These new developments may be attributed to the territorial disputes between Japan and China, and South Korea and Japan.

Territorial disputes are currently flaring up across East Asia. The disputes in the South China Sea between China and some ASEAN states, and the Senkaku/Diaoyu islands between Japan and China are the most high profile. Thailand and Cambodia also engaged in a military conflict over the border dispute last year. And Japan has strained relations with Russia over the ‘Northern Territories’ dispute and with Korea over the Dokdo/Takeshima islands. There are many more territorial issues, which might flare up any time in the future.

Furthermore, no one anticipates an early solution to any of these disputes, which will, on the contrary, grow more complicated and violent if not stopped soon. Stubborn nationalistic sentiments toward territorial issues, a leadership transition and unstable domestic political situations of the parties concerned, not to mention controversy over historical evidence, have forced respective governments to move on in one way: pursue only their national interest no matter what. Governments tend to resort to ‘economic’ tools to achieve their political goals, as evidenced by China’s ban on the export of rare earths in 2010, and Korea and Japan’s decision not to extend their currency swap agreement. The currency swap system was introduced in the East Asian region following the 1997–98 economic crisis and has since brought about substantial regional cooperation, with the aim of taking measures to be able to cope with any possible international financial crisis in the future. What makes the situation more complicated is that the disputes over the Senkaku/Diaoyu islands and the South China Sea have strategic bearings on the regional and global strategies of the US and China.

With such territorial disputes intensifying, economists continue to voice their concerns over a possible global recession. The 1997–98 economic crisis generated momentum for the fostering of regionalism in the region while cultivating a sense of community. The East Asian economy has become the largest GDP and manufacturing base in the world. According to the 2010 METI White Paper of Japan, East Asian countries will collectively provide a larger consumption market than the US and EU to the world by 2020. The East Asian economy is recovering its vitality that it once lost after the 1997–98 crisis. This economic vitality might lose its momentum again due to the on-going territorial disputes. Moreover, the East Asia community have learned through the recent crises that there is a dire need for regional cooperation to prepare themselves for the possible international crisis. During the 2008 global financial crisis, the East Asia economy made an early recovery due to regional cooperation, such as the implementation of various economic stimulus policies in the region, and regional policy coordination in trade and currency exchange. Now, the East Asia economies hold more than 60 per cent of the foreign currency reserves of the world, which means it must look for help from its neighbours if hit by another crisis.

If territorial disputes are intensifying and East Asia is hit again by an international economic crisis, its economic damage will be enormous and an early recovery may be not possible due to growing distrust and national sentiment in the region. Furthermore, regional politics will become unpredictable. If China, as a rising power, pursues diplomacy driven by national sentiment rather than norms-based or vision-based diplomacy, the outcome would be devastating, including, in the worst case scenario, a hegemonic China. Pro-China groups and pro-American groups may also emerge in East Asia. Indeed, a similar situation took place at the ASEAN Ministerial Meeting held in July. The ministers ended the meeting without agreeing upon a Chair’s Statement for the first time since its establishment in 1967. Against such a backdrop, we cannot rule out the worst-case scenario whereby the strategic rivalry between the US and China may result in a new type of Cold War in the region.

The territorial disputes must stop before intensifying any further. Korea, Indonesia, Australia and others — that is, the ‘middle-powers’ — could unite to make a proposal at the ASEAN+3 or East Asia Summit in November that all parties declare a ‘moratorium or standstill policy’ on all the territorial disputes until the establishment of an East Asian Economic Community (EAEC) by 2020. The Vision Group of the ASEAN+3 (APT) formed upon the leaders’ mandate will recommend the establishment of the EAEC by 2020 to the APT leaders’ meeting in November. All the governments directly concerned are fully aware that they are now facing a ‘no-win situation’ regarding territorial issues, but they cannot take unilateral action due to public sentiment in their country.

East Asian leaders should recognise that the region’s catching up with the developed Europe and North America is far from complete. Sustaining it successfully requires an unshakeable commitment to cooperative pooling of intellectual, diplomatic, scientific and financial resources. A protracted and escalating territorial conflict is lethal to East Asian community building and should therefore be defused until the prospect for agreement is improved.

Djisman S. Simandjuntak is the Chairman of the Executive Board of Prasetiya Mulya Foundation and a member of the National Economic Council. He is also the Chairman of the Executive Board of CSIS Foundation, in Indonesia.

Lee Sun-Jin is a former S. Korean Ambassador to Indonesia and currently Research Professor at the Institute for East Asian Studies, Sogang University, in Korea.