To the organizers of this event,
Distinguished guests and participants;
Ladies and gentlemen,
First of all, allow me to thank the organizers for kindly inviting me to this event. Indeed, it gives me great pleasure to address the participants of this forum on a very important topic – the East Asia Economic Community.
The last decade has seen a dramatic rise in the number of regional trading arrangements notified to the World Trading Organization (WTO). The new millennium has also seen a spate of bilateral free trade arrangements negotiated and concluded across the globe. From 1948-1994 (46 years), only 124 RTAs were notified to the GATT. But after the creation of the WTO in 1995, more were established. In fact, by May 2003 (after 8 years), over 265 had been notified to the WTO; and as of July 2003, only three WTO members — Macau China, Mongolia and Chinese Taipei — were not party to any regional trade agreement.
Rising regionalism is a global phenomenon because countries – big and small alike – have used this to respond to global challenges and developments. They integrate because they do not want to lose out in the global competition for export markets and foreign direct investments. And because of the dynamics in multilateral trade negotiations, small nations resort to regionalism to enhance their bargaining leverage and to gain some degree of international political influence.
Economies in East Asia have joined the bandwagon of regional trading arrangements after having experienced a dramatic change in the region’s economic landscape over the last few years. What really prompted the economies of East Asia to seriously consider forging closer economic integration? There are of course several reasons but, to my mind, the following would be among the most important.
First and perhaps the most compelling of all is the financial and economic crisis of 1997 which devastated most East Asian economies causing some of them to fall into serious recession. The crisis was to be East Asia’s wake up call and it catalyzed efforts towards greater integration which was essential to make the region more resilient and less vulnerable to similar attacks in the future.
Second, trade liberalization within the ambit of the WTO and the APEC were not making substantial progress and this would be compounded by the rapid expansion of economic integration in Europe and the Americas. The European Community was expanding and about to welcome East European countries into the fold. The Free Trade Area of the Americas is also about to be a reality. East Asian economies are all highly dependent on exports and the benefits brought about by closer economic integration, i.e. enhanced competitiveness, greater bargaining leverage, among others, offered means to safeguard their continued access to these markets.
The idea of an East Asia Economic Community was first mooted in the East Asia Vision Group (EAVG) Report of January 2001 entitled “Towards an East Asian Community: Region of Peace, Prosperity and Progress.” In this report, the “integration of the East Asian economies, ultimately leading to an East Asia Economic Community” was envisaged and trade, investment and finance will be the catalysts in the community-building process. Specifically, the EAVG called for the establishment of the East Asia Free Trade Area (EAFTA) and the East Asia Investment Area (EAIA), among others.
Indeed, as acknowledged by the East Asia Study Group, which was subsequently tasked by the Leaders to assess the EAVG recommendations, the creation of the EAFTA, which can take the form of “encompassing bilateral and sub-regional free trade areas in the region”, will “help boost intra-regional trade and investments among East Asian countries”.
All countries in East Asia, which for the purposes of this address would only allude to the ASEAN members plus China, Japan and Korea, are parties to, or in the process of negotiating, one or more free trade arrangements not only with countries within the region but outside the region as well. Experts on regional integration observe that the free trade arrangements in East Asia are looming to take the “hub and spoke” characteristic, for example, ASEAN-China, ASEAN-Japan and ASEAN-Korea, and Japan-Singapore, Japan-Thailand and Japan-Philippines. Whether this would be detrimental or beneficial to a wider EAFTA would of course require careful and deeper analysis. For now, allow me to focus on what are the likely challenges, prospects and implications of East Asia’s quest for an economic community.
We have just seen that there are strong reasons which motivate East Asia to integrate. But how prepared are the East Asian countries? What could impede such desire to close ranks and form a community, an East Asia Economic Community?
When confronted with these questions, for skeptics most especially, the answer is almost automatic – diversity.
The countries in East Asia are probably the most diverse compared to any regional grouping across the globe. Diversity occurs in almost every aspect: historical background, political system, economic structure, religion, social and cultural dimensions. Allow me to give a few examples: (i) in terms of economic structure, East Asia groups the highly industrialized (Japan) with the highly agricultural (Laos and Cambodia); (ii) in terms of political structure, East Asia has a mix of democracies and socialists; (iii) religion, East Asia has a combination of Muslims, Buddhists, Christians, etc.
The list could go on and on but my next few examples could be the most telling of all as these could be an indication of how prepared countries in East Asia are to move towards an East Asia Economic Community:
(i) Level of national income and economic development. Based on World Bank figures, in 2000, the gross national income per capita of Japan was US$ 27,080; Singapore, US$ 24,910 and Korea, US$ 17,300 compared to Viet Nam, US$ 2000; Laos, US$ 1,540 and Cambodia, US$ 1,440.
