Transcript File - Yoo Soo HONG

East Asian Economy <Lecture Note 7 > 2013.11.28
EAE: Regional Integration towards “One Asia”
* Some parts of this note are summary of the references for teaching purpose only.
Semester: Fall 2013
Time: Thursday 2-5 pm
Room: 423
Professor: Yoo Soo Hong
Mobile: 010-4001-8060
E-mail: [email protected]
Home P.: http://yoosoohong.weebly.com
1
1
Global View of Asia
 The 21st Century is the Asian Century.
 Regional blocs, including East Asia will be prominent.
 Principal blocs will be Europe, East Asia and the Americas.
 Asia will be almost half of the world’s economy by 2020.
2
Issues for ‘One-Asia’
 Lessons from EU
 Economic conditions
 Political / Diplomatic / IR conditions
 Leadership
 Institutional development
 How much transfer of sovereign power (right) ?
3
Basic Economic Indicators by Region and
Subregion
4
Average GDP Growth Rates of Selected Asian
Economies and Sub-regions
5
Three Mega-Regions
6
Main Regional FTAs/EPAs
7
FTA Coverage Ratios
Proportion of trade with FTA partners in total trade (%)
8
Source: JETRO, FTA (July, 2012), Trade data (2011)
Competitive Liberalization in Asia-Pacific
ASEAN+3 FTA
(ASEAN, Japan, China, Ko
rea)
November 2004
Proposed by China at ASEA
N+3 Summit
Population
(thousand)
Trade
(million $)
GDP
(million $)
Intra-regiona
l trade
2,059,400
2,533,847
9,899,420
43.1%
ASEAN+6 EPA
(ASEAN , Japan, China, Kore
a India, Australia, New Zealan
d)
August 2006
Proposed by Japan at ASEAN
Economic Ministers’ Meeting
Population
(thousand)
Trade
(million $)
GDP
(million $)
Intra-regiona
l trade
3,207,960
2,893,252
13,835,060
43.6%
Free Trade Area of
Asia-Pacific (FTAAP)
November 2006
Proposed by the US
Population
(thousand)
Trade
(million $)
GDP
(million $)
Intra-regiona
l trade
USA
Canad
a
Mexic
o
Peru
Chile
Hong
Kong
Taiwa
n
Russi
a
Papua
New
Guine
a
2,677,790
8,469,530
35,412,050
67.1%
9
FTAAP: Free Trade Area of the Asia-Pacific
TPP
RCEP(ASEAN+6)
（ASEAN+JP, CH, KR, IND, AUS, NZ）
Current members
Vietnam
Viet Nam Brunei
US
A Peru
Malaysia
TPP
Singapore
New Zealand
Australia
Chile
ASEAN+1 FTA
FTAAP (APEC)
Japan-China-Korea
Korea
China
India
Japan
Russia
China
Korea Japan
CH. HongKon
CH. Taipei
g
Thailand Brunei
Malaysia
Singapore
Australia
& NZ
Vietnam
Philippines
Canada
US
Mexico
Peru
Indonesia PNG
Australia
Chile
New Zealand
10
(Source:
METI, Japan)
Issues and Challenges in Regional Integration
 Sequencing: How should Asia sequence its integration efforts in the
areas of trade, monetary, and financial integration?
 Style: What is the appropriate style for Asian economic integration?
Specifically, how institution-intensive should Asia’s integration initiatives
be?
 Scope: What would be the scope of Asian economic integration in
terms of countries and sub-regions covered?
 Speed: How fast should Asia pursue regional integration in its various
dimensions/tracks, or what is the appropriate speed for Asian economic
integration?
11
Source: Fischer Stanley. 2006. “The New Global Economic Geography”.
12
Source: Fischer Stanley. 2006. “The New Global Economic Geography”.
13
Asia’s Importance in the Global Economy to Rise
 Asia now accounts for about 60% of the world’s population, 40% of the
global output, and 30% of world trade.
-
With the possible exception of the 1997-98 crisis years, Asia has been the
fastest growing region in the world economy for many decades.
 Impressive achievements in poverty reduction and improvements in socioeconomic conditions in the last few decades.
- China and India – two countries with over a billion people each – have
also joined the Asian economic success story.
 Most projections indicate that Asia’s importance in the global economy is
going to increase in the next few decades.
- Current assessment is that by 2020 most large Asian economies would
have graduated to middle income status.
14
Rise of Asia
 Regional Development
− There are already important and rapidly developing economic linkages
among parts of Asia, particularly in East Asia, where a grouping of ASEAN
plus Japan, China and Korea seems to be emerging. The politics of such a
grouping are not simple, for the Japan-China relationship is evolving as the
Chinese economy grows, and as it becomes clearer that China will overtake
Japan at some point in the not too distant future
− Some in East Asia talk of following the example of Europe by improving
trade and financial links, and later moving to a common market and unified
financial system. It is recognized that this will take a long time, but those
involved note correctly that it took the European Union a long time to evolve
to its current condition
− At present, there is much talk of an East Asian common currency. Whether
there would be a basis for such a currency depends on how China’s
financial and currency management systems evolve. Since China would
eventually be dominant in an East Asian economic bloc, its preferred
currency arrangements will determine the eventual outcome.
15
 Economic Implications
− The rise of Asia, especially the rise of East Asia and of India, is already
reshaping the world economy.
− China has a comparative advantage in everything. Part of the anxiety must
derive from the discomforts of the adjustment process forced by the
dynamism of Asia.
− Most of the developing countries and most of China’s neighbors can count
the gains from China’s (and India’s) booming growth. China’s demand for
raw materials, which has produced a boom in commodity prices, has helped
many developing countries. China and India’s energy needs have helped
push oil and other energy prices to their highest sustained levels.
− The fact that the global economy has been growing very rapidly by historical
standards in the last few years despite concerns over global imbalances,
the years 2004-2006 will see high growth rates in Latin America and Africa,
due to the rise of Asia as to as the global engine of United States growth.
16
− Asian growth has benefited greatly from the relatively open
international trading system that was built up after World War Ⅱ. All the
East Asian miracle economies pursued export led growth strategies,
with the bulk of the exports going to industrial countries in the west.
− However the impact of China and India on the international financial
system does not depend mainly on the size of their quotas in the
international financial institutions.
17
Defining Institutions for Regional Integration

-
Definition of Institutions in several ways
Durable rules that shape expectations, interests, and behavior
Formal obligations, informal norms, acceptable behavior
Arrangements and organizations ranging from ad hoc and informal
forums that lack an organizational core to formal standing
 Institutions for regional integration in Asia
- Organizations involved in regional economic integration and cooperation
- The principals or contracting parties of these institutions include national
governments or non-governmental organizations.
