East Asian economic integration marches on. The region's individual economies are becoming one another's principal trading and investment partners.

The ASEAN-China FTA will be fully operational in 2010. The Republic of Korea and nine ASEAN economies have just signed their FTA. ASEAN and Japan are negotiating a comprehensive partnership agreement. These regional efforts and the

numerous bilateral FTAs recently concluded or nearing conclusion reflect both the

reality of the underlying interdependence and the resolve to pursue greater integration

of East Asia's component economies.

And these are happening just as East Asia's most powerful economic engine is once

again propelling the spirits and growth prospects of regional economies higher and

farther.

Yet, media stories and official communiques about cancelled bilateral talks,

controversial history textbooks and shrine visits, territorial violations by military vessels, contentious offshore oil and gas prospecting, and new national or local laws affecting sovereignty and territorial claims continue to erupt and paint a less than comforting picture of the region's stability and peace.

The unhealthy state of political relations in Northeast Asia causes the most alarm in

the immediate neighborhood. Small countries in the region would rather focus on

economic development particularly at this time, given the deep ravages of the Asian

financial crisis and SARS, and under the threatening clouds of continued terror scare,

high energy prices, bird flu break-out, and domestic political uncertainties.

Still, the non-event that worries all is the utter vacuum created by the suspension of

highest-level dialogue among the region's biggest states.

The whole world is concerned, because the peace and stability issues of East Asia

play out beyond the narrow confines of the regional stage. Key actors from outside

the region, particularly the United States, play crucial roles. The nuclear weapons

issues in the Korean peninsula, for instance, require the full cooperation of countries

both within and outside the region.

Indeed, any open antagonism between states in the region slows East Asian progress,

but China-Japan rivalry is most particularly worrisome. While economic interests of

countries in the region are proceeding to converge and at a rapid pace at that,

geopolitical interests are caught up in a vicious time warp. The world has been aware

of animosities generated by Japan's history with its neighbors in Northeast Asia. But

lately, this historical problem is being further compounded by such issues as territorial

disputes and potent rivalries in regional - if not hegemonic -influence.

Aside from increasing business uncertainties and weakening East Asia's voice on

regional and global issues, political and security disputes can threaten the existing equilibrium of power in East Asia, tilting it towards greater defense spending, for

instance.

The adverse impacts of an arms race will not only be on long-term economic growth

per se, but also on regional efforts to alleviate poverty. Japan's ODA, while gradually

decreasing, is still important for the region. ASEAN, particularly its newer members,

continue to require low-interest funding for their infrastructure needs and human

resources development. It would be a great loss if public resources that could raise

the quality of life would be channeled to arms spending.

Clearly, growing trade and investments - while necessary - are not sufficient to propel East Asia towards a regional community.

What is needed is the synchronization, within our foreign policies and regional efforts,

of geo-economic concerns with geo-political and security considerations. After all,

the success of East Asia's efforts to integrate its component economies depends not

only on the commitment of the governments and private sectors of each country, but

also on the peaceful conditions of the region.

As the European experience has shown, expanding and deepening economic

cooperation is good for peace. But the course of the European example will be very

hard for East Asia to follow. Aside from diverse cultural and religious backgrounds,

the political systems in East Asia also differ from country to country. Both are

probably reflections of the fact that Asia has not experienced political unity before,

unlike Europe, with its history of empire under the Romans and Charlemagne.

Levels of economic development, educational and living standards, and income here

are also not as closely clustered as in Europe.

Nevertheless, the European Union did not come into being in a day, through a single

agreement. Like a pearl, the EU was built by layers upon layers of technical

arrangements, and the institutionalization of those arrangements. And there lies a

major difference in the European and East Asian integration processes: while Europe

was guided by or proceeded through the establishment of institutions, East Asian

integration thus far, and basically only in the economic field, has been driven by

market forces - the result of active cross-border investments by multinational

companies, and the subsequent expansion of intra-regional trade.

