Asia--the Contested Terrain

The East Asian Summit will be held this weekend in Thailand. Japan's (new) Prime Minister Hatoyama seems to be leading the call for an expanded trade bloc. Partly this is seen as a way to take some initiative and balance off not only the US, but China as well. China, as one would expect, has greeted Japan's proposals cautiously. China, India, Australia, New Zealand, and South Korea have already finalized free trade agreements with ASEAN. In addition to trade issues, officials this weekend may also discuss Myanmar, where the military regime plans to hold elections next year and may look for ways to improve the response to natural disasters.

While many observers have played up the diversification of reserves and the possibility, which Qatar earlier this week said is a subject of discussion, of pricing oil in something other than the dollar, a trade bloc that excludes the US could be another dimension to the theme that is capturing the collective imagination.

The Obama Administration wants the US to be part of an effort that leads to greater economic integration in Asia. Two steps have been announced. First, the US will appoint an ambassador to ASEAN's secretariat in Jakarta. Second, the US will hold its first summit with ASEAN leaders (in Singapore in November). Some Congressional leaders are reportedly urging the Obama Administration to pursue a free-trade agreement with ASEAN, but this is likely to prove contentious. The US has a free-trade agreement with Singapore and has been negotiating with Malaysia for several years about an FTA.

Although there is unlikely to be an immediate market reaction to the weekend summit or to the US-Asean summit next month, investors with exposure to the region may want to monitor

developments.