The Future of Regional Cooperation Architecture in Asia ---Overcoming

Alphabet Soup, Variable Geometry and Noodle Bowl

Chia Siow YueSingapore Institute of International Affairs

Asia After the Global Financial and Economic CrisisSER 2009 Conference, Singapore

6-8 August 2009

Rise in Regionalism in Asia

Asian regionalism is on the rise: Growing interdependence in trade and investment flows. Rapid

growth of production networks Integrating financial markets. Growing financial and monetary

cooperation Integrating physical and communications infrastructure Integrating movement of tourists, manpower and students Surge in regional and bilateral FTAs/EPAs/CECs Cooperation in delivering regional public goods and mitigating

global and regional public bads ---environment, natural disasters, pandemics, food-energy-water security, terrorism, security

Notwithstanding the outcome of the Doha Round, regional and bilateral FTAs will continue to grow in the region.

Plurilateral and Bilateral FTAs in East Asia (January 2009)

Country Plurilateral Bilateral Proposed Total FTAs

Brunei 8 1 4 13

Indonesia 8 2 6 16

Malaysia 9 7 3 19

Philippines 7 1 4 12

Singapore 10 18 4 32

Thailand 9 9 6 24

Cambodia 7 0 2 9

Laos 8 1 2 11

Myanmar 8 0 2 10

Vietnam 7 2 2 11

China 4 9 10 23

Japan 2 13 4 19

South Korea 4 9 10 23

Factors in the “FTA” Surge…1

Factors are both political and economic, intra-regional and extra-regional dynamics.

Political: Thawing political relations after the Cold War. Asian Financial Crisis led to cooperation in the face of a common threat.

Extra-regional challenges and developmentsDoha Round and APEC liberalization Regionalism in North America and EuropeCurrent global crisis

Factors in the “FTA” Surge…2

Intra-regional dynamicsRapid growth of intra-regional trade and investment

flowsDevelopment of regional production networks and

supply chains.Asian financial crisis led to regional financial and

monetary cooperation --- Chiang Mai Initiative, Asian Bond Market Initiative and Regional Surveillance Mechanism.

National policies not adequate. Regional cooperation needed to deliver regional public goods and mitigate global and regional public bads

The Present Regional Architecture…1

Numerous regional institutions, forums and economic cooperation and integration agenda. Gives rise to dense network of overlapping and multiple initiatives. Motivated by political and economic considerations

. Most are ASEAN-centric ASEAN10 –political-strategic, economic, social ASEAN+1-- economic ASEAN+3 (EAFTA, CMI) –economic, financial ASEAN+6 (CEPEA) – economic East Asia Summit (EAS) – political-strategic, economic

SAARC and South Asia FTA (SAFTA) and APEC Forum Numerous bilateral FTAs

ASEAN Economic Cooperation and Integration

ASEAN formed in 1967. Since then, dense network of meetings and work agenda

First phase of ASEAN economic cooperation and integration started in 1992 with AFTA, then AFAS in 1995, AIA in 1998. Spurred by external challenges.

Second phase began in 2003 with the ASEAN Economic Community (AEC). Again spurred by external challenges. Goal of an integrated single market and production base by 2015, with equitable development, narrowed development gap, and open to the global economy.

ASEAN+1 agreements with China, Japan, South Korea, Australia-New Zealand and India. Also with EU and GCC. No ASEAN-US

Case for a Region-wide “FTA”…1

Case for region-wide economic cooperation and integration architecture Geopolitical:

Usefulness of regional cooperation and integration in reducing geopolitical tensions and conflicts. Example of ASEAN.

A more cohesive and stronger voice in international organizations and fora

Economic: Larger benefits and lower costs of region-wide versus sub-

regional and bilateral FTAs Facilitate regional production networks and supply chains by

resolving the noodle bowl problem

Likely strong resistance from countries and groups that oppose economic liberalization and regional integration

Case for a Region-wide “FTA”…2

Defining the “region” and membership East Asia, Asia, Pan-Asia, Asia Pacific ---geographical,

geopolitical, or economic criteria? Narrow definition of East Asia has excluded Hong Kong and

Taiwan (EAFTA). Broad definition of East Asia has included Australia, New Zealand and India (CEPEA)

Indian Prime Minister called for a Pan-Asia grouping. Would that include the whole of South Asia (SAARC and SAFTA)?

Choice of wider membership versus deeper integration: too large a grouping lacks “like-mindedness” and results in shallow integration with large exclusion lists.

Challenges of Multiple, Overlapping Regional Architecture…1

Multiple and overlapping FTAs with different provisions, rules and schedules result in complexities and noodle bowl effect. There is no common template even for FTAs with the same partner. WTO inconsistency ---commitments to GATT Article XXIV or

Enabling Clause Different tariff phase-out schedules and end-dates Different product exclusions Different service exclusions (sectors and modes of supply);

positive versus negative lists Different provisions and restrictions for foreign investors Different coverage of WTO-plus issues ---facilitation, investment,

IPR, competition policy, government procurement, labor mobility

Challenges of Multiple, Overlapping Regional Architecture…2

Multiple and divergent rules of origin and documentation requirements ROOs reflect degree of liberalization for trade in goods Inconsistent ROOs across FTAs lead to fragmentation of regional

markets. Adoption of common ROO crucial to promote convergence but difficulty on best type of ROO ---RVC, CTC, product specific rules?

