Political tension may overshadow G-20, APEC summit

[November 04, 2010]  TOKYO (AP) -- World leaders head to back-to-back economic summits in Asia next week, but regional political tensions -- some spawned by China's growing assertiveness -- could undermine attempts to project unity amid a faltering global economic recovery.

In Seoul, where leaders from the Group of 20 major global economies will gather next Thursday and Friday, tension remains high over the sinking of a South Korean warship earlier this year that has been blamed on North Korea.

Japan, which hosts the annual Asia-Pacific Economic Cooperation forum next weekend, is embroiled in a flare-up of territorial disputes with China and Russia that is stirring up rancor in all three countries and is already prompting economic fallout.

And while not on the official agendas, China's rise -- its expanding maritime activities, growing political and economic clout and tension with Washington over its currency policy -- will likely dominate in the flurry of one-on-one meetings between leaders on the sidelines.

Eager to display a united front in sustaining the fragile global economic recovery, President Barack Obama, Chinese President Hu Jintao, Japanese Prime Minister Naoto Kan and others will be seeking to minimize conflict at the summits.

"Those issues do cast a shadow over the meetings, and raise questions over whether they will be a success," said Charles Morrison, president of the East-West Center in Honolulu and co-chair of the Pacific Economic Cooperation Council. "A lot of it relates to China's growing role in the world, and how the world adjusts to China as a much larger player economically, politically and militarily."

On the surface at least, economic matters will dominate the agendas of both gatherings.

About half the leaders, including Obama, will attend both summits, which were scheduled close together to fit into leaders' busy schedules. That both are being held in Asia is partly coincidental, but also reflects the region's growing importance.

The driving force behind the G-20 summit, which brings together leaders from rich industrialized nations like the U.S., Germany and Japan and major emerging economies like Brazil, India and China, is to come up with steps to avoid another global financial crisis. It is the leaders' fifth meeting since they gathered in late 2008 to map out a global response to the meltdown that was rocking the world economy at the time.

Top of the list is setting measurable targets for reducing destabilizing trade and current account gaps. The biggest concern is the huge imbalance between the United States, which buys far more than it sells to the rest of the world, and developing countries, such as China, which are running big trade surpluses.

The G-20 nations, which account for 85 percent of the global economy, will also study proposed financial reforms, such as stricter standards and supervision for large banks and other institutions.

The Obama administration says that China's undervalued currency, the yuan, contributes to global imbalances because it gives Beijing a trade boost by making Chinese goods cheaper in the U.S. and elsewhere. This issue won't be settled at the Seoul meeting, U.S. officials say, with Washington apparently preferring to take a multilateral approach to curbing global imbalances so as to avoid a direct confrontation with China.

However, Brazilian President Luiz Inacio Lula da Silva blames both China and the U.S. for keeping their currencies artificially low -- causing the Brazilian real to rise and making his country's exports less competitive -- and could stir things up.

"We believe the United States and China are creating a currency war," Silva told reporters Wednesday. "So, I am going to the G-20 to put up a fight."

He didn't specify what steps he intends to propose.

The U.S. Federal Reserve's move Wednesday to sink $600 billion into government bonds to ease interest rates and revive the U.S. economy could draw some G-20 criticism due to fears the extra money may flood into emerging markets, adding to pressure on other currencies.

When the G-20 summit ends next Friday, the nine leaders from Pacific Rim economies will travel to Yokohama, Japan, for the Nov. 13-14 APEC summit, where the agenda will shift to promoting free trade.

Host Japan plans to propose that APEC move toward creating a sprawling free trade zone by 2020 that would encompass all 21 economies, from Chile and China to New Zealand and Russia, dubbed the Free Trade Area of the Asia-Pacific, or FTAAP.

The idea, first proposed by President George W. Bush in 2006, has gained momentum among members as a way to harmonize bilateral and regional free trade agreements and perhaps give a boost to stalled World Trade Organization talks.

But some countries, like Indonesia, are balking at the concept. Since APEC is not a negotiating forum for binding agreements, any sweeping regional free trade pact would have be negotiated in some other forum.

"You may think of it (FTAAP) as a long-term goal but the situation today is not conducive for negotiations," Mari Pangetsu, Indonesia's trade minister, said last week.

A U.S.-backed free trade agreement called the Trans-Pacific Partnership is gaining steam as a building block toward an eventual Pacific Rim free trade zone. The U.S. and four other nations -- Australia, Malaysia, Vietnam and Peru -- are in talks to join the so-called TPP, which currently consists of four small economies: Brunei, Chile, New Zealand and Singapore.

Japan, worried that it is falling behind regional rival South Korea in free trade agreements, is debating whether it wants to join the TPP, with business leaders and some Cabinet ministers urging Tokyo to jump on board before it is put at a competitive disadvantage.

But Japanese farmers are strongly opposed, worried that lowering protective tariffs on agricultural products will ruin them.

As host, Japan's prime minister will be eager to deliver a successful summit, but his biggest challenge may be seeking to mend ties with big neighbors China and Russia while standing up for Japan's interests.

Ties with Beijing are still strained over a spat over disputed islands in the East China Sea, and China doesn't seem to have lifted a de facto export ban on rare earths, materials needed in advanced manufacturing, to Japan.

Compounding Kan's headaches, Moscow stunned Tokyo earlier this week when President Dimitry Medvedev became the first Russian president to visit islands off the Japan's northeastern coast that are controlled by Russia but claimed by Japan, sparking strong protests from Tokyo. Japan called back its ambassador from Moscow temporarily for consultations.

So far, there are no concrete plans for Kan to have formal meetings at APEC with either the Russian or Chinese presidents.

[Associated Press; By MALCOLM FOSTER]

Associated Press writers Mari Yamaguchi in Tokyo, Kelly Olsen in Seoul, Jim Gomez in Manila and Marco Sibaja in Brasilia contributed to this report.

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