Prospects for Asia Pacific Regional Economic Integration

1. Prospects for Asia Pacific Regional Economic Integration 201409 林建甫 Chien-fu Jeff Lin Professor of Economics Associate Dean,  Institute for Advanced Studies in Humanities and  Social Sciences, National Taiwan University Facebook e-mail: clin@ntu.edu.tw URL:http://homepage.ntu.edu.tw/~clin/

2. Outline • Introduction • Historic factors • APEC • ASEAN and AEC • China Factors • Taiwan and China • TPP & RCEP • Concluding Remarks

3. Introduction • East Asia was conspicuously late in economic integration. • RTAs were non-existent in East Asia until ASEAN reached agreement on its Preferential Trading Arrangements in 1977. • In East Asia, by 1913, intra-regional trade already accounted for 42 percent of the region’s total trade compared to 46 percent in 1938 and 47 percent in 1993.

5. Historic factors: Before World War II • Political rather than economic factors. • A network of treaty ports by Western imperialistic powers during the late nineteenth century. • The Japanese imperialism in the early twentieth century.

6. After World War II and prior to 1985 • Shift in East Asian trade toward the United States After World War II. • the preponderance of U.S. military power in the Pacific war. • US is the only country that emerged from the War with its economy largely intact. • developments in the East Asian economy continued to pull its trade away from regional partners towards US and global markets.

7. the “Flying geese” model. • by Akamatsu (1962) in Journal of Developing Economies • based on dynamic comparative advantage. • Make east Asia countries are more competitive rather than complementary. • lead goose in this pattern is Japan itself, • then the four little dragons (tigers), • finally, the ASEAN countries.

8. Japan did not play a leading role within a East Asian trade bloc. • Many East Asian countries continue to be suspicious and wary of Japan. • Japan’s has psychological obstacle to closer integration among the East Asian countries. • Japan has never formally acknowledged or apologized for the atrocities it committed against all neighbours during the Pacific War. • Even after September 1997, Japan proposed a pan to create a $100 billion fund (Asian Monetary Fund) to help regional governments cope with currency crises which received strong objections.

9. APEC • In January 1989, Australian Prime Minister Bob Hawke called for more effective economic cooperation across the Pacific Rim region. • The first APEC Economic Leaders' Meeting occurred in 1993. • In 1994, APEC leaders convened an informal meeting to select the Bogor Goals: that developed members would “achieve free trade and investment” by 2010, while developing members would reach that goal by 2020

12. The 1995, Osaka Action Agenda set objectives for trade liberalization and economic and technical cooperation. The Agenda also established the principle of voluntary action and helped encourage unilateral liberalization. • In 1997 at the APEC Vancouver meeting, it presented the Early Voluntary Sectoral Liberalization (EVSL) plan. • In November 2000, finance ministers from ASEAN member countries convened with their counterparts in China, Japan and South Korea to start the Chiang Mai Initiative.

13. Criticism • The premier forum. • Not accomplished anything constructive. • APEC has been criticized for promoting free trade agreements that would trammel national and local laws, which regulate and ensure labor rights, environmental protection and safe and affordable access to medicine. • European countries that cannot take part in APEC. • Pacific Island nations that cannot participate but will suffer its consequences

14. ASEAN and AEC

15. ASEAN and AEC • The ASEAN Economic Community (AEC) agenda — beyond a narrow free trade area towards the establishment of the cross-regional institutions that should see the emergence of an effective single location for production and eventually a single market by 2015.

16. Understanding ASEAN: Seven things you need to know • McKinsey Insights (May 2014,byVinayak HV, Fraser Thompson, and Oliver Tonby) • Together, ASEAN’s ten member states form an economic powerhouse. • ASEAN is not a monolithic market. • Macroeconomic stability has provided a platform for growth. • ASEAN is a growing hub of consumer demand. • ASEAN is well positioned in global trade flows. • Intraregional trade could significantly deepen with implementation of the ASEAN Economic Community, but there are hurdles. •  ASEAN is home to many globally competitive companies.

19. Key Economics Sectors in ASEAN

21. Natural Resources in ASEAN

22. Businesses regard ASEAN as the most attractive for investment

23. Why? • Constant return to scale (CRS) • Marginal cost = 0 • Reproduce by copying • Keeping up with the Joneses • Endogenous growth • Learning by doing • And more • Demographic dividend • FDI • Oriental culture influence.

