NE Asia struggles to overcome divisions

A vast Asian region described as a "treasure trove" of natural resources but divided by a legacy of cold war and other tensions is struggling to overcome this inertia and achieve its potential for economic development and political stability.

Dr. Lee Jay Cho, chairman of the North East Asia Economic Forum, and a high-level delegation from the region explained that the area covered the Russian Far East, Mongolia, Northeast China, the two Koreas and Japan, and another expert added that its multicultural population totalled more than 320 million persons over 9.3 million square kilometres. Income and development disparities, however, are also evident in the data that shows Japan's largely urban and modern per capita GDP as 72 times that of Mongolia that is emerging from a nomadic society.

Natural Gas Fields and Pipelines in North East Asia

Dr. Yasuo Sawai, executive vice president of Japan's National Institute for Research Advancement also underlined that the trade relationship between Japan, China and Korea amounted to 91% of the entire intra-regional trade. But others stressed that Cold War friction between North Korea and South Korea and Japan as well as some suspicions and bitterness between Japan and other states had stymied any formal regional integration until the more recent functional integration represented by the recent trade and investment surge focusing on China.

Japanese, Korean and other Asian and European backers of such regional collaborative ventures outlined their vision of major energy pipeline, transcontinental railway and development banking initiatives at a two-day gathering at the European Parliament December 4 and 5. But they did not dwell at great length on some of these issues, including the proposed transkorean railway, which has also attracted considerable attention and is the subject of ongoing diplomacy and work since the bilateral summit of 2000, and the population and migration problems, among others. For example, the two Koreas in June reconnected the railway lines cut more than 50 years earlier at the outbreak of the Korean War and in December agreed to start building related signals, communications and electricity systems early in 2004. The rail line, which could connect to the Transsiberian Railway and to countries in the region could also offer an overload route across the entire Eurasian Continent for freight and passengers to Europe, as far away as Finland, and reduce time and distance, thereby reducing Asia's dependence on maritime traffic through potentially dangerous chokepoints in the Straits of Malacca.

Political environment complex

They spoke of the vast natural gas and oil resources in the Russian Far East that could help meet the region's current and growing demands, railway corridors that could open commercial and industrial opportunities and a regional banking institution that could take these projects from the drawing boards toward implementation. The extensive natural gas fields in Siberia, Sakhalin and other areas could be a key not only to improve the recent depression of that region and supply much-needed energy resources and also help cover the shortages of North Korea that lie at the heart of that country's political instability, but also diversify the region's dependence on Middle East oil and indigenous coal and overcome environmental degradation,

But it is also evident that the very political divisions that they could help break down remain as obstacles to their fulfilment. Glyn Ford of the European Parliament, who organised the gathering, stressed that the crisis over the North Korean nuclear programme was "overshadowing" all other political issues. He also noted that the EU's policy of "critical engagement" with the DPRK was marked by the establishment of relations with Pyongyang by 13 of the 15 EU members and its continued food and humanitarian aid made the EU one of the largest aid donors to the country. But he also underlined that more assistance was being suspended because of the nuclear crisis, but that such aid could be directed toward supporting the DPRK's limited attempts at reform. Dr. Axel Berkofsky, research associate at the European Institute of Asian Studies in Brussels, also pointed to the numerous unresolved issues in the way of closer regional cooperation. (see related article on DPRK nuclear controversy, East Asia section)

Taro Nakayama, Member of the Japanese Diet, Chairman of the Committee for the Promotion of an Asian Energy Community and former Minister of Foreign Affairs, underlined that issues of population, energy and food will become particularly important in the region and a union of regional countries will be necessary, learning lessons from the EU experience. Duck-Woo Nam, former Prime Minister of Korea and chair of the North East Asia Economic Forum, also added that the region could learn from the European experience in overcoming difficulties of cooperation. Lord Inglewood, a Member of the European Parliament, focused on European-Chinese relations, listing many of the issues on the bilateral agenda. (see related article on 2004 EU-China Summit, EU, East Asia sections)

Energy dependency high

Closer examination of the regional energy profile was launched by a presentation from Dr. Kyung-Hwan Toh, principal energy economist in charge of Northeast Asia at the International Energy Agency at the OECD in Paris, who noted that China has already the second leading electricity capacity in the world, but is facing a rapidly rising demand as its economy expands. Other characteristics of the region include the fact that China represents one-third of the world's oil demand increase and the region is highly dependent of Middle East oil despite vast unexploited resources, especially in the Russian Far East. He also observed that more than $3 trillion was needed in energy investments in the Asia-Pacific region, but that to achieve such investments, reforms are needed in energy pricing and collection, corporate governance, stable investment regimes, domestic financial markets and incentives for private and foreign investors.