18
Regional Economic Integration
- Process whereby
countries in a
geographic
region cooperate
to either reduce
or eliminate
barriers to the
free flow of
products, people, or capital
19
Description in the Opposite Direction
20
Levels of Regional Integration
 Political Union
- Coordinate aspects of members’ economic and political systems
 Economic Union
- Remove barriers to trade, labor, and capital; set a common trade policy
against nonmembers; and coordinate members’ economic policies
 Common Market
- Remove all barriers to trade, labor, and capital
among members; and set a common trade policy
against nonmembers
 Customs Union
- Remove all barriers to trade among members, and set a common trade
policy against nonmembers
 Free-Trade Area
- Remove all barriers to trade among members, but each country has
own policies for nonmembers
21
Type and Scope of RTA
Tariff removal
between
members
Common tariffs
for nonmembers
Free movement
of production
factors within
the region
Common
economic policy
adoption
Super-national
entity
FTA (NAFTA)
Custom Union
(Benelux CU)
Common Market
(EEC)
Economic Union
(EC)
Full Economic Integration / Political Union
(EU)
22
Motivation and Conditions of Economic Integration
•
All countries can gain from free trade, investment and other economic
cooperation. Linking countries together, making them more dependent
on each other
– creates incentives for political cooperation and reduces the
likelihood of violent conflict
– gives countries stronger leverage when dealing with other nations
•
Economic integration can be difficult because
– while a country as a whole may benefit from a regional free trade
agreement, certain groups within the country may lose
– a loss of national sovereignty to a certain extent
•
Regional economic integration is only beneficial if the amount of trade it
creates exceeds the amount it diverts
– trade creation occurs when low cost producers within the free trade
area replace high cost domestic producers
– trade diversion occurs when higher cost suppliers within the free
trade area replace lower cost external suppliers
•
Economic integration can be difficult because
– while a nation as a whole may benefit from a regional free trade
agreement, certain groups may lose
– it implies a loss of national sovereignty
•
Regional economic integration is only beneficial if the amount of trade it
creates exceeds the amount it diverts
– trade creation occurs when low cost producers within the free trade
area replace high cost domestic producers
– trade diversion occurs when higher cost suppliers within the free
trade area replace lower cost external suppliers
Effects of Integration
 Potential benefits
 Trade creation
 Greater consensus
 Potential drawbacks
 Trade diversion
 Shifts in employment
 Political cooperation
 Creates jobs
 Loss of sovereignty
25
Main Regional, Intraregional, and Transregional
Forums in Asia
26
Source: ADB staff elaborations based in part on field interviews.
Support for Different Modalities for Enhancing
Asian Cooperation
27
Evolution of Intra Regional Trade Shares (%)
28
Foreign Exchange Reserves of ASEAN+3 Countries
29
Uneven Economic Integration
30
 Regionalization in East Asia
- Concentration of economic activities (trade in goods and services,
capital, people, etc) in a particular region
Benefits of agglomeration > costs of agglomeration
- Measurement of regionalization in terms of trade:
Increasing intra-regional trade in world trade
Increasing intra-regional trade in region’s overall trade
 Two Types of Regionalization
- Market-driven regionalization
- Institution-driven regionalization
 Factors behind Market-driven Regionalization
- Rapid economic growth
- Trade and FDI liberalization: multilateral and unilateral liberalization
31
 Some Basics of Regionalism
- Trade creation or trade diversion?
- A recent IMF staff paper suggests that Asian FTAs have not led to
trade diversion.
- Building block or stumbling block?
- WTO consistency?
- Trade realism
 RTAs have obvious benefit for members
- Second-best choice
- Scale economy and competition
- More attractive to FDI
- Political and geopolitics benefits
32
 Regionalism or not?
- Economic gains are not the only determining factor.
- Multiple objectives of regionalism:
•
•
•
•
•
Regional politics and stability
Strengthen domestic policy reform
Increasing multilateral bargaining power
Securing market access
Forming strategic linkages
33
 Why integrates?
-
Trade within the Asian region is far from reaching its potential, and policies that
facilitate integration and more efficient regional trade accelerate growth and
expand its basis, especially for lower-income Asia.
-
Tariff barriers are only part of the challenge to further economic integration and
trade expansion in the region. A deeper and more inclusive Asian Free Trade Area
can achieve for its members larger benefits than that would arise from
global trade liberalization along WTO lines.
-
The economies of the ASEAN have the most to gain (in domestic terms) from
Asian economic integration, provided that this happens in a relatively uniform
way.
 The Economic Role of China in Asian Economic Integration
-
China becomes the major market for many Asian economies
China’s rise as the major factor in shaping the new division of labor (productionsharing network)
34
Emergence of Institution-driven Regional Economic
Integration
•
Rapid expansion of free trade agreements (FTAs) in East Asia in the 21st
century
•
FTA (free trade agreement): free trade (elimination, reduction of tariff and
non-tariff barriers among FTA members)
•
In East Asia ASEAN has become a hub of FTAs:
5 ASEAN+1 FTAs have been implemented
•
Long term goal: Free Trade Area of Asia-Pacific (FTAAP) APEC-wide
FTA
•
2 major initiatives have been negotiated: Trans-Pacific Partnership
(TPP), RCEP (ASEAN+6)
35
Economic Integration in Asia
36
Intensity of FTA Activity in Asia
 Growth of FTA in East Asia
-
The number of concluded FTAs includes Singapore (20), the PRC
(12), Japan (11), India (11), Thailand (11), and Malaysia (10), with
many more FTAs under negotiation. It is noteworthy that ASEAN—with
one of the oldest trade agreements in Asia—is emerging as the major
regional hub linking ASEAN members with the region’s larger
economies. Having enacted FTAs with the PRC, Japan, and the
Republic of Korea, ASEAN recently implemented regional agreements
with India and with Australia and New Zealand jointly, and is in FTA
discussions with the EU.
- The varying degrees of intensity of FTA activity across economies in
Asia can be related to several factors, including economic size, per
capita income, levels of protection, economic geography, and
production network strategies of MNCs.
37
- Singapore is by far the most active Asian economy in terms of the
number and geographic coverage of FTAs. With its strategic location,
the region’s most open economy, and world-class infrastructure and
logistics, the country is the regional headquarters for many leading
MNCs.
- Singapore is seeking access to new overseas markets, particularly for
services and investments. The country is a founding member of the
ASEAN Free Trade Area (AFTA) and has implemented bilateral
agreements with the largest Asian economies—the PRC, India, Japan,
and the Republic of Korea—as well as economies outside the region,
including the United States (US) and Australia.
38
-
As a supporter of multilateralism, Japan was a latecomer to FTAs. The
region’s first developed economy, Japan has the strongest base of
giant MNCs involved in production networks and supply chains
throughout Asia. One motivation for Japan’s engagement in FTAs is to
provide a market-friendly and predictable regional business
environment for its MNCs. Japan has rapidly implemented bilateral
economic partnership agreements (EPAs) with 10 countries,5 an
agreement with ASEAN, is negotiating agreements with Australia and
India, and is about to reopen negotiations with the Republic of Korea.
39
- The two Asian giant developing economies, the PRC and India, are
forming FTAs to ensure market access for goods and expand regional
coverage for outward investment. To this end, the PRC implemented
separate FTAs on goods and services with ASEAN and is now
finalizing its negotiations on an investment agreement. The PRC has
also forged bilateral comprehensive economic partnership agreements
(CEPAs) with Hong Kong, China and Macau, China; FTAs with Chile
and Pakistan; and is a member of the Asia–Pacific Trade Agreement
(APTA). In addition, the PRC concluded FTAs with Singapore and New
Zealand in 2008, and an Economic Cooperation Framework Agreement
with Taipei,China in 2010. India is a member of APTA and has a
comprehensive agreement with Singapore. It also has agreements with
its South Asian neighbors.
40
FTA in Asia and the Pacific
(as of January 2010)
41
FTAs in Asia by Country and Subregion
Source: Asia Region Integration Center website. www. Aric.adb.org
(accessed 15 February 2012)
42
Growth of Concluded FTAs in Asia
(number of FTAs by economy)
FTA = free trade agreement.
Note: FTAs in Asia cover all FTAs with at least one Asian economy. Here, Asia includes
the 16 economies included in the figure.
Source: ADB’s FTA Database (available: www.aric.adb.org), downloaded August 2010.
43
Benefits of FTA
 Increase in Trade and Expansion of Foreign Markets
- Trade creation effects and trade diversion effects
 Enhance Technological Capability and Competitiveness
- Product differentiation and new technology development for enhancing
international competitiveness
 Induce FDI and Capital Accumulation
- FDI positively effects capital accumulation, technology transfer,
employment, exports, etc.
