Pacific Forum CSIS, Oct. 1998

The major foreign policy challenge facing the U.S. in Asia, therefore, is to balance the critical need to sustain the "world's most important bilateral relationship-bar none" between the U.S. and Japan with the equally compelling need to improve Sino-U.S. relations in order to maintain regional stability and prosperity and, in the worst case, avert a new Cold War.

The inter-relationship that we are describing is neither a three-way "strategic partnership" nor a big power condominium. Nor is it an equilateral triangle. The strongest, most important leg is, and must continue to be, the U.S.-Japan relationship. It provides the foundation upon which U.S. Asian security strategy, to include our all-important relationship with China, rests.

The U.S.-China link is the one that is most likely, if not given proper attention, to plunge the region into another bi-polar confrontation. But, if in our effort to improve Sino-U.S. relations, we put U.S.-Japan relations at risk, we end up worse off than we started. Despite the central role of the U.S.-Japan security alliance, the broader relationship is not, and should not be viewed as, a "zero-sum" game. When one side of the three way relationship improves, all three sides potentially benefit.

The goal here is to identify and build upon the common interests and objectives shared by all three nations in order to avoid misunderstandings or conflict and to better deal with potential regional crises.

The overall security situation in the Asia-Pacific region is as good or better than it has been at any time during this century. Cooperation and dialogue have become predominant trends. Beneath the surface, however, uncertainty remains about what the future will bring. While the prospects for conflict seem low in the near term, the potential for misunderstanding (and even open hostilities) remains and could grow, especially if relations among the U.S., China, and Japan become soured.

If the security situation has never been better in Asia, at least on the surface, the economic instability rocking the region presents countries with their greatest economic challenge in four decades. The persistence of the financial crisis is a seismic event that has shaken confidence and reduced real wealth. It has jolted the belief in conventional economic assumptions and promises to alter the economic landscape for years to come. This is especially devastating for the Asia-Pacific region, whose rapid economic growth and subsequent rise of economic interdependence was a celebrated facet of inter-governmental relations, countering traditional undercurrents of political mistrust.

The enduring and expanding financial crisis may endanger the prospect of keeping world markets open. The crisis that was once regional has gone global, and has sparked a heated debate among economists and economic officials about roots of the crisis and appropriate cures.

One would hope that the U.S., China, and Japan take advantage of their participation in the APEC Leaders Meeting in Kuala Lumpur in November 1998 to practice trilateral cooperation. Much can be accomplished in developing a consensus on the rebuilding of the global economic architecture among these three critically important global economic players. But the U.S. and Japan are already at loggerheads over how to implement APEC's Early Voluntary Sector Liberalization which calls for reducing tariffs in nine sectors. In addition to stalled U.S.-China negotiations over WTO, China has done some backsliding recently that has the U.S. upset over its banning of a type of joint venture that has allowed U.S. companies to invest in the telecommunications industry. To date, the proposals for trilateral cooperation are far greater than the political will to achieve it. The prospects for meaningful trilateral cooperation appear dim, indeed.

Even as economic problems simmer on, the potential for outright conflict in the region, while currently low, cannot be ignored. As we survey the East Asian landscape today, we still see contested borders between China and Vietnam and among several of the ASEAN states. We see the Spratly, Senkaku/Diaoyu, Tokdo/Takashima (and other contested island) disputes, a potentially explosive Burma, an unsettled and unsettling Cambodia, an ever explosive Korean peninsula, and a firm rejection by Taiwan of the mainland's preferred "one country, two systems" formula for reunification.

We also see broad "have versus have-not" gaps between and within nations which have been exacerbated by the current Asia financial crisis. The financial crises being experienced by many of the Asian tigers will also

mandate corrective actions which may generate domestic unrest, as well as increased tensions between Southeast Asia and the major Western financial powers over the sources of, and solutions to, the crisis.

Any of the above potential conflicts could place strains on the three-way relationship, although in some instances -- the Korean Peninsula in particular -- they also provide opportunities for cooperation built upon mutual interests and common objectives.

However, a few lingering areas of concern either are, or could quickly become, major points of contention pitting China against the United States and, most probably , Japan as well. A clear understanding of one another's positions as regards these potential flashpoints is essential to minimize their prospects of disrupting the current harmony that all have worked so hard to preserve.

