Heading off Trade 'Regionalism' in the Pacific Basin

Article excerpt

IS the world fated to split into three huge trading blocs - Europe, North America, and East Asia?

To some, the prospect is a nightmare; to others, an opportunity. I would have to place myself among those who, like former Federal Reserve Board Chairman Paul Volcker, are troubled by "this vision of a tripolar world."

The nightmare school believes that Europe, the United States, and Japan enjoy affluence today in large measure because of the progressive lifting of global trade barriers since World War II. They see further growth endangered by protectionism and by retreat into "fortress" mentalities.

Those who want the blocs are mostly protectionists who say that the US should look to its own defenses through free trade agreements with Canada, Mexico, and perhaps others in the New World. The European Community is already a trading bloc. Japan, which has benefited the most from free trade, has been indecisive and slow in opening its own markets. It has yet to respond to a proposal from Malaysian Prime Minister Mahathir Mohamad for an East Asian Economic Group that would include Japan while leaving the US, Canada, and Australia out.

A Washington think tank last week launched an initiative to defuse the seemingly inexorable buildup of trade tensions and competing blocs. The organization, which has the unwieldy title of "Commission on US-Japan Relations for the Twenty-First Century," is primarily concerned with US-Japan relations, but looks on the entire Pacific Basin as a region in which Tokyo and Washington could enjoy a cooperative rather than a competitive relationship.

The initiative was aired at a conference chaired by Edson Spencer, former CEO of Minneapolis Honeywell. Mr. Volcker was the keynote speaker, and economist Lawrence B. Krause gave a provocative paper entitled "Can the Pacific Save the US-Japan Economic Relationship?"

"The forces of economic regionalism are gathering strength," Volcker told the conference. Professor Krause proposed that these forces be deflected and US-Japan tensions be defused by establishing a broader framework for trans- Pacific relationships.

The 15 countries of the Pacific Basin, including the US and Japan, have the most dynamic and growing economies in the world, Krause said, and already have close economic relations. In 1988, 65.7 percent of Pacific Basin trade was among Basin countries, whereas intra-EC trade was somewhat less, 58. …