 Improve Economic System Through Opening
- Transforming the system through learning and for world standards
 Enhance negotiation leverage and credibility against foreign
partners
44
Trade Liberalization in Terms of Declining Tariff Rates
(%)
China
Indonesia
Japan
Korea
Malaysia
Philippines
Singapore
1992
2010
1989
2010
1988
2010
1988
2010
1988
2009
1988
2010
1989
2010
NonPrimary Primary Total
products products products
35.1
40.6
40.4 Thailand
15.6
8.7
9.6
18.2
19.2
19.2 Australia
8.4
6.6
6.8
8.3
3.5
4.2 US
17.3
2.5
4.4
19.3
18.6
18.6 Canada
48.5
6.6
12.1
10.9
14.9
14.5 Mexico
10.9
7.6
8
29.9
27.9
28.3 Chile
9.8
5.7
6.3
0.2
0.4
0.4 Colombia
0.2
0
0
Primary
products
1989
2010
1991
2010
1989
2010
1989
2010
1991
2010
1992
2010
1992
2011
30
22.8
9.5
1.3
3.8
4.9
6.1
11.3
12
21.5
11
4.38
11.8
7.49
NonPrimary
products
Total
products
39
38.5
8
9.9
14.2
13.1
3
2.8
5.9
5.6
3.3
3.5
9.2
8.6
2.6
3.7
13.4
13.4
7.1
9
11
11
4.91
4.85
12
12
6.73
6.8
45
 Institution-driven Regionalization in East Asia
- Regional cooperation APEC: Trade and FDI liberalization and facilitation,
Economic and technical cooperation
- Bilateral and multilateral cooperation:
Free trade agreements (Economic Partnership Agreements for
comprehensive contents), ‘Chiang Mai Initiative’ (Currency swap), etc
- ASEAN, AFTA, AIA (ASEAN Investment Area), etc.
- ASEAN+3 (China, Japan, Korea)
 Recent Surge of FTAs in East Asia
-Trend: East Asian economies started showing strong interest in FTAs
toward the end of 1990s.
-Special characteristics: Comprehensive FTA (EPA) covering trade and FDI
liberalization, facilitation, economic cooperation: APEC’s three pillars
46
 The Factors behind the Proliferation of FTAs in East Asia
- Increase in market access
- Sharp increase in FTAs in the world
- Slow progress in trade liberalization under the WTO
- Promote liberalization and policy reforms
- Financial crisis in 1997-1998
- Rivalry among East Asian countries (competitive FTAs, China-Japan,
among ASEAN members)
 Motives behind FTA for Selected East Asian Countries
- Japan, Promote economic growth in East Asia: Increasing dependence
on East Asia, Improve business environment for Japanese firms
- China, Promote economic relations with East Asia
- Korea, Play a role of facilitator for institutional regionalization in East Asia,
Reunification of Korean Peninsula
- ASEAN, Maintain bargaining power in East Asia, Receive economic assistance
47
Arguments Surrounding Economic Integration
 Trade Creation and Trade Diversion
- Trade creation – Increased exports by new members to other members
resulting from membership
-
Trade diversion – Decreased exports to members of the economic
union by nonmember nations often resulting in the advantage shifting
away from the lower-cost producer to the higher cost producer
 Reduced Import Prices – Results from importers’ efforts to remain
competitive despite tariffs imposed
48
 Increased Competition and Economies of Scale
- The larger market created also means more competing firms which
can result in greater efficiency and lower consumer prices
- Internal and external economies of scale – Lower production costs
from greater production or free mobility of factors of production
 Higher Factor Productivity
- Movement of labor and capital from areas of low productivity to areas
of high productivity
- Poorer countries may lose badly needed investment capital or labor
to a more profitable richer country
- More developed countries may lose companies who move to areas
where operating costs are lower
 Regionalism versus Nationalism – The greatest impediment to
economic integration
49
Regional Groupings – Asia
 Integration in Asia
- Market forces are compelling Asia to move toward formal integration
- Association of Southeast Asian Nations (ASEAN) was very informal
- ASEAN Free Trade Area (AFTA) formed in 1991 reduced tariffs and
set goal for customs union by 2010
- East Asia Economic Group (EAEG) has been proposed
- Asia Pacific Economic Cooperation (APEC) has set goals of
liberalizing trade
- South Asian Association for Regional Cooperation (SAARC) on Indian
subcontinent in 1985
50
Regional Cooperation and Integration
 Recent Progress
- With the global economy immersed in double-track growth- emerging
economies expanding faster than advanced countries- Asia is forging
ahead in part due to increased regional integration.
- Asia is leading growth in global trade through increased openness, with
intraregional and “South- South” trade growing faster than trade with
traditional markets in the US and Europe.
- The depth of trade integration varies across subregions, with the
emphasis on intermediate goods trade reflecting expanding regional
production networks.
51
Regional Cooperation and Integration
- Cooperation in trade policy has developed most effectively in Asia
through a combination of unilateral actions. But some regional free
trade agreements (FTAs) also help foster intraregional trade flows, with
the number of FTAs involving at least one Asian country dramatically
increasing over the past decade. The degree of trade integration will
likely increase.
- Asia’s financial integration lags behind trade integration. The region’s
financial markets remain more integrated through global markets than
among themselves, but signs since the 2008/09 global crisis show
financial integration has accelerated; yet subregional variations remain
significant.
- Indeed, Asia’s infrastructure gap is huge, requiring more cross-border
connectivity to strengthen intraregional trade and regional demand.
52
Regional Cooperation and Integration
- In addition to physical infrastructure, for effective connectivity Asia
needs to strengthen its soft infrastructure—policy, legal, regulatory and
institutional frameworks, along with systems and procedures.
- International transmigration—including labor mobility within Asia—is
increasingly important as migrants contribute to growth both in host
economies and via remittances back home.
- Regional integration can expand markets and input sources, better
allocating resources across the region, thus accelerating economic
growth. It can also improve risk-sharing. But there are also downside
risks, ranging from potential contagion to growing income inequality
and polarization.
53
Basic Economic Indicators by Region and
Subregion
54
FTA Initiatives by Status
(Cumulative as of Jan 2012)
55
Current Status of FTA networking
 Extended East Asia: The completion of (ASEAN+1)x6 (Table 1).
– Given a delay in FTA connection among Japan, Korea, and China,
ASEAN becomes a virtual “hub” of FTA networking in East Asia.
 Asia-Pacific: from networking to consolidation
– 9 advanced APEC countries have 20 FTAs signed/being effective, 9
FTAs under negotiations.
– FTAAP (APEC-wide FTA), Trans-Pacific Partnership (TPP) initiative
(P4, US, Australia, Peru, Vietnam…)
 Japan: 11 FTAs concluded
– Agricultural protection reduces the degree of freedom.
56
- Middle-income countries such as Malaysia and Thailand have emerged
as regional production hubs for the auto and electronics industries,
respectively. As one of the founding members of ASEAN, Thailand has
entered into bilateral agreements with Australia, the PRC, India, Japan,
and New Zealand.
- Though the Republic of Korea does not have as many FTAs as do
other large economies in the region, it has forged, or is forging, FTAs
with ASEAN, Europe, and the US. The Republic of Korea has
agreements with members of APTA, ASEAN, and Singapore within
Asia; and with Chile and countries of the European Free Trade Area
(EFTA) outside Asia. It also signed an agreement with Asia’s largest
trading partner, the US, in June 2007 and is expected to sign an FTA
with the EU.