Specifically, dialogue is needed on Taiwan since this is the area of greatest sensitivity where a common understanding is essential. A second potential confrontation point involves the continuing territorial dispute in the South China Sea, given international concern over freedom of the seas and the peaceful settlement of territorial disputes. In addition, Chinese concerns regarding the 1997 U.S.-Japan Defense Guidelines Review (aimed at revitalizing the U.S.-Japan alliance) must be addressed.

This is by no means an exhaustive list of potential contentious issues. Disagreements continue over human rights, trade (including WTO accession), and proliferation issues. However, while such issues are continuing irritants that disrupt regional harmony, they are unlikely to prompt a serious breakdown in the relationship or lead to conflict or a new Cold War.

Finally the U.S. and Japan must cope with growing bilateral tensions caused by each nation's approach toward dealing with the ongoing Asian financial crisis, not because these disagreements are likely to degenerate into conflict but because they can chip away at the base of public support required to sustain the alliance in both democracies.

All three states have a common interest in promoting peace and stability regionally and globally; seeing an end to ethnic, religious, or territorial disputes; halting the proliferation of weapons of mass destruction on the Korean Peninsula and elsewhere; maintaining a generally benign Northeast Asian security environment; and continued economic progress and reform. All three also want to see the China-Taiwan issue settled by peaceful means. All also have a vested interest in ensuring freedom of navigation and the security of the vital Asia-Pacific sea lanes upon which their respective economies rely.

If harmony is to be maintained over the near to mid-term, and if mutual trust and confidence in one another is to be built, all three nations must concentrate their efforts on building upon these common objectives. They must also identify and jointly exploit opportunities for closer trilateral economic cooperation, including cooperation on a series of economic issues that have become widely recognized as "non-traditional security concerns" -- energy, environment, and food security.

While the U.S. and Japan have domestic problems in these three areas, China's economic development challenges are of such magnitude that it simply cannot solve all of the problems alone. All three countries will benefit from further cooperation in these three areas, but it is relatively unexplored territory at the diplomatic level. Tackling the issues of environment, energy, and food security are difficult for developed and developing countries alike. Each area is sufficiently complex to warrant attention by separate government agencies and policies, but effective problem solving requires that the areas be approached as an inter-related set of issues.

While near- and mid-term common objectives and opportunities for economic cooperation provide both the basis and the necessary incentive for three way cooperation and confidence building today, long-term cooperation is also contingent on compatible long-term strategic visions.

When American policy-makers envision East Asia at the dawn of the 21st century, they hope to see a stable, prosperous region in which the U.S. is still a primary stabilizing factor and is seen as such by most regional states; an Asia in which the U.S. remains fully engaged politically, economically, and militarily.

In the economic environment, U.S. long-term strategic vision centers on building an international system out of the current turmoil that is considered both equitable and indispensable for economic development in developed and developing countries alike. The U.S. wants to see an international trade and investment regime that is more reciprocal to its own openness, but also where this openness benefits domestic economies as well through the establishment of accountable financial systems and good corporate governance.

Americans envision a Japan which is an accepted political as well as economic leader; a Japan that is more willing and able to play a positive role in promoting and protecting regional security, but within clearly defined boundaries that remain both transparent and reassuring to Japan's neighbors.

American policy-makers also seek a peaceful, prosperous, reunified Korean Peninsula that continues to view the U.S. both as an ally and as a regional balancer, and hopefully as an honest broker promoting improved relations between Tokyo and Seoul as well.

American policy-makers also seek a prosperous, cooperative, more politically-tolerant China that continues to see its fortunes inextricably intertwined with the rest of Asia and the West; a China that is as much a partner for peace in Asia as they hope Russia will be in Europe; a China which may not joyously welcome, but is at least accepting of and not actively working against, a continued American security role in the region.

The vision of most Japanese policy-makers closely coincides with this U.S. vision. At a minimum, it does not appear contrary to Japan's long-term interests or aspirations. Most Southeast Asian policy-makers also feel comfortable with (and are comforted by) this vision. Meanwhile, few Koreans residing south of the 38th parallel would argue about the desirability of a peacefully reunified Peninsula under Seoul's rule, although convincing their brothers to the north that this is a good idea remains a significant challenge.