East Asia, too, can be built layer by layer; there already is a whole range of

interlocking pluralistic arrangements on which to build further. But there is something

important it lacks: it has no match for the political will and the visionary leadership of France and Germany, the dominant powers in the European arrangement.

East Asia's quandary is that Japan and China - the dominant powers in the region -

find it difficult to assume a similar mantle of leadership that France and Germany took

on in post-war Europe. Thus, in East Asia, it is the smaller countries that are

positioned in the driver's seat.

ASEAN is the core of East Asia, and upon its norms and inventions - however

imperfect-can the layers for East Asia be built.

The ASEAN+3 process is one such invention, and I was fortunate to have had

first-hand knowledge of how this ASEAN improvisation had successfully spawned a

patchwork of semi-formal and consensus-building mechanisms for East Asia.

Stitching this patchwork into the full tapestry of an East Asian community is the

long-term task for the East Asian Summit which we inaugurated last year.

East Asia may now be wanting for the leadership of its most dominant countries, but it

should not lack for a shared vision of regional peace, true amity and understanding,

and common prosperity for much longer.

How do we move forward?

First, since 1994, ASEAN has provided not only Northeast Asia, but also outside

powers with interests in the Asia-Pacific, a forum for discussing their political concerns

and prospects for security cooperation, through the ASEAN Regional Forum or ARF.

By bringing together representatives who would not have met otherwise, or who would

not have even contacted each other directly, the ARF has brought about greater

transparency and information exchange, and promoted mutual understanding.

However, while security issues in the Asia Pacific have not flared up into crises, the

balance of forces and interests is increasingly becoming more delicate and complex.

May be, it is time for our region to explore more formal regional security arrangements.

Our proposal is for us to continue improvising and begin the transformation of the ARF into an Organization for Security and Co-operation in East Asia. (1)

Second, the importance of energy is such that it goes beyond economic and environmental considerations, and into the area of strategic interests. Yet, if energy

has the potential to become a source of conflict, it can also be a force for greater

multilateral cooperation, as the world has seen with the European Steel and Coal Community, which employed energy as the impetus for regional integration. (2)

East Asia's demand for energy will dramatically increase, as the region fulfills the

prediction that it would be the hub of the fastest economic growth in this century. An

East Asian Energy Community, therefore, can facilitate joint exploration of oil and

natural gas, create common strategic reserves, cooperate in energy conservation

ensure the protection of sea lanes.

It is also the most important area in which Japan and China can cooperate, as their

energy demands will continue to rise. (3) There are plans to construct new nuclear

reactors in China, which can lessen dependence on oil.(4) At the same time, this has

implications on the Kyoto Protocol, because the two countries can participate

extensively in the carbon-emissions trading system.(5) Japan may revisit the

Hiranuma Initiatives and follow through.

Another forum of cooperation is the creation of an ASIATOM, or an Asia Atomic Energy Organization, which can also include Russia, North Korea, and Taiwan.

Patterned after EURATOM,(6) it will institute a verification system based on mutual

inspections by inspectors from member countries, thus complementing the global

system of the Nuclear Non-Proliferation Treaty and the International Atomic Energy

Agency.

It could also lead to the regionalization of national nuclear fuel cycle centers, thus

reducing the economic costs of such facilities and ensuring better safeguards against

nuclear proliferation.

ASIATOM could also help ensure that strict safety standards are applied to all phases

of the nuclear fuel cycle. It can be tasked to deal with problems associated with

management and disposal of nuclear wastes, which is one of the pressing problems in

Northeast Asia. (7) Since individual approaches to management and disposal of

nuclear wastes will not allay the concerns of neighboring countries, there is a need to

have a sub-regional approach to management and disposal of spent fuel and nuclear

wastes.