- With some exceptions, the region’s low-income economies—
Cambodia, Indonesia, the Lao PDR, the Philippines, and Viet Nam—
have tended to rely on ASEAN for concluding FTAs with the region’s
larger economies. This may reflect weak institutional capacity, lack of
human and technical resources, and limited leverage to undertake FTA
negotiations in poorer economies. The ASEAN framework offers the
possibility of pooling scarce capacity and resources.
57
The Evaluation of FTA Networking
 Interactions between de facto and de jure economic integration
– The formation of international production networks
– The mission of FTAs after the Asian currency crisis
– Restructuring import-substituting industries
– Further activating production networks
58
The Evaluation of FTA Networking
 Liberalization of trade in goods
– Liberalization coverage
• AFTA is now completing a clean FTA in terms of the
liberalization coverage for trade in goods, but other FTAs in
East Asia still include dirty aspects.
– FTA utilization
• Considering other policy arrangements to avoid being taxed
such as zero MFN tariffs, duty-drawback system, and others,
the utilization of FTAs seems to be fairly high in ASEAN.
However, further facilitation ion utilizing FTAs may be required, pa
rticularly for small and medium enterprises.
59
– Rules of origin (ROO)
• ROO is certainly important in order to capture the benefit of
liberalization effort in FTAs, and there still exists room for further
facilitation. However, negative consequences of the complication
of ROO seem to be limited in East Asia.
• Co-equal system works well.
 Liberalization in other policy modes
– AEM (Table 6), ASEAN-Japan FTAs (cf. ACFTA, AKFTA)
– WTO+ works strongly.
– However, the context is not for pursuing the legal
comprehensiveness of economic integration.
Rather, the motivation of introducing WTO+ is pragmatic
for serving diplomatic purposes or responding to requests
of private sector extending international production networks.
60
Further Evaluation in a Wider Scope
 Toward assessing economic effects of FTA networking
– Static and dynamic, direct and indirect
 Explosive increases in exports by East Asian countries in 2001-2007
– Both intra-East Asia exports and exports to ROW
– “Trade openness” enhanced in East Asia
• Direct effects of the removal of trade barriers (esp. AFTA)
• The reshuffling of production sites responding to trade liberalization
• More than proportional growth of demand for traded goods
– Non-homothetic tastes, growth of middle class
 Assessment of FTA networking in a wider scope is required.
61
Integration Perspectives
 The current system of overlapping FTAs seems to gain a certain level of
appreciation; economic/political momentum toward pluralateral framework
may not be very strong in East Asia.
 ASEAN+3 vs. ASEAN+6
– Consolidated FTA: not worthwhile discussing seriously without CJK FTA
– Forum competition: depending on attractiveness of topics, willingness
for dialogue partners to participate in, and the feeling of ownership by
ASEAN
 East Asia vs. Asia-Pacific
– Approach and agenda are different (pragmatism vs. rule-oriented,
advanced-country-oriented vs. development); can go both at the same
time.
– Effective interactions of the two would provide an alternative framework
for G2.
 Asia-Pacific is likely to lead further development of FTA networking/consoli
dation in the coming years.
62
Challenges Posed by Asian FTA
 Improving Firm-Level Use of FTA Preferences
Utilization of FTA Preferences
(percent of respondents by country)
FTA = free trade agreement.
Source: Kawai and Wignaraja (2011).
63
 Tackling the Asian ‘Noodle Bowl’
-
Rules of Origin (ROO)s are a potentially challenge of Asian FTAs.
These are devices to determine which goods will enjoy preferential
tariffs in order to prevent trade deflection among FTA members.
- Asian FTAs have complicated ROOs, sparking concerns about what
the attendant rules and administrative procedures would imply for the
cost of doing business. Complex ROOs raise transactions costs for
firms. With the rapid spread of FTAs throughout Asia, multiple ROOs in
overlapping FTAs pose a severe burden on SMEs, which have less
ability to meet such costs. Originally termed a “spaghetti bowl” of trade
deals, this phenomenon has become widely known as the noodle bowl
effect in Asia.
64
 Forming a Regionwide FTA
- There is increasing recognition in Asia of the merits in forming a
regionwide FTA as a means to consolidate the plethora of bilateral
and plurilateral agreements.
- Such an FTA would confer various economic benefits: increase market
access to goods, services, skills, and technology; increase market size
to permit specialization and realization of economies of scale; facilitate
the FDI activities and technology transfer of MNCs; and permit
simplification of tariff schedules, rules, and standard.
65
Income Effects of Alternative Scenarios Compared
to 2017 Baseline
(percent change in GDP by economy)
GDP = gross domestic product, ASEAN = Association of Southeast Asian Nations,
EAFTA = East Asia Free Trade Area, CEPEA = Comprehensive Economic Partnership for East Asia.
Source: Kawai and Wignaraja (2009a) based on the computable general equilibrium model used in Francois and
Wignaraja (2008). Asian FTAs: Trends, Prospects, and Challenges |
66
Political Economy Considerations
of FTA Consolidation in Asia
 Unclear Future
- Even if the consolidation of FTAs into a regionwide agreement—
whether in the form of an EAFTA among the ASEAN+3 countries or a
CEPEA among the ASEAN+6 countries— yields large economic gains
to Asia, the future path seems unclear.
- Several political economy considerations may impinge on the outcome.
For instance, the PRC has been a strong supporter of an EAFTA, while
Japan has put more emphasis on a CEPEA. In addition, political rivalry
over FTA leadership in Asia may hinder any such joint venture.
- Given the role of the US in Asia as a security anchor for many
countries, one may argue that excluding the US from the Asian
integration process is not viable from a political perspective.
- The rising importance of European markets for many Asian economies
suggests that involving Europe may also make sense.
67
 Building Blocks for Wider Agreements
- Due to a rise in the number of players in official negotiations for FTAs,
creating an encompassing FTA in Asia could become more
complicated. This suggests that forming a CEPEA would be more
complex than forming an EAFTA and that forming an FTAAP would be
even more complex than forming a CEPEA.
- The first step toward consolidation of various FTAs might be to create
preconditions—or building blocks—for a regionwide FTA, like an
EAFTA or a CEPEA, and then to develop further conditions toward a
trans-regional FTA, such as an FTAAP or an FTAAE.
- In this process, ASEAN will likely act as Asia’s integration hub or
convener. The “plus-three countries”—the PRC, Japan, and the
Republic of Korea—would then need to coordinate their trade and FDI
regimes.
68
 EAFTA (East Asia Free Trade Agreement)
- Background
 Asian financial crisis of 1997
 First ASEAN+3 Summit Meeting
 East Asia Vision Group (EAVG)
 East Asia Study Group (EASG)
 The Joint Expert Group on the feasibility of an EAFTA
- Rationale for Forming EAFTA
 Defensive Reaction to the Worldwide Rise of Regionalism
 To Prevent the “Spaghetti Bowl Effect”
 Deepening Interdependence
 Vision of an East Asian Community
- EAFTA as a Platform to FTAAP
 If EAFTA is pursued and successfully accomplished, there is room to
expand EAFTA to a bigger integration, which is “FTAAP” in the future.
- FTAAP toward the Global Free Trade
69
 EAS (East Asia Summit)
- The East Asia Summit (EAS) is a forum for dialogue on broad strategic,
political and economic issues of common interest and concern with the aim
of promoting peace, stability and economic prosperity in East Asia. It is an
open, inclusive, transparent and outward-looking forum, which strives to
strengthen global norms and universally recognized values with ASEAN as
the driving force working in partnership with the other participants of the
East Asia Summit.