This U.S. vision is one that Beijing should not see as threatening, even if Chinese leaders, perhaps understandably, might prefer a different Asia, one in which China and not the U.S. plays the primary regional balancer role; where Seoul looks to Beijing for its security guarantees; where U.S. military forces no longer reside on the Korean Peninsula (or elsewhere in Asia); and where Japan's regional leadership role (politically and economically, as well as militarily) is kept to a minimum.

China's view of itself as the primary future regional balancer is not necessarily threatening, although it has the capability of becoming so if Beijing tries to force this role on the region rather than letting it evolve (or fail to evolve) naturally. However, if China's preferred end-state is substantially diminished U.S. presence and influence in Asia, this vision clearly runs counter to U.S. interests or aspirations and thus places both nations on a potential collision course.

As noted, maintaining a harmonious three-way relationship requires, first and foremost, that all three sets of bilateral relationships remain amicable. The challenge for U.S. policy makers is to balance the critical need to sustain the U.S.-Japan relationship with the equally compelling need to strengthen Sino-U.S. relations, while at the same time encouraging both Japan and China to manage the third leg of this triangle.

The key to U.S. security strategy in Asia is the U.S.-Japan alliance relationship. Japan is and should continue to be seen as America's principal strategic partner and should be referred to, and refer to itself, in those terms. Top priority must be assigned to the maintenance of this all-important political-economic-military relationship.

Sustaining and nurturing the overall U.S.-Japan relationship requires continued efforts to reinvigorate the alliance to make it more relevant in the post-Cold War world and to make it more equal in the eyes of both partners. Also needed is greater effort to place some of the more contentious aspects of the relationship (including ever-present trade disputes) in the broader context of the overall security relationship.

Greater public awareness of the nature, importance, and continued relevance of the security relationship is also needed. U.S. and Japanese politicians need to recognize the detrimental affect that gaiatsu and America-bashing or Japan-bashing (or Japan-passing) can have on public support for the alliance.

Defense Issues. Japan should set a timetable to move forward in the Diet with its already-submitted Defense Guidelines implementation package. Failure to legislatively implement the Guidelines is a minor irritant today but could become a major issue were another regional crisis to occur.

Once the fall Okinawa Prefecture elections are completed, Tokyo should confront Okinawan leaders with the realities of needing to move forward to enact the provisions of the Special Action Committee on Okinawa. Political courage is needed on both sides if the U.S. plan to reduce the American military's "footprint" in Okinawa is to be realized.

Economic Issues. Longstanding bilateral ties mostly keep economic conflicts from poisoning the security alliance, but equity issues do arise. The U.S. needs to be mindful that the asymmetry in military relations not spill over into economic relations by heavy-handed lecturing on economic policy. For its part, Japan must realize that the U.S. cannot sustain the steady increase in trade deficits without a political backlash.

It is clear that Japan naturally feels a closer economic relationship with Asia, just as geographic proximity draws the U.S. economy close to Canada and Mexico. The U.S. should give Japan the diplomatic space to further develop this role rather than feel threatened by it.

American and Japanese leaders must be more proactive in defining and defending their alliance with their Chinese counterparts. It is critically important both to the maintenance of the alliance and to ensuring Chinese understanding of its fundamental place in U.S. security thinking, that Chinese audiences be exposed to high-level American thinking about the centrality of the U.S.-Japan alliance.

U.S.-China. Both countries understand how important it is to have cordial relations with the other. Neither wants an adversarial relationship and both understand that considerable effort is required to overcome forces in each nation that remain suspicious (if not paranoid) about the other's intentions. Talk about "building toward a strategic partnership" is premature, however. More useful today would be strategic dialogue -- serious discussion on strategic issues and on the potential differences in our respective long-term visions. Failure to resolve these differences increases the likelihood of a grand collision over time, despite examples of near-term overlapping interests and cooperation today.

China must also refrain from thinking of U.S.-Japan/U.S.-China relations in zero-sum terms. The U.S. must remain firm in responding that improved U.S.-China relations will not come at the expense of U.S.-Japan relations and that Chinese thinking in this direction will undermine prospects for improved U.S.-China ties.

Taiwan. Strategic dialogue is also necessary between the U.S. and China over Taiwan, not to develop solutions to the current standoff -- solutions can only come from direct dialogue between both sides -- but to ensure that both understand the other's genuine security concerns. Simply stating that Taiwan is an internal Chinese matter does not make it so. Even if solving the problem is an internal matter, failure to solve it remains an international concern. Like it or not, American credibility in Asia is tied to its de facto defense commitment to Taiwan. An American failure to respond to an unprovoked Chinese attack on Taiwan would result in the unravelling of America's security alliances in Asia and its regional, if not international credibility.

