- The Washington Times - Sunday, September 10, 2000

Forget the Information Age global village that advocates of trendy "globalization" claim is upon us. There is a very different and perhaps more troubling trend shaping the world of the early 21st century: regional fragmentation. Instead of becoming the McLuhanesque village as conventional wisdom suggests, the world is drifting slowly but steadily toward three separate economic and currency zones: a dollar, euro and an Asian bloc centered on the Japanese yen and the Chinese RMB currency.

This is happening incrementally, in the shadow of the much sexier process of globalization, instantaneous flows of information and capital symbolized by the Internet and dot.coms, which paradoxically, also makes it that much easier and logical to decentralize. If these trends continue over the coming two decades without a larger global framework of liberalizing trade, they may have adverse long-term economic and political consequences for U.S. interests.

Trade liberalization often is compared to riding a bicycle: You either move forward or fall off. As Bill Clinton pandered to myopic special interests in the Democratic Party and became the first president to lose so-called "fast track" trade negotiating authority, global trade liberalization ground to a halt. Under fast track, Congress can only approve or reject agreements, but not revise them. By retaining the ability to rewrite any agreement the president signs, Congress effectively removed presidential authority to reach new trade agreements.

Thus, since the 1993 North American Free Trade Agreement, there has been no expansion of free trade in the Americas even efforts to add exemplary free trading Chile have faltered. Nor is there any new global trade round in sight.

In the absence of global trade regimes keeping pace with a dynamic globalizing private sector, regional and even subregional trade agreements are filling the vacuum. Thus, the European Union deepens its integration by adopting the euro as a common currency and contemplates how to widen itself with further expansion to Turkey and the new democracies of Central Europe.

In Latin America, we see Andean Pacts, MERCOSUR in the Southern Cone, which Mexico's President-elect Vicente Fox is now considering joining. In Asia, the ASEAN Free Trade Area, the Australia-New Zealand free trade arrangement, new efforts to expand bilateral pacts between Singapore-Japan and Singapore-Korea, and a pan-Asian grouping, ASEAN+3, which dreams of becoming an Asian version of the EU, are beginning to evolve. Given that Asia represents some 25 percent of the world economy (and growing), if regional integration occurs at the expense of rather than as part of global integration, it could heighten a regional bias in the larger system of international relations.

But happening it is. In a recent essay in the Economist, Fred Bergsten, director of the prestigious Institute for International Economics, called attention to trends in Asia, away from the more open, inclusive Asia Pacific Economic Cooperation (APEC) forum and toward a new "Asians only" grouping, ASEAN+3, the 10-nation Association of Southeast Asian Nations (ASEAN) states plus China, Japan and South Korea. Mr. Bergsten correctly identified the regionalization trend, in part a result of the 1997-98 financial crisis, and in part, of the failure to build APEC into a functioning institution since its inception in 1989. APEC remains four adjectives in search of a noun. So Asians, delinking their currencies from the dollar, are moving, albeit very incrementally, toward an Asian Monetary Fund and perhaps regional trade arrangements modeled on the European Union. Already more than half of Asian trade is with others in the region.

OK, OK. It would be an exaggeration and at best, premature to draw analogies to the breakdown of the global trading system in the 1920s that played no small role in ushering in the Depression and helped spur World War II. U.S. trans-Atlantic and trans-Pacific trade and investment remain substantial. Europeans are baffled about how to create a fully integrated Europe, still lack any unified political or military role separate from trans-Atlantic institutions, and are struggling over EU expansion. Latin nations are increasingly contemplating dollarization and would generally prefer Ronald Reagan's vision of free trade from Alaska to Antarctica. And Asian machinations are barely in an embryonic stage. The last thing China wants is a yen zone and creating a yen-RMB basket of currencies would be problematic at best. Not to mention the persisting reality of an anemic Japanese economy hardly in a position to lead.

Once again, we have a "Pogo" problem, the famous cartoon character who exclaimed, "We have met the enemy, and he is us." A world of three economic and currency blocs could be a harbinger of a world of new antagonisms, one far more difficult to manage, with lines being drawn across the Atlantic and the Pacific. The cheese and beef wars with the EU may be just the beginning.

And the fallout will not be limited to the economic realm. Political calculations may increasingly be made on a regional basis. Already these trends appear a move to counterbalance what is perceived as U.S. arrogance, unreliability and a capricious use of power. Trans-Atlantic and trans-Pacific cooperation on global crises and global problems could likely become still more difficult. U.S. influence outside the Western Hemisphere may be sharply diminished over time.

But such a world is not inevitable. The missing ingredient, of course, is American leadership. The Clintonian approach to multilateralism has been that of Woody Allen, who once quipped that "90 percent of life is just showing up." Rather than project a vision of a post-Cold War order, Clintonistas showed up for meetings, like Madeleine Albright recently at the Asian gabfest, the ARF, or the hollow ritual of the Group of Seven, or the annual APEC meetings each November. This is called "engagement." New initiatives, particularly the pan-Asian "ASEAN+3" economic formation are in part a reaction against this vacuous process masquerading as multilateral diplomacy and lack of direction.

The challenge to the next American president is to recognize that the U.S. will not find itself in the world of the Single Superpower forever. Over the coming decades there will be a gradual drift toward a more multipolar world. To some degree, such regional economic concentrations are natural results of geography and other factors. But if they evolve in the absence of a larger global economic and financial framework that is in tune with the times, the consequences may a world far more difficult to manage.

The U.S. can either go with the flow of history one that is unlikely to unfold smoothly or conflict-free or take advantage of its current predominance to help reshape global economic, financial and political institutions so they reflect contemporary trends and realities and safeguard U.S. interests. This is precisely what American leadership accomplished in the aftermath of WW II. A world of three economic blocs (what of those outside all three, such as Russia, Africa and Central Asia?) would not, of course, be a rerun of the 1930s, but it would likely set the stage for new confrontations.

Robert A. Manning, a senior fellow and director of Asian Studies at the Council on Foreign Relations, is a former State Department policy adviser and author of the new book "The Asian Energy Factor: Myths and Dilemmas of Energy, Security and the Pacif



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