70
 ASEAN + 3
-
The leaders of Japan, China, and Korea were invited to the informal ASEAN leaders'
meeting in December 1997, in the midst of the Asian financial crisis, which de facto
initiated the ASEAN 3 process. Many ministerial processes have been created within
the ASEAN 3 framework, including processes for foreign affairs; economy and trade;
macroeconomics and finance; environment, energy, health, labor, science, and
technology; and social welfare. China regards ASEAN 3 as a natural grouping for
East Asia's trade and investment cooperation and has proposed an EAFTA.
-
The ASEAN 3 leaders agreed in 2004 that the establishment of an "East Asian
Community" is a long-term objective and affirmed the role of ASEAN 3 as the main
vehicle for this eventual establishment. The East Asia Study Group (EASG 2002) had
identified seventeen concrete short-term measures and nine medium- to long-term
measures to move East Asian cooperation forward. The leaders then endorsed in
2003 the implementation strategy of the short-term measures--to be realized by
2007--and in 2004 encouraged a speedy implementation of the short- and long-term
measures. Some key long-term measures relating to economic, trade, and
investment integration, with the economic community in mind, include:
* formation of an East Asian Free Trade Area (EAFTA);
* establishment of an East Asia Investment Area by expanding the AIA; and
* promotion of investment by small- and medium-sized enterprises (SMEs).
71
 ASEAN + 6
-
ASEAN 6 (13 ASEAN 3 members and Australia, India, and New Zealand)
has met three times since December 2005, focusing on wider issues
including avian flu, education, energy, finance, and natural disasters. Japan
regards ASEAN 6 as an appropriate group for East Asia's trade and
investment cooperation and has proposed a CEPEA
-
Future economic cooperation in East Asia, leading to an East Asian
economic community, is likely to evolve around the multiple groupings under
ASEAN, ASEAN 1's, ASEAN 3, and EAS (or ASEAN 6). It is likely that the
ASEAN Economic Community, to be created by 2015, will be the hub of
East Asian economic integration, thereby securing ASEAN as the driving
force, ASEAN 3 as the main vehicle for an eventual East Asian economic
community, and the EAS as an integral part of the overall evolving regional
architecture
72
 APEC
- APEC has encouraged trade and investment liberalization in a voluntary
and unilateral fashion within an Asia-Pacific context. Australia played a
major role in promoting APEC as a trans regional forum with the basic
principle of "open regionalism". One of its most important achievements
was to induce unilateral, voluntary trade liberalization of the then non-WTO
members, such as China and Taipei, China. But APEC's prominence
appears to have declined since the Asian financial crisis because of its
inability to effectively respond to the crisis, and as its members have
pursued bilateral and sub regional FTAs. Open regionalism can remain
important, nonetheless, if APEC members take APEC--and WTO-principles as a liberalization infrastructure for their FTAs and attempt to go
beyond them.
73
FTAs of China
 China and FTAs
- 9 FTAs; 30 under discussion/negotiation
- China-ASEAN: increasing complementary trade but competing
sectors
- Encouraging results on tariffs and rules of origin; WTO-compatible but not
WTO-plus; services and investment?
- WTO-plus FTAs with HK and Macau
- Negotiations with Aus and NZ
- PTAs with SACU, India and others?
- Overall: pragmatic, eclectic approach
- Danger of politics-driven trade-light FTAs (unlike China in WTO); but
stronger FTAs in east Asia
74
Korea’s FTA Partners
75
Global FTA Network of Korea
76
Korea’s Trade Volume Under FTAs
- With completion of the FTA network within 5 years, Korea’s
trade ratio with FTA partners will increase up to 76%.
77
 Korea’s Motivation of FTAs
- Korea: heavily dependent upon foreign markets in its development process
- Trade openness in 2005: Korea(65.7%) vs. NAFTA(25.8%), Japan (24.3%),
EU(32.2%), China(59.3%), ASEAN-7(154%)
- Strongly supported multilateral trade negotiations as Korea has been one
of the greatest beneficiaries of the GATT/WTO, but just ignored FTAs
- Regionalism revived and making fortress in foreign markets, so urgent
need to change its trade policy to take new markets and not to lose
existing ones.
78
Characteristics of FTAs of Japan
•
Focus on East Asia (East Asia-wide FTA)
=> shifting toward broader coverage (India, Chile, Gulf State etc)
•
Comprehensive framework: WTO-plus
+Economic Partnership Agreement
(FTA, FDI, Economic Cooperation )
+Free movements of goods, funds, people,
and information (FTA-plus)
+System harmonization (e.g. Intellectual property
right (IPR) , competition policy)
•
Recent changes:
+Increasing importance of speed
+Bilateral FTAs with ASEAN members to regional FTA with ASEAN
79
 Japan’s FTA Strategy
- Focus on East Asia
- Comprehensive framework: WTO-plus Economic Partnership Agreement
(FTA, Economic Cooperation: Policy coherence)
- System harmonization (technical standard, etc)
 Japan-Singapore EPA
- Liberalization: goods trade, service trade, FDI, government procure’t, etc.
- Facilitation: trade, FDI, mobility of natural persons, etc.
- Cooperation: science and technology, information technology, human
resource development, tourism, etc.
* Obstacles to FTAs for Japan
- Liberalization in agricultural imports
- Labor mobility
80
 Japan’s Role
- Play active role in promoting FTAs by liberalizing agricultural and labor
markets.
- Actively engage in comprehensive and effective economic cooperation
in human resource development, energy use, environmental problems,
food security, infrastructure development, etc.
- Overcome historic problems with China and Korea
- Formulate a roadmap toward EAFTA with cooperation with other East
Asian countries.
- Lead discussion to formulate a roadmap toward EAFTA with cooperation
with other East Asian countries.
81
 Current Status of Japan’s FTAs
• Enacted relatively a large number of FTAs
• Low country coverage in terms of trade: FTA coverage ratio
• Low tariff elimination: lower than 90% in terms of tariff lines, whereas for the
US, higher than 95%
 Objectives
•
Expand export market for Japanese firms
•
Improve investment environment for Japanese firms
•
Obtain energy and natural resources
•
Promote structural reform in Japan
•
Improve and establish good relationship
•
Provide economic assistance to developing countries
82
Japan’s FTAs (as of August 2013)
Start of
Signing of
Enactment
Partners
negotiation FTAs
of FTAs
In action
Singapore
Jan 2001
Jan 2002
Nov 2002
Mexico
Nov 2002
Sep 2004
Mar 2005
Malaysia
Jan 2004
Dec 2005
Jul 2006
Chile
Feb 2006
Mar 2007
Sep 2007
Thailand
Feb 2004
Apr 2007
Nov 2007
Indonesia
Jul 2005
Aug 2007
Jul 2008
Brunei
Jun 2006
Jun 2007
Jul 2008
ASEAN
Apr 2005
Apr 2008
Dec 2008
Philippines
Feb 2004
Sep 2006
Dec 2008
Swizterland May 2007
Feb 2009
Sep 2009
Vietnam
Jan 2007
Dec 2008
Oct 2009
India
Jan 2007
Feb 2011
Aug 2011
Peru
May 2009
May 2011
Mar 2012
Under
Korea*
Dec 2003
negotiation
GCC
Sep 2006
Australia
Apr 2007
Mongolia
Jun 2012
Canada
Nov 2012
Colombia
Dec 2012
CJK
Mar 2013
EU
Apr 2013
RCEP
May 2013
TPP
Jul 2013
Notes: *FTA negotiations with Korea have been suspended.
