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Bucking US, South Korea joins AIIB

By CHEN WEIHUA in Washington | China Daily USA | Updated: 2015-03-27 10:23

South Korea announced on Thursday that it will join the new Asia Infrastructure Investment Bank (AIIB), a decision the country has been struggling with over the past months due to pressure from the United States to stay away from the venture.

The South Korea finance ministry said the decision to become a member of the AIIB was made with the country's best interest in mind, South Korea's Yonhap News Agency reported.

China is by far South Korea's largest trading partner. The two countries signed a broad free trade agreement late last year. Seoul, the nation's capital, hopes to become a renminbi hub in the coming years.

South Korea is also a key US security ally, with some 28,000 US troops stationed there.

Australia and Japan, two other US regional allies, have also been pressured by the US not to join, but Australia is likely to apply to the AIIB before the March 31 deadline. Australia's federal cabinet has approved Australia signing a "memorandum of understanding" on joining the AIIB.

South Korea's announcement came a day after the US Treasury Department said that Secretary Jack Lew will travel to China from March 28 to 31 to "hold discussions with senior Chinese officials on the US, Chinese and global economies."

The US has somewhat shifted its tone towards the AIIB when Under Secretary of Treasury for International Affairs Nathan Sheets told the Wall Street Journal last week that the US would welcome new multilateral institutions that strengthen the international financial structure.

Prior to that, Washington's main talking point was to express doubts about AIIB's standards on governance, transparency, labor and environmental issues.

US State Department spokesman Jeff Rathke said on Thursday he is not going to react or comment on South Korea's decision. "I would say in general we've seen a number of countries make decisions to join the bank. That is their decision," he said.

Rathke reiterated that the US has concerns over the standards of the AIIB. "We're not considering joining any new institution at the moment," he said.

"We certainly hope that, as we stress the importance of international standards and transparency, that they will also be voices for those same values," he said, referring to US allies that have decided to join the bank.

The US government's views have received sharp criticism both in and outside the US. Britain was the first US ally in Europe to apply to join AIIB as a founding member, followed by Germany, France, Italy, Luxembourg and Switzerland.

Derek Scissors, a resident scholar at the American Enterprise Institute, said the US made a mistake on AIIB. "I think the first step for the US is to say, ‘we didn't mean for this to become such a big issue, and countries that hope to join AIIB, we hope they will join and push for high standards'."

He believes that's as far as the US government would go at this moment. "Whether politicians are right or wrong, when they take a position here, it's a long time for the position to come over here," he said, his hands gesturing a distance.

Scissors, a specialist on the Chinese economy and US economic relations with China, said the US should not be pressuring its allies. "It should be saying to its allies, ‘we are concerned that the bank will not follow proper procedures. We're worried that you will be part of that. But if you feel good about the bank, then join'," he said.

Shihoko Goto, a senior northeast Asia associate at the Woodrow Wilson Center's Asia Program, said that even if the US wants to join, it will not have the resources to contribute to AIIB given the deadlock in the US Congress, which has so far refused to endorse IMF reforms that would give China and other emerging economies a bigger say in the IMF.

"With AIIB, I think there is much more mending to do. [I'm] not sure if this was handled the best way," Mereya Solis, a senior fellow at the Brookings Center for East Asia Policy Studies, said of the US government handling of AIIB.

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