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Asian Economies Aim for Trade Deal as Sea Dispute Set Aside

China, Japan and South Korea started talks on a free-trade agreement vital to an Asia-wide deal in a move to forge closer economic ties even as they spar over disputed islands.

The countries, representing three of Asia’s four biggest economies, will hold the first round of talks early next year, they said in a joint statement. Those negotiations are key to the Regional Comprehensive Economic Partnership, a 16-nation accord also announced yesterday that Southeast Asian countries called “the world’s biggest regional free trade deal.”

“The missing piece of the jigsaw puzzle as far as Asia is concerned is the agreement among the three Northeast Asian countries,” said John Ravenhill, a professor at Canberra-based Australian National University. “The negotiations that were supposed to have started between those three countries have been put on hold because of the disputes over the South China Sea and other islands.”

Competing visions for an Asia-Pacific trade bloc reflect the struggle for dominance by economic powers over a region that is increasingly a driver of global growth. U.S. President Barack Obama is seeking to expand trade ties with Asian nations and regain economic influence among countries that are growing more reliant on China in an area that contains sea lanes vital to world commerce.

Clinton Invitation

Last week Secretary of State Hillary Clinton welcomed China and other Asian nations to join the 11-country Trans-Pacific Partnership that the U.S. aims to combine with other regional trade agreements to transform global commerce. Thailand and Japan are interested in joining the talks, Ben Rhodes, White House deputy national security adviser, said yesterday.

“They’re committed to getting those negotiations concluded with an aim to doing so next year so that they can complete that trade agreement,” he said in Phnom Penh, Cambodia, after Obama met with leaders from countries involved in the TPP talks.

The discussions on trade proceeded even as China’s territorial disputes surfaced at five days of meetings in Cambodia hosted by the Association of Southeast Asian Nations that ended yesterday. Obama, who met with Japan’s Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao separately yesterday, called the U.S.-Japan military alliance the “cornerstone” of regional security.

Increasing Severity

“With the increasing severity of the security environment in East Asia, the importance of the Japan-U.S. alliance is increasing evermore,” Noda, who faces re-election next month, said in a meeting with Obama. “I would like to proceed with concrete cooperation to develop our alliance.”

China has demanded that Japan withdraw from its September purchase of islands known as Senkaku in Japan and Diaoyu in China. Anti-Japan protests have reduced China sales at Toyota Motor Corp. (7203), Nissan Motor Co. and Honda Motor Co.

“It’s not good, to be honest,” Qin Gang, a spokesman for China’s foreign ministry, told reporters yesterday, referring to his country’s relationship with Japan. “But the reason is not on China’s part.”

Wen downplayed the disputes yesterday and urged leaders to focus on maintaining the peace and stability that has underpinned Asia’s economic growth since World War II, according to Fu Ying, China’s vice foreign minister. China has been Asean’s largest trading partner since 2009.

“We do not want to give overemphasis to the territorial disputes and the differences,” she told reporters. “We do not think it’s a good idea to spread the sense of tension in this region.”

China Reliance

Southeast Asia is growing more reliant on trade with China, which is a gateway for shipments to advanced economies, according to the Organization for Economic Cooperation and Development. The RCEP includes China, Japan, India, South Korea, Australia and New Zealand, an area with more than 3 billion people representing about a quarter of the world economy, according to data compiled by Bloomberg.

The 16 countries are targeting to complete negotiations by 2015, Singapore Trade Minister Lim Hng Kiang told the Straits Times newspaper Nov. 17. TPP countries aim to complete the agreement by next October, Australian Prime Minister Julia Gillard told reporters yesterday. Her country is one of six involved in both sets of trade talks.

‘Two Pathways’

“We now look like we’re going to have two pathways to the one destination, a Free Trade Area of Asia and the Pacific,” Craig Emerson, Australia’s trade minister, told reporters. “This is very heartening and if one set of negotiations lends momentum to the other set of negotiations, that is all good and that is entirely possible.”

The U.S. describes the TPP as a “21st century” agreement that seeks to uphold labor rights, reform state-owned enterprises and instill stricter protections for patents in addition to tackling traditional issues such as tariffs and market access. The TPP would be the first trade deal negotiated by the Obama administration and would be the biggest for the U.S. since the North American Free Trade Agreement.

“The TPP will lower barriers, raise standards, and drive long-term growth across the region,” Clinton said in Singapore on Nov. 17. “Better jobs with higher wages and safer working conditions -- including for women, migrant workers, and others too often excluded from the formal economy -- will help build Asia’s middle class and rebalance the global economy.”

‘Help the World’

RCEP on the other hand is “aimed at engaging Asean’s external partners in a new broader and deeper economic partnership agreement,” said Termsak Chalermpalanupap, a visiting research fellow at the Institute of Southeast Asian Studies in Singapore. Asean is attempting to create an economic zone modeled after the European Union, without a common currency, by the end of 2015.

Indonesia, Southeast Asia’s biggest economy, will be putting all its “energy and resources” on the Asean-led deal, Trade Minister Gita Wirjawan said in Phnom Penh on Nov. 17. Indonesia’s government is unsure if the TPP would be “net beneficial” to the country, he said.

“Some of us are joining the discussion on the TPP, those who are ready, those who are willing and those who have less problems in the complex discussion,” Surin Pitsuwan, Asean’s secretary-general, told Bloomberg Television on Nov. 19. “But here in the region all 16 of us are working on the new architecture so that we can make use of the existing free-trade agreements that we already have. We need to work together to move forward so that we can help the world.”

To contact the reporters on this story: Daniel Ten Kate in Phnom Penh at dtenkate@bloomberg.net; Shamim Adam in Phnom Penh at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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