting and business practices--increasingly promote the need for a more formal structure of Pacific-wide economic cooperation.

Organizations such as the Pacific Economic Cooperation Conference (PECC), a group of business and political leaders from 15 Pacific countries, are already trying to build overlapping economic, social and political ties. In sharp contrast to the European mercantilist model, PECC and other promoters of such an alliance--reflecting the largely unsubsidized nature of their economies--seek to develop what former U.S. Ambassador to Japan Mike Mansfield has called a “market liberalization club,” to advocate open markets as a means of spurring economic growth.

Such a coalition would make sense for all those involved. The benefits would be particularly profound for nations such as Mexico, suffering major social, political and economic problems next door to the United States. By investing heavily in Mexico, Japan and other nations could help alleviate these profound difficulties without exacerbating Mexican fears of dependence on the United States.

To become a reality, however, a “Pacific coalition” requires massive rethinking of the American world role, starting with U.S. recognition that North America’s future will be decisively less European-leaning in trade, capital flows and demography.

Instead of listening to siren calls for protection against Asia’s rising economic powers, alliance could provide the essential elements--expanding markets and greater regional stability--of a prosperous new era for all nations along the Pacific.

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