Comprehensive Economic Partnership: East Asia and Beyond?

1. 5th East Asian Congress Comprehensive Economic Partnership: East Asia and Beyond? Mahani Zainal Abidin Institute of Strategic and International Studies, Malaysia 3 – 4 December 2007

2. Outline • Introduction • Regional Integration and Community Building • Market-Driven Processes: Trade and Investment Links • State-Driven Processes • Cooperation based on Common Interests • Conclusion: The Way Forward

3. Introduction • Establishment of an East Asian regional grouping • APT (East Asia) and APS (East Asia Plus) : two routes both with ASEAN as the vital and irreplaceable part of and EA regional grouping • Kind of regional grouping envisaged • EAVG: community-building and economic dimensions • Use of word community – different connotations • APEC • Economic partnership through open regionalism • Explore the effective and most likely comprehensive economic integration with East Asia as the core driver

4. Regional Economic Integration and Community Building • Regions integrate through market-led and state-led processes • Market-led:- • Emergence of network of businesses • State-led: • Standard economic European Community based model; • Focus is an economic community – single market type concept

5. Regional Economic Integration and Community-Building • State-led APT or APS – need to bear in mind the community envisaged by ASEAN Economic partnership is a component of the broader regional integration Is ASEAN is a model for regional integration? if use ASEAN integration as the starting point, then ASEAN Plus needs to build on what ASEAN has achieved and concur with what ASEAN aspires to achieve;

6. Regional Integration and Community-Building: • ASEAN’s vision – ASEAN Community • Three Pillars:- • ASEAN Economic Community (AEC) • ASEAN Socio-cultural Community (ASCC) • ASEAN Security Community (ASC) • Scope of integration compared with the European Community • Economic integration compared with the European Community

7. Market-Driven Processes • Trade and Investment Linkages • FDI – due to the fragmentation of production process & the evolution of regional production networks • Japan’s role • Growing role of China • Role of other sources countries • Trade linkages: growth in intra-firm and intra-regional trade due to the exports and imports of MNCs in the region

8. Intra-Regional Trade Share, 1995-2006 (%)

9. Market-Driven Processes • Trade Links • Rise of China: - emergence of new trade triangles involving ASEAN, source countries and China; - New division of labor between ASEAN and China; • Relative intensity of trade among ASEAN with the Plus Three and Plus Six

10. ASEAN-5’s Export Intensity Index and Import Intensity Index

11. State-driven Processes • APT cooperation began in Dec 1997, institutionalized in 1999 • Implementation of measures of the EASG: • Establishment of the APT Study Group on Facilitation and Promotion of Exchange of People and HR Development; • Establishment of the East Asia Think-tanks (NEAT); • Establishment of an East Asia Forum; • Formation of East Asian Business Council • East Asia Summit in 2005 • Inclusion of India, Australia and New Zealand • Second Summit in January 2007, Third Summit in November 2007

12. In the mean time, proliferation of state-driven economic partnership processes • FTAs involving ASEAN • ASEAN-wide arrangements – China, South Korea, Japan and India • Japan – bilaterals with Singapore, Malaysia, Thailand and the Philippines; • Thailand – Australia concluded, Thailand –NZ concluded; • Singapore –Australia concluded, Singapore –NZ concluded; • Malaysia - still negotiating with Australia and New Zealand, concluding with Pakistan • China, Japan and Korea have concluded a number of FTAs with countries outside the East Asian region

13. Economic Cooperation • Common Interests Financial Stability – triggered by the Asian Financial Crisis - Chiang Mai Initiative – a regional financing arrangement - Economic Review and Policy Dialogue - Exchange data on bilateral capital flows on a voluntary basis - Asian Bond Markets Initiatives (ABMI) - APT Research Group

14. Other common interests • Non-traditional security; • Transnational crimes such as human and drug trafficking, money laundering, terrorism, sea piracy, arms smuggling, international economic crime and cyber crime • Energy security cooperation • Pandemic threats - Avian Flu and SARS • Environmental concerns - deforestation, forest fires, chemical pollution, air pollution, marine and water contamination, global warming

15. APEC economic partnership is on voluntary basis • Progress of APEC economic integration is slow • Scope of economic liberalisation has not expanded significantly • Focus of APEC has widen to beyond economic issues e.g. on climate change in the last APEC meeting in Australia • Economic interests and links of APEC members are too diverse

16. Conclusion • Diversity of countries in East Asia Plus and Asia Pacific • Current economic linkages are strongest within the APT • Deepening existing linkages need government-to-government initiatives to overcome barriers to trade such as regulations, customs, exchange rates, product standards and other institutions • lower trade costs and increase trade and investment within APT first.

17. Conclusion • APT has established areas of cooperation that serve a common purpose and support economic partnership • Fundamental premise for the APT Goal of community building is the promotion of the welfare and well-being of the people and the realization of the East Asian vision of cooperative “peace, prosperity and progress”.

18. Conclusion Potential problems of expanding beyond East Asia • Increase in size and complexities of integration • Membership issues? • Increasing diversity with more members • Experience of ASEAN efforts at economic integration shows the difficulty of accelerating the pace of integration – dealing with the issue of development gap among member countries • APT has well established market and state led processes for further integration

19. Thank you