Low utilization of FTA tariff preferences Troublesome customs forms and certification requirements Consensus on common ROO across FTAs difficult, since the more

restrictive provisions reflect deeply entrenched industry interests

ASEAN+3 and/or ASEAN+6? …1

Contest between ASEAN+3 (EAFTA) and ASEAN+6 (CEPEA) EAFTA proposed by East Asia Vision Group in 2001. CEPEA

proposed by Japan in 2006 Both are comprehensive economic partnerships with trade and

investment liberalization and facilitation, “Singapore issues”, and regional cooperation and functional cooperation in wide areas

ASEAN+3 membership of ASEAN10, China, Japan and South Korea Started with financial and monetary cooperation during Asian

Crisis. EAFTA feasibility study launched in 2005 Process towards EAFTA ---negotiation among 13 economies, or

ASEAN10 and China+Japan+South Korea? However, no FTA agreement yet among China-Japan-South Korea

Integrating Asia Indicators (2007)Economy Population (mill) GDP (US bill) GDP p.c..(US$) Trade/GDP (%)

Brunei 0.4 12 30750 90

Indonesia 225.4 433 1922 50

Malaysia 27.2 187 6868 196

Philippines 88.7 145 1634 85

Singapore 4.6 161 35076 386

Thailand 65.7 246 3737 126

Cambodia 14.2 8 579 121

Laos 5.8 4 696 61

Myanmar 57.0 11 193 57

Vietnam 86.4 71 824 138

China 1321.5 3241 2452 66

Japan 127.9 4380 34246 28

South Korea 48.5 970 20246 72

Hong Kong 6.9 207 29846 347

Taiwan 23.0 383 16680 130

India 1138.0 1166 1025 33

Total above 3241.4 11626 3587 63

ASEAN+3 and/or ASEAN+6? …2

ASEAN+6 membership: Identical to East Asia Summit, that is ASEAN+3+3 (Australia, New Zealand and India). Merit of including both a rising China and a rising India, resulting

in the largest economic bloc of over 3 billion population in the world.

Economic modelling results show a larger FTA confers more economic benefits than the smaller ASEAN+3 FTA

However, perceived problem of India being more protectionist and slowing down the pace of trade and investment liberalization

So EAFTA or CEPEA? Both under serious consideration by ASEAN. Feasibility studies undertaken. Some proposed that both can exist sequentially, with EAFTA first and then expand into CEPEA.

APEC Forum…1

APEC formed in 1989 to promote trans-Pacific economic cooperation. Current membership of 21 economies that includes Hong Kong and Taiwan, Australia and New Zealand and US. Annual meeting of APEC leaders seen as a great diplomatic event APEC founders opted for open regionalism and voluntary and

unilateral trade and investment liberalization to achieve Bogor goals of free trade for the developed economies by 2010 and for the developing economies by 2020.

Bogor goals so far illusory, although there is an IAP peer review of APEC economies. Action focus in recent years has been on trade and investment facilitation rather than meeting liberalization goals.

APEC Forum…2

ABAC proposal for a Free Trade Area of the Pacific (FTAAP) has so far met with lukewarm response. Would fundamentally change the nature of APEC into a

negotiating forum Reaching consensus on a high quality FTA near impossible among

the diverse 21 economies of APEC. Rising US protectionist pressures

Would divert scarce negotiating resources from Doha Round Proposal that APEC adopts a “coalition of the willing”

approach by expanding the existing Trans-Pacific Strategic Partnership (TPSP or P4). It is a high quality FTA among Brunei, Chile, New Zealand and Singapore but lacks the clout of big economy participation.

Roadmap to Region-wide “FTA”…1

Goal, region and membership Need a common political vision of the region Goal of economic integration or community building? ASEAN10+3, ASEAN10+6, APEC21, P4 expanded? How to handle the wide development gaps? ---flexible

arrangement with S&D treatment for the poorer countries Different time frames and schedules for liberalization Different sensitive and exclusion lists Economic and technical cooperation and capacity building

How to negotiate a common template and resolve the noodle bowl?

Roadmap to Region-Wide FTA…2

Possible steps to reach a region-wide “FTA” in East Asia EAFTA through ASEAN10+China+Japan+Korea negotiations EAFTA through ASEAN FTA and CJK FTA CEPEA through consolidating the ASEAN+1 FTAs with China,

Japan, Korea, Australia-New Zealand and India Progression from EAFTA to CEPEA Inclusion of Hong Kong and Taiwan economies

Possible steps to reach a Asia Pacific “FTA” Difficult to negotiate the FTAAP among 21 APEC economies Expand the P4 through “coalition of the willing” ---positive

demonstration effect if large economies such as US, China and Japan express interest

Linking EAFTA/CEPEA with NAFTA

Roadmap to Region-wide “FTA”…3

Sherry Stephenson’s (2007) possible lessons from the failure of the Free Trade Area of the Americas (FTAA) Common vision is necessary among the major economies Time frame of the negotiating process must not be too long Objectives must be realistic and achievable Minimal interference from other FTA negotiations Chairmanship of the process should not be given to the major

players Prior understanding on how to treat labor and environment Willingness and identified capacity to finance and support the

negotiating process

END OF PRESENTATION

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