Third, and finally, economic integration must accelerate, and to facilitate that, finance

merits full attention. The East Asia Vision Group, in fact, has emphasized the role of

finance in any regional community. It suggested greater financial integration through

a staged, two-track approach, by establishing a self-help arrangement (in the form, for

example, of an East Asian Monetary Fund) and by coordinating a suitable exchange

rate mechanism among countries in the region.

As a response to the 1997 financial crisis, East Asia dramatically shifted from

integration led by the market, to one led mainly by policy. The ASEAN+3 process, in

fact, was established primarily as a vehicle for developing a strategy for dealing with

the fallout of the crisis, and to help avert future similar crises.

In May 2000, the existing ASEAN Currency Swap Arrangement was thus expanded to

cover all ASEAN+3 members, through the Chiang Mai Initiative or CMI. The purpose

is to create a mechanism of self-protection for Asian countries under speculative attack. (8)

Although the amount of liquidity under the CMI is miniscule compared to the amounts

that global financial markets can mobilize, experts nevertheless acknowledge that the

whole arrangement has a strong symbolic effect.

East Asia regards the CMl as the necessary first stage towards a central body that can

earmark or pool certain portion of official reserves. Although many stages will still

have to be cleared to create such an institution, the creation of an Asian Monetary

Fund should be pursued.

Let me end this introductory statement by quoting from the famous Spanish historian,

George Santayana, who said: Those who cannot remember the past are condemned to repeat it.

(1)

In that organization, East Asia's regional partners, particularly the United States, should participate fully and from the start. This recognizes the fact that individual countries in the region have developed and can continue developing, and East Asia itself as a presumptive organic entity can develop to its full potential, only if stability in the Western Pacific is ensured. That stability is possible only with the full involvement and participation of the United States, as well as of other powers. After all, without the American nuclear umbrella, for instance, our region could have by now degenerated to a more perilous place with races of a more sinister sort engaging more excitable, less secure national leaderships. --- Lessons from European history are helpful here. Formerly known as the Conference for Security and Co-operation in Europe or CSCE, the Organization for Security and Co-operation in Europe or OSCE began as a process, like ARF. Both operate on the basis of consensus and are totally dependent on their members from within and outside the region conforming to norms and acting upon principles they have defined and agreed to. --- However, after the collapse of most Communist regimes in Eastern Europe in 1990, the CSCE signed the Charter of Paris for a New Europe, which formed the groups first permanent organs: a secretariat in Prague, a conflict-resolution center in Vienna, and an election-monitoring office in Warsaw. Similar organs are not beyond the reach of ARF. It can evolve into a body that actively engages in preventive diplomacy and conflict resolution.

(2)

The Community achieved success in both steel and coal production, but beyond this economic success, it was the executive machinery of the Community which provided the basis for a united Europe.

(3)

This may also have implications on tensions over islands believed to have extensive gas deposits.

(4)

"N-power to fire up China's energy sector?" The Strait Times Interactive, 8 March 2005.

(5)

This is a scheme under which companies in developing countries can win investments from developed countries for projects based on green technologies, which help to cut greenhouse gas emissions. While developed countries are major contributors to

greenhouse gases, the relative costs of reducing emission levels are far higher there. The Kyoto Protocol has allowed the Clean Development Mechanism (CDM) through which developed countries can meet their commitments (they have to reduce emissions

by an average of 5.2% with reference to 1990 levels during 2008-2012) by acquiring emission reduction credits from outside.

(6)

The European Atomic Energy Community (EURATOM), incidentally, was created at the same time as the European Economic Community (EEC, often referred to as the Common Market), in 1957.

(7)

For example, the present nuclear power programs of the Republic of Korea and Taiwan have led to an accumulation of spent fuels.

(8)

As of last year, sixteen such arrangements have been concluded, with the total amount of more than 35 billion dollars. Countries under attack can borrow from each other through short-term swaps of foreign currency reserves, usually in US dollars, and then use the funds to buy their own currency, in order to stabilize the exchange rate.