Dr. Mitsuho Uchida, associate vice president of the Japanese Electric Power Industry Research Institute, also noted that greater energy efficiency and diversification was imperative to reach the needs for power and environmental objectives in the region. He stressed that an energy dialogue was required in the region, noting that some initial steps had been taken in this direction in recent years.

Vladimir Ivanov, director of the Economic Research Institute for Northeast Asia, speaking for Russian Duma Member Evgeny N. Galichanin, underlined that the Eastern region of Russia was almost entirely dependent on extra-regional shipments of oil and petroleum products, while it had vast oil and gas reserves and its existing pipelines can only provide for a fraction of the oil and natural gas needs for a very limited number of localities. He indicated that even the development of adequate pipelines to supply oil and gas to the domestic Russian markets could be dependent on external financing to also export such products to regional neighbours. He pointed the interest and importance of the Angarsk-Nakhodka pipeline project to both China and Japan, as well Russia and the variables in extension and costs beyond Russia;

Regional bank proposed

Another major element to both regional and energy development in Northeast Asia is the need to develop a sufficiently focused international financial institution to fill the gaps left by the other multilateral practices of the World Bank and Asian Development Bank; according to Dr. Stanley Katz, former executive vice president of the ADB. He said that for most of the past five decades, bilateral aid donors, multilateral development banks and the IMF had virtually neglected the region characterised as a "cold-war orphan" behind the iron and bamboo curtains. Since NEA is a multinational region of states and provinces, it also does not meet the eligibility requirements for foreign assistance. Recent data from the ADB and IBRD indicated that total financing for NEA infrastructure projects was between $135 and $295 million a year, far short of the $1.5 billion originally projected by these organisations.

Dr. Katz explained that under the auspices of the Northeast Asia Economic Forum a plan proposal had been drafted for the creation of a regional development bank, roughly comparable to the ADB, EBRD and IBRD, to be subscribed in part by governments in the region, international financial institutions, private investments and credits and the bank's long-term borrowings on international capital markets. Because of the Triple A credit rating expected because of governments' backing, the proposed institution could borrow on good terms and bring in the capital required to finance the region's infrastructure needs. Such an institution would also be able to address the high-risk nature of projects in the region, he added.

However, from the comments from Japanese official representatives attending the session, it was clear that Japan remains unconvinced of the feasibility of such a project. Despite the ardent backing of the proposed bank's supporters present at the session, who sometimes cited the support of personalities such as a former Chinese Central Bank Governor who is now the Governor of Manchuria and former World Bank Vice President Joseph Stiglitz, Japanese participants offered strong counterarguments. Seung-Yun Lee, former Korean Deputy Prime Minister, was one of the supporters, who noted the vast amount of foreign exchange reserves held by the major economies of the region, including Taiwan, estimated in excess of $400 billion. But he also underscored the large military spending and presence in the region which discouraged investments. And he also noted the competitive nature of relations between many of the countries.

Shigeru Nozaki, Senior Executive Director of the Japan Bank for International Cooperation noted that the subject of regional cooperation and a regional financial institution had been the subject of significant discussions, in some cases for several years. But in view of major doubts and uncertainties about such an initiative, he expressed his organisation's belief that "the first essential step is for each of the countries involved to adopt a positive attitude and do their utmost with regard to matters such as improving investment environment and moderating political risks." Noting the experience of the Mekong River development region in organising multilayered financing for major infrastructure projects in that region of Southeast Asia, and the complex and risk-laden situation in NEA, he remarked that "Rather than solving infrastructure project funding problems in the Northeast Asia region solely through the establishment of a Northeast Asian Regional Development Bank, Japan Bank for International Cooperation, which have been financing infrastructure projects in developing countries, feels that all the countries involved need to start work on finding multi-layered solutions to the problems I have talked about today and move forward towards the realisation of efficient funding."