ICTSD/IDRC Symposium ‘Rationalising Regional Arrangements In The South – Before and After Hong Kong’ Towards A Framework For Amalgamation Of East Asia Regional Entities Dr Hank Lim Singapore Institute Of International Affairs

2 Reasons for East Asia regionalism Asian Financial Crisis ’97 Asian Financial Crisis ’97 Political, economic and social diversity Political, economic and social diversity China’s growth and its economic rivalry with Japan China’s growth and its economic rivalry with Japan Widening economic gap between Northeast and Southeast Asian economies Widening economic gap between Northeast and Southeast Asian economies ASEAN Plus 3 provides an integrated East Asian regional economic framework ASEAN Plus 3 provides an integrated East Asian regional economic framework

3 Reasons for East Asia regionalism By default, ASEAN has become the ‘Hub’ of East Asia regional economic cooperation By default, ASEAN has become the ‘Hub’ of East Asia regional economic cooperation Overlapping ASEAN-China, ASEAN-Japan and ASEAN-South Korea Overlapping ASEAN-China, ASEAN-Japan and ASEAN-South Korea Negotiations for formation of ASEAN-India FTA and possible link with CER (Australia-New Zealand Closer Economic Relation) Negotiations for formation of ASEAN-India FTA and possible link with CER (Australia-New Zealand Closer Economic Relation)

4 East Asian FTAs Characteristics and elements Bilateral FTAs have been established Bilateral FTAs have been established Challenges for creating integrated regional and bilateral FTAs – Challenges for creating integrated regional and bilateral FTAs – 1) East Asian diversity and heterogeneity 1) East Asian diversity and heterogeneity 2) Different stages of economic development 2) Different stages of economic development 3) Perceived gap between regional and national priorities and interests 3) Perceived gap between regional and national priorities and interests

5 East Asian FTAs Characteristics and elements FTAs Plus – preferential trade agreements rather than custom unions FTAs Plus – preferential trade agreements rather than custom unions Comprehensive Economic Partnership (CEP) agreements – the focus of policy objectives extends beyond reducing tariff barriers to include: Comprehensive Economic Partnership (CEP) agreements – the focus of policy objectives extends beyond reducing tariff barriers to include: 1) Trade facilitation 1) Trade facilitation 2) Harmonize custom procedures and technical standards 2) Harmonize custom procedures and technical standards 3) Human resource development 3) Human resource development

6 East Asian FTAs Characteristics and elements 4) Investment policies 5) Service sector 6) Dispute Settlement Mechanism (DSM) 7) Competition policy 8) Regulatory measures 9) ‘Early harvest initiative’ on agricultural sector Dramatic changes for East Asian trading arrangements in the last two years Dramatic changes for East Asian trading arrangements in the last two years East Asia FTAs generally have ‘breadth’ but no ‘depth’ East Asia FTAs generally have ‘breadth’ but no ‘depth’

7 East Asian FTAs Characteristics and elements ASEAN maintains its role as default ‘Hub’ for all FTA proposals ASEAN maintains its role as default ‘Hub’ for all FTA proposals USA’s economic presence promotes an alternative ‘hub and spoke’ FTA pattern in East Asia USA’s economic presence promotes an alternative ‘hub and spoke’ FTA pattern in East Asia East Asia FTA have small margin of preferential (MOP) compared to MFN rates as such can become ‘building blocks’ to multilateral trading system East Asia FTA have small margin of preferential (MOP) compared to MFN rates as such can become ‘building blocks’ to multilateral trading system Regional governments have adopted a multi- track approach to trade liberalisation Regional governments have adopted a multi- track approach to trade liberalisation