24. ASEAN’s Demographic Dividend

26. ASEAN overtakes China in FDI

27. Oriental Culture Influence • Confucianism is an ethical and philosophical system. • Social order • Hard working • Big saving • Altruism

28. ASEAN nears its “Ecommerce moment” Jul 8, 2014 Financial Times

35. China Factors • China’s “Reform & Opening-up” policy • Increasing presence in Southeast Asia • Expanding trade • Political relations and influence • visits by leaders and summit meetings • substantive agreements on issues ranging from trade to military cooperation • by 1991 PRC has normalized relations with all the ASEAN member states

36. China plays a rising role in ASEAN business

37.  Trans-Asian Railway Network Agreement, • The network consists of three main routes from Kunming, China to Bangkok, Thailand. • the Eastern Route via Vietnam and Cambodia; • the Central Route via Laos, • the Western Route via Myanmar. • The southern half of network from Bangkok to Singapore has long been operational, though a high-speed line has been proposed. • All are expected to be completed in 2020.

38. The Greater China Area • China-ASEAN： The Framework Agreement of Comprehensive Economic Cooperation Agreement, CECA • China-Hong Kong： Closer Economic Partnership Arrangement, CEPA • China-Taiwan: Economic Cooperation Framework Agreement, ECFA

39. ECFA: FTA between Taiwan and China Table The trade statistics for EHP

40. China is in the Change • The 2nd largest GDP. • Number 1 in foreign reserve.

41. Xi Jinping launched a bold anti-corruption campaign. • The campaign has already significantly transformed the behavior of Chinese officials at various levels and has greatly enhanced public confidence in Xi’s leadership.

43. China–Japan–South Korea Free Trade Agreement • The China–Japan-South Korea Free Trade Agreement is a proposed free trade agreement between China, Japan and South Korea. Negotiations on the agreement were set in motion in 2012. The first official talks on the matter were held in Seoul from 26–28 March 2013. Further talks were held in China and Japan throughout 2013, and more were scheduled for early 2014. Trade among the three economies totaled US$690 billion in 2011; however, progress on negotiations may be hampered by ongoing territorial disputes among the participants. • The fifth round of negotiations among the three Asian neighbors began on September 1st, 2014

44. China–South Korea Free Trade Agreement • The China–South Korea Free Trade Agreement is a proposed free trade agreement between China and South Korea. Negotiations on the Agreement started in May 2012. • The 12th round of South Korea-China FTA negotiations was held in Daegu in July. Under the new agreement, the countries will first introduce a positive list approach for their bilateral trade in investment and service areas, but both agreed to switch to a negative list approach within a certain period following the implementation of the proposed FTA. • Later this year or early next year, China and South Korea plan to finalize a free-trade agreement.

45. Taiwan and China • Taiwan’s role • A bridge to China. • Help to solve hidden rules in China. • Taiwan’s prospects • The innovation center • A hub for commerce and trade • The operational or the regional headquarters for foreign businesses.

46. Physical Locations Keelung Port FTZ Taipei Port FTZ Taoyuan Airport FTZ • 7 FTZs & Pingtung agri-biotech park • After the special law being enacted, local government can apply to establish new FEPZs. Taichung Port FTZ Su’ao Port FTZ Designated trial-points Anping Port FTZ • The designated trial-points approach can also be adopted for piloting some other activities due to their special characteristics, such financial services and education innovation. Pingtung Agricultural Biotechnology Park Kaohsiung Port FTZ

47. Principles under Taiwan President Ma’s Administration • 1992 Consensus: “One China with respective interpretations” • Keep status quo: “No independence, no unification, and no use of force” • Mutually non-recongnition of sovereignty, mutually non-denial of governing authority • Urgent issues before less urgent one, easy issues before difficult ones, economic issues before political ones

48. TPP & RCEP • The original Trans-Pacific Agreement negotiations were launched by Chile, New Zealand and Singapore at the APEC Leaders’ Summit in 2002. • The original agreement between the countries of Brunei, Chile, New Zealand and Singapore （ P-4） was signed on June 3, 2005. • RCEP was from ASEAN 10 + 3 (China, Japan, South Korea) + 3 (Australia, New Zealand, India). The Negotiations started in November 2011. Expected to be completed in 2015.

49. RCEP is an FTA between ASEAN and ASEAN’s FTA. • TPP, on the other hand, is being pushed as a “WTO-plus approach.” • While it is possible that initially the RCEP and TPP may generate competition between the two trade arrangements, both are potential pathways to a free trade area of the Asia and Pacific region (FTAAP).