Walker's World: APEC's golden eggs

WASHINGTON, Sept. 4 (UPI) -- There are few better ways to measure how much the world has changed than by comparing this week’s summit in Australia of the Asia-Pacific Economic Cooperation with the early hopes that attended the founding of the organization 15 years ago.

As originally envisaged by the first President Bush in 1989, APEC would bring together the leaders of the Pacific Rim countries and serve as a way to integrate China and Mikhail Gorbachev’s fast-reforming Soviet Union into the global economy.

With strong backing from Australian Premier Paul Keating and a few setbacks along the way in Tiananmen Square and with Gorbachev’s fall, the APEC process finally took off under President Clinton as a forum in which leaders of the world’s fastest-growing region could confer on trade, development and economic policies. It has worked extraordinarily well, at least in economic terms, the combined gross domestic product of APEC members tripling since 1989 to more than $35 trillion.

It gave high-level political backing to a process of globalization that was essentially U.S.-led, with an inherent bias toward free trade, free markets and free institutions. It was thus a classic symbol of those early years of economic and political optimism that followed the end of the Cold War, when Francis Fukuyama wrote of “the end of ideology” and liberal democracy seemed the comfortable and obvious course for the world’s political future.

But as the current President Bush arrived in Sydney this week, the geopolitical and geo-economic landscape has changed dramatically. The United States, whose dominance of the first APEC sessions was beyond question, is now less respected, less dominant and a very great deal more in debt. Russia and China, whose political leaders have little time for political democracy as the West understands it, are booming, resurgent, rearming and sitting on piles of U.S. dollars and American debt. Between them, Russia and China hold well over $1.5 trillion in U.S. cash and securities.

Moreover, China does not seem to be overexerting itself in helping to restrain North Korea’s nuclear ambitions, just as Russia seems less than enthusiastic for any meaningful measures to block Iran from becoming a nuclear power. The joint military exercises that Russian and Chinese troops staged last month in Central Asia as part of the Shanghai Cooperation Organization symbolized their joint policy for the deliberate exclusion of the United States from Central Asian affairs.

So there will be a certain edginess to this week’s meeting in Sydney Harbor’s iconic opera house, beyond the very sharp differences between the various members over what to do about greenhouse gas emissions and climate change, and beyond the inevitable gathering of anti-globalization protesters, sealed off behind a 3-mile, 10-foot security fence already dubbed the "Great Wall of APEC."

The edginess has two main sources: economic and military. The latest flurries in the world’s capital markets have unsettled everybody, because political leaders are not quite sure they understand what is going on. They are familiar with the mechanisms of an ordinary recession or a stock market fall, but this latest crisis of structured investment vehicles and derivatives is too complex even for many of the market professionals and the ratings agencies.

What they do know is that consumption in the United States is likely to flatten or even shrink, which will hurt the Chinese and other Asian exporters whose prosperity depends on the endless appetite of the vast U.S. market. Chinese textile mills and toy factories, Indian steelmakers, Korean shipbuilders and Japanese automakers have all been investing heavily to increase production for what they thought would be the ever-expanding markets of the Pacific Rim. If the United States stops buying, those new factories and assembly lines will have trouble finding customers.

Just as worrying are the darkening clouds over Asian security, the still-distant sound of war drums being beaten and sabers being rattled. China’s rearmament drive has now been matched by Japan, which is building helicopter carriers and seeking to buy the advanced U.S.-made F-22 Raptor warplane. Taiwan’s national Parliament has finally approved a mammoth $20 billion arms package, including hunter-killer submarines and anti-submarine air and sea platforms, first offered by the Bush administration more than five years ago. South Korea, aware that its faces a North Korea with crude atomic bombs, is modernizing its air force and buying anti-missile systems.

Keating, Australia’s former prime minister and one of APEC’s founding fathers, issued a solemn warning to APEC’s 21 leaders, whose countries account for more than a third of the world's population, 60 percent of global GDP and 47 percent of world trade volume, in a speech to an Australian think tank last week.

“As things stand, the most dangerous part of the world is not the Middle East, though of course that is dangerous, nor even those always simmering tensions between India and Pakistan,” Keating said. “In my opinion, the most seriously dangerous part of the world is north Asia, within that triangle of unresolved tensions between China and Japan and the Korean peninsula.”

Keating urged Australia’s current Prime Minister John Howard to put the security issue at the top of the APEC agenda ahead of economic and trade issues.

“It’s time to get a real conversation going about political and strategic accommodation in north Asia, to encourage China to include a future for Japan in its regional view of things, and to oblige Japan to include a point of accommodation with China which goes to Japan’s economic future, its declining population and some real recognition of the none-too-laughable part of its 20th century history,” Keating said.

It is not clear that Bush, now close to being a lame duck, will take up this challenge, though his own strategic policies of building closer alliances with India, Japan and Australia to balance the rise of China have been the backdrop to the new security concerns.

But on one thing all the 21 APEC members can agree. In his invitation to this meeting, Australia’s Howard noted that security is “the oxygen of prosperity” in the Asia-Pacific region. The military buildups and the growing strategic rivalries could between them throttle the APEC goose and its golden eggs of prosperity.