For the TPP, the date of Japan's entry to negotiations
Source: Ministry of Foreign Affairs
83
FTA Trade Liberalization Ratio (%)
Japan-Philippines FTA
Japan
88.4
Japan-Malaysia FTA
Japan
86.8
Japan-Indonesia FTA
Japan
86.6
Japan-Chile FTA
Japan
86.5
Japan-Switzerland FTA
Japan
85.6
Australia-US FTA
Australia
US
US-Peru FTA
Peru
US
Korea-US FTA
US
Korea
100
99
99
98
99
98
84
•
Faced with many difficult challenges, Japan has to open up its economy
and carry out structural reforms, in order to achieve economic growth or
to maintain high living standard, to contribute to economic growth in AsiaPacific and in the world.
•
WTO liberalization being stalled, free trade agreements (FTAs) are
second-best solution for promotion of trade and FDI
•
Japan can gain a lot from FTAs not only in East Asia but also with
countries in other parts of the world such as the US, the EU, and Latin
American countries.
85
•
Japan should play active roles in establishing region-wide FTAs: TPP,
RCEP by liberalizing its market
•
Then expand these FTAs by merging with other FTAs, leading to global
trade liberalization
•
FTAs (particularly TPP) face opposition from the agriculture sector
•
Various measures including gradual phase-in liberalization, and temporary
assistance (safety net) to negatively affected workers can moderate the
negative impacts during the process of transition
•
Need strong political leadership to promote FTAs, particularly TPP
86
Economic Partnership Agreement
EPA: Japan’s FTA Strategy
87
Direction of Japan’s EPA strategy
in the Asia-Pacific Region
East Asia
Completion
of bilateral F
TAs/EPAs
・ ASEAN+6=CEPEA=East Asia
Summit
・Integration-oriented approach
・Facilitation/cooperation agenda
FTAAP
Asia-Pacific
TPP
・Pacific-rim countries; NAFTA et al.
・Rule-oriented approach
・Liberalization agenda (agriculture)
・Regulatory reforms
88
Observatory Characteristics
 Recent and Interrelated Developments:
- First, Asia’s advanced production networks, which underlie its
spectacular global export success over the past several decades, have
deepened regionally. Production processes have been broken down
into smaller processes, with each process located in the most cost
effective economy, thereby further improving efficiency.
- Falling regional trade barriers and logistics costs, along with
technological progress, underlie this trend. Intraregional trade in Asia
has increased significantly, particularly in the production of parts and
components, and this trend may continue with further regional
liberalization via FTAs.
89
- Asia—a relative latecomer to using FTAs as a trade policy instrument—
is now at the forefront of global FTA activity with 61 concluded FTAs.
The Association of Southeast Asian Nations (ASEAN) is emerging as
the hub for Asia’s FTAs, with other major Asian economies joining the
FTA bandwagon. Policy support for the deeper integration of production
networks, regional integration efforts in other major markets, and the
1997–1998 Asian financial crisis have spurred the growth of Asian
FTAs.
 Potential Problems
- Issues and concerns highlighted include low FTA preference utilization,
a “noodle bowl” problem of criss-crossing agreements that potentially
distort trade toward bilateral channels, excessive exclusions and
special treatment in FTAs, and the possibility that the multilateral
trading system may be progressively eroded. FTAs are a relatively new
phenomenon in Asia and a dearth of empirical evidence, particularly
with respect to patterns of Asian FTAs and business impacts, has
made it difficult to verify the validity of these concerns.
90
The map shows FTAs signed or under negotiation in January 2006.
East Asia is defined here as the 10 ASEANs, China, Japan and Korea. Source Richard Baldwin 2006
91
 FTA-led Regionalism in Asia
- The large economies of Northeast Asia—the People’s Republic of
China (PRC), Japan, and the Republic of Korea—are at the forefront of
efforts to use FTAs to pursue their respective regional and global trade
strategies. Meanwhile, ASEAN members are also increasingly entering
into FTAs as a means to expand trade and increase their participation
in Asia’s advanced production networks.
- The stalled World Trade Organization (WTO) Doha Round of trade
negotiations means that FTAs are a vehicle to support the deepening of
production networks through trade and investment liberalization.
- Business will need to learn to export more effectively under a regional
trade regime anchored on FTAs. The focus for policy makers is how
best to minimize the costs of Asian FTAs while maximizing their
benefits .
92
Building Integrated Financial Markets
 Asia’s financial sectors/markets have not kept pace with the region’s
impressive achievements in economic growth and poverty reduction
- Gap need to be closed as the region graduates to middle income status
- Building robust financial markets, especially capital markets require
national-level reforms and restructuring
- Regional-level initiatives at building integrated financial markets IS
increasingly important
- Need to consolidate the regional financial markets initiatives under the
regional forums -- ASEAN,ASEAN+3, EMEAP, and APEC
93
Building Integrated Financial Markets
- The ASEAN+3 could take the lead in the region’s financial integration
initiatives
-
Australia and New Zealand as developing countries with small but
robust financial markets
-
India has experience in financial market development could play
important complementary roles
 A strong regional financial market gives a much more balanced global
financial system
 The challenge is of building an integrated Asian financial market with
minimum supranational institutions and maximum national freedom in
policy making
94
 Rising intra-regional trade and deepening macroeconomic
interdependence in East Asia make a case for intra-regional exchange
rate stability
- Monetary integration is much more gradual than trade and financial
integration, partly due to the absence of an anchor currency (unlike
German mark in Europe)
- It requires delegation of policy autonomy to a regional arrangement,
mustering political support would be much more difficult
- One option for a small group of countries is to anchor their exchange
rate polices on some version of a (common) basket currency system
- Once these countries gain enough experience in running exchange rate
system, more countries could join such a system paving the way for a
region-wide basket currency regime
- Chiang Mai Initiative - regional reserve pooling system at bringing about
intra-regional exchange rate stability
95
Regional Economic Cooperation and Integration:
Asia’s Future Development Strategy
 Pragmatic national economic institutions and policies will continue to play a
key role in navigating the Asia’s economic success story
 Asia continue to be open to the global economy
- Strategy underpinned Asia’s dramatic economic success over the decades
- Regional-level initiatives will increasingly complement national level polices
as well as Asia’s global engagement.
- Regional cooperation and integration - therefore, needs to be addressed in
a systematic way.
 Asia to look upon Europe for charting the course of its regional integration
efforts/agenda
- Both to draw the right lessons and to avoid mistakes
- Europe – a global benchmark on regional integration
96
Asia Integration Initiatives Different From Europe
 Sequencing of European integration – trade integration first, monetary
integration next, and financial integration subsequently
- Such sequencing was partly necessitated by the widespread trade
barriers
- Barriers both globally and within Asia, especially East Asia, are much
less than when Europe started it integration initiatives
- Capital controls are not as universal today. The move to freer capital
flows is likely to accelerate in the coming years
- Overall, unlike Europe, Asia may have to focus on financial integration
even as it completes the remaining agenda on trade integration
- Given general lack of appetite and compelling preconditions for
monetary integration, Asia have to proceed slower on monetary
integration than Europe
97
Case: Association of Southeast
Asian Nations
 ASEAN
- Economic, social, and cultural development
- Safeguard economic and political stability
- Serve as a forum to resolve disputes
-
Pop: 500 million
GDP: $740 billion
Members: 10
General Cooperation
Began: 1967
98
South and Southeast Asia’s Concluded
Free Trade Agreements, 2013
Reprinted from: Asian Development Bank Institute. 2013. p.6.
99
Regionalization for ASEAN
Globalization
Regionalization
-
Localization
-
ICT has allowed wide information access.
Goods and services can move cheaper thanks
to cheap transportation and ICT.
The world is more borderless.
In a flat world, competition searches for lowest
cost.
Convenience of flows of information, goods,
services, and people within the region
Relatively similar psychology and national
interest within region
National borders still have economic
meaning.