8 Modality and process of East Asia Free Trade Area (EAFTA) EAFTA as the overall regional framework for Northeast and Southeast Asia EAFTA as the overall regional framework for Northeast and Southeast Asia The four new ASEAN countries of Cambodia, Laos, Myanmar and Vietnam (CLMV) are implementing their time schedule of AFTA commitment The four new ASEAN countries of Cambodia, Laos, Myanmar and Vietnam (CLMV) are implementing their time schedule of AFTA commitment ASEAN has agreed to establish ASEAN Economic Community (AEC) by AEC aims to establish ASEAN as a single market and production area ASEAN has agreed to establish ASEAN Economic Community (AEC) by AEC aims to establish ASEAN as a single market and production area

9 Modality and process of East Asia Free Trade Area (EAFTA) AEC AFTAAIAAFAS Will AEC be a ‘AFTA plus’, ‘common market minus’ or a combination of the two economic integration modalities?

10 Modality and process of East Asia Free Trade Area (EAFTA) Political and economic problems between China and Japan hinders FTA for Northeast Asia, which prevents the establishment of regional FTA in Northeast Asia Political and economic problems between China and Japan hinders FTA for Northeast Asia, which prevents the establishment of regional FTA in Northeast Asia Entry of India, Australia and New Zealand has made the East Asia trade and investment matrix more complex Entry of India, Australia and New Zealand has made the East Asia trade and investment matrix more complex

11 Modality and process of East Asia Free Trade Area (EAFTA) Risk of ‘Spaghetti bowl syndrome’ due to absence of regional framework of trade and investment liberalization in: Risk of ‘Spaghetti bowl syndrome’ due to absence of regional framework of trade and investment liberalization in: 1) Competition policy 1) Competition policy 2) Agricultural and service sectors 2) Agricultural and service sectors 3) Dispute settlement mechanism 3) Dispute settlement mechanism 4) Intellectual Property rights 4) Intellectual Property rights 5) Sustainable development and environment 5) Sustainable development and environment 6) Rules of Origin (ROO) 6) Rules of Origin (ROO)

12 Modality and process of East Asia Free Trade Area (EAFTA) East Asian regionalism must address the development objectives of less developed countries in the region East Asian regionalism must address the development objectives of less developed countries in the region Common framework for institutional design of the RTAs and bilateral FTAs are critical for East Asia to minimize duplication and overlapping of rules and regulations; prevent increases in resource allocation distortions and regional transaction costs Common framework for institutional design of the RTAs and bilateral FTAs are critical for East Asia to minimize duplication and overlapping of rules and regulations; prevent increases in resource allocation distortions and regional transaction costs

13 Conclusions Currently, the regional RTAs and bilateral Currently, the regional RTAs and bilateral FTAs process is being shaped by factors such as: FTAs process is being shaped by factors such as: 1) Multilateral trading system 1) Multilateral trading system (before and after the 6 th WTO ministerial conference and (before and after the 6 th WTO ministerial conference and outcome of the ‘Doha Development Round) outcome of the ‘Doha Development Round)

14 Conclusions 2) Globalization 2) Globalization (driven through borderless business clustering and production networking) 3) ICT 3) ICT (advancement in Information, Communication and Technology) The multilateral trading system under WTO provides the overall framework for the region and is beneficial for East Asia The multilateral trading system under WTO provides the overall framework for the region and is beneficial for East Asia

15 Conclusions What if multilateral trading system falters and Doha Development Round fails? What if multilateral trading system falters and Doha Development Round fails? East Asia Free Trade Area could emerge swiftly… East Asia Free Trade Area could emerge swiftly… Current WTO meeting will influence emerging East Asia regionalism in speed more than substance Current WTO meeting will influence emerging East Asia regionalism in speed more than substance

16 Conclusions Multilateral trading system remains important for providing overall framework and impetus to East Asian economic dynamism Multilateral trading system remains important for providing overall framework and impetus to East Asian economic dynamism In the long run, an EAFTA or East Asian Economic Community will emerge as a product of random proliferation and rationalization of the emerging future global trading system In the long run, an EAFTA or East Asian Economic Community will emerge as a product of random proliferation and rationalization of the emerging future global trading system - End of presentation –