Contesting Asian Economic Integration: China, Japan,

US An SEAP & EAP Joint Event

East Asia, the Frontier for Economic Integration

• Multilaterally, WTO Doha Round negotiations are stalled at 106 months since November 2001– Tokyo Round (74 months); Uruguay Round (87)– LDCs want agricultural market access to West /

enabling of Mode IV temporary migration– Developed countries seek non-agricultural market

access to LDCs

• Meanwhile, East Asia is arguably the most dynamic region in the world in economic terms

• East Asia is becoming the epicenter for regional trade agreements, especially after ACFTA was inked in 2002

Stepping Stones or Trade Diversion?

China, Japan & US Contesting Regional Integration

• FTAs are by nature political– Include some countries, exclude others (“East Asia”

and the “Asia-Pacific” as political, strategic constructs)– Include some goods / services, exclude others– Favour different local / international interests via

tariffs, implementation schedules, and so forth: agriculture, manufacturing, labour, IP, etc.

– Other considerations impinge like security

• Such considerations combine to shape how the protagonists—the world’s three largest economies—approach regional integration

ASEAN in the Middle• This “middle power” grouping has arguably

become a key player in the wider region– ASEAN is generally non-threatening – Often discordant ASEAN has no “grand strategy” of

its own

• But is the sum larger than the parts?– ASEAN-hosted gatherings are among the focal points

for discussing regional integration– Can ASEAN play off China, Japan & US to see who

offers the best overall deal?

• ASEAN has its own regional integration project underway aspiring for a single market by 2015

(1) China Looming Large• It recently surpassed Japan as the world’s

second largest economy in nominal terms• Overtook Germany in 2009 as world’s largest

goods exporter• In 2008, it overtook US as Southeast Asia’s third

largest trading partner; last year, it became ASEAN’s outright largest trading partner

• China arguably started FTA proliferation via 2002 ACFTA which began this year

• Yuan swap experimentation for trade settlement with ASEAN member states and others may presage greater role for its currency

ASEAN+3

• Is arguably the most coherent and advanced FTA proposal here w/ China, Japan, S Korea– Taiwan, Mongolia, North Korea?

• Membership similar to Mahathir’s 1990 EAEC proposal famously dubbed ‘the caucus without Caucasians’ (to US disapproval about exclusion)

• Several ASEAN+3 initiatives are already underway: CMIM (reserve pooling), ABMI (bond market dev’t), EAERR (rice reserve)

• What about PRC’s experiments with using yuan swaps to settle transactions with Southeast Asian countries and beyond?

(2) Japan Should Not be Forgotten

• It is the driving force behind the Asian Development Bank which is keen on regional integration

• Mid-80s efforts to shield firms from an overly strong yen drove its expansion in the region; a lot of today’s “Factory Asia”

• It has been the largest aid donor to ASEAN states in recent years

• Has bilateral FTAs with 7 out of 10 ASEAN states it may eventually fold into an “ASEAN-Japan Comprehensive Economic Partnership Agreement”

• Still, there is the overhang of WWII history: the “Greater East Co-Prosperity Sphere” has never been fully removed from regional memory

The East Asian Community (ASEAN+6…or now +8?)

• Some East Asia Summit attendees envision an EAC trade deal

• Old explanation: Japan pressed hard for the inclusion of India, Australia and New Zealand to counterbalance PRC w/ liberal democracies– ASEAN has trade deals with India, ANZ– Isn’t India in South Asia, ANZ in Oceania?

• New explanation after including US, Russia: ??? US certainly is not in East Asia; Russia a stretch– No symmetry in having existing FTAs w/ ASEAN core– Would US embrace an FTA with Myanmar which it

has applied several sanctions against? Russia is not even a World Trade Organization member

(3) Is America Re-Engaging With the Region?

• US followed China in signing ASEAN Treaty of Amity and Cooperation in 2009: – Is it another ARF -> TAC -> FTA progression?

• Obama styled himself America’s “First Pacific President” then failed to visit Indonesia on three separate occasions (health care bill, BP spill)– Now supposed to visit after Yokohama APEC

• No US-ASEAN FTA on the horizon– Now in fourth place in trade league tables w/ASEAN

• Just appointed an ambassador to ASEAN

The Trans-Pacific Partnership• Latest US attempt to involve itself in an FTA

within APEC (formed in 1989) – nominally a consultative, intergovernmental body– In a line of failed APEC trade liberalization initiatives

like EVSL and Free Trade Area of the Asia-Pacific– Present members include Brunei, Chile, New Zealand

& Singapore; US along with Australia, Peru, Vietnam seek expansion

• USTR calls it a ‘high standard’ agreement with several US priorities: labour, environment, competition law, government procurement, IP

• ‘Asia-Pacific’ is broad to the point of confusion; logic of TPP even more obscure than EAC

• USTR cites Scollay IIE paper estimating $25B export reduction from discrimination

Is This [Region, World] Big Enough for the Three of Them?

• Chinese, Japanese, & US interests are reflected in their visions for regional integration

– What to negotiate, whom to incorporate

• All are busy attempting to shape the future of regional economic integration

• Which FTA is most likely to come to fruition in the Asia-Pacific: ASEAN+3, East Asian Community (ASEAN+6 or +8), or Trans-Pacific Partnership?

• Whither Taiwan?