National markets exist and are defined by
psychology and politics.
National economic and political setbacks
can threaten globalization.
100
The Rising East: Threat or Opportunity?
Opportunity
Threat
ASEAN
Integration
Individual countries in ASEAN
are mediocre compared to
China and India
ASEAN is the only region
capable of being in the driver
seat of the Greater East Asia
integration*
* ASEAN is the first to seat ASEAN countries together with China, India, Japan,
South Korea, Australia, and New Zealand, as well as Russia (as an observer) in
one table during the first East Asia Summit.
101
What does ASEAN Integration Mean?
All barriers to the free
flow of goods, services,
capital, and skilled labor
are removed
-
-
-
The region will become a
more level playing field
-
Tariffs will be eliminated and non-tariff
barriers will be gradually phased out
Rules and regulations will be simplified and
harmonized
ASEAN investors will be permitted to invest
in sectors formerly closed to foreigners and
the services sector will also be opened up
Applicable international standards and
practices are followed, and policies on
intellectual property rights and competition
are put in place
Regional infrastructure will be more
developed with the expansion of
transportation, telecommunications and
energy linkages
102
Corporate Trends Supporting ASEAN Integration
Global trends in manufacturing indicate a shift towards adopting
flexible production techniques and integrated production chains
-
It is no longer cost effective for all manufacturing activities to be done in inhouse or in a single country
-
MNCs are integrating their manufacturing activities across several locations
-
MNCs are not only seeking large consumer markets but also regional sites
where they can establish efficient production networks
Regional Production Base
103
A Balanced Approach is Needed
 Benefits to MNCs
- Targeting more sales
volume in the ASEAN
market
- Components
procurement on an
ASEAN-wide basis
- More product
specialization to
achieve economies of
scale
- Greater emphasis on
profitability using
ASEAN-wide
operations
 Benefits to Local
Companies
- More export
opportunities to
ASEAN market
- ASEAN-wide
expansion opportunity
for corporate growth
strategy
- Technology and
financial support
opportunities from
MNCs
- ASEAN-wide pool of
talent
A Balanced Approach
104
Asia Pacific Economic Cooperation
APEC: Group of 21 nations ringing the Pacific Ocean that accounts for
over half of world trade
- Not designed as a free-trade bloc
- Strengthen multilateral trade system
- Liberalize trade and investment rules
105
TPP vs. RCEP
□ Positions in FTAAP
•
•
•
FTAAP: Long-term goal of regional economic integration in Asia-Pacific
TPP and RCEP are both pathways to FTAAP
TPP and RCEP should be complementary
□ Issue Coverage
•
TPP: comprehensive coverage not only market access, services, and
investment but also labor, environment, and cross-cutting “horizontal
issues” such as regulatory coherence, competitiveness and business
facilitation, development and Small and Medium Enterprises (SMEs)
•
RCEP: limited coverage, trade in goods, trade in services, investment,
economic and technical cooperation, intellectual property, competition,
dispute settlement, other areas
106
□ Objectives
•TPP: To establish a high standard, regional agreement that addresses new
and emerging issues, incorporates new elements reflecting our values and
priorities, and responds to the 21st century challenges our citizens face.
(USTR website)
•RCEP: To support and to contribute to economic integration, equitable
economic development, and strengthening economic cooperation among the
participating countries (Guiding Principles and Objectives)
107
RCEP
 The RCEP is an agreement initiated by ASEAN and now by China. It is
newer than the TPP. Contrary to the TPP, targeting to achieve a higher level
of FTA, the RCEP fundamentally aims at the phased and progressive
opening.
 Formally agreed in 2012 to launch negotiations on the RCEP, which aims
to be the largest free trade bloc in the world, comprising all 10 ASEAN
nations and the six other countries with which the group has free trade
agreements- China, India, Japan, South Korea, Australia and New
Zealand. Negotiations are expected to conclude by the end of 2015.
 All 16 members of the ASEAN+6 decided to join RCEP talks. However,
considering differences in their economic development and industrial
structure, it looks hard to establish the RCEP.
 RCEP can be affected by other FTAs, including CJK FTA and the TPP.
108
TPP
 The TPP is a set of trade and investment negotiations among 11 countries (US,
Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru,
Singapore, and Vietnam). Originally, the 2006 Trans-Pacific Strategic Economic
Partnership (P-4) was formed by four countries (Brunei, Chile, New Zealand,
and Singapore). Once finalized, the TPP is intended to remain open to
additional parties-eventually becoming the core of a free trade area for the AsiaPacific. In 2013 Japan announced it will join the TPP.
 Economic integration in the TPP is deeper than that of the RCEP.
 Participation in the TPP requires the highest level of openness especially in the
service market, including intellectual property rights, law, labor, and agricultural
and manufacturing sector.
 The TPP and the RCEP are organized in a different manner. However, there are
positive possibilities of integration as their gap reduces in terms of economic
size and deviation, trade openness, and the level of openness.
109
East Asian Wide FTA Progress
2004 China Proposal
ASEAN+3(EAFTA): ASEAN+CJK
2006 Japan Proposal
2011 ASEAN Proposal
RCEP: ASEAN+CJK, India,
Australia, New Zealand
ASEAN+6(CEPEA): ASEAN+CJK, India,
Australia, New Zealand
2006 P-4
Singapore, New Zealand, Brunei, Chile
2010 U.S. Joined
2013 Japan Joined
TPP: Brunei, Chile, Peru, Singapore, New
Zealand, U.S., Malaysia, Vietnam,
Australia, Canada, Mexico
110
Comparison of Economic Size of TPP and RCEP (2011)
TPP
GDP
($ billion)
Population
(million )
Export
Import
Trade
($ billion) ($ billion) ($ billion)
Except
Japan
20,596.8
(24.9)
656.8
(9.0)
3,456.8
(19.4)
4,221.5
(23.0)
7,678.3
(21.2)
Including
Japan
26,463.9
(32.0)
784.7
(10.8)
4,281.2
(24.0)
5,076.3
(27.7)
9,357.5
(25.9)
RCEP
19,703.7
(23.8)
3,388.1
(46.6)
5,138.8
(28.8)
5,045.1
(27.5)
10,183.9
(28.1)
EU
17,551.4
(21.2)
503.4
(6.9)
5,855.3
(32.8)
6,080.4
(33.1)
11,935.7
(33.0)
Note: (%) indicates percent of world share
Source: Choi, et al. 2013.
111
Intra-regional Trade Share in the World (2011)
(%)
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
2011
CJK
21.3
ASEAN
24.1
TPP
38.6
NAFTA
39.9
RECP
43.8
EU
64.5
Sources: Based on Choi and Lee. 2013
112
TPP World Trade:
Share of Total World Trade by Selected Trade Region
Sources: IMF E-Library Data, Direction of Trade Statistics (DOTS)
(Borrowed from: Barfield. 2011.)
113
U.S.
 Position
- FTAs with both the Asia-Pacific region (TPP) and Europe (TAFTA) will yield
considerable economic and political benefits to US.
- TPP and TAFTA are the most realistic ways to reclaim U.S. economic
leadership and to highly increase U.S. exports.
- Achieving TPP and TAFTA has deep strategic implications. Both would
reaffirm liberal norms and a leading U.S. role in setting the global rules and
standards.
- Japan’s participation in the TPP will boost the agreement’s economic and
strategic significance. Without Japan’s participation, the market access
opportunities for the U.S. are limited.
114
- The recent change of US attitude towards China is based on the perception
that unless China, the world 2nd top economy, joins TPP talks, the entire real
benefit from the TPP is limited.