(ii) Degree of integration into the multilateral trading system. Most of the ASEAN+3 countries are founding members of the WTO, two (China and Cambodia) have recently joined the WTO, while another two (Laos and Viet Nam) still have to complete their accession process.
(iii) Degree and experience in economic integration. While it can be claimed that ASEAN member countries have vast experience in economic integration having implemented a preferential trading arrangement since 1977 and the free trade area since 1992, the rest are relatively late-comers in the RTA game.
Ladies and gentlemen,
As a Southeast Asian coming from Brunei, I cannot help but underscore the value of small countries banding together with our bigger neighbours. We have seen that compared to our neighbors in Northeast Asia, i.e. China, Japan and Korea, the economies of ASEAN are relatively small in terms of market size and level of development. On a global scale, powerful regional blocs are emerging in Europe and in the Americas but none in Asia. Somehow East Asia has to respond, show the world that even in the face of complex regional diversity, there is an avenue for closer cooperation, coordination and integration. In fact the diversity itself could be capitalized and turned into strengths. There could be no better response than to establish the East Asia Economic Community.
An East Asia Economic Community, stemming out from linking existing free trade areas in the region, would bring about a combined market of 2 billion people or almost a third of humanity, with combined GDP of US$ 6.3 trillion or almost 20% of global GDP in 2002, and a total trade volume of US$ 2.2 trillion or about 17% of global trade in 2001.
Trade flows within East Asia, over the years, showed increasing economic interdependence among the thirteen countries. The share of intra-regional exports increased from 28.4% in 1998 to 34.5% in 2001. As the various RTAs within the region come into fruition, these trade flows are likely to increase and become more important. This augurs well towards the creation of an East Asia Economic Community.
East Asia comprises several tiers of membership, i.e. developed (Japan and Singapore), developing (China, Korea and ASEAN 5 ) and less-developed (Cambodia, Laos, Myanmar and Viet Nam). Such disparity in levels of development need not deter the East Asia Economic Community; rather, this should be used to the region’s advantage. For one, specialization and regional division of labour could be promoted as manufacturing companies take advantage of the economies of scale in production. Those with lower-skilled labour requirements could relocate from the more developed countries to the lesser developed ones. This in turn would, among others: (i) increase trade flows not only on finished goods but intermediate inputs and capital goods as well; (ii) encourage domestic investments; and (iii) advance the growth of supporting industries.
No doubt, ASEAN integration with the Northeast Asian countries will bring about great business potentials and significant benefits to the peoples of East Asia not to mention the sense of belonging to a bigger regional community and the increased political clout and bargaining leverage in the multilateral trading arena such integration could bring.
But then again, the East Asia Economic Community is still an ultimate challenge for how do you integrate thirteen countries with fundamentally different political systems, ideologies, historical background, economic structure, and economic development?
Several studies made on regional integration revealed that the success of NAFTA and EU could be attributed to the member economies’ strong drive to move ahead in integrating their markets. For example, EU’s motivation was never again to war while, for NAFTA, there was just this keen desire to form a single North American market. EU and NAFTA were also driven by prime movers, i.e. Germany and the United States. Historical support, strong motivation and natural leadership seem to be lacking in East Asia although it is a natural integration entity by virtue of the countries’ geographic proximity.
Ladies and gentlemen,
I do not think East Asia lacks the strong motivation. There could not be any stronger motivation than the aspiration for peace, stability and prosperity in the East Asian region. The seemingly lack of leadership should not be an obstacle either. Among the thirteen economies, ASEAN’s integration is the most advance and therefore it could play a pivotal role in building the East Asia Economic Community. Economic giants China and Japan will surely have a defined role. But as in ASEAN, it is likely that East Asia will not thrive on hierarchies. Rather, each member country will be treated as a partner and together they would work towards sustainable growth and development that would guarantee an environment of peace and stability.
The creation of the East Asia Economic Community may take years to materialize. Fusing the various FTAs to form a single East Asia Free Trade Area could be a complex exercise as the sensitivities of each country will have to be taken into account. Notwithstanding, East Asia should aspire for a comprehensive and high quality EAFTA in order to fully benefit from it.
The EAFTA should not only involve elimination of tariff and non-tariff barriers. Over and above these, trade facilitation, including harmonization of standards, simplification and harmonization of customs procedures, protection of intellectual property rights are all necessary to form an integrated business environment in the East Asian region. An integrated business environment in the region would not also be complete if the areas of services, investment, finance, movement of people, among others, are not adequately addressed.
Ladies and gentlemen,
The path towards the East Asia Economic Community may be long and bumpy; there may be stumbling blocks ahead. But the potential gains are also aplenty to ignore. For now, all that is needed to start this community-building process would be a strong political commitment and a genuine political will. After all, we owe it to our children and our children’s children to leave them the legacy of an East Asian region that is peaceful, secure, stable, progressive and prosperous.
Finally, allow me to conclude by wishing you all a successful and fruitful forum. Once again, my sincerest gratitude to all of you.