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Comprehensive Economic Partnerships: East Asia? East Asia Plus? Asia Pacific?

This article explores the scope and depth of economic integration in East Asia, discussing the potential size and membership of comprehensive economic partnerships. It also raises questions about the need for a common currency and the type of financial cooperation required for sustainable integration.

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Comprehensive Economic Partnerships: East Asia? East Asia Plus? Asia Pacific?

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  1. Comprehensive Economic Partnerships: East Asia? East Asia Plus? Asia Pacific? Wing Thye Woo Brookings Institution wwoo@brookings.edu Institute of Strategic and International Studies, 5th East Asia Congress, Mapping the Second Decade of East Asian Community Building, Kuala Lumpur, Malaysia, 2-4 December 2007.

  2. Two Questions for a CEP • How big? • How deep?

  3. How large the membership? • Adam Smith • Blocs within WTO, WTO-plus • Potsdam meeting in 2007: The blocking coalition within WTO, the abuse permitted by FTA clause

  4. How Deep Should Integration Go?

  5. The Monetary-Financial Side of Asian Economic Integration • 2000 Chiangmai Initiative to pool forex reserves via web of bilateral swap agreements (BSAs) • 2002 Japan proposes Asian Bond Market Initiative • 2006 Asian Development Bank proposes Asian Currency Unit • 2007 Pooling to replace BSAs

  6. Should there be a common currency in Asian economic integration if there is no “political union” objective?

  7. NAFTA GDP: US dominates now and in future 2005$ USA Canada Mexico trillion 2005 12.5 1.2 0.7 2025 19.6 1.8 2.4 • 37.7 3.0 7.8 • Survival of individual currencies • Or Benelux-style outcome (e.g. Brunei)

  8. EU GDP: Fairly equal size 2005$ France Germany UK trillion 2005 2.3 3.1 2.3 2025 3.2 3.9 3.3 • 4.9 5.4 5.1 • Strong spillover effects. Cooperative equilibrium is win-win over Cournot eqlm. Common currency as coordinating mechanism. • Political union to prevent any more French-German wars.

  9. Asia GDP: Japan now, China in future 2005$ China Korea Japan trillion • 1.9 0.8 5.3 2025 11.7 2.6 6.7 2050 48.6 3.7 8.0 • Yen block now and Yuan block in future? • If NAFTA outcome, then present push for Asian Currency Unit will be wasted effort.

  10. What type of exchange rate cooperation if no common currency? • Bilateral or multilateral swap arrangements are not sustainable and won’t increase to meaningful sums unless members are pre-qualified for assistance: Regional surveillance mechanism is required. • Asian Monetary Fund, no economic logic for AMF to morph into the regional central bank. • Part of the pooled Asian reserves can be safely used to finance sound infrastructure projects in the poorest Asian countries rather than putting all reserves into assets of G7 economies.

  11. What kind of financial cooperation? • Asian Bond Market Initiative – Improved regional financial market is good thing • But how plausible is the assumption that Asian money won’t also panic and run away from Asia when non-Asian money panic and start running away from Asia? • Establishment of a regional financial center that matches London and NY is the appropriate form of financial cooperation in Asia

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