Posted courtesy of The Next Silicon Valley:

Japan's read of Apec tea leaves
By Richard K. Wallace on November 10, 2009 8:58 PM

APEC is known as the Asia summit where thought leadership and lofty global discussions converge, and where nothing gets done. That being the case, APEC messages and meetings are subject to intense scrutiny by observers in search of meaning, motivation, or intention that might reflect on eventual regional outcomes.

APEC, the 21-member Asia-Pacific Economic Cooperation (APEC) forum took place in Singapore this week and is in the media spotlight as part of the global growth and development story unfolding in the Pacific and Asian economies. It's also part of the lead up to Sunday's meeting of the 10 member Association of Southeast Asian Nations. in Bankok, Thailand.

There, U.S. President Obama will meet the 10 leads of the member countries of the Association of Southeast Asian Nations (ASEAN) in the first ever U.S.-ASEAN Summit. ASEAN includes Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand, and Vietnam. Together, these countries include two U.S. treaty allies (the Philippines and Thailand) and the world's busiest trading route--the Strait of Malacca. ASEAN is the world's most trade-dependent formal grouping of nations, with trade accounting for nearly 100 percent of its $1.3-trillion gross domestic product. It is also the fifth-largest trading partner of the United States and home to 650 million people. This Critical Questions touches on key issues related the inaugural U.S.-ASEAN Summit. *Source: Center for Strategic & International Studies.

According to recent news reports, in 2008 China overtook the U.S. as Southeast Asia's third-largest trading partner with $193 billion in two-way trade. In August, Beijing finalized a free-trade pact with the 10-member Association of Southeast Asian Nations, which is likely to further boost ties, observers prediect.

The result? Intense new China watching in Washington, Japan and other world capitals.

"It's amazing what China's good fortune has done for the world," said William Overholt, from Harvard University's Kennedy School of Government in a published report. "In refloating the world economy, there are only two countries that can allocate resources on a scale to get the global economy going again--the US and China.'

So where does Japan, Southeast Asia's second largest trading partner, perceive the changing world that surrounds it and why does Japan matter?

Japan's outlook may be crucial to the region for several reasons. First, Japan's recent elections have brought in a new government that seems destined to develop closer, more connected relations with the U.S., mostly because these two great trading powers have common interests in the region.

The excerpts below from JETRO's November 2009 newsletter provide very valuable insight and a better understanding of new and evolving economic trends in this region, beginning with the recognition that Japan now recognizes that East Asia "represents an important market as well as supply platform."

What role technology trade - and technology development, will play in this new, unfolding scenario is what we'll be watching for most closely in the months and year ahead at The Next Silicon Valley

• In 1990 only 11.4% of Japanese electronics manufacturing output was produced offshore, but by 2007 that share had risen to 45.5%. Today, however, Japanese companies are coming to realize China, India, Indonesia and other countries -- once seen as wellsprings of cheap labor and low-cost manufacturing -- are now thriving markets in their own right. The creation of manufacturing throughout the region has created rising incomes and the birth of new consumer markets outside the traditional, and now shrinking, export markets of the US and Europe.
• APEC strives to develop workable strategies in trade and economic diplomacy and has become the central pillar of trans-regional architecture in East Asia and the Pacific. Its' objective is to enhance economic growth and prosperity in the region and to strengthen the member economies. Members account for approximately 40% of the world's population and about 44% of world trade.
• First, since Asia-Pacific is becoming increasingly important as a driver of global growth, APEC is a forum that can be used to facilitate sustainable growth while strengthening rules for trade and investment.
• Second, APEC can help to address the economic imbalances that have arisen among regional economic powers by contributing to a new macroeconomic regime that can correct one-directional excesses in supply and demand.
• Third, global climate change needs have to be addressed, and APEC can help to reconcile differences between emerging economies with fewer resources and developed economies while determining ways to share the burden multilaterally.
• Fourth, globalization is often seen as the cause of income disparities and dislocations in domestic economies, leading to fear, anxiety and resistance to change. APEC can help to find ways to mitigate these "negative effects" to preserve the social consensus necessary for further change and reform.
• Fifth, APEC can seek to minimize the impact of massive fluctuations in commodity prices such as those for oil and food since they affect low-income individuals and disrupt the incentives for exploration activity and the development of new alternative energy technologies.
• "APEC is not a negotiating body like the WTO, so it can serve as a laboratory for new initiatives and economic measures. Some criticize APEC as non-binding and thus lacking impact, but APEC's non-binding nature is integral to its beauty. Precisely because it is not binding, it enables member economies to discuss a wide range of issues not possible at the WTO."
• Japan's emerging APEC agenda will build on the leadership of Prime Minister Hatoyama, who has announced his intention to help build a strong East Asian community. The Prime Minister noted "Reducing the region's security risks and sharing each others' economic dynamism based on the principle of 'open regionalism' will result in tremendous benefits not only for Japan but also for the region and the international community.
• However, the Prime Minister emphasized, there is no way to realize this vision in the Asia Pacific region without the US. The concept of an East Asian community "certainly is not intended to exclude the US dollar or the United States. Quite the contrary, as a step beyond this initiative [we] believe we should envisage an Asia-Pacific community, and [we] do not think that this could readily be achieved without the United States."

Download the full contents of this newsletter here.

For additional information on economic and financial trends in Japan contact http://www.jetro.org/contact

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