The U.S. also needs to understand, and must help relay to Taiwan, where China's "lines in the sand" are as regards the issue of Taiwan independence. Both sides have proven they can coexist with differing interpretations of "one China." What's needed now is a mutually acceptable common definition that addresses mainland sovereignty concerns and Taiwanese aspirations.

Economic Issues. China and the United States could be close economic partners, given their comparative levels of development. China's progress in developing the kinds of economic institutions to manage the economy without state intrusiveness will always be slower than what the United States would prefer, and differences over the pace and nature of China's economic development will likely be a constant irritant for years to come. China's monopsony power, where it can essentially use the huge promise of its market to derive competitive concessions from corporations in politically-favored countries, is also indicative to the U.S. that China doesn't play by the rules.

Nevertheless, neither China and the United States want to return to the vitriolics of the early 1990s, and have perhaps learned that politicizing economic disputes is a dangerous path to tread. Replacing the shouting match is painstaking dialogue to resolve outstanding issues. While this agenda seems relatively meager, an overly ambitious agenda of economic cooperation would be counterproductive.

Trilateral Cooperation. For three-part harmony to be sustained, high-level trilateral dialogue is needed. To date, Beijing has been reluctant to accept a three-way summit or other forms of high-level official three-way dialogue. Hopefully, in time, Beijing will reconsider this position. In the interim, a de facto three-way summit remains a possibility whenever the three leaders come together at the annual APEC Leaders' Meetings.

Non-governmental track two initiatives also serve to promote better three-way understanding. Participation of government officials in track two forums is particularly useful, especially if they come in their private capacities and remain open to the expression of new ideas. Discussions about the three-way relationship in broader forums would also be helpful in sensitizing the three states to regional expectations and concerns regarding the nature of the three-way relationship.

Trilateral Economic Issues. The three countries have so much to offer each other in economic terms that they cannot afford to squander opportunities. While each country realizes it needs dynamic economic relationships with the other two, domestic policies -- and politics -- tend to guide the three toward more conflictive than cooperative economic relations. The United States is the most open economy in both trade and investment in the world by far, yet suffers through haltingly slow progress and dramatic reversals in increasing reciprocity in Japan and China. There is a perceived inequity by the United States that both China and Japan resent, especially during recent times of vibrant growth in the U.S. This tends to draw China and Japan to share closer economic interests, especially in multilateral fora such as APEC. As in the security arena, these differences in shared economic interests are manageable as long as two of the three do not try to develop relations at the expense of the third.

The best way forward on trilateral economic relations appears to be in transnational issues of environment, energy, and food security. These offer more clearly- defined opportunities for cooperation than do broader trade and investment issues. One important goal of expanded economic cooperation is promoting greater regional stability by expanding mutual interdependence.

Broader International Actions. If a new, equitable economic system is to be built out of the current Asian financial turmoil, the United States needs to involve the best thinking of Asian analysts and officials in addressing admitted weaknesses in how global financial capital flows operate. U.S. leadership must be diligent to ensure that the international economic system is deemed fair and just, even while it works to assure that domestic roots of the crisis are being addressed by the regional economies.

In this light, the role of APEC may need to adapt to changed times. The United States, together with Canada and Australia, has particularly sought to achieve tangible gains in trade liberalization through APEC, and has been criticized for pushing the process too quickly. But trade liberalization is important, even more so for troubled economies.

APEC may want to include a new focus on capital flows in Asia, in essence adapting their building block approach to trade in order to develop a consensus on a new architecture for the global economic system. The process of capital account liberalization is another area of inquiry that the IMF is undertaking and is extremely relevant to Asia. APEC is already accused of a vast agenda that accomplishes little, but these are areas where APEC member economies should provide input.

While the U.S. is and will likely remain the predominant economic power in the world, the future global economic environment will be increasingly populated by states that -- while admiring of U.S. openness and dynamism --will want to find their own ways to get from here to there. Current U.S. leadership has a way to go to reassure economies in crisis that maintaining an open economic system is in their best interests, and the groundwork needs to be laid now to avoid missed opportunities down the road.