- The most fundamental challenge to the TPP is that it may not be attractive
enough to induce China to sign in the TPP, which would lead China to react
by accelerating its own trade initiatives in Asia.
 Strategy
- The TPP is an economic and diplomatic game-changer. US should conclude
and implement a high-quality TPP agreement as soon as possible.
115
China
 Position
- China preferred ASEAN+3 approach, but accepted ASEAN+6 (RCEP). It
wants to play the leading role of RCEP.
- In addition to the economic profits through free trades, China takes care
about the political and security parts in East Asia. The TPP is considered to
create a new blockade against China in this region.
- However, it may consider joining TPP as the relationship with US turns to
be ‘engagement.’
- The recent indication of China to consider joining TPP intends to prevent
the creation of the great Asia-Pacific economic bloc, excluding China,
headed by the US and strengthened by Japan’s joining.
116
 Strategy
- China’s strategy is to create China-central regional economic order and
geopolitical gravity through FTAs and regional integration.
- China’s being excluded from the TPP will undercut the East Asian regional
integration process that China has been propelling for over a decade,
posing a great challenge to China’s rise in the future.
- Considering the current status of China, it may be hard for Beijing to join
the TPP in reality, regardless of its informal positive indication.
117
Japan
 Position
- The TPP will provide new market access opportunities for increasing Japanese
export and driving domestic reform.
- Japan’s participation in the TPP is expected to enhance the economic and
strategic level of the TPP in Asia-Pacific region, and cause changes in the
competition structure for economic integration in East Asia.
- Japan’s participation will affect to the negotiation of the RCEP and CJK FTA,
which both are in the competition relationship.
- Japan’s participation in the TPP will not only lead to the creation of the world’s
largest free-trade zone, but also enhance the economic position of the TPP.
- GDP share of US and Japan reaches over 90% out of total GDP of all
TPP participants. In fact, th TPP is considered as US-Japan FTA.
118
 Strategy
- In 2013 Japan announced to participate in the TPP talks with an
emphasis on its leading role to establish trade rules in the Asian-Pacific
region and necessity to build new economic bloc with US.
- Japan’s declaration of joining the TPP talks means TPP becomes a new
priority in Japan’s wide-area FTA policy.
119
Korea
 Position
- In the conflict between the China-led RCEP and the US-led TPP, it is
expected that there are numerous barriers in the CJK FTA process in the
future.
- In the Asia-Pacific regional perspective, the TPP should be considered as
a multilateral FTA, which aims at higher level of free trade in a wider region.
- Japan’s participation in the TPP is expected to affect the speed of CJK FTA
process as well as it can be a turning-point in Japan’s foreign trade
strategies.
- Korea does not have a structural leadership that can exert hard power and
influence regional integration process. The RCEP is expected to give more
leverage to Korea than the TPP.
120
Korea
 Strategy
- Japan’s TPP declaration intends to avoid the significant damages from unparticipation in the TPP and is aimed to hold back Korea’s aggressive FTA
strategies.
- In response to Japan’s participation in the TPP, Korea should examine
closely about the benefit of joining the TPP, although already Korea-US
FTA is effective.
- However, the highest priority is Korea-China FTA, then RCEP.
- Because of Japan’s recent precarious diplomacy, Korea became less
interest and confident in CJK FTA.
121
Korea’s Evaluation of RCEP and TPP
Criteria
Evaluation
Market and Growth
RCEP ≈ TPP
Production Network
RCEP > TPP
Level of Integration and Implementation
RCEP < TPP
Macroeconomic Benefit
RCEP ≈ TPP
Political Benefit
RCEP > TPP
Overall
RCEP > TPP
Sources: Choi and Lee, 2013, Revised.
122
Dynamics of Economic Integration in East Asia
RCEP (16 nations)
(Regional Comprehensive
Economic Partnership)
CJK FTA (3 nations)
Korea
China
Japan
Japan
TPP (12 nations)
(Trans-Pacific Partnership)
ASEAN (10 nations)
India
Singapore
Cambodia Indonesia Singapore
Brunei
Laos
Thailand
Brunei
Malaysia
Myanmar Philippine Vietnam
Vietnam
Australia
New Zealand
Chile
The U.S.
Peru
Canada
Mexico
Taiwan
123
Proposals for Regional Integration in Asia and Pacific
FTAAP 21
PNG, Russia
Taiwan
RCEP 16
Cambodia
China and
India
Hong Kong
Laos
Myanmar
Australia
Brunei
Malaysia
New Zealand
Singapore
Vietnam
Indonesia
Japan
Koea
Philippines
Thailand
Sources: Peter A. Petri, et al. 2012.
Canada
Chile
Mexico
Peru
United
States
TPP 11
TPP 16
124
U.S. vs. China
- If containing China is the main objective of US’ joining the TPP, it is
myopic and misleading. Reaching 40% of the world GDP, the
TPP can strengthen its economic power more with China, which is the
2nd in world GDP and is at the center of global supply chains.
- If China is blocked from the TPP, it may send a negative message
to prospective member, who may fear that joining TPP is the same as
being listed as joining in the anti-China camp.
- The TPP and RCEP are now on the process of creating Asia-Pacific
economic community. Therefore, in order to achieve the goal, it is necessary
for US and China to make inter-cooperation and understanding each other.
125
Prospects
 US and China will enter the cooperation mode and eventually the RCEP
and the TPP will be merged, but it will take a much long time.
 China will become a real driving force in East Asian integration whereas
Japan would be stressed to maintain its past geopolitical influence in East
Asia.
 Korea will focus on Korea-China FTA first, then the RCEP, and finally the
TPP. Korea may lose interest in CJK FTA.
 Taiwan will focus on the ECFA first, then more bilateral FTAs, and either the
RCEP or the TPP according to the attitude of these towards Taiwan.
126
Other concerns
Reflection: Some Issues Related to
Asian RTAs
-
Trade in Asia-Pacific has been more market-driven (growth-driven?) than
PTA-driven: sustainability?
-
Forging agreements with partners outside the region kept Asia as a
relatively open bloc: helping global economy?
-
RTAs in Asia not genuine “economic integration”: weak regional institutions
and lack of incentives for convergence?
-
Given changes in global economy, is there a need / possibility for stronger
regional trade governance / integration in Asia?
127
References
ADB. 2012. “Asian Economic Integration Monitor” (PDF).
Barfield, Claude. 2011. “Taiwan and East Asian Regionalism”. American
Enterprise Institute, Washington, DC. (Google)
Choi, Byungil, et al. 2013. “TPP, Now Is the Time to Decide: Japan’s
Participation in TPP and Korea’s Strategy”. KERI Brief vol.13-9.
(Korean)
Kawai, Masahiro, and Ganeshan Wignaraja. 2010. Asian FTAs:
Trends, Prospects, and Challenges. ADB Economics Working Paper
Series. (Google: pdf)
Urata, Shujiro. 2005. “Proliferation of FTAs in East Asia”. (Google)
128
Choi, Byungil and Lee, Kyunghee.2013. Korea’s FTA Strategy from the
Perspective of East Asian Wide FTA Formation. KERI. (Korean)
Petri, Peter A., et al. 2012. “The Trans-Pacific Partnership and Asia-Pacific
Integration: a Quantitative Assessment”. (Google)
Sa, Dongchul. 2013. “Korean Perspectives of Japan’s Participation in
TPP”. POSRI report. (Korean)
Scolly, Robert. 2012. APEC’s Regional Economic Integration Agenda and
the Evolution of Economic Integration in the Asia-Pacific Region. APEC
Study Series 12-02. KIEP.
Watanabe, Yorizumi. 2011. “Strengthening and Institutionalizing
Japan – EU Economic Relations”(PPT).
129